Generational Dynamics Forum - New Site

Eventually, it's going to get to the point where there's not enough money to bail everyone out: nations, companies, what have you. We're having a difficult time as it is.

Trevor wrote:Eventually, it's going to get to the point where there's not enough money to bail everyone out: nations, companies, what have you. We're having a difficult time as it is.

Exactly —Best regards, Marc

http://www.reuters.com/article/2012/01/ ... MQ20120110

Probably news like this can trigger an initial slide from the stock market high (not saying this is necessarily it but similar can get the ball rolling), then as the slide starts to gain traction and momentum, the equivalent "Ohio Life" or "Lehman" event this time around will be sovereign related. That would likely be some months from now, if history is an appropriate guide.

I know some may disagree with me, but I just don't see how we're going to be able to bail out Spain and Italy. Italy's something like the 9th biggest economy in the world and overall, Greece absorbed more than their GDP in bailout money, each bailout being about half their GDP. where is Europe going to come up with 1.7 trillion Euros?

Europe has passed us in one regard, they are no longer trying to "make everyone whole", they are debating over how to share the pain, at least in the case of Greece. They still haven't reached the point of realizing they can't save everything.

Eventually, it comes down to triage, what institutions can we simply not survive without, and what must be left to die. What percentage of government guarantees for bank accounts will be honored? And so forth. When the actual triage starts, when institutions are actually allowed to feel the effects of bad or stupid or malicious decisions and expire, then we'll know the economy can reset and begin to grow again.

Not that the "real" economy ever stopped growing, the faux paper economy on top of the real economy is what is dying. The makers of necessities seem to have plenty of pricing room, according to everyone buying gas and groceries these days.

John wrote:You hear financial pundits on TV all the time saying that the Fed cannot offer Treasuries at interest rates below zero, but that's never been true. 0% may be a psychological barrier, but from the point of view of the markets, it has no particular significance. On Monday, Germany auctioned €3.9 billion of six-month bills at negative yields (interest rates) -- at -1.05%. They've been trading at even lower rates recently, but Monday was the first time in history that a government auction yielded negative rates.

This is another thing we predicted on this forum long before the actual fact of its arrival - when the PhD economists from top universities said it would be impossible. Although, it appears to be happening in Europe first with German short term paper being the least "junky" paper in all of Europe.

December 18, 2010

Therefore, under panic conditions (say a stock or bond market panic), the panic state is very likely to be that settlement dollars will be moved into short term obligations of the US government and strong corporations at any almost any price because that is only open door to safety. To do that, since Federal Reserve notes pay zero interest, the market adjustment will be made through the interest rate, which will go highly negative. This will then become a fundamental that did not exist in the pre panic state. It's a deflationary phenomenon because a preference has been established for good dollars over junk dollars.

There's a typo in my article. It should be -0.105%.

John

didn't we see some of that in the U.S. in 2008, where things looked so uncertain that investors would actually pay the feds to hold their money?

John wrote:There's a typo in my article. It should be -0.105%.

John

That's not enough to say I've been right, then. We'll have to see what happens when the next stage of panic gets rolling. It could be that strong short term corporates, if they're the only thing left that's triple A, will be the issues that go the most negative.

Trevor wrote:didn't we see some of that in the U.S. in 2008, where things looked so uncertain that investors would actually pay the feds to hold their money?

Yes, we did, very briefly.