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Monday, May 22, 2017

Economists still puzzled by 2008

Robert Schiller, who chronicled the rise of housing prices that led up to the 2008 crisis, still can't figure out why it happened. Neither, apparently, can any of his fellow economists.
There is still no consensus on why the last housing boom and bust happened. That is troubling, because that violent housing cycle helped to produce the Great Recession and financial crisis of 2007 to 2009. We need to understand it all if we are going to be able to avoid ordeals like that in the future. But the explanations for what happened in housing are not, I think, to be found in the conventional data favored by economists but rather in sociologically important narratives — like tales of getting rich through “flipping” houses and shares of initial public offerings — that constitute the shifting mentality of the era.
Strange, that the professional economists can't determine the cause 7 years after it happened, and 15 years after I warned that it was going to happen. As those who have Collected Columns Vol. 1, Innocence & Intellect know, I wrote the following in 2002:

There can be little doubt that the implosion of the equity markets will soon be followed by the pricking of the credit and real estate bubbles. As great financial houses such as Citigroup and JP Morgan Chase teeter on the edge of bankruptcy, it is well within the realm of possibility that the triple whammy of the equity, credit and real estate implosions will lead to the collapse of the entire global financial system. 

Complete collapse of the system was staved off by the bank bailouts combined with the easiest monetary policy in human history. But the system was not fixed. Far from it. The new stock market highs we are seeing today are not the result of a strong economy, but rather, a perilously fragile one that is subject to the very same catastrophic failure that was narrowly averted in 2008.

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246 Comments:

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Blogger Cicatrizatic May 22, 2017 8:06 AM  

Almost 10 years later, they have not educated themselves on how money, debt, and banking really work in our economy. They are worse than useless.

Blogger dc.sunsets May 22, 2017 8:08 AM  

Apparently economists don't know anything about leverage, or the difference between self-liquidating and non-self-liquidating debt.

Color me shocked.

Blogger Nate May 22, 2017 8:10 AM  

maybe they can come up with yet another definition of Inflation that will allow them to explain what happened.

Anonymous doogle May 22, 2017 8:14 AM  

Just because there is no consensus does not mean that there are not many people who saw it coming. Many are predicting a worse crisis because the elites have doubled down on the same bad policies and actions.

Blogger dc.sunsets May 22, 2017 8:19 AM  

The role of economists is rationalizing what successful people do as they give the mob what the mob demands.

For 50+ years the mob has demanded to be supported in its belief in unlimited resources, that hardship is banished, and that never is heard--a discouraging word--and the skies are not cloudy all day.

Debt. A Vesuvius of it, piled like a landfill of trash of mountainous size, blotting out the sun, but basically invisible to the Ph.D. eggheads, the SOOTHSAYERS, who tell everyone only what they want to hear.

The economics profession is like geologists in Pompeii telling the populace that the tremors they feel are nothing, and that unlimited geothermal power is right around the corner.

Blogger Shimshon May 22, 2017 8:19 AM  

The word "interest" occurs exactly once, and its usage further demonstrates his idiocy (the word "credit" appears not at all). He must've played "Ow! My Balls!" one too many times.

Anonymous Looking Glass May 22, 2017 8:19 AM  

The weren't saved by the Bailouts. They were saved by the Fed injecting somewhere between 10 Trillion and 15 Trillion USD into, mostly, European Banks over the course of a month to prevent a complete collapse of all transactions.

Most of it actually isn't too hard to understand, unless you're paid to be an economist. They dropped the actual 30-year mortgage Rate from around 7% to 3.5% effective. People buy on Monthly Payment. The Fed, in effect, doubled the value of all Real Estate in the Residential Market. Banks "lends" (read: create) the Money to fill the creation of the new Loans. This played out over the course of about a decade, but that only worked so long as the core economy kept pace with the Inflation they created.

Oh, look, NAFTA. Killing millions of your working class jobs will do in whatever Financial Product creation you've done.

There's also the issue that the "Currency" being used by the major players wasn't actual currency of any normal form but Claims on Debt or Equity. The market simply went transaction-less in a Liquidity Crisis. But, you have to be an economist to not understand this.

Blogger Nate May 22, 2017 8:23 AM  

"The role of economists is rationalizing what successful people do as they give the mob what the mob demands."

No mate..

The curious role of economics is to demonstrate to men how little they know about what they imagine they can design. - Hayek

Blogger Keyser Soze May 22, 2017 8:25 AM  

Vox,

Care to make a few comments on the current equity/ bond markets?

Blogger Samuel Nock May 22, 2017 8:29 AM  

Of course they cannot understand it, where to understand it would mean to name Arch Thought Criminals such as Vox Day and Steve Sailer

https://www.vdare.com/articles/americas-minority-mortgage-meltdown-diversity-recession-the-smoking-gun

Blogger Jeff Wood May 22, 2017 8:29 AM  

@5

DC, your analogy is interesting. Around 70 AD, there was an earthquake in the area. Pompeii was still rebuilding when Vesuvio went bang about ten years later. It seems, too, there was a pattern of quakes in the Apennines similar to what we have had the past couple of years..


The hill goes pop every hundred years or so, and serious bang every two millenia. I must consider the similarities with the world economy, past and present.

Blogger praetorian May 22, 2017 8:30 AM  

We lost something important when we stopped using the word usury.

I wonder why we stopped using the word usury.

https://books.google.com/ngrams/graph?content=Usury&year_start=1800&year_end=2000&corpus=15&smoothing=3&share=&direct_url=t1%3B%2CUsury%3B%2Cc0

Blogger Al From Bay Shore May 22, 2017 8:35 AM  

This is what I've come to believe to be the cause: a national policy that sought to reduce underwriting standards for mortgages. This enlarged the subprime market. The subprimes, bundled as securities, flooded the financial markets.

Am I incorrect or correct?

Blogger Nate May 22, 2017 8:38 AM  

" a national policy that sought to reduce underwriting standards for mortgages. This enlarged the subprime market. The subprimes, bundled as securities, flooded the financial markets."

You're incorrect. sub-primes were not the cause at all. They were the scapegoat.

Blogger Bellguard May 22, 2017 8:38 AM  

This comment has been removed by the author.

Blogger dc.sunsets May 22, 2017 8:39 AM  

Now that I think about it, this is all a tautology.

The mainstream won't have figured any of this out (if ever) until after the final denouement of this period...which might not be for decades. After all, the mainstream explanations for 1929-1946 remain mired in conflict and foolishness (e.g., the Fed didn't create enough credit, when in fact the Fed was pushing that string as hard as possible, or that WW2 ended the GD, which Robert Higgs has conclusively shown is baloney.)

For a "mainstream" economist to see what's really happening would require him (or her) to reject the entirety of his or her post-HS training, call into question the entire paradigm on which our entire world economy is now based, join the ranks of Chicken Littles who predict that when this Long Boom ends, all hell will break loose....

...let's face it, they'd be disemployed, perhaps get the Full (James) Watson Treatment, and only if they were incredibly nimble would they be able to follow in the footsteps of someone like David Stockman (who joined the Doomer Parade and is plying the investment-advisory gig a la Bill Bonner and Addison Wiggin.)

There simply aren't a lot of slots at the "making a living" top of the Doom-and-Gloom Pyramid, especially after this many years of forecasting the Greater Depression (without it having the decency to arrive.)

Blogger James Dixon May 22, 2017 8:39 AM  

> The new stock market highs we are seeing today are not the result of a strong economy, but rather, a perilously fragile one that is subject to the very same catastrophic failure that was narrowly averted in 2008.

This is absolutely true. By all tradition metrics save one, the markets today are at least 50% overvalued. That one being compared to the yield on government bonds.

> ...and that unlimited geothermal power is right around the corner.

Well, in retrospect they would have been absolutely correct. :)

Blogger James Dixon May 22, 2017 8:43 AM  

> For a "mainstream" economist to see what's really happening would require...

A proper understanding of debt, interest, and their practical limits. But I don't see that happening any time soon, do you?

Blogger rumpole5 May 22, 2017 8:45 AM  

The economic system is a artificial construct that depends on the opinions and assumptions of a majority of people around us. This is especially so now because the common medium of exchange is not linked to a fixed
physical amount, such as was the case for gold and silver. Moreover, we are on the cusp of a Luddite's nighmare, where technolgy will more or less separate human labor from production altogether. Will monetary currency even make sense in a world where robotics, genetic DNA manipulation, 3D printing, nano tech, and the like, cause goods, services, and DNA designed beings appear with a seeming wave of the magic wand?

Blogger Al From Bay Shore May 22, 2017 8:50 AM  

@14 If it wasn't the expansion of the sub prime market then what was the cause?

Blogger Mr.MantraMan May 22, 2017 8:51 AM  

I assume they are paid not to notice

Blogger VD May 22, 2017 8:54 AM  

The weren't saved by the Bailouts

They most certainly were. That was the whole point of the credit injection, as the financial institutions were their preferred tool for injecting the credit into the economy.

Don't react, read.

Anonymous Eric the Red May 22, 2017 8:55 AM  

Ignorance can't compete with stupid.

Blogger Johnny May 22, 2017 8:56 AM  

@17 James Dixon

>>This is absolutely true. By all tradition metrics save one, the markets today are at least 50% overvalued. That one being compared to the yield on government bonds.

I don't know what your one exception is, but by one common analysis the markets are not overvalued. If you are going to make an investment that produces a future stream of profits, you discount the present value of those profits based on some interest rate assumption. If the profits are not constrained by some time limit and the interest rate used to calculate current value is zero, then the return is infinite. The higher the interest rate the lower the current value of the future returns and thus, a lower the current return for an investment.

The above is not obscure but one of the most commonplace ways of calculating the potential return on an investment. With interest rates so extremely low, the calculated current value of a stream of profits in the present is going to be extremely high. Thus by this method it is unlikely that stock prices are too high. But... are current interest rates sustainable? That is the monkey wrench in the works.

Blogger BunE22 May 22, 2017 8:56 AM  

I thought a major factor in the bubble bursting was banks, being guided by government, gave mortgages to people that didn't meet the mortgage standards set before government involvement. I had heard of people financing over 100% of their mortgage, and when these people lost their jobs they walked away from the house and mortgage because they had no skin in the game (down payment).

Easy money has consequences.

Anonymous Jeff May 22, 2017 9:00 AM  

Yes! A post on economics! It has been a while.

The current situation could actually be fixed rather easily as Steve Keen has outlined. Unfortunately, nobody's listening to him.

Blogger Nate May 22, 2017 9:02 AM  

"If it wasn't the expansion of the sub prime market then what was the cause?"

You know Vox wrote a whole book on this right? Also... read the prediction in the OP. Does it say anything about sub-prime mortgages?

The default rate was just as high (and in some places higher) for A-paper mortgages as it was for sub-primes.

What happened... was loose monetary policy caused a massive real-estate bubble that pushed home prices up to crazy unsustainable levels. And then... all the sudden... home prices started to drop. Because people had so much debt they either A) couldn't borrow any more, or B) refused to borrow any more. So the prices started to come down. And the notion that real estate prices could even go down had not even entered the mind of the bankers.

To describe the initial mechanics... think of this. Buyer buys a house he can't afford in california for 500k. 2 months after he buys it... he refies it for 700k and cashes out. He uses that money to make the payments and to live on for 6 months. Then he refies it again... for 1 million. Cashes out again. And in less than a year... the house went from being a 500k house to a 1M house. And eventually it gets to the point where he can't keep it up. He has to either sell the house or make the payments. So he sells. It was thought this could never end. But eventually it did. It got to the point where he couldn't pretend to be able to make the payments anymore.. and he couldn't sell the house in time.

in other words... the pyramid scheme ran out of suckers.


Blogger Nate May 22, 2017 9:06 AM  

"The current situation could actually be fixed rather easily as Steve Keen has outlined. Unfortunately, nobody's listening to him."

Well they only listen to the folks telling them what they want to hear.

Blogger Gary Eden May 22, 2017 9:08 AM  

Basic supply and demand. Yes the expansion of access to easy credit drove up housing prices and created a boom.

But that was all for the purpose of feeding the pyramid scheme that was the mortgage derivatives market.

There are normal market cycles but the boom was made bigger than normal and then the derivatives market was like accelerant on a fire in the resulting bust.

Blogger dc.sunsets May 22, 2017 9:13 AM  

I'm still awaiting someone who will show me where I'm wrong in my belief that the role of debt in today's world is to rationalize the desire of people to overconsume the present.

As I've noted, you can't eat food that has yet to be prepared. Buying a dinner on credit is NOT consuming next week's culinary marvel from Chef Brilliant.

Debt-based economics posits that demand creates supply, such that creating monetary demand from nowhere (the primary role of modern banking) is the engine of "full employment" and our cornucopia of store-shelf wealth and our "George Jetson has the latest iGadget" lives.

It's fads, all the way down.

When credit sloshed into real estate, rising prices fueled a feedback loop for a while (a boom), where more credit enabled higher prices enabled more credit (because of the rising value of the collateral) engendered a sales frenzy from banks, until fog-a-mirror lending standards, rationalized by the financial wizardry of Collateralized Debt Obligations, rang the bell at the TOP.

How is this any different from a stock chart of the last 8 years? Oh-oh.

Credit is a state of (collective) mind.

To me, there is only one explanation for the last 50 years.
--Inflation (mostly credit), enabled by FIAT money.
--Secular bond bull market, begun in 1981.
--Exporting manufacturing & importing wage competition, which crushed consumer prices and wages, so that the largest credit inflation in human history all flowed exclusively into asset prices (which fueled bull markets in stocks not once, but 1982-1987, 1987-1995, 1995-2000, 2002-2007, and 2009-?, two real estate manias (2001-2006 and 2010-?, a commodity spike into 2008, two precious metals bulls 1971-1980 and 2001-2011 and one MASSIVE bond bull run, 1981 to 2016[?])

How do you measure monetary inflation if the device you use for measurement only looks at one column out of two that contribute to it?

You don't.

All of the conditions that coalesced to produce this Extraordinary Popular Delusion were one-offs. You can't re-export industry that's already gone. You can't replace the entire workforce with H1-B and its cousins without causing a revolution. You can't make interest rates (the time-value of MONEY ITSELF) negative (unless monetary destruction is in full force, a rare and special case.)

No monetary policy perversion of this size can occur in a vacuum. It warps the very structure of economic production throughout the economy. Imagine if Uncle Sammy borrowed and borrowed and borrowed, but spent all that loot on swimming pools. Pretty soon everyone would have one, if not two pools, every second job would be in the pool-making and pool-installing industry (or the feeder industries to them) and eventually the entire world would be covered in pools.

Medical services (and associated insurance.)
Higher ed services (and associated lending.)
Military Industries (and associated warfare.)
Finance (and associated banking.)
Real estate (and associated banking.)
Welfare Administration (including ostensibly private firms, like Refugee Resettlement Agencies, whose entire budgets are paid by Uncle and whose employees are de facto bureaucrats.)

The "pool" industry.

Blogger Nate May 22, 2017 9:16 AM  

"I'm still awaiting someone who will show me where I'm wrong in my belief that the role of debt in today's world is to rationalize the desire of people to overconsume the present."

Why would anyone disprove that? It is correct. Debt is time-shifted purchasing power.

You take future purchasing power and pull it into the present so you can buy more today.

Saving is also time-shifted purchasing power... its just shifted in the opposite direction. Instead of buying today you save to buy tomorrow.

Blogger James Dixon May 22, 2017 9:16 AM  

> I don't know what your one exception is...

I list it the same sentence.

> But... are current interest rates sustainable? That is the monkey wrench in the works.

They're not sustainable as such. They can only be kept this low by intervention of the Federal Reserve. How long can the Fed keep them this low? That's anyone's guess.

Blogger VD May 22, 2017 9:16 AM  

Sub-prime was just one of many vehicles that cause the crisis.

Anonymous BBGKB May 22, 2017 9:18 AM  

The way leftists count the economy I contributed less to it every day I worked in a hospital than an illegal alien does when using an ambulance as a free taxi

I thought a major factor in the bubble bursting was banks, being guided by government, gave mortgages to people that didn't meet the mortgage standards set before government involvement.

Are you guys really going to make me be the one to say Barney Frank forced banks to give black/brown people with bad credit mortgages. It's predatory lending when they do it but redlining when they don't. Credit rating was the only place equality existed as people had the same chance of default based on rating no matter what their color was.

Blogger Bellguard May 22, 2017 9:19 AM  

In regards to automation and it's economic impact, there's another point to touch on as well.

Energy technology and electric cars. If and when alternative energy becomes even somewhat viable (nuclear power would be preferable) just how substantial would be the impact be on mass reduction of coal and oil? And related, electric cars replacing traditional combustion engines?

Obviously this is still a ways off, but what do you think would be an effective way to avoid drastic economic repercussions from this?

Blogger Johnny May 22, 2017 9:22 AM  

In one way cycles don't need to be explained because they occur naturally. The usual finance cycle is maybe a little longer than a generation, around thirty years. Get a really big blowout like the Great Depression in the 1930's and remembrance doubles. You skip one and go out two cycles before the next financial blowout.

While not strictly followed, the above financial cycle has been changed by Keynesian economic type thinking. The core idea is that the gov can stimulate the lows and depress the highs and thus avoid the financial cycle. That kind of thinking has been in place since John F Kennedy's presidency. And it has been a success. Compared with what came before the post WWII period has been the longest period of continuous prosperity in our history. The declines are minor compared to what used to happen.

A downside of the idea is that gov's are good at stimulus because it is easy credit plus government spending, but are seldom willing to depress the ups. Thus the post WWII has also been a period of debt accumulation, producing our current situation.

And we are into the corrupting effect that goes with government guaranteeing debt that goes bad. Banks (and others) get higher return by taking on higher risk, and the public at large picks up the bad debt when things go bad. That is, private profit with public loss.

Blogger James Dixon May 22, 2017 9:24 AM  

> If and when alternative energy becomes even somewhat viable

It's always been somewhat viable. Especially geothermal and hydroelectric. The key word is "somewhat".

Blogger Mountain Man May 22, 2017 9:24 AM  

This comment has been removed by the author.

Blogger Mountain Man May 22, 2017 9:26 AM  

End The Fed: Let the market determine interest rates - not political hacks filled with more hubris than common sense.

Blogger Gary Eden May 22, 2017 9:26 AM  

The corollary to all this is, if we didn't have mortgage financed housings the normal markets would be much less volatile; higher lows and lower highs. And the prices would be much lower. Saving to buy a house would become feasible again.

But that doesn't make the banks money.

Blogger Nate May 22, 2017 9:27 AM  

"Are you guys really going to make me be the one to say Barney Frank forced banks to give black/brown people with bad credit mortgages."

no. we're just going to point out that the fact that correlation isn't causation.

Blogger Nate May 22, 2017 9:28 AM  

"They're not sustainable as such. They can only be kept this low by intervention of the Federal Reserve. How long can the Fed keep them this low? That's anyone's guess."

The writing is on the wall. they know they have to raise them... they are already starting the process.

Blogger marco moltisanti May 22, 2017 9:30 AM  

Let's say, hypothetically, that I bought a house a few years ago in a market that subsequently exploded and became one of the hottest in the US. Say, Denver, for example. The value of the property has shot up 50%, gaining me over 100k in equity. Are you guys of the opinion that I should sell asap?

Blogger Mountain Man May 22, 2017 9:35 AM  

This comment has been removed by the author.

Anonymous Looking Glass May 22, 2017 9:35 AM  

@35 Bellguard

We would need several generations and a completely new Battery Tech base to run an Electric Car system at scale. There isn't enough Lithium even thought to be available. It would also take a couple of decades to upgrade the Power System to be able to handle that.

At one level, it's an issue. At another level, it would cause a massive amount of economic activity before we ever got there, while at the same time the Gas-powered car & other heavy equipment simply isn't going away. You aren't running your Combine on electric.

Blogger Mountain Man May 22, 2017 9:36 AM  

The days of the 30 year mortgage at 3 % interest - are numbered. If you have investments in real estate ( that you own free and clear) now would be a great time to take out a loan against said property. Turn that illiquid asset into cash - cheaply. A buyers market is just around the corner for anyone with dry powder available.

Blogger Nate May 22, 2017 9:38 AM  

" Are you guys of the opinion that I should sell asap?"

Yes. Absolutely.

Blogger James Dixon May 22, 2017 9:40 AM  

> I thought a major factor in the bubble bursting was banks, being guided by government, gave mortgages to people that didn't meet the mortgage standards set before government involvement.

That was one step in the chain, yes. Another was booking those mortgages at values that far exceeded the actual value of the property. A third was leverage.

The triggering event for the 2008 crisis was the bankruptcy of Lehman Brothers. This quote from Infogalactic may be informativie:

Lehman borrowed significant amounts to fund its investing in the years leading to its bankruptcy in 2008, a process known as leveraging or gearing. A significant portion of this investment was in housing-related assets, making it vulnerable to a downturn in that market. One measure of this risk-taking was its leverage ratio, a measure of the ratio of assets to owners equity, which increased from approximately 24:1 in 2003 to 31:1 by 2007. While generating tremendous profits during the boom, this vulnerable position meant that just a 3–4% decline in the value of its assets would entirely eliminate its book value of equity.

Lehman Brothers wasn't the only one to engage in such shenanigans, nor was it limited to mortgages.

Blogger Johnny May 22, 2017 9:41 AM  

marco moltisanti wrote:Let's say, hypothetically, that I bought a house a few years ago in a market that subsequently exploded and became one of the hottest in the US. Say, Denver, for example. The value of the property has shot up 50%, gaining me over 100k in equity. Are you guys of the opinion that I should sell asap?

The core problem is predicting the decline, the when will it happen. Plus real estate is often local.

I generally favor staying with ownership because it helps produce a stable life. Now if you want to try to play the market, generally you have to sell in advance of the decline being obvious. The first step, usually is not a price decline but a sluggish market. The stuff doesn't sell and then the price discounting starts. So... ???

Where I live price declines are not common. Mainly it a rise in prices followed by a sluggish market followed by what can be decades of stagnant prices.

Blogger Sam May 22, 2017 9:42 AM  

@35
Maybe never? Renewables require substantial amounts of reserve to be useful (for nighttime and when the wind stops); the options are currently batteries or dams (pump the water back up) although there are more exotic methods (not an engineer; cannot comment on their feasibility).

The limit for dams is the physically existing dams (you can't store more energy then the dam can hold water, the water needs to be available to be pumped). Don't know the details for batteries, but I think cost is a major factor.

Blogger James Dixon May 22, 2017 9:44 AM  

> Are you guys of the opinion that I should sell asap?

Did you buy the house to live in or as an investment? If to live in, do you have other options?

If it's an investment, sell it. If you live in it, as long as you can safely pay the mortgage you don't have to. But don't expect the current value to hold.

Anonymous BBGKB May 22, 2017 9:45 AM  

There isn't enough Lithium even thought to be available

Cobalt is the new dream battery element but there is not enough of that either.

Are you guys of the opinion that I should sell asap?

Flee DieVerseCity before the Nigapocalypse brings Tranny Cannibal Biker Rapists to your doorstep.

Blogger dc.sunsets May 22, 2017 9:45 AM  

Can I point out something?

When we compare (stock) dividend yields to the yields of treasuries, what do we know about inflation? I suggest the answer is NOT ONE DAMN THING. If bonds are in a bull market, rates are declining. If bonds have BEEN in a bull market, rates are very low.

Paradoxically, rising bond prices (lower rates) was not an indication of low inflation. It was the first-order result OF inflation. The vast majority of "wealth inflation" existing today IS the Bond Ocean, filled with IOU's.

What has this to do with stocks?

The mechanistic view of these relationships is [expletive deleted] stupid.

All boats rose on a the same tide. It floated the USS POLLYANNA and we've sailed her for my entire adult life.

The same underlying social psychology animated the Civil Rights & Immigration Acts, Head Start, The USMC-run Export of Democracy, Gay Marriage, and every other Utopian idiocy of the last 50 years. It's finance on one side, social policy on the other, but it's ALL attributable to the same underlying cause.

Because of this, comparing stock yields to bond yields, or using "traditional" measures of stock market valuation, is nothing but circular reasoning.

It's like saying, "Well, INTC has a lower P/E than TSLA, so INTC has a long way to rally."

You. You there. I'm talking to YOU! What's the Present Value of the future cash flows you expect from a pension, from Social Security & Medicare (if you live in the USA), for your 401(k), etc.?

If your retirement is associated with an egregiously underfunded public pension system, what PV do you assign to it today?

"Visions of sugarplums danced in their heads."

We hear incessantly about debt, debt, debt, but what's the obverse of that (counterfeit) coin? Future. Cash. Flows.

FCF. Which have a PV. Which people have embedded in their premises. All of which is mathematically impossible.

We live in a sea of rationalizations for conditions that arose these last 50 years. Conditions lasting that long are assumed to be permanent, hence the inertia of believing that this all can go on indefinitely.

It will end. We just don't know when. And when it does end, we'll discover that there is NOTHING outside the system. Every asset, even each of our lives, is encumbered by beliefs in fairy tales.

The reason I rant about this is because to me,
looking at a stock index chart today is like going to the store and seeing three Spanish-speaking Mestizos for every two "whites" or hearing about how the school district is going to "serve" the special needs of TRANNIES.

To me, it's All The Same Thing.

Blogger dh May 22, 2017 9:46 AM  

Are you guys really going to make me be the one to say Barney Frank forced banks to give black/brown people with bad credit mortgages. It's predatory lending when they do it but redlining when they don't. Credit rating was the only place equality existed as people had the same chance of default based on rating no matter what their color was.

This was certainly a problem, but when you look at the volume of these loans, it's truly a drop in the bucket. Alt-A loans and other alternative credit loans were problems 10x or more destructive. Even if every one of those CRA loans failed, it wasn't even a drop in the bucket to the magnitude of the failures that happened.

Blogger James Dixon May 22, 2017 9:47 AM  

> The writing is on the wall. they know they have to raise them... they are already starting the process.

True. If they have their way it's going to be a slow process though.

Blogger John Regan May 22, 2017 9:48 AM  

I believe the "easiest monetary policy" comment is misleading. The low interest rate environment was indeed a tactic to preserve or save the global financial system, but not because it provided easy money to borrowers - it demonstrably did not - but because it preserved some semblance of value to the balance sheets of the banks.

The basic game was to slow everything down and try to increase employment to avoid taking a huge, immediate and destabilizing hit.

I do not by any means endorse what the global overlords do, but I have to admit they are very good at achieving their goals. The fact that there has been no systemic collapse up to this point attests to their skill.

At some point the road on which we kick the can dead ends. But it's conceivable that the time horizon on that is so long that in practical terms it will never happen.

Blogger Johnny May 22, 2017 9:49 AM  

Something that confuses people a lot is this whole money printing concepts. And alas it is somewhat supported in the press. Money for spending has not been raised by the method of printing it up (or issuing credits, the commie method) has not been used in the United States for more than a hundred years.

What is true is that for people to borrow there has to be a saver, somebody who saves the money they borrow. Thus:

Total Savings = Total Debt

So with our higher debt levels, who saves? There is the rich and poor thing. Poor people are net debtors and the rich, net savers. The gradual expansion of a super rich class that holds equities of some sort requires the other side of the equation. That being non equity holders who are commonly in debt. Combine that with government stimulus and the United States as a net debtor nation, and you get our high debt situation. It is the rich/poor divide, plus government provided stimulus, plus Americans as net spenders globally.

As the saver is spending beyond means and the borrower spending below income, there is actually no net debt, only an accumulation of debtors on one side and savers on the other side.

Anonymous Harambe May 22, 2017 9:49 AM  

All I know is I earn decent money by my country's standards, yet I can't afford a 3 bedroom home in a middleclass neighbourhood. 17 years ago when I finished "college", the ratio between the average house price and the average salary of my profession was 1.7. Today it is 2.7, meaning in real terms that houses are 60% more expensive than they were 17 years ago.

Or to put it in numbers:adjusted for inflation, if a house cost your daddy $200k in 2000, you're gonna pay $320k for it today. But hey, at least 50" LCD TV's are cheaper than they were 5 years ago so I can watch Netflix and play Borderlands 2 in style.

I hate the people who made housing unaffordable. And I know it's not the main point of the post, but it makes me angry each time I read about it.

Blogger Nate May 22, 2017 9:50 AM  

"This was certainly a problem, but when you look at the volume of these loans, it's truly a drop in the bucket."

exactly. its like looking at a corpse with half a head... and then seeing a small bullet hole in the gut and saying "OMG HE DID OF A 22 TO THE STOMACH!"

Blogger Ron May 22, 2017 9:51 AM  

But the system was not fixed. Far from it. The new stock market highs we are seeing today are not the result of a strong economy, but rather, a perilously fragile one that is subject to the very same catastrophic failure that was narrowly averted in 2008.

When someone can predict a thing that no one else sees, it demonstrates that his insight is valuable.

Question: What should be done to avert the catastrophe? How do we fix it before it breaks irreperably? And if that is no longer possible, what should be done to minimize the damage and maximize the potential for recovery?

Blogger Nate May 22, 2017 9:52 AM  

"What is true is that for people to borrow there has to be a saver, somebody who saves the money they borrow. Thus:

Total Savings = Total Debt"

No.

FULL STOP.

You don't understand how the system works. You don't understand where money comes from. You don't understand banking.

You don't understand the problem.

Go read Return of the Great Depression.

Blogger Joshua_D May 22, 2017 9:54 AM  

Debt that cannot be repaid will not be repaid.

Blogger Alec Rawls May 22, 2017 9:55 AM  

Lack of "consensus" just means that the people who are to blame don't want to admit it. Three disastrous policy failures, two perfectly obvious at the time and one semi-obvious, caused the bubble+collapse. 1) Affirmative action in homeownership, accomplished by dramatically lowering required prospects for repayment of loans. 2) Implicit government backing of loans, without which not even the stupidest bank would have been willing to make bad loans. 3) New techniques for repackaging mortgage loans as derivative assets were wrongly seen as already hedged against risk and hence not needing to be controlled by standard leverage limits, resulting in massively leveraged holdings of loans that would go bad as soon as there was any significant down-tick in market conditions. A bomb awaiting a spark, which was provided by spiking gas prices.

Blogger JWM in SD May 22, 2017 9:55 AM  

Anyone ever seen the Paul Kanjorski interview from 2009 where he discusses how close (within hours) they came to closing down banks in September 2008? It's pretty eye opening. He claimed that in about $500B in money market funds were withdrawn in a very short period of time due to breaking the $1.00 limit.

Anyway, this is subject that red pilled me in 2004/05. I moved from the Midwest to SoCal with only a modest pay raise and yet comparable homes to the one I owned in a very nice suburb of Chicago were 4 times as expensive...literally 4 times. I couldn't understand how that was possible until I discovered that people were using insane lending practices and constantly selling and moving up.

Anonymous Harambe May 22, 2017 9:56 AM  

South Africa's stock exchange has also been rallying for going on a decade. The two main contributors? 1. devaluing of the currency (and hence lots of currency hedging by the big players) and 2. Companies holding onto their cash instead of investing in potential growth areas. So while the stock market is performing well, every week sees a new business closing down and another thousand people getting laid off.

The stock markets really don't tell you much of what's going on "on the ground". Or if they did at one point, they certainly don't anymore.

Blogger Lovekraft May 22, 2017 10:02 AM  

Bill Clinton continued what Jimmy Carter initiated with a lot of help from greedy banks. Bill Clinton was the spineless insect that removed basic standards in obtaining mortgages.

Blogger Nate May 22, 2017 10:04 AM  

"Bill Clinton continued what Jimmy Carter initiated with a lot of help from greedy banks. Bill Clinton was the spineless insect that removed basic standards in obtaining mortgages. "

Clinton deserves a lot more blame than he gets. Greenspan wanted to raise the rate in 1997 and 1998 and Clinton basically made him an offer he couldn't refuse.

So instead... Greenspan lowered the rate. And the whole timeline got moved up.

Blogger dc.sunsets May 22, 2017 10:06 AM  

England has had a central bank since 1694. If central banks could set interest rates, they'd never change.

US rates marched lower from 1981 to 2016 because bonds were in a bull market, not because the FOMC was pulling levers and pressing buttons like the Wizard of Oz.

All of this reminds me why I laugh at the hubris of people claiming we're right around the corner from AI, or of design/building living creatures. Does anyone REALLY think "scientists" understand such processes any better than do economists understand money, markets and the political economy?

History: One damned surprise after another (at least to the herd, and to the Cargo Cult shamans to whom the herd always listens.)

Lesson: Don't embrace the notion that you're brilliant and infallible if you get the timing of a big run (in either direction) right. Odds are, you'll blow the next call, and if your prior success made you overconfident, you'll end the cycle (up-down or down-up) poorer than you started.

PS: Correlate this with FOMC decisions on the fed funds rate to discover that the market setting the yield of the 3 month T-bill anticipates, it does not follow, FOMC decisions. Either the Fed follows the market or it's the biggest case of front-running and insider trading in history. My money's on the former.

Central banks don't set interest rates. Rates will not stay this low forever, and when there's a tiny bond market that's insignificant, but when there's veritable OCEAN of bonds in existence, even small rises in rates have an astronomically large, destructive effect on the total value of debt outstanding.

All roads lead to deflation ahead. We've had our inflation, and it all went into asset prices.

Blogger Duke Norfolk May 22, 2017 10:06 AM  

They're simply unwilling to declare that the emperor has no clothes (and strive endlessly to even look at him, lest their heads explode). As it ever was.

Blogger Cail Corishev May 22, 2017 10:07 AM  

Even if every one of those CRA loans failed, it wasn't even a drop in the bucket to the magnitude of the failures that happened.

Also, CRA started under Carter, I think. The Clinton and Bush administrations both pushed it harder, but if the First Bank of Podunk had had to hold onto every sub-prime mortgage it made to Jose and Maria or Jack and Jill, it would have stopped when it had all it could handle. Things really took off when lenders were able to sell those loans on to the derivatives market which bundled and rebundled them (with lots of other risky debt) into instruments that were somehow considered less risky than the parts that made them up.

Anonymous Looking Glass May 22, 2017 10:10 AM  

@68 dc.sunsets

It's the latter. Believe me. "They" know because they run the board at a much deeper level than you realize.

Anonymous basementhomebrewer May 22, 2017 10:13 AM  

marco moltisanti wrote:Let's say, hypothetically, that I bought a house a few years ago in a market that subsequently exploded and became one of the hottest in the US. Say, Denver, for example. The value of the property has shot up 50%, gaining me over 100k in equity. Are you guys of the opinion that I should sell asap?

Do you have somewhere else to live or can you move to a different part of the country and still retain your employment? If so, then sell now and move somewhere you can buy a house for a reasonable price. These will not be glamorous locations but you will find that they are populated by decent and honest people.

Blogger dh May 22, 2017 10:15 AM  

> So instead... Greenspan lowered the rate. And the whole timeline got moved up.

Yup. Clinton misses a lot, with the GOP congress and his signature he allowed investment and banking to merge into an unholy alliance of greed.

When you look at how some other countries bank, it's a system based on saving a lot more than what we have in the US. Saving is seen as a fools errand in the US, mainly because of inflationary policy of the Fed destroys the value of saving, so why bother. Just consume. At all costs. Pump pump pump it up.

I have relatives in Serbia and Croatia, and the concept of leveraged/debt buying of homes is just cropping up, thanks to foreigners coming in. Banking and even a clear title system to land is relatively new for a lot of people in a lot of areas. It's not great.

Blogger Zundfolge May 22, 2017 10:15 AM  

The 2008 collapse was engineered by Democrats (lead by Barney Frank) to cause an "October Panic" to make sure Obama would win the election. Its really no more complicated than that (sure the groundwork for the mess had been laid decades before, but these people are playing a long game).

Blogger dh May 22, 2017 10:18 AM  

> These will not be glamorous locations but you will find that they are populated by decent and honest people.

Salary arbitrage has made me fairly wealthy in short order. Work for a company in a blue state, with high costs and high salaries to match, live in a red state with open space, low regulations, etc. The state where the company I work for is based is one of the three highest taxed in the country. Salaries are high. The state where I reside doesn't even have income tax.

Blogger dh May 22, 2017 10:19 AM  

Zunfolge--

That's a cute theory. The problem is that McCain was within striking distance of winning until he had no clue what to do. That wasn't a predictable moment. Complex plans with unpredictable moments are not good ideas.

Blogger Nate May 22, 2017 10:26 AM  

its not a cute theory. its drooling ravings of a mongoloid.

Anonymous BBGKB May 22, 2017 10:26 AM  

semi related. Berkley ,the gift that keeps giving,is preparing a to level a tax on “affordable housing.

"The Berkeley Town Council is now considering leveling a one-time $10,000 fee (plus a $450 annual fee per unit) on apartment buildings offering below market rate (a.k.a., affordable housing to lower and middle income families) housing options. The fees would be paid by the landlord who would, of course, then turn around and raise rates on the “affordable housing.”

http://www.redstate.com/terichristoph/2017/05/21/berkeley-considers-assessing-10000-fee-...-affordable-housing/

Blogger Mountain Man May 22, 2017 10:27 AM  

"South Africa's stock exchange has also been rallying for going on a decade.....Companies holding onto their cash instead of investing in potential growth areas. “

I’ve noticed that SAPPI, despite having a flagship mill in S.A. , has chosen to allocate their largest investment expansion ,this past year, on a mill they own in Skowhegan, Maine. Nearly 200 million! Something tells me they don’t have much confidence in the future there.

Regarding your frustrations about making average income yet going nowhere.. you might consider reading the book “ Millionaire Fastlane”..then go out and act on it. You can even do it while holding down a full time job. The book was instrumental in my own life on helping me to leap frog ahead.

Anonymous Clueless Cuckservative May 22, 2017 10:27 AM  

But...but...but...muh OWNERSHIP society!

Anonymous Mr. Rational May 22, 2017 10:28 AM  

OT:  I'm seeing a lot of comments by "Anonymous".  Has that pseudo been de-spammed?

Blogger Johnny May 22, 2017 10:37 AM  

Nate wrote:"What is true is that for people to borrow there has to be a saver, somebody who saves the money they borrow. Thus:

Total Savings = Total Debt"

No.

FULL STOP.

You don't understand how the system works. You don't understand where money comes from. You don't understand banking.

You don't understand the problem.

Go read Return of the Great Depression.



No, you don't understand how the system works. That savings equals borrowing can be had if you know how to read double entry bookkeeping.

Go to a bank balance sheet, any bank including the Federal Reserve banks. Note that in the asset category somewhere there will be an entry for currency on hand in the bank. Go to the other side of the balance sheet and there will be a mix of equity and borrowing. No place on that other side will there be a 'money we just printed up' item because the bank had to buy that money just like us citizens have to buy currency. They don't just give us paper money for free.

The original source of the paper is the Treasury. If you can come up with a balance sheet for the Treasury there will be a currency outstanding item. But on the other side of the balance sheet there will be an asset that was used when the Federal Reserve purchased the currency, typically a debt instrument. Because current methods do not allow for that asset to be spent, the issuance of currency produces not spendable money for the Treasury, and thus no spendable money for the government.

Until the paper money is purchased by the Federal Reserve, it is held at the cost of printing and is not treated as a financial asset. It is an inventory of paper. Thus by current method, the printed currency yields no return that the government can spend. The only exception is the potential interest rate return on the asset held when the paper is sold to the Federal reserve. Thus for the Treasury:


Paper Outstanding = Asset held by which the paper was purchased, or:

Debt (to the Treasury) = Assets held when the money was purchased



The last big currency issue that was spent by the government and thus used as a source of income was done by Abe Lincoln during the Civil War. That was the issuing of Greenbacks. They were a true unbacked currency. Remarkably enough the government eventually made good on the Greenbacks, but it took several decades.

Blogger John Regan May 22, 2017 10:39 AM  

@dc.sunsets:

"Central banks don't set interest rates. Rates will not stay this low forever, and when there's a tiny bond market that's insignificant, but when there's veritable OCEAN of bonds in existence, even small rises in rates have an astronomically large, destructive effect on the total value of debt outstanding."

Yes, this is the fundamental reason rates have been kept low, but I think you're missing that the US central bank began engaging in unprecedented bond market intervention (open market operations) for a number of years now. In fact if memory serves that started in response to the '08 crisis.

The question in my mind is whether they can navigate their way through this by a very slow wealth transfer back to the plebes, incrementally improving their employment situation while staging slow motion debt relief through an unimaginably elongated forbearance. I think it's possible such an approach can work, in a manner of speaking.

Blogger Joshua_D May 22, 2017 10:41 AM  

Johnny wrote:

What is true is that for people to borrow there has to be a saver, somebody who saves the money they borrow. Thus:

Total Savings = Total Debt


HAHAHAHAHAHAAAAAAA ..... OWWWW .... MY SIDES .... HAAAAAHAAAAAAAAHAAAAAAAAAAAA

Blogger Ned May 22, 2017 10:41 AM  

This comment has been removed by the author.

Blogger John Regan May 22, 2017 10:42 AM  

@Johnny: you're clueless. I don't know where to begin.

Anonymous Raptor disrespect from behind May 22, 2017 10:43 AM  

Sam wrote:@35

Maybe never? Renewables require substantial amounts of reserve to be useful (for nighttime and when the wind stops); the options are currently batteries or dams (pump the water back up) although there are more exotic methods (not an engineer; cannot comment on their feasibility).

The limit for dams is the physically existing dams (you can't store more energy then the dam can hold water, the water needs to be available to be pumped). Don't know the details for batteries, but I think cost is a major factor.

--------------------
Some of the other options are compressed air and molten salt.

Of course there are losses with any form of storage, amount of space required etc.

Blogger swiftfoxmark2 May 22, 2017 10:46 AM  

The reason they can't come up with a consensus is because they are unwilling to admit that when you start selling and trading on people's mortgages, you incentivize housing costs to go up. This leads to more and more ridiculous mortgage packages issued by the banks so as to ensure the gravy train keeps coming to town.

This isn't hard to figure out really. I'm at best a midwit and I could see that housing is astronomically high because of market incentives to keep the costs up.

Anonymous Grayman May 22, 2017 10:49 AM  

Looking Glass wrote:@35 Bellguard

We would need several generations and a completely new Battery Tech base to run an Electric Car system at scale. There isn't enough Lithium even thought to be available. It would also take a couple of decades to upgrade the Power System to be able to handle that.

At one level, it's an issue. At another level, it would cause a massive amount of economic activity before we ever got there, while at the same time the Gas-powered car & other heavy equipment simply isn't going away. You aren't running your Combine on electric.


Battery's aren't competitive to IC and liquid fuel in terms of energy density. There are several engineering issue beyond that as well. Electric and battery only makes sense if we reconstruct our society to more of a "village" model where long rage personal transport is rare using personal vehicles.
Generally speaking liquid fuels will virtually always outcompete batteries in terms of personal transport.
If you really want direct electric methanol fuel cells is a better way to go. Liquid fuel and direct electric, not IC.

Blogger Ron Winkleheimer May 22, 2017 10:50 AM  

youtube is littered with videos explaining the housing crisis. Here is on from 2011 that does a pretty good job, even though it doesn't mention the roles played by Fannie and Freddie and the government forcing lenders to give unqualified people loans because "discrimination."

https://www.youtube.com/watch?v=bx_LWm6_6tA

Blogger Junior May 22, 2017 10:51 AM  

The truth was, it was (is) a Ponzi scheme, and no way in hell they'll admit that, or people will stop playing.

Blogger Silly but True May 22, 2017 10:51 AM  

Lest no one mistake the absolute root problem: people - primarily affluent whites - took loans in amounts they would have difficulty repaying. Finger-pointing at anyone else is misplaced.

The housing crisis was simply one of several of the Obama administration's money redistribution schemes, but helped in large part by the greediness of the victims.

Blogger Bellguard May 22, 2017 10:52 AM  

Most renewable energy is inherently inconsistent. Example is wind, wind power cannot match the output and consistency of something like coal.

Also, manufacturability of other forms of energy such as solar are limited due to high cost.


I don't know a great deal about nuclear power, but from what I do know, it seems an excellent and consistent form of energy to devote attention to. Particular fusion technology, that could revolutionize society on a level exceeding industrialization.

Blogger Mr Darcy May 22, 2017 10:54 AM  

@62:

ALL debts are repaid. ALL. Always. If the borrower doesn't pay, then the lender does. No debt goes unpaid.

Anonymous fop May 22, 2017 10:55 AM  

Subprime was definitely part of the story. But liar loans, stated income, and inflated appraisals were mostly for people with decent credit. A garbage man could qualify to borrow an insane amount of money if he simply called himself a "recycling and waste management engineer", and if he paid an extra $500-$1000 he could have his current home appraised at whatever value he needed.

Blogger Some Dude May 22, 2017 10:55 AM  

92

No, it was as Sailer says an AA scheme with Mexicans and blacks. NINJA loans to minorities.

And a large dose of plutocrat 'free market' economics. Many people here are so blinded by Republicon orhtodoxy they can't wrap their heads around how 'free market' is an oxymoron.

Blogger Some Dude May 22, 2017 10:57 AM  

Shiller is a good economist though. His papers are good. Fama is good too in a more autistic kind of way. Very precise in what he is saying, which is essentially ok within the very tight confines of his defnitions of things. Thats why they both won the Nobel. They are actually complementary.

Blogger Mr Darcy May 22, 2017 10:58 AM  

@65:

One thing about the continuing rise in the US stock markets is capital flight from Europe & China. China slapped capital controls on people, so they went to bitcoin to get money out of China, although I think the gov't has put a stop to that now, too. There are capital controls of a sort, too, in France, where people are limited to a certain amount per day that they can withdraw from a bank. MArtin Armstrong posits that the sovereign debt crisis (crises) will return to Europe with a vengeance next year (2018). On verra.

Anonymous Grayman May 22, 2017 11:00 AM  

Its not just home price. In my area property taxes are some of the highest in the nation and in my town home prices are TRYING to drop but the property taxes commonly equal the PI on a home assuming a traditional 20% down payment. Who wants to buy a 450K home with 12K in annual property taxes?

Anonymous fop May 22, 2017 11:00 AM  

"Flee DieVerseCity before the Nigapocalypse brings Tranny Cannibal Biker Rapists to your doorstep."

This needs to be a T-Shirt.

Anonymous p-dawg May 22, 2017 11:02 AM  

@Johnny: Look up "fractional reserve lending". Unfortunately for you, it completely contradicts your assertion.

Blogger Some Dude May 22, 2017 11:02 AM  

I dont' think austrian austists get what the basis of economic activity is. For the vast majority of history rulers simply told people what to do. Now they react to carrots. Whether the carrots are fixed to what is dug out of mines controlled by rulers or is linked to credit supply is somewhat irrelevant compared to how to (a) maximise produce and (b) do it in an efficient and socially eugenic way. Russia went from a feudal country to industrialised nation under communism, because central planning works up to a point and especially in warfare nations. eg. 4 term president FDR.

If you drop the autism and belief in abstractions, you'll see economics is not a religion but a an engineering problem, but not the way the asperger engineers see it because they lack propositional logic faculties.

Blogger Nate May 22, 2017 11:03 AM  

"ALL debts are repaid. ALL. Always. If the borrower doesn't pay, then the lender does. No debt goes unpaid."

Lenders are making bets that borrowers will be dumb enough to keep paying for properties that are worthless.

Sometimes lenders lose on those bets.

I don't care.

Blogger James Dixon May 22, 2017 11:05 AM  

> Greenspan wanted to raise the rate in 1997 and 1998 and Clinton basically made him an offer he couldn't refuse.

I believe Long Term Capital Management had a small part to play in that, if I'm remembering correctly.

> No, you don't understand how the system works.

Johnny, we've been over this a number of times on this blog. The bankers themselves admit that's no longer the case and they do create money out of thin air.

Blogger Nate May 22, 2017 11:05 AM  

"If you drop the autism and belief in abstractions, you'll see economics is not a religion but a an engineering problem, but not the way the asperger engineers see it because they lack propositional logic faculties. "

You're an idiot.

Austrians were the only ones to predict the collapse. They were the only ones that even had a mechanism to explain the collapse.

And now every time you use the term "bubble" you're using an austrian term that prior to the collapse... everyone else mocked.

The Austrians are not right about everything. But they base their whole system on history... not ideals.

Blogger Student in Blue May 22, 2017 11:06 AM  

Robert Schiller, who chronicled the rise of housing prices that led up to the 2008 crisis, still can't figure out why it happened.

As noted, a part of the reason why is because that Schiller, and people like him, have been indoctrinated in their economic worldview since high school. To understand what really happened would require throwing away so much "learning".

Underneath that, however, isn't a fair part of why they can't grasp it because they're midwits trying to grasp the entirety of a system that's above their mental capacity? So thus they try to oversimplify everything in order to make a Grand Theory of Everything Economic.

The basics of economics isn't difficult, but putting all the variables together, in an attempt to look at the big picture, can make the head ache.

Blogger Ron Winkleheimer May 22, 2017 11:06 AM  

Vox is correct, of course. Professional economists cannot identify the cause of the housing bubble because if they did so, they would have to admit that the crisis was foreseeable, and of course it was foreseen. Plenty of people were warning that it was unsustainable. They were ignored.

As for statements about it being caused because people took out loans they could not afford, well sure. So what?

At one time banks were very careful about who they loaned money to, especially for houses. They wanted the mortgage holder to have saved a 20% down payment, they looked at their job history and income, credit history, etc to be as sure as humanly possible that the loan would be repaid because if it wasn't, the bank would be eating it.

The fact is, people were acting in a perfectly rational manner to the financial incentives presented to them. As long as you bail out of the bubble before the crash, all is good.

Anonymous Looking Glass May 22, 2017 11:07 AM  

@89 Grayman

There's a bunch of places that a Methanol-Electric Hybrid or even a full roll out of Methanol-based engines makes so dang much sense. But, well, beware the Shadowmen. Can't have anyone getting too out of line.

Blogger Nate May 22, 2017 11:07 AM  

Just one more moment when you realize how completely and totally economically ignorant the average alt-righter is...

Dear God we have a long way to go.

Blogger Ron Winkleheimer May 22, 2017 11:15 AM  

#92

The housing crisis started before Obama became the president. The real start was the Community Reinvesting Act.

https://infogalactic.com/info/Community_Reinvestment_Act

If your premise is that any racial disparities are prima facie evidence of discrimination that means the lenders have to make risky loans to minorities, which means, the financial institutions are going to start looking for ways to reduce their risk. Fannie May exists so that the federal government can subsidize housing loans to minorities, without having to admit that is what it is doing.

Blogger swiftfoxmark2 May 22, 2017 11:18 AM  

Nate wrote:Just one more moment when you realize how completely and totally economically ignorant the average alt-righter is...

Dear God we have a long way to go.


Yes, many of them are economically ignorant.

Unfortunately, economic ignorance is not our primary problem right now.

Blogger Mountain Man May 22, 2017 11:19 AM  

"Austrians were the only ones to predict the collapse. They were the only ones that even had a mechanism to explain the collapse.”

Bingo !

I had a buddy back in 2005 , living in SF - CA. He was hellbent on buying a house. He asked my opinion - I said only a fool would rush in. He then argued with me. I laughed and said dow whatever you want - I don’t care! Surprisingly, he listened to me and didn’t purchase it. When the collapse of 2008/2009 happened - he went ahead and bought one. A year later he thanked me and said “ dude you were right, it saved me $ 500,000 “.

In 2003, I began reading articles by Ron Paul, Bill Bonner and other writers on Lew Rockwell. Thank god for the "Austrian Autists”- they’ve enabled many a man to avoid financially crippling bear traps.

Blogger Joshua_D May 22, 2017 11:19 AM  

Mr Darcy wrote:@62:

ALL debts are repaid. ALL. Always. If the borrower doesn't pay, then the lender does. No debt goes unpaid.



No. All debts are not repaid. A debt can be repaid, or money loaned can be lost. But losing money that you lent is not the same as paying a debt.

Blogger thomasblair May 22, 2017 11:19 AM  

See 4th chart here: http://politicalcalculations.blogspot.com/2017/03/why-us-new-home-sales-are-stalling.html

We've learned nothing - the housing bubble has re-inflated fully and then some. Price:income ratios are worse than in 2005/6. The second bubble inflated slower than the first but it's bigger now.

Anonymous Grayman May 22, 2017 11:21 AM  

@93 Bellguard

Some types of nuclear are great in theory but very problematic in real life. Its a long discussion
TDLR modern nukes are time bombs, there are gaping holes in decomissioning and waste handling.
Liquid Flouride Thorium Reactors are much more realistic and avoid some of the current time bomb issues. Either way Nuclear is no panacea, to use it safely you need to plan ahead multiple generations which we cant seem to do at this point.

Blogger Mountain Man May 22, 2017 11:22 AM  

"Unfortunately, economic ignorance is not our primary problem right now.”

People who are economically ignorant end up with Communists and Fascists as their leaders.

Blogger Cicatrizatic May 22, 2017 11:23 AM  

Austrians were not the only ones to predict the crash. Economists like Steve Keen and Michael Hudson did so as well.

That doesn't mean MMT is the right approach going forward, but it is simply not true to claim that only Austrians predicted the crash.

Blogger Resident Moron™ May 22, 2017 11:24 AM  

Truth is political.

Therefore:

Consensus is Truth.

Therefore:

No consensus = unknown, or not true.

Ironically, and perhaps not coincidentally, it was a Pope who accused certain other Christians of being "unreliable" as they would not concede that trufh is democratically determined.

Blogger Nate May 22, 2017 11:25 AM  

"Austrians were not the only ones to predict the crash. Economists like Steve Keen and Michael Hudson did so as well."

Keen did. Correct. Keen is greatly under-appreciated.

never-the-less the fact remains...claiming that austrian economics is blinding people to the "real problem" is retardery.

Blogger Johnny May 22, 2017 11:25 AM  

Mr Darcy wrote:@62:

ALL debts are repaid. ALL. Always. If the borrower doesn't pay, then the lender does. No debt goes unpaid.



Using the language the way it is commonly used, debts do go unpaid. The loss in value occurs because the lender has to write off an asset, the loan. This is not commonly called paying the debt.

Blogger Nate May 22, 2017 11:26 AM  

"We've learned nothing - the housing bubble has re-inflated fully and then some."

yep. and we've piled student loan debt on top of it.

Anonymous Jeff May 22, 2017 11:26 AM  

Nate is excited. Not sure if it's because of the topic of this thread, or because the Preds are going to win the Stanley Cup?

Anyway, the vast majority of the money supply is in the form of bank deposits. Loans create deposits. Therefore, banks create most of the money supply through lending.

Lending requires strong balance sheets on the part of both banks and borrowers, neither of which is the case today (in aggregate).

Deflation is still the most logical outcome, IMO.



Blogger Ron Winkleheimer May 22, 2017 11:27 AM  

I Imagine it went something like this:

Politicians, to room full of bankers, Wall Street execs, "Guys, we need you to start loaning more money to minorities to buy houses so they will vote for us."

Bankers, "Well that is a problem because minorities have a tendency to have lower credit ratings and quite often don't make as much money as whites. If we start loaning money to people with bad credit histories and low income they will default on their mortgage and we will lose money. And if we lose money we won't have as much to donate to your reelection campaigns."

Politicians, "That's OK. We will guarantee the loans. We will make the suckers who save money and pay their debts subsidize the ones that don't."

Buy the way, this is how pretty much all government schemes get started.

Blogger Joshua_D May 22, 2017 11:28 AM  

Nate wrote:"We've learned nothing - the housing bubble has re-inflated fully and then some."

yep. and we've piled student loan debt on top of it.


It's gonna be epic.

Blogger Mountain Man May 22, 2017 11:28 AM  

"yep. and we've piled student loan debt on top of it.”

..dont forget car loan debt.!

Blogger Joshua_D May 22, 2017 11:30 AM  

I would think it's easier to resale cars and recover some of the value. A lot harder to resale house, and there is nothing to resale or recover in student loan debt, unless you make the student loan debtors into slaves which, you know, could happen.

Blogger Ron Winkleheimer May 22, 2017 11:33 AM  

unless you make the student loan debtors into slaves which, you know, could happen.

But what could they possibly be good for? I lack any need or desire for a monograph on why gender is a social construct.

Anonymous Grayman May 22, 2017 11:34 AM  

A scalable industrialized "alt-energy" system that wasn't a money pit would look something like a hi-temp gas cooled nuke reactor used to generate electric and methanol using high temp process heat.
That allows you to have liquid fuels for IC (internal combustion), methanol for fuel cell use (direct electric) as well as electric grid supply. You could use a thorium LFTR for this. It avoid the majority of the nuke waste issue as well as the meltdown issue. they can and HAVE been built and proven to be passively safe.

Blogger Mountain Man May 22, 2017 11:35 AM  

Adds running now for $65,000 full size Chevy trucks - $ 200 down and no payment due for the first year.
The number of these pimped out trucks driving around the area is astronomical. The supply is so glutted, that when the music stops and the payments are not being made the value for used trucks/cars/suvs will plummet to pennies on the dollar.
Im banking on it. Keeping my truck with 210,00 miles going until at least 300,00 and then pick up a repo for cheap.

Blogger Ron Winkleheimer May 22, 2017 11:35 AM  

What possible economic contribution could TrigglyPuff make to any enterprise?

Anonymous Pol Mordreth May 22, 2017 11:36 AM  

So... for us upper midwits in the gallery... what is the likely effect of the various scenarios of collapse? forex: I have a property with mortgage, low interest rate VA. Homestead, we are 1/4 of the way to food self sufficiency on it. (3 years to go in the 5 year plan). I have a decent amount of unsecured debt, mostly incurred to start the farming. a little secured debt (tractor).

in this scenario, if we hit debt disinflation, then I would assume that the banks will try and call the outstanding unsecured, but as long as the secured payments were made in time, they wont be aggressive on that because the asset value will drop?
Alternatively, if we hit hyperinflation, then the fake paper floating around could easily be used to eliminate all of the debt, because there is no mechanism to inflate the amount owed?

Am I even near the correct target?

Blogger Nate May 22, 2017 11:36 AM  

"Nate is excited. Not sure if it's because of the topic of this thread, or because the Preds are going to win the Stanley Cup?"

Both.

Blogger Bellguard May 22, 2017 11:47 AM  

It seems that some of the major economic issues themselves have been addressed. I believe we can all agree on the idea that "shits bad".

Now, what would be practical, realistic solutions to avoid a potential total economic collapse?

Related question: is a return to mass American manufacturing truly a practical option in our current society?

Anonymous Grayman May 22, 2017 11:51 AM  

From someone who has had to make the business justification, I can tell you that in manufacturing it usually makes significantly more sense to remove most of the human labor force for automation.
In one specific case it made more sense to spend 5 million on 3 new lines that are normally staffed by 6 - 10 people to make them fully automated and now able to be run by 3 - 5 people for all 3 lines.
That genie is not going back into the bottle. Im many cases humans just cannot match the speed, consistency and accuracy of automation.

Blogger ((( bob kek mando ))) - ( forgive us of our baiting, as we forgive those who bait against us ) May 22, 2017 11:52 AM  

24. Johnny May 22, 2017 8:56 AM
but by one common analysis the markets are not overvalued.


how bout if i value the currency in Zimbabwe bux?

i bet THAT demonstrates that the market is "not overvalued".

https://www.100trillions.com/?gclid=Cj0KEQjwmIrJBRCRmJ_x7KDo-9oBEiQAuUPKMmeKtU3czTrjy2jesg0MMVTE7fdHZOUmS8ZqOOIKJvEaAr6w8P8HAQ


24. Johnny May 22, 2017 8:56 AM
That is the monkey wrench in the works.



the monkey wrench in the works is misconstruing Currency ( ESPECIALLY a fiat, fractional debt based Currency ) as having anything other than a notional connection to Wealth or Productivity.



36. Johnny May 22, 2017 9:22 AM
...has been changed by Keynesian economic type thinking
...That kind of thinking has been in place since John F Kennedy's presidency.


fact check: Keynes died in 1946.

*facedesk*

no you dumbshit, it's been in place since the creation of the Federal Reserve.

you're lying about the institution date of "Keynesian economics" so you can avoid the government central planners having to take responsibility for the Great Depression.



36. Johnny May 22, 2017 9:22 AM
Thus the post WWII has also been a period of debt accumulation



which Johnny has just spent scads of wordage explaining to us doesn't really exist, because double entry book keeping requires deposits for every debt.

but now debt is "accumulating".

how very strange.

Blogger Johnny May 22, 2017 11:54 AM  

You guys, you really don't know. Not even a little bit.


@84 Joshua_D
Johnny wrote:

What is true is that for people to borrow there has to be a saver, somebody who saves the money they borrow. Thus:

Total Savings = Total Debt


HAHAHAHAHAHAAAAAAA ..... OWWWW .... MY SIDES .... HAAAAAHAAAAAAAAHAAAAAAAAAAAA

Hey Josh buddy, I refer you to pg 32 in Money and Capital Markets by Peter S. Rose. It is one of those big thick college level textbooks. I quote exactly:

Total financial assets = Total liabilities

A financial asset is by its nature a savings and a liability is a borrowing. Now I am not opposed to being against expert opinion, but unless it is done above the level of ridicule I am not inclined to take it seriously.

---------------
@101. p-dawg
@Johnny: Look up "fractional reserve lending". Unfortunately for you, it completely contradicts your assertion.

It used to be that fractional reserve lending was gold relative to the level of bank borrowing, which in the past might well be outstanding currency. In our day it is most commonly the ratio between the bank's equity over the bank's total source of funds. (the debit side of the balance sheet)

For a bank to raise money for borrowing with debt (fractional reserve lending) there has to be a saver. If somebody opens a savings account by saving money, it will show up as a borrowing on the banks balance sheet. And this is always true. All the debt the bank incurs in fractional reserve banking is backed ultimately by some saver somewhere. That is, all bank debt is a form of savings being held by the bank as a financial intermediary.


Blogger DemonicProfessorEl May 22, 2017 11:54 AM  

@112 Mountain Man

Same here - was reading Bill Bonner, Rockwell, Paul (and maybe ran across a little Vox Day here and there...) back in the mid-2000s as well. While studying History with some good old-school libertarians. One of my history professors even called Socialism a scam!

And whoever saw the housing/property prices rocket in the mid-2000s knew this was going to happen. My family and I had rental properties and we saw the change almost overnight - credit was both harder and easier to get, property taxes went up, and all of a sudden, a 40k house became 140k.

I'll never forget what was termed the "Great Correction" by Bonner and the like. It was supposed to happen because speculative bubbles built on other people's moneys don't last long. And when everything else in the economy is built on fictional finance and debt, the only way to return the market to producers is the house of cards to collapse and correct itself.

Only our "friends" in the governments didn't allow that - and then we got Obama, Merkel, et al.

But the biggest benefit of that was the public overall got to see *how much philandering was going on with the economy - and how mortgage money, taxes and public wealth, as well as pension funds were all just getting gobbled up by the political class.

It's still inevitable - the collapse will happen. We're in a state-induced bubble yet again, only now with the student loan tax on top of it. And illegal aliens!

While the GE may make some reforms (there's still some room there), propping up the market as it's been will only lead to another collapse. Fortunately for the US, Trump's been talking about this scenario since the late 1980s.

Blogger DemonicProfessorEl May 22, 2017 11:59 AM  

@134 Automation's a weird thing. Yeah, it gets rid of the guys hitting things with hammers, but it also increases productivity, where there still needs to be guys operating things on a line.

The truck may have eliminated the two guys with a cart, but more productivity led to more capital, led to more investment/hiring.

It's a mixed bag. I guess, according to the globalists though, we'll all just be Eloi and that's a good thing!

Blogger Joshua_D May 22, 2017 12:01 PM  

Johnny wrote:You guys, you really don't know. Not even a little bit.

Hey Josh buddy, I refer you to pg 32 in Money and Capital Markets by Peter S. Rose. It is one of those big thick college level textbooks.


Hey John buddy, you can point to all the text books you want. The parts of your statement that is so funny is this part, "What is true is that for people to borrow there has to be a saver"

Anonymous Grayman May 22, 2017 12:02 PM  

There is currently a bill in congress to make student loans dischargeable in bankruptcy... i'd image that could easily be a trigger to blow things up. A small % start to file for bankruptcy and the market starts devaluing the associated student loan debt and boom!

Anonymous BBGKB May 22, 2017 12:03 PM  

There's a bunch of places that a Methanol-Electric Hybrid or even a full roll out of Methanol-based engines makes so dang much sense.

If you are going to Flee DieVerse City before the Nigapocalypse brings Tranny Cannibal Biker Rapists to your doorstep, it might be a good idea to have an old diesel pickup truck and plans/parts to convert it to run off a wood gasifier.

Blogger Joshua_D May 22, 2017 12:04 PM  

Grayman wrote:There is currently a bill in congress to make student loans dischargeable in bankruptcy... i'd image that could easily be a trigger to blow things up. A small % start to file for bankruptcy and the market starts devaluing the associated student loan debt and boom!

WE CAN ONLY HOPE.

Anonymous Grayman May 22, 2017 12:10 PM  

@138 Demonic

In the cases I worked on, the increased productivity went to the owners/investors. You also get into things such as the only way the business was able to stay competitive was to fully automate to reduce human capital costs and improve efficnecy/quality.

So while there was certainly some increase in productivity it was a net loss from the human perspective and the additional capital is concentrated at the owner/investor level.

Blogger ((( bob kek mando ))) - ( forgive us of our baiting, as we forgive those who bait against us ) May 22, 2017 12:10 PM  

Johnny still Pozzled by 2008.

must be those 'animal spirits' getting out of hand again.

and to think, after all of that HARD WORK that the central planners at the Fed did to keep that from happening.

Blogger Cail Corishev May 22, 2017 12:10 PM  

Now, what would be practical, realistic solutions to avoid a potential total economic collapse?

I doubt there are any. There are practical, realistic solutions for individuals to survive it, but probably none to prevent the whole system from collapsing.

Imagine a guy who makes $25K/year, and somehow he gets a $5M loan to start a new business. Every year, he convinces the bank to loan him another $1M -- not making money yet, but new opportunities for expansion keep coming up, you see. After 20 years, he owes $25M plus interest, and the bank discovers that the business doesn't even exist anymore; he sold the factory for cash 10 years ago and has been spending all the money on crack and hookers. Now he has a drug habit and can't get a job, plus he has several child support bills to cover, and a bunch of back taxes.

What's the practical, realistic solution for him to service that debt and prevent "collapse" (bankruptcy)?

Blogger Mountain Man May 22, 2017 12:15 PM  

Now, what would be practical, realistic solutions to avoid a potential total economic collapse?

Ending the Fed and returning to a sound money system, coupled with Uncle Sugar selling its vast land holdings. This would be great start.

Blogger DemonicProfessorEl May 22, 2017 12:15 PM  

@143

Oh, agreed - it's a very odd mix. But that's part of our economic woes, where the cost benefits of automation don't go to expansion, merely to profit for investors. Stagnation, really.

I don't think automation is bad/good - it's a neutral in how it's utilized.

Anonymous Grayman May 22, 2017 12:17 PM  

Dont forget about the 100 trillion derivative market that everyone assumes us nets to 0 and so isnt a problem..... Once failed counterparty and that 100 trillion bomb levels global markets. You'd be hard pressed to value anything since no one would trust anyone else. You'd have a temporary global freeze and then a massive devaluation once things unfreeze. The only way that gets unwound is WWIII or equivalent level chaos where governments can get away with openly declaring those instruments invalid.

Blogger SemiSpook37 May 22, 2017 12:18 PM  

As someone who was directly affected by the 2008 shenanigans (finally had the title on the house I overpaid for taken out of my name recently), what did me in was the cutesy shenanigans to eliminate the need for paying PMI. And this was after I set up my loan under full documentation and was paying what I was supposed to up until I decided filing a Chapter 7 BK case was the best way out of the situation (the loan that supported the amount to eliminate the PMI lost its entire value, among other factors). When I received the paperwork for the foreclosure (which took 5 years too long, IMHO), the total loss on what I had overpaid for was about $110k. Good thing I wasn't on the hook for all of that with the Chapter 7 discharge I had received.

As for the student loan discharge, you should automatically be put in a Chapter 13 (wage earner) case for 5 years, automatically. This means you have to pay something to get the debt settled, though it can be negotiated on what that amount is. I've seen mentions in other places about a possible jubilee (which would forgive ALL student debts and bring everyone more or less back to zero), but I think this would be a good middle step. It's not that folks don't want to pay their debts, such as myself, but the way things have been set up just has those of us in well paying positions at a dangerous point.

Blogger swiftfoxmark2 May 22, 2017 12:19 PM  

Cail Corishev wrote:

Imagine a guy who makes $25K/year, and somehow he gets a $5M loan to start a new business. Every year, he convinces the bank to loan him another $1M -- not making money yet, but new opportunities for expansion keep coming up, you see. After 20 years, he owes $25M plus interest, and the bank discovers that the business doesn't even exist anymore; he sold the factory for cash 10 years ago and has been spending all the money on crack and hookers. Now he has a drug habit and can't get a job, plus he has several child support bills to cover, and a bunch of back taxes.


Probably the best analogy of what's going on that I can think of.

Hey remember back when banks invested in production and not consumption? I don't because I was born after the introduction of the credit card.

Blogger Josh (the gayest thing here) May 22, 2017 12:21 PM  

Related question: is a return to mass American manufacturing truly a practical option in our current society?

No

Blogger Bellguard May 22, 2017 12:22 PM  

I see your point.

Blogger Cicatrizatic May 22, 2017 12:22 PM  

@136.

The money multiplier, pass-thru conception of money and banking is not an accurate description of the current system. The textbooks are wrong. See:

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

https://www.youtube.com/watch?v=b6_SLwReMqo&feature=youtu.be

Banks create deposit money when they lend. The new money is both an asset of the bank (loan) and a liability of the bank (deposit account). Yes, in most systems, banks are required to have partial reserves, but they have a two-week period to find the reserves necessary to meet their 10% reserve requirement.

Banks are not just passing thru savings. They are creating electronic deposit money when they lend. The Bank of England, one of the world's oldest central banks, has explained the system quite informatively in the above article.

Regarding some of your posts above, note the distinction between paper currency and money. Paper currency is only a small fraction (3%) of the money in circulation in our system. The vast majority of money in our system is electronic deposit money, which are transferred daily via debt cards and wire transfers. While the US Treasury still controls the printing of the paper currency, the commercial banks create the vast majority of the money supply, which is electronic deposit money, a liability of the bank that is payable in currency, if depositors choose to withdrawal the balance of their deposit account. Obviously they only have a small fraction of the currency necessary to pay out all deposit account liabilities.

Anonymous p-dawg May 22, 2017 12:26 PM  

@Johnny: No, by literal definition, there has to be a fraction of a saver. If one person saves $1, and the bank issues an account adjustment called a loan for $100 against that $1, (or even the old $10 against $1) there is not a 1:1 debt:savings ratio as you asserted. So, you cannot be right.

Blogger dc.sunsets May 22, 2017 12:30 PM  

"We" don't "learn" anything. I thought this was no longer even controversial. What do people learn from history? The people learn nothing from history.

Nothing new under the sun, and all that. We're re-living some of the fun from Charles Mackay's 1841 chronicle of Extraordinary PD & MoC, but to the average Joe, each day is like starting anew.

Austrian economics is predicated on economics being a descriptive endeavor, not a positivist one. This makes it an entirely different thing from Monetarist, Keynesian, etc.. Am I right, VD?

I enjoy pointing out that if the stock market was all one firm's common, and in 1982 it had 100 billion shares at $10 each (so a market cap of $1 trillion) and 35 years later there were still 100 billion shares but they trade at $200 each (for a market cap of $20 trillion), the extra $19 trillion came out of NOWHERE.

No. Net. Movement. Of. Cash.

It could have occurred in one trade, with a buyer and a seller suddenly agreeing on a $190/sh rise in value, while every other holder of shares did NOTHING AT ALL. $19 trillion in "wealth" suddenly appears to exist.

And when markets decline, it all simply disappears, too. It doesn't "move" to the banks, or to bonds, sea shells or lakefront property.

We've had the greatest credit mania in history, and its effects on nominal prices for EVERYTHING are ephemeral.

Today, with markets seemingly on a rocket ride to the orbit of Mars, it's interesting to consider just how much it resembles a game of Monopoly(tm) where people began to trade IOU's in order to make purchases, and then they hit the tequila.

Blogger DemonicProfessorEl May 22, 2017 12:31 PM  

For student loans, they should just fine the universities that propped the prices. Take the money from the endowments, basically. It's a double screw - taxpayers subsidize the universities while there's essentially a loan tax on the young.

They are starting to count student loans against getting loans for homes, businesses, credit, etc.

So one easy way to forgive loans is just tax the universities, and take their endowments. They are guilty of fraud in many ways.

After that, as someone said, a Chapter 13 would help as well. Or make forgiveness contingent on business production, investments, etc. Trumpify these kids.

Blogger dc.sunsets May 22, 2017 12:32 PM  

Once the Fed allowed overnight sweeps of checking accounts into savings (for the purposes of maintaining capital ratios), the US banking system became a no-reserve banking system.

Anonymous Grayman May 22, 2017 12:39 PM  

@155 DC

I.e. when the illusion turns sour, if you dont physically hold it you dont actually own it....

Blogger Mr. Bee May 22, 2017 12:40 PM  

If you continuously predict failure and collapse, sooner or later you'll be right.

Blogger wreckage May 22, 2017 12:40 PM  

@153, the created money theoretically is mostly secured against something, even if only the debt of the borrower. The fractional reserve just means the bank is not expected to be able to call in all debt simultaneously; it's the degree to which the bank has backup security.

Now, this also explains the crash of 2007-2008. It was a simple market adjustment to account for the fact that a lot of the money in circulation actually didn't represent assets held by the debtor. As a result, the market devalued everything back down to the point where all the fake money - ie liquidity (money) that did not actually represent illiquid assets held by the debtors - vanished.

This neatly disproved the idea that markets can be built on the basis of demand, without regard to value-add or productivity. If demand created supply, the excess debt should have generated economic stimulus so as to cover the gap or even exceed it. But it didn't, at least in aggregate; instead, it resulted in a housing bubble and a whole bunch of excess housing that even now stands empty, more in keeping with the supply-side argument that recessions are caused by malinvestment.

Incidentally, demand-driven implies that more consumers = more wealth, so immigration is always good. Supply-driven implies that more per capita productivity = more wealth, so importing a bunch of low-paid labour might work nicely for a few big companies, but will depress the economy overall.

Blogger Josh (the gayest thing here) May 22, 2017 12:43 PM  

So one easy way to forgive loans is just tax the universities, and take their endowments. They are guilty of fraud in many ways.

The math doesn't work.

There's not enough money in endowments to wipe out outstanding student loan debt.

Blogger Nate May 22, 2017 12:50 PM  

"Now, what would be practical, realistic solutions to avoid a potential total economic collapse?"

Jail about 100 bankers. Nationalize the big 4... then forgive all the debt they have.

Just to start.

The student loan debt will have to be dealt with as well.

Anonymous Athor Pel May 22, 2017 12:52 PM  

"127. Blogger Ron Winkleheimer May 22, 2017 11:33 AM
unless you make the student loan debtors into slaves which, you know, could happen.

But what could they possibly be good for? I lack any need or desire for a monograph on why gender is a social construct.
..."



Somebody's got to clean the toilets and mop the floors. That's what slaves are for after all.

Blogger Bellguard May 22, 2017 12:55 PM  

Just a thought, but if news broke about nationalizing the largest banks and forgiving debt, what's to stop a massive surge of borrowing and spending right beforehand? Or would you put a temporary freeze on that?

Blogger Nate May 22, 2017 12:55 PM  

"You guys, you really don't know. Not even a little bit."

Dude.

STFU. You're clueless. Jesus Vox wrote a book on this that IS used as a college textbook.

You don't even know enough to know what you don't know.

Blogger Nate May 22, 2017 12:56 PM  

"Just a thought, but if news broke about nationalizing the largest banks and forgiving debt, what's to stop a massive surge of borrowing and spending right beforehand? Or would you put a temporary freeze on that?"

who cares?

Blogger Joshua_D May 22, 2017 12:57 PM  

Exactly. Who cares. THE POINT HERE IS TO START JAILING AND HOPEFULLY HANGING BANKERS.

Blogger Joshua_D May 22, 2017 12:58 PM  

Not your average bank clerk or manager or shareholder mind you, the bankers and the top and the boards that condoned their actions.

Blogger Nate May 22, 2017 12:58 PM  

its really not that hard. On the same day.. at the same time... FDC officials show up at the corporate headquarters of all 4 banks.

From the moment they walk in the door... everything shuts down. Done. No more transactions. No payments can be taken. No loans can be made. No more interest is accrued.

Then you liquefy the companies... discharge all the debt.

and put all of their biggest big dogs in jail for the hundreds of banking laws they've broken.

Blogger DemonicProfessorEl May 22, 2017 1:22 PM  

@161 Josh

My flub if that was unclear.

Endowments amount to several billions per year. The top 40 endowments are about 100 billion dollars per year. That's about 11 years to pay off the student loans completely (which shouldn't be done - just the overcharge, which is about 70-80%).

Taxing the universities, which are multimillion/billion dollar industries, would help that as well. Just in property taxes, with which they get liens/forgiveness by the states/fed, would help alleviate it.

It's not just a one-time seizure of assets.

Blogger JWM in SD May 22, 2017 1:24 PM  

"Subprime was definitely part of the story. But liar loans, stated income, and inflated appraisals were mostly for people with decent credit. A garbage man could qualify to borrow an insane amount of money if he simply called himself a "recycling and waste management engineer", and if he paid an extra $500-$1000 he could have his current home appraised at whatever value he needed."

The worst of the bunch were the Neg Am loans, as in Negative Amortization!! Yes, add interest to principle and wait for the market value to out run your increasing loan balance!!! Yes, that was an actual strategy in use in SOCAL circa 2003 to 2006/7 and it did work for a while but eventually people got burned.

The residual artifact of this was the MERS database which I don't hear much about now but I'm pretty sure that it still exists. Imagine paying your mortgage faithfully only to find out that it was sold to a different mortgage company who wants you to pay again...that's why people were squatting in the homes without paying for years in some cases because they didn't know who to pay (whoever could produce the note and many banks couldn't do that).

Blogger Nate May 22, 2017 1:28 PM  

"The residual artifact of this was the MERS database which I don't hear much about now but I'm pretty sure that it still exists. "

MERS... by its very existence... is proof of a dozen different major felonies.

Blogger tublecane May 22, 2017 1:34 PM  

@102-"because central planning works up to a point"

Yes, you can rapidly industrialized via 5-year plans if you're willing to let millions of people starve to death. It's all about trade-offs.

But seriously, Russia was already industrializing before the Bolsheviks showed up. That's actually partly why the Bolsheviks succeeded: Wall Street gave them money because they wanted in on that action. Also, what you may see as the Soviet Miracle would have been impossible without electricity and the internal combustion engine, which were developed by the (relatively) capitalist West.

As Lenin said, "Communism is Soviet power plus the electrification of the whole country." That he came to power when electricity happened to be available was a giant coincidence.

Granted, the electric and oil revolutions, which are to thank a million times beyond the overrated Industrial Revolution for modern prosperity, theoretically could have popped up outside the West. What if Stalin was somehow able to magically pick out Russian Michael Faradays and Rudolf Diesels? He could've given them all the resources they needed, and humanity would've been the better for it.

You still need an efficient system to exploit those inventions without killing millions and leaving the rest worse off than necessary in the process. Communism is about the least efficient system available. It's also often run by homicidal maniacs; ever notice that?

Blogger James Dixon May 22, 2017 1:34 PM  

> ...unless you make the student loan debtors into slaves which, you know, could happen.

There was a fairly popular book recently with that premise. For some reason that aspect of it never caught the public's attention.

> You guys, you really don't know. Not even a little bit.

Don't argue with us, Johnny. Argue with Richard Werner (http://www.sciencedirect.com/science/article/pii/S1057521914001434?np=y) and the bankers themselves (http://www.washingtonsblog.com/2014/03/bank-england-admits-loans-come-first-deposits-follow.html).

> I enjoy pointing out that if the stock market was all one firm's common, and in 1982 it had 100 billion shares at $10 each (so a market cap of $1 trillion) and 35 years later there were still 100 billion shares but they trade at $200 each (for a market cap of $20 trillion), the extra $19 trillion came out of NOWHERE.

That depends, dc. If the company started with one factory making a single product, but over that 35 years expanded to five factories (making either the same product or four additional products), all making the same amount of money as the original factory, then the company should be worth five times as much. In theory. that's what well run companies do, so they should actually go up in value over time.

> The student loan debt will have to be dealt with as well.

Just allow it to be discharged in bankruptcy.

Blogger bosscauser May 22, 2017 1:36 PM  

Hard money trained economists can't explain what happened!
SURPRISE!

Fiat money system based on faith n credit...
2008 we lost faith. We list credit!

Gab.ai/GaryCauser

Blogger tublecane May 22, 2017 1:37 PM  

@36-By now it oughtta be apparent Keynesian-type thinking is not about smoothing out the business cycle. It was always about trying to create a perpetual BOOM, not an even keel. Which is of course impossible.

Blogger Josh (the gayest thing here) May 22, 2017 1:37 PM  

Endowments amount to several billions per year. The top 40 endowments are about 100 billion dollars per year. That's about 11 years to pay off the student loans completely (which shouldn't be done - just the overcharge, which is about 70-80%).

Taxing the universities, which are multimillion/billion dollar industries, would help that as well. Just in property taxes, with which they get liens/forgiveness by the states/fed, would help alleviate it.

It's not just a one-time seizure of assets.


That is not how endowments work. You are an idiot.

http://www.nacubo.org/Research/NACUBO-Commonfund_Study_of_Endowments.html

The 2016 NCSE results are based on 805 U.S. college and university endowments and affiliated foundations, representing $515 billion in endowment assets.

Anonymous Grayman May 22, 2017 1:39 PM  

@170 Demonic

Universities have become little more than debt extraction units. You cant undue that trivially even with a tax structure. University education has been completely devalued in order to allow the processing of the maximum quantity of youth. If you actually put standards back in place the system collapses socially and economically. Universities are buried in bonds and loans based on the ongoing exponential tuition increase. And the minorities, the majority of whom would never qualify for college cause an unemployment spike as well as a income crash when the small effect from their fake degrees blows up. Never mind the social outrage at actual standards being "racist".

Its all mental masturbation as none of the pieces can really move without the rest of the system collapsing. Its like a rusted out truss bridge. The decay is so endemic that trying to replace any one truss causes systemic failure. All you can do is support the bridge where you can and then either use it until collapse or condemn and demo it.

We all acknowledge the bridge is fundamentally unsound and has been fully compromised by decay. The only argument is which truss fails first. And that is largely mental masturbation at this point. We are all forced to continue using the bridge and the best we can do is stay as far as possible from the main span.

Anonymous Athor Pel May 22, 2017 1:40 PM  

Johnny,

If you keep trying to teach the blacksmith how to make a nail even the nice commenters will start to mock you.

Just like Tiny Tim.

Blogger DemonicProfessorEl May 22, 2017 1:52 PM  

@178

I do agree in this: "The decay is so endemic that trying to replace any one truss causes systemic failure. All you can do is support the bridge where you can and then either use it until collapse or condemn and demo it."

Fiat money is basically just fictional anyway.

I think it would help to clear up my thinking - the collapse is basically inevitable. Anything that would help to provide currency (even fiat) to those who wish to invest in tangible future products (property, land, businesses, trades) need that currency to do so.

Disarming the universities while reallocating tax-by-debt capital would help that long-term goal.

During the election, and now still, I believe that Trump and the turn to nationalism is only a time-buying strategem. If we can get money away from the Left now, we can use it to our advantage.

In the long term, though, it doesn't *really really matter.

However, I don't mentally masturbate at "which truss" fails first as it doesn't matter. Shoot, the thing's falling apart as it is. Following the rust analogy, I'm saying take what we can for us before the parasites and scavengers do :)

Blogger DemonicProfessorEl May 22, 2017 1:54 PM  

@177 Josh

Do public sector employees pay taxes?

Blogger DemonicProfessorEl May 22, 2017 2:00 PM  

@177

Actually, nevermind. You'll say "SURE THEY DO," not having even an idiot's grasp on how public sector is taxpayer funded. You'll argue, "NUH UH" and cite the underfunded liability crisis. Which is basically just banking on future taxation.

Sure, it's not income tax, but tax through various means - sales taxes, tariffs, property taxes, regulations, etc.

Actually, nevermind.

Blogger Peter Jackson May 22, 2017 2:01 PM  

The new stock market highs we are seeing today are not the result of a strong economy, but rather, a perilously fragile one that is subject to the very same catastrophic failure that was narrowly averted in 2008.

So what's the best financial hedge against such a collapse?

Anonymous A.B. Prosper May 22, 2017 2:01 PM  

Grayman wrote:From someone who has had to make the business justification, I can tell you that in manufacturing it usually makes significantly more sense to remove most of the human labor force for automation.

In one specific case it made more sense to spend 5 million on 3 new lines that are normally staffed by 6 - 10 people to make them fully automated and now able to be run by 3 - 5 people for all 3 lines.

That genie is not going back into the bottle. Im many cases humans just cannot match the speed, consistency and accuracy of automation.



Its economically smarter but those machines aren't customers and your actual human customers in every corner of the developed work, stopped having children

Automation is suicide of the future.

Automation has been an issue in terms of full employment since the 1930's when Kellogg company found it could get all its work done in 30 hours .

The stockholders put the kibosh on it figuring they were being gypped , how dare labor have a nice life anyway. Productivity stayed the same

Its gotten worse and if we were to remove all the useless parasitic make work outside of fast food and emergency services, the real work week would be around 20 hours or so, with mainly men working

However wages have been arbitraged down by more than half and baring extreme intervention, will never go up again

Frankly I suspect that the economy will be run into the ground until its blows up anyway. Lost of possible scenarios after that , very few of them good.

In the end, Economic Liberalism will have to go but to make that happen we have to have a rotation of the elite. The elite would be fine with a new economy but they can't be allowed to stay around in power.

Blogger tublecane May 22, 2017 2:04 PM  

@178-University Rot goes beyond that. It's perhaps the clearest example of the Great Divide in our culture. I'm no egalitarian, mind you. I actually want an underclass and an aristocracy, if only they were full of the right people for the right reasons.

Here's how it works: the middle class, which no longer matters insofar as it exists, pays oodles of money and get nothing out of it. Universities are very powerful, but only pay off for the In Crowd. A crowd which consists of the already rich and powerful plus any talent which they can skim off other classes. Which talent must agree with the ruling class, i.e. be SJWs or at least cucks/neocons, except in the rarest of circumstances.

Universities are ruling-class accreditation services and ideology factories, paid for mostly by people who will receive no benefit from them. Oh, they'll be able to avoid working as janitors, some of them. But they'd be quite capable of doing that if every middle-class Tom, Dick, and Harry didn't automatically at least go to one semester of community college for no reason. That is, if businesses hired on the basis of weird, foreign concepts like intelligence and work history.

As for those who don't go to college, they are allied with the ruling class against the middle. The top gibsdemdat, and imports more gibsmedats every day.

Blogger dc.sunsets May 22, 2017 2:04 PM  

@ James Dixon, That depends, dc. If the company started with one factory making a single product, but over that 35 years expanded to five factories (making either the same product or four additional products), all making the same amount of money as the original factory, then the company should be worth five times as much. In theory. that's what well run companies do, so they should actually go up in value over time.

That's all well and good until mass human psychology enters the picture, as well you know. Give someone official ability to create credit (money) at will, and the entire program runs off the rails.

Stocks are worth what they're worth (in nominal dollars) because bonds are worth what they're worth in nominal dollars, which represents PV of future cash flows (in future dollars), which is related to what real estate is worth and what commodities are worth.

To me, the entire edifice rose on a looping spiral of increasing ability to borrow, and a vast ocean of IOU's filled by simply rolling over debts in perpetuity as rates fell (in a bull market, is all) and bondholders counted their profits as they sat and did nothing while their capital values rose.

When trust breaks down, and people begin to re-frame their knowledge, and the assumptions on which their pricing models (official or just mental sugarplums) change, then suddenly the entire upward spiral in prices for everything simply reverses.

Just as leftism was a continuously rising corkscrew in one direction, its reversal is to the right...i.e., the OPPOSITE direction.

TINA is the fuel for Moral Hazard now. People think that because there is no alternative to TPTB keeping things aloft, they'll stay aloft.

I do not share this view.

Anonymous Grayman May 22, 2017 2:07 PM  

@180 demonic

I wasnt trying to attack you personally. I'm just as guilty about mental masturbation. And to your point these is some utility in that from a risk managment/ risk avoidance perspective.

However, I don't mentally masturbate at "which truss" fails first as it doesn't matter. Shoot, the thing's falling apart as it is. Following the rust analogy, I'm saying take what we can for us before the parasites and scavengers do :)

Blogger Josh (the gayest thing here) May 22, 2017 2:09 PM  

Actually, nevermind. You'll say "SURE THEY DO," not having even an idiot's grasp on how public sector is taxpayer funded. You'll argue, "NUH UH" and cite the underfunded liability crisis. Which is basically just banking on future taxation.

Sure, it's not income tax, but tax through various means - sales taxes, tariffs, property taxes, regulations, etc.

Actually, nevermind.


What is your proposal? Taxing capital gains?

Even if the average annual return was 10%, that's 50bn a year, at the 20% cap gains tax rate that's 10bn a year in tax revenue.

Student loans exceed a trillion dollars.

Blogger dc.sunsets May 22, 2017 2:09 PM  

Automation is suicide of the future.


No it's not. Automation should make "stuff" super cheap, just as did the Industrial Revolution. The problem is, we have a system in place that allows legal choke holds on distribution of prices and profits.

500 years ago most people toiled 60 hours a week just to stay one step ahead of famine. 100 years ago people worked hard, but rarely were ONLY one step ahead of famine. 50 years ago people worked less hard, and no one starved (in the 1st world.)

50 years ago we were promised 20 hour work weeks. Instead, we got NAFTA, "Made in China" and H1-B., stagnant wages, debt servitude and an oligarchy that serves 0.1% of the populace well.

This too will change. But automation isn't a disaster unless we remain in this "Company Town" BS.

Blogger DemonicProfessorEl May 22, 2017 2:10 PM  

@187

Thank you. I have to remember too that internet conversation loses a lot of personal nuances. If only this were the Alt-Right Physical World Cafe :)

And yeah, that's along the lines of what I was thinking - the risk management angle. The ship's sinking, let's grab the food first :)

And if it hurts the Leftists...so much the better!

Blogger Josh (the gayest thing here) May 22, 2017 2:10 PM  

So what's the best financial hedge against such a collapse?

That depends on the individual.

Blogger DemonicProfessorEl May 22, 2017 2:12 PM  

@188 Josh

I said "nevermind." That means "we're done." I don't "argue" with Leftists or Black Pillers.

Blogger Josh (the gayest thing here) May 22, 2017 2:14 PM  

I said "nevermind." That means "we're done." I don't "argue" with Leftists or Black Pillers.

You're not arguing against either of those, you're arguing against math.

Blogger Mountain Man May 22, 2017 2:18 PM  

This comment has been removed by the author.

Blogger DemonicProfessorEl May 22, 2017 2:21 PM  

@193 Josh

I never advocated *new taxes. Allocation of tax-paid subsidies is what I advocate, not increasing spending. That may be the misunderstanding here.

Endowments are tax-paid, either now or bet against future returns. Either way, it's publically funded.

Also, you called me an idiot. I was courteous. The above is all you'll get.

Blogger Josh (the gayest thing here) May 22, 2017 2:22 PM  

The actual figures listed publicly don’t reflect their actual worth. The figures only reflect ( to the best of my knowledge) the actual cash figures for what currently sits within the fund/trust. The actual worth is much higher when the assets in which that they are invested in are included.

Surely you can provide examples of this with specific endowments.

Blogger Mountain Man May 22, 2017 2:24 PM  

"So what's the best financial hedge against such a collapse?”

No unserviceable debt coupled with liquidity , i.e - cash in hand. The coming collapse will move massive levels for wealth from the “ weak" hands to the “strong”.
It will be a once in a lifetime buying opportunity.

Blogger Josh (the gayest thing here) May 22, 2017 2:27 PM  


I never advocated *new taxes. Allocation of tax-paid subsidies is what I advocate, not increasing spending. That may be the misunderstanding here.


Now you're just lying.

From your original comment:

For student loans, they should just fine the universities that propped the prices. Take the money from the endowments, basically. It's a double screw - taxpayers subsidize the universities while there's essentially a loan tax on the young.


So one easy way to forgive loans is just tax the universities, and take their endowments. They are guilty of fraud in many ways.

Anonymous BBGKB May 22, 2017 2:28 PM  

If only this were the Alt-Right Physical World Cafe :)

I am not sure if we would all get along peacefully, especially if we start talking about BBQ sauces for faggots that can cook

If you continuously predict failure and collapse, sooner or later you'll be right.

There is no point in being a TWERP (Those With Empty Reserve Pantries)

It will be a once in a lifetime buying opportunity.

Remember things like yachts & jets are not assets but liabilities that will keep leaching cash

Anonymous Mr. Rational May 22, 2017 2:30 PM  

Bellguard wrote:Energy technology and electric cars. If and when alternative energy becomes even somewhat viable (nuclear power would be preferable) just how substantial would be the impact be on mass reduction of coal and oil? And related, electric cars replacing traditional combustion engines?
There are three things to consider here:

1.  Cost of batteries.
2.  Political viability of nuclear power.
3.  Political viability of climate-change abatement policy.

These things all play off each other.  Batteries are getting cheaper and better at a dizzying rate, with Tesla just announcing an advance that will probably make them outlast vehicles.  Absent any other incentives, like pollution restrictions or simply cheaper energy (electricity costs about as much as sub-$1 gasoline), this will drive consumers to electric cars.

#2 is a very big deal.  We can see the opposites operating today.  China and Russia are on nuclear binges, Korea has major export markets (we'll see if that continues domestically), while Germany is killing its nuclear industry and forcing its own companies out of even export markets.  Thanks to hostile regulation from the NRC and hostile state governments, the USA seems to be going the way of Germany albeit more slowly.  The wildcard in this deck is the EPA, which sets radiation protection standards (which for some reason do not include radioisotopes released from coal combustion or radon from natural gas—curious omission there, isn't it?).  There's a push to have the EPA's current zero-based standard declared unscientific (it is) and thus illegal.  If a lot of low-level radiation is declared harmless and thus not of regulatory concern, all kinds of things change in medicine, in diagnostic imaging of all kinds, in things like phosphate mining (which has a substantial byproduct of uranium and its decay daughters)... and in the nuclear industry.  It becomes much cheaper to get nuclear work done, things like the tritium at Vermont Yankee, Indian Point and Fukushima are recognized as non-issues, Yucca Mountain can open right away, and the evacuation zones for even the worst-case nuclear accidents shrink to miles for weeks, not tens of miles for years.

Uranium is so much cheaper than coal, we should have replaced it long since.  Only Muller's fraud about genetic damage from radiation kept coal in the running.

#3 affects the pace of resulting changes a lot.  Combined with #2, it reverses Germany's Energiewende.  If it's thrown out most countries won't hurry.  Africa has no alternatives because it doesn't have enough people both smart and conscientious (non-corrupt) enough to run nuclear plants, so it's coal or nothing.  Zuma's deal with Russia will fall through.  If the climate becomes a big issue, Africa de-industrializes completely.

Looking Glass wrote:There isn't enough Lithium even thought to be available. It would also take a couple of decades to upgrade the Power System to be able to handle that.
The lithium problem went away with the discovery of Finnish spodumene pegmatites.  We don't have any power problem; we can go 70% electric with what we've already got, just by doing most charging at off-peak hours.

@50  Battery storage costs on the order of 20¢/kWh, with the price going up the more hours of power you need "in the bank".

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