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Friday, February 05, 2016

The global debt threat

I've been warning about the danger of the massive debt overhanging the global economy since 2002 to absolutely no avail. 
The problem is the giant, stagnant pool of loans that companies and people around the world are struggling to pay back. Bad debts have been a drag on economic activity ever since the financial crisis of 2008, but in recent months, the threat posed by an overhang of bad loans appears to be rising. China is the biggest source of worry. Some analysts estimate that China’s troubled credit could exceed $5 trillion, a staggering number that is equivalent to half the size of the country’s annual economic output.

Official figures show that Chinese banks pulled back on their lending in December. If such trends persist, China’s economy, the second-largest in the world behind the United States’, may then slow even more than it has, further harming the many countries that have for years relied on China for their growth.

But it’s not just China. Wherever governments and central banks unleashed aggressive stimulus policies in recent years, a toxic debt hangover has followed. In the United States, it took many months for mortgage defaults to fall after the most recent housing bust — and energy companies are struggling to pay off the cheap money that they borrowed to pile into the shale boom.

In Europe, analysts say bad loans total more than $1 trillion. Many large European banks are still burdened with defaulted loans, complicating policy makers’ efforts to revive the Continent’s economy. Italy, for instance, announced a plan last week to clean out bad loans from its plodding banking industry. Elsewhere, bad loans are on the rise at Brazil’s biggest banks, as the country grapples with the effects of an enormous credit binge.
2008 was the first stage, but instead of doing as I recommended, permitting the bad loans to default, and allowing the banks and other credit holders to go bankrupt, Ben Bernanke and the Republicans "saved the economy" by kicking the can down the road just as Alan Greenspan did in 1987.

Granted, they kicked it further than I would have believed possible in 2009, but nevertheless, we've now reached it again, and it is bigger and heavier than it was 7 years ago. And the Fed's metaphorical foot is broken.

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140 Comments:

Blogger James Dixon February 05, 2016 5:13 AM  

Governments the world over are addicted to debt. As always, the first step in curing an addiction is to admit you have a problem. We're still waiting on that first step.

Anonymous Mr. Rational February 05, 2016 5:34 AM  

Every debt is someone else's asset.  How many assets are going to go "poof!" in a reset?  How much wealth that people are counting on isn't going to be there... and who in the game of musical chairs has already taken their own seating and gone home?

Blogger Sherwood family February 05, 2016 6:08 AM  

People enjoyed the party, but as Paul Volcker once explained, its time to take away the punch bowl. It can hurt some now or more later. Of course, I can't tell if we have passed the point were the amount of the pain is so large in either case that the system simply ceases to function.

Anonymous jml1911a1 February 05, 2016 6:11 AM  

So, how does your average person then profit from, or avoid financial damage from, the impending...whatever is coming?

Anonymous zen0 the Ephemeral February 05, 2016 6:23 AM  

@4

So, how does your average person ...

Duck & Cover?

Blogger Markku February 05, 2016 6:29 AM  

So, how does your average person then profit from, or avoid financial damage from, the impending...whatever is coming?

Get whatever money you can from the system without landing your ass in jail, and use it to purchase defensible and self-sustainable property from a poor country. Or, if you are the kind of a person who will easily gain the respect of the natives, do that somewhere in the South, in an area that is most likely to rise up in armed rebellion for its self-determination. But then realize that you will have to take up arms.

Blogger James Dixon February 05, 2016 6:32 AM  

> How many assets are going to go "poof!" in a reset?

Far more than anyone would like. But as long as the governments and currencies survive, it should be manageable. If the governments and/or currencies go away, all bets are off.

Blogger James Dixon February 05, 2016 6:42 AM  

> Or, if you are the kind of a person who will easily gain the respect of the natives,

Respect of the natives? I am one of the natives. :)

Blogger Stilicho February 05, 2016 6:47 AM  

The Fed not only has a broken foot, it's been trying to kick rocks out of the path in addition to kicking the can. With some success but not without additional costs. See, e.g. the Fed's efforts too support stock market valuations. They're painting themselves into a corner where they can't let any asset class decline in nominal value.

Blogger Markku February 05, 2016 6:52 AM  

We like to compare the Fed kind of strategy to that of keeping yourself warm in freezing temperatures by pissing in your pants.

Blogger RobertDWood February 05, 2016 6:54 AM  

Ben Bernake rather then Alan Greenspan in 2008

Blogger The Kurgan February 05, 2016 7:07 AM  

Well, I saw how banking worked in about 1993 and thought collapse was only a few years away, so you're probably still less astonished than I was about just how far down the road they can kick that can.

Blogger FALPhil February 05, 2016 7:16 AM  

@1 Governments the world over are addicted to debt.

So they can reward their campaign donor with juicy contracts. It is a form of corruption. In the USA, those campaign donors are Lockheed, Boeing, SAIC, KBR, General Dynamics, etc, etc. It is also the primary reason the USA been in a constant state of war with little pissant countries that pose no credible threat.

The elites have gotten way too comfortable.

Blogger rumpole5 February 05, 2016 7:18 AM  

Well, we could take the Icelandic approach and just let the chips fall where they may and prosecuting those who broke the law. A prudent person would want to relocate to a smallish, backward town of "bitter clingers".

One thing I know is that most of the counties in this country vote republican every election. Those counties are full of self sufficient, level headed folks with guns. Because of the political folly of our left wing elites those counties are also full of veterans who have seen war and know how to use those guns. I thought that the plot of Victoria was a bit exaggerated, but certainly pointed the way forward. I think that it will all work out, but I would not want to live in a large metro area right now.

Anonymous grey enlightenment February 05, 2016 7:19 AM  

Debt in itself is meaningless. yields, monetary velocity, and lending activity are what matter and those are in in the dumps. The currency base in the US has not exploded despite QE. Also America has vastly more assets than debt.

Blogger VD February 05, 2016 7:22 AM  

Debt in itself is meaningless.

Try not paying your mortage or your auto loan and you'll find out how "meaningless" it is.

Blogger DadOfTen February 05, 2016 7:22 AM  

The economic bubble created by telecoms that ended in the destruction of many of them around 2000 has been the driving enabler of the world economy.

That was when fiber optic technology had finally become viable. "Everyone" knew that it would replace all the copper undersea and land bound telecommunications lines. So much international fiber optic cable was laid that it was all running under 5% capacity. Prices plummeted. Most of the companies that invested in international cable went belly up.

Unlike today, they were allowed to go bankrupt when they couldn't pay off their loans with a reasonable interest rate. Their assets were bought up for 1 to 10 cents on the dollar. With the destruction of the old companies, the telecom industry became profitable again in only a couple of years because the value of their assets, the cables, were re-valued at a fair price compared to reasonable interest rates.

That insane investment bubble still allows Pakistani's and Brazilians to work for American and European companies. Those cables still enable an international economy that could not work without them.

Unfortunately, with insanely low interest rates, investments are now being made in a lot of crazy uneconomic schemes. The invisible hand of economic disaster never falls because interest rates and central banks allow people to borrow all the money necessary to keep their companies alive. They borrow directly, or indirectly through shareholders who borrow to buy their stock.

I know I am preaching to the choir, but I had to get it off my chest.

Blogger Tamquam February 05, 2016 7:27 AM  

I see that the Baltic Dry Index (http://www.bloomberg.com/quote/BDIY:IND) is a 298 this morning. It dropped below the historic low of 400 less than a month ago and has just kept on falling. The Baltic Dry Index measures the relative cost of shipping raw materials by sea. This means that shipping companies are not making enough to cover the cost of fuel and crews. Plus they too bought new ships with cheap money. So demand for industrial inputs has fallen below historic lows compounded with what is likely to be massive bankruptcies in the shipping companies (bearing in mind that ~80% of all commerce moves by water (river, lake or sea) at some point. Strap in and hold on to your hats.

Anonymous grey enlightenment February 05, 2016 7:29 AM  

Yeah , but America is not a household or a person. It can borrow at next to nothing and roll over its debt in perpetuity . It’s worth reminding that interest payments relative to GDP are ridiculously low.

Blogger VD February 05, 2016 7:32 AM  

Yeah , but America is not a household or a person. It can borrow at next to nothing and roll over its debt in perpetuity.

You don't understand how this works. America doesn't borrow anything. American governments, corporations, and individuals do. The core problem is that too many people have some form of ownership to too few things.

This eventually leads to serious problems.

Anonymous VFM #6306 February 05, 2016 7:41 AM  

...a Jubilee without jubilation. The sort of very old lie that ends only in agony: godhood without God.

Blogger Markku February 05, 2016 7:41 AM  

The game can go on for only as long as it looks to the world as if the trustworthiness of the Dollar is high enough that it doesn't yet make economical sense for the rest of the world to create some other system than treating it as the world reserve currency. And with every dollar of more debt, the point where that calculation changes to the opposite conclusion, gets closer.

Anonymous Epi February 05, 2016 7:42 AM  

But still, the American government debt is mostly owed to the American government, and in its own currency, so it is no longer obvious whether the analogy between the typical homeowner's mortgage or credit card debt holds.

Anonymous grey enlightenment February 05, 2016 7:45 AM  

@20 yes, I mean pension funds, sovereign wealth funds, corporations, and individuals - anyone who buys treasury bonds. The yields are very low, which means that the fed. government can borrow at next to nothing.

The core problem is that too many people have some form of ownership to too few things.

Can you elaborate? One one hand, in the 90's home ownership was too high and that led to the financial crisis.

@18 Due to global economic malaise, deflation is a bigger concern than inflation. Typially, you can't have a debt crisis and deflation at the same time; debt crisis, by definition, are inflationary. Stagflation is a concern for some emerging markets though, but I would never invest in those.

Blogger tz February 05, 2016 7:45 AM  

This comment has been removed by the author.

Blogger Boone Waxwell February 05, 2016 7:52 AM  

" I thought that the plot of Victoria was a bit exaggerated, but certainly pointed the way forward. I think that it will all work out, but I would not want to live in a large metro area right now."

I Loved Victoria, and i too thought some of the premise was a little over the top, until i saw the army have to wear high heels.

My only complaint was that if God, Guns and Guts was what made Victoria, then William was a little hard on his portrayal of the South and Appalachia.

Anonymous grey enlightenment February 05, 2016 7:55 AM  

@23 exactly. fallacy of composition

Blogger James Dixon February 05, 2016 8:02 AM  

> Yeah , but America is not a household or a person. It can borrow at next to nothing and roll over its debt in perpetuity.

At the moment, it can borrow at next to nothing. That won't always be true. And perpetuity isn't as long a time frame as you seem to think.

> It’s worth reminding that interest payments relative to GDP are ridiculously low.

Only because interest rates are ridiculously low. What happens when they revert to historical norms?

> But still, the American government debt is mostly owed to the American government...

I assume you mean the American people, but you would be wrong in either case: https://www.nationalpriorities.org/campaigns/us-federal-debt-who/

The largest holders of US debt are now foreign investors, mostly foreign governments. The combined American governments and individual amounts are still larger, but no single source is. And if you don't have the money to pay a debt, does it really matter who you owe it to?

> Typially, you can't have a debt crisis and deflation at the same time; debt crisis, by definition, are inflationary.

That would be incorrect. A debt crisis where the money is never paid back removes that money from the economy. That's deflationary.

Blogger John rockwell February 05, 2016 8:06 AM  

@grey enlightenment

''deflation is a bigger concern than inflation''

Deflation as a result of the decrease in money supply is bad. But deflation as a result of productivity gains and economic growth is good.

A good resource is mises.org to read up on deflation.

OpenID simplytimothy February 05, 2016 8:09 AM  

the Fed's metaphorical foot is broken.

Metaphorically speaking, The Fed is a horse.

Has anybody read Michael Hudson's Killing The Host ?

Stockman has an article . The topic is the practice of wealth confiscation via debt . This blurb grabbed my attention:

Friendships connected Hudson to a former economist for General Electric who taught him the flow of funds through the economic system and explained how crises develop when debt outgrows the economy.

That "flow of funds" appeals to me as something I can model with software and build my understanding from there.

Blogger Stephen Ward February 05, 2016 8:19 AM  

@Epi (23)
The analogy still holds. Just assume that the son has borrowed 50k (his yearly salary) from his father, and he can't make payments on it anymore. Is the father in trouble?

Blogger Markku February 05, 2016 8:24 AM  

Yes, if the father has made financial commitments that assume that he will have that 50k available to him at a certain time.

Blogger dc.sunsets February 05, 2016 8:28 AM  

@2 Every debt is someone else's asset.

This is the key. Central banks have for 35 years taken advantage of an historic mania in rising trust (that resulted in declining interest rates) to amplify the illusion that non-self-liquidating debt is wealth.

Today we have numerous billionaires for no other reason that the concept of wealth has been debased to near-meaninglessness. How is wealth-denoted-as-clutching-IOU's any different from wealth-denoted-as-clutching-a-bunch-of-seashells? Especially when the IOU's are only "money good" as long as the music is playing, but when the music (confidence) stops, most will be worthless.

It's all Cargo Cult thinking.

All that happened in 2009 was the mass mind stepped back from recognizing the Bond Ocean was full of non-performing IOU's. Since then, the borrowers issued IOU's on hyperdrive and the Bond Ocean level rose monstrously.

Money=debt in a fiat system. Debt=wealth only as long as the mass psychology values all those IOU's as trustworthy.

Neither John Law's Mississippi Scheme nor the South Sea Bubble held a candle to this 35-50 year period of utter collective insanity.

Anonymous Millenium February 05, 2016 8:30 AM  

If you like Victoria then I recommend the Northwest novels by Harold Covington.

Blogger Stephen Ward February 05, 2016 8:33 AM  

@Markku

exactly. And the problem is even worse than the analogy I made, since the analogy uses the debt-to-gdp ratio (about 19/16 now) when it should be using the debt-to-income ratio which is about 19 trillion to 1 trillion.
USA gov owes about 19 times its annual revenue to various entities - and none of that debt was used to purchase a revenue-generating asset. There's no way that isn't a problem.

Blogger dc.sunsets February 05, 2016 8:37 AM  

The core problem is that too many people have some form of ownership to too few things.

(This is much the same way the gold futures market works. If there are dozens or hundreds of futures contracts created for every actual underlying ounce of gold, then if even a small percentage of contract buyers decided to take delivery then the entire system would crash. It rests on the notion this will never occur, and encourages more and more contracts to be created without any increase in underlying assets.)

The crash will come when confidence rolls over and a reconciliation of ACTUAL OWNERSHIP of underlying assets plays out.

My view is that the best way to play this is to NOT PLAY. Do everything you can to insure that your ownership of underlying assets, including money, does not depend on the performance of another entity under contract.

Given how cross-linked is nearly every form of ownership today, this is far more complex a goal that might first appear.

Blogger James Dixon February 05, 2016 8:42 AM  

> ...and none of that debt was used to purchase a revenue-generating asset. There's no way that isn't a problem.

Since most of the debt was used to "purchase" revenue absorbing assets (voters), it's even more of a problem than it appears. However, federal tax revenues this past year were supposedly over $3T, not $1T. https://www.nationalpriorities.org/budget-basics/federal-budget-101/revenues/

Blogger dc.sunsets February 05, 2016 8:43 AM  

That "flow of funds" appeals to me as something I can model with software and build my understanding from there.

I'd give a lot to see someone come up with a system that credibly marked-to-market daily a sense of total credit market debt, either USA or world.

I suspect this is impossible, given the difficulty of deciding what forms of debt should be included (because if you left something out that mattered, your results could be too skewed to use.)

Rather than GDP (which is utter BS due to including government spending), the total dollar value of *everything* would be THE key metric. When that goes into a tailspin it will begin somewhere (stocks, commodities already?) and then spread like gangrene to the Bond Ocean. It is the Bond Ocean where the vast wealth bubble of 1980-2015 will go to die.

Blogger Mandos February 05, 2016 8:50 AM  

@20 And yet. Grey enlightenment has a point here. I agree with you on the bottom line Vox, but it has to be acknowledged that this belief, the one that the debt can be extended and the can kicked down the road indefinitely, is so deeply ingrained in the globalist elites and their followers' mindset that it eventually becomes the main factor that allows the whole circus to keep playing. Mere faith of the adepts in their morbid debt cult.

In an economy rigged with debt beyond any hope of redemption, the trigger of the consequences has to be the loss of trust of enough actors in the system for the whole edifice to start shaking on its bases. IOW, things start to go south once a lot of lenders demand their money back at the same time from their borrowers.

Now, it seems that the orchestra can keep playing largely to the extent that the borrowers and the lenders are either the same people or at least people connected enough for the whole money circus to operate in something next to a closed circuit. Hence the incentive for the global elite to start identifying itself as a class, as it tends to minimize the portion of the debt actually owned by people who get screwed by this system and lose faith in it.

I had a conversation of this kind a few months ago amidst the Greek crisis, with a private banker and a journalist for one of the most respected (read, NYT-like respected) swiss newspapers. The banker, knowing a little about the economy, was cautious about this debt accumulation. But the journalist argued with a lot of emphasis and even wrath in his voice that austerity is a bad thing because debt doesn't matter we can always write more. He was sincere. He genuinely could not grasp why we wouldn't just write more debt to get our way out of it. The faith is real. These people absolutely and definitely believe that the whole thing can be managed just by adding more numbers on a balance sheet.

Ultimately this is how leftist utopias end up catching up with reality, as it requires enough people to genuinely believe in the system for the economy to actually keep holding - no matter how delusive this stability is.

Blogger James Dixon February 05, 2016 8:59 AM  

> IOW, things start to go south once a lot of lenders demand their money back at the same time from their borrowers.

Not necessary. All that's required is for them not to renew or extend the debts.

> He was sincere. He genuinely could not grasp why we wouldn't just write more debt to get our way out of it.

Originally, they thought they could just print any amount of money needed. The Weimar Republic destroyed that idea, so they replaced it with borrowing money. They haven't had an equivalent experience with debt yet, but it's coming.

Anonymous A_More_Civilized_Weapon February 05, 2016 9:02 AM  

That assumes that the debtor is the only entity which can pay off the debt.

Here's what I don't understand. If the money supply consisted of only one dollar, that would be enough to run an economy if the velocity were fast enough. So the problem with debt is that money isn't flowing from sources to sinks.

Since government owns the money, they could "unclog" sources, flow it through sinks, and erase the debt. That might prop up inefficient entities that should be allowed to die, but that's a different problem.

So the problem isn't debt. The problem is lack of velocity, isn't it?

Blogger dc.sunsets February 05, 2016 9:07 AM  

Originally, they thought they could just print any amount of money needed. The Weimar Republic destroyed that idea, so they replaced it with borrowing money. They haven't had an equivalent experience with debt yet, but it's coming.

Printing "excess" money has a different cause and a different effect that creating "excess" credit. The former offers a fairly clear delineation of who is doing what to whom.

The latter is far more insidious. It creates the illusion of growing wealth, which for a considerable time seems to have the same effect as creating real wealth. This is why there's so much angst over wealth disparity. Most of that "wealth" accrued to a tiny fraction of people. Paradoxically, it is no different than the "wealthy, in-crowd" people whose money was allowed into Bernard Madoff's firm.

It is simply mass psychology, of the abnormal psych 301 variety. This sort of thing only occurs about every 300 years.

Blogger dc.sunsets February 05, 2016 9:09 AM  

So the problem isn't debt. The problem is lack of velocity, isn't it?

No, it's leverage.

Blogger dc.sunsets February 05, 2016 9:14 AM  

Related topic: The Nikkei 225 has now entirely reversed the higher pop on Kuroda's JCB explicitly taking their rates negative.

"How to impoverish Japanese Citizens 101." It is a testament to the East Asian cultural reverence for Authority that their rulers' heads aren't already sitting on pikes.

Blogger DadOfTen February 05, 2016 9:15 AM  

This reminds me of Egypt's 7 years of plenty when the people were taxed to store food. Then during the 7 years of famine, the grain that was confiscated by taxation, was sold back until the people had sold all their lands and goods. When they had no more lands or goods, they sold themselves as slaves.

Our governments use their ability to tax us, print money, and take from one to give to another, to enslave us.

Anonymous Haxo Angmark February 05, 2016 9:16 AM  

let me add an empirical note. If the Zionist-Globalist banksters, billionaires, and their pet politicians thought they could get away with a debtPonziconomy forever (Krugmanomics) - and I'm speaking of the core of the Ponzi, 'Murka, where resides c. 40% of the c. $200 trillion outstanding global debt - they would not be so increasingly eager to disarm the (White) population. You can measure the approaching collapse - when consent can no longer be bought via debt-financed candy - by how frantic the gun-grab gets. If I had to pick an approximate date for total System Collapse (since we are amidst a moral and political Ponzi as well), I'd say early-to-mid 2017. Not long after Mrs. Clinton - corupt, incompetent, and murderous - clambers onto the bridge of the USS Titanic

Anonymous Rolf February 05, 2016 9:20 AM  

Debt collapse is the way to bet. Sadly, markets can remain insane longer than you can remain solvent if you bet on the rational behavior of politicians. Or, rather, behavior that is good for the country rather than being self-serving.

I expected it to pop a long time ago too. It's interesting watching the implosion and collapse of the modern equivalent of the Roman Empire from the inside, realizing that everyone that sounds like you is named "Cassandra."

Blogger FALPhil February 05, 2016 9:31 AM  

@14 Well, we could take the Icelandic approach and just let the chips fall where they may and prosecuting those who broke the law.

This would be the right thing to do, and it does have precedence in the USA. Prior to August 1929, this is the way things were handled, and the resulting economic turmoil was over relatively quickly. I am all in favor of this approach, but then, I am not one of the Elite.

@41 Since government owns the money, they could "unclog" sources, flow it through sinks, and erase the debt. That might prop up inefficient entities that should be allowed to die, but that's a different problem.

You make me want to go back to the gold standard.

This approach tacitly rewards poor behavior probably causes more problems than it solves. I am not an economist (IANAE?), but this smells like a slightly different version of what is happening now, and that is not working very well.

The government needs to stay out of the economy. When you look at the track record, it makes me think that you could pick 535 names at random from any large city phone book, and have ore aggregate economic knowledge than Congress. Either that, or its all a big scam, and they are purposely fleecing us.

Anonymous Ominous Cowherd February 05, 2016 9:49 AM  

Epi and grey, the goobernment can borrow, or print, currency. They cannot print stuff for the currency to buy.

Each unit of currency,whether is is a debt instrument or a ``dollar,'' represents a claim on some good or service. Once there are more claims than goods and services, some of those claims must be bogus.

Borrowing is cheap now? Will it always be? Why must it always be cheap?

Velocity and money supply are both on the same side of the accounting identity PQ=MV: price times quantity equals money supply times velocity. Right now v is low and m may well fall if we get into a deflationary debt default spiral. The central banks can easily create more money, and intend to do so, so don't get too comfortable with any deflation we see: it shouldn't be expected to last. Central banks will create more bogus claims on real assets as long as fools will take those claims and call them money.

At this point, I wouldn't trade real land or real gold for federal reserve notes.

Anonymous Eric the Red February 05, 2016 9:53 AM  

@46...
Good points. I wonder what data mining of metadata is showing about trends in these latter days of the American Hegemony? For example, it would be interesting just to do a simple plot of private gun sales over the last 100 years, and see if accelerations correlate with actual national crises.

Anonymous Chad February 05, 2016 10:07 AM  

A question to Vox the ilk

What are peoples thoughts on taking on debt towards land and a home? I'm getting married in 3 months, and have opportunity to buy 20 acres to build a home. The land is half grazing and half growning. I think I could buy the land and get a small home built for 120-140k

Its a very rural area, in a traditional community that is tight knit. I make 40k after taxes, and wife to be makes 30k. I'm fairly confident each will increase next year by 5k, and after that I should be a journeyman electrician at 65k with her dropping out of the market to SAHM.

Worth the debt, or do Vox and the Ilk think it'll go bottom up too quickly to make growing your own food, raising animals, and a house worth the risk?

Anonymous A_More_Civilized_Weapon February 05, 2016 10:10 AM  

FALPhil @48: "you make me want to go back to the gold standard."

I've never understood why gold is seen to be a magical

collection of atoms. Except, perhaps, that it allows people to keep it away from the govt. But while that may benefit an individual, it doesn't benefit the community, since taking money out of circulation hurts the system.

"This approach tacitly rewards poor behavior probably causes more problems than it solves."

I said as much. But when an overweight smoker goes to the doctor, the doctor still has to treat.

"The government needs to stay out of the economy."

An economy is just the communal interactions. One mandate of the government is to punish those who harm the community. It seems to me that "hoarders" (those who keep money out of circulation) harm the community and so need to be dealt with.

Blogger Stephen Ward February 05, 2016 10:10 AM  

@ A_More_Civilized_Weapon (41)

No. The problem is debt.

What generates velocity? is there a minimum velocity? is there a maximum velocity?
If velocity is at some level X, and increases to some other level X + n, where did the n increase come from, assuming constant money supply? Conversely, if it decreases to some level X - m, what absorbed the m decrease, assuming constant money supply?

Blogger BunE22 February 05, 2016 10:18 AM  

@24

"Can you elaborate? One one hand, in the 90's home ownership was too high and that led to the financial crisis."

It's my understanding, and I could be wrong, that it wasn't that home ownership was too high but that too many mortgages were given to people that would not have been able to get one if banks used their old standards. But the government forced banks to give loans to risky people, so they too can live the American dream, and those people just left their keys in the houses and walked away when the economy tanked.

Some of those people had borrowed more than 100% of the value of the house. When you don't have skin in the game, like a sizable downpayment, you can walk away and screw everyone else.

Anonymous szIlk February 05, 2016 10:19 AM  

Look'n more and more like we just need one of these...

https://www.youtube.com/watch?v=eXpnuZM009Y

Blogger Boone Waxwell February 05, 2016 10:36 AM  

". It seems to me that "hoarders" (those who keep money out of circulation) "

Hoarding is unethical accumulation in a time of need. Wise accumulation in times of plenty for use in times of need is beneficial to community, even if the "hoarder" doesn't share.

Blogger 罗臻 February 05, 2016 10:37 AM  

The disappearance of eurodollars and petrodollars is driving the rally in the U.S. dollar, along with falling deficits, the end of QE3 and the need to repay $9 trillion in overseas dollar debt.

Interest rates dropping below zero signals deflationary collapse. The central bankers the faithful believe crossing the zero bound is a continuation of easy monetary policy, but breaking the zero bound is a phase change in monetary policy. It is destroying base money. Not debasing base money as in inflation, but destroying it. In some cases, it will soon be cheaper to buy and store gold than to have a savings account.

Reread Chapter 10 of America's Great Depression. What is playing out today is similar to the Depression, but China is in the role of the United States.

Anonymous smedley butler February 05, 2016 10:41 AM  

"Ben Bernanke and the Republicans "saved the economy" by kicking the can down the road just as Alan Greenspan did in 1987."

It's interesting that the last non-Eskimo to run the Fed was Paul Volcker, a Lutheran.

Blogger 罗臻 February 05, 2016 10:49 AM  

By the way, the Fed discontinued TCMDO, but it can be reconstituted.

Blogger Noah B February 05, 2016 10:57 AM  

It seems to me that "hoarders" (those who keep money out of circulation) harm the community and so need to be dealt with.

Collectivism, basically. Moronic.

Further, those who remove money from circulation by hoarding it also tend to increase the purchasing power of all other money.

Blogger Stilicho February 05, 2016 11:02 AM  

I've never understood why dollars are thought to be a magical collection of IOU's...

Anonymous Athor Pel February 05, 2016 11:04 AM  

"52. Anonymous A_More_Civilized_Weapon February 05, 2016 10:10 AM
...
taking money out of circulation hurts the system.
...
An economy is just the communal interactions. One mandate of the government is to punish those who harm the community. It seems to me that "hoarders" (those who keep money out of circulation) harm the community and so need to be dealt with.
"



You're a Commie and a Thief and you know as much about economics as my toe jam.

What I or anyone else does with our money is none of your damn business.

Blogger Noah B February 05, 2016 11:13 AM  

In times of crisis the free market is more important than ever. The alternative to what collectivists call hoarding and price gouging is widespread shortages - empty shelves, empty gas tanks, brownouts, blackouts, etc. Just like Venezuela is experiencing at this very moment.

Anonymous Jay Will February 05, 2016 11:13 AM  

Its no coincidence that the economic chickens may be coming home to roost, smack bang in the middle of a "refugee" crisis driven by elite propagandists. Escape through war.

Be interested to see stats on deaths during war by opposing elites, and to what extent wars provide cover for elites on supposedly opposing sides who both end up profiting out of war.

People will forget about their savings being gutted when fighting kicks off. Okay I'm now skint, but at least I'm not dead.

Anonymous BigGayKoranBurner February 05, 2016 11:14 AM  

So, how does your average person...or avoid financial damage from

Flee die verse city for a Whitopia. Get a greenhouse, fruit/nut trees with swales, long term storage food & ammo. Remember if you can not touch it you don't own it.

Try not paying your mortage or your auto loan and you'll find out how "meaningless" it is.

So many affirmative action govt workers around DC did that that it turned out to be meaningless. I will have to look for the story of 2 black govt workers who both earn six figures but are too stupid to understand a mortgage.

" I thought that the plot of Victoria was a bit exaggerated,

Prepare for the nigapocolypse, if you can survive that you can survive anything.

But the journalist argued with a lot of emphasis and even wrath in his voice that austerity is a bad thing because debt doesn't matter we can always write more.

The real concept of white privilege is that whites can keep producing and supporting others, but when looking at a pay as you go economy in Switzerland it takes 133 productive taxpaying whites to support each 3rd worlder. http://www.dailymail.co.uk/news/article-2758055/Outraged-Swiss-village-1-000-residents-forced-raise-taxes-African-refugee-mother-seven-moves-costs-40-000-month-benefits.html

Printing "excess" money has a different cause and a different effect that creating "excess" credit
It costs money to print excess money.

". It seems to me that "hoarders" (those who keep money out of circulation)

Bad money always chases out good. Its not hoarding if bath house Barry says we are in a recovery & everything is awesome. Please stay out of my bedroom, wallet, kitchen, garage, laundry room, closets, basement, and attic.

Anonymous Jack Amok February 05, 2016 11:17 AM  

the goobernment can borrow, or print, currency. They cannot print stuff for the currency to buy.

Bingo. The economy is people making stuff and people consuming stuff. Everything else is overhead. If the debt was being used to create productive capacity, we'd probably be okay. Also, the debt would be a lot lower because it takes time to really create productive capacity and money can only be spent so fast on it. But overhead, more banks, more government handouts, more bureaucrats, paper-shufflers, and bean-counters, even more retail outlets selling cheap crap, none of that is productive and it's also really easy to pour money into fast. And that's what we've mostly been financing with all this debt.

Worse, not only have we not been creating productive assets (like factories), we've failed to develop skills in enough people to staff those assets. Too many bankers, lawyers, regulators, and administrators, not enough welders, machinists, technicians and engineers.

Each unit of currency,whether is is a debt instrument or a ``dollar,'' represents a claim on some good or service. Once there are more claims than goods and services, some of those claims must be bogus.

Or else becomes only a partial claim. When claims are nullified you have deflation, when they're diluted you have inflation. Which way will Social Security be ash-canned?

Blogger wrf3 February 05, 2016 11:20 AM  

Athor Pel @ 62: What I or anyone else does with our money is none of your damn business.

It isn't your money. It isn't your picture on the currency.

Anonymous Jack Amok February 05, 2016 11:24 AM  

Be interested to see stats on deaths during war by opposing elites, and to what extent wars provide cover for elites on supposedly opposing sides who both end up profiting out of war.

Depends on the scale of the war. Small wars tend to benefit the elite quite a bit, but war has a way of getting out of hand and the big ones wipe out elites wholesale, even on the wining side.

Compare the wealth and power of European nobility in 1900 to it in 1950, or even 1960. A huge fall in fortunes. Some held on a bit, but on average, they were thrown out of power and lost most of their wealth and occasionally their lives.

Anonymous Jack Amok February 05, 2016 11:31 AM  

Chad:

What are peoples thoughts on taking on debt towards land and a home?

A house and productive land is probably the least objectionable use of a loan, but you've got to be sure you can pay it off.

If you can really get it all done for $140k (though trust me, building a home and keeping the project on budget is a challenge - lots of opportunities for significant overruns, so give yourself some buffer there) and you think you can make $65k take home a year, that's a pretty good ratio. But how much of that $65k can you save?

Can your wife, as a SHM, run a business generating profit from the land? Maybe grazing?

Blogger Trid February 05, 2016 11:32 AM  

Don't pay your debt and armed men start knocking at your door. The debt is merely a smoke screen to fool the goyim- those armed men cab and will show up whenever they feel like it

Blogger BunE22 February 05, 2016 11:35 AM  

@65

"Please stay out of my bedroom, wallet, kitchen, garage, laundry room, closets, basement, and attic."

Oh, so your bathroom is open for discussion. So. How are your BMs? I hope you lift the lid first. Is that a low water flush tank? It had better be. You may need more roughage. Stop hoarding tp. You need a water restrictor on that shower head. Did you wash your hands?

Sorry, couldn't resist.

Blogger BunE22 February 05, 2016 11:39 AM  

Athor Pel @ 62: What I or anyone else does with our money is none of your damn business.

It isn't your money. It isn't your picture on the currency.


Now that's just asinine.

Blogger James Dixon February 05, 2016 11:39 AM  

> So the problem isn't debt. The problem is lack of velocity, isn't it?

In a word, no. Human systems are inefficient. The level of velocity required can't be achieved.

> I've never understood why gold is seen to be a magical

Gold is rare, doesn't tarnish, is easily malleable, and is portable. It's the ideal substance to use as money.

> What are peoples thoughts on taking on debt towards land and a home?

Is the job stable. Can you trust to lender? Will the loan be sold. When we borrowed for our house twenty plus years ago now, we dealt with a local bank that didn't resell their mortgages.

In any case, pay off the loan as quickly as possible.

Blogger Noah B February 05, 2016 11:40 AM  

"Worth the debt, or do Vox and the Ilk think it'll go bottom up too quickly to make growing your own food, raising animals, and a house worth the risk?"

I can't speak to the timing of all of this because I have consistently been wrong. This has taken far longer to play out that I would have imagined.

But when it falls down, there is no reliable substitute for being able to produce your own food. And if you don't plan on doing this yourself, coordinate with someone else who has farming experience who you trust with your life. There will likely be times and places when it's far too risky to linger outside during daylight in urban or suburban areas. Otherwise good people turn into killers when things get desperate.

Blogger Azimus February 05, 2016 11:44 AM  

Can someone connect enormous amounts of debt with economic apocalypse in today's world and market forces? Was Lehman an example of debt's destructive power? Are there others?

Anonymous tittyCUCKing February 05, 2016 11:46 AM  

The dollar has value only because the U.S. has a gun pointed at the rest of the world, and isn't afraid to use it. When the world no longer fears that, then the interesting times begin. Russia and China, be it in Syria, the Spratlys, or elsewhere - are signaling they may have finally had enough of Uncle Sam's shenanigans.

Blogger dc.sunsets February 05, 2016 11:50 AM  

Regarding debt to buy a home, farm, etc.:

My view is that young people have no choice but to live in Plan A (the status quo.) No one knows the future, and all the doom-and-gloom of today was present (albeit in smaller qty) in 1995. Doom-and-gloom sells. Certainty sells better than hedged hesitancy.

Try not to box yourself in such that if Plan A goes tits-up you're left living under a bridge. Plan B should, for most people, be moving back in with family and sharing overhead. I'd rather my sons & families move back in than see them blow their brains out. Where there's life, there's hope. If things get as bad as seems likely, simply hunkering down and waiting out the storm will probably describe a better time than 98% of people will experience.

Storms pass. Wars end. Only those still living (or with living kids) win. Vietnam's communists won the war yet today Hanoi has a stock exchange. Today's stupid collective follies change (into tomorrow's stupid collective follies.)

Blogger wrf3 February 05, 2016 11:59 AM  

James Dixon @ 73: In a word, no. Human systems are inefficient. The level of velocity required can't be achieved.

Of course human systems are inefficient. Most are. But that doesn't explain why the level of required velocity can't be achieved. Why can't the necessary velocity be achieved? Bits can be moved pretty quickly these days.

Gold is rare, doesn't tarnish, is easily malleable, and is portable. It's the ideal substance to use as money.

Bits can be rare, don't tarnish, are malleable, and are portable. Too, it doesn't matter if the rarity is caused by nature or by fiat. There's nothing special about gold.


Blogger BunE22 February 05, 2016 12:06 PM  

@51

I can't predict the economy but I believe in owning land.

Is the land on a shale formation? If so, will you also own the mineral rights? That's a plus.

The fact that you could grow food and raise animals is a plus.

Do you have family that could help you out financially if the SHTF and you or your wife lose your job? Your trade is a plus.

What are they giving for mortgages these days? Stay away from an adjustable rate. When times are good, send extra in with your mortgage payment, it comes off the principal and you can pay off the mortgage faster. If the economy doesn't implode and you gain equity in your land don't pull it out with a refinance or second mortgage.

Don't live beyond your means, get rid of credit cards if you have any. Even with a zero balance a bank looks at credit cards as potential debt.

Have guns and ammo to protect yourselves and assets.

Sounds to me like you'd have a home and a bug out location in one, I like it. My grandfather always said to buy land, and that's what we've done.

Blogger BunE22 February 05, 2016 12:09 PM  

"Bits can be rare, don't tarnish, are malleable, and are portable. Too, it doesn't matter if the rarity is caused by nature or by fiat. There's nothing special about gold"

Gold is a physical asset. If you're talking about bit coins, good luck if the grid goes down.

Blogger dc.sunsets February 05, 2016 12:17 PM  

Too, it doesn't matter if the rarity is caused by nature or by fiat.

Huh?! Last I looked, nature is. Fiat=politics. If you don't know the difference, well....

I have this nifty picture postcard of a bridge I'm selling. Let me make you a deal....

Blogger G-S. February 05, 2016 12:20 PM  

First line in this article:

"I've been warning about the danger of the massive debt overhanging the global economy since 2002 to absolutely no avail."

AND YET...the world has not ended for 14 years. It reminds me of end-of-the-worlders who keep claiming it's going to happen for real this time. You lost your integrity in 2002 and keep losing it and will keep losing it. I think you're going to need to start studying economics.

Blogger James February 05, 2016 12:21 PM  

"Granted, they kicked it further than I would have believed possible in 2009," Everyone who knows how economics works is amazed, but it's the power of ultra low interest rates, is it not, allowing them to blow the bubble up beyond any resemblance to reality? The hangover is going to be horrible.

Blogger James Dixon February 05, 2016 12:27 PM  

> But that doesn't explain why the level of required velocity can't be achieved

Do the math on the level of velocity required, then get back to me. But remember that the $18T+ in federal debt doesn't include state or municipal debt and doesn't include future Social Security or Medicare obligations.

Or you can just take my word for it. Your choice.

> Bits can be rare, don't tarnish, are malleable, and are portable.

No, bits cannot be rare with the level of computational ability we now have; they do tarnish (how are those old Geocities sites doing today?); and they're only semi-portable (how easy is it to share files between your phone and your computer? What about any computer that's more than 10 years old?) I'll grant the malleable.

Anonymous Mr. Rational February 05, 2016 12:28 PM  

@49 We're seeing this in North Dakota.  You can't print oil, or the steel and rigs and trucks needed to get it.  You can print money to buy those things but look what happened when they tried it.  It takes $80 to make those wells pay off and they're fetching under $30.

@51 If you can borrow from family (and maybe give them a bolt-hole if things go Tango Uniform) that sounds safest.  With family you can do a debt-for-equity swap rather than foreclosure.

@73 I recall reading during the "robo-signing" scandal that banks in some cases were inventing liens against debt-free real estate and attempting to foreclose.

@78 Bitcoin cannot operate without the Internet to synchronize all the wallets, no?

Blogger wrf3 February 05, 2016 12:29 PM  

dc.sunsets @81: of course I know the difference between nature an fiat. The point is that both can cause rarity. And both can be artificial, cf. counterfeit bills and fools gold.

If the bridge you're selling has the structural integrity of your arguments, then I'll pass, thanks.

Anonymous BGKB February 05, 2016 12:36 PM  

You need a water restrictor on that shower head. Did you wash your hands?

They will have to take my showerheads from my cold dead hands.

U.S. has a gun pointed at the rest of the world, and isn't afraid to use it. When the world no longer fears that

Not a gun but uranium

Not entirely OT: was anyone able to make it through the fictional TV version of Bernie Madoff's story? When it was obvious tribal propaganda showing that he didn't set up a Ponzi scheme I couldn't watch it any farther.

Blogger wrf3 February 05, 2016 12:42 PM  

James Dixon @84: do the math...

You made the claim, you back it up. If US assets are roughly 150 trillion, and US debt is 20 trillion (or 300 trillion -- it doesn't matter), there's plenty of money to flow through the system.

And of course bits can be rare. There are computationally hard problems that can scale faster than we can apply computing power. In this case, the rarity is imposed by fiat (although rarity is only important absent a central money supply).

Those old Geocities sites aren't any different than corporate stockpiles in offshore accounts. They're not contributing to velocity.

It's trivial to share files between my phone and computer. Certainly much easier than transferring the old Confederate bills still exist.

Blogger unconventional nazi February 05, 2016 12:46 PM  

These big banks (the Fed) really have a good gig. As to where they're going with this, look at Greece. They create money (in the U.S.'s case debt) on a computer and loan it to the government. They don't actually have anything personally invested here they entered the numbers on a computer. When the government can't pay they will demand to be given assets in return for the numbers they created on a computer. They will continually remind you of your moral obligation to pay them. I think this is what actually has them somewhat worried about Trump as it's not impossible to picture him telling them "Meh we aren't paying you and you're not getting our assets. Stuff it."

Blogger BunE22 February 05, 2016 12:50 PM  

According to Obama who is speaking now, more people are entering the workforce, and those that are critical of the economy aren't following the facts. Still in hangover from 2007-08.

Still pushing "cleaner" energy. Going to impose a tax on oil imports and exports. Says gas prices will continue to be low.

Blogger RC February 05, 2016 1:00 PM  

@Chad
Great that you're thinking about such things at a young age. And it'll be hard to outsource your trade.

I have built a situation similar to yours, so let me share a few items to investigate thoroughly:

1) Make sure you can get water access. Don't try to haul water.
2) Make sure the septic or sewer situation is tenable. Some jurisdiction's regs are unwieldy and compliance could blow a huge hole in your budget.
3) Make sure you can build on the property.

Another option is just to live cheaply, save, and continue to learn and give yourself a few years to make such a big decision. Good luck.

Anonymous Roundtine February 05, 2016 1:05 PM  

Was Lehman an example of debt's destructive power?

Lehman was executed, as was AIG. The Fed made $20 billion off the assets they took from AIG. This shows the destructive power of debt in the sense that you are controlled by creditors. If other banks conspire against you, then you die because they stop lending to you. If you are best buddies with the central bank, you can withstand all but the largest crisis. The largest crisis comes when then Fed can't do a rescue such as in 2008, when faith in the financial system or the currency breaks down.

Blogger FALPhil February 05, 2016 1:12 PM  

@52 It seems to me that "hoarders" (those who keep money out of circulation) harm the community and so need to be dealt with.

So you are foursquare against private property rights. I see you and people like you more of the problem and none of the solution. Collectivism has been a failure every time it is tried, and typically it murders its opponents.

At least now we know where you stand.

Blogger Nate February 05, 2016 1:35 PM  

"There's nothing special about gold"

This is historically retarded.

Gold has been desired and used as money for 5000 years. That, in and of itself, is special.

Blogger wrf3 February 05, 2016 1:37 PM  

FALPhil @93:

I am not against private property rights. But what you haven't shown is that money is private property. It's coined by Caesar, not you. It's government property.

As to collectivism being a failure, there are several types of people in the world:
1. Those who work to improve themselves and their communities.
2. Those who work to improve themselves, but are otherwise isolationist.
3. Those who work to improve themselves at the expense of others.
4. Those who harm themselves,
5. Those who harm themselves and their comminities.

What you call "collectivism" I call #1. Now, I agree with you that forced collectivism is problematic. I am, after all, a Confederate, and have never understood how forced political union is any less evil than forced economic union.

But if you participate in the economy, you have a duty to not harm the economy and, if you do, the government has the duty to step in. If you think you can argue against that, I'd sure like to hear your position.

Blogger Nate February 05, 2016 1:37 PM  

" It seems to me that "hoarders" (those who keep money out of circulation) harm the community and so need to be dealt with."

Also... window manufactures should be required to coat them with sugar.

And Crayola should make purple crayons taste like grape. Because that's misleading.

Blogger James Dixon February 05, 2016 1:37 PM  

> You made the claim, you back it up.

You asked a question, I answered it. Now in your mind that's a claim, huh? OK. Since you seem to think so, I'll see if I can find the relevant information to do the math for you. However, in that case your statement that it is velocity that's the problem is then also an assertion. Please back it up, or withdraw it.

> If US assets are roughly 150 trillion, and US debt is 20 trillion (or 300 trillion -- it doesn't matter), there's plenty of money to flow through the system.

Assets does not equate to money. Most US federal assets are illiquid for one reason or another. Extremely so in many cases. Though I'd expect an unused ICBM to relatively easy to sell to some mideastern country or other, should they choose to do so. They could probably even get a good price.

> And of course bits can be rare. There are computationally hard problems that can scale faster than we can apply computing power.

Yes, there are. That's the bitcoin approach. However, do you really think the NSA can't use their computational power to flood the market with bitcoins if they want? And what's rare now won't be rare in 5 years, much less 10. Moore's law is till holding.

> Those old Geocities sites aren't any different than corporate stockpiles in offshore accounts. They're not contributing to velocity.

You said bits didn't tarnish. I provided a counter example. This was in reference to gold, not velocity.

> It's trivial to share files between my phone and computer.

Good for you. You data is obviously well and currently formatted. Suppose you have some old Wordstar files. How would your phone handle them? The Wordstar format is only 30 years old or so. But then I guess no one needs a 30 year mortgage, do they?

> Certainly much easier than transferring the old Confederate bills still exist.

If you don't want them, I'd be more than willing to take any you have off your hands. Just offer them here and see how fast they would transfer.

> According to Obama who is speaking now, more people are entering the workforce, and those that are critical of the economy aren't following the facts. Still in hangover from 2007-08.

http://data.bls.gov/timeseries/LNS11300000

Someone is lying. Figuring out who is left as an exercise for the reader.

Blogger Nate February 05, 2016 1:43 PM  


"It isn't your money. It isn't your picture on the currency."

You've said a lot of really stupid things on this blog over the years.. but this may be even more stupid than all those other really stupid things... combined.

Blogger wrf3 February 05, 2016 1:53 PM  

Nate @ 98:

Then he said to them, "Whose head is this, and whose title?" 21 They answered, "The emperor's." Then he said to them, "Give therefore to the emperor the things that are the emperor's, and to God the things that are God's."

You were saying?

Blogger Nate February 05, 2016 1:59 PM  

"You were saying?"

I'm saying you're an idiot. Because you think that helps your point. Which just shows you're ignorant of both the bible and economics.

Then again... You're a calvinst... so... it goes without saying.

Blogger Noah B February 05, 2016 2:00 PM  

This is why I speak to them in parables: "Though seeing, they do not see; though hearing, they do not hear or understand."

Blogger wrf3 February 05, 2016 2:04 PM  

Nate @ 100:

If all you have is name calling then you have nothing. If you don't think that passage says that money with Caesar's image belongs to Caesar, because he coined it, then why don't you tell us what it really means? How badly can you twist it?

Blogger Nate February 05, 2016 2:08 PM  

let's stick with one retarded arguement at a time...

What if my picture actually IS on my debit card? Or to put it another way... who's picture is on the digital numbers that get transferred when that debit card swipes?

Also.. why is it that purple crayons don't taste like grape? Have you figured that out yet?

Blogger Nate February 05, 2016 2:11 PM  

OO OO!

Regions Bank gives out debit cards with The Alabama Crimson Tide logo on them!

Does that mean Bama owns all the money in the accounts?????

ROLL TIDE Y'ALL!

Blogger BunE22 February 05, 2016 2:17 PM  

Considering all the pictures on my money are of old, dead guys I should be good because they aren't coming any time soon to claim it.

Is your picture on a bitcoin wrf3? I never saw one.

Blogger wrf3 February 05, 2016 2:25 PM  

Nate @ 103: it's clear that you don't understand how to abstract. In the case of a denarri, it belongs to Caesar. In the case of Visa, it's a proxy for a nation's currency. So a VISA card isn't a denarius.

Anonymous Chad February 05, 2016 2:27 PM  

Thanks for the feed back guys

I think we could get it so that we're not buying much groceries. My fiancee has experience milking goats, we could gwt a chicken hatch with ability to sell the extras, and there's a sheep breed nearby that doesn't need shearing; could be a good, easy meat source.

Neighbors are Catholic with big prepper mentality, and could likely look to them if SHTF in either government or personal economic areas. Plus they're permaculture trained and can help me get food going (grow zone 8, so good area but not Florida or anything). Family lives a time zone away, so is unreliable in SHTF scenario but may be able to help the homestead get going.

The hardest part will be getting it going. We want a small house, but banks are only lending to larger projects from what I can see. Its almost like they want it to default and claim the whole thing for themselves. ...

Blogger SirHamster February 05, 2016 2:30 PM  

If you don't think that passage says that money with Caesar's image belongs to Caesar, because he coined it, then why don't you tell us what it really means?

Did Caeser run a 100% tax rate?

Your taxes belong to Caeser != your money belongs to Caeser.

Blogger Tom K. February 05, 2016 2:32 PM  

Good point. The whole idea behind using debt I.e. getting a loan, is the Good Faith belief of the borrower that he's goibg to be able to make a profit with the money and pay back the loan using this profit.

Just how many businesses took this stimulus money with a clear plan to invest it in their business for a profit? Obviously not many.

Once I had a loan officer trying to talk me into a home equity loan. I was able to shut him up by simply asking, "But I'm gonna have to pay this back, right?"

"Right, of course."

"So if i use the money to buy all these " toys" that prodice no income, where am I gonna get the extra money to pay back the loan with interest? "

Silence.

If I had no morals I'd have borrowed all that free money and then defaulted, kept the toys, and lived in the house rent free for two to five years, saving the rent money to buy another home! I know a man who is going on his sixth year living in his pending-foreclosure home.

Blogger Tom K. February 05, 2016 2:34 PM  

Good point. The whole idea behind using debt I.e. getting a loan, is the Good Faith belief of the borrower that he's goibg to be able to make a profit with the money and pay back the loan using this profit.

Just how many businesses took this stimulus money with a clear plan to invest it in their business for a profit? Obviously not many.

Once I had a loan officer trying to talk me into a home equity loan. I was able to shut him up by simply asking, "But I'm gonna have to pay this back, right?"

"Right, of course."

"So if i use the money to buy all these " toys" that prodice no income, where am I gonna get the extra money to pay back the loan with interest? "

Silence.

If I had no morals I'd have borrowed all that free money and then defaulted, kept the toys, and lived in the house rent free for two to five years, saving the rent money to buy another home! I know a man who is going on his sixth year living in his pending-foreclosure home.

Anonymous BGKB February 05, 2016 2:38 PM  

It's coined by Caesar, not you.

$10 face value in pre 1965 quarters smelts down into ~$180 in silver. That's how much value has been lost, when Ron Paul worked as a doctor for $3 an hour he could be paid in a $20face value gold coin.

WRF# 4. Those who harm themselves, 5. Those who harm themselves and their comminities.

6. those that improve their tribes assets by harming their host community with plans to flee. This is what coercive collectivism has been for all of history.

If I had no morals I'd have borrowed all that free money and then defaulted, kept the toys, and lived in the house rent free

Without morals you could make boatloads of money just doing the scams Martin Luther wrote about 500 years ago.

Anonymous Ominous Cowherd February 05, 2016 2:44 PM  

Ideally, money is divisible, identifiable, durable, and so on. It can function as a currency, as a unit of account and as a store of value.

Our currency is our unit of account and currency, but it is no store of value for the long term or medium term. Federal reserve notes are currency, but they utterly fail to perform one of the essential functions of money.

So, whose picture is on money? Paul Kruger's. Whose picture is on currency? Various dead presidents. I suggest that you convert currency to money or other tangibles with all deliberate haste, before the central bank further dilutes its value.

Blogger Josh February 05, 2016 2:47 PM  

A question to Vox the ilk

What are peoples thoughts on taking on debt towards land and a home? I'm getting married in 3 months, and have opportunity to buy 20 acres to build a home. The land is half grazing and half growning. I think I could buy the land and get a small home built for 120-140k

Its a very rural area, in a traditional community that is tight knit. I make 40k after taxes, and wife to be makes 30k. I'm fairly confident each will increase next year by 5k, and after that I should be a journeyman electrician at 65k with her dropping out of the market to SAHM.

Worth the debt, or do Vox and the Ilk think it'll go bottom up too quickly to make growing your own food, raising animals, and a house worth the risk?


How much liquid savings do you have?

If you've got some money saved up, go ahead and do it.

Blogger SciVo February 05, 2016 3:10 PM  

Iceland is poised to take over the world, just because it is the only sane nation.

As a counterpoint to those articles, it is illustrative to see Forbes try to justify our lack of prosecutions, ignoring that -- as it says in the second link -- "The Althingi commission had similar powers of subpoena to the Pecora Commission, convened after the 1929 Wall Street crash... With that unprecedented access to confidential information, crimes that can be difficult to prove in a courtroom were suddenly there for all to see."

Anonymous Chad February 05, 2016 3:19 PM  

@ josh

We don't have much liquid assests. 7k right now, but we save between 1 and 1.2k a month depending on what side work we each get. Right now we pay 600 between each of our rents, and moving in together it'd be 400 with our current plans, or whatever the mortgage turns out to be if we buy.

My only concern is the mortgage locking us into a two income dependency. Home schooling is a huge priority for us.

Blogger SciVo February 05, 2016 3:26 PM  

grey enlightenment @24: Typially, you can't have a debt crisis and deflation at the same time; debt crisis, by definition, are inflationary.

You're thinking of sovereign debt. If you have a private debt crisis, then two things can happen. Banks can stop lending because they go belly up, like with the U.S. stock market crash of 1929. Or, banks can stop lending because they're insolvent zombies, like when Japan's real estate bubble burst in 1991.

It's actually preferable to recognize the bad debt and bury the dead banks, so that you can get the pain over with and start over. It's just money. The production capacity is still there. If let the zombie banks stumble along, then their insatiable appetites will eat all attempts at stimulus.

Blogger FALPhil February 05, 2016 3:29 PM  

I'm saying you're an idiot. Because you think that helps your point. Which just shows you're ignorant of both the bible and economics.

I'm with Nate on this. Currency is merely a medium to make transactions easier to tax. Without hte medium, the transactions would go on anyway.

Then again... You're a calvinst... so... it goes without saying.

Not with Nate on this one. I don't think he'd last 10 minutes with R.C. Sproul. IMO, WRF3 is an outlier.

Blogger SciVo February 05, 2016 3:40 PM  

P.S. Someone should calculate how many more Japanese there would be in the world if their leaders had forced the banks to mark their debt to market, buried the dead, and allowed their economy to roar again, so that their young adults would have felt like making babies at the same rate that they did before.

Blogger James Dixon February 05, 2016 3:44 PM  

Now, lets address the matter of velocity and the debt. I've had time to collect some figures.

The below will undoubtedly make Vox laugh with it's over simplification and perhaps sometimes completely wrong analysis, but I'm not an economics major. :)

Wikipedia says that total US debt is $145.8 trillion: https://en.wikipedia.org/wiki/Financial_position_of_the_United_States

Forbes says the unfunded liabilities of the federal government are $127 trillion: http://www.forbes.com/sites/realspin/2014/01/17/you-think-the-deficit-is-bad-federal-unfunded-liabilities-exceed-127-trillion/#4839788510d3

State unfunded liabilites are over $4 trillion: http://www.statebudgetsolutions.org/publications/detail/promises-made-promises-broken-the-betrayal-of-pensioners-and-taxpayers

So that's around $276 trillion in total debts and unfunded liabilities. This is probably an understated figure, but it will do.

The current money supply (M0) is given as slightly under $4 trillion: http://www.tradingeconomics.com/united-states/money-supply-m2

Strangely M1 seems to be slightly lower than M0.

Now velocity. Velocity is normally measured as a yearly figure; the number of times. Given this, and the fact that the majority of money changes hands via banks, it should be obvious that the bank exchange rates set an upper limit to velocity. The time it takes for a transfer to clear (the time between the money being paid by one person and cleared for use by another person) can vary widely between banks, but it's reasonable to assume something on the order of 5 business days. This sets an upper limit to velocity in our current system to something in the range of 50, assuming no loses in each exchange.

But there are losses in each exchange. There are income/business taxes, sales taxes, and savings/profit rates. In the worst case, these can eat up to 50% or more of the transfer. Fortunately for economists, not all of them are applicable in each case (governments usually don't pay taxes to themselves, for instance). But this makes the upper limit far less than the theoretical maximum of 50. In the worst case where 50% or more of each transaction is eaten up by costs, the maximum falls to 2 or less.

The velocity for M1 is currently 5.9, and peaked at just under 10.7 in 2007 (https://research.stlouisfed.org/fred2/series/M1V). The previous peak before the run up to 2007 was 9.57 in 2000. Given the collapses of 2000 and 2007, it should be obvious that the natural limit of the velocity of M1 is currently in the range 10.

Now, if we took every penny of M0 and applied it to paying off debt, with a velocity of 5.9, we would be able to pay off just under $24T of the debt each year. It would take us over 10 years to pay off the debt. Obviously, using every penny of M0 to pay off debt isn't realistic. Something more on the order of 10% might be. With 10% going to paying off the debt, it would take over 100 years. To pay it off in 10, the velocity would have to go to 60, well beyond our even theoretical maximum. At the maximum historic velocity of 10 and 10% of M0 being used, it would take over 60 years.

To summarize, the problem is the size of the debt, not the velocity.

Any math mistakes are entirely mine, of course. I'm at work and did most of this over lunch time with frequent interruptions, so they are entirely possible.

Blogger wrf3 February 05, 2016 3:58 PM  

James Dixon @119: To pay it off in 10, the velocity would have to go to 60, well beyond our even theoretical maximum.

That's only a theoretical maximum using the current, very inefficient, rate of 5 business days/transfer. What's to stop it getting down to, say, 5 seconds/transfer? Even that's slow by today's standards.

Blogger James Dixon February 05, 2016 4:12 PM  

> What's to stop it getting down to, say, 5 seconds/transfer?

The fact that he banks are legal monopolies and don't want to lower it beyond the current rate. It allows them to use the float for their own benefit.

However, the real limitation to velocity is the loss rate. The maximum figure is the sum of (1-loss rate) to the nth power as n approaches infinity. A loss rate as low as 10% means you have a maximum velocity of 10.

Anonymous John Steed February 05, 2016 4:43 PM  

Hell, the Fed`s foot aint just broken, it`s wedged in our collective arses!

Anonymous Daniel H February 05, 2016 4:45 PM  

>>2008 was the first stage, but instead of doing as I recommended, permitting the bad loans to default, and allowing the banks and other credit holders to go bankrupt

They of course ignored such correct advice because the Federal Reserve wanted their banker friends/family to continue reaping as much cash from the dying system. Since 2008 massive fortunes have been added to and created by parasites sucking off the dying host. The host will eventually die, no doubt about that, but by that time such enormous wealth will have been siphoned off that the villains will be secure and powerful for eons. One would think that a future government would be able to go after them and seize such ill begotten wealth, but the bill of attainder clause of the US Constitution seems to preclude that, or maybe within a few short decades the US Constitution won't mean more than the paper its printed on. For my part, I think the US Constitution mostly dead already. Interesting times lie ahead.

Blogger Lost Pilgrim February 05, 2016 6:12 PM  

I was just discussing this with a friend last weekend. The problem is that it is a lopsided pyramid and there is no long term way to keep it stable as long as you keep making the rent takers richer, their share of the funds greater and putting more people in deeper debt. Eventually it will crash.

What happens then? Since most of it or a big chunk anyway is debt how does it land? Who will get crushed?

Anonymous #8601 Jean Valjean February 05, 2016 6:23 PM  

Guys, take a look at Steve Keen's work. VD links to his site on the left. He says the USA is OK. They already had a significant and healthy delevering during the 08/09 financial crisis.

It's China that that we have to worry about now. Their private debt bubble dwarfs the one in the USA.

Anonymous Mr. Rational February 05, 2016 6:27 PM  

@107 If you're not too proud to live in a double-wide, maybe try that.  You might even be able to get one cheap as a foreclosure.  That plus a well and septic gives you a homestead very quickly, and you can build a better house at your leisure.

Once the house is done you may be able to rent out the double-wide for extra income.

Anonymous Gerald Celente February 05, 2016 6:59 PM  




4. jml1911a1 February 05, 2016 6:11 AM

So, how does your average person then profit from, or avoid financial damage from, the impending...whatever is coming?


Answer here around 23 minute mark:
Guns, Gold, and a get-Away Plan

Blogger Noah B February 05, 2016 7:27 PM  

On the whole, there was no net de-leveraging in the US in 2008/2009 - only a short pause in loan growth. I am skeptical of the claim that Steve Keen "says the USA is OK."

Anonymous #8601 Jean Valjean February 05, 2016 8:02 PM  

Noah B,

Sorry, I didn't mean to put words in Steve's mouth. He actually says the USA is turning Japanese, which I interpreted as "OK".

He has a chart in which USA private debt to GDP peaked around 170% in 09 and has since declined below 150%.

China has blown past the USA peak and is due for a crash.

The chart can be found on page 9 of this report.

Anonymous George of the Jungle February 05, 2016 9:58 PM  

@118..
I think the Japanese government had a secret policy to entice the younger generation to want to make more babies. Sometime during the '80's, the government slipped something into the water to enhance Japanese women's ability to grow really large breasts. Have you seen some of those suckers? God in Heaven, a lot of them are enormous (!)

Blogger Groot February 06, 2016 2:13 AM  

I like this thread. I'm coming in late, but the IQ shines through.

@4. jml1911a1:
"So, how does your average person then profit from, or avoid financial damage from, the impending...whatever is coming?"

Figure out a way to short what will collapse. A fellow of my acquaintance made over $100 million from the housing implosion, although I'll note he's not average.

@52. A_More_Civilized_Weapon:
"I've never understood why gold is seen to be a magical"

I will forbear from heaping any more poopyhead epithets upon you, and instead strongly recommend Murray Rothbard's What Has Government Done to Our Money? I know I've recommended this before, but it really is one of the most lucid explications of how money works I've read. Bonus: you'll understand what Ron Paul is cantankerously muttering about.

Blogger Joshua Sinistar February 06, 2016 6:48 AM  

I have news for you all, there is no real money. Central Banks are a legalised counterfeiting ring. They issue debt not money. Its impossible to pay back debt with debt. Collapse is inevitable. At previous point these fraudsters were able to monetize their debt by convincing people to accept more bad debt for their real assets, but those days are long since past. White people have now just learned the parasitic and alien nature of their enemies and their genocidal attempts. The enemy has no real power. It is worthless and weak. Forget about Gold. Collapse will bring chaos and food shortages. Gold will buy you nothing when people are desperate. Your fake government must collapse. It serves no purpose at this point. Expect a War. after the War, a Strongman or Dictator will take over and eliminate the trash and unproductive. If any of you have a problem with this or think this is merely an economic cycle, you will not survive.

Blogger Josh February 06, 2016 8:47 AM  

Forget about Gold. Collapse will bring chaos and food shortages. Gold will buy you nothing when people are desperate.

You stand athwart history yelling stop.

Blogger Josh February 06, 2016 8:50 AM  

We don't have much liquid assests. 7k right now, but we save between 1 and 1.2k a month depending on what side work we each get. Right now we pay 600 between each of our rents, and moving in together it'd be 400 with our current plans, or whatever the mortgage turns out to be if we buy.

My only concern is the mortgage locking us into a two income dependency. Home schooling is a huge priority for us.


You're going to need to have more saved up, especially if you're building.

Are you planning on getting a loan for the land and a construction loan, then rolling both of them into a mortgage?

Blogger wrf3 February 06, 2016 10:36 AM  

Josh @133: You stand athwart history yelling stop.

Sometimes one person is all it takes.

Money is nothing more than a material store for subjective value. Such stores should have the properties that they aren't counterfeitable (which omits sand, for example); are easily transferable, are durable, and are widely accepted. Gold satisfies some of these properties, but it isn't the only thing that does. Gold isn't magic, any more than European dirt is magic.

One reason why people like gold is because it allows individuals to grow the money supply. Find ore in your backyard and you're rich. But that's really no different than making dollar bills in your basement, or finding money on the sidewalk. And those aren't good properties to have in an economy. It's not unlike the prosperity gospel in another form.

Blogger James Dixon February 06, 2016 1:50 PM  

> Forget about Gold. Collapse will bring chaos and food shortages. Gold will buy you nothing when people are desperate.

Well, duh. The gold is for when things settle down afterwards. Whatever new currency is chosen, it will be possible to exchange it for gold.

Anonymous Chad February 06, 2016 10:37 PM  

@ Josh

"Are you planning on getting a loan for the land and a construction loan, then rolling both of them into a mortgage?"

Basically, yes. There's a possibility of having the construction funded by friends that have a lot of wealth, and then paying them back with the mortgage after.

I have been quickly learning how complicated the whole thing is... especially as most banks seem to hate any idea you wouldn't want to buy a pre-existing POS, and build something that would last.

Anonymous Mr. Rational February 07, 2016 7:01 AM  

@137 What's unimproved land going for?  If you could pay some off in a few years between your income and rental to a nearby farmer, what the banks think could be irrelevant.

Anonymous Chad February 07, 2016 6:40 PM  

@ Mr Rational

The land is going for 2.5k an acre. The first thing I would do for land improvement would be to do the earthworks - build swales and improve the ground water saturation. Then I'd set up some real basic electric fencing and offer free pasture to the neighbors across the street. Their cattle would drastically improve the sandy soil on half the land. Meanwhile I'd trade some labor for goats to clear shrubs while getting milk. While doing general improvement cheaply, I'd buy fruit trees as able to or do what I can to trade for cuttings of neighbors to transplant.

It'd take a lot of work and sacrifice. Beyond buying the land and the dirt work, it can be done cheaper than most people think if you have good relationships with neighbors that have excess who also desire to see abundance of resources in the community for SHTF scenarios

Anonymous Mr. Rational February 08, 2016 4:25 AM  

@139 So your minimal buy-in for a 20 acre homestead is $50k for land, plus electric service, well and septic, and whatever it costs to get something habitable set down on it.

That doesn't seem out of line for borrowing from family, especially if you have a solid plan for paying it off in just a few years.

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