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Re: Saving Rate is now Negative
Old 09-05-2005, 06:58 AM   #21
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Re: Saving Rate is now Negative

Donner
The last few posts have given an answer to the de-leverage possibility. It does seem that our government, which controls the money supply, is more willing to inflate than to have a prolonged recession which effects employment. Thus, while some will get stung when asset prices go down (or at least don't go up), those will only be the most leveraged/speculative positions.
I see a downturn, but not doom.
Uncledrz
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Re: Saving Rate is now Negative
Old 09-05-2005, 02:10 PM   #22
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Re: Saving Rate is now Negative

Quote:
Originally Posted by uncledrz
Donner
The last few posts have given an answer to the de-leverage possibility.* It does seem that our government, which controls the money supply, is more willing to inflate than to have a prolonged recession which effects employment.* Thus, while some will get stung when asset prices go down (or at least don't go up), those will only be the most leveraged/speculative positions.
I see a downturn, but not doom.
Uncledrz
Uncledrz--

* * I agree-- lots of interesting observations on the de-leveraging idea on this Board.* As usual I think we all see a little part of this thing.* Tough to get your mind entirely around the whole thing.* *

One misconception that is oft repeated is that the Government prints money and causes inflation.* Not true.* In our system money is created by banks through lending to business and consumers.* The Fed indirectly controls how much lending can occur and what the money supply is ultimately going to be.* The Fed views its prime function in life (by its very Charter) to be to maintain an acceptable tradeoff between unemployment and inflation.* Remember, they are bankers first and foremost and they want to get repaid the dolllars they loan with dollars of equal purchasing power at some time in the future.* Bankers HATE inflation.* Fed policy is first, last and always is to protect the bankers against inflation.* *Take a look at a dollar bill in your wallet.* It doesn't say U.S. Government Note on it.* It says Federal Reserve Note.* *You got a problem with that note take it up with the Fed, not your U.S. Government.

Side note:* JFK was not happy with the money creating power of the Fed and he was about to introduce legislation
to take that function back from the Fed and return it to your U.S. Government.* Some people think that is the real reason behind his assassination.* (not me)


If you ask me the bankers at the Fed are more interested in getting a dollar back for a dollar lent in one year or two years or ten years then they are about how many people have to be unemployed to make that happen. McCulley at PIMCO often cites the "army of the unemployed" which is the real guarantor of "price stability" which is the holy grail of Fed policy.* All the talk about Keyensian management of the economy ( which focused on the Government borrowing money to create public works to stimulate demand and boost consumption thereby pulling you out of a depression) vs Supply Side management of the economy ( cut taxes to stimulate investment to increase supply to balance supply and demand and thus kill inflation) is interesting, classical, academic and in my opinion inadequate to explain or deal with the situation the world now finds itself in.* We are in new territory where the old relationships the old (and current) theories about how to manage an economy and the old tools to deal with emeging problems are inadequate to the task ahead.* Greenspan said as much at Jackson Hole.* They see a financial Tsunami headed our way and are preparing the old tools to deal the best they can with the consequences.* They feel that they still have the ability to pick up the pieces of a big blow-off in the markets and/or the economy.* Maybe so.* But they can't and aren't working toward heading off that kind of outcome.* Somebody's going to get hurt.

Greenspan sees big problems in speculative asset valuations everywhere.* He doesn't really care except to the extent that it threatens the "real economy" ie.,* that great mythical "neutral level" of interest rates, inflation (price stability)and unemployment.* Read him carefully.* He is rooting for "prices" and "interest rates" and slowly escalating "risk premiums" to "adjust" gradually over time ("adjust "means prices for financial assets go down -- a long way) in a way that does not threaten his precious balance between inflation and unemployment.* He WANTS to see a de-leveraging market only slowly, over time.* A slow motion killing of your financial portfolio.* If a bunch of savers and investors, foreign and domestic, die a slow, seemingly painless death without manifesting effects on unemployment and inflation the Chairman will get down on his knees and say his prayers of gratitued to the Almighty.*

Of course, if you have been following any of my posts on this you will see that I don't think the Chairman gets this nice quiet kind of death for the markets.* I think he is going to get a big bang explosion of risk premiums and a heart stopping overnight plunge in asset values a la 1987, only worse, at some point in the future.* And I blame CNN and instant communications for that.* We will all freak at the same instant.

So, the problem we are facing is not the Government printing money.* The U.S. Government ain't the problem here.
The problem is inadequate worldwide demand for the goods produced by factories in every jungle in every third world nation on the planet.* Inadequate demand, coupled with a ferociously imbalanced pattern of savings around the world.* You throw into this inherently unbalanced situation Americans seemingly unquenchable thirst for expensive junk financed by borrowing and you got yourself a big stinky problem that is frought with all kinds of geo-political risks.* Add on top of that a Fed that appears incapable of acting proactively and is telling you outright that its plan is to pick up the pieces, well, then maybe you can see the basis of my intermediate term gloom 'n doom.

The negative savings rate is significant and alarming.* Just think of it as applying to any household.* How long can it last?* Don't know.* For some families it could last a long time as debts mount, slowly at first, but at an increasing rate.* Maybe with both spouses working you can keep it up for a while.* But then something happens.* Somebody loses his/her job or gets sick.* For the economy as a whole, that would be my geo-political event.* Volker calls it
"some event, or combination of events".* And then you got a problem.* For the householders, when the credit card companies and the creditors get wind of it, you have rapidly expanding risk premiums as they jack your interest rates up to 22%.* Same thing is going to happen to the good old U.S. of A. as a whole if our worldwide creditors think they are getting a whiff of a problem.* We will all freak at the same time and, I believe, we will witness an overnight, CNN induced, megaton explosion of risk premiums.* Can't pin this on the U.S. Government.* When's it going to happen?* Don't know.


Donner
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Re: Saving Rate is now Negative
Old 09-05-2005, 02:24 PM   #23
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Re: Saving Rate is now Negative

Quote:
Originally Posted by Donner
Side note:* JFK was not happy with the money creating power of the Fed and he was about to introduce legislation
to take that function back from the Fed and return it to your U.S. Government.*
I enjoy history, and watch a lot of history channel This is one of those little-known semi-amazing facts of the US. As for the legislation, was actually executive order 11110, and the treasury notes were printed. They look similar to federal reserve notes, but there are some 'notable' differences (sorry, bad pun)

[img width=750 height=392]http://www.usarare.com/5204.jpg[/img]
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Re: Saving Rate is now Negative
Old 09-05-2005, 03:09 PM   #24
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Re: Saving Rate is now Negative

Quote:
In our system money is created by banks through lending to business and consumers.
We had banks during the 19th century, and no long term inflation. A dollar in 1800 bought the same amount of goods as a dollar in 1900. It wasn't until the fed was authorized early in the 20th century that we had that we wound up with non stop inflation. It takes 98 dollars to buy what a dollar bought in 1900.
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Re: Saving Rate is now Negative
Old 09-05-2005, 03:42 PM   #25
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Re: Saving Rate is now Negative

Quote:
Originally Posted by Michael
We had banks during the 19th century, and no long term inflation.* A dollar in 1800 bought the same amount of goods as a dollar in 1900.* It wasn't until the fed was authorized early in the 20th century that we had that we wound up with non stop inflation.* It takes 98 dollars to buy what a dollar bought in 1900.
The Hershey 5 cent bar was invented by Hershey himself, and produced (in an effort to maintain his legacy of the nickle bar) from 1921 until 1968 when they company could no longer produce the bar for a nickle. Note the depression era deflation.

1908.....9/16 oz.....2 cents
1918.....16/16 oz.....3 cents
1920.....9/16 oz.....3 cents
1921.....1 oz.....5 cents
1924.....1 3/8 oz.....5 cents
1930.....2 oz.....5 cents
1933.....1 7/8 oz.....5 cents
1936.....1 1/2 oz.....5 cents
1937.....1 5/8 oz.....5 cents
1938.....1 3/8 oz.....5 cents
1939.....1 5/8 oz.....5 cents
1941.....1 1/4 oz.....5 cents
1944.....1 5/8 oz.....5 cents
1946.....1 1/2 oz.....5 cents
1947.....1 oz.....5 cents
1950.....1 oz.....5 cents
1954.....7/8 oz.....5 cents
1955.....1 oz.....5 cents
1958.....7/8 oz.....5 cents
1963.....7/8 oz......5 cents
1965.....1 oz.....5 cents
1966.....7/8 oz.....5 cents
1968.....3/4 oz.....5 cents
1969.....1 1/2 oz.....10 cents
1970.....1 3/8 oz.....10 cents
1973.....1.26 oz......10 cents
1974.....1.4 oz.....15 cents
1976.....1.2 oz.....15 cents
1977.....1.2 oz......20 cents
1978.....1.2 oz.....25 cents
1980.....1.05 oz.....25 cents
1982.....1.45 oz.....30 cents
1983.....1.45 oz.....35 cents
1986.....1.45 oz.....40 cents
1986.....1.65 oz.....40 cents

I cleaned up the units, and made a nice little graph in excel. Edit- note, that's not dollars, but rather cents... my bad on the series name. :

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Re: Saving Rate is now Negative
Old 09-05-2005, 03:50 PM   #26
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Re: Saving Rate is now Negative

One more choco graph- ounces per cent. Anyone want to derive the implicit inflation rate per period and compare that to the CPI for the same period?
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Re: Saving Rate is now Negative
Old 09-05-2005, 05:28 PM   #27
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Re: Saving Rate is now Negative



Is it just me, or has anyone else noticed that chocolate doesn't taste as good as it used to,
Loved those Hershey bars. Don't seem to taste the same to me now. Maybe its a getting old thing.
Tomatoes the same thing. Ones in the store taste like cardboard. Apples are practically tasteless, too. Beer is still good, though!


Donner
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Re: Saving Rate is now Negative
Old 09-05-2005, 08:13 PM   #28
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Re: Saving Rate is now Negative

Do notice that tomatoes aren't the same, some taste better than others (seasonal) but certainly not the same as even 15 years ago. OTOH, those we grow ourselves (or at my DIL's) are still great.

Don't disagree that we are in for a financial problem, at some time, when the debt catches up to us, assets are unloaded to pay/satisfy debt and spiral goes downward. Don't know whether it will be a gradual or more wicked dive. Just don't think it will end up in a 1929-30's type economic disaster. Could be, just don't think it will. Much more likely to be a slower decline coupled with a severe shock or two, or lack of growth.
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Re: Saving Rate is now Negative
Old 09-05-2005, 08:44 PM   #29
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Re: Saving Rate is now Negative

I hate those damn once a year neighbors, it's either Valentines Day or their anniversary.* Luckily, rarely both.
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