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Old 12-29-2012, 01:53 PM   #41
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I wouldn't put a whole lot of stock in any projection out to 2082.
Without question you are correct. I doubt many forecasters at the end of our last fiscal year surplus a little over 10 years ago would have predicted the deficits we are producing yearly now, so 70 years out would be a tough one to project accurately. However, it is interesting for me to look at such graphs and others that people post.
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Old 12-29-2012, 02:53 PM   #42
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I am somewhat reluctant to post this, as it smacks of wacko conspiracy theory stuff, and I agree that this should not be part of the forum.
In spite of this, there are financial transactions that are allowed and legal, that fall into the area called "shadow banking". Some of this surfaced in the MF Global situation, but there are many other parts of Banking that allow for transactions that are not in the public view. In particular the use of leveraged debt being multiplied by multiple transactions, and then being counted as collateral for establishing net assets.

The process is so obscure that there is limited oversight, except for some new European regulations that are currently being put in place.

Here's an excerpt that puts attempts to simplify the process. It discusses hypothecation.

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For example, if you put a buck in your checking account and the bank has to keep 10% of that in reserve, it can loan out $0.90. But then, if somebody else deposits $0.90, the bank can loan out $0.81 cents or 90% of the total assets on deposit. And so on, until literally all the money on deposit is effectively hypothecated to another entity. This is why banks are constantly seeking new depositors - to feed the hypothecation machine and their profits.

Obviously a buck is still a buck no matter which way you cut it, so cash does count for something. But at the end of the day, any banks can create a daisy chain of rehypothecated assets that results in as much as $10 in new checking accounts and rehypothecated assets against every $1 in actual deposits. Perhaps more.
What is explained as the "hypothecation machine", is in effect "re-hypothecation".... and together with repos (repurchase agreements) are the tools used to multiply debt instruments... The general worry is that this could one of the major reasons for the growth of Bank Assets that was cited in the original post.

Bringing this down to a common denominator... Since all banking is based on trust, and a belief that loans and assets on deposit are backed with collateral... any thought that promissary notes, bonds, or other claims on stated assets might not be backed by liquidity would obviously cause panic... then this is the heart of the matter.

The theory extends back to the original bank bailout and the loans that were advanced to put off audits to determine the liquidity of the major banks. Despite the promises to unwind the housing value problems, and the derivatives markets, many people feel that it was a patchwork solution. The followup legislation ... Dodd-Frank, is still not implemented and being litigated with input from the banking industry.
.................................................. .................................

I don't buy into this, as I'm not smart enough or knowledgeable of the industry enough to know the difference between half truths, lies, or just cuckoo self promoters. I do see an increase in discussions that concern the end of bank counterparty guarantees, leveraged repo agreements, prop trading funds, and the probability of reducing the FDIC guarantees back to $100,000/account.

Despite a minor drop in the market as we approach the fiscal cliff, it doesn't seem than any of the major market players are predicting an endemic risk, and I haven't seen any scaremonger "end of the world" posts. Hopefully the experts understand whatever risk may exist. Still, it does no harm to understand the factors being discussed, or to have some options in the event of a sliding market.
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Old 12-29-2012, 03:17 PM   #43
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Between the text quoted by pb4uski and the first line in the link
this thread is moving to the politics forum. How does this relate to FIRE?
Great joke!
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Old 12-29-2012, 03:17 PM   #44
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Though it's an earlier proposed Federal budget for 2011, it's not that far off actuals. A nice visual IMO...
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File Type: gif budget2010.gif (54.7 KB, 36 views)
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Old 12-29-2012, 03:21 PM   #45
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Imoldernu: You have described fractional reserve banking, which is nothing new. In fact, banks in the US have worked this way for well over 100 years. Most economists see it as a good thing, because it allows the economy to grow. Among other things, it is what permits entrepreneurs to create value by borrowing capital to start a business.
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Old 12-29-2012, 07:56 PM   #46
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Imoldernu: You have described fractional reserve banking, which is nothing new. In fact, banks in the US have worked this way for well over 100 years. Most economists see it as a good thing, because it allows the economy to grow. Among other things, it is what permits entrepreneurs to create value by borrowing capital to start a business.

Yup there is even a series of fine Khan Academy videos on the subject.
I am currently listening to his commentary on the system very interesting.
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Old 12-30-2012, 06:11 AM   #47
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Yup there is even a series of fine Khan Academy videos on the subject.
I am currently listening to his commentary on the system very interesting.
Thanks for the link. It may go a long way towards explaining some of the questions I've picked up in going through the Wiki article on the Fractional Banking System... and which prompted the OP. In particular in the "Criticisms" section of the Wiki article, where some of the explanations have been under fire for a while. In fact, the back and forth discussions by world economists, is much more interesting than the article itself, and runs to many pages of respectful discussion that go beyond "sound bytes".

Here is the lead in to the "criticisms" page.
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Critics of fractional-reserve banking and proposals for monetary reform have included economists such as Irving Fisher[22] and Frank Knight.[23] U.S. Congressman Ron Paul and Austrian School economist Murray Rothbard have identified fractional-reserve banking, central banking, and fiat currency as interdependent and destructive features of modern monetary systems.[24][25] In Rothbard's analysis, the practice of fractional-reserve banking amounts to a form of fraud, embezzlement or legalized counterfeiting.[26][27]
I am thinking that this thread could get too confusing, and go beyond the interests of the forum, and be considered a political statement. FWIW, I have no dog in the fight, either politically or monetarily, but just as a matter of intellectual curiosity. I expect the "Khan" piece would satisfy those who want to get deeper into the subject.

Sometimes, trying to simplify, can get ya into trouble.
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Old 12-30-2012, 06:37 AM   #48
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So if I'm reading this very nice chart correctly, "SS and other taxes" generate about $934B in revenue, while "SS expenditures" cost about $730B.

Even if you add Medicare's $491B, the deficit of those two combined is relatively mild vs their revenue... how did they get to be the big pole in the tent?

What I'd really like to see is what the $612B vaguely mentioned as "Mandatory Other" is for. What's that?
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Old 12-30-2012, 08:21 AM   #49
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So if I'm reading this very nice chart correctly, "SS and other taxes" generate about $934B in revenue, while "SS expenditures" cost about $730B.

Even if you add Medicare's $491B, the deficit of those two combined is relatively mild vs their revenue... how did they get to be the big pole in the tent?

What I'd really like to see is what the $612B vaguely mentioned as "Mandatory Other" is for. What's that?
+1 was wondering the same thing about the $612B? I suppose the big issue for SS is really fewer workers supporting more SS recipients going forward, while medicare on the other hand remains the elephant in the bathtub in terms of the big pole in the tent.
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Old 12-30-2012, 08:25 AM   #50
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In the chart it has defense as discretionary. I don't think that is true. But the amount we spend on it is a subject for discussion. There are some pretty big numbers in the other category of both discretionary and mandatory spending. Wish we knew the breakdown on those as well.
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Old 12-30-2012, 08:58 AM   #51
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When I was a kid my Dad was a skilled worker and we lived in an 800 square ft home....2 bedrooms, one bath for 4 people. And, our whole neighborhood was the same and we were happy......one car, one TV, one dinner out each month. And we were middle class. Back then we had the best income, best housing, best food, best lifestyle of anyone in the world....we led following the 2nd world war.

Today we still, as a nation, have more of everything than most other countries and we think we are entitled to all of it. I have friends unemployed for two years....they don't worry.....they still have unemployment, a 1000 sq ft apartment, a nice car.....why work? And they vote.....as they should.

Other Nations look at us and envy us.....they'll work for less, they live in smaller houses, take public transportation and want our jobs. I don't blame them we are very, very lucky. But how do we keep all this up. We have to come together and come up with a solution. We can't give everyone everything and compete with the rest of the world.....I'm a little better than middle class and I don't mind paying a little more....I'm going to move into a smaller home.....eat more chicken than steak so I can live happily knowing how lucky I am.

We need to help those that need it. But I believe we lack accountability....lets stop freeloaders that take government money and then do yard work and painting for "cash"......lets get rid of waste, dishonesy and maintain a moral culture that looks down on those that want to raise taxes to give more to the unneedy.......we can fix this, all of us.....regardless of political beliefs if we work together.....I hope we can.

You can look at all the charts in the world.....I love statistics.....but it comes down to values.....culture.....leadership......like we got from Presidents Kennedy and Reagan...... this will be an interesting year.
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Old 12-30-2012, 10:59 AM   #52
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. . . as a matter of intellectual curiosity.
If you are really interested in the topic, I recommend John Kenneth Galbraith's book Money: Whence it Came, Where it Went. It is 37 years old, but his discussion of the history of the banking system is timeless. You will see recurrent echoes of the past in the events of today and the last few years.
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Old 12-30-2012, 11:26 AM   #53
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I was at the 2000 Sydney Olympic Games. I had a thoroughly smashing time. The American Dollar was getting over 1.9 Australian Dollar then. I am quite dismayed to note that the American dollar is getting 0.96 Australia dollar last Friday. Maybe we all need to reflect on how our country get to such sad state.
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Old 12-30-2012, 11:41 AM   #54
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+1 At the same time. I have no idea how one structures a retirement investment portfolio to protect oneself from a constitutional crisis.
I suspect it is a matter of doubling down on the savings and finding a way to safeguard the stash from the many evils (such as means testing) that exist, and those still to be created.
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Old 12-30-2012, 12:01 PM   #55
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RE: Galbraith... Everything I find on the subject of Debt as Asset, tracks back to the "Money: Whence it Came" book. As I was poking around looking for a shortcut to the heart of the theory, this site was referenced.
http://www.thetwofacesofmoney.com/files/money.pdf
It's a fairly easy read and goes to the heart of explaining this chart of the FRED (Federal Reserve Asset) that caught my attention in the first place.

Chart source:
Federal Reserve Economic Data - FRED - St. Louis Fed


The Khan lectures do an excellent job of explaining that the strength of the monetary policy relies on the brain trust, the infrastructure, the education, the technology and the stability of the US government. They explain in more detail the relative strength of the US in the international scene, and give support to the UN Monetary Policy of the past five years.

The steepness of the asset/debt curve still holds my interest and concern.
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Old 12-30-2012, 02:36 PM   #56
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Originally Posted by marko View Post
So if I'm reading this very nice chart correctly, "SS and other taxes" generate about $934B in revenue, while "SS expenditures" cost about $730B.

Even if you add Medicare's $491B, the deficit of those two combined is relatively mild vs their revenue... how did they get to be the big pole in the tent?

What I'd really like to see is what the $612B vaguely mentioned as "Mandatory Other" is for. What's that?
Quote:
Originally Posted by DFW_M5 View Post
+1 was wondering the same thing about the $612B? I suppose the big issue for SS is really fewer workers supporting more SS recipients going forward, while medicare on the other hand remains the elephant in the bathtub in terms of the big pole in the tent.
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Originally Posted by Lazarus View Post
In the chart it has defense as discretionary. I don't think that is true. Defense is discretionary. But the amount we spend on it is a subject for discussion. There are some pretty big numbers in the other category of both discretionary and mandatory spending. Wish we knew the breakdown on those as well.
For those who don't have Google, Bing or any search engine and a few minutes...all the detail you could possibly want is readily available online.
Attached Images
File Type: jpg federal-spending.jpg (163.9 KB, 11 views)
File Type: jpg 43154-BS_Mandatory1.jpg (202.9 KB, 14 views)
File Type: jpg 43155-BS_Discretionary.jpg (266.9 KB, 6 views)
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Old 01-08-2013, 03:13 PM   #57
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When I was a kid my Dad was a skilled worker and we lived in an 800 square ft home....2 bedrooms, one bath for 4 people. And, our whole neighborhood was the same and we were happy......one car, one TV, one dinner out each month. And we were middle class. Back then we had the best income, best housing, best food, best lifestyle of anyone in the world....we led following the 2nd world war.

Today we still, as a nation, have more of everything than most other countries and we think we are entitled to all of it. I have friends unemployed for two years....they don't worry.....they still have unemployment, a 1000 sq ft apartment, a nice car.....why work? And they vote.....as they should.

Other Nations look at us and envy us.....they'll work for less, they live in smaller houses, take public transportation and want our jobs. I don't blame them we are very, very lucky. But how do we keep all this up. We have to come together and come up with a solution. We can't give everyone everything and compete with the rest of the world.....I'm a little better than middle class and I don't mind paying a little more....I'm going to move into a smaller home.....eat more chicken than steak so I can live happily knowing how lucky I am.

We need to help those that need it. But I believe we lack accountability....lets stop freeloaders that take government money and then do yard work and painting for "cash"......lets get rid of waste, dishonesy and maintain a moral culture that looks down on those that want to raise taxes to give more to the unneedy.......we can fix this, all of us.....regardless of political beliefs if we work together.....I hope we can.

You can look at all the charts in the world.....I love statistics.....but it comes down to values.....culture.....leadership......like we got from Presidents Kennedy and Reagan...... this will be an interesting year.
We have shifted far away from the Kennedy question - "Ask not what your country can do for you, but what you can do for your country." Today it is all about "getting mine, to _____ with everyone else." This seems to be more of a survivalist attitude, the cause of which I don't know and is likely a combination of factors/events.

As for this year, it won't be that interesting. We already know what will occur. Higher taxes from the Fiscal Cliff resolution, modest entitlement reforms, modest cuts to Defense spending, and an increase in the debt ceiling by another 2-3 trillion dollars. The net-net is that everyone will be paying a little more to kick the can down the road by another 10-20 years. Washington and the American people very rarely undertake dramatic change except in the face of significant peril (e.g., a World War).
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