ladelfina
Thinks s/he gets paid by the post
- Joined
- Oct 18, 2005
- Messages
- 2,713
Kombat was lamenting about boomer-related debt and taxes here:
http://www.early-retirement.org/forums/f28/frugal-living-when-bizarre-36438.html
A number of concerns about a coming financial crisis have also been aired, most recently here:
http://www.early-retirement.org/forums/f28/global-stock-credit-crash-alert-36469.html
http://www.early-retirement.org/forums/f28/ugh-almost-ready-give-panic-36687.html
http://www.early-retirement.org/forums/f28/inflation-threat-retirees-36673.html
http://www.early-retirement.org/forums/f28/three-bubbles-10-years-36674.html
http://www.early-retirement.org/forums/f50/echos-great-depression-dow-dives-36726.html
I've been loathe to post my feelings in full, since I've drawn such harsh reactions; it appears I'm no longer virtually alone, so I will hazard sharing the following revelatory (to me) presentation.
Came across this linked in someone's post at The Oil Drum.. It's long (47 min.), slightly repetitious, and a bit hokey.. but what really caught my attention is the tone that's a bit different from many gold bugs/conspiracy theorists and other debt/fiat-money handwringers. To me the 'apocalyptic' (as in revelatory) idea presented here is that not just debt, but EVER-INCREASING debt (in our current system) is both necessary and fatal. The weakness in the system as presented in the filmlet is not the lack of "hard" currency, but the entire concept of interest.
Money As Debt
Which made me view this interview with Bill Ackman in a new light:
Wall Street Journal Video - WSJ.com
Interesting that the people questioning excessive leverage get hit with Federal investigations... Also notice the way the WSJ interviewer talks about how "DANGEROUS" it is to talk about shorting any stock but esp. financials. This has been repeated by some commenters on the forum, where talk of objective material weakness is somehow the fault of the messenger.
"I would think the media should be interested".. says Ackman.. but he's not addressing the "Money as Debt" premise: the media CANNOT say that the emperor has no clothes. At best they can say the oufit is a little skimpy. Anything bordering on revealing the true financial structure of things risks that structure.
The cold undeniable logic of mathematics and exponentials stubbornly refuses to sustain any continuous growth argument. Another longish video here for anyone wanting a refresher on this concept, especially as it regards community economic development and resources:
Dr. Albert Bartlett: Arithmetic, Population and Energy | Global Public Media
or
YouTube - The Most IMPORTANT Video You'll Ever See Part 1 of 8
Just to focus on the economic aspects over the physical/commodity aspects we are also facing, or will face (though I think currently commodities are just the next bubble pumped up by those fleeing financials):
However "sustainable" growth is (let's say it's more moderate and more drawn out at lower rates than boosters would hope..), it still would lead to an inescapable interest/inflation trap and at some point a "credit crisis". The "Money as Debt" revelation is that governments, financial institutions, and private individuals borrow more and more, not because they are particularly greedy or reckless (though that is also true in some cases), but worse -- they borrow because they CAN'T NOT borrow.
It's not just a temptation or an addiction as has been portrayed; it's organic. Blaming one political party or another, or blaming immigrants or outsourcing to China, or blaming SUVs or McMansions and those who don't or can't LBTM, or blaming hedge funds or speculators.. all that obscures what's been showing itself to me to be The Real Point: the entire system is not merely riddled with debt, waste and lies.. but REQUIRES debt, waste and lies in order to function. And it REQUIRES not just "some" debt, but ever-increasing levels of debt.
Now we are getting to the point where the cracks are too big to ignore. The bond insurers are kaput and the ratings agencies have essentially evaporated. There's no "there" there. There's a point where the numbers outstanding get so large that they are hard to even conceptualize (quadrillions) and for our stalwart J6P or retiree (like me) trying to get by on the same old $40k/year, the mind indeed is repelled, as per Galbraith:
New vehicles were created with an eye toward "improving" the system:
Credit derivatives | At the risky end of finance | Economist.com
... Represented here in red, this is all new (supposed) liquidity.. which means it's new money.
These are new financial inventions with an incalculable range of impact. The traditional means probably did not have enough expansion room to handle the desired, necessary, exponential debt growth. Should we really believe it makes the system more stable? Does anyone feel the system is more resiliant, and that the shock has been absorbed, simply by creating ever-larger and more uncontrollable debt issuances? Does anyone feel that we're in a VIRTUOUS CYCLE?
A reduction in $100k of asset value means a reduction of $900k in play money to a bank, and now lately a reduction of $8 million in play money squared represented by derivatives IF limited to a 10% reserve scheme. There are also squarings (CDO2s) of these instruments (for an exponentially larger ulterior level of "stability"!!). This is all "money" that was conjured into existence and can be conjured out of existence equally easily. Forget "we are all subprime now".. more like "we are all LTCM now", no?
The risks are not contained to a few high-flying hedge funds, but have wormed their way into all financial institutions, pension funds and insurers. Only a small portion of these have been written down or 'sterilized', and I don't see where assumed levels of future corporate earnings and growth are going to come from in most any sector. I guess the market could rebound by sheer dint of willpower?
I've been accused of wearing the tired "tin foil hat" among other things. I hope any similar accusers choose, this time, to present cogent arguments, explanations or rebuttals instead of, or at least in addition to, mere scoffing. I would be happy to learn that my fears are utterly misplaced and that I misunderstand. Of course I am looking forward to hearing reactions from anyone who chooses to review the material linked here, or who is already familiar with the concepts and is open to discussing it in a productive fashion.
Is the current modern financial system sustainable? If so, why and how?
Is it doomed to break? Sooner? Later? Why sooner? Why later? When?
If it breaks will we start at the near-beginning with precious metals or oil-backed certificates, or perhaps just with a new currency (like the Euro, as they are planning in South America?), this only to re-trace history ending up at the same kind of point, or will a new paradigm somehow emerge?
If a new system were adopted, what could it be?
I'm seeing things that call into question all our assumptions about our political, social, and economic environment.
The entire concept of FIRE (especially through passive investing) requires sustained economic growth, which is difficult to imagine in our future.
Back in March, I posted a flip answer to newguy888, who asked for an explanation to the credit crunch in "plain English":
http://www.early-retirement.org/forums/showpost.php?p=629090&postcount=11
And the more I look into it.. the more that mere offhand cynicism seems to describe the true state of things. [I've also been reading Galbraith's "Money: Whence It Came, Where It Went".. and "Guns, Germs, and Steel"]
In talking about this with DH, he told me that the bulk of the Italian industrial boom of the 1960s was financed by a system of personal IOUs. There's even a film about it: "La Cambiale". I see some US communities are taking up systems of time swaps, so undeniable parallels to the Great Depression are coming forth. Remember we are in early innings, and what is happening is NOT inflation (increase in the money/credit supply) but deflation (contraction of the money/credit supply).
When you see what a turbo-charged Ponzi scheme it is (I don't make this statement out of hyperbole).. it really does pull the existential rug out from under you.
[P.S. I don't read/watch the MSM either. Maybe the NYT 1x week. I'm not in the US.]
http://www.early-retirement.org/forums/f28/frugal-living-when-bizarre-36438.html
A number of concerns about a coming financial crisis have also been aired, most recently here:
http://www.early-retirement.org/forums/f28/global-stock-credit-crash-alert-36469.html
http://www.early-retirement.org/forums/f28/ugh-almost-ready-give-panic-36687.html
http://www.early-retirement.org/forums/f28/inflation-threat-retirees-36673.html
http://www.early-retirement.org/forums/f28/three-bubbles-10-years-36674.html
http://www.early-retirement.org/forums/f50/echos-great-depression-dow-dives-36726.html
I've been loathe to post my feelings in full, since I've drawn such harsh reactions; it appears I'm no longer virtually alone, so I will hazard sharing the following revelatory (to me) presentation.
Came across this linked in someone's post at The Oil Drum.. It's long (47 min.), slightly repetitious, and a bit hokey.. but what really caught my attention is the tone that's a bit different from many gold bugs/conspiracy theorists and other debt/fiat-money handwringers. To me the 'apocalyptic' (as in revelatory) idea presented here is that not just debt, but EVER-INCREASING debt (in our current system) is both necessary and fatal. The weakness in the system as presented in the filmlet is not the lack of "hard" currency, but the entire concept of interest.
Money As Debt
Which made me view this interview with Bill Ackman in a new light:
Wall Street Journal Video - WSJ.com
Interesting that the people questioning excessive leverage get hit with Federal investigations... Also notice the way the WSJ interviewer talks about how "DANGEROUS" it is to talk about shorting any stock but esp. financials. This has been repeated by some commenters on the forum, where talk of objective material weakness is somehow the fault of the messenger.
"I would think the media should be interested".. says Ackman.. but he's not addressing the "Money as Debt" premise: the media CANNOT say that the emperor has no clothes. At best they can say the oufit is a little skimpy. Anything bordering on revealing the true financial structure of things risks that structure.
The cold undeniable logic of mathematics and exponentials stubbornly refuses to sustain any continuous growth argument. Another longish video here for anyone wanting a refresher on this concept, especially as it regards community economic development and resources:
Dr. Albert Bartlett: Arithmetic, Population and Energy | Global Public Media
or
YouTube - The Most IMPORTANT Video You'll Ever See Part 1 of 8
Just to focus on the economic aspects over the physical/commodity aspects we are also facing, or will face (though I think currently commodities are just the next bubble pumped up by those fleeing financials):
However "sustainable" growth is (let's say it's more moderate and more drawn out at lower rates than boosters would hope..), it still would lead to an inescapable interest/inflation trap and at some point a "credit crisis". The "Money as Debt" revelation is that governments, financial institutions, and private individuals borrow more and more, not because they are particularly greedy or reckless (though that is also true in some cases), but worse -- they borrow because they CAN'T NOT borrow.
It's not just a temptation or an addiction as has been portrayed; it's organic. Blaming one political party or another, or blaming immigrants or outsourcing to China, or blaming SUVs or McMansions and those who don't or can't LBTM, or blaming hedge funds or speculators.. all that obscures what's been showing itself to me to be The Real Point: the entire system is not merely riddled with debt, waste and lies.. but REQUIRES debt, waste and lies in order to function. And it REQUIRES not just "some" debt, but ever-increasing levels of debt.
Now we are getting to the point where the cracks are too big to ignore. The bond insurers are kaput and the ratings agencies have essentially evaporated. There's no "there" there. There's a point where the numbers outstanding get so large that they are hard to even conceptualize (quadrillions) and for our stalwart J6P or retiree (like me) trying to get by on the same old $40k/year, the mind indeed is repelled, as per Galbraith:
The process by which banks create money is so simple that the mind is repelled.
New vehicles were created with an eye toward "improving" the system:
Morgan Stanley - Global Economic ForumThe credit derivatives market is booming because it meets broad needs and carries well-known benefits. Some benefits are microeconomic:
There are also important macro benefits.
- Credit derivatives enable lenders and investors better to take credit risks they want and to lay off the ones they don’t want.
- Using them, we can price risk more precisely by separating credit from other risks.
- They improve the intermediation process by enhancing market liquidity, efficiency and completeness.
More broadly, the growth of the credit derivatives market appears to have created a virtuous circle of macroeconomic and financial stability. As an observer of markets and a market participant, I believe that these financial innovations have contributed to favorable financial conditions and thus to strong global growth. In turn, that stable macro environment has legitimately increased risk appetite and willingness to embrace leverage.
- They may diffuse credit risks across markets and may tend to reduce risk concentration by putting such risks in the hands of those who want and are better equipped to hold them.
- This evolving structure acts as a set of financial shock absorbers for the economy, making financial infrastructure more resilient than in the past.
Credit derivatives | At the risky end of finance | Economist.com
... Represented here in red, this is all new (supposed) liquidity.. which means it's new money.
These are new financial inventions with an incalculable range of impact. The traditional means probably did not have enough expansion room to handle the desired, necessary, exponential debt growth. Should we really believe it makes the system more stable? Does anyone feel the system is more resiliant, and that the shock has been absorbed, simply by creating ever-larger and more uncontrollable debt issuances? Does anyone feel that we're in a VIRTUOUS CYCLE?
A reduction in $100k of asset value means a reduction of $900k in play money to a bank, and now lately a reduction of $8 million in play money squared represented by derivatives IF limited to a 10% reserve scheme. There are also squarings (CDO2s) of these instruments (for an exponentially larger ulterior level of "stability"!!). This is all "money" that was conjured into existence and can be conjured out of existence equally easily. Forget "we are all subprime now".. more like "we are all LTCM now", no?
The risks are not contained to a few high-flying hedge funds, but have wormed their way into all financial institutions, pension funds and insurers. Only a small portion of these have been written down or 'sterilized', and I don't see where assumed levels of future corporate earnings and growth are going to come from in most any sector. I guess the market could rebound by sheer dint of willpower?
I've been accused of wearing the tired "tin foil hat" among other things. I hope any similar accusers choose, this time, to present cogent arguments, explanations or rebuttals instead of, or at least in addition to, mere scoffing. I would be happy to learn that my fears are utterly misplaced and that I misunderstand. Of course I am looking forward to hearing reactions from anyone who chooses to review the material linked here, or who is already familiar with the concepts and is open to discussing it in a productive fashion.
Is the current modern financial system sustainable? If so, why and how?
Is it doomed to break? Sooner? Later? Why sooner? Why later? When?
If it breaks will we start at the near-beginning with precious metals or oil-backed certificates, or perhaps just with a new currency (like the Euro, as they are planning in South America?), this only to re-trace history ending up at the same kind of point, or will a new paradigm somehow emerge?
If a new system were adopted, what could it be?
I'm seeing things that call into question all our assumptions about our political, social, and economic environment.
The entire concept of FIRE (especially through passive investing) requires sustained economic growth, which is difficult to imagine in our future.
Back in March, I posted a flip answer to newguy888, who asked for an explanation to the credit crunch in "plain English":
http://www.early-retirement.org/forums/showpost.php?p=629090&postcount=11
To me it seems like:
There is no money.
We thought there was money.
But it's gone.
It may or may not have been there in the first place, but it's not there now.
Maybe Mr. Potter has it.
And the more I look into it.. the more that mere offhand cynicism seems to describe the true state of things. [I've also been reading Galbraith's "Money: Whence It Came, Where It Went".. and "Guns, Germs, and Steel"]
In talking about this with DH, he told me that the bulk of the Italian industrial boom of the 1960s was financed by a system of personal IOUs. There's even a film about it: "La Cambiale". I see some US communities are taking up systems of time swaps, so undeniable parallels to the Great Depression are coming forth. Remember we are in early innings, and what is happening is NOT inflation (increase in the money/credit supply) but deflation (contraction of the money/credit supply).
When you see what a turbo-charged Ponzi scheme it is (I don't make this statement out of hyperbole).. it really does pull the existential rug out from under you.
[P.S. I don't read/watch the MSM either. Maybe the NYT 1x week. I'm not in the US.]
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