FPC: The Concepts of Money and Capital

Thank you RE. I will leave you and Ash to your well-reasoned discussions. I’m sure anyone who reads this thread will be able to discern the value added, and by whom. Cheers.

In some sense, both sides in this debate are talking about a denouement caused by widespread defaults on unpayable debts.

Reading over some FOFOA posts, it does appear that he acknowledges that defaults lead to deflation. But his claim is that the CBs won’t allow that deflation to stand for very long – moments, minutes, hours, or days, and that they’ll quickly react by exchanging money for all the defaulted assets.

Folks here seem to think that the CB won’t be allowed to do this; the Fed will be prevented from wholesale replacement of bank credit with base money.

Likewise, FOFOA also points out that there is a overabundance of dollars in circulation outside the US especially on CB balance sheets, and a collapse of confidence in the dollar would lead to a hyperinflationary rush out of the many forms of the buck into “real things”, of which gold is favored because it is something that’s had long historical significance as a store of value, and it stores better in vaults than Rembrants or barrels of oil.

Each party tries to put forth evidence to support their concept – newly popular “end the fed” campaigns, reading the tea leaves on various Bernanke speeches trying to assess his willingness to print, fading trade surpluses and falling purchases of treasurys by China, and so on.

But at the end of the day, it all boils down to guessing what the Fed (and/or the ECB) will actually be able to do when the debt default crisis arrives. And that seems to ride on one thing: do the banks still have enough political power to make this happen the way they did in 2008? If they do, then we could well have a confidence collapse in the currency. If not, then we get a deflationary depression. No doubt the Fed would try to thread the needle and print just enough to restore the system, but not so much so as to cause a collapse of confidence.

So which is it? Its an interesting question, and not one I have the answer to. And perhaps the answer changes over time. Perhaps the answer is “no” today, but maybe “yes” next week, depending on how events unfold in the world – Greece, Spain, Italy, Japan, etc. If Greek society ends up exploding on TV after a debt default, the Fed and indeed the ECB might well get permission to do practically anything…

RE –

Perhaps the CBs will monetize sovereign debt, which will be deficit-spent directly into the economy by the government via social security, medicare, medicaid, defense spending, AFDC, SNAP, and the like.

As long as the banks don’t end up going under and presenting FDIC with a massive resolution bill, cash for trash is a success.

Limping along collecting your salary & bonus beats the hell out of a deflationary depression – especially if you’re a banker with a big house in the hamptons.

RE –

I don’t take what’s happening in Greece as a model. Greece cannot monetize its own debt, and the US can – and did up until last year. State & Local jobs are being cut here, but Federal jobs are expanding. I’d guess net-net it has resulted in job cuts overall, but our monetized deficit spending (10% of GDP each year) has kept the economy above stall speed to date.

HI happens when a flood of money hits the real economy, just as you say. There are lots of ways for that to happen – including government dropping actual cash via jobs programs. Whether you think those ways are likely, or unlikely, depends on your own personal assessment.

At FOFOA they note there is a wall of USD-denominated bonds sitting offshore on reserve at a bunch of central banks. The number of claims on real wealth vastly outweighs the actual real wealth out there – that’s what I learn from reading Stoneleigh.

So my follow-on to that is, if the US Fed stops deflation from happening by buying up all the trash and pretending there’s nothing wrong, all it takes for HI to take effect is for some subset of paper wealth holders to decide they want to convert their claims into real wealth before its too late, and then the game is up.

Once again, what triggers this move out of paper wealth? What triggers a bank run? Same sort of question – its some straw breaking the back of the camel of confidence. The potential for it is there. The only question is, do the banks (and the Fed, their servant) have the political ability to monetize in order to stave off deflation when push comes to shove? If not, we get a deflationary depression. If they can monetize, then we get moderate inflation (through government deficit spending) until a trigger event is reached and a wall of money hits the real economy.

I believe that the more unrest we seen in europe and the more “austerity” turns into a highly-visible death trap, the more support there will be for Fed money printing as our way out. Whether that’s enough – I don’t know. I think it could go either way.

RE –

Hmm, ok that’s convincing. You’re probably right about the Chinese, and likely the Japanese as well. Its tough to place a trillion dollars somewhere useful and at the same time relatively low risk.

But I’m not so sure about the actions of a bunch of rich people. They are seemingly better placed to individually make semi-smart decisions on buying stuff. They have big stashes of treasuries (like you do) and are wondering where they might put them. I wonder that about my small pile of bank deposits!

We are allegedly seeing this in London. Rich Greeks (and perhaps rich other europeans) are taking paper and using it to buy real estate in London. It seems absurd on the surface, but from what I hear, its happening.

I respect what you say when you claim that there’s nothing out there to buy. But try this thought experiment. If I told you that your pile of treasuries would be chopped in actual value by 75% through a default, would you still say “I can’t find anything to buy?” Maybe buying medium-sized chunks of Alaska might look more attractive than a 75% loss.

Would a panic out of bonds usher in a “freegold” world? Who knows. I’m a bit suspicious of claims that something (other than a property of basic physics) is guaranteed to happen. It just reminds me too much of Marx’s assurance that the state would simply wither away. But gold would likely benefit from a flight from paper, likely driven first by default and then by the monetization response – among other things.

Again, if the Fed (and ECB) aren’t allowed to buy up all that bad debt, we get deflationary depression. If they do have enough political capital to both monetize and buy up bad debt, there’s enough excess claims to real wealth floating around out there to really cause a whole bunch of price inflation if even a fraction of it decides it is better off in “real stuff.” Even Alaska properties, Florida condos, little gold bars, or Picasso paintings.

davefairtex post=3193 wrote: RE –

Hmm, ok that’s convincing. You’re probably right about the Chinese, and likely the Japanese as well. Its tough to place a trillion dollars somewhere useful and at the same time relatively low risk.

But I’m not so sure about the actions of a bunch of rich people. They are seemingly better placed to individually make semi-smart decisions on buying stuff. They have big stashes of treasuries (like you do) and are wondering where they might put them. I wonder that about my small pile of bank deposits!

We are allegedly seeing this in London. Rich Greeks (and perhaps rich other europeans) are taking paper and using it to buy real estate in London. It seems absurd on the surface, but from what I hear, its happening.

I respect what you say when you claim that there’s nothing out there to buy. But try this thought experiment. If I told you that your pile of treasuries would be chopped in actual value by 75% through a default, would you still say “I can’t find anything to buy?” Maybe buying medium-sized chunks of Alaska might look more attractive than a 75% loss.

Would a panic out of bonds usher in a “freegold” world? Who knows. I’m a bit suspicious of claims that something (other than a property of basic physics) is guaranteed to happen. It just reminds me too much of Marx’s assurance that the state would simply wither away. But gold would likely benefit from a flight from paper, likely driven first by default and then by the monetization response – among other things.

Again, if the Fed (and ECB) aren’t allowed to buy up all that bad debt, we get deflationary depression. If they do have enough political capital to both monetize and buy up bad debt, there’s enough excess claims to real wealth floating around out there to really cause a whole bunch of price inflation if even a fraction of it decides it is better off in “real stuff.” Even Alaska properties, Florida condos, little gold bars, or Picasso paintings.

There are other problems the Chinese have besides the actual worth of whatever they might buy is concerned. If they try to dump treasuries, the value of those treasuries will drop faster than they can find buyers for them. Only Da Fed could buy them by printing, and why would they do that? Force the Chinese to hold them to maturity at low to nonexistent interest rates instead.

Far as non-Sovereign holders of this debt is concerned, like me the question is what is a better bet here? The Greeks buying London flats is the Real Estate equivalent of buying Facepalm Stock. That RE has nowhere to go but down, WAY DOWN.

To a lesser extent, the same is true for Alaska RE. I don’t know which will devalue quicker, USTs or a Farm in Palmer. You know, there is a very decent likelihood in about 4 years when the Pipeline has to shut down for lack of enough Oil to pump through it that the entire economy of Alaska will completely TANK, and 99% of the population will move out. Why BUY the farm if that is the case? I could simply walk in and squat it, along with numerous properties up here ALREADY vacant.

I really do not have anything worthwhile to BUY anymore other than Food really and Gas for the Bugout Machines while it remains available. Some folks keep Day Trading around their assets trying to make a Killing here or there, certainly shorting Faceplant is a decent way to make some Toilet Paper these days. I don’t bother with that though because it really doesn’t matter. In the end, just about all these “assets” are going to drop to near ZERO in value, and holding onto Real Property is going to take your own Army. Farms and just about everything else will likely be Nationalized under either a Fascist or Communist regime.

Up at the top, games are being played with comparative currency devaluations, I wrote about that over on the Diner. Overall, the Dollar is the best looking Dog in the Kennel for the next couple of years anyhow I think. Somewhere along the line we may reach a Tipping Point and hit a Sudden Stop event, or the Boiling Frog effect may continue through to the end of my lifespan, but either way there still really is not anything worthwhile for me to buy, I am as Prepped as anybody reasonably can be IMHO. You cannot truly “own” anything you cannot carry with you or anything you cannot Protect and Defend. You cannot count on the “Law” to protect you, as evidenced by today’s article from Surly on the Diner, “Mammon is Hungry”.

It remains to be seen what the Big Boys do as far as shifting assets go to try to protect and defend their own “Wealth” is concerned. I am reasonably certain though at this point that the final Battlefield for this will not be on the Economic Front. War is coming now, to be sure. Whether this will be an International War or Civil Wars on a Global Scale occuring simultaneously I do not know for sure, but one way or the other, a lot of BLOOD will be spilled to try to wash away this debt, that truly can never be repaid at all. Mother Earth herself has been scarred badly, and we all will pay the price for that.

RE
https://www.doomsteaddiner.com

I have reposted the Debate Dave and I are pursuing here as a Blog Article on the Diner, under the title The Concepts of Money and Capital: the Debate Continues.

RE

davefairtex post=3178 wrote: In some sense, both sides in this debate are talking about a denouement caused by widespread defaults on unpayable debts.

Reading over some FOFOA posts, it does appear that he acknowledges that defaults lead to deflation. But his claim is that the CBs won’t allow that deflation to stand for very long – moments, minutes, hours, or days, and that they’ll quickly react by exchanging money for all the defaulted assets.

Folks here seem to think that the CB won’t be allowed to do this; the Fed will be prevented from wholesale replacement of bank credit with base money. […] But at the end of the day, it all boils down to guessing what the Fed (and/or the ECB) will actually be able to do when the debt default crisis arrives. And that seems to ride on one thing: do the banks still have enough political power to make this happen the way they did in 2008? If they do, then we could well have a confidence collapse in the currency. If not, then we get a deflationary depression. No doubt the Fed would try to thread the needle and print just enough to restore the system, but not so much so as to cause a collapse of confidence. […]

As to the power of CB’s to print their way out of deflation, many deflationists point out that the tower of credit is so vast that the CBs simply cannot print enough to keep up, if credit destruction accelerates in earnest. Obviously, the CBs do not want to erase themselves from existence in some great suicidal printing bonanza. So, while they may truly attempt to staunch the current bleeding via “printing” in the face of deflation, they also recognise that printing to the extent necessary to truly replace ever larger swaths of vanishing credit–a process that has already begun in earnest–would be politically impossible and ultimately not in their own interests anyhow. The “printing” (i.e., quantitative easing) has only been a drop in the bucket, which is why it has been ineffective, despite being the largest such monetary exercise in human history. The CBs simply cannot print enough to replace the 100s of trillions of vanishing credit before one of myriad forces steps up to stop them. The Fed hoped to reignite credit creation by filling bank coffers. However, despite ridiculous assurances of helicopter drops, I don’t think the Fed has any illusion it can truly replace all the credit currently in existence, should credit actually start evaporating exponentially. In truth, the Fed doesn’t believe it will need to do that–it naively believed it could reverse the tide before such catastrophe. Maybe even the Fed is starting to wonder if things are now out of hand, however.

The deflationists have persuaded me that the trickle of credit destruction soon becomes a torrent and the CBs are simply overwhelmed. They will have to change tack and embrace deflation at some point, by shoring up their own assets, once it suits them to do so.

Note: I reposted this comment as a new article on the Diner Blog under the title Avalanche Theory of Debt Cascade Failure.

skipbreakfast post=3205 wrote:
I don’t think the Fed has any illusion it can truly replace all the credit currently in existence, should credit actually start evaporating exponentially. In truth, the Fed doesn’t believe it will need to do that–it naively believed it could reverse the tide before such catastrophe. Maybe even the Fed is starting to wonder if things are now out of hand, however.

The deflationists have persuaded me that the trickle of credit destruction soon becomes a torrent and the CBs are simply overwhelmed. They will have to change tact and embrace deflation at some point, by shoring up their own assets, once it suits them to do so.

One thing I think is not grasped well is the concept of Cascade Failure, best exemplified by an Avalanche or Toppling Dominoes.

What we have here is a MOUNTAIN of debt, which although it has been exponentially increasing at an obvious pace over the last decade, has in truth been growing exponentially right from the beginning of this supercycle, best pegged IMHO to the chartering of the Bank of England in 1692.

All through the ensuing years, one economy after another has been subsumed into this ever expanding Ponzi scheme. The whole Bizness isn’t REALLY managed by Da Fed, its managed by the Bank for International Settlements (BIS) in Switzerland. Da Fed is simply the most powerful among many client Central Banks in this schema.

The snow falls over many years on a Mountain, and in fact you can to extent control Avalanches by setting them off on purpose periodically when you see the instability growing. So in fact it is likely that many of the prior depressions which followed events like the bursting of the Tulip Bubble or the failure of Credit Anstaaldt were to an extent “controlled explosions” which briefly brought down the snow and then collection began again.

This iteration is somewhat different, because in each of the prior iterations after the avalanche there was still surplus ENERGY to access, first by the theft of the New World from its original inhabitants, and then progressively moreso first through the Age of Coal which took us from around 1750 through to around 1900, then the Age of Oil which took us from 1900 through to present day.

The monetary pyramid here through this entire time has used as its Capital the ENERGY accessible from the thermodynamic application of fossil fuels, through a whole variety of neat inventions during the time period. So every time a new invention like say Edison’s Light Bulb appeared on the scene, vast amounts of new Credit was issued to build such things as a nationwide electric grid. In reality of course, none of these things could ever pay off, they always only existed through constant credit subsidization. It was possible to do this by seriously underpricing the cost of energy, putting off the Day of Reckoning hopefully long enough to come up with the Holy Grail of something like Fusion Power, with the “promise” of limitless and clean Energy. However, despite all the years of experiments with Superconducting Supercolliders and the like, Fusion Power remains basically a drawing board type idea to this day, though all the time we get reports it is “just around the corner”.

Anyhow, without such a last minute rescue by the Fusion Power Cavalry here, the Credit Mountain of Money built around accessing ever more amounts of energy per capita will come down, and the AVALANCHE is just beginning here. As I wrote in prior posts in this thread, there is little worth buying here anymore, because just about EVERYTHING is based on continuing sources of energy to power it. Even Farms are based on this in the current model. Much of the production off the Great Plains “Breadbasket” of the world depends on irrigation water pumped up from the Ogalala Aquifer. That pumping is mostly done with diesel pumps, and while you might substitute some with Windmills, the depth now that has to be pumped from is probably too great for a Windmill to handle except in a Tornado, in which case the Windmill is destroyed anyhow.

What you have here as a result is a Cascade Failure of IMMENSE PROPORTIONS, a Credit Collapse Avalanche such as the world has never seen in all of recorded history. IMHO, our Iluminati Masters of the Universe are running around now like Chickens with their Heads Cut Off trying to figure out how best to protect their own “Wealth”, when in fact that wealth is ALREADY GONE. It’s floating around up there in the atmosphere as moelcules of CO2. THAT is where all the “Capital” is now, and it’s not terrifically useful Capital in this form.

I suspect the various CBs will continue to print in concert here for a while longer, and the Funny Money will slosh around in Bank Reserves keeping the TBTF from going under immediately. In the end though, they will CAPITULATE to reality, and the reality is that a MOUNTAIN of Snow collected up here since 1692 is ALL going to come down the Mountain at the SAME TIME. You cannot stop this avalanche from coming down, all you can do is to RUN AWAY. RUN AWAY FAST! Run away NOW. Get just as far away as you reasonably can from the center of this collapse, the Big Shities all over the world built upon Credit and the Thermodynamic energy of Fossil Fuels. They are DEATH TRAPS.

RE
https://www.doomsteaddiner.com

davefairtex post=3211 wrote: RE, skip –

I’ve really enjoyed this conversation too. I don’t really consider it a debate, since I’m really just looking to explore the space rather than prove that I’m right (or prove that you’re wrong) about something. Who cares about being right – I’d much rather see the truth instead.

To me, debates are about exploring the issues and challenging each other on the thought process involved in seeking the truth. I personally write much better in dialogue than as a pure Blogger, really I only came Kicking and Screaming into the world of Bloggers by necessity. Got Booted off too many boards for endlessly hijacking threads and monopolizing the conversation. LOL.

Who or what is “right” here will only be proved up over the long term. meanwhile, mostly we speculate on outcomes. I may be right or I may be wrong here in my view of the short, medium and long term outcomes of this spin down. My goal though always in a debate is to elucidate the truth, and for me the best way to do that is to bounce ideas back and forth with somebody else who ponders on them like I do. I have enjoyed this particular round with you Dave immensely. My thanks here for this.

I definitely don’t know Alaskan real estate. What you say about the pipeline sounds unpleasant. How much of Alaska’s economy depends on oil? I certainly have no idea. The idea that land is sitting around simply unused is definitely a bad sign though.

And if you have everything you need, then certainly there’s no urgency for you to buy something else. But I’d say you’re in a very small minority of people who think this way. Other rich people are fine with buying a London house (never know, might need one some day) or an Alaskan Farm, or a Miami Condo, especially if they think their bonds will vanish.

Why do people BUY things and attempt to OWN that which no man really can? I suppose it is because there is a measure of safety in being “in control” of things, making them “yours”. I suppose also I probably am in a minority, but it’s not so much because I won’t buy up property as it is because I don’t generally fit very well into any aspect of the society that I was born into. I manage to make it through, but I am always at odds with everything around me. I want a different world to live in, but sadly that world is not going to come in my lifetime. All I really can do is write my vision for a Better Tomorrow, punctuated unfortunately by the reality that what we have now will not go quietly or peacefully into this Good Night.

Focusing for a moment on HI, I do think its quite possible for the Fed to print enough money to cancel out deflation. Does the political capital exist for them to do this? It may, if Europe starts to burn for real and the US bankers convince the politicians and the public (who controls the media, again?) that we can avoid this outcome here if only we print.

Assuming the political capital for printing exists, there are several outcomes I see:

1) they can’t/don’t print enough, deflation starts to take hold, and then some event causes virtual overnight systemic failure bringing on that deflationary depression
2) they don’t print enough, deflation starts to take hold, and they change their minds and print more; time passes and another outcome is selected.
3) they print just enough. goldilocks. inflation happens, but its not too horrible. we muddle on through.
4) they print too much. inflation starts to take hold, and some event causes a hyperinflationary run out of bonds into real things.

I think outcome #3 is the least likely. As for the others, I don’t have a sense as to their probability. I’ll be reading the tea leaves to see which one happens to be in force at the moment, and given the trend, which unpleasant event could be waiting in the wings.

For instance today it would seem that deflation is the primary trend, with a systemic failure (depression event) possible as a black swan.

Each scenario you delineate here is a Possible Outcome. Weighing the Probabilities is what we generally do when discussing or debating questions of HI vs “typical” Inflation or Deflation.

There certainly is motivation for CBs to “print” here to try to keep this system balanced out. However, to date amongst the MAJOR currencies, nobody has yet undertaken what I would really call “printing”, which would be the naked issuance of money without a corresponding liability being placed on some balance sheet somewhere. You cannot inflate away debt as long as you place corresponding liability somewhere else, all you do there is keep increasing the debt load.

The ECB or Da Fed can keep issuing “Cash for Trash” under this paradigm, but they just become more insolvent all the time doing so. Eventually the market will recognize this, then you can get your HI of the currency they issue when they fail. At the moment though, while the ECB is in reasonably serious danger of failing, Da Fed is not. They WILL be in danger of failing though if they try to issue enough Cash for Trash to cover notional derivatives. I am not sure this would be in the best interest of the BIS to let this happen. My take on this is that the weaker currencies will be pushed out of existence and an attempt will be made to salvage the Dollar at the end of the game. I don’t think it can be done, but that seems to me to be the most logical game plan for those running the monetary show here.

However as RE has said, in time this whole discussion gets trumped by the energy issue. All the stuff he wrote, I really can’t argue with. I’m not so certain about the whole “death trap” thing for cities; I’d be more worried about the exurbs, but that’s just picking nits.

Unless we find some clever new concentrated energy source, the power behind civilization will slowly melt away. I’m all for a Deux Ex Machina, but I do dislike the thought of having to wait so far into act 4 for it to appear.

Energy is the Name of the Game here in the end, and short of a miraculous arrival of the Ferengi with Space Trucks full of Gold Pressed Latinum and Vulcans arriving with Space Tankers of Dilithium Crystals to power Matter-Antimatter Engines, we are essentially SOL as far as maintaining any type of Industrial Culture and a functioning monetary system on a Global Scale. The monetary system candle may burn out with Deflation or Hyperinflation, but either way it will die here. Our only CHANCE for survival as a species now is to REVERSE ENGINEER our way back to a low energy footprint on Mother Earth. We will do that one way or the other, the main risk here is that if we do not do it proactively and with planning and pupose, we will wipe ourselves off the face of the Earth before we can fix it. Go the way of the Dinosaur, of course.

RE

skipbreakfast post=3213 wrote: [quote=Reverse Engineer post=3210[…] IMHO, our Iluminati Masters of the Universe are running around now like Chickens with their Heads Cut Off trying to figure out how best to protect their own “Wealth”, when in fact that wealth is ALREADY GONE. It’s floating around up there in the atmosphere as moelcules of CO2.

This is a lovely analogy. Very quotable.

Gotta give Steve from Virginia of Economic Undertow credit for this imagery. He used it in one of his posts and I glommed it. Its been part of my notion of energy and money for a long time, but he drew this image first.

And as far as the notion that there is nothing left to buy, I think you touch on something that Ash and TAE have discussed before: the real change, and a positive one at that, to come from all this ensuing chaos is the shift in our desires. We must return to a celebration of community and self-discovery over consumption and material goods. I’m going to learn to play guitar one way or another! Used to be there was a musician in every family. We’ve lost touch with all the things that people need to enjoy. iPads don’t actually cut it, in the final analysis.

In truth, it is community and in your relationships with others that true wealth lies, and in this as in many other things the TAE folks and the Diners are of like mind. This of course is the reason we are cross posting so much these days.

My great hope would be to extend the relationship that is developing between TAE and the Diner to other Blogs and Forums, and to bring this very disparate discussion TOGETHER. I do not want to see the Cacophany of Pundits and Commentariat continue the way it has so far on the net. If we are to make a difference here, there must be a synthesis, not a cacophany.

RE

skipbreakfast post=3215 wrote: And I have a feeling you are of the opinion that the change will be so devastating that there will be no recovery of any kind to invest in. I think there will be some version of re-building that will present opportunity, though it won’t look like the growth and credit explosion of the past 75 years. In any event, it’s a prospect that can be used to convince some of the more reluctant people to make changes. I’ve found family and friends quite unwilling to give up the dreams of perpetual growth. It’s been hard to give up for me too.

You certainly cannot count me amongst the Pollyannas who think this is just a cyclical blip on the radar like a few of our past depressions. IMHO this is the BIG ONE, a crash so deep and pervasive that the very foundations of society will have to be rebuilt, from the ground up so to speak.

At the same time however, I do see how there are numerous plateaus possible on the descent available here and of course there are always opportunities to “capitalize” if you figure right on what is coming down the pipe. we likely will not be back to Stone Knives and Bear Skins in most of our lifetimes in most of the Industrialized world of the present.

In looking at it from this perspective, your “wealth” is not in what you “own” in a tangible sense, but what you own in terms of your knowledge and skills. I certainly think the ability to fix and repair things which are breaking down is an important skill to have (not one I am real good at myself unfortunately). Being flexible and mobile is an advantage (one of my strong points).

Certainly also, in the near term there are plenty of ways to make yourself useful to the Fascist State. They will be needing a whole lot of Gestapo here as time goes by, so if you are in good shape and have the willingness to bust some heads, you probably can make a living this way as a servant of Fascism.

We have had these debates already on the Diner, regarding Moral Hypocrisy and what you might or might not do to SURVIVE. How far are you willing to walk down this road? For myself, I could as easily write Propaganda for the Fascist state as I could and do write Propaganda attacking it. I can make arguments from any side of any question. Would I do this as a means to survive? I do not know the answer to that question for sure, I think not but I can’t say for sure until it is in my face and I HAVE to make the decision one way or the other.

Each of us will be faced with these moral quandaries as the spin down comes closer to our own doorsteps. Do you want to make PROFIT on Death? You can do that right now, short the living shit out of Greek Bonds and send Widows and Pensioners and Orphans right off the cliff here. Or invest your money into BP stock, so they can drill another Macondo Well this time on the Atlantic Seaboard and turn that fisherie into a stinking sewer also.

There is Profit to still be made here no doubt, but about none of it will come without great cost to somebody else, ever more directly allt he time. How far will you go here to SURVIVE? What is a Bridge too Far for you? Only you can answer that question, and only you will have to answer for your decision when you walk into the Great Beyond.

RE

RE –

I like the way you talked about Possible Outcomes. In trading, which I have done from time to time, its generally a bad idea to try and predict the market because everyone has a natural tendency to want to be right, and that right there is an emotional trap. (You tend to only read things that reinforce your biases, you spend so much energy to bash others who challenge your world view, etc).

Rather, it is better to talk about scenarios – Possible Outcomes – and then construct plans that you execute based on whichever Outcome you see appearing on your charts. In some sense, once you’ve set up the Possible Outcomes, you’ve outsmarted the whole “being right” emotional trap because whatever Outcome occurs, you end up being right!

Another way of saying this is, set up your expectations to allow your mind to be nimble. This seems especially appropriate because we have never faced this particular situation before in the history of the world. Flexibility in the face of this big unknown would seem to be appropriate. And to quote from the Tao, “…an army without flexibility never wins a battle. A tree that is unbending is easily broken.”

Of course one might want to have to have a sense of probability for different outcomes, but again, the goal is to remain flexible, and adapt your sense of the probabilities as you receive new information. “Oh wow, rich Greeks are shopping for 1.5M pound properties in London. Which Outcome does that reinforce?”

As for why all of the unnecessary buying –

A dominant paradigm of our world is feeling like we never have enough – because we feel inside that we are not good enough. Advertising is constructed to foster this image deliberately, and most of us sure view enough of that to beat the message in pretty thoroughly. And with the current situation increasing the angst and threatening to take away what we currently have, it pushes that “not having enough” button really hard.

The world is set up in a really evil and destructive pattern right now, in so many ways. The only way I have found to help create new pattern is to first imagine it, and then create it for yourself, and live the way you want the new world to be as best you can. If enough of us do this, it will come about. We can all influence our friends by being an example by doing.

Paying off debt is probably the most revolutionary thing we can do to destroy the existing monetary system. Its not always possible for everyone in society to do, but it is the kind of protest I like best. Quiet, local, and impossible to defend against.

Thanks to the rest of you for your kind words about our discussion!

This raises an interesting puzzle. Ash and TAE have warned about debtors prisons. Their basic advice is to get rid of debt so that you’re mobile and free of the shackles to the status quo. On the whole, I totally agree with this strategy. There is going to be quite a chaotic slide down to the bottom of this pit, and the more freedom of action you have, the safer you will be. You’ll also be in a better position to take advantage of any form of “recovery” at some point in this mess (which might mean “survival” as much as it means “profit”). Because as we started discussing, fiat money will probably survive for some time yet and you’ll want to have some.

And keep in mind that Dave’s point about paying down debt is somewhat revolutionary–it does shrink bank power. It does choke the status quo, because the status quo DEPENDS on credit GROWTH. But ultimately, if paying off debt is so difficult for the debtor, that they exhaust and break themselves to do so, I think it might NOT be the best option. Hiding your money somewhere and defaulting on the debt–while “illegal” in the current system–would be more revolutionary and potentially would give the debtor more freedom of action. I say potentially because we don’t know how the decline will precisely play out. I believe this is why Ash recommends no debt, since it is safer to have no ties or obligations to the banks which the system can arbitrarily use against us. (The obvious risk is your revolutionary strategy backfires and you go to jail. But hey, being a revolutionary ain’t supposed to be easy is it. It’s why I might want to beat the banks at their own game though by paying off my debt instead.)

I do think there are already signs of increasing arbitrary penalties, and if you’re seen to have any income, then those penalties will just increase. But still, they can’t throw ALL the students in jail who default on their student loan. Eventually, if ALL students simply refused to repay their student loan, the government might be forced to wipe the debts clean. Hard to know which way this will go.

It’s certainly plausible. It sort of suggests that one would be advised to accumulate as much debt as possible right now, since it would be a gargantuan windfall once the system implodes. The problem with that is that I think one has to be careful about personal debt because we simply don’t know how long it will take to go from today to the grand scale debt jubilee. Nor do we know what mechanisms will be put in place in that intervening time. I think you’ll see militia in the street protecting the status quo BEFORE you see a debt jubilee for everyone. I would rather avoid tangling with them, if I can. The status quo will not exit with a whimper. There will be a lot of bangs.

The populace is quite well trained. We won’t opt for the Mad Max scenario until our humanity has been completely obliterated. The rich and poor alike will sell out each other before we band together and repudiate all our debts at once. I just think it’s going to be much messier towards the bottom, and many of the penalties currently in place to punish debtors will increase before they vanish. Many people could not survive 6 months under such penalties, let alone 6 years.

I agree we’ll organically reach the hard stop you describe. But I think it will take a lot of people down with it first. We won’t all get our houses for free that easily.

I think your proposed scenario makes so much sense that…well…most students are already doing it! 🙂 Getting an interest-free student loan (available in some places) sure beats unemployment. With no other options, it’s definitely the way to go. I think your scenario highlights that not all debts are the same, and not all debtors are the same. For such a tactic to be advantageous, however, one really has to have NO other options. Even if one can get a minimum wage job now, or arrange room and board on a farm in exchange for work, the job would offer more advantages in my opinion. Student loans could dry up in a year or three, as I’m sure you’d agree. Then again, a year or three is better than nothing, and a savvy student can still be planning for the inevitable unemployment at the end. Who cares if you even pass the classes!

skipbreakfast post=3228 wrote: I think your proposed scenario makes so much sense that…well…most students are already doing it! 🙂 Getting an interest-free student loan (available in some places) sure beats unemployment. With no other options, it’s definitely the way to go. I think your scenario highlights that not all debts are the same, and not all debtors are the same. For such a tactic to be advantageous, however, one really has to have NO other options. Even if one can get a minimum wage job now, or arrange room and board on a farm in exchange for work, the job would offer more advantages in my opinion. Student loans could dry up in a year or three, as I’m sure you’d agree. Then again, a year or three is better than nothing, and a savvy student can still be planning for the inevitable unemployment at the end. Who cares if you even pass the classes!

Well, passing the classes is important in terms of being able to continue onward with the game and be eligible for new loans. You also want to do well if possible so you can keep enrolling in further degree programs. You know, after the Ph.D., there’s still Law Skule and Biz Skule to hit.

As to when the Loans will dry up, well when that happens I suspect mass repudiation begins as well. The Universities will all have to shut down of course except maybe the Ivy League where the 1% will Pay Cash.

I did miss one other alternative here, said 20 year old could go and Enlist in the Military, Navy is usually pretty safe until the ships start sinking anyhow. If you can make it through a 4 year hitch, then the GI Bill should help with the college costs. However, taking this route you are of course becoming an explicit tool of the Fascist State.

The minimum wage job alternative if you can find one doesn’t pay even rental housing bills unless you triple up with friends generally speaking. It is also of course a complete dead end, and one becomes pretty nihilistic after 2 or 3 years flipping burgers with no better future in sight.

RE

So Dave Fairtex et all. Speaking of non student debt, I say God damn don’t pay any of it. Leave, lay low and don’t be known very much. Put what you have sequestered close to your heart, maybe backed up by your 38. Live modestly and carefully. Stand behind others. Don’t give a fucking shyster $3500 to file bk. Why should you? It doesn’t make any sense to pay part when you can’t pay all. They write it off anyway and sell it to zombies. In fact it gets passed from zombie to zombie many times. They try to find you but they can’t because there are millions just like you. They try to call you but you don’t answer and your cell phone company doesn’t have your correct address. Even intellius doesn’t really know. So what if they sue you? Ok, if you do receive a summons you probably should go to court. What can they get? You don’t have anything. You cannot get blood from a stone. They’re going to spend money to lock you up after years have past? Not only are there statutes of limitations, but it costs money to try and find you and take you to court. Flip them the bird, kick them in the balls and chock some more up for deflation. Especially if you were born and bred in the briarpatch.

Karpatok post=3232 wrote: What can they get? You don’t have anything. You cannot get blood from a stone. They’re going to spend money to lock you up after years have past? Not only are there statutes of limitations, but it costs money to try and find you and take you to court. Flip them the bird, kick them in the balls and chock some more up for deflation. Especially if you were born and bred in the briarpatch.

Really, in the end having No Assets is your best defense against this kind of nonsense. If you have nothing worth repoing, your creditor is basically SOL.

Now, Ashvin will make the case at some point in the future you’ll be strapped onto a Chain Gang if they can find you, but I seriously doubt that since running such Slave systems incur their own set of liabilities.

The Statute of Limitations of course does not apply to Student Loans, which you are tagged with for the rest of your life. So if at some future point you do drop into the system again and have a wage that can be Garnisheered, it will be. At the moment however, there are also limitations on that insofar as how much can be garnisheered. If you fall below a certain income, none can be taken at all. Those laws may change of course, but again there really are much BIGGER FISH to fry than Student Debtors.

With many Real Estate Developers in BK, many McMansion Owners in BK, many CORPORATIONS in BK, just how much time does the BK court have to spend on chump change debts of students here? In fact the LAW FIRM of Dewey, Cheatham and Howe just filed Chapter 11 today:

Dewey files for Chapter 11 – biggest US law firm collapse

The crippled law firm Dewey & Leboeuf filed for chapter 11 bankruptcy protection on Monday night and will seek approval to liquidate its business after failing to find a merger partner, marking the biggest collapse of a law firm in US history.

Gotta LOVE that one. LOL.

RE