Bernanke And Draghi Are Not Trying To Save Our Economies
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Obviously, after a week of big-time announcements, the German Supreme Court, Mario Draghi's bond buying scheme and Ben Bernanke's QE3 (both vi
[See the full post at: Bernanke And Draghi Are Not Trying To Save Our Economies]I find Bernanke’s actions depressing, especially after the recent OWS movement. Surely there has to be a better way to try and stimulate the economy and help the hapless souls in misery.
When you ignore your own citizens taking to the streets and protesting, as if they were mere dogs barking, and continue on the same path of padding banksters, you have a real morality as well as financial problem.
Well that was a perfectly boring post. I sort of expected something more dramatic; like maybe Ilargi coming out of the closet or maybe Stoneleigh joining a jihadist group. Or even better yet, maybe they both admit that they are really central bankers and have been trolling us the whole time (ha ha, so funny!).
But no, perfectly boring indeed. Keep up the good work!
In the end, the economy is all people. But Bernanke and Draghi’s schemes do not target all people, other than perhaps in very vague allusions: Bernanke pays far too much for worthless mortgage backed securities so the banks whose hands he takes them off have room to lend money into the economy (create more debt), which could hypothetically create jobs.
Before you get too convinced that you have understood the situation, I would like to remind you how to create something (money) out of nothing. Banks, (Bernanke and Draghi) are all involved. Regulators are suppose to enforce how much money that can be created so that the system can remain stable. If there is too much money or too little money, available, then the financial system is unstable. Since Bernanke and Draghi are the regulators they can do whatever they want.
Its very easy to make money in our modern financial system.
All it takes is for Bernanke and Draghi to make a bookkeeping entry that say that you now have an asset of $X B. Now you can go and spend it.
To remove that bookkeeping entry is just as simple. Bernanke and Draghi just removes it from their books and says that it has been forgiven.
Nobody needs to pay it back. It was created out of nothing and it will return to nothing.
( Just like a virtual particle. It can exist for only a short period of time. Look it up on wiki.)
The economy is not the same as a mathematical physics model. There are unintended consequences in the real world of economy. You got it right, the result is that the creation of money is causing inflation in the real economy and stealing our remaining wealth and causing misery for 99.9% of the population.It’s time to get this through our heads once and for all: Bernanke And Draghi Are Not Trying To Save Our Economies. Perhaps they would if they could, but the question is moot: they know they can’t. Instead, they’re trying to save the financial system by stealing our remaining wealth while making us believe that the economy and the financial system – a.k.a. the banking industry – are one and the same thing. They are not, and that’s why we see our jobs and benefits and homes go up in thin air and smoke while the S&P looks rosy.
Although it is possible for a virtual particle to go back to nothing, it will not be possible for Bernanke And Draghi to remove all the money that they have created.
Bernanke is willing to throw in another trillion or so – or two- dollars in taxpayer money
How does Bernanke buying private MBS equate to stealing taxpayer money?
I don’t see the connection.
MBS are not Treasury Securities.I’ve never once heard of taxpayer bailout for a central bank.
Can someone cite any example from anywhere in the world where taxpayer money was appropriate by legislators to prevent a central bank failure?
Is there such a thing as a Central Bank Run?
@St. Albans: Central banks are the source of money. They wave a wand and poof! Here’s a $million, or a $billion. There can be no run on a Central bank because it’s not your money.
When a Central bank poofs! more money into existence, all money loses value since there is more money to buy the same quantity of goods and services. Money losing value is called price inflation which, since 1971, has occurred continuously.
When the Central bank creates inflation and makes your money lose value, it’s just like they reached into your pocket and stole some.
This is just a small part of the story about the criminals we call bankers, and our elected officials who collude with them. Grab the Internet and read on…
Does Stoneleigh still write for this blog? …seems like not very much anymore. Now that Ashvin is doing his own thing it would be great to hear from her more often. And please, not for short term, time specific predictions…stay away from that or Viscount St. Albans and the like will have a coronary.
I originally came to this blog because it offered big picture, long term perspective. This is badly needed in a world of lies and contradictions. I’ve found Stoneleigh’s perspective vital in helping me to stay the course in being financially diligent (paying off debt, staying out of the markets) and sharing the message with others.
There is limited value in ranting about the 1% elite, bankers & Central Bankers. They will do what they will do. Anyone needing to vent about them can tune in to Max Keiser.
The worldwide financial situation is now a giant house of cards and the best thing that TAE can do is educate people on why it will collapse, what that will look like and what to do about it before & after it does.
Here are a couple of topics that I’d like to hear from Stoneleigh about: 1) the Canadian housing situation, 2) what she means when she refers to “multiple claims to underlying real wealth” (an example or illustration would be great.)
Thank you to Ilargi, Stoneleigh & Ashvin for your good work.
Does Stoneleigh still write for this blog? …seems like not very much anymore.
She tends to write when the stock market has been falling for a while.
And she tends not to write when it’s rising.If you look through the archives, you’d be amazed the number of small market dips over the last 3 years that led her to warn of imminent market collapse.
It’s pretty much like clockwork.
As of July 2012, she refused to acknowledge that the markets had surpassed their Spring 2011 levels. I pretty much gave up at that point.
When a Central bank poofs! more money into existence, all money loses value since there is more money to buy the same quantity of goods and services. Money losing value is called price inflation which, since 1971, has occurred continuously.
I think you’re at the wrong blog for that argument.
[quote=Viscount St. Albans post=5318]
As of July 2012, she refused to acknowledge that the markets had surpassed their Spring 2011 levels. I pretty much gave up at that point.
Gave up on what? You’re still reading, posting, and commenting. What’s your objective in sticking around?
Gave up on what?
Gave up on her ability to impartially report and evaluate data. It’s possible to simultaneously have the big picture right but the data wrong. It often stems from wanting a certain result too much. It’s a common source of fraudulent basic science.
See the excellent recent review on the subject in the Guardian:
https://www.guardian.co.uk/science/2012/sep/13/scientific-research-fraud-bad-practice?newsfeed=trueWhat’s your objective in sticking around?
Morbid Curiosity:
According to Aristotle, in his Poetics we even “enjoy contemplating the most precise images of things whose sight is painful to us.” (This aspect of our nature is often referred to as the ‘Car Crash Syndrome’ or ‘Trainwreck Syndrome’, derived from the notorious supposed inability of passersby to ignore such accidents.)
https://en.wikipedia.org/wiki/Curiosity#Morbid_curiosityDebt resistance seems to be the new strategy. How many of you still promote ‘getting out of debt’ as one way to prepare for the collapse?
And why flame Stoneleigh? Is there no solidarity among those that have the ‘big picture’? To understand what’s just over the horizon is to feel for your fellow human. There will be great suffering, and the only way to alleviate suffering in the world is to show solidarity far and wide. To waste your precious time attacking someone who has not wronged you is exactly the old paradigmatic mentality we’re trying to shed off.
I think its more accurate to say that Bernanke and Draghi would be happy to save our economies, but its beyond their capacity to do so. Maybe that’s just splitting hairs.
I heard the most recent Central Bank action described as “coordinated central bank intervention” and as of this moment, it has worked relatively well at least from the point of view of the bond market (i.e. rich people’s hot money). Bank deposits – I think they are less convinced.
I’ve heard the current equity markets referred to as “a liquidity detector”; the current thinking is, when newly printed money appears it needs somewhere to go, and the equity market is one candidate. My guess is there’s a certain amount of front-running that’s going on. How long this anticipatory equity buying lasts, and how well it will fare in the face of our upcoming worldwide slowdown – that’s anyone’s guess.
But honestly, don’t watch the equity market, watch bonds. The money is a lot bigger in bonds, and that’s where the rubber meets the road for sovereign financing. Equities are just a sideshow – well not if you own them, of course, but from the standpoint of analyzing at the macro situation, they are.
Think of it from the point of view of the people in power: if the equity market drops that’s unfortunate, but if the sovereign can’t finance itself, that’s a heart attack. Bureaucrats don’t get paid, anti-riot SNAP payments don’t get made…revolution level stuff.
So rather than asking “did this latest intervention work or not” I’m going to make the following observation:
Last ECB intervention was LTRO 2 – announced Dec 9 2011 and executed Feb 29 2012. After announcement on Dec 9, bond market slowly improved through execution on Feb 29 and for another 3 weeks thereafter. Then the bond market slowly lost ground. 10 weeks later, on June 1, it was back at the same pressure level it was prior to the LTRO 2 announcement. Conclusion: LTRO 1&2 were good for about a six month reprieve.
I’m going to start the clock ticking on Draghi’s “I’ll do whatever it takes” speech of July 24th. It will be interesting to see how long this one lasts. My guess is, it won’t last as long, but that’s just speculation on my part.
The tendency is sometimes to see each down cycle as “the system will for sure crash now” and each up cycle as “maybe everything is fixed” but that’s not how these things tend to work. This ongoing situation is actually a series of crises that show up as a pattern of highs and lows – but with each low being lower than it was previously.
The crisis keeps recurring because the debt cycle has peaked; the debt remains, incomes to service it have fallen, and the “virtuous” cycle of borrowing prosperity from the future feeding income growth that can be used to service new debt is now reversed.
Until debt is reduced, or incomes rise, this negative cycle remains in place and that pressure will remain – it is seen most clearly in Spain and Greece. Rescuing banks will not fix this. Its not a bank solvency issue, it’s a debt-to-income issue. But it might take some time for the markets to figure that out. Best case: the Spanish banks get rescued, and yet nothing improves (because there will still not be anyone who can possibly borrow money due to reduced income levels); at that point, confidence will snap again and pressure will rise even higher.
What will they do then? I have no idea. The system in place is run by a bunch of really smart people. It is unwise to underestimate their bag of tricks, and the lengths to which they will go to avert disaster.
How many more cycles will we have? That too is an unknown.
But until you see actual widespread debt burden reduction and/or massive nominal GDP growth, know that the basic problem still remains, regardless of the latest band-aid.
Adam asks
Debt resistance seems to be the new strategy. How many of you still promote ‘getting out of debt’ as one way to prepare for the collapse?
If you are 100% sure of a given outcome – the outcome Adam sees – then actually paying down debt is foolish. Instead, you should lever up to the max. Take out a big mortgage, and then get some credit cards, and then max them out. And buy stuff, lots of stuff, that will be useful to you in Adam’s endgame scenario.
I don’t share his confidence in The One True Outcome. The precise shape of the future is uncertain. I don’t know it. Do you? Does he? What level of risk are you comfortable taking?
Debt reduction, assuming you have the resources, has a positive payoff for some futures, and a negative payoff in others.
That said, if I had an underwater house in Las Vegas, I’d walk away, no ifs, ands or buts, even if I had the resources to pay it off. Just exactly the way Morgan Stanley did for the buildings that IT bought with borrowed money after they dropped in value….
Viscount St. Albans post=5321 wrote:
Morbid Curiosity
That explains the reading but not the posting and commenting.
[quote=Viscount St. Albans post=5318]If you look through the archives, you’d be amazed the number of small market dips over the last 3 years that led her to warn of imminent market collapse.
Examples/links would help to evaluate the data, though I don’t know how it could help make the Guardian article more clearly applicable than it appears from a quick skimming. Are you perhaps (ironically) jumping to a conclusion?
davefairtex post=5324 wrote: Debt reduction, assuming you have the resources, has a positive payoff for some futures, and a negative payoff in others.
Do you really believe there would be a “negative payoff”, Dave? If so, could you be more specific? I’m asking for your personal opinion, not your assessment of popular opinion.
At some point, sharing different perspectives than what we believe of others (aka, conventional wisdom) might begin to have a “positive payoff”. I’m picking on you only because of expediency–you put something out for me to point to. 🙂
Concise and to the point there, Ilargi. One must know his “foe” to understand his predicament, and to develop a strategy. Anyone who believes that a government, politician, bank icon,corporate CEO or mob leader should “do more” to improve ones lot in life is passing the buck. It is the individual, critical thinker who takes responsibility for his own destiny, in light of adversity, who will stand maximum chance of contentment when the final hand of life is played.
That said, of course these psychopaths are in it for themselves, just as are most all politicians (as opposed to statesmen?) And the same could be said for any “collective” too. Mobs are always seized by the few manipulators, to be directed toward their own agenda. This is why I think it wise to be suspicious of anything popular. Humm, individual liberty, what a concept.
Seems this entire mess could be considered caused by those who simply recognized a means of reaping maximum profit, exploiting the general populace’ penchant towards greed and immediate gratification, at the expense of future security and comfort. Took two to Tango? As both factions joined in the collective frenzy of their peers, society became polarized as networks of creditor/debtors, at the expense of the prudent individuals who understood the age old (old age?) benefits of deferred gratification.
It sure is enjoyable to live the good life on other peoples money (stored/earned wealth), until, of course, it runs out. Now what? The status quo isn’t sustainable, and real austerity (living within our means) is avoided like the plague. As irresistible force encounters an immovable object? I doubt that. The laws of nature will eventually overcome the forced compliance of servitude, crowd mentality and social engineering.
“Men, it has been well said, think in herds; it will be seen that they go mad in herds, while they only recover their senses slowly, and one by one.” Charles Mackay.
Leading to;
“Prediction is very hard, especially about the future.” Yogi Berra
Caveat Emptor! But don’t despair! Feel privileged in being granted, by nature, the sense and ability to follow your own path in finding peace amidst the storm, one by one, so that others may benefit from the observation that it is possible. In my estimation, a well adjusted society is comprised of millions of free thinking individuals, not a one minded collective.
Again, Ilargi and company, thanks for your diligence, against all
odds 😉SteveB –
Do you really believe there would be a “negative payoff”, Dave? If so, could you be more specific? I’m asking for your personal opinion, not your assessment of popular opinion.
Short answer: in some scenarios, yes.
Long answer [and it did get awfully long]:
My personal opinion is that the future is a murky cloud, and that I am not smart enough to predict exact outcomes with full confidence. So I go with probabilities and scenarios. Let me give you an example.
Scenario 1: If central authority breaks down quickly, its likely that Citibank will find it impossible to convince your good buddy the local Sheriff to kick you and your whole neighborhood out of your houses for nonpayment. In that scenario, paying down that mortgage would be a misuse of resources; better to use that money to buy stuff to help you through the downturn (beans bullets & band-aids – and various helpful Home Improvements).
We’ll call this the “Adam Scenario.” Nobody suffers any penalty for nonpayment of mortgages, credit card bills, or auto loans because things break down really fast.
Scenario 2: An alternate scenario is, central control lasts long enough for your house to be seized for nonpayment and sold to one of your neighbors for peanuts. Most if not all of your investments now belong to your lucky neighbor, except for the beans you can stuff into your new home – your van!
[There are likely to be other scenarios, but let’s keep this to 2 just for brevity]
Now assign probabilities to each scenario:
50% Adam Scenario
50% Alternate Scenario50/50? Probably best not to lever up; its better to have the house for sure if there’s a 50% chance of losing it. 90/10? Depends on your tolerance for risk. 100/0? Get that credit card out and start buying!
My personal opinion is, a lot of people have the One True Answer to Exactly How Things Will Play Out. I think these people are quite dangerous. Instead, think about scenarios, your sense of the probabilities of each one coming to pass, and your own tolerance for risk.
If what you’re asking is for me to list scenarios and assign probabilities…maybe that’s a group task! And one you can help with!
Last point: as time passes, watch what is going on, and update your probability assessments as you see events occur. Perhaps add new scenarios, and delete old ones as well. This method of thinking allows you to constantly consider alternatives, and it also means your ego won’t get in the way – you won’t be so worried about “being right”. Ultimately whats important is being mentally and physically prepared for the future; the ego thing is secondary. Or at least it sure should be.
SteveB asks: “Do you really believe there would be a “negative payoff”, Dave? If so, could you be more specific? I’m asking for your personal opinion, not your assessment of popular opinion.”
While this question was addressed to dave, I precipitated the discussion, so I’ll take a brief crack at it.
What are the ‘negative payoffs’ of current debt reduction? From a purely pragmatic perspective, would funds diverted to ‘servicing’ current debt be better spent on accumulating goods and materials required for prepping? Should I pay my credit card bill or purchase an rear-tine tiller? Should I pay down my mortgage or stockpile gasoline, alcohol, food and seeds?Those are not tough questions for someone in my position. I would rather feed my kids than pay a bank. That’s a decision I make based on my evaluation for what’s important now. Should I make a decision based on what I hold to be important to me in the future, then putting into place redundant homestead life-support systems to continue to sustain my family’s nutritutional and mental needs is far more important than my credit rating.
Of course, we could endlessly way some personal odds against others in an effort to come closer to a prescription for either paying off debt or not, but, it’s ultimately a decision that’s made based on one’s personal situation. That being said, we should be explicit about the class-based nature of this issue. There are a vast majority who cannot ‘get out’ of debt. Purporting that ‘getting out’ of debt is some sort of ‘non-violent revolutionary action’ is classist to its core. How comfortable a position to take when one has access to the resources to do so!
This mentality/’strategy’ is perniciously individualistic and obsequious. This mentality assumes that one can ‘buy’ one’s way to peace and prosperity by paying off the thieves who are responsible for our current state of affairs. This way of thinking is based on the faulty assumption that one can isolate one’s self from the rest of society by way of one’s ‘adroit’ market position.
The credit/financial/debt ‘crisis’ is a cultural product, and culture is not something that sits objectively outside of our experience. It requires human agency to recapitulate over and over again, until it _seems_ to materialize into an objective reality. But culture still remains reliant on our own mentality going forward.
We can all pour our resources into prepping (and I do) for an objective crisis of shortages in goods and services currently reliant on credit to reach us, but this doesn’t solve the problem core to this ‘crisis’–the cultural flaws of individualism, division and materialism. So, while one can use a cost vs profit metric to evaluate the decisions one makes, but it evades the foundational problem of now–that’s mentality.
Again, this is an argument on principles, and it may not appeal to the prudence of financial thinking that many commenters on TAE seem to exude, but until we come to terms with the baseline problem, it won’t be solved. It seems that the entire premise of TAE is that there will be a time when the analysis of high finance is no longer needed. Ashvin seems to reflect this in his expanded spiritual interests. Finance was probably a good place to start to analyze the cultural shift going on, but it will always remain a subfield of a larger perspective on who we are as a species. So while a cost/benefit analysis to surviving collapse may seem like a beneficial mentality for an individual to hold at present, such zero-sum thinking is certain to be detrimental in a post-collapse community. This begins and ends with one’s mentality.
While I think dave’s probability assessment seems intuitively reasonable given all that I have read about the process of debt collection, I must also submit that it assumes a specific nature of power that I cannot agree with.
The assumption of the nature of power in dave’s assessment is that power exists independently of economic activity and independently of public perceptions of legitimacy (read public obedience). These assumptions frame the pragmatic picture of running a quantitative probability risk assessment. In other words, crunching numbers make sense assuming power to exist independent of society. This assumption goes against everything I have read and studied, so I diverge significantly from the conclusions that dave takes as foregone.
So, would I risk my life on this assumption? I would argue that I am already risking my life everyday that I assume the Second Law of Thermodynamics holds true for everything but human civilization. Where debt collection is a social relation and dependent on my reaction towards it as much as the debt collectors action towards it, the breakdown of logistical infrastructure is an objective threat that affects me regardless of my action towards it. That to me is a more salient worry than the assumption that debt will be collected.
Adam said: “Of course, we could endlessly way some personal odds against others in an effort to come closer to a prescription for either paying off debt or not, but, it’s ultimately a decision that’s made based on one’s personal situation. That being said, we should be explicit about the class-based nature of this issue. There are a vast majority who cannot ‘get out’ of debt. Purporting that ‘getting out’ of debt is some sort of ‘non-violent revolutionary action’ is classist to its core. How comfortable a position to take when one has access to the resources to do so! “
This is a really good point. There is an obvious age and class divide here. Younger people are now saddled with Student Loans that can never be shed. Older people may have gotten close to paying off a mortgage started decades ago. As a senior with some money, I now plan for helping kids and grandkid to weather the future storms.
Then there are Dave’s Plan A and B scenarios. That is more or less how I set up my life plans, with usually about 3 plans on track at a time that include my extended family and friends.
With some friends who have fallen off the back of the truck job-wise etc, I plan for my extended world of people.
In reading some of the links to what is happening in NY with debt protests, I found my favorite slogan : “You are not a loan.”
Stay tuned to the Occupy movement’s activities this month. NYC and SF are sure to have some demonstrations that the “problem” has not faded away.
As of July 2012, she refused to acknowledge that the markets had surpassed their Spring 2011 levels. I pretty much gave up at that point.
The “nice” thing about the internet is people can say whatever they want. The Viscount has tried to put words in our mouths countless times, made references to things we never said. We responded umpteen times, and then gave up on him/her. Useless. Nicole is at the moment at a conference in Sweden as a keynote speaker, so she can’t make it umpteen+1 times, but even then. You can’t have a discussion with someone who hears only what they want to hear, not what you say.
Debt resistance seems to be the new strategy. How many of you still promote ‘getting out of debt’ as one way to prepare for the collapse?
There is no other way. There will be no jubilee. Not under the present system. Which has it hands firmly on the steering wheel, white knuckles and all.
I think its more accurate to say that Bernanke and Draghi would be happy to save our economies, but its beyond their capacity to do so. Maybe that’s just splitting hairs.
They don’t care. Other than in passing. Anyone would like to save an economy if it doesn’t cost any effort. Anyone would claim to come to the rescue of all sorts of things, traffic accidents, street violence, until doing so poses a threat to themselves.
But yes, in a bigger sense: no, in the end central bankers have no control over economies.
It’s not a bank solvency issue,
Sorry, but yes it is. However, as I wrote, we are not allowed to know exactly how solvent any – major – bank is.
… it’s a debt-to-income issue. But it might take some time for the markets to figure that out.
The markets figured than out long ago. But they’re not about to refuse free money.
How many more cycles will we have? That too is an unknown. But until you see actual widespread debt burden reduction and/or massive nominal GDP growth, know that the basic problem still remains, regardless of the latest band-aid.
It will only be stopped by millions of people moving into the streets. By then, their money will be gone, though.
I don’t share his confidence in The One True Outcome. The precise shape of the future is uncertain. I don’t know it. Do you? Does he? What level of risk are you comfortable taking?
The entire problem exists because of lost wagers. Yet that would be anyone’s solution too, to gamble more? Not our approach or advice, for sure.
Examples/links would help to evaluate the data,
They always fail him/her.
Again, Ilargi and company, thanks for your diligence, against all odds.
Thank you.
There are a vast majority who cannot ‘get out’ of debt. Purporting that ‘getting out’ of debt is some sort of ‘non-violent revolutionary action’ is classist to its core. How comfortable a position to take when one has access to the resources to do so!
I don’t know who has purported any such thing, but with a high risk of debt slavery as the alternative, it certainly isn’t about being comfortable. And yeah, there are many people who can’t get out, and many who think they can’t get out of debt, but we will continue to urge them to try their best. Debt in deflationary times kills people, quite literally.
It seems that the entire premise of TAE is that there will be a time when the analysis of high finance is no longer needed.
High finance itself will go, as we know it today, so sure, no analysis needed once it does. But that’s a bit too much like saying because Google has a self steering car under development, you can close your eyes on your way to the store today. Or the church.
Here are a couple of topics that I’d like to hear from Stoneleigh about: 1) the Canadian housing situation, 2) what she means when she refers to “multiple claims to underlying real wealth” (an example or illustration would be great.)
Barak,Here is a simple example of “multiple claims to underlying real wealth”:
I wonder how it will affect the big Australian iron ore miners. :huh:
Bernanke says he is going to create money ad infinitum. So where are the Bond Vigilantes who are supposed to curtail the printing? They must have been chewed up in Ben’s propellers as he drove right over them.
Illargi said –
There is no other way. There will be no jubilee. Not under the present system. Which has it hands firmly on the steering wheel, white knuckles and all.
The phrase “jubilee” is a slippery one. If by that you mean all debts everywhere will be completely cancelled, I’d say that’s unlikely to come to pass without a complete systemic breakdown. I think such a breakdown is possible, though not probable. However, I think it is possible that eventually (5 years?) mortgage debts will be written down to current valuations; let’s call that a “partial jubilee.” Not sure what odds I give that; perhaps 35%?
From a sovereign perspective, bankruptcy is a form of jubilee, and we’ve seen that happen step by step in Greece. At first, everything had to be repaid. Now, some lenders have taken losses. At some point, even more of this debt will be forgiven. In fact, its the usual outcome; credit bubbles lead to sovereign bankruptcy which usually ends up with a combination of money printing and debt forgiveness. I’d call that “partial sovereign jubilee.” Its definitely the last resort of the current system, however, since its the powerful rich people who hold the debt; the last thing they want to do is forgive any part of it.
Adam –
The assumption of the nature of power in dave’s assessment is that power exists independently of economic activity and independently of public perceptions of legitimacy (read public obedience)
Half the time I’m not sure what Adam is talking about! From where I sit, I just look at what exists. Currently, there is a process in place in our society that will (eventually) remove your house from your ownership if you stop making payments. Such a process exists; if it continues to exist, that process (whether Adam considers it legitimate or not) holds at risk any asset you purchase using borrowed money.
Of course one should prioritize feeding kids over repaying debt; however, if you end up losing your land via foreclosure, that new roto-tiller won’t do your kids a bit of good, and all the talk of legitimacy means nothing if you are living in your van instead of farming your debt-free land – even without the roto-tiller.
My suggestion about making scenarios and then constantly looking for evidence to refine them is a constant game of Who Moved My Cheese. I’ve referred to this before – its all about maintaining situational awareness and avoiding self-delusion (either too pessimistic, too optimistic, delegating your awareness to some Guru who promises to lead you to the Promised Land, or focusing on arguments of what You Think Should Be versus What Actually Is).
Adam and I do agree on one point however. The decision of what actions to take is intensely personal, and depends on your own circumstances.
There are a vast majority who cannot ‘get out’ of debt. Purporting that ‘getting out’ of debt is some sort of ‘non-violent revolutionary action’ is classist to its core. How comfortable a position to take when one has access to the resources to do so!
Getting out of debt is both a process and a mindset. Our Overlords have drilled the necessity of being debt-slaves into the popular mind for decades. A large majority of us have the ability to either save or do without, but instead we succumb to the temptation to Buy Now using credit.
I disagree with Adam. Doing Without is not a comfortable position to take; it runs counter to our lifetime of cultural programming. But if a large majority of us with the means to do so did boycott debt-funded consumerism, the resulting deflation would threaten the system in exactly the way I say.
For those already overwhelmed by student loan debt – that’s a tough place to be. Federal loans can be forgiven after 10 years of a public service job; teacher, firefighter, police officer, etc. I’m not entirely sure what I’d do in that circumstance.
Throwing my hat in this ring, I have to agree with Ilargi–no jubilee. Not within a timeframe that matters to us anyhow. I don’t consider the following a jubilee, which I envision as the 4 Stages of Debt Slavery:
1. The First Stage (Hunt and Peck) – In these early years of this Greater Depression, an increasing number of people can’t afford their house payments. The system is still standing, though, and “most” people are making payments, even if it’s really, really hard and they eat potato chips for breakfast lunch and dinner. As such, it is in the banks’ interest to take your house…selectively. They only need to sell it for a price equal to the outstanding mortgage.
Banks pick off the houses with the best sale-over-mortgage value. It will be a scatter-gun approach. Banks don’t want a deluge, as this undermines the sale-values they’re trying to realize. No jubilee here for you. Do you want to be at risk of being in the line of fire? I don’t. So get out of debt.
2. The Second Stage (Avalanche) – The selective approach to foreclosure–which was supposed to keep house prices reasonably bouyed–is abandoned in a panic to sell the whole damn lot before your competitor does. In Stage One, banks are protecting each other’s books, in a coordinated mutual interest. But a herd of banks can stampede too, and when one of them “rushes for the exit” and tries to sell every possible foreclosed house for anything it can get, we have an avalanche. Do you want to be swept up in this chaos? Get out of debt.
3. The Third Stage (Détente) – Once Stage Two has been taken as far as it can go, most house values are below the outstanding mortgage. You can’t chase everyone out of their homes and have an entire nation of homeless people. So the government pretends to care and passes some legislation (in coordination with the banks) to prevent any more foreclosure evictions. It’s a ruse, however. Those who remain might get to live in the house without paying anything, but the banks are just lying in wait. Your “living-for-free” arrangement is a trap. Anything of value will be taken from you, whether it’s a car, your gold, nice furniture. Any dollar you make will be garnisheed to pay for the outstanding mortgage. Any opportunity that puts you back into the money also puts you back on the bank’s radar–they will have the government backed authority to come after you. You may still have a roof over your head, but you’re poor with no prospect of changing that. How will you ever pay off the outstanding debt now? So get out of debt.
4. The Fourth Stage (The Not-So-Jubilant Jubilee) – We’re now years into a depression. People have long been immobilized by their housing debts in Stage One and Two. Some form of debt-forgiveness is enacted…AFTER the bank takes the house. In theory, you can go live in a communal living housing project, because you’re “freed” from the shackles of your debt. Oh, and your landlord? Well, it’s the bank who owns the housing project (through aforementioned foreclosure proceedings).
There’s still another catch. We discover that, other than for a small percentage of the most fargone lost-causes (the aged, the infirm), this debt-forgiveness is not absolute. Yes, a percentage of your earnings are freely yours to keep. You can buy groceries and even a car (…or horse?). But don’t ever count on becoming a millionaire without that mortgage coming back to haunt you. It’s clear now to anyone lucky enough to make it in the New Depressionary Economy (because some surely will) that ye ol’ mortgage debt from 2005 really was for life. You just thought they forgot about it while you were making $10,000 a year. Now that you’ve broken through to $100,000+ they’re all over you again. So this Stage Four is a lot like Stage One, Two and Three in disguise. You can see how there is now a cap on the population’s ability to ever break out of the 99.9% Only those who didn’t have debt to start with have a chance. So get out of debt.
Conclusion: I can’t really see the upside of debt–no matter whether it’s credit card or mortgage or student loan debt. A hyperinflation is simply too much like a gift to the people at the expense of the very rich and the banks. So your mortgage is now the same nominal price as a loaf of bread? Unlikely! our debts will never go away, even while there may be opportunities to temporarily avoid them. Your freedom of action will be reduced. And you take risks at every turn that it will be used against you. Of course there’s risk everywhere. The idea is to reduce your risk!
If you can get out of debt, do so. If you can’t, then reduce it or plan accordingly to survive. I am sure many people will have to hide away money rather than make mortgage payments just to survive. It will be the only thing a sane person can do in the circumstances. If you can’t get out of debt, start thinking about these risks and the ways you can reduce them.
(Edit: I added an additional stage (“Avalanche”)… Couldn’t resist.)
buddha –
Bernanke says he is going to create money ad infinitum. So where are the Bond Vigilantes who are supposed to curtail the printing? They must have been chewed up in Ben’s propellers as he drove right over them.
There are a bunch of factors, but ultimately its about confidence. In a global crisis like this, confidence collapses first in the periphery, and then moves to the core nations.
In other words, the Bond Vigilantes are busy stringing up the PIGS. They’ll get around to us in the due course of time!
Barak post=5317 wrote:
1) the Canadian housing situation
2) what she means when she refers to “multiple claims to underlying real wealth” (an example or illustration would be great.)Tune in to Max Keiser, as they say (I think the pie analogy is in this video, also):
https://www.youtube.com/watch?v=9F7hljAWWOQ
Or it’s in this one?:
buddha post=5337 wrote: Bernanke says he is going to create money ad infinitum. So where are the Bond Vigilantes who are supposed to curtail the printing? They must have been chewed up in Ben’s propellers as he drove right over them.
That’s a very interesting question. It implies that the garden gnome is really the top alpha male of the planetary pyramid, which I think quite unlikely. I think it’s the paradigm that drives the whole ponzi scheme at this moment, and even those who sit on top of the gnome’s pointy hat are powerless to make any move against the paradigm, or it will crumble. Everyone, from this 99.99%-er to the MOTUs, is pretty much paralyzed at the moment, waiting for the trigger, whichever that might be.
On loans to sovereigns:
Only 2 countries ever paid back their debts: Finland in the 30s, and Romania in the 80s. In the second one it sucked massively for the masses, and ended pretty freaking badly, as expected, although it did not as end bad as I expect in many, many other, “we’re different and oh, so special” places.I think a major departure in thinking between myself and a few others on here is that I believe there is a limit in the human tolerance for blatant exploitation. This comes from my studies of anarchism and the history of popular resistance. Whereas many on TAE can logically trace the exponential rise of debt and see that it is unsustainable, the other variable in the equation–human tolerance–is discounted entirely.
Maybe it’s implicit in the title of this Web site–The _Automatic_ Earth–that the exploitative economic system will continue for a lot longer and go through the various fantasy stages that skip lists; but, I entirely disagree. Humans are not drones that can be worked finger to the bone and discarded once they have reached their ‘best before’ date. To think this is possible is to capitulate to the cultural conditioning in the US that you have been exposed to–i.e. everyone is an individual and will always submit to the will of their leaders. History does not bear this ‘commonsense’ out. History is replete with rebellions, uprisings, and insurrections, because resistance to authority is ingrained in our soul (for lack of better teminology).
As wealth inequity increases and the poor grow in numbers, there will be blood. For now, your government has successfully kept the poor divided against themselves through the calculated influx of drugs, protection of organized crime syndicates and the nurturing of a fragile male ego through a popular culture of violent and misogynistic masculinity. But this won’t hold as the threat of economic evisceration spreads to increasingly large numbers of people. There will come a point when the mass media will not be able to hide that any longer. And that’s when the Great Reckonening begins.
I wonder if anyone has any thoughts on precious metals. I read what I could in the comments section but it is not too current and the drumbeat of the metals crowd seems to be intensifying. I have some money in a 401k parked in a money market fund because I felt it was the safest place but even that has some exposure to Euro banks so I am thinking of taking it out and buying silver, I have lingering doubts.
People who seem to have a pulse on the world economy like Martenson, Celente, Schiff, Faber and others I never heard of say gold and silver are going to the moon, that they are the only real money and the only safety in a coming economic collapse and the time to buy is now. Maybe I am a contrarian but when so many people say one thing it makes me hesitate doing it. Bob Prechter and Warren Buffet are the only ones I hear who caution against getting on the precious metals wagon.
I am not an investor so I am trying to use common sense in this. It occurs to me that deflation is very likely and that there will be little money to be had and little in circulation. I agree with Nicole in that the value of something is not what you think it is but what people are willing to pay for it. Since the price of gold is not set by the government but by what people will pay for it I can’t help think they would pay less for it, having less money, during a depression. Why then is it considered such a store of wealth for hard economic times? I read gold is becoming a tier one asset and will be accepted by banks as payment but in the practical world you still cannot buy anything with gold or silver coins. Thus you would have to convert it to some currency to purchase anything. In an environment of economic contraction it seems like people would not be willing to pay much for it so you would lose. The argument for metals that makes sense is where one where you hold it until a depression ends and can redeem it for much more currency. However this only makes sense if one assumes that society will emerge from times of lack to continue with a version of the previous economy. But if that economy is based on expansion the lack of sufficient energy and credit would well preclude that it ever comes back. There is also the issue of government confiscation and subsequent devaluation which has happened before.
Any thoughts on this?
Adam, that’s basically what I have written so many times now it risks getting stale. I don’t know why you think your notion of it is unique, but it certainly can’t be as a reaction to my articles. You phrase it in ways that I find painfully romanticized though; it’s not some fcuking dream, and I don’t like it when ‘there will be blood’ is presented as if the whole world is Hollywood. People will rise up only when they realize they have nothing left; by and large, that means they will rise up too late. And until then many will continue to exhibit many features that are so drone like it hurts. For that is just as much human nature as rising up when you’re hungry and miserable. Man is prone to be a drone. (S)he’s sort of nice as long as you feed and heat her, and you can make her jump through all the hoops you want. Stop the feeding and freeze her ass off, and the stories of heroic traits like rising up together and limits to tolerance will be all the fashion again. The trick is to hold on to the heroic parts when you’re bellyful and comfy. But we’re not very good at that one, are we?
Vulcanelli,
We run one of the few finance sites that doesn’t proclaim PM will go to the moon. And also one of the few that doesn’t have one link or another to making money of selling it.
Nicole and I have often explained why. Most importantly, we see it as a gauge of how bad the recession will become. If it is a lukewarm (lukecold) one, then gold would be a good way to go: one could hold wealth in a relatively safe asset, close the outside doors and wait till it’s over. Well, unless one has too many peers, of course, that would obviously distort the entire picture.
If, however, the recession starts to really bite and drag down the economy, the picture changes dramatically. We say it will, and in that differ from most others, who still see recovery of one kind or another on the horizon.
A really deep recession, the one we say is coming means that most people who hold gold will be forced to sell it, to pay off debt, buy essentials etc. It means you would need to be rich, $1 million bare minimum, to sit on your gold for 10-15-20 years without having to touch it. After that, gold will hold its long time value again. But not in the meantime.
Vulcanelli post=5346 wrote: The argument for metals that makes sense is where one where you hold it until a depression ends and can redeem it for much more currency. However this only makes sense if one assumes that society will emerge from times of lack to continue with a version of the previous economy. But if that economy is based on expansion the lack of sufficient energy and credit would well preclude that it ever comes back. There is also the issue of government confiscation and subsequent devaluation which has happened before.
Any thoughts on this?
I think you’ve hit the pitfalls of metals nicely. Here’s my biggest problem with the “buy gold” mantra: people talk about it like it’s the single solution. But there is no single solution.
Gold will not make you rich and happy.
A wad of cash won’t be the answer for all your problems.
The 99% rising up and overthrowing the evil bankers will not save you.
Stored beans and 1,000,000-zillion rounds of ammo will no make your life easy
Having a farm with wind generators will not mean you’re well-fed and comfortable.This is going to stink, big-time. For pretty much everyone. In ways most of us can’t even imagine. We can do things to protect ourselves, but there isn’t a get-out-of-jail card.
Vulcanelli –
I like Illargi’s two scenarios; I see his two scenarios (recession warm, and recession dreadful) as two valid possible outcomes. The folks you mention envision a third scenario – a money-printing-dominated outcome where gold “goes to the moon”. I’ll add another nuance to these scenarios.
Gold (the yellow stuff in your hand, as opposed to the ETF) has three virtues not found in other assets.
1) its accepted as an alternate currency in many places around the world
2) its not associated with any country
3) its portable, concentrated wealthThis is useful in limited circumstances, but when the right situation arises, there’s really nothing that can replace it. That is, when you are trying to leave somewhere with some of your wealth intact, and the government is controlling currency transfers (as in Argentina today) there’s no substitute for gold.
Jews fleeing Nazi Germany comes to mind. Can’t leave with property – can’t even sell it. Can’t take silver, livestock, or your roto-tiller – too bulky. Can’t take cash, the Swiss don’t care about Reichsmarks.
A guy named Armstrong posits that gold may hold its value even during deflationary times primarily because of government repression. Gold will be the only way to leave the repressed areas (capital controls, wealth taxes, IRA/401k confiscations, absurd Soviet-level exchange rates, etc) with some of your wealth intact, so it will remain in demand – albeit as a black market item.
Here is his paper on why (and when) you should buy gold:
https://armstrongeconomics.com/693-2/2012-2/the-truth-about-gold-why-you-should-buy-it/
Strong repression = vibrant black market = gold retains value.
But as with all things, I’d recommend diversification. Don’t put all your 401k eggs in one basket. And if you do buy gold, its probably best to buy little gold bars, not an ETF.
davefairtex post=5352 wrote: That is, when you are trying to leave somewhere with some of your wealth intact, and the government is controlling currency transfers (as in Argentina today) there’s no substitute for gold.
Leave to where?
davefairtex post=5328 wrote: If what you’re asking is for me to list scenarios and assign probabilities…maybe that’s a group task! And one you can help with!
I was asking more about the perception of such scenarios as “negative”. I don’t see the negative in paying debts. Less positive? Maybe, but compared to what realistic scenario.
Nevertheless, I appreciate your laying out scenarios and considering relative risk. That’s my preferred approach as well, for similar reasons. (I also recently read NNT’s The Black Swan, which was helpful in that regard.)
SteveB –
Leave to where?
Depends on the scenario. How about Canada? Mexico? Hong Kong? Switzerland?
I’d also like to point out that for gold to hold its value, YOU don’t have to be the one leaving. All it requires is that someone else has the desire to move along with their wealth for the marketplace to assign a good value to your little gold bars.
If your neighbor, for instance, wants to flee to Switzerland, you can trade him your bars for his slightly used roto-tiller. You might even get a premium for them given the difficulty for him to locate little gold bars under a particularly financially repressive regime.
At one point during the Greek crisis, physical gold was trading at a 20% premium to the world gold price. I’d consider that sort of thing likely in a context where a national government made gold ownership illegal.
Buying things on the black market can be dicey, but it ends up being much more commonplace once governments start passing restrictions that nobody really wants to follow. Cases in point: the old Soviet Union, modern day Thailand.
I’ve enjoyed the differing opinions with regard to how people will respond during the upcoming socioeconomic turmoil…..whether it is a recession or depression. As you know…..some people will burn down THEIR OWN HOME when they are upset….pee in their own soup. Others will be stoic and try to prepare for it…..then make the best of it. I’m sure the responses will be vastly different depending on the makeup of the community. Perhaps it would be wiser to focus on living in a community that is most likely to weather the storm than to focus on gold and silver.
Anyway, all this reminds me of one of my favorite quotes: “The average man is a conformist, accepting miseries and disasters with the stoicism of a cow standing in the rain.” – Colin Wilson
“It’s almost worth the great depression to learn how little our big men know.” Will Rogers
Some bar stool psych.
On recognizing crisis, look around.
On surviving crisis, look within.
On changing the system, take up political science, or as our host suggests, torch twirling, (my preference as well, in light of the failure of the ballot box.) Right to redress? It’s not there just to use up words. But I like to remind myself, mobs can become mindless, as can electorates, so an eye on the exit is warranted. (The main reason governments must be kept as small and as local as possible, to limit the damage caused by a mob/banksters/whomever, takeover ?)
My nickles worth on debt vs. default. Do whatever it takes to get back here;
” Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine own self be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.” Polonius (Shakespeare)Then, don’t look back. Or any farther forward than your next couple steps. The farther into the fog of the future you attempt to peer, the more illusory the vision, the less surefooted one becomes.
All of the above recognized, and a little game of chance is still desired, go for it. Place your bets, keeping in mind human action/reaction is pretty hard to quantify.
As an aside, I don’t believe I’ll wager the $20 gold piece I inherited from my Grandfather. It is said it will still purchase the same basic accoutrements it did back in his day. I would like to pass it down to see if it will still do so in the hands of a grand kid, in whatever nation/system that kid may reside 😉
The shrink is out.
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