Deleveraging as a Biblical Plague
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Gustave Doré The Ninth Circle of Hell (Treachery) 1857 Eventful days in the middle of summer. Just as the Greek Pandora’s box appears to be closing fo
[See the full post at: Deleveraging as a Biblical Plague]I cannot tell who has the best crystal balls.
Most predictors are using empty beer glasses to see what is ahead. (Hint. The commercial for don’t drink and drive)So,,,no more QE to infinity? The Fed just throws in the towel and relinquishes it’s power and stature in the Statist scheme of things? The World’s Central Banking Elite simply shut down the printing presses and fade off into the sunset?
OK, but I believe I’ll maintain a hedge, just in case history decides to repeat,,,again. At least until inflation can once more be equated with currency depreciation and associated costs of living rising beyond the means of most to afford, rather than being explained by assorted techno definitions brought about by academics in overpriced government sponsored education mills, most of whom couldn’t earn a living if they had to in the real world. Let alone predict for us the future of our well being.
ps Not sure how “Keene’ it would have been to short the Australian house market back in 09 either. Or that of Silicon Valley, for that matter. Seems the only given in all this is, currencies the world over are always shrinking in value. Still haven’t found one that appreciates.
Can’t help but wonder what happens to velocity when all are paid (carry trade?) by negative rates, to borrow against this; https://research.stlouisfed.org/fred2/series/M1/
Animal Spirits rising from the dead, maybe? And it can happen very fast.
>>The yuan devaluation tells us the era of cheap credit is now over<<
How so? Mass default? If there is zero demand for credit, won’t rates just stay at zombie zero forever?
Superb article, Ilargi.
I can’t imagine how it could possibly be the case that readers coming here still don’t get it. Several days ago, Nicole exercised remarkable patience giving in-depth answers to questions and thoughtful reactions to comments following her very long article. It appears that some readers simply refuse to let go of certain misconceptions. Which reminds me of a Bertrand Russell quote:
“Every man, wherever he goes, is encompassed by a cloud of comforting convictions, which move with him like flies on a summer day.”
(A quote that became all the more poignant while reading the inane comments after her article reproduced at ZeroHedge.)
I lost a fortune on my birthday in October 2008. Some 70% of my wealth vanished due to margin calls (stupid me) and subsequent taxes. I’d been listening for years to the wrong pundits, and so searched desperately for somebody who could give me a clue. Late that year, I had a phone conversation with Mish and observed that if the Fed gave me a quadrillion dollars, and I buried it beneath the floor of my basement, it would NOT cause inflation. Mish wholeheartedly agreed with my over-simplified analogy. Right up until the time he expressed deep anti-gun (anti-Second Amendment) sentiments (a shockingly stupid point of view), he was one of my most cherished gurus. But since 2009, nothing, and I mean nothing, has compared with the informed, rational wisdom and insight coming from TAE. I’d still be lost were it not for this website.
That said, Ilargi, you pointed to the flies in Mish’s, Keen’s and Prechter’s ointments thus:
“And Mish doesn’t even seem think the velocity of money is a big factor, if only because it is hard to quantify. We do though. Steve is a good friend, he’s the very future of economics, and a much smarter man than I am, but still, last time I looked, stumbling over the inflation equals rising prices issue (note to self: bring that up next time we meet). Prechter gets it, but believes in abiotic oil, as Nicole just pointed out from across the other room.”
Bravo for all of that, and I completely agree with all of it. But this leads me to tell you why I haven’t contributed to TAE beyond purchasing DVDs. Plainly and simply, I cannot support ANYBODY who champions the global warming / carbon tax scam. I’ve posted here until I’m out of breath regarding climate change, the role of the sun, the criminal misinformation coming from the global warming “scientists” and how geo-engineering is responsible for weather anomalies (e.g. California drought), all to no avail. I regard the global warming / carbon tax scam to be one of the greatest dangers mankind faces, especially in the teeth of ruinous deflation. Carbon dioxide is nothing but plant food. It’s an absolutely insignificant greenhouse gas, and it’s long overdue that you and Nicole back off from pretending to be experts on the matter!
Do with that POV what you will. It is offered with the very best of intentions and highest possible regard for both of you.
Diogenes,
I believe you might have a slight perfectionist attitude toward economic thinkers. TAE is correct about 90% of the time, IMHO. Nobody else comes anywhere close. If I only associated with neighbors, friends, and relatives I agreed with 100% of the time, I’d be pretty damn lonely.
Hello Raul,
I’m new to the site and really enjoy your articles. Thank you. I have acquired excellent grasp on both the economic and financial dynamics we face in the west. My question is what is one to do. I have personally moved my finances out of the market and hold PM’s. My wife and are considering opening a small business and have decided to put off our home purchase.
I’m not seeking financial advice, just wonder what you are doing to prepare?
Diogenes, I think that TAE views “climate change” as little more than “reducing pollution is a good thing, and if there is some fear mongering, so what, it is for a good cause.”
I don’t think they’ve thought it through that one unit of energy correlates tightly with one unit of economic output and the Debt-Money Monopoly (DMM) is selling abject poverty for the masses under the guise of “environmentalism,” which is exactly what they said they’d do in their Club of Rome documents. The DMM doesn’t care about the environment as they dump depleted uranium all over the planet and leverage mass polluters like dictator controlled China.
I really don’t think they’ve thought it through… they kinda just absorbed the narrative and, well, reducing pollution is a good goal, right?
So don’t be too hard on them. The Machiavellian Debt-Money Monopoly are masters at manipulating really good intentions into outright wicked manifestations on planet Earth.
PLnL, I exposed the “they always inflate” fallacy in the first comment behind Ilargi here:Hi Ilargi,
Steve Keen seems to be a nice enough guy, but he’s very deceptive when it comes to the fraud that is Debt-Money Tyranny.
I completely exposed his Bankster protecting fallacy here:
https://www.forbes.com/sites/stevekeen/2015/03/30/the-principal-and-interest-on-debt-myth-2/
Read the comments.
1. If you think you can defend his claim that 100% of the Debt-Money Monopoly oligarchs is returned to Main Street then go ahead. If you can’t, then why is Steve lying?
2. The very premise of his example was that the Debt-Money Monopoly earns more rigging the banking system than do all the laborers in society. That’s immoral, yet Steve was silent on this issue. Why?
Is Steve protecting the financier of Forbes? Is Steve protecting the financier of his direct employer? Does that make it alright to program people to accept that a few Banksters earn more than all the laborers in a society and then lie to the laborers by telling them that all the money earned by Banksters is returned back to them?Of course the deleveraging/deflation is not going to “wipe away wealth”: It’s just making visible all the wealth that’s been destroyed over the last 40 years. –And I know we all know this, just worth bringing it up because all the “QE”, all the “Bailouts” INCREASED claims on the existing pool of wealth even as the value of that wealth (e.g. miles of plastic chachkie factories in Asia) was dropping. And of course the purpose of that was never that anyone believed it, but to transfer the losses from some individuals to society at large, i.e. “Privatize the gains, socialize the losses,” using political and military force.
Adding notes that the U.S. also has 20M empty houses itself while surely 20M people could use them. 20M unproductive assets that need repair, maintenance, and ever-spiralling taxes (>$4,500 per in Chicago) out of a stagnant and shrinking income base. China’s not the only one in trouble here.
Okay, so last point: these countries are all devaluing: EU, US, China, Japan. Devalue against what? We can’t all devalue at once, nor has anyone devalued their way to prosperity. Yet they are determined to devalue as a way to “reduce the debt” — rather than simply writing it off as legally required. This is Triffin’s Dilemma and the Dutch Disease: the world needs a reserve currency that is NOT a national currency–a thing we had for millennia before these Brain Trusts got too smart by a half. It was called “gold.” Hey, we could use oil, as the Petro-dollar/yuan, gas, copper, whatever, but hear me out.
Single nations can devalue away their debts with great pain, but the entire world cannot co-devalue their debts–what would they devalue against? But if you were to return the world’s defacto currency to gold –as a gold Yuan, gold-$, gold-Euro, or Dinar — and kept the debt denominated in the presently existing paper currencies, then you CAN devalue. Against gold. Which is how it has always been done before with the Roman Dinarius, FDR’s change of the gold:US$ ratio, etc. I’d prefer writeoffs, but historically that’s not what happens.
The financial system is collapsing for lack of adequate capital that hasn’t already been collateralized. We’ve financialized babysitting, we’ve financialized taking pictures, even having friends. There’s nothing left. That’s why Europe wants Greece’s $50B in islands, to lever up 100:1 and keep the now-exponential debt increase off for one more month. But the islands are real things and indebting them only slows the economy more. You need to collateralize the world’s most useless asset, so that it’s leverage doesn’t destroy anything real, but one that also can’t be counterfeited and has trust (unlike, say, Treasury Bonds or reports of Shale Deposits). Increasing the gold price:currency to 10:1 ratio, as was restored in the 1980 top re-collateralizes the banks, restores trust, and since it’s totally, completely, hilariously useless, gold is never consumed but only moves from bank to bank, always collateralizing someone. Once the debt is defaulted, or you default the entire currency by replacing it, or the two-tier currency system reduces the debt burden to a tolerable level, the economy can move again.
Looking ahead, so as the Reserve core, the world is now forcing deflation on the U.S., an ever-higher currency which will crush what’s left of the real U.S. economy. How long do you think they’ll stand for that before devaluing voluntarily? And if they want to and must, HOW do they do it, against WHAT, and how do they restore TRUST to the U.S. system afterwards? Because they will. Because they have to.
Diogenes, don’t sweat the Climate change stuff. We all have different points of view and are all wrong about one thing or another, too often the things we are sure of. No one is ever going to have opinions in lock step with our own. And good thing, right?
@tyberious – One of the best TAE primers is the ‘How to Build a Lifeboat” Here is the link https://www.theautomaticearth.com/2012/01/how-to-build-a-lifeboat/
“Spending stops when people are maxed out and dead broke. ”
But that’s irrelevant because there is only need for 1 critical-mass size producer of anything when the market is only the elites. All others are superfluous.(as in Soylent Green?)
Critical-mass size, here, refers to the scale required to effect workable efficiency for a particular market size. Do not even need to worry about “surplus production”.
Whether the climate is changing won’t be relevant because the ocean is acidifying. Cutting carbon emissions is the right thing to do regardless of whether you are a “warmist.” Unfortunately, though, some want to profit off carbon reduction schemes.
For there to be hyperinflation there first must be a severe deflation. That provides the impetus for the destruction of the currency. Hyperinflation will be the end game.
@Ken Possibly. But part of the alternative theories is that it is earth changes leading to undersea volcanoes that are the cause of the acidifying. In which case, our activity is a flea on a dog. In any case, as I’ve said many times, the issue is now dead and irrelevant: we are in a Depression, energy use is dropping worldwide, and the intense poverty and capital destruction is going to stop way more CO2 than any government initiative ever could. So why isn’t everyone happy and cheering? The single bright point now is that we do NOT have the Global Warming Carbon Tax + Exchange they were planning.
@donttread Sort of like markets or Armstrong’s energy theory: in order to get the extreme we see must happen, the market pendulum of economic action and sentiment must first be extreme in the other direction. Could look at it in what some call the “Wolf Wave”, where constantly adding stimulus and removing market feedback mechanisms leads to ever-increasing instability. Look at the chart from 2000: ever higher highs and lower lows in a megaphone pattern. To stop the instability requires market–and social, and political–reform.
The Machiavellian Debt-Money Monopoly are masters at manipulating really good intentions into outright wicked manifestations on planet Earth.
Sometimes in the great flood of printer’s ink there are expressions that are so undeniably true that they need to be repeated. Deceitful doublespeak is the lingua franca of the anti-ethical globalists.
Its fascinating the way even very intelligent people can have such blind spots. That Mish should find it so hard to get the idea of the velocity of money is amazing, The old gag about the guy who leaves $100 deposit on a rental car and the rental car guy uses it to pay his mechanic who uses it to pay his grocer who uses it to pay her hairdresser who pays his landlord who pays his hooker who pays the rental car guy who returns it to the renter when his car comes back is quite simple, if any one of them sticks it under his mattress or keeps even some of it, the whole game collapses, but as long as everyone keeps playing the economy works.
When even Steve Keen, whom I admire hugely, doesn’t get that not all price rises or falls are inflationary or deflationary, who doesn’t see, for example, that Moore’s law or rising prices because of crop failure are about actual production costs and demand/supply issues in an uninflated economy, I have real difficulty grasping why.
The whole abiotic oil thing is both daft and a red herring, I have even stipulated to a believer that it could be true but its irrelevant, the RATE of new abiotic oil formation is plainly not enough to meet the demand, otherwise they would not need fracking, deep sea and arctic oil at all, so the net is still that we are past peak oil flow and all the calculations apply, adjusted by 0.000001% to allow for abiotic oil generation.
Sorry Diogenes, instead of arguing that climate change is a hoax I will only bother reading such posts when you stipulate what it would take to convince you that it was a fact. Give us a list, any list of any length that says, “if these things were true I would accept that climate change/global warming was happening”. Then we can have a conversation. An Trivium, you do TAE a disservice to claim that climate change is about reducing pollution, Nicole especially has done a lot about food security as affected by climate change, not to mention the economic effects of Florida disappearing or California dying of drought etc etc. Again, its real, its here and the discussion about whether or not is closed, all we can talk about now is scale, effect and whether ANY mitigation is possible.
Hi Ilargi..
I am still hoping for a few more years of relative calm before we start into the “interesting” part of the Phase-change/Power-down.The question seems to be whether the temporary periods of stability can lull the population into thinking “it will be alright IF”
Then the next downturn..things get worse..things sorta stabilize…Things are BAD now.The ones I know with money,most have their ass hanging way out on deals they would not have touched 5 years ago..The old skit of a clown with plates twirling on a stick comes to mind when I think of our “economy”now..
Nicole once said something about the reason she studied law was to understand how the few controlled the many[my paraphrasing].I think about that control structure now.How can you have a better life for those whom you care,when you are told by “the powers” that be”that this can never happen”..WHY? This incredible programing machine that is american”culture” has become an empty ideology ready for the scrapheap of history..best example I can see currently is the front runner of the business party …..Trump….(?)…VS…Bernie..(?)Proof positive BOTH the political machines are broken
It seems silly now.in the midst of the worst drought in MY memory,as native oregon,to say climate change is a myth…I have noticed a shift to saying the causality is not human induced…who knows?…my spring is getting temperamental,and I do not have the 2500 gal .”safety” tank installed yet.
This is the first year I have lost most of my early “desert” pears and I am grimly figuring the cost of upgrading my water supply to include agriculture…Loss of a crop of fruit is bad…but I worry about loss of trees now…This type of “ag-impact” has to go into the “Figure a Fix” file,regardless of how much of a pain in entails..I have some fixes…but lots of digging….lots and lots of digging…
I am immobile today due to some kind of food bug..[I made the mistake of eating what the grandkids ate on a excursion]Bee good,
Or Bee carefulsnuffy
Earlmardle:
“Give us a list, any list of any length that says, ‘if these things were true I would accept that climate change/global warming was happening.'”I have never indicated that climate change isn’t happening. I have insisted all along that climate change is indeed happening, and cannot ever stop happening. What I have said is that: 1) Climate change is not due to carbon dioxide concentrations, 2) Climate change is primarily due to cyclical changes in the sun, 3) Water vapor is overwhelmingly Earth’s greenhouse gas, 4) Local “climate changes” are deliberately induced via weather modification technologies including chemtrails and HAARP (or similar), and 5) The long-term direction of change toward planetary warming or cooling cannot yet be conclusively determined by science. Up to now, the CO2-warming “science” has reached conclusions based on the political agenda of the bankster-owned governments that finance that “science” because those conclusions are what future funding is predicated upon.
There is literally nothing that could persuade me that CO2 is a consequential greenhouse gas. I could produce a list of reasons why this is, but it’s not the list you requested.
Carbon taxes of any stripe (they’re by no means extinct) are a tool of theft and suppression for the globalists. If you think one-world government and permanent human slavery are good things, feel free to voluntarily contribute as much as you can afford. But I’ll promise you this: the taxes you donate will have absolutely no discernible effect whatsoever on carbon dioxide concentrations. Not that any effect on CO2 would mean anything anyway.
Professor LnL,
At ZeroHedge, you wrote in response to this article:
“The Fed has not lost control as long as it issues the currency. The Fed owns this. All of it. And it has the “Full Faith and Credit” of the Pentagon behind it.”All the Fed owns is increasingly worthless IOUs. The Pentagon cannot change that fact, can it? After all, debts that can’t be repaid won’t be repaid, even at the point of a gun.
Also:
“The only deflation we will ever see will be at the Fed’s discretion, and for it’s benefit,,,at least until the day it’s funny money is rejected. On that day, deflation will be nowhere to be found. On the contrary, green paper will blot out the sunlight.”So you’re saying the Fed will willingly take on more increasingly worthless IOUs? What happens when the bulk of the Fed’s balance sheet consists of non-performing assets? Will it get to the point where the Fed is making loans to farm animals, no longer caring about repayment? In other words, aren’t we already hyperinflated?
When governments hyperinflate the printed money supply, people burn it for heat (Weimar, Zimbabwe). When banks hyperinflate the “money” supply by issuing bad loans, people and institutions default. Either way, a lot of the money vanishes, and that’s deflation.
The RNB was pegged to the dollar and that became too large a burden. Not only was the dollar rising but the RNB was rising vs the dollar. It became stupid. It served to advertise how strong China is and supported the dream that the RNB would someday achieve reserve currency status but those are matters of perception and politics, not day to day economics.
The smart guys are now questioning whether Chinese officials know what they are doing. As if they ever did. They blew serial bubbles and as Doug Noland says that makes genius. When bubbles pop genius becomes scarce.
https://creditbubblebulletin.blogspot.com/2015/08/weekly-commentary-china.html
Strange that someone would suggest that we pontificate unduly on climate, demonstrate a presumption to be experts or promote specific climate policies (eg carbon taxes). We do none of the above. There is nothing whatsoever to be gained from entering into climate causation discussions, same as there is nothing to be gained from discussing 9/11. It has long since become a religious debate. Any nuanced opinion instantly become hugely controversial and does nothing but cause flamewars.
Climate policies are a top-down waste of time. They will achieve exactly nothing useful, as is the case for all top-down policy making IMO. The one time I did address climate response issues (and the one time I ever intend to address them) was in my response to David Holmgren over his Crash on Demand article. I have also discussed the connection between food security and climate, as is noted above, but this was not focused on causation of climatic conditions.
Humanity is not going to do anything at all to address any global issues at a global level. All we can do is to affect change from the bottom-up incrementally. Whether or not one acts because of financial crisis, peak oil or climate change is not particularly relevant when the same prescription would be suited to any of the above. Whatever is going to happen with climate is simply going to happen. Nature will take care of it in due course, as it will with population. Personally I prefer to focus on things which can be changed rather than on things which are beyond our control.
I believe Raúl’s use of the Gustave Doré The Ninth Circle of Hell (Treachery) engraving is particularly apt, for two reasons primarily: 1) Dante, having descended unto the very pit of hell, travels not alone, but is accompanied by his guide, mentor, protector and Roman antecedent, the poet Virgil. 2) Having descended to the very bottom of the pit, Dante and Virgil observe the condemned not afflicted with ‘fire and brimstone’, but with their heads trapped permanently in ice. In other words, their intellectual function, supposedly the highest function of humans, is literally frozen — unable to save or free these poor devils from their hellish fate.
Maybe it’s time for Stoneleigh and Ilargi to contemplate a reiteration of “The Inferno”, and to retell the never ending story of leverage/deleverage, inflation/deflation, trust/mistrust, solution/no-solution space in the context of these all-too-modern times?
Nature will take care of it in due course, as it will with population.
YES!
Deleveraging as a Biblical Plague
Actually, it may well be that the consequences of a biblical plague will trigger deleveraging…and renewed vigilance in separation of church and state.
I think it important to note; humans cannot (yet) destroy the earth; a rather hyperbolic term of imagined omnipotence. Alter certainly, but not destroy.
Having enjoyed a long life, largely in direct contact with the wild things: There’s a certain sentience which most miss: Gaia will abide; it is we who should worry.
Our Kamikaze attitude towards life and living will surely be the thing that done us in…
The only thing in doubt is whether or not we’ll (as a species) survive; we’ll see (well, maybe you’ll see [for me it’s doubtful]). 😉
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