A concerned reader wants to know if there are any precedents for the monetary printing we see today, and also when and how this all ends.
Hello Mish,
I wish to get your opinion as to how, or the possible sequence of end games to this bubble economy.
The Fed, ECB, and BoJ all print trillions of $$ to keep bubble inflated. Are there any historical times that match we have seen here?
Are there any measurements that would trigger an avalanche of storms in stock market and economy?
I just cannot believe this bubble will keep going perpetually.
Sean
What Cannot Go On Won’t
What cannot go on won’t, but that’s about all anyone can say at the moment.
There are no precedents for the trio of negative interest rates and massive amounts of QE by numerous countries simultaneously in a clear game of competitive currency devaluations.
Even if there was a precedent, there would not be any guarantees things would play out the same.
End Game Speculation
We are all speculating how this ends. No one can tell you because no one knows.
There are too many variables in play.
- Does Japan or China start the mother of all currency wars?
- Does Trump start a global trade war? Hillary?
- Does the US get drawn into a China-Japan war over rocks in the South China Sea?
- Will the 5-Star movement win in the next Italian election, then take Italy out of the eurozone?
- What happens if Merkel unexpectedly bites the dust?
- Can central banks keep markets levitated forever?
The answer to the last question is “no”, but it matters greatly if there is a crash starting tomorrow vs. a prolonged torture by a thousand cuts starting three years from now.
My best set of guesses is we have another huge deflationary asset bubble collapse at some point, that prime minister Abe goes totally crazy in Japan, that the eurozone does not survive intact, that yen-hedged Japanese equities soar, and gold is a safe haven in this mess (especially when central banks respond with still more QE madness).
The most painful scenario would likely be slow torture along the lines of a 10% correction this year, a 6% correction next year, then a 5% rally, followed by a 15% decline, a 7% rally and another 15% decline, etc., for a period of seven years or so.
At the end of seven or 10 years, investors would be down 40-50% without a crash. It would destroy pension plans. Heck, given 7.5% assumptions, even a flat market for seven years would destroy them.
Stocks are more ridiculously valued now than any time in history except 1929, 2007, and 2000 but know one knows when that matters.
Anyone who claims to know for certain how this ends is a fool.
Mike “Mish” Shedlock
Speaking of a strange turn of events, Australia’s RBA cuts interest rates and banks follow likewise by passing on some of the cuts to borrowers but then increase Term Deposit Rates by as much as 0.85%.
Weird!
http://www.abc.net.au/news/2016-08-02/reserve-bank-cuts-interest-rates/7682170
Bref et intéressant, ai-je trouvé
April 5, 1933 Executive Order 6102 by Franklin D. Roosevelt resulted in Federal Government seizing privately held gold in USA.
Soros came out of retiement…..soros is by far the best trader with a 30 year or longer record to examine..I bet soros doubles his net worth if we get a 50 percent sell kff..follow soros it has been the best place for your money for the last time 40 years
Soros as the indicator?
No.
The indicator will be John Hussman.
When he ceases his weekly self-justificatory “stress test” prattle, stops running money and returns to academia then the top will be in.
You forgot to mention that Soros is a major sponsor of terrorist groups, in the US and in Europe.
You forgot to mention that Soros didn’t manage money for the last 30-40 years — you fraudulently attributed the work of Jim Rogers and Stanley Druckenmiller to Soros. Without those two guys doing the work, Soros would just be another Bernie Madoff.
Soros’ own trading record is garbage. And if you read his “alchemy of finance” book and look at his silly “reflexivity theory” (kind of a big ego huh?), you will note that hundreds of other famous traders pointed out that markets overshoot and over-react to news — and the others were saying so decades before Soros ego went Elon Musk on itself.
Remininces of a Speculator, multiple writings of Bernard Baruch, even the mumblings of Joe Kennedy — all pointed out markets over shoot decades before. And they weren’t the first either.
You Earl, need to stop drinking the CNBC kool-aid
Mish,
Does it mean there is no way to make the CBs change course. Since the CBs are in bed with the politicians then it has got to be courts (complicit in its own way) or uprising. Is out lot only to suck it up and cope as CBs go about their merry ways?
There is already indications deflation is at work since that is clearly what negative rates are. People do not want to borrow so interest rates drop. Businesses are closing. And businesses that do borrow are using funds to prop up stock buybacks instead of expanding capacity.
I see the stock market as a place to park money seeking yield until a better investment comes along. However, with stagnant wage and productivity growth, an aging workforce, and very little in the way of jobs producing innovation, there are almost no opportunities for better investments.
My expectation is for the S&P 500 to trade between 1800 and 2200 for the next decade barring a breakup of Europe or a meltdown in China.
So BTFD.
Doesn’t end. Numerical system goes to infinity. For my Grandpa, 1 dollar felt like a hundred does to me, and a penny was like todays dollar. Fast Forward and you get a 10,000 bill that feels like todays 100, the hundred will feel like a dollar, and a dollar will be the our penny. Avg salary today is 50k, then it will be 5 mil, and todays 50k car will be 5 mil as well.
Future headline already written for you… a whole lot of change to get to nowhere. Fun being a Hamster.
That’s what I tell my coffee buddy when he says “save $40 a week and in 40 years you’ll be a millionaire”
Patrick,
Better tell you coffee buddy to work on his math skills….
With continuous compounding and “NO RISK”, your coffee buddy’s savings would have to earn 10% interest — compounded continuously — to “save” a little more than one million dollars at $40 saved per week.
A risk-free investment with this kind of return does not exist to facilitate this pipe dream… especially in the current low-interest environment, brought to you by “The Fed”.
On a household scale, if you live beyond your means for too long, you eventually have to turn to extraordinary measures to continue. Governments are now living far beyond their means. All no have debt that will never be repaid. The debt levels are growing exponentially. This will continue until nobody wants to buy it anymore.
Then the problem is “how do you want to get people to buy debt they no longer want?”
The EU provides one example. Instead of paying high rates and allowing price to control behavior, the ECB lowered rates by subsidizing government spending via debt monetization using straw purchasers, (as I’m told they can’t legally buy such massive amounts of debt directly from the issuer.) The entire system circles the wagons around this behavior. It has no option except continue since inflation will not return soon to inflate away the value of long term debt. The ECB will eventually lose credibility and no amount of moneyprinting will make any difference, although, the time is a guess.
Since the ECB operates more like a commercial bank than a central bank, it will push all bad debts on to member nations taxpayers. They will foot the ultimate bill, which is moral and deserved. After all, they benefited from living beyond their means for years, via ECB debt monetization. The timing … ??? The masterful EU can kicking system will prevent it until it can’t be prevented. The outcome is certain, however. After the continental debt restructure, they will do it again.
The BOJ will tell the Japanese Govt to forget about it and not bother to pay anything back. After a one week news frenzy, it will be hailed as monetary genius. If a good story accompanies the reset, it won’t even affect the ability of Japan to sell new debt. People are sheep who want to believe in something greater than themselves. Japan will do it again, afterward.
China must keep the plate spinning by whatever means. They can and should lie until they run out of hot air. The concept of a billion screaming Chinese who go broke and experience freedom as a result is terrifying. Throughout history, the Chinese have never experienced freedom. The end result of a billion screaming Chinese on the loose could very literally be the end of the world as we know it.
The US is an odd beast. War mongers will probably come up with great lies and keep the wars going indefinitely. Deficit financing and debt monetization are required to support wars. We’ll probably suck resources out of the rest of the world to keep it going for afar longer time. Hillary and her regime changers will see to it while making all the wars seem necessary. She will blame Russia for a lot since people are dumb enough to believe it.
The Fed is owned and operated by the President and wall street and it’s own sense of history … it doesn’t want to be blamed for another financial crisis due to its inept management of the economy. They will claim to be independent but do what they’re told. Low rates until they get new orders appear to be the current marching instructions.
On a household scale, if you live beyond your means for too long, you eventually have to turn to extraordinary measures to continue. Governments are now living far beyond their means. All no have debt that will never be repaid. The debt levels are growing exponentially. This will continue until nobody wants to buy it anymore.
Then the problem is “how do you want to get people to buy debt they no longer want?”
The EU provides one example. Instead of paying high rates and allowing price to control behavior, the ECB lowered rates by subsidizing government spending via debt monetization using straw purchasers, (as I’m told they can’t legally buy such massive amounts of debt directly from the issuer.) The entire system circles the wagons around this behavior. It has no option except continue since inflation will not return soon to inflate away the value of long term debt. The ECB will eventually lose credibility and no amount of moneyprinting will make any difference, although, the time is a guess.
Since the ECB operates more like a commercial bank than a central bank, it will push all bad debts on to member nations taxpayers. They will foot the ultimate bill, which is moral and deserved. After all, they benefited from living beyond their means for years, via ECB debt monetization. The timing … ??? The masterful EU can kicking system will prevent it until it can’t be prevented. The outcome is certain, however. After the continental debt restructure, they will do it again.
The BOJ will tell the Japanese Govt to forget about it and not bother to pay anything back. After a one week news frenzy, it will be hailed as monetary genius. If a good story accompanies the reset, it won’t even affect the ability of Japan to sell new debt. People are sheep who want to believe in something greater than themselves. Japan will do it again, afterward.
China must keep the plate spinning by whatever means. They can and should lie until they run out of hot air. The concept of a billion screaming Chinese who go broke and experience freedom as a result is terrifying. Throughout history, the Chinese have never experienced freedom. The end result of a billion screaming Chinese on the loose could very literally be the end of the world as we know it.
The US is an odd beast. War mongers will probably come up with great lies and keep the wars going indefinitely. Deficit financing and debt monetization are required to support wars. We’ll probably suck resources out of the rest of the world to keep it going for afar longer time. Hillary and her regime changers will see to it while making all the wars seem necessary. She will blame Russia for a lot since people are dumb enough to believe it.
The Fed is owned and operated by the President and wall street and it’s own sense of history … it doesn’t want to be blamed for another financial crisis due to its inept management of the economy. They will claim to be independent but do what they’re told. Low rates until they get new orders appear to be the current marching instructions.
Economist Ludwig von Mises was pessimistic on the denouement. “There is no means of avoiding the final collapse of a boom brought about by credit expansion,” he wrote. “The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”—J. Marcus
I’m a believer in Slick Willie’s finding a way to get by, leaving someone else holding the bag if necessary. Mises’ flaw is assuming a level playing field. When everyone in control is a crook, the rest of us get left holding the bag. Yes, it will collapse. No question. Who pays is negotiable and the odds favor you and me being stuck with it. This is the tipping point the entire world is at now. Good times.
This is just wrong. The boom and bust cycle has been bedeviling Anglo-American economists for Centuries.
Running around like a chicken with your head cut off (HOW WILL THIS END????!!!!) is a sad excuse for critical thinking.
This is why some make high level policy decisions and everyone else is hawking some retarded blog of their’s.
Sideshows, such as Merkel and her love of Syrian refugees, or Draghi’s cult of personality, or Bernanke’s visit to Japan, or any other 2nd page news story are just the fun stuff to talk about. While all have the capacity to make a difference, you first need them to be the one’s in actual control for the difference to matter in a significant way that could create a huge impact.
Governments can not exist without massive deficit financing and debt monetization and interest rate management. Period. It doesn’t matter who is running the show and what little sideshow is going on today. Someday, each will be replaced by a new figurehead with a different story that looks important but is more of a distraction than anything else. Draghi the Second will eventually replace Draghi. He will be just as much of a buffoon. He matters only a little.
The need to feed the government is all that matters. The people change. Government spending will continue until it can’t. The people who control the spending and monetary policy, secretly, behind the scene, are the people who really matter. It’s not one or two puppet masters or a secret committee. It’s a pervasive background noise from individuals and groups who have amassed enough power to control those who get elected. They are the ones who call the shots. Government spending and their control of government feeds them. Euphemistically, they’re called the Establishment.
To choke the Establishment, you elect Donald Trump (unlikely, his mouth and the collective weight of the Establishment will do him in.) Or, you choke off the funds (unlikely until central banks can no longer print money to finance their agenda).
Thus, for a long long time to come, we can expect low rates, monetized debt, wars in places far away from money centers, and lots of socialized government. Wall Street was one of the groups that thought itself too clever for words when it got Bernanke to buy the low rates forever nonsense they came up with. Now, low rates are institutionalized beyond the point of value. It now has a cost and, if they want it to change, they will have to undermine another part of the Establishment who needs low rates to continue its agenda.
“To choke the Establishment, you elect Donald Trump (unlikely, his mouth…”
Trump really gets the award for the Foot in the mouth disease. How does he do it so effortlessly?
“…Trump really gets the award for the Foot in the mouth disease. How does he do it so effortlessly?”
Hilary’s mouth is full of lies — no room for anything else.
Trump just tells it like it is, many of you are so coddled in your political correctness you think Hilary’s tax exempt fund will benefit you somehow. No one is voting “for” Trump, we are just fed up of Chicago corruption.
Or, to put it simply, Mish’s article focuses on the symptoms. The actual disease is more pervasive and only somewhat related to the visible aspects. Think whack-a-mole, only lots of the moles sticking their heads up are only useful props. The real moles are mostly still burrowed underground and safe.
Debt which cannot be paid is eventually forgiven by different means. This will happen in the end. Many examples in history. Bankruptcy, new governments, new currencies to name a few.
First Rule of Economics:
All Debt Will Be Paid.
Either with dollars worth pennies, or with pennies worth dollars.
Mish, Thanks for giving me your honest opinion with a special post. I appreciate it.
I hope you would clarify more on the Mechanics that would enforce the natural balance of economies, beyond the the typical “events”. An example is Thai Baht which is a non-reserve currency, and if Thai Central Banks print too much of it, its foreign reserves get depleted and it goes into currency crisis. If it prints too little to hold up Thai Baht, its economy suffers. May there would be event of politic coup, but it’s better to focus on the natural mechanics that would force the economy to align back to the correct natural path.
At this interesting time, the world reserve currency is USD, Euro, and Yen, and they all are printing madly, and extend into buying risky assets (JCB buying stock market) with no exit intention at all. Worse still, the people are ignorant and go along with the printing.
Would there be any mechanism, beyond the un-foreseen EVENTS, that would enforce the natural balance of economy? Maybe Pater Tenebrarum can shed a light?
Thanks again
Sean
CDR above gives a quite good account. What we call the economy is actually a partly social and political construct, money is a social phenomena, as is any management beyond outright slavery.
So personally I would say that a natural visible economic breakdown and restructuring would be the reflection of societies rejection of its existing framework due to it degenerating to an unacceptable level. There are examples of this, take Venezuela etc. as blatant extremes of how the whole system becomes unbalanced, or Weimar Germany, or the Roman empire even.
There is no hard and fast rule, the establishment may become clever to itself, society may accept its own subduction into a system where the attribution of worth and reward are the accepted realm of higher authority. After that it is just a question of physical survival and what kind of competition goes on between distinct groups at a global level.
The solution for CBs is to lock in asset values to protect debtors and the rich. The rich will collect more assets knowing the CBs will protect them. The markets are dead already, so it’s easy to manipulate stock values with algos and bots.
The CBs and political class are setting the stage for a Neo feudal society with steady state or negative growth…and the political class are a secondary caste under the supervision rich. We of course are the vassals who will get taxed to death for no benefits and any wealth we have made will be confiscated or wiped out using deep negative rates.
Nobody wants to borrow now because the rates will drive beyond zero to negative whatever and losing 2% ain’t so bad.
So the banks will just take it in a bail in process.
You will be fully dependent on the good will of Big Gov and that will be manned by the NeoLiberal/Cons.
Remember, that money you have is not yours it is the Federal Gov ‘s.
This is how Europe function now…some very rich at top.
Some idiot but powerful lackeys in Gov.
A fully dependent class of barely working people who have massive benefits and nothing good to do.
Stagnant civilization with occasion injections of competitive and labor cost reducing people’s from 3rd world country. This decades flavor is Muslim
‘Careful, Little Maurice is waiting for you’.
http://www.zerohedge.com/news/2016-08-02/eus-lyin-jean-claude-juncker-keeps-little-black-book-people-who-betray-him
Thanks, Crysangle
We see things similar with any differences being the fun things to debate about. Thee vs thou, basically. Same with Mish. Agree far more than disagree.
To some extent, the Establishment is just a manifestation of the invisible hand. It got its way until it went too far and cost others in too many places too much. Now other constituencies are rearing up. It’s too soon to say they will have any success. Coercion of one kind or another from govt is possible and not to be unexpected. Or, as Claude Junker said, complaints will be simply ignored. Frankly, I’m a pessimist. I think the establishment will prevail. Perhaps there will be class warfare in the 1% over interest rate policy, but only so both can still prevail over the 99%.
To me, it’s all about feeding government. Some have successfully learned to control govt officials, including the Fed, to siphon off some of the power of government for their own personal benefits. Some want wealth. Some want war. Some want utopia. Some just like being the boss. If you want a piece of the pie, get control of some aspect of the mother-load. Govt is the nexus. Find a teat and get fat and rich. Con a Bernanke as Fed chairman and control the world. (Yellen is a placeholder.)
Thanks also. People express themselves in the language they know, so where I might be sensitive to social mood, the flow of power, the dreams of the elite and the mechanisms of force, another might be witnessing events from a completely different perspective, say corruption and monopoly, propaganda and deceit, technical manipulation. What is surprising maybe is how much different people’s views overlap and are understood by one another. I am not pessimistic as I have little opinion of the big show from the start, but certainly I recognize the quiet degeneration of society and what is certainly misdirection, and it does not please me at all.
There are many good people in the world, but it is a big place to find them, so fortunately we nowadays are able to encounter those who are orientated towards understanding and sharing what they witness at forums like Mish’s. There are also many who have a very narrow perception of their place in the whole, but I think most people at some point or another look around and really question what is going on around them at a wider level, and without finding answers they can accept that are needed to compose themselves properly . That is very unfortunate I think.
@Sean —
While the central planners can manipulate prices (in Thai bat or USD) for a little while, there is a cost. If you look at energy costs (that consumers pay, including taxes and fees — not “exchange” prices). If you look at housing prices that few G7 citizens can afford. If you look at education costs in the US. If you look at the disaster pricing that is Obamacare… you are paying a LOT more than you were in 2007.
At the same time, many industries are seeing “stable” or “falling” prices — on essentially no volume. You still have $1000 to spend? Great, choose whatever you like from these empty shelves. No one is going to produce for long at a loss. True in the former Soviet Union. Disturbingly true today in Venezuela.
I don’t know when Atlas will shrug, but Pedro in Venezuela already shrugged (as did Petrovich in Soviet Union).
And I don’t want to alarm you, but your pension (life insurance, IRA, whatever) is only good assuming you can figure out how to earn 8% returns when the economy is “growing” 3% (before interest on debt)…. your retirement was already canceled, even if Bernanke is too much of a coward to admit it.
Central planners lose their power (all of it) once the populace realizes the social contract has been torn up.
Its happening (present tense) in the EU. It already happened in Soviet Union and Venezuela.
We already have seen glimpses of the future.
Cyprus bailing “in” their banks by confiscating all private accounts over $100,000 and replacing that money with “bank bonds.”
Greeks getting bailed out repeatedly and with all that bail out money going directly to banks. Unemployment at near 50%. Standards of living dropping year after year.
Poland confiscating all assets from private retirement accounts and private pensions.
Turkey like coups or wanna-be coups where tyrants gain more and more power.
Spanish and Italian and British Independence movements that get more and more momentum.
A war on cash. Negative interest rates. Elimination of high value notes. Confiscation and reporting of actually pretty small cash transactions (in America it is $10,000) that gets smaller with every year of inflation.
It all ends in war and misery. History is full of examples, No one wants to be left holding the bag and they are pissed when they do.
And it is nearly always done so that “bigger government is always the answer” politicians and their parties can hold on to power for just a little longer….
Wacky ivory tower theories have sure created a situation for the people, especially the elderly.
Bernanke canceled everyone’s retirement — especially baby boomers. Maybe he forgot to send out a memo, or more likely he knows the boomers will build a special guillotine just for him once they figure things out.
Couldn’t happen to a nicer fraud
Agreed.
I like economic discussions and listen to quite a few podcasts.
One recent podcast of the Rich Dad Radio show, with Robert Kiyosaki, had Mohamed El-Erian discussing where we are and where we are headed (See “T-Junction” episode at http://www.richdad.com/radio ).
Another podcast I have been listening to lately is Macro Voices which has really good guests commenting on current conditions and how to adapt, if possible.
One really good episode was a re-broadcast of a RealVision TV program (audio portion) of an interview of Stephanie Pomboy by Grant Williams. She has an exceptional background having worked for the number one economist on Wall Street.
Here is the interview, if interested: http://www.stitcher.com/podcast/macrovoices/e/45394275?autoplay=true
One thing that I note when reading Mish’s consensus and thoughts about how this may play out is that he appears to be in sync with these two notable luminaries and “big thinkers” regarding the market.
So, either Mish is also listening to these guys … or he’s pretty astute himself (I think it is the latter, which is why this site is one of my daily destinations).
Don’t follow any of the above but I know who they are. I frequently disagree with el-erian especially his Keynesian slant.
Mish
Like
I would add that El-erian is an IMF / World bank guy…. a central planner. He is not a private sector economist at all, and has never had to make payroll (not even his own).
When you get a guaranteed salary and pension (by suckers known as taxpayers), and you don’t pay taxes (ask Timmy Geithner) — its easy to shove your “solutions” down the peasants throats.
Ahhh … words and conveying thoughts appropriately … something I have not yet mastered.
What I wanted to say, Mish, was that your insights are as keen as any such as the well-known as El-Erian or someone like Pomboy, who may not be well-known, but someone who appeared (to me) to be exceptionally astute.
In other words, I meant to compliment you and your work. 🙂
“At the end of seven or 10 years, investors would be down 40-50% without a crash. It would destroy pension plans. Heck, given 7.5% assumptions, even a flat market for seven years would destroy them.”
That’s what I suspect will happen, a long, slow decline – Japan v2.0, but worldwide.
Notice that everyone has “expectations” about the future, but nobody has put forth a plausible solution to the problem of how we return to “normal”. I am beginning to think that what we have believed to be “normal” for most of our adult lives is actually “ab-normal”.
Irondoor,
There’s no such thing as ‘normal’. There’s only tomorrow. ‘Normal’ is another word for someone’s perception of yesterday. ‘Normal’ is only what has a continuity with the past and is likely to continue tomorrow. We are living in ‘normal’ at this moment. It’s just not the normal I would like to see. Personally, I want to earn interest on my savings so I can live a comfortable life as a retiree. I would also like to see a stock market that is reasonably described by textbooks and traditional fundamental analysis and traditional technical analysis, not HFT and central bank idiocy. I’m not holding my breath.
This is normal pendulum behavior. From societal mania, we now get to swing into societal depression/suicide.
_aleph_
Irondoor,
You are exactly right. The past 150 or so years was an aberration in human existence. We call it the industrial revolution. We are living in the post-industrial revolution period where all of the low-hanging fruit in terms of wealth creation has already been picked.
There are absolutely zero new technologies that will create more jobs than they destroy. Total factor productivity is no longer growing and hasn’t been for a decade. The industrial revolution was characterized by 2 key characteristics: the creation of new technology that improved productivity, and this new technology spun off enough new jobs to expand employment. Together (and with strong labor unions) the middle class came into being and flourished.
In our age, new technologies exist and can improve productivity, but they don’t spin off enough new jobs to more than replace the ones they destroy. Robert Gordon has a new book about this entire scenario.
The future must be carefully navigated. Children must be prepared.
The core problems are too much private debt combined with ineptitude in the institutions dealing with that debt overhang problem. Due to the gross ineptitude by people like Paul Krugman giving our ruling elites stupid advice we cannot grow our economy out of this debt problem. Therefore, like many civilizations before ours, we will inflate away the debt while our real economies stagnate and our youth suffer massive unemployment. There is no place to hide from such a grim future. I believe war is a useful tool for governments to escape these Great Depressions because in war time distorting economies to bail out selected crony interests is viewed as treason. Without the discipline of overarching war priorities govt. largesse to one crony cohort after another can and does continue. In short, we could listen to Steve Keen and resume growth but we won’t because banks don’t want this and neoclassical economists like Krugman and Summers have zero chance of figuring this out.
I don’t believe it is possible to inflate away debt in our modern economy. You would, by necessity, have to have a mechanism to move money into wages. Increased wages would allow for the purchase of products with inflated prices. No wage increases, no price increases.
How could we possibly have an economy in which the average joe could expect an steadily increasing income?
You apparently don’t live in a coastal urban power center. Here in the SF Bay Area wages are climbing along with cost of living. Rents, food, fuel, power, all way up in price. We call it living in the bubble. Central Valley dwellers not so much. That’s Trump country. Scaring the crap out of our ruling elites. Used to bad form for a sitting president to attack the other party’s candidate. Not anymore.
People keep on saying they’re “printing money”. They’re not printing anything. It’s a computer generated number. They’re expanding the money supply so when the time comes, they’ll switch us over to a digital currency dominated global economy where everybody will get a card with a chip in it so people can continue to buy and sell. When the run in the bank happens there is not enough paper money out there to give to the people. That is how they are going to forced people to accept digital currency and complete servitude.
It ends with a major food crisis in the ’20s or ’30s, when humanity discovers that survival can’t be bought with paper money….
Stocks are assumed to be high because PE ratios are high. But in an environment of long term low interest rates, you would expect higher PE ratios.
There’s a lot of incoherent ideas floating around here like we are currently ‘living beyond our means’. How so exactly? If we are living beyond our means we should see inflation and low unemployment since that would mean we are consuming more goods and services than we can make. But we aren’t.
If there’s a ‘collapse’ what exactly will collapse? Stock prices? If stock prices go down a lot then the PE ratio will fall. That would mean you could buy $1 of earnings in the stock market at a much cheaper price than you could buy $1 of interest income. Bond prices? Well why wouldn’t central bank money printing be able to stop a fall in bond prices? If central banks let bonds fall where would the money go? Stocks? There’s even higher PE ratios for you. Consumption? Well there’s more employment and higher earnings for you (which would bring down PE ratios) but that doesn’t sound like a ‘collapse’.
“‘living beyond our means’. How so exactly?”
Massive debt overhang. For US $63 trillion … and counting.
https://fred.stlouisfed.org/series/TCMDO
Coupled with declining / flat household income
“In 2014, real median household
income was 6.5 percent lower
than in 2007, the year before the
most recent recession (Figure 1
and Table A-1).”
http://www.census.gov/content/dam/Census/library/publications/2015/demo/p60-252.pdf
But that doesn’t answer why we are “living beyond our means”. I would expect to see mass bankruptcies, and that is not happening. And even if it were, who would care? Assets just get transferred from debtor to creditor. We have millions of people who would like to work but can’t find gainful employment. They could be producing tons of new stuff that people could be buying. If anything, we are living far below our means.
“But that doesn’t answer why we are “living beyond our means”.”
To each his own.
#1 reason why the US (and developed world) is trapped to flat / low growth.
Of course, the neo keynesian morons NEVER see the 800 pound gorilla standing there.
“If anything, we are living far below our means.”
Wow.
But please enlighten me to what a proper level of living entails.
As Brian states above, living beyond our means would show as massive inflation due to full employment and wage growth faster than productivity growth.
You are looking at it as debt growth faster than the income necessary to service it. The federal government can always meet its debt obligations. Most state and local governments are bound by balanced budget regulations. That leaves only the private sector. And there is no “we” in the private sector.
“As Brian states above,”
Ah, I see your problem …
“living beyond our means would show as massive inflation due to full employment and wage growth faster than productivity growth.”
Are you living in the ’60s? Offshoring – via “free trade” agreements – has gutted the US economy. Households have survived on growth in entitlements and easy credit (in part by “vendor financing” from countries who are benefiting at our expense). Neither sustainable in the long run.
And don’t think for a moment that productive people and capital won’t vote with their feet and move elsewhere if raising taxes and debauching the currency are preached as “solutions”.
“Are you living in the ’60s? Offshoring – via “free trade” agreements – has gutted the US economy. Households have survived on growth in entitlements and easy credit (in part by “vendor financing” from countries who are benefiting at our expense). Neither sustainable in the long run.”
I think you’re trying to say that US households are enjoying more goods and services than the US can produce because they are tapping offshore supply….i.e. imports.
But trade in fact does increase our ‘means’.
You also seem to be saying that we are conning the rest of the world. We are giving them debt and they are giving us stuff. How is that living beyond our means again? If your neighbor thinks you’re a famous artist and is willing to mow your lawn, cook you dinner, etc. etc. in exchange for you just doodling on a napkin then it sounds like your ‘means’ has increased dramatically.
“And don’t think for a moment that productive people and capital won’t vote with their feet and move elsewhere if raising taxes and debauching the currency are preached as “solutions”.”
What evidence is there that currency has been debauched? Remember inflation is near zero percent. A $100 bill will buy me the same amount of stuff today more or less as it did ten years ago or so (leaving aside technology changes). That is actually the least debauched currency has been for us in multiple generations.
“You also seem to be saying that we are conning the rest of the world. We are giving them debt and they are giving us stuff.”
Hardly. The US is giving them our jobs and they give us cheap trinkets. Which we won’t be able to afford without a job.
“What evidence is there that currency has been debauched?”
Work on your comprehension. Said “if”.
Living beyond our means would apply to the growth of debt. In time we will reach the point at which debt must fall, at which point consumption will have to fall. On a private level this could happen as baby boomers prepare to retire. On a public level, this will happen in a different way. Should the debt burden become so high that investors become concerned, interest rates will rise, which will change everything. For now, that isn’t happening, so the party goes on.
Exactly.
The lowering of interest rates has kept the party going a bit longer. The past 30+ years has seen a steady drop in the interest rates. Now that we’re (developed markets) near the zero bound?
The coming defaults will put the damper on access to credit … and deflation will be at hand.
“Debt Overhang” does not answer the question. Living beyond our means collectively means consuming more than we create. As I pointed out if a society were to do this then there would be a huge demand on those who supply goods and services, employment, profits and then prices would increase as they struggle to keep up with excessive consumption. This is not evident today.
Debt by itself does not do this. I consume today by borrowing $1,000. My consumption is offset by someone else who has $1000 today but opts to not spend it and instead loan it to me. Years from now that person will enjoy consuming the $1000 when I pay him back (and I’ll forgo consumption) or I’ll screw him and I’ll enjoy consuming $1000 again years from now while he grumbles. But ‘debt overhang’ doesn’t change how much the economy can produce, it just alters who gets to enjoy what it can produce.
You’re missing the part where banks lend new money into existence every time they extend credit. This creates real demand for goods and services. Money is not intermediated between savers and borrowers. It’s created by bank lending. Default writ large subsequently destroys bank balance sheets and causes forced asset sales by banks leading to asset price collapse and Depression.
If demand for goods and services is increased where does the ‘default writ large’ come from? Assets strictly speaking are the things that make goods and services. Higher demand for goods and services reduces rather than increases the odds of default on loans against assets.
“Debt Overhang” does not answer the question. Living beyond our means collectively means consuming more than we create.”
Like heck it doesn’t.
Housing, factories, whatever have been built on debt fueled demand. We’re at the point where servicing existing debt is sucking the oxygen out of the room. Leaving excess capacity throughout the globe. Deflationary bust on tap.
Not that you’ll believe me … as you’ve shown a propensity for believing in fairy tales; ie: DB will not need a bailout and no repricing of risk necessary.
The default writ large comes when austerity is imposed here and the resulting recession brings the whole US Ponzi economy down, or when US total private debt simply saturates around 200% of GDP, or when China implodes from their 400% of GDP private debt , or when EU banks collapse from Southern Europes unpayable debt or…
Of course, this all ends with massive dollar devaluation. Deflation will not be allowed in any centrally planned, unbacked fiat currency system for any longer than it takes to print bales of c-notes..
We saw what the central banks response was to the threat of deflation back in 07/08. Figure on more of the same until the central planners go down in flames with their currencies.
That is when deflation in asset prices will occur. Not so much priced in defunct dollars, but priced in comparative value to other tangible assets,,,,,things like gold, silver, copper, lead, zinc, oil, food, real estate etc.
Priced in dollars, asset prices will skyrocket, until most things become scarce, if available at all. Priced in ounces of gold and silver, these asset prices will remain relatively stable or maybe require fewer ounces to purchase.
Anyway it’s sliced, it’s probably a good time to buy “insurance,” and get out of Federal Reserve Note bonds. They are the assets that are guaranteed to depreciate because they can be produced in unlimited quantities by their issuers.
dollar devaluation can only happen with massive pay increases. If I am selling food at such a high price that no one can afford it, then I go out of business. If no one can pay the rent I charge, I’m going to lower the rent.
And there is no way there is going to be any massive wage increases.
“dollar devaluation can only happen with massive pay increases.”
Nope.
I hope someday Mish will get up the courage to ban Jon Sellers from commenting… he just keeps writing the same stupid garbage over and over
Frank , Jon is a long time contributor here and his comments are reasonable to any discussion . Take the opportunity to enlighten not condemn , there will be people reading and agreeing with what he says, while your hard dismissal does nothing to further anyone’s understanding. You only have to type a ‘nope’ to let know you disagree , if you haven’t the time or patience. Jon isn’t trolling or anything like that.
Jon , high inflation occurs hand in hand with a loss of faith in the currency . That can be sentiment driven as businesses have to include an estimate of future costs in their prices , and so a rise in prices can be self sustaining, self implementing , self reinforcing when it is assumed that future costs will rise. The future price of anything is not concerned if so and so cannot afford it , low demand should eventually curtail the rise but the phrase ‘starving with full barns’ adds a level of understanding that is beyond simple supply and demand criteria.
“Of course, this all ends with massive dollar devaluation.”
.
Really? How?
$US is not “tied” to anything … value set on open market. And if other countries (currencies) match our “printing” … or worse. Then what?
Satyajit Das answer’s the question in this article
http://davidstockmanscontracorner.com/qe-forever-cycle-will-have-catastrophic-end/
The quote from von Mises in this article yields the answer when it will end.
Economist Ludwig von Mises was pessimistic on the denouement. “There is no means of avoiding the final collapse of a boom brought about by credit expansion,” he wrote. “The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
I would hardly say any country in the world is in the midst of a “boom”.
Not any more, we are closer to the end game.
“It would destroy pension plans. Heck, given 7.5% assumptions, even a flat market for seven years would destroy them.”
That is what is happening right now and should accelerate as the Boomer workforce becomes the Boomer retiree class. Pensions, the once mighty oak timbers of financial pooled capital are being harvested into logs. The logs are presently being floated peacefully down the calming currents of the ZIRP river.
Upon arrival downstream at Yellens Sawmill, Inc. they will join up with their cousins (from life insurance, university endowments, charitable trusts, etc.) and be belt fed into the Keynesian buzzsaw to reduce them into a pile of sawdust. A few scraps of this mighty hardwood, a generation or two in growth, will be made into trinkets available for sale at the malinvested enterprise known as Greenspan’s General Store. Make sure you stop in.
Step right up to the counter, Mr. Bernanke works there! He’ll be happy to help you with all your shopping needs. He cuts a fine pose with his banker’s visor on. He’ll weigh each keychain, ashtray or whatever doodad you care to buy on his scale. After all, he wants you to get a fair price on these knick knacks seeing as how they were once your financial nest egg from a lifetime of hard work.
The boomers are very slow to realize that Bernanke canceled their retirements years ago.
That proverbial “free money” Bernanke was flinging out of helicopters was everyone else’s pension money.
Bernanke’s pension is still safe. He is a fraud, not a fool
Commodity price collapse is here and now. Low prices for iron ore, steel, copper, aluminum, oil, corn, wheat, unskilled labor, and fiat currency are at depression levels. Retail inflation has nudged up by costs of Obamacare and Obama regulations.
…
Stock values are elevated by debasement of the dollar. Yet when profits disappear the levitation ends. For example; oil stocks, bank stocks, retail stocks, airlines, shipping, mining, steel.
Like everything else in the physical universe the current crisis will follow the general course of Start, Change and Stop. That could mean crisis (Start) , muddling through (Change) and then catastrophic war destroying untold lives and means of production (Stop).
That’s if we’re stupid, orthodox, unwilling to integrate opposing ideas and relatively unconscious.
It could also be crisis (Start), recognizing that costs inherently exceed individual incomes simultaneously produced and that the Banks’ monopoly on credit creation and the vehicles and purposes by which it is distributed enable them to unnaturally dominate every other business model and nearly everyone in the world’s economies (Change) and then consciously re-balancing and stabilizing it by the policy actions of “a modern debt jubilee”, a universal dividend for one’s entire adult life to insure the dignity of the individual despite the constructive and freeing onslaught of technological innovation and artificial intelligence which will largely eliminate the necessity of employment for a large majority of the populous and a deflationary discount to retail prices that is rebated back to participating merchants so they can be whole on their overheads and margins (Stop….and Re-Start))….and the world and profit making systems are saved via such integrative Wisdom.
wisdomicsblog.com
The end game is to annihilate all currencies to the point the people will scream for a one world currency which will only serve to consolidate their power over us. Will it solve inflation? Highly doubt it.
“know one knows” >> “no one knows”
“how this all ends”. That’s easy. More for them and less for us. May George Carlin RIP.
Interest rates have got to be the key.
And by interest rates i refer to the yields to redemptions on bonds
it would only take a rise in, say, 10year bond yields of less than 1%
to send the stock market, and economy into a tizzy.
I picture this on a long time line. ” On a long enough time line, the robots pick up the pieces”.
We live in interesting times. At most I have 20 years left on this planet. I expect to see some very tumultuous times. I’d say we have a 70% chance of seeing an economic depression as bad or worse than in the 1930’s by year 2036. Good luck to all you young in’s.
This is how it ends:
THE PERFECT STORM (see p. 58 onwards)
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy.
But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.
http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf
There was a paper from a while ago describing catastrophe theory.
Catastrophe in the mathematical sense is a discontinuous change.
Think of a rubber band. Stretch it a little, it returns. Stretch it more, it might be stressed and not return fully Stretch it farther it breaks.
There are IIRC six geometric catastrophes.
The problem is it is hard to determine how much force it will take to cause the rubber band to break, and when it does there is no way to determine where the fragments end up.
Or like people jumping on a frozen lake – safe for one, so more join in, until CRACK!
I say that anyone who doesn’t know how this will end is a fool. With trillions of dollars of derivatives ready to fall like dominoes, the collapse will be swift and devastating. It will not be a gentle decline over 7 to 10 years. Believing this is the ultimate fool’s trap.
Please Enlighten us.
Tell us where it starts, when it starts, what happens to the US dollar, what happens to equity prices, whether or not the eurozone stays intact, and any other details you care to share with us.
When your visions proves to be true, we will all bow down to you.
Mish
A View of the Dark Side: http://brucekrasting.com/a-view-of-the-dark-side
Trade Off: Financial system supply-chain cross contagion – a study in global systemic collapse
This study by David Korowicz explores the implications of a major financial crisis for the supply-chains that feed us, keep production running and maintain our critical infrastructure.
He uses a scenario involving the collapse of the Eurozone to show that increasing socio-economic complexity could rapidly spread irretrievable supply-chain failure across the world.
http://www.feasta.org/2012/06/17/trade-off-financial-system-supply-chain-cross-contagion-a-study-in-global-systemic-collapse/
Hard to imagine how anyone could not understand that this will end in tears…
But loads of people need to have hope… or their thoughts turn to suicide…
Trump is offering hope…. of course he won’t be able to deliver… but one can understand why he might end up as POTUS
IMHO, “something big” will happen (not sure what) which will cause a sudden stop in the financial system, followed shortly thereafter by war.
Just because one does not see the hidden order of things does not mean it does not exist. Everything is fractal and cyclical, and the recommendations of financial firms is based on models with insufficient data that do not go back far enough, and are programmed with biases and false beliefs, which is why they sell the “random walk” theory. There does exist a proven alternative that has picked all the major turning points, precisely because it has the largest source of historical data, and it unemotionally follows the data, not biases.
I recommend you start your discovery process, because following traditional thinking will leave you broke in these different times – https://www.armstrongeconomics.com/international-news/north_america/2016-u-s-presidential-election/can-hillary-win/
How and when will this end?
With 90% (or more) of people getting screwed.
(If you think that you are one of the 10% [or fewer], then you are either one of the crooks pulling the strings or deluded.)