RSS available
| MarketTicker Forums Read Message in Ticker |
User: Not logged on
|
| Top | Forum Top | Login | Control Panel | FAQ | Register | Logout |
| User Info | The Abuse Of Credit, And Why You Care in forum [Ticker] | |||
|
Genesis Posts: 66463 Incept: 2007-06-26 
Royal Flush! 
|
http://market-ticker.denninger.net/archi....
---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2008-09-05 08:40:28
| |||
|
Cash-out Posts: 2037 Incept: 2007-10-23 
Live Free or Die - NH
|
In N.E. we have an expression for people like you: Wickid smaaat. (you do sleep though, right?) ---------- More prepared than ready. 2008-09-05 08:47:41
| |||
|
Etz3l Posts: 8658 Incept: 2007-06-26
|
A lower FFT only helps the pigs that got us in this mess in the first place. "Easing" by the Fed has done nothing for the real economy other than drive real interest rates further in the red thereby punishing savers and boosting the price of the things we need. 
---------- I could slit my wrists and people would cheer - L. Blankfein.  http://www.youtube.com/watch?v=p8jm61vk2.... Last modified:
2008-09-05 09:09:13 by etz3l
| |||
|
Weezie Posts: 3420 Incept: 2008-05-19
Now shuddap and take your medicine...
|
Again, you hit the nail right on the head. Kind of funny, as I had a similar conversation with my husband the other night. We have some debt, most in long term low interest and some on a shorter term teaser, which I've set up an aggressive payback schedule. So, the other day, DH decides that we need to tile and fix up the kitchen (not a complete remodel, which we don't need, but the old linoleum floor is in pretty bad shape). He asks when we might want to get started. I told him to wait about a year. I figured that prices would get better and that would give us time to pay off a sizable chunk of debt and raise some cash of our own to pay for it. His reply was to put it on the credit card (we have the cash to pay for it, but that's in the 'Emergency' fund not in the 'I want the **** NOW NOW NOW' fund) so we could get it done now. Then, for the umpteenth time, I explained why I though prices were going down and that we had other obligations to pay off. We've rolled, cajoled and structured, I told him. Now it's just time to pay the g-damn bill. ---------- The government isn't ****ing Santa Claus! 2008-09-05 09:09:13
| |||
|
Dvanderp71 Posts: 416 Incept: 2007-08-05
Amsterdam
|
A good, just and well written ticker, again. Karl, it's interesting to think about how this whole money scheme and economy works. It has been ever so often noted that our whole economic system depends on growth. Thinking about the mechanism you describe, that obviously boils down to the whole economy being a Ponzi scheme, in the sense that we expect price inflation to be part of the economy as a matter of principle. But this price inflation has to be fueled, by increasing the amount of credit, which can only be done by increasing the amount of goods and/or services bought on credit. Which in turn depends on people earning incomes, making loans, setting up businesses, delivering goods to eachother, etc. In a way we need a demographic increase to keep this inflation going. The next fool/sucker. As soon as demography reverses and the population of a country shrinks, the machine reverses. The growth machines are now sputtering, because of the credit crunch, which in turn is for an important part caused by the fear that that next fool might not come, but also because of demographic problems in the 'old' economies - Russia has a massive population problem, Europe is beginning to shrink, and the USA isn't exactly rosy in that regard either. To prevent this, you can either increase your own population, but that takes time. Stimulating immigration is a possibility, but that leads to all kinds of cultural problems. In recent days the USA and Europe have expanded their populations by globalisation, setting up businesses in other countries, as well as expanding territory (Europe). This way keeping the economy alive (in a Keynesian way) by keeping the expansion going, by going out and invest - McDonalds, Starbucks - and suck money out of those economies. A modern form of colonialism, if you will. By that means, they (Greenspan, etc) have steered clear of a Japan scenario. Japan has been the example for a long time of what happens after a demographic collapse. It can be argued Japan has never gone much into the way of the modern form of colonialism, so their situation is worse than the USA could have been, and does not totally compare. The other part of inflation was caused by blowing the diverse bubbles everybody knows so well, but with a shrinking population that will be difficult, internally. We see the results of that now in (collapsing) real estate. As you righteously pointed out, all this has been done with huge disregard for risk. The modern form of colonialism has a side-effect, you see. A lot of these countries are now not staying dumb, but with a great deal of help from the Internet are experiencing their own autonomous development, and much faster than expected. This while at the very same time many investors from all corners of the world are competing for a place there, seeking return, so the returns are not as high as expected. Another disregarded risk was that for having your own efficient economy, you have to be sure of a supply of cheap goods and base materials. I think the bubble in that asset class was unaccounted for in the risk analysis of the credit schemes setup by creditors. Yes there are still plenty of people living below par and with potential in the world that you can give credit to. Problem there is that that isn't that easy anymore. The risks have increased dramatically. Are they accessible? Will they have enough purchasing power? How about stability of those countries? Before there will be investment in those countries and people, we must be sure of a future return on that money. And last but not least: will we have enough energy to fuel all that growth? That energy is essential, and it looks as if in that regard we have succeeded in speeding up a runaway train. At the same time we have massive overproduction in the world, since all these companies and businesses have made projections on future growth, and have written their business plans around that, and those models now prove to be overly optimistic. Uniquely, this is the case across the board, from financial companies to manufacturing. Overproduction and highly elevated risks - the classic recipe for a bust. It'll be interesting to see how this plays out. The adagium has been 'sustainable growth', and for a very long time already sceptics have doubted that it is. One day they will be right in my opinion, and from the state of the markets, that's now? Last modified:
2008-09-05 10:29:06 by dvanderp71
| |||
|
Cameljoe Posts: 806 Incept: 2007-08-21
Just pickin' stocks.
|
Great ticker KD.
---------- I SEE DEBT PEOPLE. The best answer to your problems? = Personal responsibility. 2008-09-05 11:10:42
| |||
|
Jokertim777 Posts: 46 Incept: 2008-02-20
|
KD, In your argument to discredit those who oppose fractional reserve banking you have revealed that you hold a misconception regarding that issue (as I'm sure others will point out as well). After studying the arguments against fractional reserve banking I have learned the following: They believe in credit as much as you do. They think that business and personal finance should utilize debt in a responsible way as you do. The only difference (and the point you missed entirely in the ticker) is the SOURCE from which the credit originates. They argue that the SAVINGS of real people is the only legitimate source of credit. One person cannot consume more than they currently have unless other(s) consume less than they have. By allowing everyone to consume more than they have, you are creating credit that must either be repaid by future austerity or be defaulted upon. The people who have the ability to create such credit have usurped the role (and the earnings that accompany it) from regular average prudent individuals. Of course, having lived under a system (since 1913) that discourages saving, the prudent segment of the population has atrophied. I realize that you are honest enough to acknowledge this error and you would not intentionally frame this debate to argue against a straw man of "no credit." While there do exist those who abhor credit, that is not the issue at debate. There are even those who in their dislike for our current fractional reserve system have decried the use of credit. These people do so not because they are opposed to the idea of credit, but to credit that doesn't come from savings. I think that historically the debate has been more along the following lines: When credit comes from savings, expansion rates are restricted by the savings rate (or by the free market of investment). By artificial credit creation we can increase the "velocity" of money and the increased spending (falling demand for the dollar) will benefit the economy. The idea of centrally managing the amount of credit in the system by having a central bank (Federal Reserve) is a Socialist/Keynesian one. The anti-Fed crowd believes that such power corrupts those who wield it and insiders benefit financially at the expense of everyone else. Other tickers you have written vehemently decry this corruption itself, but not the system that facilitates it. They also believe that the Fed allows Government to base their budgets on what they can borrow from future generations (artificial leverage) rather than on current savings or taxes. And enabling larger Government (more spending and more promises for future entitlements) might not be in the best long term interests of the country as you have also pointed out. I have yet to see a discussion of experts from both sides that focuses on the real points of contention. And because of that I myself am reserving judgment on which side I will advocate until I learn more about it. Although, I must admit I have yet to find anything in the anti-fed arguments that isn't well reasoned by people who have researched a lot of history on the subject (and I'm not talking about conspiracy speculation, just historical facts). In fact EVERY argument against the anti-Fed folks that I've ever seen has been (like your ticker) full of misconceptions about what they propose. You may find, as time passes and you learn more about it, that you have more in common than you think with those that are advocating monetary reform that doesn't include fractional reserve banking. Monetary Reforms Proposals that I have seen (recent/active ones): 1. No fractional reserve banking with a fiat currency controlled by Congress (The Money Masters). 2. A return to a Gold Peg (no fiat money creation) with fractional reserve banking (Gold, the Once and Future Money - Nathan Lewis). 3. A Gold standard with a 100% reserve ratio for credit (can't lend more than the amount of savings) as advocated by Mises.org (Mises, Rothbard, Ron Paul, etc.) A thorough examination of which can be found in Money, Bank Credit, and Economic Cycle by DeSoto. Thank you for your attention to this matter. Tim Bennett 2008-09-05 11:11:31
| |||
|
Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
|
The problem with aboslishing fractional reserves (1 and 3) is that the amount of money in the system must be exactly balanced with the GDP; it is like putting a "hard link" in the two systems (money and economic.) If you are off you either get instantaneous and punishing inflation or deflation. Since GDP cannot be measured with exactitude, you have a problem and wind up with inevitable violent economic swings - far worse than anything we've experienced in the nation's history. Fractional reserve systems are subject to abuse, but this does not make them inherently evil. It just means they can be abused by people who are less than scrupulous. The banks are not the ones who abused the system this time around. It was institutions like Fannie and Freddie, plus offshore institutions we have no control over. This, by the way, was true in the 1920s as well. The banks were not the ones doing the evil things, although they certainly facilitated it. The problem of late (last 20ish years) is that we have refused to apply prudent regulation to our financial institutions, including places like Fan/Fred, hedge funds that are borrowing from the regulated system, and other means of leverage. Greenspan and the regulated banking system was also involved through their use of "sweeps", which are a pernicious way to get around reserve requirements; he should be locked up for that ****. They have taken advantage of this because of the belief that they will be bailed out if something goes wrong, and will not be permitted to explode. This lack of belief that they are on the hook for their own ****ups inevitably leads to big trouble in the economy, because it spurs credit creation beyond that which is prudent, and it "looks too easy." Well, it is, until you run out of suckers! This is not an indictment of the system, any more than the fact that banks get robbed means we shouldn't have banks. "Hard money" is unworkable unless you can produce ALL of the reserves within your borders. If you can't, then you are subject to foreign governments and other malfactors "squeezing" your reserves any time they'd like, and have no defense against that event of any sort. This is why we were forced off the Gold Standard (forced redemptions by foreigners) and why we cannot return to a similar system, unless we can find a hard reserve asset we can use that is wholly-controlled and based inside the US. ---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me Last modified:
2008-09-05 11:20:10 by genesis
| |||
|
Txdomer Posts: 934 Incept: 2007-11-07
Locke'd and loaded.
|
KD, The Zork reference brought back memories of hours sitting in front of a Commodore 64 back in the day. Some Zorkian analogies for your consideration: Ben Bernanke = The Wizard of Frobozz The Fed = Bank of Zork ---------- "Economics is not practiced as a science. Rather, it is a pretentious way to covertly promote political prejudices." - Fred Harrison http://renegadeeconomist.com 2008-09-05 12:27:12
| |||
|
Dan721 Posts: 2137 Incept: 2007-08-23 
Phoenix, AZ
|
Last weekend, the AZ Republic asked "who is to blame for the coming liar loan crisis: homeowners, Wall Street, or the government?" Among other items, I sent them this. I want to get this in an even clearer format. -------- The coming liar loan crisis will be a result of people buying homes they couldn't afford, compounded with the rapidly decreasing value of the homes. Home prices have fallen 20% or more from their peaks. On an Arizona home, this is $50,000 on a $250,000 home. In California, it is $100,000 on a $500,000 home. The loss of value isn't realized until there is closing transaction, but it is real. Someone needs to eat this loss. The homeowner who sells at a loss needs to cough up the difference ($50,000? $100,000?) in cash to make the lender whole. The homeowner eats the loss by depleting assets to pay the outstanding debt. Personal wealth is destroyed. Or, the homeowner can let the loan lapse into foreclosure. The lender takes possession of the home, which is worth less than the lender owes to the investors that funded the loan. The lender is in the exact same situation that the buyer was just in. Does the lender sell the foreclosure at a loss and cough up the difference to make the investor whole? The amount of cash required to make whole all of the investors who funded these bad loans will destroy banks and lenders. Every dollar they pay to an investor is one less dollar they can count against their federally-mandated reserve requirements. Banks and lenders will be bankrupted. Corporate wealth is destroyed. So the bank is in bankruptcy. Its creditors in this case, the investors can take title to the bank's assets, which include the home. But the investor loaned $250,000 to the bank in order to fund the loan and is taking position of a home worth only $200,000. The homeowner put the home back to the bank. The bank put it back to the investor. Who can the investor turn to in order to recoup its $50,000? No one. No one is left. Unless you count the federal government. In late July, Congress authorized the US Treasury to invest $800 billion in the two largest mortgage investors in the world, Fannie Mae and Freddie Mac. $800 billion is a lot of "$50,000 heres and $100,000 theres," but the crisis will be that big. Let's follow the money again The homeowner, likely a US taxpayer, either ate $50,000 or defaulted on the loan. Either way, he or she is out an enormous amount of money or has destroyed his or her credit for a decade. This homeowner took a real loss. The bank, either by electing to use its cash reserves to pay off bondholders, or electing to declare bankruptcy in an effort to not pay its bondholders, has gone out of business. The corporation took a real loss the ultimate loss, in fact. The investor has turned to the federal government and through the generosity of Congress, been made whole. Yes, while the homeowner and bank took real losses, the investors were bailed out by the federal government. Of course, who funds the federal government? The US taxpayer. The same US taxpayer who took the first loss (and biggest loss in relationship to its net worth), now takes the loss again and again and again, as the federal government funded by the US taxpayers pays interest on and, hopefully, pays down the $800 billion handed to the investors. The investor loses nothing. The bank loses everything once. The taxpayer loses everything twice or more. We're all to blame. Every one of us. Last modified:
2008-09-05 13:05:12 by dan721
| |||
|
Cash-out Posts: 2037 Incept: 2007-10-23
Live Free or Die - NH
|
I wish your sound arguement were a defense in court to Homeowners who get twice reamed. But like cap gains tax, double penetration is the system. ---------- More prepared than ready. 2008-09-05 13:52:38
| |||
|
Tesla Posts: 7276 Incept: 2008-04-03
Delaware
|
Sorry, I and others like me are not to blame, and I take exception to your assumption that we all are. I didn't participate in the system. I bought a home to live in that I could afford, and took out a fixed rate mortgage well within my means, at only 20% of LTV. I haven't asked anybody to bail me out, and I take my losses when I invest, as well as my gains. I and every other taxpayer like me are the real victims - everyone else was a participant in the ill-gotten gains. ---------- "Neither the wisest Constitution nor the wisest laws will secure the liberty and happiness of a people whose manners are universally corrupt." Samuel Adams I'd rather die on my feet than live on my knees. - Emiliano Zapata 2008-09-05 14:03:08
| |||
|
Andygates Posts: 9 Incept: 2008-09-02 India
|
Tesla - I totally hear ya'. The only way these morons will hear is to GET OUT and protest in the streets. Do we want to wait till we are taxed into oblivion??? (I was gonna say perpetual slavery, but we're already there).
2008-09-05 14:08:17
| |||
|
Tesla Posts: 7276 Incept: 2008-04-03
Delaware
|
Agreed there. I point back to last summer, when the Capitol phone system melted down under the phone calls regarding the illegal immigration handouts and stopped the comprehensive immigration bill, as one way to make a huge difference. What matters is numbers. Every day I write emails to Glenn Beck, Rush Limbaugh, Laura Ingraham and Sean Hannity, being the top talk show hosts according to the number of listeners, and enclose a copy of the day's Ticker, hoping that they'll start to feed the audience with the fraud and deceit. So far Glenn Beck is the only one who seems to understand. I guess things have to get crazy-bad in J6P land to get the type of response needed to stop the crap. When J6P becomes J1P, then maybe he'll listen. ---------- "Neither the wisest Constitution nor the wisest laws will secure the liberty and happiness of a people whose manners are universally corrupt." Samuel Adams I'd rather die on my feet than live on my knees. - Emiliano Zapata 2008-09-05 14:28:47
| |||
|
Genesis Posts: 66463 Incept: 2007-06-26
Royal Flush!
|
Andy has been restricted from posting in Ticker because he refused to deal with his first claim of money going worthless being tinfoiled, so he won't be joining us in here any more. Sorry. ---------- I used to play flute; I wonder if I can play a fife? I incite prosecutors to create "Bubba Sausage Parking Lot" projects Darrell Issa has a middle finger and knows how to use it - Me 2008-09-05 14:30:03
| |||
|
Dan721 Posts: 2137 Incept: 2007-08-23
Phoenix, AZ
|
Point taken, tesla. "blame" may be a bit of hyperbole or rhetoric, but the newspaper's question was asking readers to identify which of three entities were to blame. I chose to say all of them.
2008-09-05 14:41:16
| |||
|
Tesla Posts: 7276 Incept: 2008-04-03
Delaware
|
Dan - I understand, but sometimes you have to push others to think outside the box. Challenge the question; don't just accept their assumptions.
---------- "Neither the wisest Constitution nor the wisest laws will secure the liberty and happiness of a people whose manners are universally corrupt." Samuel Adams I'd rather die on my feet than live on my knees. - Emiliano Zapata 2008-09-05 15:51:27
| |||
|
Cutemloose Posts: 298 Incept: 2008-02-12
Southern England
|
Its not just demographics that has allowed the expansion of credit. The division of labor, and the specialisations in manufacturing and services means supply chains have got longer and longer. Each new step in this supply chain (recruitment agents for example) hold debt. If you take the debt of chunks of this supply chain, it is much more than the central business can afford to take on itself. Years ago, the auto worker lived in rented accommodation, his employer used credit but also employed many many people in a vertically integrated business. Now, the cars are sold on credit, the retailer has built his dealership with credit, the distributor has his trucks on credit, the manufacturer builds his cars with credit... and builds his factory with credit, and develops new vehicles with credit, and buys their raw materials with credit, their suppliers do exactly the same... all this with a workforce who also are buried neck deep in credit. So, I would say that to continue this ponzi scheme, credit has expanded into every nook and cranny of our value-add processes, and into those processes that add no value... banking, government etc. Credit has sought out any ledge(r) to balance on. The sustainable level of credit in the economy is a fraction of the value added in the economy. Sadly, it has been easy cheap credit that has eroded the amount of value added in our economy. Remember "mystic frobozz cleaning dust" does not add much value, it may just make your manufacturing businesses shop floor smell nice. ---------- Disclosure: I am of the Austrian school, of Rothbardian persuasion. I believe in minimal government. Spent 5 years and possibly $1million to see if business can be run on this basis (leaderless). Good news for me is that it can, and profitably, bad news is that it only works with responsible people. 2008-09-06 04:53:55
| |||
|
Dvanderp71 Posts: 416 Incept: 2007-08-05
Amsterdam
|
Cutemloose: "So, I would say that to continue this ponzi scheme, credit has expanded into every nook and cranny of our value-add processes, and into those processes that add no value... banking, government etc." When credit is in every nook and cranny, that is exactly when 'overproduction' occurs. At a certain moment you reach a ceiling, limits of growth, and you will have to cleanse the system. That ceiling can be an economic shock, trust in the future, bad planning, or a demographic ceiling - anything. At this time, I think they are all in play in the USA and Europe. My point was that globalisation has done a great deal to postpone that moment when it should have occurred around 2000. However, globalisation and unwarranted economic stimulation by Greenspan has led to massive investment into new countries. The competition from those same countries in manufacturing and purchases of materials is now squeezing the business models of many, and as such they are suddenly not as creditworthy as they once were. Risk has been ignored and is now coming back to roost. I also think the perpetual expansion in the western world, as incorporated result of the economic models, will prove difficult to sustain if the rest of the world is showing larger growth by themselves. Last modified:
2008-09-06 06:27:26 by dvanderp71
| |||
|
Cutemloose Posts: 298 Incept: 2008-02-12
Southern England
|
dvan, i agree anything will do to perterb the system, and we are overproducing. I agree with you, but while globalisation has been going on, businesses have specialized and divided in the west.. so giving more opportunity for debt to be injected. Where is there to hide in such an event??? My thesis remains that all assets are going to be sucked into this black hole. Debt is in or surrounds everything. Stuff will still need to be done in the coming downturn. Your only guarantee of security is being able to do stuff that people will need. ---------- Disclosure: I am of the Austrian school, of Rothbardian persuasion. I believe in minimal government. Spent 5 years and possibly $1million to see if business can be run on this basis (leaderless). Good news for me is that it can, and profitably, bad news is that it only works with responsible people. 2008-09-06 08:04:11
| |||
|
Critter Posts: 143 Incept: 2008-01-26 iowa
|
if fractional lending means allowing a bank to lend 9 times what they have on deposit then why is there a need for adjustable rate mortgaes? it looks like in your example of magic dust that the banks are hedging against the possibility of default on some of their loans when they are allowed to loan 9 times their deposits. so i must ask if 9 times reserves is the proper way to hedge. is fractional lending evil? can greed be controlled? i read your tickers about 20% down as a requirment so i guess the greed question is a forgone conclusion. greed? stupid? snake oil? is there a way that transparency can control leverage to a respectable and workable level? hell, you people worried about the economy going **** up because of the real estate market should have been "enjoying" moving frieght where a broker is allowed to leverage as much money as he can against a 10,000 dollar bond. there is no limit against a 10k bond. only a an a,b,c,d rating of the one tendering the load. the freaking alphabet is for kids. i'd like to see real numbers. real numbers would open up more opportunities for more people tendering freight if leveraging against 10k in bond was was changed to to a 1 to 1 ratio. 2008-09-06 19:42:51
| |||
| Top | Forum Top | Login | Control Panel | Logout |