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Genesis Posts: 71431 Incept: 2007-06-26 
KD^2 
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http://market-ticker.denninger.net/2007/....
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2007-12-03 16:46:46
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Pensicostreet Posts: 719 Incept: 2007-06-26 
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Absolutely great ticker, KD. So simple and forthright that even J6pk could understand it(if he wanted to) Keep up the great work.
2007-12-03 17:09:55
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Matt Posts: 3820 Incept: 2007-06-26 
Bothell, WA
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 Very well stated... ---------- "Market players should be buying things even though they are overvalued, Cramer advised. Although this may seem irresponsible, traditional market thinking is not going to get people anywhere right now."
2007-12-03 17:12:24
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Gooddings Posts: 127 Incept: 2007-09-10
Online
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"Oh by the way, Paulson knows about the Credit/Monday Cycle." Hey Karl, What did you mean by the "Credit/Monday Cycle", just curious. I know every Monday has been a serious downer in the financials. Is this what you mean?
2007-12-03 17:27:48
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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Just a typo - fixed.
---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2007-12-03 17:29:31
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Madashel Posts: 577 Incept: 2007-09-14
West Texas
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Excellent ticker! If you don't mind I want to print this one out and give it to a few people I know that are less enlightened.
---------- "Those who cannot remember the past are condemned to repeat it." - George Santayana "It is better to live for something rather than die for nothing." - George S. Patton
2007-12-03 17:31:40
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Justin Posts: 229 Incept: 2007-06-26 Atlanta
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Quote:There is only one solution to this problem - the amount of money in the world must increase. The problem doesn't make sense: the bank would not have loaned you the money if they knew you'd never be able to pay them back (since $20k was all the money in existence). The problem here isn't the amount of money in the world must increase - the problem is that the amount of *wealth* in the world must increase. The borrower must create some wealth in order to pay back the wealth he borrowed plus interest. One thing I didn't get from your post: You note that the government doesn't print money. But if that is true, then what happens when T-bills are printed (or created electronically) and then purchased by the Fed? Isn't that merely creating money out of thin air? Bernanke himself has talked about how the Fed can just fire up the printing press to solve deflation. And I think here is the rub: gold/silver/*real assets* cannot be created out of thin air, which makes for a huge difference to credit. I agree that it is the overextension of credit that ultimately requires a reset; however, I disagree that this would happen under any monetary system. The U.S. monetary system (as well as most central banks today) print money at will -- we do it via T-bills exchanged for FRNs. This would not be possible were money backed by a naturally scarce good (read: naturally limited by the laws of physics). ---------- it's a little known fact that I designed the ticker forum logo :P
2007-12-03 17:31:59
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Viamede Posts: 516 Incept: 2007-09-17
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Bones as a monetary unit. Still considered so by certain freakish people....Elephant Man bones and the bones of small Asian boys in particular.
2007-12-03 17:33:32
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Donja Posts: 119 Incept: 2007-08-10
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KD, As always, excellent Ticker, but today's is especially useful and timely. A few questions . . . for clarification: You say: "By the way, before you believe that the government will simply "print money", should that be attempted (or some resemblance of it - e.g. government issues Ts, The Fed buys them and injects the money) the response in the market will be an instantaneous shutdown of private (and outside-US) buyers of debt, as the demand for yields will go parabolic to a degree that the government will be effectively priced out. Since the government needs debt market access to be able to continue to operate, this idea is a non-starter and the government knows it." Why would the "demand for yields" "go parabolic", as a result of the Fed buying Ts? Why would this lead to "an instantaneous shutdown of private (and outside-US) buyers of debt" ? And why would the result of this be "that the government will be effectively priced out,"? Thanks, Your Ticker and Forum much appreciated.
2007-12-03 17:41:52
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Truthseeker Posts: 2016 Incept: 2007-10-07
NW US
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Awesome ticker, Gen! Thanks.
---------- "The real leech****s are not the welfare people, but the paper shufflers in privileged positions who are skimming the money flows." " ~ Bozonian
2007-12-03 17:46:11
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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Madashal, have at it. Justin, I think I already answered this.... the short answer is that the banker knows full well he intends to continue creating credit when he gave you the loan. Donja and Justin, when Treasury (Congress) wants to spend more money, they sell Treasuries into the market, exchanging promises to pay (debt) for money. That money is then spent. If the Treasury was to just print dollars that poses a problem because it dilutes the value of existing dollars (just like a stock dividend does.) Same thing if the Treasury issues new "T"s; the value of existing ones fall (the "assets" pledged remain the same - "full faith and credit of the United States".) An attempt to inflate out of this mess, when the "mess" is a multi-trillion-dollar problem (remember, $6.5 trillion was MEWd out AND CONSUMED!) results in buyers of those Ts demanding MUCH higher interest rates. This ramps the cost of government; since existing Ts retire and must be re-issued/rolled when they do, this ramp quickly starts to eat into actual available funds in the government (interest payments consume more and more of tax revenues) It is for this reason that an attempt to "monetize" the problem will blow up in Treasury's face. Paulson is not stupid - he KNOWS that this will be the consequence, which is why he keeps pounding the table that NO TAXPAYER DOLLARS ARE BEING USED. If the market whiffs that this is NOT going to be the case, the demanded yield on Treasury debt will do a moon-shot instantly. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2007-12-03 17:59:10
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Brandk3 Posts: 177 Incept: 2007-11-11
Phoenix AZ
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anyone having problems getting to today's ticker video ta?
2007-12-03 18:08:19
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Ruffcut Posts: 2204 Incept: 2007-07-07 Mushagain Online
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Great analysis. But what stunt are these dickweeds' trying to pull??? They know this, they helped create it. Like county****fried. Take one dollar of savings for CD's, then loan out 9 dollars out? So if they lend all this cash to the mortgage unit, should a fine leatherfaced, lead organization of fantastic risk standards, decide that, then who is minding the store, at the FDIC? Santa Claus? Flavor flave? Though you have called all this ****, Karl, maybe early, so please call a end to this dickweededness. Every morning is a another bad dream. Thanks. ---------- Support locally, and **** off globally!
2007-12-03 18:09:10
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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Ruff, there is nothing particularly evil about fractional reserve banking. Indeed, it is necessary in order for a system in which risk premia is charged on lending to exist. Such a system, however, requires periodic "clearing outs". Attempting to deny them leads to bigger busts when they finally do blow, and blow they must when the available collateral to pledge runs out. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2007-12-03 18:13:18
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Donja Posts: 119 Incept: 2007-08-10
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KD, thanks for the clarification. One final question: Were the Fed to go whole hog into buying Ts, might that work were China, etc., to continue to buy Ts at the current rate or more likely increase said purchases . . . even if doing so in the face of a declining dollar, in an attempt to hold up the house of cards? An aside note: In Oct. China's purchase of Ts declined significantly (while FCB purchase of GSEs continues unabated). There is reason to believe the China is buying Yen to drive up the value of the Yen, thus allowing China to 'make room' for the Yuan to appreciate as well. Any thoughts on this in a future Ticker would be appreciated.
2007-12-03 18:20:57
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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Donja, the problem with this is that it only works if the American Economy is chugging along. Problem is, its not. With the consumer collapsing trying this would be a death sentence for China - they would soon find themselves holding BOTH worthless paper AND having no further income as their export business to us collapses! BTW, this trade (China basically propping up our bond market) is why we've had low bond rates the last few years despite ramping deficits. But this only works so long as the American Consumer can continue to pledge assets to get the money to spend on Chinese products. Now the American Consumer is out of pledgable assets.... ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me Last modified:
2007-12-03 18:26:49 by genesis
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Justin Posts: 229 Incept: 2007-06-26 Atlanta
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The Treasury department *has* created a huge amount of wealth via printing dollars. They're *still* doing it now. All created Tbills must inevitably turn into FRN (and then into USD denominated assets). As for the banker, this just doesn't make sense that he would create more credit to help his borrower pay him back. It's not the credit that makes the system work - it's the wealth. Credit is not necessary for wealth to be created. I've yet to see a compelling reason to prove that statement wrong. ---------- it's a little known fact that I designed the ticker forum logo :P
2007-12-03 18:38:40
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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Where's the money come from that is exchanged for the created assets? If supply is fixed, either (1) prices must deflate or (2) production must stagnate. (1) is very bad over significant periods of time because people WILL NOT SPEND if they believe that the price of something will go DOWN - they'll wait for it to be cheaper! Velocity of money decreases towards zero. (2) is bad for obvious reasons. You need mild inflation so that people have an incentive to buy (prices going up means you buy now or its more expensive later) ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me Last modified:
2007-12-03 18:42:51 by genesis
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Antwallace Posts: 880 Incept: 2007-06-26 Tampa, FL
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Inflation is not needed to create wealth or the money supply to keep up with it, it is a result of the racheting up effect of price stickiness as the equilibrium of wealth creation and money supply is constantly rebalancing itself.
2007-12-03 18:53:20
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Justin Posts: 229 Incept: 2007-06-26 Atlanta
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Quote:(1) is very bad over significant periods of time because people WILL NOT SPEND if they believe that the price of something will go DOWN - they'll wait for it to be cheaper! Velocity of money decreases towards zero. But don't you see? Equilibrium will be reached -- prices will adjust to reflect the correct ratios. Hoarding money just makes that money more valuable (or goods cheaper) which incentivizes said hoarders to spend the money. The system rebalances naturally. Buying into the myth that inflation is necessary is the key ingredient to making our current inflationary, bubble-creating system functioning. It's also the key ingredient that enables our government to tax us (and the world via exporting dollars) through diluting the buying power of dollars. Do you disagree that our government has been increasing the supply of money via 1) creating new T-bills 2) turning T-bills into dollars 3) adjusting reserve requirements to enable further multiplication of money? Prior to central banks (Remember, the U.S. existed without central banks once upon a time), how did economies function? How *could* they function without inflation if you believe what you are saying? ---------- it's a little known fact that I designed the ticker forum logo :P
2007-12-03 19:06:40
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Patentleathershoes Posts: 7642 Incept: 2007-09-13
Looking forward to PB&J time!
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SOMETHING IS WRONG! He didn't swear once. Heheheee
2007-12-03 19:14:55
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Jinxx0r Posts: 2064 Incept: 2007-08-10
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what about tax cuts as a way to spark the consumer? just a thought... ---------- "Americans grew tired of being thought of as dumb by the rest of the world, so in 2008, they went to the polls and removed all doubt" ~~ unknown http://www.youtube.com/watch?v=2x2W12A8Qow http://www.youtube.com/watch?v=4pXfHLUlZf4
2007-12-03 19:14:59
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Rmonical Posts: 2155 Incept: 2007-07-04
Omaha
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Great explanation and G rated so I can send it on to the youngins
---------- The truth is out there
2007-12-03 19:18:56
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Genesis Posts: 71431 Incept: 2007-06-26
KD^2
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Quote:Do you disagree that our government has been increasing the supply of money via 1) creating new T-bills 2) turning T-bills into dollars 3) adjusting reserve requirements to enable further multiplication of money? Of course they have. We have a national debt and it is increasing in size. Quote:
Fractional banking dates back to the moneychangers, and so does money-supply inflation (and the resets that come with it.) Again, you can come up monetary systems that are subject to neither, but they don't look like anything we have had in the last many hundreds of years in the world. ---------- "The monetary base in ALL modern monetary systems is the sum of unencumbered assets against which one is both WILLING AND ABLE to borrow." - Me
2007-12-03 19:20:24
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Murf Posts: 2813 Incept: 2007-08-28
the surf
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Professor Denninger, Excellent ticker. Clear, concise and logical. You are quite a wordsmith. This ticker deserves to be pinned, but you might consider a new, locked category on the forum that contains this and other vital informational tickers and includes some of the great foundational debates in the forum threads we've had the opportunity to read lately. Recent tickers and threads on gold, inflation vs. deflation, why the fed acts, etc. have been awesome in the sheer amount of information they contain. I think most of us regular readers have had moments on the site where we thought, "OMG, so that's how it works! Why doesn't everyone know this?" Call it "Getting Up To Speed" or ??? ---------- The recovery up is losing steam
2007-12-03 19:21:56
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