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| User Info | Why "Recovery" Calls Are Doomed: The Bezzle in forum [Ticker] | |||
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Genesis Posts: 71422 Incept: 2007-06-26 
KD^2 
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http://market-ticker.org/archives/1362-W....
---------- "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
2009-08-21 13:53:55
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Baja Posts: 77 Incept: 2009-06-03 Outback Texas Banned
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Gen: 1. You are so right on. 2. It is so not going to happen. I hope I'm wrong about #2.
2009-08-21 14:00:15
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Dji Posts: 720 Incept: 2009-04-21 
Fleming Island Online
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Please say you have Eesmith4 posting this in the newspaper as J18P may understand it and try to WAKE UP!
---------- What goes up Must come Down- Alan Parsons Project THE TRUTH HURTS! -Dji
2009-08-21 14:06:11
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Reza30 Posts: 233 Incept: 2009-02-15
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Adding my voice to this...Quote:
No way can you have a recovery in the general economy with such numbers. BUT, printing money and giving it to the banks and the stock market will certainly create a recovery for a select few. Last modified:
2009-08-21 14:07:52 by reza30
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Scrood Posts: 1999 Incept: 2008-05-17 
Green Shoots! Online
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Granny has a 4.9% spread, not 5.1% spread
---------- CTRL-GALT-DELETE
2009-08-21 14:08:52
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Peterm99 Posts: 195 Incept: 2009-03-21 SoCal
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Karl - Very well written, clear, and to the point explanation of interest rate spreads and their impacts. Even financial system dummschittz like me can understand this one. Thanks. Last modified:
2009-08-21 18:24:34 by peterm99
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Jstanley01 Posts: 2565 Incept: 2008-07-30
San Antonio, Texas Online
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 I wondered why the banksters were saddling their best customers with loan shark rates. That 'splains it. They aren't worried about customers going forward. They're out to bilk their debt slaves for every penny they can extract. "Would you like an umbrella in that mint julep, mr. pigman? Iffn' not, massa, I'z just be shufflin' over to chop some wood, just so'z the noise don't disturb yo rest..." ---------- ...so in short, my fellow Texans, we must secede. "For the children..." --Me Last modified:
2009-08-21 14:17:18 by jstanley01
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Cheese Posts: 45 Incept: 2008-07-09
wis
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Karl, what about the savings side of the spread? grannys 1% now vs 5% then on how much cd savings there is?
2009-08-21 14:13:20
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Reza30 Posts: 233 Incept: 2009-02-15
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Quote:For the "typical Grandmother" who was making 5% on her CD and paying 9.9% on her plastic, the spread was 5.1%. That is, 5.1% was the "real cost of credit" to her annualized. Minor typo: 9.9 - 5 = 4.9 (not 5.1% spread)
2009-08-21 14:14:34
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Jstanley01 Posts: 2565 Incept: 2008-07-30
San Antonio, Texas Online
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Later that evening (pigman in front)...
---------- ...so in short, my fellow Texans, we must secede. "For the children..." --Me Last modified:
2009-08-21 14:19:13 by jstanley01
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Mvo Posts: 493 Incept: 2007-06-27
NYC
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Karl, You have to keep in mind is that out of $250B a large chunk IS SPENT on consumption by those who default later. I interpret that spread increase mostly (not all though) as cost shifting from (debt) paying to non-paying category of consumers, rather then going to banks and CC companies. Paul defaults on $500 unsecured credit, Peter picks up the bill via higher spread. Paul consumed $500 he didn't have, Peter did not consume $500 he could have. Net effect on consumption is zero.
2009-08-21 14:15:42
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Genesis Posts: 71422 Incept: 2007-06-26
KD^2
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That's neutral but that's not the point of the article. The point of the article is that the change in the spread is a direct cost that is redirected from consumption to the banks. If the banks paid that out in stockholder compensation (divvys) or bonuses it would get spent. But they aren't - they're absorbing it to paper over their losses. As such it effectively "disappears" from the economy and has no forward benefit, as the loss already happened but is being hidden. ---------- "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
2009-08-21 14:20:54
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Jwm_in_sb Posts: 224 Incept: 2009-04-16
California Desert
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"But they aren't - they're absorbing it to paper over their losses. As such it effectively "disappears" from the economy and has no forward benefit, as the loss already happened but is being hidden.' I believe that would be considered Deflationary, no?
2009-08-21 14:25:28
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Jstanley01 Posts: 2565 Incept: 2008-07-30
San Antonio, Texas Online
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Jwm_in_sb: Yes, because it's counted as SAVINGS! 
---------- ...so in short, my fellow Texans, we must secede. "For the children..." --Me
2009-08-21 14:27:27
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Mvo Posts: 493 Incept: 2007-06-27
NYC
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I see your point, it makes sense. I guess the real question is how much of $250B is being paid for past defaults (already consumed) and how much for ongoing and future defaults and consumption by non-payers.
2009-08-21 14:28:27
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Reza30 Posts: 233 Incept: 2009-02-15
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Karl, I am a little confused by your statement: Quote:For the "typical Grandmother" who was making 5% on her CD and paying 9.9% on her plastic, the spread was 5.1%. That is, 5.1% was the "real cost of credit" to her annualized. If we go from an old spread of around 5% to a new spread of 18%, then the real increase in percentage terms would be 260% not 12.8%? This makes things even more devastating for the savers. Thanks for clarifying.
2009-08-21 14:29:58
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Rebecca Posts: 67 Incept: 2009-07-17 Atlanta, GA
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How long will it be before J6P figures out that the higher interest rates on his credit cards means that it could take a lot longer to pay off his balance than it would to get his credit ratings back up after a default ? I don't think it will take more than a few beerless Friday nights, caused by trying to pay the higher credit card interest fees, for this to sink in. Then he's gonna say to hell with sending Mr.Visa and Mr.Mastercard his limited amount of hard earned money, and default. Once again, the banks are screwing themselves over in the long term while chasing the mirage of short term profits.
2009-08-21 14:43:12
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Genesis Posts: 71422 Incept: 2007-06-26
KD^2
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Reza, its the change against your asset base in terms of spending, and yes, as a percentage of cost it is outrageous. Rebecca, they're simply trying to survive in a world where they have been given a pass on what should result in a felony indictment. The problem is that the 'oh that's in the past' approach is that it destroys any hope of economic recovery going forward. THis is exactly what Japan did and it will have the same result here, for the same reason. ---------- "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
2009-08-21 14:46:00
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Weaseldog Posts: 282 Incept: 2008-12-11 Texas Banned
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The bailouts actually harm the economy by producing market distortions. It favors non-competitive entities over competitive ones. Thus destroying competitiveness all around. Then when the bailout winds down, the favored industry is in bankruptcy, right along with the industries harmed by having cash flow redirected from them. A friend told me a story about the Cash for Clunkers. Friend's of his family, traded in their well maintained clunker for a new car. The insurance and car payments were much higher than they expected. So they can't afford to go out to dinner, or see movies for a few years. They can't afford to buy enough gas to take the car out for Sunday drives. So the community has lost their business for five years while they pay the car off. Every market distortion produced from giving away money out of some misguided sense of good intentions is actually harming the economy, and pushing the recovery back. If we continue this model, gray and black markets are going to become the norm, with the gov producing money from nothing to buy stuff, and clerks selling it off at a huge loss on the back dock. We will all become tainted before this economy breaks down and becomes repairable. ---------- "You can know the name of a bird in all the languages of the world, but when you're finished, you'll know absolutely nothing whatever about the bird... So let's look at the bird and see what it's doing -- that's what counts." - Richard Feynman
2009-08-21 14:49:59
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Wb6yyz Posts: 22 Incept: 2009-03-16
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Yep, I just got notice that my business card is going from %9.99 APR to %11.99 APR (assuming that the prime rate stays where it is). I rarely carry a balance on this card, but I sometimes do such as to upgrade equipment without going through all the paperwork of getting a loan from the bank. Now it means I will never carry a balance. That new portable spectrum analyzer I was thinking of getting this year and charging on the card? Forget it! I'll continue to carry the 70 pound monster box to job sites until it quits working and I can't get parts for it anymore. Multiply that by all the other small businesses that are thinking the same thing, and you know the economy will never recover. A Japan type stagnant economy is the *BEST* one could hope for at this point, more likely it is 1932 all over again, but even worse. Why worse? In 1933 we still had the capacity to build things here, and even more important, the US was a net exporter of petroleum. Now we have to import most of our petroleum and the only thing that the US seems to know how to make is trouble!
2009-08-21 14:52:20
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Kidhorn Posts: 88 Incept: 2009-08-11 Rockville, MD
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KD, It all depends on how you define recovery. Will people really be better off? No. But, they'll have it beaten into their heads that things are getting better so they'll think things are getting better. Hence a recovery will occur as defined by people thinking things are getting better. Or at least this seems to be the plan and it's working so far. Last modified:
2009-08-21 14:54:00 by kidhorn
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Brain Posts: 52 Incept: 2009-06-29
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Your chart tells me that on - or around - Jan. of this year, the American consumer maxed-out its collective credit limit; and the proceeding decline indicates the growing inertia of defaults. It would be interesting to chart this versus the number of bank failures over the next 6 to 12 months.
2009-08-21 15:01:03
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Amgrace Posts: 1304 Incept: 2008-02-15
New Castle, PA 16101
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Gen, FWIW I think they are terrified mostly because so many life insurance companies and pension funds that hold bonds of GM, C, BAC, etc. would implode if you brought all the toxic **** into the sunlight. I believe they will continue this bezzle until SOMETHING forces them to stop (dollar flight, treasuries implode, ?, etc.). ---------- "In an informal survey at a recent meeting of 150 or so institutions, those admitting to feeling nervous about underexposure to risk outnumbered those feeling too aggressive by a neat 10 to 1! This also suggests how a speculative rally can keep going longer than reasonable investors expect." - Jeremy Grantham 07/2009
2009-08-21 15:07:43
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Genesis Posts: 71422 Incept: 2007-06-26
KD^2
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Brain, that chart is directly off Federal Reserve data. Consumers LITERALLY went to the wall with the plastic and did not stop spending on those cards until JANUARY OF THIS YEAR, more than a year into the recession. That was the top. This is pure insanity, but it is what it is. Insanities almost always go BOTH ways, which means we should see it go the OTHER way too, in the downward direction. ---------- "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
2009-08-21 15:15:07
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Standby Posts: 85 Incept: 2009-08-06
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It appears that a) they're propping up their buddies in banking on the backs of the savers and b) they're propping up the stock market by forcing fixed income people to pull their money from savings into stocks.
2009-08-21 15:16:57
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