mjkst27 Posted June 27, 2003 Report Share Posted June 27, 2003 In the spirit of "know thy enemy"... I agree with Hypertiger, but I try to find reasons why the debt deflation scenario won't occur all day long, here's the best I can come up with, in light of this week's developments... Looks like the 10-year UST is falling (price) pretty aggressively, and will shut down the refi engine lickety split. Will this cause a sharp rise in Uncle Buck? i.e. with the dollar-depreciative stimulus of mortgage credit creation removed, will Buck rise relative to other currencies? I hope not because of the way I am currently invested, but it might happen. I can think of two powerful mechanisms that will come into play to keep the credit/money growing and flowing, and thus keep Buck in the game of "race to the bottom". First of course is that the Fed will be forced to make good on their promise to make like the two-bit whores they are and pleasure any and all US bond holders with top dollar for their toilet paper. If they don't, or if they are just plain old unsuccessful in keeping bond yields low, we'll have the fed's vaunted consumer price deflation in a heartbeat as Buck rises keeping imports cheap. So print money it will be. The only questions are how long will the line of bondholders wanting to get serviced be? And how high will the S&P go with the bond proceeds being pumped in with fire hoses? Second....I think consumer credit **could** take off like a raped ape, despite Hyper's articulations, and here's why...actually, I think con-cred has been ramping hard the last 18 months, as it has been since the 1992 recovery, it just hasn't been showing up in Hyper's charts because a lot of this debt has been paid down with refi cash in these last couple refi waves. i.e. it's been showing up on Doug Noland's mortgage market charts instead. With the refi game looking to be over, the concred chart could pop a boner just by staying status quo, if you catch my drift...removal of a drag is a lift. And let's face it, there's plenty of willing borrowers and lenders in the consumer credit space, with short term rates on a permanently low plateau. As Jim Puplava says, "inflation in the things we need"...people have to pay the necessities somehow, and we know aggregate incomes have fallen hard the last couple years...people are gonna borrow - many have little choice, life "goes on" day after day after day. So, it looks like another shift in where the credit will come from, but keep coming it will...instead of from Fannie/Freddie, we'll be going back to the ABS securitization/commercial bank/subprime lending complex. Why not? The Fed has it all backstopped one way or another. There are plenty of clout-wielding folks out there by now that understand debt deflation dynamics...and the dire consequences.....we're not the only ones studying this crap 24/7....they'll keep the game going, by any means necessary. Which gets me to thinking...this idea of "death of the middle class" I think is wrong. I think it's going to be, already is, NEEDS TO BE..."death of the INVESTOR class"...investors are the conscience of the capitalist system...if the Fed et al can kill all notion of investment and replace it with two types of people, "speculators", and "those that could care less about the markets, value of Uncle Buck", etc., then they stand a chance of making the long-term societal attitude changes needed to pull this thing off and avoid the Hypertigerian nightmare. Compared to the bond vigilante days, which wasn't all that long ago, they've made stunning progress, don't you think? What about this zany idea...Fannie and Freddie somehow along the line get re-chartered to be able to backstop consumer credit? Outlandish? I don't know...at first blush, you'd say "well there's no worthy collateral in consumer lending...with mortgage lending there is"...STOP right there....is there really collateral backing up Fannie paper? if there is any serious problem in housing, what good is it going to do Fannie to repo a bunch of houses? None - they wouldn't even bother....so the whole idea of paying your bills because there are consequences if you don't... is just an idea...just remnants of a societal conscience left over from Renaissance Europe....if the Fed and Gubbamit can just dispel this oldthink... ...then maybe we could advance toward a world where "income" and "value" are truly obsolete concepts. In other words, consume what you want, pay what you can, what difference does it make. People should just get up everyday and do what they do, be it baker, Fed Chairman, or basket maker. And in turn they should also consume what they are moved to consume as well...why must there be a medium of exchange? Seems cumbersome, very old-school...we need new school thinking... What if the powers that be decide to crash the stock and bond markets, taking everyone's retirement with it?...and then come right out and say "it's OK, we'll just double or triple your monthly Social Security payments when you retire, if you just sign over the balance of your 401k and IRA accounts to us" - now how many of the Joe Sixpack "investor" set wouldn't walk the plank and sign on the dotted line right then and there? (oh, and there would also be a windfall tax on short profits as well).....................I dunno...........c'mon people........they should pay me for thinking this shit up, this is good stuff I'm smokin' right now... but seriously, as Roger Arnold would say "lookit" - Fannie and Freddie are an idea that is 70 (!) years old. I'm not exactly sure how it could be spun, but why is it unthinkable that Fannie and Freddie could be reconfigured to help eliminate the plague of personal bankruptcy from the land? Like Hyper says, we are a post-industrial economy now, and I'm saying bankruptcy is a very industrial-era notion. Think if we could get current bankrupts back out there spending again, we'd have damn near a perpetual motion machine. If we could prevent further bankruptcies in toto, we could keep credit expanding forever and avoid this debt deflation nemesis! Something like that, anyway. In the eyes of the neo-powers-that-be, eventually the ideas of bankruptcy, "money troubles", "making ends meet" must all just become outmoded stale ideas, like changing your own oil, or eating a meal at home. Think "2 minute penalty for reckless credit spending, go to the penalty box, tisk tisk, replete with 'credit education' and 'free credit counseling', wink wink" instead of "the next 7 years of your life are ruined because you are a bankrupt worthless piece of shit"....in the corporate world this is known as a "paradigm shift" or "thinking outside the box"...maybe this is why Al Green made that quip about needing to increase consumer education a while back......hmmmm OK, enough rambling...bottom line... the Fed/Street is on the case, they have the administration's blessing, the word is out, debt deflation is now a well known entity, public enemy numba 1, and is highly respected. They've come this far, so there is no turning back. For us old-think fogey prudes, the world will only continue to get more ridiculous by the day, in fact that is one graph that is certainly going to go exponential, asymptotic even. With a little creativity, many patently ridiculous ideas come to mind for how credit can be expanded forever. But are they so ridiculous? Fannie and Freddie were ridiculous ideas once. So was the Fed. So was income tax. FDR pulled off some of the most ridiculous shit I've ever heard of during the Great Depression, and the masses loved him for it. The Just Think Positive religion is obviously still alive and well, heck just look at the markets....fer chrissakes respect your opponent people. Link to comment Share on other sites More sharing options...
ThorAss Posted June 27, 2003 Report Share Posted June 27, 2003 Rebuttal: You can't create wealth by printing money. Link to comment Share on other sites More sharing options...
mjkst27 Posted June 27, 2003 Author Report Share Posted June 27, 2003 Rebuttal: You can't create wealth by printing money. Re-rebuttal: So very very very very very effing very few people will be wealthy. This is what I meant about the PTB needing (over time) to reduce society to two types of people - speculators (or those trying to be wealthy), and non-speculators (those living life in oblivion). I have been amazed, stunned at some of the comments I have heard "average" people make to me in the last few months obliquely concerning economics..." the rich deserve the bulk of the tax break, it will get the economy going - when was the last time a poor person cut you a paycheck?" and "housing will always go up - people just...want it to" hear me now, believe me later the average Joe on the street is certifiably lobotomized when it comes to the way the world works - he will parrot, believe, internalize and spout any catchy, snappy, well-sounding conventional wisdom he is taught by the usual propoganda outlets. I know, I was such a person, about 5 years ago. Wealthy. Make me laugh. Link to comment Share on other sites More sharing options...
Hypertiger Posted June 27, 2003 Report Share Posted June 27, 2003 There could easily be a desperation spike on consumer credit...The key is sustained growth...Right now everything is quick fix or JIT Just in time...The good old days are over... Consumer credit ,which just today thanks to you shrank from 17.5 trillion to 1.75 trillion, is very important to the economy... since I blew the math I will take the time to study it more deeply and give you my 2 cents and yes i'll use a calculator this time. Link to comment Share on other sites More sharing options...
mjkst27 Posted June 27, 2003 Author Report Share Posted June 27, 2003 There could easily be a desperation spike on consumer credit...The key is sustained growth...Right now everything is quick fix or JIT Just in time...The good old days are over... Consumer credit ,which just today thanks to you shrank from 17.5 trillion to 1.75 trillion, is very important to the economy... since I blew the math I will take the time to study it more deeply and give you my 2 cents and yes i'll use a calculator this time. I hope you don't think I'm on your case about that 17.5 thing. The number itself is irrelevant.. it just struck me as way big so I double checked it and said something. Your story is still full force in my book. Maybe we shouldn't be making such a story out of consumer credit. Total credit market debt would be a better measure, but it isn't frequently published, nor is it as precise as con cred. I do think it's pretty clear that from a system-level viewpoint, if mortgage-related credit creation drops sharply in the next few months, some other source will be tapped to take up the slack. Con cred is the natural (only?) choice. (What the magnitude would be I don't know - maybe in total there will be a sharp drop in total credit market debt growth due to contraction in mortgage growth). I guess this could be construed as desperation, i.e. lifestyles are falling noticeably in real-time, what to do what to do, "I know!, maxout the credit card." However, desperate as this may seem inside the household, business could construe it as a return to business as usual, i.e. traditional recovery. Overall, the game is boiling down nicely. Debt deflation could happen now at the drop of a hat. The boyzes know it, and have all guns ablazin'. Gonna git me some popcorn and enjoy the show.... Link to comment Share on other sites More sharing options...
Quicktrade Posted June 27, 2003 Report Share Posted June 27, 2003 There could easily be a desperation spike on consumer credit...The key is sustained growth...Right now everything is quick fix or JIT Just in time...The good old days are over... Consumer credit ,which just today thanks to you shrank from 17.5 trillion to 1.75 trillion, is very important to the economy... since I blew the math I will take the time to study it more deeply and give you my 2 cents and yes i'll use a calculator this time. Hypertiger, I want to say I think you have a great collection of work going on here and I enjoy your writings But.... Yes... But...I want to give you some things I think need to be figured into your 18 month calculations and that is the resiliency of the human existence,our ability to problem solve, work thru problems and our ability to adapt to unexpected problems. I think if you add these things to the equasion you will get a few more days before the collapse of the worlds financial system. The Dollar and financial system have already gone 25 years longer then most thought. Quicktrade Link to comment Share on other sites More sharing options...
ThorAss Posted June 27, 2003 Report Share Posted June 27, 2003 When I was a much younger man I spent some time hitchhiking around the states. People would ask where I was from and I quickly learned to be no more specific than Canada. Even then in 2 cases, (one in a southeastern state a woman had never heard of Canada, and in another a university educated young man from a northwestern state who was unsure exactly where Canada was), people showed a complete lack of knowledge about Canada. I found this quite amusing at the time. But over the years I've thought about this often in terms of American foreign policy and American politics. These people who know so little about the world beyond their borders and who for the most part couldn't find the Middle East on an unlabelled globe are responsible for electing a government that decides on policy, both foreign and fiscal. Why be surprised by anything that happens as a result? Here are some important questions. Where is the huge public outcry about the stock market debacle of recent years? Where is the public's demand for a proper accounting of US gold reserves? Why does the public accept that even though no WMD were found in Iraq that their government was still acting with the best of intentions? Why do they accept an erosion of freedom under the guise of patriotism? Why do they believe that America is peaceloving when time and again they are the aggressors? The list could go on and on. Basically it all starts from the first principle which is "America, Love It or Leave It." After that one becomes blind to the excesses of the state and you rapidly slide down the slippery slope to fascism. A public that has been and is being taught to be patriotically unquestioning and being spoonfed the need to rise up against the outside forces of evil will have little interest in questioning fiscal policy or the role of the Fed. Once upon a time it was, "It's the economy stupid." Well the economy, where it's going ain't going to be getting anyone elected and if they manage to prop it up long enough to get elected then the debacle that will ensue in the next 4 years will ensure that the party of the encumbent will not be elected for many a term, so it is necessary to get the people's minds off the economy and on to foreign policy. Meanwhile you continue to tell them how much better the economy will get as soon as you solve the rest of the world's problems. Link to comment Share on other sites More sharing options...
DrStool Posted June 27, 2003 Report Share Posted June 27, 2003 It occurs to me that I could be wrong about refi's drying up immediately. Initially, following the upturn in rates, there may be a surge from procrastinotrs who missed the move down. Of course fewer will qualify. Ultimately, the question is, who the hell knows? One thing is certain. All bubbles end. And they all end badly. This one is the biggest ever. The South Sea and Mississippi Bubbles were but child's play, even as big and as devastating as they were for their time. On the other matter, knowing Canadians as I do, my impression is that they are even more politically apathetic than Merkans. Link to comment Share on other sites More sharing options...
Bastiat Posted June 27, 2003 Report Share Posted June 27, 2003 On the other matter, knowing Canadians as I do, my impression is that they are even more politically apathetic than Merkans. Doc, from a Canadian, never a truer word was spoken. The reason for the apathy may be, though, the poor choices available. Canada is a strange place, being a society at least partially based on the English model where political leadership is somewhat hereditary, rather than the American, which may account for some of that apathy. Plus we have that large French island in the middle and we are constantly scratching our societal heads over that one, since they don't love the rest of us the way they should (for good historical reasons) and yet keep giving us our Prime Ministers. And nobody in the rest of the country likes us arrogant Ontarians. We are just a little confused. Link to comment Share on other sites More sharing options...
richmtn Posted June 27, 2003 Report Share Posted June 27, 2003 Nice thread guys. Tanks. Link to comment Share on other sites More sharing options...
mjkst27 Posted June 27, 2003 Author Report Share Posted June 27, 2003 Thor, where's the outrage? The most outrage I can think of that has been exhibited recently was the anti-war protests back in February...which of course were ignored and brushed away like so much trash by the Admin. Merikuns have been desensitized to just about everything by the constant barrage of propoganda. Everyone alive has been bathed in CRT rays their entire lives, they know no other way of life. Shame that the sheep haven't better mastered the intern-net as a means of organization, notwithstanding Stool's efforts. Some outrage is there, but the masses don't feel it and are conditioned to recognize the thought pattern and associate the word "kooky" with it. Exhibits A-C are Lyndon LaRouche, Ross Perot and Pat Buchanan. Why does no one know who Ron Paul is? Why isn't congress filled with Ron Pauls? I don't know, but this is one tide I don't see turning. Rue-ing how sad it is that straight-thinking people get marginalized like these guys did is passe now. I'm over it. It aint gonna change, at least as long as life looks sort of like it always has. If we had a Great Depression type collapse from here, maybe we'd see folks get some dander up....but then that's why the desperation behind staving off debt deflation by the admin and also the "Plan B" patriot act shenanigans in case debt deflation can't be held at bay. All bases look covered.....someone please tell me why not? Link to comment Share on other sites More sharing options...
Guest yobob1 Posted June 27, 2003 Report Share Posted June 27, 2003 The problem is real take it to the bank incomes are not growing, they are shrinking at a 5%+ rate per year based on tax revenues. Realize that the reported income increases include a lot of "imputed" numbers meaning they don't exist. I seriously doubt crditors are just going to say" we don't care if you don't pay, just go ahead and keep the crap you financed". And maybe most importantly we must think globally. A lot of credit paper has been pawned off on furriners. They aren't likely to keep lending us their money ifm we don't pay it back. Between the fiscal deficit and the current account deficit we need to attract somewhere between 1.5 and 2 billion dollars aday from our foreign friends. Could consumer credit explode from here? Highly unlikely. Debt to income, debt to gdp, debt to anything ratios are off the charts. Home equity is at record lows in spite of record price increases. And maybe most importantly, J6P is changing in subtle ways to a more thrifty individual, mostly by necessity. Also factor in that already low rates has eaten up future demand over the last few years. But then as Doc can testify, my brain is mush right now. It left for vacation a week ago. Link to comment Share on other sites More sharing options...
threadbare Posted June 27, 2003 Report Share Posted June 27, 2003 Yobob, I think you're right about slipping wages interfering with run away inflation. There will be economic aberrations the likes of which we've never seen before. Bontchev's predictions are probably closest to the mark, in comparing what he's already seen, the collapse of Russia, with what it will be like in the U.S. Mjkts27, It is remarkable how people have internalized the elite message. It helps sustain their Horatio Alger rags to riches mentality, a reality that is rapidly becoming a mythology. Once it becomes widely accepted that it's not attainable, for a variety of reasons, the mass psychology will The masses will rebel against authority, or find handy scapegoats. There are plenty of historical precedents, I needn't bore you with. The average Joe's political apathy varies from region to region. That seems to go for Canada too. In the Pacific NOrthwest, Cascadia if you will, they're remarkably aware. This cuts across class and race. Darn near everyone I talk to, and I never shut up so that's quite a range! Link to comment Share on other sites More sharing options...
Guest yobob1 Posted June 28, 2003 Report Share Posted June 28, 2003 You know, in retrospect, I've decided that nobody in America even needs to work. We can become a pure consuming society. The fed can just "create" and inject money into everyone's accounts and we can import low wage "slaves" from all over the world to do all work. We then pay those with our "dollars", a portion of which they send to their homeland, those dollars are then grown through the miracle of fractional reserve lending on a global scale. As we become the most perfected and admired country on the planet, we then obviously become the only remaining choice for investment of their "dollars". Since interest rates will be at zero, reflecting no risk, this will all cost us nothing. We will have attained nirvana. Free lunch for all while the rest of the globe enjoys full employment either doing our work or producing goods with which to amuse us. It's either that or we just nuke them. Link to comment Share on other sites More sharing options...
Guest Posted June 30, 2003 Report Share Posted June 30, 2003 Sounds like a permanently high plateau... Regards, Vesselin Link to comment Share on other sites More sharing options...
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