Like A Thief In The Night
LOL, well, usually I only drool at the dinner table and while spelling.
Your thinking and your facts are sound. I might nit-pick and question the paying down over the defaulting, but that is neither here nor there – it’s going down and it was what fueled the fake economy when wages were circa 1978 and prices weren’t.
I suppose time will tell us which take is going to play out. I’d say you can’t predict human nature here – but to me the Fed isn’t human, and moronic nature I can predict based on their past track record of scre#ing up anything and everything they touch.
Interesting (read: sh#tty) times we live in.
Take care! ALWAYS a pleasure to read your posts, I gain a LOT of knowledge from them!!!!!!
\I see 600 blion in charge offs and 20 in paydowns
Chris, the issue of wealth concentration is one of the main problems, but I have a different take on the effect of that concentration. People who have a lot of money don’t really consume much more volume per capita when it comes to the daily expenses. They may consume more expensive goods such as lobster and caviar instead of chicken gizzards and Friskies Seafood Buffet. Do they buy 1000 times as much toilet paper? Can building one super mansion offset building 100 tract homes? Does a Rolls Royce, a Ferrari and a custom Hummer offset 1,000 Toyota Camrys? The issue is one of volume of the mundane. Everything in the “not rich” category is predicated on volume. It doesn’t take much volume decline to throw a giant monkey wrench in a producer – mostly because the capacity was built to handle boom volumes and its very difficult to slow down selling less at higher prices. For many things you find it more efficient to cut margins, try to maintain volume at some optimized level of capacity utilization.
The bottom line is there is no real way the rich will offset the consumption declines of the not so rich.
I don’t know that there are really any “rich” nation states if one is totally honest with the accounting. China would seem the likely candidate, but it really appears to me that they have squandered their wealth by loaning more than their official reserves in unnecessary or unproductive enterprises – loans that for the most part will never be repaid. If you’ll recall China went through one bout of trying to clean up their banks’ bad loans not all that many years ago. Regardless of the gum flapping about China’s rising internal consumption, the simple fact remains that they are virtually totally dependent on export. Most of their rise in internal consumption is due to exports creating the “wealth”. China remains an almost duplicate of the position of the US prior to the Great Depression – a fat lot of good that did us.
The question of what is money and what is not is a clouded issue. My simple test is, can you walk into a grocery store and buy a box of Cheerios with it? Obviously, cash, checks, debit cards and credit cards are recognized mediums of exchange. You might even find a checkout clerk that would willing accept a gold Eagle at its stamped face value. A treasury note? I doubt it. You really have to sell a treasury and convert it to cash. That cash is already in the economy with the exception of true quantitative easing where the fed conjures up new “money” to purchase it. So far that has been limited to about $400 billion. The MBS and agency notes they “bought” (or exchanged for existing treasury notes) will return to the economy either in maturity or by sale – effectively a drain when it occurs and if you were paying attention most of what they bought had relatively close in maturity dates. This applies to all sovereign debt – you cannot view this as a US only problem.
China has been a net seller of treasuries, but it appears as though they sold most of it before the value of the treasuries started rising – naturally forex complicates that issue too. To suggest they can “dump” their holdings is folly. They would no sooner start than the price would collapse and they would be castrating themselves – effectively destroying their own balance sheet – and that applies to any large holder of treasuries or dollars. Its really a version of the old saying that if you owe the bank a little and can’t pay, you have a problem. If you owe a lot and can’t pay, they have the problem.
IMO prices are already way too high – its one of the reasons that the economy is bogging badly and velocity is really negative. If it were not for transfer payments funded by borrowing from the ROW and ourselves, the problem would be much more obvious and we would be well on our way to the required deck clearing and finding out the true price levels that the economy can support.
It is somewhat incongruous to say that incomes can decline and prices rise – perhaps up to a point that can occur, but it can’t go very far. As people are often quick to point out, one item increasing in price can have a knock on effect in another item. Oil is a prime example, but even where there may be some substitution available, the increase in demand on the substitute item will likely cause a price increase in the substitute. What few consider is the opposite scenario where a price decrease can lower the price of something else. So some will say they can’t sell for less but they never consider that other cost declines make for a lower production cost. In reality most consumer goods have a very low percentage of their cost in the raw materials – so often that cost increase may be absorbed or offset with other cost reductions such as marketing or other things that drain the bottom line in order to maintain the required volume – its really a cash flow issue. The producers have to have “X” cash flow to meet their fixed costs and some of the variables. If you’ve ever run a small business you have to recognize that its not so much about profit as it is about cash flow. Profit can be “conjured” in many accounting tricks, but there is no substitute for cash flow. Telling your bank that you “made” a million dollars in the stock market but you can’t make the mortgage payment isn’t going to fly.
I view the possibility of the dollar losing value as compared to other fiat a very real possibility – its been up down and sideways for its entire checkered career since Nixon. What I view as a much lower probability is that long green in hand used to purchase goods within the US will lose much value. And again this really applies to any currency or nation no matter where you live. The only thing that would immediately alter my view of any currency would be the wholesale physical printing of actual cash. See Zimbabwe and their liberal use of zeroes. When you boil down “money”, you find it is all based on a tiny portion of it being actual cash – in the US < $500 billion and a similar amount circulating off shore. As they say out here in the wilds, “cash talks and bovine feces walks.”
Davos, I knew that most of the overall debt decline was due to charge offs. but what your chart depicts for me is that pay down or maturity of loans is becoming a significant factor. It is also depicting that folks are not taking on additional or new debt at a rate sufficient to maintain any bubble illusion. You can cover up bad loans by increasing the total amount loaned, which in reality was happening all along for the early and mid parts of the decade, but once the debt bubble stops inflating and begins to deflate, all of the chickens come home to roost.
Again what few people consider is the cash flow effect – its another hit to all the lenders who may look profitable ( See all mega banks) but run into cash flow problems. If true accounting were available, you would find that there are damn few solvent lenders.
Like a thief in the night? Not exactly. But for the majority of people who have a life, unlike some of us who don’t . . .other than to watch markets and currancy trades, it might seem like this all a quiet thief breaking onto a scene.
Sure, the Nixon un-backing the dollar with gold was the first indication for some. But really, the Hubbard’s peak was on the scene influencing our future the moment he said it publicly in the 50s. From that, when the first oil wells had any sign of “peaking” -plans had to be laid to determine what the effect would be. my guess is the un-backed dollar was the first move to re-position money with what every thing and every one wanted – energy. Any energy – oil, electric, nuclear or other. Historians must have recognised its value and theorized its future for use in growth as well as the eventual un-raveling. Plain and simple – oil’s position was obvious. It became more obvious in the Carter years when the rest of the public found out it was chained to it on every level of life.
These devaluing of currency wars are (IMHO) an ackowledgement that though things are one thing on the surface- there are vast under currents sucking what power the centralized banks have, back down to reality – the reality that we are an energy based society and that without it, there is no energy to hold a “new world order” together. They can’t do it without centralized energy and they know that is coming to an end.
What happens when centralized energy comes to an end? –> Total de-centralization of everything. Governments run on the ability to mobilize, communicate, manage international trade to name a few. Decentralization of doling out goods no longer made by cheap oil or keep populations who have no jobs (because there is no energy to make anything) paying taxes to do what?
Sure, there appeared to be a plan to substitute energy with debt and build an empire dedicated to debt but it turned out badly (The Great Distruction is upon us) but it was a desperate effort to maintain some kind of control over a future that had none envisioned. As a matter of fact, I’ll bet my hat, they thought the transition to debt building was going so well they got greedy (everyone wants to own their own home don’t they?).
That back fired on them when they failed to recognize the glitches in population growth – or over population itself as being a problem. The dumb bean counters could only do simple math – not integrate the whole picture. No, its not Davos drooling over his spelling – it was short sighted planning that got them here and the currancy wars are just another sign they haven’t got a clue.
They think the old tricks will work to devalue currancy so goods become more expensive from over the border and goods will flow out (old trick) but not this time since they have too many eggs dropping outta their basket and the basket has a hole in the size of the US economy. And this time, the basket is held by some one else – “Chindia”.
Chinia isn’t like a group of Arab nations with a resource they must sell. Chinia will soon become the biggest consumer and all the debit it has accumulated will be traded at its set price as other countries via to get back their debit.
This time – its not like any other time in history (that I know of). Its time for them to put their tails between their legs and whimper off into a corner to hide. We’re going to take a hit that will put us in austerity on every level and we have to re-build from there. We have years of poor management by politicians to pay for.
A thief in the night? No – this has been going on for over 50+ years in plain sight.