Talking Ourselves Into The Next Great Depression

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JAG's picture
JAG
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Talking Ourselves Into The Next Great Depression

An alternative view from the Pragamatic Capitalist Blog. I'm sure it will be very unpopular topic here, but I think his idea of "talking ourselves into the next great depression" has to be taken seriously. But if you are easily offended by strong opinions, please skip the cited blog post below.

A Fearsome Herd T-Rex Approaches

I’ve repeatedly shown how there is no solvency risk in a country who is the monopoly issuer of the currency in a non-convertible exchange rate system.   I’ve also shown how large budget deficits are unsustainable (anyone who thinks I am optimistic about the economic outlook is not a regular reader).  But most importantly, the only real risk of large deficits is inflation.   But I’ve also shown that there is no risk of inflation in the current environment.  Consumers are still deleveraging, there is ZERO wage growth, very low borrowing demand, low capacity utilization, high output gap, climbing unemployment, low aggregate demand, low cost push inflation – not exactly a recipe for inflation.  In fact, not even close (Japan should be coming to mind once again).  So, is the high deficit a concern?  You bet.  Is it going to be the demise of our country?  Only if we misunderstand it (which is the path we are currently on).

This may come across as the same old hyperinflation/currency crisis - deflationary depression debate, and indeed it is, but I found the reasoning behind this blogger's argument a little deeper than most who participate in this debate. 

Sorry in advanced if this offends anyone.

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Re: Talking Ourselves Into The Next Great Depression

JAG this is what I'm saying about having a healthy debate. But when I mention this, people here think I'm trying to bash doom and gloom.

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Re: Talking Ourselves Into The Next Great Depression

Jag, I read it, and came away very confused. Basically, because you say that you find the reasoning a little deeper. While I admit I have not spent any time going through and researching everything that he/she has written (a name is never given for the writer in the link), I did find this within the article:

Quote:

Those damned “borrowing” rates.  Unfortunately for Mr. Roubini, the United States government doesn’t fund its spending via the bond market.  NOT ONE PENNY.  China is not our banker.  Neither is Japan.  And neither is the private sector.  The government bond market is a monetary tool.  A remnant of the failed gold standard.  Nothing more.  It funds nothing.  I’ve shown this ad infinitum in recent months (regularly readers probably hate me by now – I apologize profusely for putting you through this), but I can’t stress how important this fact is.

Yet he/she never goes on to explain the reasoning by which most consider via common knowledge to be true, is actually false.

In short, the case is not made, not even close, at least not in this post. Maybe if I dug deeper into this I would find the reasoning, but at first blush I don't see the time is warranted.

Perhaps you have done the legwork, and can tell me what does fund deficit spending and stimulus packages and bailouts if it is not done via bonds, and not done via "printing" as this author proclaims?

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Re: Talking Ourselves Into The Next Great Depression

Ready,

From what I can remember the blogger's name is Cullen Roche. I read his blog sparingly, and its not organized in a way that makes it easy to find previous posts. In regard to his statements that you cited, here are a few links that elaborate a bit more on his argument:

The Concept of Vertical and Horizontal Money Creation

Will The United States Default On Its Debt?

But your probably correct in assuming that its not worth your time.

 

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Re: Talking Ourselves Into The Next Great Depression

I'm not sure why this guy thinks bond vigilantes only attack when they are worried about inflation. It seems they could just as easily attack if they question the fundamental solvency of a nation, and its ability to pay its debts when facing massive deflation and negative economic growth. I do agree with him that inflation is definitely not "right around the corner", but things can change quickly when peak cheap oil awareness goes mainstream.

I also do not understand what he means by the bond market being a monetary tool that is not used to fund deficit spending.

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Re: Talking Ourselves Into The Next Great Depression
Quote:

Perhaps most important in all of this is that it is not “theory” at all. This is actually how the banking system works in a non-convertible floating exchange rate system.  The United States government is never revenue constrained.  We do not “fund” our spending via taxes and debt issuance.  China is not our banker.  The fear mongering over government deficits and the issuance of government “debt” is built on a mountain of falsehoods by people who don’t understand how the monetary system works

Wow is about all I can say. Well, I suppose I could say a bit more...

Is it possible that this gentleman is correct, and everyone else, bears, bulls, governments, bloggers, MSM, really everyone else is wrong?

Where does the money collected on bonds go? How about taxes?

I think I need a crash course from this guy, because he is either WAY over my head (possible) or completely full of, er, stuff (also possible). Either way, I'm content to hope for the best, and not wish GDII into existance. Not like I have any say in the matter anyhow.

Have a good weekend.

R

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Re: Talking Ourselves Into The Next Great Depression

PS - I'm REALLLLLLY offended. You might as well have been talkin' smack 'bout Moms.

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Re: Talking Ourselves Into The Next Great Depression
Quote:

Consumers are still deleveraging, there is ZERO wage growth, very low borrowing demand, low capacity utilization, high output gap, climbing unemployment, low aggregate demand,

precisely why we can't avoid a problem with the mega debt bubble and asset valuations given that they're based on no underlying economic substance

Quote:

not exactly a recipe for inflation

exactly.  a debt-based monetary system depends on inflation.  without it, it fails.  they're going to try managing it down in orderly fashion to avoid what looks like a depression, but I'm not planning on that succeeding.

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Re: Talking Ourselves Into The Next Great Depression
Ready wrote:

PS - I'm REALLLLLLY offended. You might as well have been talkin' smack 'bout Moms.

Yo mama is so inflated, when her beeper goes off, people thought she was backing up

Have a good weekend Rog, and get something done for a change.

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Re: Talking Ourselves Into The Next Great Depression

Author says this in a different article...

Quote:

The deficit and the government debts are not sustainable as they are potentially a risk of horrendous inflation and mal-investment, but the default question & remarks need to end.  The implication here is not that the deficit is not an issue (regular readers know I think government spending will not get us out of this mess), but the potential default of the United States is simply out of the question barring dramatic changes in our monetary system (for instance, a reversion to the gold standard).

It’s simply frightening that the people running this country appear to know very little about the actual workings of the monetary system in which we live.  To Bernanke’s credit, he seems to understand it.  And “button pressing” appears to be one of his favorite hobbies.  Of course, to the detriment of us all.

So I don't understand what he's really arguing.  Is he just a nerdy stickler who wants to argue whether technical US default is possible?  That seems irrelevant when he largely agrees with the people he's attacking that "horrendous inflation" is possible, that it's "frightening" who is running this country, and that Bernanke's button pressing is "to the detriment of us all."

 

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Re: Talking Ourselves Into The Next Great Depression
JAG wrote:

Ready,

From what I can remember the blogger's name is Cullen Roche. I read his blog sparingly, and its not organized in a way that makes it easy to find previous posts. In regard to his statements that you cited, here are a few links that elaborate a bit more on his argument:

The Concept of Vertical and Horizontal Money Creation

Will The United States Default On Its Debt?

But your probably correct in assuming that its not worth your time.

Both are very interesting reading but are light on hard data and can hardly be considered definative.  Every thread on money creation leaves me wondering if all monetary systems are fatally flawed from their time of inception.  I will have to read some more from this author when I have more time next week.

ps.  Does anybody else think we need a "Definatve Monetary System Discussion" thread?  I wonder if it would give "The Definitive Firearms Thread" a run for its money?

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Re: Talking Ourselves Into The Next Great Depression
Ready wrote:

Jag, I read it, and came away very confused. Basically, because you say that you find the reasoning a little deeper. While I admit I have not spent any time going through and researching everything that he/she has written (a name is never given for the writer in the link), I did find this within the article:

Quote:

Those damned “borrowing” rates.  Unfortunately for Mr. Roubini, the United States government doesn’t fund its spending via the bond market.  NOT ONE PENNY.  China is not our banker.  Neither is Japan.  And neither is the private sector.  The government bond market is a monetary tool.  A remnant of the failed gold standard.  Nothing more.  It funds nothing.  I’ve shown this ad infinitum in recent months (regularly readers probably hate me by now – I apologize profusely for putting you through this), but I can’t stress how important this fact is.

Yet he/she never goes on to explain the reasoning by which most consider via common knowledge to be true, is actually false.

In short, the case is not made, not even close, at least not in this post. Maybe if I dug deeper into this I would find the reasoning, but at first blush I don't see the time is warranted.

Perhaps you have done the legwork, and can tell me what does fund deficit spending and stimulus packages and bailouts if it is not done via bonds, and not done via "printing" as this author proclaims?

+1 Ready,

I'll add that unless the argument can be made showing how an expanding economy works with finite resources and a likely dwindling energy supply it is not worth the read.

Coop

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Re: Talking Ourselves Into The Next Great Depression
JAG wrote:
Ready wrote:

PS - I'm REALLLLLLY offended. You might as well have been talkin' smack 'bout Moms.

Yo mama is so inflated, when her beeper goes off, people thought she was backing up

Have a good weekend Rog, and get something done for a change.

 

LMAO

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Re: Talking Ourselves Into The Next Great Depression

After reading some more of this blog, I have to admit that I agree with the criticisms voiced here.

The further I dig into the PG blog, the less credible support I see for his arguments. Its all bun and no beef.

My apologies for wasting your time.

I still think the concept of talking ourselves into a depression is a valid concern, and perhaps I can find a better example of that than TPC's meatless burger.

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Re: Talking Ourselves Into The Next Great Depression
JAG wrote:

After reading some more of this blog, I have to admit that I agree with the criticisms voiced here.

The further I dig into the PG blog, the less credible support I see for his arguments. Its all bun and no beef.

My apologies for wasting your time.

I still think the concept of talking ourselves into a depression is a valid concern, and perhaps I can find a better example of that than TPC's meatless burger.

FWIW, and without getting too "woo-woo", this makes me think of the principle of Hawai`ian Huna that -- loosely translated -- states "Energy flows where attention goes."  Certainly, the issues around the economy are far beyond "too many people having bad vibes about things, man" -- but to the extent this "recovery" is all smoke and mirrors and depends on people believing it's "real" -- well, I'm thankful for now that enough people are having a collective hallucination that "it's all gonna work out somehow"....this is buying me & mine (and all of us here) valuable time to prepare.

Viva -- Sager

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Re: Talking Ourselves Into The Next Great Depression

Sager - YES! Exactly our thoughts....I'm waiting for a shipment of junk silver and we need more ammo, so please keep up the "It's all good" for as looong as possible.

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Re: Talking Ourselves Into The Next Great Depression
SagerXX wrote:

... this makes me think of the principle of Hawai`ian Huna that -- loosely translated -- states "Energy flows where attention goes."  

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Re: Talking Ourselves Into The Next Great Depression

In 1973 I took my shiny new BS in Accounting and went to work for a CPA firm on LaSalle St. in Chicago.  The first floor of the office building held a Kroch’s and Brentano’s bookstore.   In there, I could find all kinds of books with titles such as “How to profit from the coming Economic Collapse”.  Fortunately, I didn’t have the spare coin to blow on such frivolities. 

Having somewhat pessimistic tendencies, I am drawn to collapse scenarios.  Over the years,  my brother-in-law and I have spent many an evening discussing bug out plans over a few cold ones.  We’ve had the remote location and the necessary provisions in place since 1988.  Fortunately, the place is first and foremost our hunting property, and only secondarily a standby refuge.  We rotate our emergency stock so at nothing we’ve purchased is just sitting idle, waiting for the “big one”. 

I’m really glad Kroch’s and Brentano’s was not giving those “Collapse” books away for free back in 1973.  With my personality, there’s a good chance I would have wasted the last 40 years of my life trying to hole up myself and my family against one disastrous eventuality or another.

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Re: Talking Ourselves Into The Next Great Depression
Romans12.2 wrote:

Sager - YES! Exactly our thoughts....I'm waiting for a shipment of junk silver and we need more ammo, so please keep up the "It's all good" for as looong as possible.

Funny that -- I'm off to Albany tomorrow to get my .90 Ag allotment taken care of..... Laughing

Seriously, I need another 18 months prep (and a "healthy" economy) if I can get it.

"Everything's fine....*Everything's* fine...Everything's *fine*...EVERYTHING'S FINE!!!"

Sweating a bit, but still -- VIVA -- Sager

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Re: Talking Ourselves Into The Next Great Depression
JAG wrote:
SagerXX wrote:

... this makes me think of the principle of Hawai`ian Huna that -- loosely translated -- states "Energy flows where attention goes."  

Or this:  

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Re: Talking Ourselves Into The Next Great Depression
osb272646 wrote:

In 1973 I took my shiny new BS in Accounting and went to work for a CPA firm on LaSalle St. in Chicago.  The first floor of the office building held a Kroch’s and Brentano’s bookstore.   In there, I could find all kinds of books with titles such as “How to profit from the coming Economic Collapse”.  Fortunately, I didn’t have the spare coin to blow on such frivolities. 

Having somewhat pessimistic tendencies, I am drawn to collapse scenarios.  Over the years,  my brother-in-law and I have spent many an evening discussing bug out plans over a few cold ones.  We’ve had the remote location and the necessary provisions in place since 1988.  Fortunately, the place is first and foremost our hunting property, and only secondarily a standby refuge.  We rotate our emergency stock so at nothing we’ve purchased is just sitting idle, waiting for the “big one”. 

I’m really glad Kroch’s and Brentano’s was not giving those “Collapse” books away for free back in 1973.  With my personality, there’s a good chance I would have wasted the last 40 years of my life trying to hole up myself and my family against one disastrous eventuality or another.

It's all a matter of timing. My mother just told me that when she was in high school some 50 years ago, she was given the top grade and much praise for a paper she wrote about...."overpopulation." Apparently she had some controversial solutions to the problem. I'd like to have read it, but her paper long disappeared decades ago. I found it surprising she was thinking of this problem that long ago. Now several billion people later, we still have no solution to it.

I would say that sometime within the next 30 to 40 years that peak human population will have completely slammed against the wall of resource depletion and will have no where to go but backwards. It won't be pretty, but even will all our intellect, humans are no smarter than any other living creature when it comes to exploiting their environment to the fullest, except that we have no check in the system for our rapid growth, no predator to cull the numbers. Modern industrial civilization, forever expanding and built on fossil fuel energy, is just another bubble.

 

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Re: Talking Ourselves Into The Next Great Depression
JAG wrote:

After reading some more of this blog, I have to admit that I agree with the criticisms voiced here.

The further I dig into the PG blog, the less credible support I see for his arguments. Its all bun and no beef.

My apologies for wasting your time.

I still think the concept of talking ourselves into a depression is a valid concern, and perhaps I can find a better example of that than TPC's meatless burger.

Waste of time??? Au contraire. Challenging beliefs is a required must!!! If anything, Thank you. Jeff, you know as well as anyone that truth withstands inquiry, withstands assault, and withstands doubt and challenge. 

Challenging widely held beliefs is a must IMO, lest we become like your avatar. 

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Re: Talking Ourselves Into The Next Great Depression

One good thing about reading JAGS link is that I learned what brobdingnagian means. 

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Re: Talking Ourselves Into The Next Great Depression

I think the productive classes are talking ourselves into not running ever faster on the tread mill and we are starting to opt out.  My evidence is that in spite of reportably stable consumer spending, state tax revenues are plummeting.  Some economists characterize this as the spending data are being fudged.  I would like to opine that citizens are opting out of the tax system which is far more dangerous to the PTB..

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