Willink's Econ Thread

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Willink's Econ Thread

Postby Willink » Mon Jun 09, 2014 7:57 pm

Gonna aggregate some of the mindless fiscal irresponsibility of our government in the face of economic crisis here.

http://dollarcollapse.com/credit-bubble ... e-is-back/

It was just six years ago that soaring consumer spending, massive trade deficits and generally excessive debt caused the biggest crisis since the Great Depression, and here we are back at it. The details are slightly different but the net effect is the same: inflated asset prices, growing instability and rising risk of a systemic failure capable of pulling down pretty much the whole show.

All of which creates a fascinating economic landscape in which families are making no more money than they did last year but are borrowing to buy things they don’t need, while corporations sell bonds to pump up their stock prices and by implication their executives’ year-end bonuses. It is, in short, another debt-fueled orgy in which the most vulnerable individuals are being suckered by governments and corporations into mortgaging their futures in order to transfer wealth to the “smart money.” Recall the Z.1 Report finding that household holdings of financial assets have surged by $22 trillion in just four years.

This is sad in one sense because the people being hurt are, as always, not the architects of this latest bubble. But it’s also exasperating because the same thing happened JUST SIX YEARS AGO and should still be fresh in the memories of the adults doing the borrowing and spending. Unless all those food additives and pesticides are impairing the average person’s cognitive functioning (which is a subject for another day) the people using credit cards to buy Chinese-made junk really have no excuse.



In similar news, ECB continues to run out of tools to push aggregate demand and moves toward the abject stupidity of negative interest rates to spur spending:

http://bastiat.mises.org/2014/06/negati ... the-start/

Because if it hasn't worked the past six years, the answer is just to create more debt out of thin air
Last edited by Willink on Thu Jul 31, 2014 5:21 pm, edited 1 time in total.
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Re: All aboard the crazy train

Postby PoppaKoppa » Mon Jun 09, 2014 10:51 pm

The question is, who is the bigger fool? The ones doing the fooling or the ones getting fooled? I'd always tend to vote the latter with the exception that the ones doing the fooling (in this situation) could potentially have their efforts backfire. But when they are the ones with the deepest pockets and least to lose, maybe it isn't "fooling" they are doing after all...

It's not going to stop until people realize that the frequency of these issues have increased since the early 80s deregulation of financial institutions (which allowed for more speculative trading) and the Graham-Leach-Bliley Act of '99. There is a reason Glass-Steagall was enacted in '33.

Once we take a step back and maybe reverse some of the political moves of previous generations, we will continue to see bubbles blow-up and bubbles burst.
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Re: All aboard the crazy train

Postby Lord Ben » Tue Jun 10, 2014 4:18 am

They care more about getting elected than they do good economics.
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Re: All aboard the crazy train

Postby wallyuwl » Tue Jun 10, 2014 4:50 pm

Lord Ben wrote:They care more about getting elected than they do good economics.


Politicians don't know anything about economics is the problem.
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Re: All aboard the crazy train

Postby raptorman » Tue Jun 10, 2014 7:40 pm

wallyuwl wrote:
Lord Ben wrote:They care more about getting elected than they do good economics.


Politicians don't know anything about economics is the problem.

One of my sisters has her Doctorate in Economics. She says this is a good thing, because if they knew something about it we would really be screwed.
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Re: All aboard the crazy train

Postby PoppaKoppa » Tue Jun 10, 2014 7:41 pm

raptorman wrote:
wallyuwl wrote:
Lord Ben wrote:They care more about getting elected than they do good economics.


Politicians don't know anything about economics is the problem.

One of my sisters has her Doctorate in Economics. She says this is a good thing, because if they knew something about it we would really be screwed.


Knowing it and understanding it (and how its uses could have adverse consequences) are two totally different things.
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Re: All aboard the crazy train

Postby Mackie2001 » Wed Jun 11, 2014 12:27 am

PoppaKoppa wrote:The question is, who is the bigger fool? The ones doing the fooling or the ones getting fooled? I'd always tend to vote the latter with the exception that the ones doing the fooling (in this situation) could potentially have their efforts backfire. But when they are the ones with the deepest pockets and least to lose, maybe it isn't "fooling" they are doing after all...

It's not going to stop until people realize that the frequency of these issues have increased since the early 80s deregulation of financial institutions (which allowed for more speculative trading) and the Graham-Leach-Bliley Act of '99. There is a reason Glass-Steagall was enacted in '33.

Once we take a step back and maybe reverse some of the political moves of previous generations, we will continue to see bubbles blow-up and bubbles burst.


What congress hasn't figured out is that deregulation does not mean the lack of oversight. Clinton put pressure on the banks to give sub-prime loans. The banks gave in and used mortgage back securities to spread the risk around. These securities were insured, not for the principal but for the earnings. As the sub-prime loans started to fail, it took the overvalued housing market with it. In a way, it turned out to be a good thing for the young. They might find themselves actually being able to find a house that is truly affordable. The people are as much to blame for the housing crisis as anyone. There was also the double whammy of extremely high credit card debt.

There will always be bubbles. That's the nature of people. Once the think people are giving away free money, they'll be in it with all fours. December of 1996, Greenspan gave is "Irrational Exuberance" speech regarding the rate of increase of the stock markets. It sent some ripples through the markets that didn't last long and everyone was blinding buying stocks at outrageously high P/E values, bettin' on the come card, if you will. Three years latter, after the NASDAQ doubled in one year, the markets started crashing and burning, causing a recession.
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Re: All aboard the crazy train

Postby PoppaKoppa » Wed Jun 11, 2014 12:43 am

Mackie2001 wrote:
PoppaKoppa wrote:The question is, who is the bigger fool? The ones doing the fooling or the ones getting fooled? I'd always tend to vote the latter with the exception that the ones doing the fooling (in this situation) could potentially have their efforts backfire. But when they are the ones with the deepest pockets and least to lose, maybe it isn't "fooling" they are doing after all...

It's not going to stop until people realize that the frequency of these issues have increased since the early 80s deregulation of financial institutions (which allowed for more speculative trading) and the Graham-Leach-Bliley Act of '99. There is a reason Glass-Steagall was enacted in '33.

Once we take a step back and maybe reverse some of the political moves of previous generations, we will continue to see bubbles blow-up and bubbles burst.


What congress hasn't figured out is that deregulation does not mean the lack of oversight. Clinton put pressure on the banks to give sub-prime loans. The banks gave in and used mortgage back securities to spread the risk around. These securities were insured, not for the principal but for the earnings. As the sub-prime loans started to fail, it took the overvalued housing market with it. In a way, it turned out to be a good thing for the young. They might find themselves actually being able to find a house that is truly affordable. The people are as much to blame for the housing crisis as anyone. There was also the double whammy of extremely high credit card debt.

There will always be bubbles. That's the nature of people. Once the think people are giving away free money, they'll be in it with all fours. December of 1996, Greenspan gave is "Irrational Exuberance" speech regarding the rate of increase of the stock markets. It sent some ripples through the markets that didn't last long and everyone was blinding buying stocks at outrageously high P/E values, bettin' on the come card, if you will. Three years latter, after the NASDAQ doubled in one year, the markets started crashing and burning, causing a recession.


Preaching to choir! :AOK

I couldn't agree more on your points and you nailed down a lot of what went wrong in the most recent bubble. You also understand consumer sentiment; which many people (other consumers) don't. I agree that the people are the ones to blame as anyone, but a lot of the burden falls on their shoulders when the architect of the bubbles and subsequent bailouts aren't really affected in comparison, on an aggregate level.

As for the last bit, investors are always irrational. It is rare to find someone who understands how the game works. They don't try to beat the game but also aren't always in a reactionary position, either. The average investor is very late in the game, usually uninformed, and lack the understanding of economies of scale. I see it all the time in my personal practice and try to educate on the fact that if you chase return up, you will inevitably chase it down. Yet, I get calls constantly from people who now want to jump into the investing game but give no consideration to the recent history even though they and their dollars lived through it... it is mind-boggling.
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Re: All aboard the crazy train

Postby Mackie2001 » Wed Jun 11, 2014 6:34 pm

PoppaKoppa wrote:
Mackie2001 wrote:
PoppaKoppa wrote:The question is, who is the bigger fool? The ones doing the fooling or the ones getting fooled? I'd always tend to vote the latter with the exception that the ones doing the fooling (in this situation) could potentially have their efforts backfire. But when they are the ones with the deepest pockets and least to lose, maybe it isn't "fooling" they are doing after all...

It's not going to stop until people realize that the frequency of these issues have increased since the early 80s deregulation of financial institutions (which allowed for more speculative trading) and the Graham-Leach-Bliley Act of '99. There is a reason Glass-Steagall was enacted in '33.

Once we take a step back and maybe reverse some of the political moves of previous generations, we will continue to see bubbles blow-up and bubbles burst.


What congress hasn't figured out is that deregulation does not mean the lack of oversight. Clinton put pressure on the banks to give sub-prime loans. The banks gave in and used mortgage back securities to spread the risk around. These securities were insured, not for the principal but for the earnings. As the sub-prime loans started to fail, it took the overvalued housing market with it. In a way, it turned out to be a good thing for the young. They might find themselves actually being able to find a house that is truly affordable. The people are as much to blame for the housing crisis as anyone. There was also the double whammy of extremely high credit card debt.

There will always be bubbles. That's the nature of people. Once the think people are giving away free money, they'll be in it with all fours. December of 1996, Greenspan gave is "Irrational Exuberance" speech regarding the rate of increase of the stock markets. It sent some ripples through the markets that didn't last long and everyone was blinding buying stocks at outrageously high P/E values, bettin' on the come card, if you will. Three years latter, after the NASDAQ doubled in one year, the markets started crashing and burning, causing a recession.


Preaching to choir! :AOK

I couldn't agree more on your points and you nailed down a lot of what went wrong in the most recent bubble. You also understand consumer sentiment; which many people (other consumers) don't. I agree that the people are the ones to blame as anyone, but a lot of the burden falls on their shoulders when the architect of the bubbles and subsequent bailouts aren't really affected in comparison, on an aggregate level.

As for the last bit, investors are always irrational. It is rare to find someone who understands how the game works. They don't try to beat the game but also aren't always in a reactionary position, either. The average investor is very late in the game, usually uninformed, and lack the understanding of economies of scale. I see it all the time in my personal practice and try to educate on the fact that if you chase return up, you will inevitably chase it down. Yet, I get calls constantly from people who now want to jump into the investing game but give no consideration to the recent history even though they and their dollars lived through it... it is mind-boggling.


I had a friend that was doing well in tech stocks. He showed me his 401K and I agreed that he had done well, very well. It was 1999 and tech stocks were going through the roof. I told him that he ought to be investing in safe securities now and protecting what he had. He didn't. The markets started teetering later in the year and I warned him again. Again he didn't listen. When the markets took their first big hits, he lost $40,000 dollars in one day. He still didn't listen, telling me that they would come back. I don't know how much he lost altogether but I didn't want to know. The regular guy just doesn't pay attention, and when he does, he gets greedy.

As for me, mostly I'm the tortoise, not the hare. If I smell anything afoot, I become the hare though. Early in the third quarter of 2007, something happened that I was expecting. I didn't know when or how badly but another ripple went through the markets when it was announced that mortgages were failing at a higher rate. I put everything into a stable value fund and 15 months later the Markets started crashing. However, I don't think that the fall of the Dow to 6500 was all because of the failing mortgages. It was B.O's anti-everthing if it was business campaign rhetoric that continued well into 2009 that did it. Finally, he went on TV and told people to buy stocks and in a short time it recovered 3000 points. B.O., and to a lesser extent Clinton, were the most dangerous people in America. B.O. still is. If he ain't an Islamist, he might as well be. Everything he touches turns to crap while he brings America down, especially the poor. One trillion dollars equals 25 million, 40,000 dollar per year jobs. That would be $20 per hour. Maybe they could pay for their own healthcare and be a contributing member of their communities, rather than taking from the system.

YES WE CAN! :rotf:
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Re: All aboard the crazy train

Postby Willink » Fri Jun 13, 2014 3:43 pm

Stockman obliterating the job numbers report and calling out CNBC cheerleaders for being ignorant of policy and history:

http://davidstockmanscontracorner.com/11880/

So if you want to try a little “context” absurdity recall this. So far we have created a trifling 100k “new” jobs since the last cyclical peak. During the equivalent 77 months in the Reagan era the US economy actually generated 150 times more jobs!



Just finished up Stockmans book as well (Great Deformation), absolutely brilliant work on fiscal history and his experience in the Reagan Whitehouse, very punchy writing style and covers a multitude of topics from TARP to Greenspan fed to atrocious monetary policy under LBJ Nixon and Reagan, among other topics. Bit dense if your familiarity with financial markets is limited but highly recommended if you want a look at what was going on behind closed doors in finance committees and at the Eccles building. Contains some of the funniest insults for Hank Paulson I've ever read.
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Re: All aboard the crazy train

Postby Willink » Wed Jun 18, 2014 8:38 pm

Starting to look like the Japanese collapse is finally on its way.

http://mobile.bloomberg.com/news/2014-0 ... redit.html

Unsurprisingly the BOJ is failing to find buyers for its literally worthless bonds, which is symptomatic of the entire implosion of the Japanese economy under lunatic keynesian stimulus programs since the late 1980s.

Among other fun stats:
-Japan, traditionally considered an export powerhouse has since 2010 been running trade deficits due to its crushing debt load
-servicing said debt now consumes 25% of government revenue
-Japanese savings have been destroyed, falling from highs in the 20% range in the late 1970s, to 3% as of 2013, amazingly borrowing all your citizens savings to build lots of highways and bail out insolvent companies doesn't lift you out of recessions
-Japan's debt to gdp ratio now makes Greece look like spendthrifts
-Japan's working age population is drastically shrinking, from an high of near 88 million in the early 1990s to below 50 million by the mid 2020s, dumping the world's largest debt load on a increasingly smaller group of taxpayers

As an aging population draws down its savings, Japan will become more dependent on foreign creditors to finance its budget deficits and manage the world’s biggest debt burden. A swing to current-account deficits could augur a surge in bond yields as investors reassess the nation’s prospects, and clear the way for China to overtake it as the world’s biggest net creditor.

“Chances are high that China will surpass Japan as early as 2020 in the size of net overseas assets,” said Hidenori Suezawa, a financial market and fiscal analyst at SMBC Nikko Securities Inc. “The issue will be whether Japan can attract enough foreign capital to make up for the current-account deficits as countries like the U.S. do.”


The only way Japan can actually attract foreign capital is by raising interest rates on their pathetically underpegged bond market, which stands at 0.6 percent. Raising rates of course will cause the carry cost of their debt to explode, meaning at current tax rates interest payments alone will consume 100% of current government revenue, failing crippling tax hikes and massive slashes to government spending. This would also cause massive capital flight overseas, further exacerbating trade deficits. This is what a debt spiral looks like, and Is a sign of what is to come here in the states if we continue to kick the can down the road on fiscal rectitude and entitlement reform with endless QE and consumption-driving money printing.
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Re: All aboard the crazy train

Postby Willink » Wed Jun 18, 2014 10:46 pm

http://www.zerohedge.com/news/2014-06-1 ... ubble-here



Moments ago, Janet Yellen was asked if there is something out of place with the S&P hitting all time highs at a time when even she (not to mention numerous other Fed presidents) discuss froth in the bond markets. Her answer: no. Specifically, based on some "model" the Fed watches to get a "feeling" for valuations, she concluded the equity valuations are not out of historical norms.

In other words, "no bubble here."

And here is what JPM had to say about that.

Even assuming trailing earnings are valid, sustainable, and not goosed by the Fed itself (not to mention non-GAAP accounting gimmickry): the most recent median S&P 500 Price to Earnings ratio as of this moment is higher than 89% of all P/E prints in the history of the market. Said otherwise, equities have only been more expensive just about 10% in the history of the S&P.
:lol: :lol: nope not a chance printing trillions of dollars and distributing it through the banking system might inflate asset prices.
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Re: All aboard the crazy train

Postby Mackie2001 » Wed Jun 18, 2014 10:58 pm

Willink wrote:Starting to look like the Japanese collapse is finally on its way.

http://mobile.bloomberg.com/news/2014-0 ... redit.html

Unsurprisingly the BOJ is failing to find buyers for its literally worthless bonds, which is symptomatic of the entire implosion of the Japanese economy under lunatic keynesian stimulus programs since the late 1980s.

Among other fun stats:
-Japan, traditionally considered an export powerhouse has since 2010 been running trade deficits due to its crushing debt load
-servicing said debt now consumes 25% of government revenue
-Japanese savings have been destroyed, falling from highs in the 20% range in the late 1970s, to 3% as of 2013, amazingly borrowing all your citizens savings to build lots of highways and bail out insolvent companies doesn't lift you out of recessions
-Japan's debt to gdp ratio now makes Greece look like spendthrifts
-Japan's working age population is drastically shrinking, from an high of near 88 million in the early 1990s to below 50 million by the mid 2020s, dumping the world's largest debt load on a increasingly smaller group of taxpayers

As an aging population draws down its savings, Japan will become more dependent on foreign creditors to finance its budget deficits and manage the world’s biggest debt burden. A swing to current-account deficits could augur a surge in bond yields as investors reassess the nation’s prospects, and clear the way for China to overtake it as the world’s biggest net creditor.

“Chances are high that China will surpass Japan as early as 2020 in the size of net overseas assets,” said Hidenori Suezawa, a financial market and fiscal analyst at SMBC Nikko Securities Inc. “The issue will be whether Japan can attract enough foreign capital to make up for the current-account deficits as countries like the U.S. do.”


The only way Japan can actually attract foreign capital is by raising interest rates on their pathetically underpegged bond market, which stands at 0.6 percent. Raising rates of course will cause the carry cost of their debt to explode, meaning at current tax rates interest payments alone will consume 100% of current government revenue, failing crippling tax hikes and massive slashes to government spending. This would also cause massive capital flight overseas, further exacerbating trade deficits. This is what a debt spiral looks like, and Is a sign of what is to come here in the states if we continue to kick the can down the road on fiscal rectitude and entitlement reform with endless QE and consumption-driving money printing.


It might be time to get out of bonds anyway, unless of course you in them for the long haul and are not a trader and if they have interest rates are like the one sold in the 90's. No one wants to be stuck with bonds that are issued with a low interest rate when rates are going to jump. After bonds have bottomed out in terms of price, they should get some good yields. Then in the markets they'll regain their popularity and the rates will fall because they'll cost more per unit. That's when you'll wish you had them.
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Re: All aboard the crazy train

Postby Willink » Fri Jun 20, 2014 4:07 am

Lol, when the bonds "bottom out" will be when the monetary system collapses under the debt load it's currently saturated with.


More on the inflation front:

Image


Because the govt under Greenspan rigged cpi numbers for ss outlay purposes I don't trust those #s at all, and shadowstats has q1 inflation at 9.9% per 1980 methodology:

http://www.shadowstats.com/alternate_da ... ion-charts

But this is just "noise" according to Janet Yellen yesterday, and the economy will magically about face toward gdp estimates designed by the DSGE model out of fairy dust :kaboom:
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Re: All aboard the crazy train

Postby Willink » Fri Jun 20, 2014 6:23 am

wallyuwl wrote:
Lord Ben wrote:They care more about getting elected than they do good economics.


Politicians don't know anything about economics is the problem.


I think this is certainly part of the problem, though it largely stems from the type of training politicians get in the field. In contrast, were you to find yourself studying political economy in a college-level capacity from roughly 1818-1880, the primary text from which you would study and learn the subject would have been Jean Baptiste Say's Treatise on Political Economy:


http://socserv.mcmaster.ca/~econ/ugcm/3 ... eatise.pdf

Not a particularly difficult text in that Say explores economic phenomenon in a very concise laymen-digestible manner, but even on principle learning strictly from that text would prove far more effectual than what actually passes as economic training today. See the hilarity when MSNBC folk evoke the glory of Glass-Stegal without understanding any context involving its passing, nor the fact that Arthur Glass, a classically liberal democrat, was an unwavering supporter of the gold standard and sound, stable money, not endless inflationary paper fiat, a conviction he held so strongly he refused FDR's offer to become treasury secretary.

EDIT: While on the topic, Glass-Stegal was not intended to stop speculation. The only reason the Glass portion of liability restraints was written into it in the first place was because of the agitation for deposit insurance by anti-banking legislators (Stegal inculuded), which Glass opposed before begrudgingly compromising. To require taxpayers to guarantee repayment for moronic lending practices by banks creates a moral hazard and is symptomatic of the reality we have today where large banks more or less function as zombie wards of the state:

Unlike other industries which rely on satisfying consumers, banking, as Murray Rothbard always pointed out, relies heavily on the confidence because banks never have enough tangible deposits on hand to meet demand. Guaranteed deposit insurance helped in relieving banks of the responsibility of watching out for customers


Either way, no aspect of it, even pre-partial repeal would have really affected the 08 crash, seeing as it was initially manifested in pure investment institutions like Goldman Sachs. What really set off wild speculation debt leveraging in asset markets was Greenspan bailing out LTCM in 1998, from which point asset inflation went wild under the tacit bailout guarantee leading to the massive over-earnings valuations in the NASDAQ bubble which immediately followed. Some blame could also be directed at the fiscalization of the economy made possible by things like computerized trading. On top of that rapid money printing in the 1970s caused the regulation Q portion of it to fail spectacularly and chase deposits into money market funds, which were then subsequently used to continue buying treasury debt. Again, the problem circles back to atrocious monetary policy.
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