Bitcoin Forum

todays GDP with its past revisions were appallingly bad.  it's amazing our gov't and banking institutions get away with these manipulations.

neither of the QE's worked for the real economy except to line the pockets of the financial elite via bailouts who widened their wealth disparity from the common American by a significant amount. 

when will it end?

Dude, there's a LOT of room at the bottom... as long as the change is gradual, you'd be shocked at what the people will be willing to put up with, and for how long.

i've already been shocked.  but things are changing faster than you think.

cypherdoc I know what you mean, but the USA and half of the world is already in a depression. We never got out. GDP is a horrible measure for growth. GDP only measures economic activity, not growth. It does not say anything about the productivity or sustainability of said economic activity. Also, the GDP we all use is a government statistic, so it should be taken with caution.

i know hugolp.  you're perfectly right.  but the whole world does look at GDP despite its inherent drawbacks.  what was printed today is psychologically devastating and will have an effect.  its the rate of change that matters...

not to mention all the revisions to the downside.

Im sure it will have some effect, but I am also convinced that the whole financial world knows that the GDP is a sham so Im not convinced it will have a devastated effect. They already know.

I see all this more as a way to justify QE3 (or however they call it this time). They need to start soon, so they can create a mini-bubble for the elections of 2012 so Obama can have some numbers to point to.

its a crazy world.  is it priced in, is it not?  do they know, do they not?

all i know is the stock mkt has ramped the last 2.5 yrs on every whiff of extra liquidity injected by the Bernank desperately trying to imply that we were on our way to recovery.  i was never convinced as like you said, none of the problems were ever solved, only exacerbated.  now we have an extremely unstable, unbalanced situation.  i don't see how they continue their iron grip control over markets.  its unsustainable.

debt/GDP is now 100%.

read Reinhart and Rogoff as to what this means.

There's no doubt in my mind that quantitative easing resulted in nothing more than an increase in speculation (equities up) and also fueled a rise in commodities.  For the average Joe, this equated to very little benefit and more likely increased impoverishment via higher gas prices, heating, etc.

We could easily fall back into a recession (as it is defined in economics we are not in a recession or depression right now).  Unemployment is 9%+ not counting underemployment and those who have just given up on seeking work.  The debt crisis, which has been discussed ad nauseum here.  The economy is very fragile.

As we saw in 2008, the financial markets can most definitely bully Congress into action.  I'm of the opinion that we take our medicine now before we have to pay the piper even more down the road.  The US is NOT insolvent.  All this debt talk is political posturing.  A debt default would be a self-inflicted wound unlike several European countries, which are truly insolvent and in crisis mode.

Tl;dr - America is in a bad state but it's not time to store up on food and guns just yet.  The dummies in power just need to start owning up to their responsibilities rather than pointing fingers.  

We've been there before.  The last time, if I recall correctly, was WWII.  Now there is one major difference between then and now.  In WWII just about all of that debt was owed to Americans via war bonds.  As we all know, countries like China and Japan own about half of our debt today. 

Debt/GDP of 150% is really the end game.  No country in history (except Britain a long time ago I THINK) has ever recovered from that much debt.

+1

but i have stored up on food and guns just in case.  i'm also short.

It'll end when you come up with a program to stop it and have the political will to do so.  The Depression that we're in can be stopped practically overnight, but you must know what is causing the problem and what to do about it.  I started a "Economic Recovery Program" thread if you care to join the conversation.

Just keep in mind that the elite of this country want to turn the USA into a mirror image of China (just the bad parts, none of the good).

We've got a LOOOOOONG way to go down.  The outer cities will soon look like the 3rd world slums if we continue on the path that we are on - problem is, there is no political opposition to this outcome in our political establishment.

i'm a little more optimistic than that.  i think this next downturn/market crash is gonna take out some large actors which needed pruning from the very start.  Leh, Mer, BS, CFC, DSL, IMB, WM, WB wasn't nearly enough. 

BAC is next and i'm hoping for more like MS.  the others will probably make it unfortunately.

BTC is a revolution but it will take time to play out.

don't hold your breath.

Hurrah! Someone knows what they are talking about.

how do the unemployed adapt?  larger unemployment checks?  oh wait...

Yes good point. With increased automation you need less and less people to do the work. This causes the concentration of power and capital to move towards an ever smaller group of people. Extrapolating that, at a certain moment, you're either part of the super-rich or you're not needed anymore and have nowhere to go.

And all those people that have nowhere to go will have to fend for themselves, maybe start their own sub-economy...

Of course, simple extrapolation is usually wrong.
How are you so sure about that?

I also really, really hope that the spoils of technology and automation will eventually mean that everyone can work less, with the machines taking care of the rest. That it will somehow be fairly distributed. But I'm certainly not sure of that. It could also get really messy.

 Our stimulus program wasn't anywhere near as aggresive as the Chinese one. The Chinese are still doing well at the cost of more rapid inflation. Weakness of our democracy in responding to crises. Japan in the 90s all over again. Sad.

I believe the QE(s) had a profound effect. Bad money (M2,3,MZM) contracted massively. The stock and housing markets should have collapsed worse than 1929. But the Fed "learned from that mistake" and instead printed money 360%. So instead of collapse, deflation, and ten year recovery, we'll have a long painful collapse, inflation, and no recovery.

now that sounds more realistic and not necessarily better for us all.

QE was just an extension of Keynesian failed economic policies that got us into this mess.  it was meant to bailout the speculating elite at the taxpayer expense.  now its just gonna be harder during the next crash.

I have not read the Reinhart and Rogoff book. I have been told that apart from presenting the data in an excellent way they do not really present any new or original economic idea, and are very tame as to why the crisis happens. Can you make a short explanation of why the crisis happened according to their thesis? Im specially interesting in knowing why they think the financial system behaved like they did.

PS: Ludites, that is the ideas that technology is going to "eat us" or/and cocentrate power have been always wrong. The record is out there for anyone to check. Bitcoin is the best example on how technology increases people's choices.

hugolp:  i must admit i did not read the entire book; its a tome.  i did skim it and read parts i thought were relevant. i've listened to several interview podcasts of both Rogoff (Harvard) and Reinhart(U of Maryland) as well as read several write ups and summaries.

in short, their emphasis is on the debt accumulation of sovereign nations as being an inhibitory factor to growth.  they analyzed  statistically several nations going back hundreds of years.  the book is filled with pretty graphs and loads of numbers.  in essence they "averaged" debt/GDP ratios of the nations that got themselves into trouble and came up with 90% as the tipping point for when a nation begins to pay too much in interest as a % of their output.  these nations then entire a significant decline.

i think the work is unique and significant.  in being primarily an empirical study going back 800 years and looking at 60 countries they in essence went into the forest and examined the trees unlike most economists who never look at the trees but stand back and try to wrap a theoretical model around the forest.   of course the skeptics of their work are the same old Keynesian clowns that we know so well who only know how to stimulate or QE.  these same clowns take pride in not knowing the details or inner workings of how an economy work but instead have "physics envy".  that is they want to believe economics can be precisely described in terms of mathematics and predictable models.  anyone who invests and studies markets like i do know this is just ridiculous.  markets are inherently unpredictable and unstable given our dependence on the immoral manipulative Fed.

Carmen Reinhart was asked to testify before Congress as to their results and findings back in 2009 i believe.  their work has been discussed worldwide and is generally regarded as credible work.  their emphasis on sovereign debt as being the root of the problems is right on as far as i'm concerned.  they recommend decreasing spending and more fiscally responsible gov't.  they have been as pessimistic on where the nation is heading as we are.  when they wrote the book i remember the debt/GDP being only around 60% and thinking to myself that it would take many, many years to get to 90%.  now we're at 100% or so.  so sad.

When you say debt to GDP you mean government debt or all the debt (private + government)?

Im a bit surprised that they saw that 90% is the tipping point because I had seen empirical studies previously where they found that there was not a clear tipping point and the amount of debt (total debt to GDP) was not related to the crisis directly. Ill see if I can get a copy.

gross public debt

Good topic and I'm also discussing same thing in another column: https://bitcointalk.org/index.php?topic=33267.0 (https://bitcointalk.org/index.php?topic=33267.0)

I think the QEs have done quite good, but not enough, the big problem is that printed money should lend to those companies who are willing to create new jobs, instead of lending to those big companies who just hoard cash and cutting employee (they do this because their market analysis showing the market is going down), but the current credit system prefer lend to these cash hoarders

We already had the technology that can serve almost everyone, but still lots of people suffering, it is definitely a system problem, not technology

last month i sat down with an investment manager for BofA who was interested in what i thought about the market. 

he told me flat out that the banks refuse to lend the bailout money to consumers b/c they consider them a bad credit risk and also b/c they get free interest from the Fed on their excess reserves OR they can invest those same monies into commodities or stocks.  Voila!  Stock market ramp from hell based on speculation of higher prices, not real economic output.

Good point, as long as people are aware and worried about an unfair distribution, there is hope a system can be invented to prevent that from happening

Actually I think that is one of the good solution. And of course those paychecks comes from tax (or debt)

Raising tax might stress business, so it should not be taxed on income or revenue, but rather on cash: The more cash holded, the more tax, this also encourage companies not hoarding cash and activly spend and invest

how do higher unemployment checks encourage going back to work?  just the opposite.

saving is not necessarily bad either by individuals or companies.

They do not, and that is the purpose, less and less people need to work in future. Work is no longer a means to make a living, the society already can provide each person good living condition with the help of robots and machines.

Saving action is bad for today's economy model, since it will cancel out many of the monetary policy efferts generated by government and FED. This can be explained by a very simple example

wow, you certainly have a different viewpoint from most ppl on this forum.

the problem here in the US is we have an unemployment level of 9.2%; not enough jobs for ppl who want to work.  the debt levels have become so high it is squelching growth not just here but worldwide.

technology is having the paradoxical effect of contributing to this by displacing human workers.  you think of this as good but what are these ppl to do?  there's not enough money to continue the handouts we've promised to everyone.  this is precisely why the Congress had difficulty raising the debt ceiling.  everyone realizes we can't just keep taking on more debt to fund everyones easy lifestyle here in the US.  this is because we have saved too little and borrowed from the future to fund our current desires.

Computers and robots are the looms and cotton spinning mills of the day. Programmers are code weavers and multi-core/thread spinners. Nothing's changed since 1769.

This I agree.


Very true. Having to work less hours to produce the same goods and access the same standard of living is horrible. Horrible! We should all be working more hours.


This is false. Example: Bitcoin. In fact, usually new technologies are disruptive for big stablished companies and helps entrepreneurs.


Luditism should be declared a psicological illness so we can stop hearing the same arguments over and over again. Do you realize that people in the XVIII century were saying exactly what you are saying? Some were very afraid that the new automatition was going to leave the people without a job. In the fucking XVIII century! Hasnt happened yet. What has happened is that thanks to the machines we work less hours, in better working conditions (the machies do the harsh work) and we enjoy a better standard of living. So please lets stop the crazyness, we need more automatition so we have to work less hours and have an even better standard of living.

If it were not for the bloody wheel, boat or beast, we'd have unlimited employment opportunities hauling goods around on our backs!

I miss the good ol' days of 5am to 11pm back breaking farm work. EVERYONE was employed back then, from the day they turned 10, till they died at 35{.}

 Made me chuckle

Yes, reduce working hour is actually a very good way to solve this problem, and it is very scaleable!

Let's say from tomorrow, all the people who have the job should only work 4.5 days a week, at the same time their salary reduced by 10%. What happens then? All the companies will have to use those saved 10% salary payment to hire 10% more workers to keep the productivity up, then the jobless problem solved right away!

The biggest resistance might come from those who have the job, and since they are the majority, this solution might not get passed!

As you said, there's not enough money to pay everyone. But the strange thing is, the productivity has increased a lot. It is not convincining to say people get less because they now can produce more. It just indicated that they now work less and produce the same amount as before, but due to they work less, their income dropped (this is the current system: if you work 4 hours, you get 50% the payment than when you work 8 hours).

Borrowing from future is based on the assumption that future productivity will be higher and future income will also be higher. But current situation is that future income will drop due to "productivity increase-> jobless rate rise-> total demand drop". If the future income is constant, then the current debt will become a huge burden

In the past decades, people continously moved into new industry area (IT, financial derivatives, housing), this kept the jobless rate low, but now it seems difficult to find another new industry that can digest that amount of jobless people

Basically, there are 3 ways to deal with the fast rising productivity (or say over supply):

Reduce working hours (this is the best solution in my opinion)
Charge high tax on high productivity companies and increase the lower social wellfare
Move people into new industry

The first 2 reduce the supply, the last one increase the demand through the attractive new products from those new industry

Most of today's economy model is studying the scarcity, it uses lot's of assumptions in a scarcity dominated society, but we already passed that stage long time ago. Keynes discovered that over supply is dangerous, he tried to increase the demand to match the increased productivity. But why not reduce the supply? Because in a credit based economy, you have to increase future income (thus increase supply) to payback the loan and interest, everyone is driven by profit/earnings/loan interests, this makes everyone works like a slave

It's not that there are no jobs, it's that there are more advanced jobs and fewer blue collar jobs. Unemployment rate for those with college education is actually pretty low, at 4.5% (personally, I don't know anyone of my friends in MD who lost a job, and know of two who quit theirs to find better ones)

http://www4.icmarc.org/for-individuals/market-view/chart-of-the-week/cotw-20110617usunemploymentbyeducationallevel.html (http://www4.icmarc.org/for-individuals/market-view/chart-of-the-week/cotw-20110617usunemploymentbyeducationallevel.html)

Even during the Great Depression, despite a HUGE unemployment rate, businesses were scrambling to find good employees and having trouble finding any. Machines replacing jobs just leaves more people with a lot more time to do more advanced and more creative things that require more brains and less muscle. So, machines replaced your cashier/assembly/low-skill job? Get some special job training or a degree.

The theory of oversupply is completely false. Its flawed because its based on the study of aggregates which hide what its really going on in the economy. There never has been in the economy a general excess of supply. What has happened is that there has been an oversupply of certain products (f.e. houses) and an undersupply of others. What do you think would have happened if all the resources, including human labour, that was dedicated to build houses everywhere would have been dedicated to produce something people actually wanted?

Its not oversupply, I dont understand how people can look around with so many poor people and conclude that we produce too much. Its a problem of not producing what people really wants.

I'm not saying the product/service are oversupplied, it is the productivity is enough high but the demand is not evenly distributed

Robots can produce one yacht for each people in the world, but not everyone can afford it, simply because they do not have income since robots got their job. And a common sense is that if you do not have high productivity, then you do not have enough product to exchange for what you want.

I start to think this has something to do with the ownership of the productivity, those who owned robot get very high productivity, while those who don't get this ownership will have low productivity thus have to live a low standard life

Not all people are born equal, only small amount of people will become highly skilled workers. Given a random example of 10,000 people, there will always be 100 of them much clever than others due to optimum growth of their brain when they are still in the belly of their mother

You can observe this very clearly in the IT industry: Almost every one can go to school and get a computer science degree, but only a few of them will really understand how a computer works and make their own computer system (like Gates/Jobs/Linus) etc... some of the other guys understand part of the whole picture, thus become an expert in a specific area, and many many other guys only understand the general knowledge, it's these many many other guys could not find a job

I'm not saying that you have to be a technical/scientific/financial genius. How may people know math and are literate now compared to 100 years ago? How may people are working comparatively easier jobs now as retail clerks, using their math and reading skills, than 100 years ago, when most manufacturing jobs only required that you follow the same basic repetitive steps? Sure, we'll always have some people that either refuse to, or can't, learn or grasp anything complex, and we'll likely always need them to do things like janitorial, security, or even retail/fast food work, but you'd have to at least agree that most people out there can at least take a few college level classes to get SOME slightly advanced skills? Even high school level education is useful for things like data entry, transcribing/proofreading, basic accounting, etc (things machines can't yet do). Those jobs that require eyes, brains, and someone on location will likely never go away.

Currently, many unemployeed are those young people just graduated from colleges.

I think "continous learning" even worsen the picture: Those who are in the job expand their automation technology to a higher and higher level through continous learning. Since they are learning all the time during their whole career, this just means no new employee can catch up with their speed and the knowledge gap between them will be larger and larger

the main problem i see with your arguments is that i believe inflation contributes not only to technology advances but also population growth.  low interest rates and easy loans grossly distort economics and create bubbles.  its well known that population growth increases in good times and i can argue this is a distortion as well. 

we've now hit the debt ceiling IMO.  we can't take on more growth and there needs to be a vetting of the bad loans.  this will cause the system to go into reverse and then what happens to the population if this is prolonged enough?  it has to go down. 

its a race btwn tech developments that can sustain the population vs. the ensuing downturn thats just now beginning.

While I agree, with our technologically advanced society, we should be working less and enjoying our lives more. Not out of necessity, but pleasure!

To your credit, the German government when studying the implications of expanding the work week noted that people were in fact much more productive in the first hour than the last hour. So it would seem that cutting hours would have a productive benefit, if they could be made up for by fresh yet unemployed workers. It must also be noted that despite official limits, Germans tend to work five extra hours anyway. I would assume similar numbers apply to workers the world over.

It is still a fallacy to believe that reduced hours with a proportionally increased work force is a productivity wash, particularly in a recession. Consider that drops in employment already lag behind production. One must assume that the least productive workers were laid off first. A reduced work week would cut the most productive workers to the benefit of the least productive and to the detriment of total productivity.

The difference per worker in unskilled labour is very little, so your idea might work in factories. However, this would be a terrible policy in highly skilled labour where worker productivity differs by orders of magnitude, which many software developers here must have observed first hand.

If that were true, that statistic I linked to earlier would've been 4.5%. Sure, jobs are harder to find, but young college graduates are the ones eventually finding them.


Anything I learned about DOS, Windows 3.1, or Windows 95; anything I learned about Pascal, C++, and Java in the 90's; Anything I learned about IDE, Serial Ports, ISA, and old memory/processor types: It's ass sh*t now. Continuous learning just means you're current with current technology and knowledge. Anyone who is new and starts learning the same things I am currently learning is really on the same footing as me. The only advantage I have is that maybe I have a bit more experience "learning"

Think of "debt" as personal credit card debt, and "population" as potential for income. The more people we have, the more we can produce, and thus the more debt we can afford. I think as long as the population (of skilled people) grows, we can continue to afford (or increase) our debt.

This seems to contradict slightly different but related statistics, that richer (and smarter, more educated) people have fewer children. Perhaps all, including the poor, have fewer surviving children when the economy slumps, but I'm skeptical...

http://upload.wikimedia.org/wikipedia/commons/thumb/7/76/World_population_increase_history.svg/800px-World_population_increase_history.svg.png

the stock rout today says the debt does matter.

You want to bet 5 bitcoin that next week the stock market is higher than todays lows?

EDIT: Im not a short term trader so you have high chances of success...

whats the basis of this bet?  i've been covering shorts like mad today taking profits b/c i too think we'll get a short term bounce.  what are you trying to prove?  some sort of thesis involved here?

i tell you what.  i'll bet you the stock mkt is lower in October than it is today.  how's that?

Nothing, I wasnt trying to prove anyhing. Im not a trader so I was just being a bit goofy.

Lets forget the bet then.

Actually I'm waiting any kind of rebounce to buy several put option tomorrow  ;)

trading declining mkts is a b*tch.  if we get a bounce, be careful about shorting too soon as we could get a week long bounce or so.  long term we're all dead though...

Try to find a newbie and explain to him what is "rising difficulty", I'm sure it takes much longer than explain to a miner  ;D

Thanks, I just want to protect my stock holdings from a flash crash, it might happen tomorrow after NFP and Dow goes down 2000 points in 5 minutes maybe?  ;)

Long term wise, I'm positive, QE3,4,5 is on the way, as long as Bernanke hold the joystick of his helicopter firmly(If he is as soft as Obama, there might be some severe problem)

i'm not so sure he has that discretion anymore.  it would be very dangerous to assume so b/c if he doesn't, stocks could crash big time.

I'm thinking we'll have a bounce too.  I see it happening between 1175 and today's close at 1200.  However, I think it fizzles out around 1260 or the 200dma, which is currently 1286.  Trading below the 200dma seems like a bear market to me but I'm waiting to see how the market reacts to the bounce.  The market is oversold short term and is due for a healthy bounce.

That being said, the last support before bigger losses is around the 1175-1180 area.  If we break that support, look out below.

it looks like we have a Dow Theory violation.  we're in big trouble.  i clearly remember trying to trade the 2008 crash.  it was challenging b/c several days like today would be interspersed with a huge ramp on some trivial announcement which would get me into a margin call.  this top i've been all over so far and i hope i can trade it better.  the key is to not get those margin calls by not leveraging up.  its tempting when the gains to be had are so great to the downside.

i had an absolutely huge day today.

i actually think that the Fed is going to try and get PM's to crack to the downside.  there was that article i saw a coupla days ago about how the bankers were complaining to Berspankme about the fall in the dollar.  if they've convinced him to sacrifice the stock market to save the dollar and bonds we could be entering a huge deflationary wave.  this has been my theory about whats going to happen all along which is why i've been selling PM's and sold a bunch more today.  down to my last few ounces.  God i hope this doesn't affect BTC as i've shifted all my PM gains into BTC.

my shorts on silver and silver stocks paid big today as well.

edit: if i'm right this will absolutely kill the inflationists.  i think i am...

I'm your trading opponent and I still have lots of silver long position  ;D

Compare the equivalent value of 1 ounce gold in 80's and today, they still have 4X uppside potential

LOL!  you're right; this will be interesting indeed! :D

the thing you should note is that the silver stocks and gold stocks are not confirming the bullion.  i know, i've heard all the excuses about why but i'm not buying them.  also that silver is below its April highs and not confirming gold.  and then remember what happened in 2008.

look at AEM a former gold stock darling.  absolute carnage.  NEM, ABX, and GG getting smacked as well.  none of the juniors are performing either.  this is a repeat of 2008 when they got destroyed.

i have confirmed tonite that we have a confirmed bearish primary trend change according to Dow Theory.  this is the first time we have seen this since the March 09 lows.  this is bad news and i would caution all commodity inflationists that a bear market means DEFLATION.

In a mass selloff like today, just about everything gets liquidated as margin calls come in and people flee to safety.  Treasuries and the USD were about the only long positions that fared well today.  Interestingly, the Swiss Franc held up despite the gov't attempt to devalue the currency.

If we're heading for 2008 redeux, the miner stocks will be taken down with the rest of equities.  

this is the money quote.  the problem with the system as it exists today with bankers knowing when they're going to ramp liquidity AND when they're going to shut it off, means the rest of us shleps continually have to play catch up.  in other words; we never win.

everything you say here is absolutely correct.  my only slight disagreement is the "flee to safety" part. 

i'd say its more like "forced to buy dollars by having to liquidate assets".  yours implies a choice; mine implies force.

A tripple top breakdown...

If it will be DEFLATION, FEB still have lots of room to play around

What I'm fraid is that Inflation rate eventually pick up because of the raw material price rising, but no serious money were put into new hiring(only invest in machine/robots) thus jobless rate keep climbing. STAGFLATION is a dead end for any kind of  monetary policies

I think recent down trend is more of a psychological effect rather than fundamental, but sometimes fundamentals were also driven by people's mood, especially when most of the people havn't get out from the shadow of financial crisis. Actually their risk tolerance ability have improved. I believe QEs and stimulates already helped, but not enough and visible. People argue that they are not useful, but just a month after QE2 ended, the market looks like this

It's still difficult to explain to people that saving hurts economy

wow, that hurts.

i've grown up a saver and always will be.  i don't mind debt when necessary like for my mortgage and business but i've since paid both off given the crisis which has been debt driven.

you seem to be doubling down and i'd be careful given what i feel is a large topping formation since 2001.  we just can't assume anymore debt.

have you studied demographics?  we and China are getting much older and these elders are moving into the dependent state.  they also sell stocks and RE during retirement not to mention draw on SS and Mcar.  they'll be many fewer workers to support those dependents. 

did you see the labor participation rate this AM?

topping measured in dollars (and Euro, etc). I think we all agree. But the bet on the table is whether the Fed and central banks will continue to devalue their currencies or let the party stop cold turkey. Why do you think the Fed will stop printing money? Do you think the US will default on Social Security and Defense?

my question to you is who does Bernanke pay homage to?  the people or to his banking handlers?  i say the latter.  therefore why would he destroy the asset side of the bank's balance sheets to the benefit of the ppl?

what currency is the elites billions if not trillions held in?  USD.  therefore why would his handlers allow him to destroy their wealth savings?

who enables the banks to do their dirty work?  the Fed.  therefore why would the Fed let the USD self destruct which is the Fed's only franchise product?

they are defaulting on SS by artificially lowering the CPI.  they're cutting Mcar benefits as well.  defense is being slimmed down.  look at NOC, RTN, LMT defense stocks.   they're telling a story.

I love how the press talks about "the recovery" as though it is destine to happen.  I will believe in a recovery when I see a reason for demand to increase.

OK, then by default you mean price inflation through debt monetization, right? The government will pay its debts with worthless paper. My vote (bet not choice) is that nearly all democracies will devalue their currencies and the few that don't (Denmark and Switzerland) are going to lock down their borders.

Well, it's exactly this way of thinking put the recession much prolonged. But there is nothing to blame, people should always seek for security when there is uncertainty. Unless saving has accumulated to a very high level, they dare not to spend again.

This careful and planned thinking is supported by Austrian Economists, if everyone in the society act like this, then we have a perfect stable economic system. But the problem is, the majority of people are not like this, they don't even know how to manage their personal economy. I looked around my friends nearby, none of them without a debt bounded on a house.

So, even you can handle yourself very well, we are all on the same planet, if most of the other guys got problem, you can not get out of it

Switzerland is pulling out all the stops to devalue the Franc.  So far it hasn't been all that successful but it's definitely something they are trying to achieve.  Record CHF compared to other countries is very bad for their economy.

no, the examples i gave are where they are paying out less than they should or by cutting back payements.  it has nothing to do with debt monetization; it has to do with increasing austerity.  its going on all over the world.  look at Europe.

OK, I'm just not comfortable calling monetary inflation a form of default, which is the only way I can interpret "defaulting on SS by artificially lowering the CPI". If for example Greece's austerity brings their budget into surplus (without hand outs) then there is no reason for Greece (or the EU) to default. But I do not expect that to ever happen. Never. I expect Europe will continue to provide loans that Greece can never repay, Europe will loosen it's stability pact (>2% inflation), and debt will increase.

Likewise but to a lesser extent for the US and PIIGS. I don't expect the US to balance its budget before some huge global readjustment (default, WWIII, gold standard, total monetization, ? ?).


True. But Switz and Scandinavia with ~40% debt/gdp can afford to devalue the franc and kroner(s) and will need to if they hope to trade with failing neighbors. They also retain the right to lock their borders; indeed Denmark and Switz already do customs inspections at the border despite Schengen agreements.

netrin:  everything you say certainly has merit.  it comes down to the fact that you see things in terms of an inflationist.  i, otoh, think we live in a boom bust cyclical society where you swing btwn extremes of inflation and deflation.  you think the central banks can continue to inflate by devaluing their currencies.  if you look at the stock mkt since 1929 as perhaps an indicator from a broad view you could be considered right. the inflation of the monetary base also argues in your favor.  so why won't everything except currencies continue to go up?

personally i think we've hit a ceiling in how much debt can be taken on.  i clearly am in the minority and could be wrong as the last 100 yrs of history argues against me.  perhaps i am stupid to bet against the current system of inflationary forces.  sometimes i question myself.

but looking back over the last 11 yrs with 2 stock mkt crashes and one ultimate housing bubble crash, i can't but help something is different this time.  as Rogoff and Reinhart argue "this time is different".  this is the contrarian viewpoint no doubt.  but when i look at whats happening in Greece and the other PIGS i don't think so.  who ever would imagine that a sovereign nation would have to consider selling off their islands to "allow" them to take on even more debt?  how insane and immoral is that?

look at the price of gold.  there is something seriously wrong. look at zero bound interest rates.  how sustainable is that?  look at the mountain of 1.7 T in excess banking reserves at the Fed.  why would banks hoard?  they don't think its worth it to lend the money out even tho they get a measly 0.25%.

https://i.imgur.com/UjpqO.png

it looks to me with the recent stock mkt plunge we're going into phase 2 of the financial crisis which never was really cured.  the ferociousness of the selloff is an indication of the gross imbalance our Fed/gov't cabal has built to an even greater degree since 3/09.  anyone in stocks now hoping for a reversal or anyone BTFD stands to get reamed big time just like the dip buyers back in 1930.

watch the gold price.  if it can continue to power forward then you'll be proven correct.  if it starts to drop, i would head underground asap.  i personally think Bernanke and the bankers realize they have to get the gold price down since leveraged investments are heading into gold and not the real economy as they would like.  the Fed can provide free cash to the system but they can't control where it goes.  i wish i could find that link to that article someone here on the forum provided about how the banks are complaining to Bernanke about the drop in the dollar b/c of alternative currencies such as btc.

I'm not sure what an inflationist is. I expect we'll soon be on a very frightening roller coaster ride and we'll be fleeing from one bad decision to the next. Perhaps with bubbles growing and popping everywhere, contrarian thinking is the only logical approach. I appreciate your disagreement. Maybe we'll all be smarter for it.

You mention 100 years of inflation. I see thousands of years of fiat inflation ever since the Chinese invented the magical paper. After hundreds (thousands?) of attempts, we've just not quite figured it out. I've read a bit about pre-French revolution, Weimar Germany, and Japan. I don't know much about Zimbabwe (but I suspect Mugabe just kicked out the productive land owners, received no taxes, initiated starvation, and just printed). I don't know much about South America, Yugoslavia, or even the Roman Empire, etc. But ancient to modern history seems unanimously stacked against paper. I'm sure we can agree on that.

I agree that "this time is different". Why? Because the entire global economy is in debt or (for example China) is servicing the debt to prop up an otherwise fragile economy. What differentiates Japan from the United States is that Japan is a nation of savers and invested in its own industry. The United States otoh is a nation of debtors with investors outside of the nation. So, I throw out the comparison. But I feel we can compare Japan as a nation of the past fifteen years to the entire planet today. We earthlings are in debt and our few savers are obviously invested in the Earth. I don't think we'll see a redistribution of wealth between nations -- people and institutions (banks) yes -- but not nations. Asia will fall with Europe and the US.

If we're still on the same page, the question seems to be "will the economy deflate now or will/can the central banks continue to print money?" I do not disagree that the economy will collapse by deflation. I just think hyperinflation is the next train stop.

You seem to be saying that hyperinflation will be avoided by a conscious decision to deflate and unwind the economy. How would that process occur? Wouldn't the central banks have to intentionally allow all markets and private banks to collapse? How would they preserve the currencies?



I fully expect/ed Greece to default and reissue its own currency. I'm sure some generous deal was made behind closed doors "Look, if you hang in there we'll give you loans forever, no matter what we say in public."



I need to ponder this. I expect gold to drop but hoped to buy at that point. I think people are foolishly tho truly running to dollars and bonds as the dollar goes down. Please do try to find this article.

a nation that issues more debt plus currency than its productive capacity to solve their problems.

we do indeed.

we agree on more things than we disagree.  i also think Japan is a template for whats going to happen to the US.  we are "pushing on a string" and failing to clean out the overindebted banks just like Japan.  their problem is that the savings are now exhausted.  especially in light of Fukushima.  several authors/investors like John Mauldin, Kyle Bass, Hugh Hendry are betting Japan is about to go over the edge.  i agree.  look at the EWJ/Nikkei.  they do some great demographic analyses and there does not seem to be enough workers to pay for the retirees.  i think the bond vigilantes are finally going to have their day in Japan.  just this last Thursday they tried another currency blast to try and stop the advance of the yen.  it looks to have failed already.  why this odd dynamic?  Strengthening Yen in the face of worsening debt?  how does that work?  i will explain below in terms of USD's.


you are not alone in this thinking.  i however as well as some great thinkers, Prechter, Mish, Shilling, Rosenberg, Foss think we've already had our "hyperinflation" so to speak which topped in 2008. the ramp from 3/09 to now is the last gasp IMO.  during that time we've doubled the national debt in just 3 yrs compared to the prior 250 yr.  they've tried all sorts of wacky zero interest bound stimulative efforts like HAMP, TARP, QE 1&2, auto discounts, suspending mark to market, bailouts, and all of the worst corruption and manipulations the world has ever seen. to the US apparatchiks, its never enough.  it didn't work.  these were all inflationary stimuli and now we have to pay the piper.  

if the ECB were going to throw the Euro under the bus, why are they letting such tough austerity plans go forward in Greece, Ireland, Spain, Italy?  these are extremely dangerous so why not put the fire out with more monetization?  i would argue b/c they can't.  the debt ceiling has been hit and deflation is screaming to gets its due turn.  i say that central banks have lost control like they did in 2008.  it doesn't matter what they do, the market will dictate otherwise.  they've done a tremendous job trying to reinflate to now but Mr. Margin must be paid.  defaults are on the horizon and i agree Greece will default.
 

by stopping QE2 and not doing a QE3 like everyone expects.  and this is what they've done.  when everyones on one side of the boat like they are with this theory that Bernanke will do a QE3, 4,5,6,7, etc. it probably won't happen.  its too dangerous to assume that he will.  my belief is that QE2 was to allow the banks one last chance to unload their bad debt to the public and sell off underwater stock.  to get their balance sheets in order in preparation for the inevitable which is a cleansing of the debt.  also what you'll see if this happens is a paradoxical RISE in the USD and UST's.  how so?  b/c the liquidation of the bad debt causes a scramble for cash USD's and a decrease in the amount of debt based USD's worldwide (virtual USD's).  people like to say "flight to safety".  i prefer "forced scramble for currency USD's" (cash).  this is how the US debt based system differs from Zimbabwe hyperinflation.  they didn't have a mature bond market so they just printed up the money to pay their debts.  those printed monies couldn't be easily removed from the system as their productive capacity continued to decrease so hyperinflation ensued.  compare this to our debt based system.  those debt based loans will vaporize on default thus reducing the total amount of USD's (debt plus currency) worldwide.  60% of debt worldwide is USD denominated.  this would be deflation.


agreed.


avoid BTFD.

look what inflationary Fed policies have done to the Middle East.  soaring costs of food and financial inequities are what drove the revolutions in these countries IMO.  i followed the Egyptian revolt realtime via Twitter and AlJazeera and there is no question in my mind these were the tenets behind the younger generations revolt. 

central banks cannot continue on the same path of monetizing debt.  the markets are screaming for a correction via deflation.

So what's the best way to prepare for deflation?  I have small amounts of silver as a hedge against the dollar because QE1 and QE2 made me think the dollar was going to decline significantly in the near future.  If the Fed contracts the money supply though that will drive up the dollar and probably have the inverse effect on PMs? 

yes, if my scenario above plays out.  i'm not your financial advisor and you have to realize mine is a contrarian view.  but at least its logical IMO.

http://www.youtube.com/watch?feature=player_embedded&v=xSLIDJ3HZHA

the safest way to prepare for deflation is to go to cash and then wait.   if we have the Great Depression 2, assets will be selling for pennies on the dollar at the bottom.  this could be the opportunity of a lifetime.  the other way, more risky, is to go short the stock market.  a tremendous amount of fast money can be made to the downside.  WAY more risky.  but if you don't use leverage you should be fine.

Shed debt and save.

In a true deflationary environment, credit contracts and prices decline.  Cash is king in deflationary times.  Or maybe purchasing power is king would be a better way to put it if you've lost confidence in the USD or whatever fiat currency your country uses.  Purchasing power of course is the number of goods or services you can buy with a unit of currency.  What unit of currency you should be saving, will be up for debate and depends on how bad you think things will get.  If you believe the US will endure then cash will serve you well in deflation.  If you believe there will be a global collapse, well then things get a little harder to predict.  Currency in this situation would have to be something more intrinsically useful but still portable.  Bullets perhaps?  I don't know.  I'm not of the opinion that this is the end of the world as we know it so I haven't really thought it through to that extreme. 

Edit:  Looks like Cypher beat me to the punch while I was typing.

forgot that one Curbside.  yes, pay off debt!  i personally am debt free and loving it.  and i do have a lot of assets.  i use cash to play the markets in stocks, PM's, and btc.  Its way too dangerous IMO to play the debt game assuming Ben will inflate it away.  why would you depend on that criminal?  also, why would the bankers allow him to do that to their assets=loans?

I don't think they will repeat what happened in 1930s, and QE2 really increased many institution/corporation's cash reserve, it's not far away before they start to actively invest/take risk

Keynes had pointed out: People will spend less when their income decrease, but not as much as income decreased. So the total consumption is actually higher even if income drops to the previous level

Another thing, like Telecom/IT/housing, those bubbles always can bring some years of boom, since they will bring easy/quick profit and generate lots of new job. We need another bubble to bring some easy/quick profit, and gold is very likely to be such a bubble,
BTC have the potential but just technically too complex for the majorities

When gold is selling at 10000$/ounce, there will be many jobs/products created around gold: Gold mining equipment manufacture, gold research scientists, gold certificate issuer, gold sales manager, gold derivatives, gold CDS/CDO, and many new invented gold related concepts...  ;)

Not far away before they start taking risks?  That's ALL they're doing with the Fed's cash is taking risks.  Why do you think commodities are so high?  If QE is supposed to help the average person, then why is unemployment and leverage still so high?  QE is a free pass for banks to take risks with the house's money.  Who can blame them, I'd be doing it too if I could.

Is the takeaway message here that austrian economics is correct in theory, but lacks predictive power because market participants refuse to behave according to its tenants?

+1

and all that speculation in commodities actually hurts the avg person.  look at the Middle East explosion.  its over food and financial repression.

i just had dinner with a highly successful multimillion dollar hedge fund manager and i picked his brain about the economy and the future of our country.  he actually is as pessimistic as i am and said whats happening is typical for a empire starting a long decline.  he thinks the youth in our country will have a great burden to bear and won't have our lifestyles.  he said our administration is doing all the wrong things with Obama being 3x worse than Bush.  and Bush was bad.  he has a crapload of CDS against all PIGS, Japan, and US debt.  he is VERY bearish on CMBS and has CDS against them as well.  he says commercial RE is heading into the crapper and will suffer greatly in the coming decline.  he said we should have let the system implode in 2001 and 2008 but our admins wouldn't allow it.  and now we have to pay.  we disagreed in that he thinks the gov't and Fed will continue to inflate and he holds a large portfolio of gold mining stocks.  i pointed out they'd been getting killed but he said the fund has had them for many years so i guess he means since back in 2002 b/c thats the only way they'd still be up.  they also have a small holding of bullion.  they are buying farmland and select residential and strip malls but only if he can get them for cents on the dollar.  he thinks they should buy guns too.  i asked him about the gov't losing control and deflation setting in and he said no one knows for sure whats going to happen.  couldn't argue about that.

i believe Austrian economics has been quite predictive about what has happened the last 11 yrs.  Its been quite useful for me since 2005 when i started buying gold, silver and as well in 2007 when i shorted stocks.

i did quite well during those times but did get hurt in my portfolio of mining stocks and energy.  i used a stagflationary approach except that the -flationary part got hurt quite badly with the gold/silver/energy stocks getting literally destroyed.  i went back and studied very hard as to why and came across Robert Prechters theories as well as Mish's whose theories played out extraordinarily well.  that is, one of absolute deflationary forces imposed on the market at that time.

since then we've not had the washout we should have had.  according to Prechter he thinks the Dow goes to 400.  extraordinary call i admit.  but with the greater distortions that the gov't/banks have created since 3/09 and the increasingly bold corruption of the banks enabled by crooks/criminals like Geithner, Bernanke, and Paulson (these guys should go down in history as traitors and should be jailed) we've entered an extremely dangerous phase of the crisis.  the forces for a great deflationary washout feel large to me.  

i'm not necessarily a believer in Elliott Wave Theory technical analysis but it does provide a fascinating potentially useful predictive framework on which to see what might happen.  its based on psychology and wave formation.  Prechter is calling for entry into a devastating wave 3 down right about now.  he's been off on his timing but overall i think he might be proven correct.  the fundamentals certainly support it.  i am a believer in cycle theory and we've just had the most powerful stock rally since 1932 with about a 79-80% retrace from the bottom exceeding all Fibonacci levels to the upside.  extraordinary.  i've been getting hurt short alot of the way up but its payback time.

ultimately i do believe Austrian Theory will be proven wrong in its position on gold/silver.  maybe it had a chance before Bitcoin came along but i'm also a big believer in the Internet and Bitcoin fits extraordinarily well into a high technology age.  too many ppl are on one side of the boat on this one and central banks are no exception.  i view their position as a negative surprisingly; Gordon Brown of the Bank of England sold tons of gold at the bottom in 2000.  yet another stupid criminal.  all of them did on the way up and smart guys like Eric Sprott would say that private investors like me were happy to take the gold off their hands.  so i've made extraordinary profits since and i decided to cash them all in this year and exchange into Bitcoin.  could be the stupidest move of my life but i think i'll be fine at the least or extraordinarily rich if i'm right.

If you have billions of dollar like those bankers, I think you will consider how to help the average person 8)

What FED can do is monitoring the economy development and support with needed cash. In a recession, many people will unavoidably start to borrow money (Governement need them most in today's system, they need to pay the unemployment benefit and social security), so keep plenty of money supply is necessary. These money can only help to hold the situation and will increase the future burden, but still better than killing lot's of businesses rightaway

Of course some of these money pushed commodity price, but I think most of them transfered into some type of saving

I have a simple model can prove: Suppose that normal business trasaction need 1 million dollar, if people start to save, then at least 10 million dollar or even 100 million dollar of money supply is needed

Not refuse, just reluctant. Most of the people will dislike a careful and monk-like life. Many things in the social are so complex, people seldom have insight about the consequence of their action 10 or 20 years later, they just follow the majority

When a bubble burst, we always need another bigger bubble to get out of the problem, but the housing bubble is too big, difficult to imagin a new bubble that is even bigger, maybe that's the reason Japan stayed put for about 20 years

Kind've like Joseph Kennedy, who managed to avoid the stock crash.  He knew it was time to bail when the shoe-shine boy started giving him stock tips.  Gold is certainly talked about and invested in by the average investor a lot more now than just a few years ago, I just don't know if we're at the "shoe-shine" stage quite yet.  One of the things I've learned over the years is you can be right about a trend but being wrong about the timing can still wipe you out.

I'm still struggling with the inflation/deflation argument.  Mish and the other deflationists make great points but I just wonder if their timing is right.  Bernanke is a monetarist.  He believes the Great Depression was caused by a shrinkage in the money supply.  With him steering the ship, I think a period of hyper-inflation before deflation is a likely outcome.  They don't call him "helicopter" Ben for nothing.  But your posts have certainly given me pause to reflect on that position.

one of the things i follow is investor sentiment.  at the bottom of 3/09 we were at 2% bulls.  both at the 2007 top and May of 2011 we were at 98% bulls.  when conditions get this extreme with P/E's in the mid 20's (never did to single digits like at most recession bottoms) it becomes extremely difficult for the primary dealers to book profits and indeed we saw a horrendous earnings season for the financials.  they have been in decline since February.  that by itself is a HUGE red flag.  most of their profits the last 2 yrs have been from TRADING.  meaning to me that they were using Fed pomo money to destroy the shorts on an unprecedented ramp to May.  believe me, i know.  progressively more shorts closed their position and went long to "not fight the Fed".  so now we're in a situation where the primary dealers can't make money anymore being long.  so whats the next logical step from their standpoint?  go short and ramp volatility.  traders always say they love volatility.  well, here you go.  we've seen the VIX go to the high 30's this last week and probably higher.  everyone's on the inflation side of the boat and i'm alone on the other side altho i'd bet the primary dealers are over here with me just waiting for the panic as am i.

as i write this gold is up modestly, stock futures are down BIG and Bitcoin has just SOARED  to 8.5.  two out of 3 i'll take and i bet gold will soon plunge.

Although I have some gold short position, I hope gold not going down, otherwise we really could not find the next bubble to save the world :-\

why couldn't that new bubble be Bitcoin?

I have read such a rule and agreed with it:

Any kind of bubble, if it want to be very successful, must have 2 criteria:

1. It should be very simple outside that everyone on the street can immediately understand and accept it
2. It should have enough complex pricing model, and most of the scholars can not prove it is a bubble

Just like someone posted, anyone on the planet, from a chinese factory worker to an indian farmer will all accept a gold bar, not a usb flash drive with a wallet.dat stored  :D

great investments are never seen by the masses.  poor ones are often too obvious.

I also joined this game with such kind of hope, BTC have the potential, the bubble could be 100 times bigger than real world economy bubble, who knows

the stock mkt crash convinces me the Fed is trying desperately to get gold /silver down.

I'm properly convinced now that private bank debt is clean the Fed can and must deflate the dollar. However, I don't see how the Fed can bring gold down without taking everything else down first. And to what end, to save that same everything else?

Or perhaps they only need to shake the pm market?

you're right.  before your very eyes they are letting equities crash and its now starting to drag silver down with it just like the mining stocks that already have been killed.   i truly think gold has to follow soon after they get as many ppl into it before the takedown.  oil and soft commods already have been hit too.  its just a matter of time.

why would the Fed give up its reserve currency which is its only franchise?  tomorrow if the FOMC doesn't say anything about further QE, gold should tank.

what do you mean by this?  get the USD to rise?

An interesting analysis (not mine):


Bernanke is of the opinion that the Great Depression was mainly caused by monetary contraction, the consequence of poor policymaking by the American Federal Reserve System and continued crisis in the banking system.  In this view, the Federal Reserve, by not acting, allowed the money supply as measured by the M2 to shrink by one-third from 1929–1933, thereby transforming a normal recession into the Great Depression. 

Bernanke is staying true to his word by increasing the money supply while GDP contracts.  We will see more QE even if thinly veiled under another name.

hi Curb.  you're right about Berspankme and i've read his paper from 2002.  i would only say that ppl change their minds with time too and in the face of contradictory evidence.

yes, i used to subscribe to John Williams a few yrs ago and used his theories to take a stagflationary approach to what happened in 2008 which turned out to be only half right meaning i only broke even in the end going into 2009.  disappointed, i researched heavily as to why mining and energy stocks and somewhat gold bullion got smacked and realized Prechter, Mish, and Shilling were the only ones who got it right. 

now to extrapolate their theories to this upcoming crisis is dangerous i know.  but we never washed out the bad debt in 2008 and its even grown larger depending on what you measure so i'm arguing that perhaps the Fed will lose total control and have market discipline enforced upon it.  if the stock mkt is forming a head and shoulders top since 2000 and we do an Elliott Wave phase 2 wave down this could take the Dow to the sub 4000 level.  i doubt gold could withstand that type of drawdown in liquidity. 

there are lots of theories out there and we all have to choose our own paths.  i wish all of us luck.

Wat?

Gld up yesterday, gld up tomorrow, where the hell do you think people are going to run to?

Cash.  

i'm just expressing my opinion and not shilling about it.  i could be wrong.  these things can go on longer than one anticipates.  my short on silver looks good right now.  gold not so good.  we'll see.

edit:  the bulls are definitely trying to take this thing into a parabola though.  can they do it?

Well, yes. The market's response today couldn't have surprised Ben and the banks are strapped in and cleared for the plunge. It looks to me like we just shaved 11 years of gains in one day. If we repeat the fun tomorrow, we'll have shaved off a right shoulder and confirmed a reversal that'll make 1929 look like a holiday.

If Bernanke declares QE3 (by any name) then gold is cheap at any price, otherwise, paper dollars are king.

http://genaud.net/tmp/2011/BlackMondayDJI.png

if the USD breaks down out of its consolidation pattern then mea culpa.

yeah, no PPT here.  just straight down.  damn, i covered too many shorts too soon.  to me the signal is "let it go down" b/c they have an objective.

Yup looking at the futures and the Asian markets it looks like I may have covered too soon as well.  I'm not going to beat myself up over it though, anyone short over the last week or two made out like bandits.  I'm content with picking the low hanging fruit.

this market plunge just confirms every negative thought i've had over the last 6 years about the Fed and the banking system. 

these punks "know" when the liquidity spigot is going to be shut off and on and they constantly front run.  a plunge like this isn't a natural phenomenon in this day and age.  the triple or quadruple top we had was orchestrated IMO to suck as many ppl into stocks so they could be raped. 

this is why i'm so pessimistic on the parabola that gold is now forming.  they are after it and if you buy now you're gonna get squicked.

whoa, you guys just see the BTC ramp?

BTC: $150K buy couldn't wait for $5 :)

EDIT: And TH immediately matched with a $3.5K buy. Maybe the PPT are buying BTC!


Cypherdoc: Why should the Fed want to fuck Americans? Ben has a neck and the guillotine is rusty.

BTC:  this is good news.  this price action is what i've been waiting for.  hopefully this means btc can at least match gold in going against this stock plunge.  hopefully one day it replaces gold ;)

the Fed is owned by private banks.  they also own Ben.  he's expendable.

edit:  the banks don't care about Americans. otherwise they'd be lending that 1.6 T of excess reserves.

https://i.imgur.com/eiqVb.png

did i put this up already?

hmmm, USD's rotating out of the stock mkt into BTC?

i think i may need to start a new thread:  Whose wrong?  Gold or BTC?

Looks like covering was the right call afterall.  I expect the market to rally further tomorrow maybe a little longer then back down.  This wont' be a V-bottom.

My guess is it won't be the downgrade but Europe that will weigh on the market short-term.  Italy is out of cash by next month unless they have access to the funding markets. 

yeah Curb.  i covered most everything last Th & Fri so i could've gained a little more.  but after todays ramp, i don't feel so bad.

Please help me, my Fedspeak is rusty. Did the Fed just announce it will continue buying treasuries in the third paragraph (http://www.federalreserve.gov/newsevents/press/monetary/20110809a.htm) or admit defeat (continue 0% but otherwise let the market find its own way)?

no new QE (UST buys) was announced.  just 0% interest rates until mid 2013. 

https://i.imgur.com/PRmYB.png

this is ugly.  this is the "speed" at which money circulates in the US economy.  miserable.

https://i.imgur.com/CY5RE.png

savings rate is going back up again.  no one wants to spend.

https://i.imgur.com/JBcMy.png

consumption peaking.

Just so you know, this is not the speed of money circulation, but the money multiplier. They are different things.

And the Fed is not private and its not owned by the banks. The Fed is a mix of government and private institution, but mainly a government institution. For example, the majority of decissions are taken by the Board of Governors of the Federal REserve system that is a federal government agency. Ben Bernanke is the head of this board.

"speed" was used as a metaphor.  perhaps a poor choice.

your statement about the Fed surprised me b/c most economic ppl on this forum have come to the realization that the Fed is "privately" owned.  so i dug out my copy of "Creature From Jekyll Island" pg. 591 bottom paragraph:

"it is not a gov't agency and it is not a private corporation in the normal sense of the word.  it is subject to political control yet, b/c of its tremendous power over politicians and the elective process, it has managed to remain independent of political oversight.  Simply stated, it is a cartel, and its organizational structure is uniquely structured to serve that end."

The Fed is neither a 100% government government agency neither a private insitution. I guess is a matter of opinion which side goes more, but if you look at its structure you will see that is mostly government controlled. Anyway its a useless debate, whether more government or more private it does what it does and its a problem. And the Fed is indeed a banking cartel. For me the best way to define the Federal Reserve system is: a government created cartel of private banks.

The supposed independence of a central bank is that, supposed. Its undoubted that if the Treasury was in direct control of the printing press it would be even worse (think Zimbawe), and that the structure the government has created has a certain balance of political power, but still the central bank panders to politicians and does what they want (at least in part). Otherwise the politicians would do away with the central bank. As an example, you can go and check the Nixon tapes, where you can hear Nixon preasuring the then chairman of the Fed, Burns, to inflate the money supply to create a bubble that would reduce unemployment temporarely and help him win the election regardless of the consequences (then, surprise surprise, stagflation came). http://www.businessinsider.com/any-theory-of-political-independence-of-the-fed-was-destroyed-by-the-nixon-tapes-2010-11 <- check the pdf with the actual conversations, I read it and its quite entertaining (if you are a bit of a economic-political freak of course ;) ), how the president talks and all that, its curious.

it seems to me the balance of power has shifted to the Fed.  as far as i can tell, Bernanke does whatever he wants to do to enable the banks to survive at limitless expense to the rest of us.

Bernanke did buy a lot of the mortgage shit from the banks, but it has also bought a lot of government debt. In fact, while QE1 was both buying from bank and the government, QE2 has bought only government debt and QE3 will be only government debt as well.

They are all in this together, dont get fooled. Most politicians will say a lot of things but at the end of the day they like what Bernanke is doing, its just they can not say so to the people who is being pusnished. But check how Sanders, a self-admited socialist, betrayed R.Paul and A.Greyson and approved a reduced and one time only version of the Audit the Fed bill. They know what its going on and they like it. You can be sure that if the political power does not like what its happening enough the next day the Fed is over. Congress just needs to pass a law and the Fed is history, and the Fed knows it. In reality, they are all one happy club, and you and I are not invited (George Carlin dixit).

I'll probably catch some flak for this because I know how much everyone here hates the banks but if they keep selling off, I've got an eye on a few.  WFC being at the top of that list.  The Fed has committed to near zero interest rates until mid-2013.  Buffet also very bullish.  Obviously there are strong headwinds, which is why they are tanking, but I see potential opportunity. 

I may start writing some puts soon, especially if the VIX continues to rise. 

Watch out about believing the Fed statements about not raising interest rates. In the speech Bernanke gave previously to being nominated chairman of the Fed, he named three points. One of them was that by making people think that the interest rates would be low for longer than they would be, it represents negative interest rates (and he sees this as positive). So the rates could go up earlier than they say.

Dont get me wrong. Im not saying they will raise them tomorrow or next month. They wont. Im just saying that everybody should be careful when the Fed says that they wont be raised until 2013 because Bernanke thinks that lying to the market in this issue could be positive.

No doubt the Fed hasn't exactly earned the reputation of trustworthy.  I hear you loud and clear hugolp.  This is a highly risky/speculative bet on my part but that's what I devote about 10% of my portfolio towards.  This play (if I decide to do it) will fall in that small basket so even if I'm wrong, it's not like it will wipe me out or anything. 

I think current system is still quite flawed, the money do not flow to the most needed place. The banks sitting at the top. They can get 0 interest loans, but that does not really help the economy, the mass demand typically come from the consumer. If every consumer at the bottom of the society can get 0 interest loans, the economy will be back on track right away.

Of course money also works as a score system to evaluate every one's work, so that "you should not get paid without work", but since the value is decided by demand and supply, this score system seldom works as it should, there are still plenty of people get paid very well without any work. Those banks get 0 interest loan because the economy is getting worse, not because they are working hard, this is quite confusing :-\

I doubt it.  I'm a firm believer that a financially responsible person will be responsible no matter the amount of money they have and vice versa.  Giving a financially irresponsible person more money only compounds the problem.  There's a reason why so many lottery winners and sports athletes go bankrupt.  The amount of money they have doesn't matter, they're financially unable to manage any amount and a fool and their money eventually part ways.

The average american is swallowed up in debt.  Not just a mortgage on a home they can't afford but credit cards and overpriced gas guzzlers.  Our savings rate is pathetic.  Giving them free leverage would only compound the problem.

I'm not saying the banks should get a free pass or that they are not a major part of the problem but more free handouts is not the way to curb excessive spending.

 

+1

johnyj loves the idea of free handouts.  he loves the idea that unemployment is high which means more welfare which is GOOD!  give me more, give me more.  i don't have to work.

Technological redundancy is more of an issue now than ever before, and will speed up into the future. How to continue?

Everyone works fewer hours
More people employed in sports
More people employed in burocracy - hard in a ressesion
More riots destroying infrastructure and giving people jobs rebuilding - bad, but currently by design in everyone's interest, not just the big players.

The concentration of power reasoning is good. However benifits will pay more and more compared to work, maybe eventually allowing both at once, so there may not be that much of an issue.

100% jobs is good? or 100% jobs is the least efficient society possible? How about 100% of you'r time in education?

If I don't have to work but more do thats bad. If fewer are required to work then thats good.

We're currently in a jobs shortage at the moment, it would greatly help morale if those least enthusiastic about their chosen profession stopped working, there are many others eager to take their place, those not working can still make productive use of there time, even if it's something seemingly small on a large scale like seeing more of there children.

A financially responsible employer will very willing to hire 5 chinese workers instead of 1 american worker since they cost much less. It is exactly this way of thinking put millions of americans jobless

If you are the central bank and money is just some digits in your account which you can add or remove at will, and you know these generated digits will have various impact in economy, then how do you assign those digits so that the society will get maximum benefit of it?

Money is just a driven power, what to drive is the question  ::)

Good point, those not very enthusiastic workers should at least accumulate several years of savings before they quite the job, but I think they have lost such an alternative, because of their debt of the house. Another issue is that many people can not be replaced easily, since they have accumulated so much knowledge through many years of working and continuous learning

100 years ago, in such a overproduction situation, war is very good at eliminating redundant human and infrastructure. If people do not want to take a violent approach, then I guess the financial system will have to take a huge reform, pay per work model will disappear in some area (it's already happening in open source community)