The real estate bubble has been created by the low interests rates from the FED in 2000s and they blew more air into the bubble in recent years with 0% interest rates which means the crash will be bigger and more painful that it would have been if only they allow it to happen to destroy the bad debt
No it wasn't. It was mainly because of 90s deregulation that led to subprime lending. What you should blame the Fed for his not allowing interest rates to rise when they saw a bubble forming. The low interest helped accelerate the housing bubble, but it didnt cause it. Also, in case you didn't notice; housing bubbles were a worldwide phenomenon not only USA |
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I love it that all the "Austrian economists" here backtrack when one of their own says bitcoin is not money. Pure comedy. LOL
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Yes I did. Debt contracts create money because credit is guaranteed by govts.
Credit is not guaranteed by govt you dumbshit If you take out a mortgage and you default on it the bank takes your house and if they sell for less than the mortgage they take a loss. If you overspend your credit card and declare bankruptcy the bank takes the loss. "Lender of last resort" means they LEND the money as last resort NOT "give it away for free". God this thread stupid and annoying. I regret replying but too much FUD here |
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deflation is terrible for loans. If you borrow 1 BTC and have to pay back 1.25 BTC (due to interest) plus the price of house goes down due to deflation. You'll always be losing money. Its only good for the lenders
Loans by definition must always lose money... Lol Anyway, if you're borrowing BTC, when the exchange rate settles, the interest rates will likely be lower than if the currency was constantly being inflated. It won't be 0%, but it will likely be quite low. The loan has interest on it but you expect the underlying asset (purchased by loan) to rise in value |
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Long positions on margin need the price to rise greater than the interest
But isn't this true in pretty much every situation ever? It was true during 90s Asian financial crisis and 07 housing bubble |
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Hydrogen can also be very cheaply transported if we ever get over the hangups from the Hindenburg.
Hindenburg fireball isn't caused hydrogen. Its the coating or paint on the outer skin that burned |
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Sounds like a textbook "Minsky moment" if its true what this thread says about the margin trading.
Long positions on margin need the price to rise greater than the interest or else price will crash.
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What about loans that, after the money is spent, the money ends up in cash (as in paper fiat money) instead of funds in a bank account?
Cash is also on the bank's balance sheet. If a borrower takes a cash loan, then the bank adds this loan to bank's assets, and deducts the equivalent amount of cash from assets. For the bank it means that only the composition of assets changes, but this cash ends up in the economy, effectively creating money (and possibly a deposit in another bank). I think shaky was referring to someone takes out a loan for $1,000.00, spends that $1,000 on say a set of tools from someone on Craigslist and the seller of those tools doesn't deposit the $1,000 from the sale into their bank account but instead keeps in "under his mattress" Doesn't matter, at some point the borrower has to pay back $1000, but it doesn't need to be the same bills -- "fungible" |
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Yes its money, you can use it as a medium of exchange for many things, so we can call it money.
Thats called a barter |
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deflation is terrible for loans. If you borrow 1 BTC and have to pay back 1.25 BTC (due to interest) plus the price of house goes down due to deflation. You'll always be losing money. Its only good for the lenders
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Can you cite the study? According to this index there was downward trend in new mortgage application.  |
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Bitcoin will be a heck of inflationary for the next 5 years as is.
it's interesting that many people think short-term (what the price in fiat USD will be next month, next year at most), but at the same time look many years ahead to a far-away cap of 21 million, forgetting that Bitcoin has a double-digit yearly inflation right now and will continue to have it for the next 5 years. The brain conveniently suggests ideas to believe that they can be most comfortable with.
This is true bitcoin is very inflationary For a few more halvings at least https://en.bitcoin.it/wiki/Controlled_supplyBitcoin is technically inflationary while the block subsidies are still in place. However it will often act in a deflationary way as holders of bitcoin generally expect it's value to rise in the future. I would rather say that up to the present moment, bitcoin is neither deflationary nor inflationary (if we don't take price swings as a criterion for telling between them). In practice, now it behaves more like a purely speculative tool (which it is, at least presently). Bitcoin would be considered to be inflationary as more bitcoin are created every day. I read somewhere thatbitcoin inflates at 6% until all coins are mined. Don't know if its correct |
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Isn't this similar to a binary option?
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I think the FED uses the term "sequestered". They are expanding the money supply, but basically only banks get access to it.
The banks get the expanded money supply that is supplied by the Fed. The hope is that banks will increase lending so that more people will borrow money, stimulating the economy. Then why in the name of Timothy Geithner do they bribe the banks to deposit the funds in the Fed rather than releasing them out into the economy If you are asking about Geithner. What he did was use the Fed to finance JP Morgans acquisition of Bear Stearns, AIG bailout, and TARP. He wanted to avoid a stock market cra I thought you were talking about QE in the op The name Timmothy Geithner was merelplaced there for emphasis. My question, without the unnecessary exclamation, was "Then why do they bribe the banks to deposit the funds in the Fed rather than releasing them out into the economy." The simple answer is they're not allowed to. Congress has to do that via deficit spending What? They're not allowed to do what? If they really wanted banks to lend more money, they could easily do QE, while not lowering mortgage-tied rates and not offering any interest on funds held in reserve. Lower bond rates, no incentive to deposit unless you can't find anyone to lend to, and higher mortgage rates to boot. The current choices for a bank are currently: APY of 0.25% completely liquid "risk free" on deposit. APY of 3.35% locked for 30 years "risk free" in bonds. APY of 4.2% locked for 30 years in mortgage. Keep in mind that there's also a repo rate of 0.05% just TO THE FED if I'm not mistaken, not to mention the fact that the federal funds rate is lower than the rate on excess reserves! Check this out. Now I found some stats showing that as of 2012, BofA had about 11% of its residential mortgages in a state of delinquency. Why would you ever offer a mortgage in this environment? Oh I misunderstood your question. I thought you were asking why doesn't the Fed inject the money directly into the real economy instead of doing it through QE But w QE operations. The main purpose is to swap securities (Bonds or MBS) for reserves. The Fed is receiving MBS as asset and bank receives as liabilty. Think of it as liquidity swap. The Fed is swapping a liquid asset for an illiquid one. Inflation didn't occur because no new net assets were created. There is a myth the QE is "money printing" but its not. And you are correct about mortgages. QE is supposed to incentivize banks to create loans. (Which is how M2 money is created). Sounds good in theory but in a recession environment, there's no demand for loans. When loans are made to buy houses, start businesses, etc. At that time we should see inflation and some recovery |
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The current consumer price index preferred by the Fed as the most relevant, is wrong, because it excludes products essential to consumers and is a large part of the total consumption. Food and energy - that must be close to half of the consumption for many consumers.
Say what? Did you even read that article I posted? http://www.bls.gov/opub/mlr/2008/08/art1full.pdfDoes it matter. Well here is a proof: The government supplies several different indexes for consumer prices. At best, only one can describe the general consumer price level. Plus, the indexes are tuned, so at one time is defined in one way, another time it is defined another way. So there can be no accurate index. What there can be, is a number called CPI, measured at one of the specified methods. That number can be interesting to look at, that is why they make it. Still, the general price level for consumer prices can fundamentally not be measured. I do not think the Serious Economist disagrees on this, it is more a consideration of how important it is. Anyway, how do they ask to find the component parameters? Do they ask someone in the rockies what he sold his horse to his neighbour for? Why not? Why would anyone care, are horses in the CPI? According to that article they poll a basket of goods. And log the statistics based on that polling. The basket of goods is chosen to represent a cross section of consumer goods from different regions . There is a CPI-U and CPI-W to reflect the different lifestyles of urban vs non-urban dwellers. Its similar to how the Census Bureau poll data Just read the article. Its pretty interesting |
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Nice writeup on the current situation. US and many European states getting more and more difficulties to sell their debt to the market. They are forced to use extraordinary mechanisms to keep the system alive for a little longer.
It's just a question of time when this construct will collapse.
What would such a collapse look like at the start? And wouldn't there be measures that could be taken to prevent a collapse? That is assuming they saw it before it was too late. Crisis already occurred in 2008. But it wasn't a collapse of money. It was a collapse of credit (which is money). You have to consider half of the USD is created outside of Federal Reserve System in the shadow banking industry. When credit is securitized w leveraged w derivatives, when those derivatives take a nosedive due to asset deflation you have something similar to a bank run. Except its not depositors demanding deposits back. Its investors dumping their investments. The banks that wrote these derivatives are stuck w toxic assets. So what follows is a credit collapse. Meaning they can't de-leverage these assets and they freeze credit It all happens within the financial sector so its hard for people in the "real economy" to understand |
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As BTC are not consumed for direct use value (like gold or any other commodity) there is no risk of a deflation caused by an sudden increase of direct use value of the commodity.
The same pertains to pure fiat (not backed by anything). Actually, that was one of the reasons it came into existence and got universal acceptance (exclusion of externalities, such as finding a gold asteroid, for example). The correlation isn't as strong as it used to be when fiat was backed by gold, but I think that fiat is still essentially backed by the production capacity and assets of a country. That's more of an abstract concept, but the strength of a currency is generally based on the strength its country's economy, factoring in things like amount of debt, the ability to repay debt, trust in the country/currency, etc. Fiat like USD doesn't need to be backed by anything. Its legal tender so by law you have to pay your taxes in fiat. Its the only acceptable form of payment. The amount of taxes are correlated to GDP so you are correct. The price (compared to other currencies) fluctuate on economics Because its mandated that people have to pay taxes w fiat, the demand is always there. This guaranteed demand is what makes USD stable. As long as US economy is stable |
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I think the FED uses the term "sequestered". They are expanding the money supply, but basically only banks get access to it.
The banks get the expanded money supply that is supplied by the Fed. The hope is that banks will increase lending so that more people will borrow money, stimulating the economy. Then why in the name of Timothy Geithner do they bribe the banks to deposit the funds in the Fed rather than releasing them out into the economy If you are asking about Geithner. What he did was use the Fed to finance JP Morgans acquisition of Bear Stearns, AIG bailout, and TARP. He wanted to avoid a stock market crash I thought you were talking about QE in the op The name Timmothy Geithner was merely placed there for emphasis. My question, without the unnecessary exclamation, was "Then why do they bribe the banks to deposit the funds in the Fed rather than releasing them out into the economy." The simple answer is they're not allowed to. Congress has to do that via deficit spending |
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Really shadowstats? Thats where you got your numbers from? Oh lord  You forgot to insert an argument. He doesn't have one. He seems to regurgitate talking points from MSNBC, and has little understanding. Ha ha wrong. I don't follow mainstream economics. I follow heterodox economics & MMT. No need for me to argue shadowstats. Just google "shadowsats debunked" and you will find many examples of why its shit I googled "heterodox economics debunked"... that what you said right? Came up with "a heterodox economist nowadays could be defined as ‘somebody who aims for cheap applause from economically illiterate Guardian readers’" What should we google next? "Gravity debunked", "round earth debunked"? Occam's razor says the central bank has both the incentive and the power to skew inflation figures. yeah right I googled that and I found no such thing except one smarmy article that doesn't debunk anything. Its just an ad hominem article. Different schools of economics debate each other all the time but post-Keynsian are still from academia and someone like Minksy is getting very influential now that his work theorize why crisis occurs. Gravity & round earth are also accepted by academia. You know whats NOT? shadowstats & Stefan Molyneux & Rothbard. They're considered fringe (as in lunatic) I guess you don't understand Occum's Razor either. |
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But deposit accounts aren't necessary for bank to create credit. Savers aren't required for capital
This is a lie. Savings are required for investment, because currency is a representation of labor an individual has expended without yet receiving a payout from this labor. For example, if I grow apples in my back yard and sell you the apples, you give me currency, which represents the amount of work, capital, and risk I put into growing those apples. You can print currency without anybody working, sure. But then somebody has to work to build the capital that you're basically borrowing from him in this scenario. (The currency you just printed representing your debt to him). If the person wanted consumption immediately upon receiving your currency (i.e, he wasn't a saver) he would give it back to you in return for some service of your own, destroying the currency in the process (the currency found its way back to the issuer). In this scenario, you are now the saver, because you now have put in labor to pay off your debt to the person you originally paid, without receiving any immediate consumption in return (you just get the thing you "invested" in). I suppose you could have refused to accept your own currency, in which case I suppose one can argue there was no saving, merely the unfulfilled promise of saving, i.e, theft. Long story short, unless somebody somewhere is willing to take on the disutility of working without an immediate consumption payoff (i.e, saving) then there can never be any investment. Now it might SEEM like there might be capital created without savings if the fed were to right now print $100M, lend it to a bank, who lends it to a company, who uses it to finance building a better oil rig for example, but indeed the savers are those that accepted the newly printed $100M as payment for their labour. If this currency never is repaid by the issuer, then that's equivalent of the theft explained in the prior example. Commercial banks have deposit accounts but shadow banks don't even have deposit accounts. How can you explain money creation from within shadow banking then? You're right that capital comes from production (in a Marxist sense). But even in the Marxist view savers aren't needed only labor A company does an IPO and sell stock. Voila! Instant capitalization. There are no savers here either The savers are the people that bought the stock... How do you not see this. Or do you only define "savings" as "holding cash reserves or other cash reserve denominated debt?" Because I'm pretty sure that's not how most people would define savings. I also don't understand how its at all Marxist to say that money is the promise of labour, or something worth an equivalent amount of labour, in the future. AFAIK thats a pretty well accepted fact. Furthermore I don't understand why you are quite so obsessed with "shadow banking." There's nothing special about a "shadow bank" rather than any other bank. It matches savers up with creditors just like any other bank. In some cases the savers might be the equity holders of the bank itself, but this changes the purpose of the bank not. I can see why you are confused. I'm responding to the idea that you need savings to capitalize the economy. You define a saver as a person who saves. But I define a saver as a person w a savings account so I can use the term savings & saver interchangeably. I think I'm using banking language but you are using common language. Savings = savings account (deposit account). A saver is someone who has a deposit account. Bank pays interest on deposit account Stock = Investment account. Investor is someone who has investment portfolio. Investor take some risk 1 person can be both saver & investor at the same time. But when your money is in savings account you are a saver. When you money is in stocks you are an investor. The guy can withdraw money from his savings account to buy stocks but its not "necessary". He could be using money from selling his house, from his checking account, money gift, whatever. Its not necessary to have savings in order to have capitalization. Capitalization happens when a company sells its stock to investors. Neither the company, the investor, or the underwriter need to be savers in this scenario. Its totally possible for an economy to exist without savings. Savings are good when you are starting out and you need to accumulate funds. Doesn't mean its necessary. Did Zuckerburg need savings to start Facebook? I don't think so. He got an investment from his roommate, then other and bigger investors. Shadow banking perform same function as a commercial bank (albeit in a different manner). They function as credit intermediary. The difference is that they are unregulated so they are not required to have any deposit accounts at all. And most of them don't. Once again no savings (deposit account) is needed to create money. Deposit accounts are probably a very small portion of finance. Saving is good for the individual but has minimal effect on the larger economy I brought up Marx because someone made an example of labor to capital which was Marx contribution to economics. But even when you equate labor to capital no savings are needed in that equation either |
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