Cypherdoc: The Second Great Contraction

[CurbsideProphet]

I know you're a reader of Rogoff so I thought you might find this article interesting if you haven't already seen it.  Decided to post to the forums rather than PM as it seems it would be of interest to others as well.

http://www.project-syndicate.org/commentary/rogoff83/English

[cypherdoc]

Thanks Curbside.  thats an interesting article.

i find it so strange that many of us, including you, could see way back in 2006-2007 that there was just too much leveraging going on in the financial markets.  the economists and shills didn't see it or maybe they did but were paid not to.  i remember so clearly at the top in 2007 the marketing of PIK loans, ARS (auction rate securities), CDS's, interest rate swaps, etc.  Leveraged buyouts were occurring left and right. Private equity was at the top of its game.  Even i, a non financial guy, could see the looming danger and went short the stock market.  fortunately i was following some great blog writers like Calculated Risk, Mish, and Naked Capitalism and we had some great debates on those forums.

it looks like the stock market is turning down again which is a very bad sign.  i'm short yet again.  the economic data stinks and Europe is falling apart.  someone is going to default here and its most likely going to be Greece as the first domino.  i'm also short the Euro. this will topple the debt pyramid like dominoes.  it'll be subprime all over again.

Rogoff is very right; this is going to be the Mother of All Great Contractions and maybe the 2nd Great Depression and its gonna hurt.  paradoxically the USD might skyrocket as the USD denominated debt worldwide gets written down.  i know this is the opposite of what many think but this is why i've been selling my gold and silver which could plummet if this plays out.  i know this is controversial and i'll get a lot of flack for saying so but it makes me nervous when everyones on the same bandwagon of an 11 yr bull.  i'll keep a few ounces of my gold just in case. 

i'm dumbfounded that he's suggesting a sustained inflation boost of 4%.  since when does debasing your currency stop whats going on now?  i'm more from the Austrian camp that says lets get it over with; it'll be a horrid 2 yrs but then it will be over much like the Recession of 1921.  then we can wash out the bad actors and speculators and be done with it.  sustained inflation will just allow more stealing from the avg US taxpayer so the speculators can have time to rid themselves of their bad investments.  they've already been given that chance over the last 2.5 yrs and look what they've done with it;  ramped stocks and commodities to the moon so they could recoup their losses and raped the shorts that deserved their payout from a correct reading of the fundamentals.  now we're worse off than before and the gold price is evidence of this.

it will be interesting to see what happens to Bitcoin.  i should have been more cautious over $10 but fortunately had started buying at $1.60 so i'm still ahead if we stay where we are now.  i still think its a great idea and more utilitarian than gold/silver but you never know.  i will give it 10 yrs.

thanks for listening.

[CurbsideProphet]

Funny you should mention Mish as I found this article on the METAR forum that he started.  Sounds like we come from similar backgrounds. 

I agree with you on Greece, they're past the 150% debt/GDP point-of-no-return.  JPMorgan is saying Italy and Spain will be out of cash by September and February, respectively, if they lose access to the funding markets. 

[cypherdoc]

Funny you should mention Mish as I found this article on the METAR forum that he started.  Sounds like we come from similar backgrounds. 

I agree with you on Greece, they're past the 150% debt/GDP point-of-no-return.  JPMorgan is saying Italy and Spain will be out of cash by September and February, respectively, if they lose access to the funding markets. 

Mish is a deflationist and was only one of a few who said everything would plummet in 2008 including commodities.  i tend to think he'll be right again altho no 2 crises play out the same way.

i can't believe the rioting thats been going on in Greece for a couple of years now and nobody does anything different.  its a powderkeg.

Italy and Spain have been denying any debt problems for years now as well.

yield spreads and CDS have been betraying these folks though for a long time now and we're getting very close...

[miscreanity]

Not to disrupt a good conversation, but a public posting begs for additional discourse and general labels of inflation or deflation can be dangerous assumptions. Some aspects of economies will be inflating while others will be deflating, according to definitions based on price.

There is more to this whole tale than debt. The world has a two-tier economy: the one we're familiar with that is accessible to all and has its base in fiat currencies and the relative valuation applied with their denominations, and the real wealth production level that primarily involves gold and oil which is restricted to those entities large enough to engage it.

If you aren't familiar with them:

Martin Armstrong - long-term cycle analysis, projection and timing
Eric De Groot - in-depth capital flow analysis
Antal Fekete - deep financial/economic history
Jim Sinclair - master gold trader/investor
FOFOA - explanation of contemporary monetary system

[CurbsideProphet]

Not to disrupt a good conversation

No, please do.  I posted to the forums so that anyone can chime in, I just added Cypher to the title because he specifically mentioned this author not long ago.  As he mentioned in his post, and I concur, spirited debates generally help in forming ones investment objectives/outlook. 

I'm always open to constructive criticism and different points of view.

[cypherdoc]

Not to disrupt a good conversation, but a public posting begs for additional discourse and general labels of inflation or deflation can be dangerous assumptions. Some aspects of economies will be inflating while others will be deflating, according to definitions based on price.

There is more to this whole tale than debt. The world has a two-tier economy: the one we're familiar with that is accessible to all and has its base in fiat currencies and the relative valuation applied with their denominations, and the real wealth production level that primarily involves gold and oil which is restricted to those entities large enough to engage it.

If you aren't familiar with them:

Martin Armstrong - long-term cycle analysis, projection and timing
Eric De Groot - in-depth capital flow analysis
Antal Fekete - deep financial/economic history
Jim Sinclair - master gold trader/investor
FOFOA - explanation of contemporary monetary system

you're quite right; the economy has multiple moving parts and some can be deflating while others inflating.  i guess one way to describe the business cycle would be at peaks and troughs the economy can have a mix but when looking at the middle of the rise or fall from those peaks and troughs then you get more absolute inflation or deflation.  

i've read 3 of the 5 above authors so i'm not doing too bad.  Feketes analyses are most intriguing.  i went to one of his courses and i like his description of how the UST bond market players anticipate the Feds buying helping to drive down interest rates which will suck the lifeblood out of the real economy.

[miscreanity]

No, please do.  I posted to the forums so that anyone can chime in...

I'm always open to constructive criticism and different points of view.

Good to know! I've noticed that economic-types can get pretty heated when their views are threatened instead of agreeing to disagree without further hard evidence.

you're quite right; the economy has multiple moving parts and some can be deflating while others inflating.  i guess one way to describe the business cycle would be at peaks and troughs the economy can have a mix but when looking at the middle of the rise or fall from those peaks and troughs then you get more absolute inflation or deflation.  

i've read 3 of the 5 above authors so i'm not doing too bad.  Feketes analyses are most intriguing.  i went to one of his courses and i like his description of how the UST bond market players anticipate the Feds buying helping to drive down interest rates which will suck the lifeblood out of the real economy.

Yes, and Armstrong's work elaborates on the cyclical nature of markets. It's similar to the additive effect of wavelengths, but imagine this multiplied many times over.



Exactly - using the currency for monetization of debt (promise of return/work) without value (the return/work) kicks back valueless currency. Not conspicuous, but still outright theft.

If you haven't read FOFOA, the perspective presented is biased toward the Euro and its ties to gold. My concern is the human control element of the currency as opposed to Bitcoin's decentralized and near-instantaneously self-correcting mechanisms.

[cypherdoc]

No, please do.  I posted to the forums so that anyone can chime in...

I'm always open to constructive criticism and different points of view.

Good to know! I've noticed that economic-types can get pretty heated when their views are threatened instead of agreeing to disagree without further hard evidence.

you're quite right; the economy has multiple moving parts and some can be deflating while others inflating.  i guess one way to describe the business cycle would be at peaks and troughs the economy can have a mix but when looking at the middle of the rise or fall from those peaks and troughs then you get more absolute inflation or deflation.  

i've read 3 of the 5 above authors so i'm not doing too bad.  Feketes analyses are most intriguing.  i went to one of his courses and i like his description of how the UST bond market players anticipate the Feds buying helping to drive down interest rates which will suck the lifeblood out of the real economy.

Yes, and Armstrong's work elaborates on the cyclical nature of markets. It's similar to the additive effect of wavelengths, but imagine this multiplied many times over.



Exactly - using the currency for monetization of debt (promise of return/work) without value (the return/work) kicks back valueless currency. Not conspicuous, but still outright theft.

If you haven't read FOFOA, the perspective presented is biased toward the Euro and its ties to gold. My concern is the human control element of the currency as opposed to Bitcoin's decentralized and near-instantaneously self-correcting mechanisms.

i believe in cycles too.  but whats this about the Euros ties to gold?  how so?

i have a short on the Euro too as i think the union will eventually blow apart.  with all the troubles over there how could anyone buy the Euro?

[cypherdoc]

from FOFOA:

"Some time ago gold not only was used as money but also circulated as currency. It had always been money and people had no use for a separate currency to represent "gold money" so they stamped the gold itself and used it as circulating currency. From the start, one thing most thinkers can't quite grasp is that "money does not have to circulate"! The first "world money", gold money that is, could stay locked up and still represent value and wealth. People had but to agree on who owned it in exchange for goods and services. You have all read the articles about how paper receipts for "gold money" were later circulated and became paper currency receipts, then paper currency, then just currency."

well, there you go Bitcoin!

[miscreanity]

Bingo. Whatever acts as a reserve does so. A medium of exchange can then function as a CFD, somewhat similar to how fiat currencies work today in usage (exchanging fractions of net assets for fractions of net worth while maintaining reserves of both).

Bitcoin works both ways and in a more flexible manner than gold - once the majority of Bitcoins have been mined, your share of the BTC pool will effectively remain constant. You can either store the value or transact it.

Gold still has its purpose as a final fail-safe should the network that Bitcoin relies up on actually be compromised sufficiently.

I don't know about you, but I think this subtle shift is as game-changing as industrial manufacturing.

[cypherdoc]

Bingo. Whatever acts as a reserve does so. A medium of exchange can then function as a CFD, somewhat similar to how fiat currencies work today in usage (exchanging fractions of net assets for fractions of net worth while maintaining reserves of both).

Bitcoin works both ways and in a more flexible manner than gold - once the majority of Bitcoins have been mined, your share of the BTC pool will effectively remain constant. You can either store the value or transact it.

Gold still has its purpose as a final fail-safe should the network that Bitcoin relies up on actually be compromised sufficiently.

I don't know about you, but I think this subtle shift is as game-changing as industrial manufacturing.

we agree.  except that i could see gold lose a huge amt of its appeal if btc assumes the mantle of reserve currency.  my ultimate prediction is that the world moves to a Bitcoin based USD standard.  this way we could maintain a strict 10:1 fractional reserve which could be strictly enforced by instantaneously moving the reserve (Bitcoin) back and forth btwn countries out of balance while also maintaining a modest leveraged system that would allow entrepreneurship AND banking.  this also allows the US to maintain its leadership role which i'm sure our Mandarins desperately wish to hold onto.