Economic Devastation

[Morbid]

as far as im aware all those qe money go to those close to the printing press. so them dow and s&p are now booming as well as other currency markets. it will take time but those fund will absolutely have to return into the circulation soon or later. i wonder whether fed will be able to hold the sudden influx in fiat as soon as there is a run on any of them markets.

[1714795853]

1714795853

[STT]

The main factor for circulation of currency rather then just storage of debt by countries supporting the trade deficit of USA will be interest rates and deprecation of the cash. [also the failing budgets of those countries, Japan has $1tn etc] It will make more sense to sell that debt and realise it as dollars or bid up the prices of tradable assets.  Thats why many expect a commodity boom though we seem to be seeing the opposite and world gdp has fallen in expectation for some time now (while remaining positive year to year overall)

[aminorex]

Look at it this way:  They keep printing, but it all goes to the cronies at the start of the pipeline.  These blessed few, this band of brothers, will hoard the $$ as long as they can gain a spread on them.  When they can no longer gain a spread, le deluge en suite.  All that cash reaching for spread means yields go down.  It gets so hard to find anything that hasn't been bid up to untenable risk/reward levels that investment is gradually grinding to a halt.  CapEx is way down.  R&D is way down.  It's all dividends and buybacks, debt on top of debt.  The real economy grinds slower and slower even as the financial bubble is expanding.  When the disconnect finally snaps, the crash will be nasty.  Already we are starting to grind down in commodity deflation.  The threads connecting finance and material economy are too weak to bind them.  They are stretching.  It is a really good time to be in cash (and crypto).  Poor time to be in equities, bonds, commodities (including monetary metals for the time being, although that will change when the fan starts to make the sloppy noise).

[Morbid]

Look at it this way:  They keep printing, but it all goes to the cronies at the start of the pipeline.  These blessed few, this band of brothers, will hoard the $$ as long as they can gain a spread on them.  When they can no longer gain a spread, le deluge en suite.  All that cash reaching for spread means yields go down.  It gets so hard to find anything that hasn't been bid up to untenable risk/reward levels that investment is gradually grinding to a halt.  CapEx is way down.  R&D is way down.  It's all dividends and buybacks, debt on top of debt.  The real economy grinds slower and slower even as the financial bubble is expanding.  When the disconnect finally snaps, the crash will be nasty.  Already we are starting to grind down in commodity deflation.  The threads connecting finance and material economy are too weak to bind them.  They are stretching.  It is a really good time to be in cash (and crypto).  Poor time to be in equities, bonds, commodities (including monetary metals for the time being, although that will change when the fan starts to make the sloppy noise).

imagine the size of warehouses these folk need to stuff with paper dollar to be able to dump it onto public fast enough for them not to realise what just happened. the rush through the door could be most chaotic period human society have ever experienced. i believe that as soon as we notice chaotic panic buy in property, precious metals or even crypto all at once - will mean that the fourth turning is days away.

[OROBTC]

...

NO ONE can predict the future (and I have tried).  Explaining the present is difficult enough (as many of you have written and I also have tried in other fora).  While the comments and back-and-forth on this thread have been most excellent and informative, most people (80%, 90%?) are not aware of the profound problems of QE and the corrupt TPTB/TBTF/TBTJ playas.  I follow all of this closely, have for decades, and yet I cannot explain the weird state of our financial system.

Other than to say we should be on Red Alert.

"Something wicked this way comes."

"Corruptisima republica, plurimae leges"

There is too much debt and too much malinvestment in the world.  China and Brazil have just been shown to be in deep excremento...  That is fairly clear as well here in the USA (most of the blame goes to .gov and the banksters), but who elected our leaders?  Hmm?  We all share some blame...

*  *  *

I further believe that everyone should hold a reasonable amount of gold (and/or some silver and/or platinum) as well as plain old FRNs (CA$H) along with whatever more conventional investments (stocks, bonds, real estate or even fine art).

And BTC is without doubt a "core holding", even if only 1% or less of one's net wealth is in crypto...  Although I am certainly no expert (many experts here can attest to that), my belief is that for at least sometime Bitcoin is (will be) far superior to the other cryptos, certainly to the amateur (people like me).  More adept crypto enthusiasts can probably work the alt-coins mining/trading to get more, but that approaches professional level knowledge.

And despite the fact that debt might be attractive in a hyper-inflationary scenario, again NO ONE can predict squat, avoid debt as you are able.

*  *  *

In my year or so of membership here, I have been most pleased with the quality of the threads I follow.  The excellence I see in just this thread matches or exceeds most of what I read at Zero Hedge (possibly ZH has gone downhill).

2015 promises to be "an interesting year" (perhaps interesting in a bad way fairly soon).  Preparation for a hard-landing is just smart!

Best Wishes for a Happy New Year to all.  But, in case my wishes to you are all for naught, best be prepared as you can...

[Morbid]

bheeeeeeeeeeeeee

https://www.youtube.com/watch?v=TM8L7bdwVaA
https://www.youtube.com/watch?v=PStpvviPgxk

[Silverspoon]

When the disconnect finally snaps, the crash will be nasty.  Already we are starting to grind down in commodity deflation.  The threads connecting finance and material economy are too weak to bind them.  They are stretching.  It is a really good time to be in cash (and crypto).  Poor time to be in equities, bonds, commodities (including monetary metals for the time being, although that will change when the fan starts to make the sloppy noise).

Such pretty prose, and your end time imagery - fantastic!  Crashing, grinding, strained threads stretching, sloppy fans flopping.  Write bitcoin fanfics, would totally read for sure.

[contagion]

Your graphs use cherry-picked data...

And you accuse ME of lying?

Liar. No they don't. Yes you continue to lie.

I pointed out that it was cherry-picking (3 arbitrary years cherry-picked from a century).

You lied. Go check the data (from any source you can find) for the other years to educate yourself of the consistent trend to higher (what is now nosebleed) levels of government share of GDP in all Western nations.

The rest of your post was as usual, vacuous noise (maybe not the first time we discussed it, but it is the 100th time now...).

Note top-down isn't always "wrong", e.g. it can be the most expedient and when the system has Coasian barriers (e.g. FLOSS without my vision of micropayments) then top-down is unavoidable. My point (which I have repeated so many times) isn't that top-down can be eliminated in every scenario, rather that top-down in the IRON LAW of Political Economics (a.k.a. Resource or Fixed Capital Statism) has proven over and over in all the human history since Mesopotamia to lead to catastrophic outcomes such as world wars and megadeath. It is the definition of insanity to blame that on the free market (repeating the same outcome over and over, and blaming not the causal generative essence), when it is Coasian barriers inherent in the Tragedy of the Commons of collectivizing the taxation and regulatory purse (the honey that funds and attracts the flies) that enable the vested interests to capture the politics. Top-down exists even in bottom-up systems, because the autonomous agents in the free market are top-down decision makers for their slice of the system. The problem with top-down is a matter of the extent of what has been collectivized and whether it creates a divergent system that becomes a cancer on itself — which is the case for the collectivization of the taxation and regulatory resource.

It is simply impossible to fund those horrific outcomes if there isn't a collectivization of the taxation and regulatory resource. Repeat that sentence over and over again, until the profound causal generative essence point sinks in to those loose rocks in your cranium.

The Statist apologists want to convince us that with regulatory reform or with democracy, we can control that collectivized resource and put it to good use and not allow it to be captured. But history has shown over and over that is not the case. Blaming capitalism is the same as blaming opportunity cost. It is analogous to blaming an animal for killing in order to eat. If you put a big pot of honey in front of the free market, the free market will use game theory to try to steal it. No amount of regulation of the regulators who are regulating the regulation which regulates the regulators which... can solve the problem. Only eliminating that collective resource can solve the problem. This is also Armstrong's mistake when he calls for collectivized reform as a solution.

During the Fixed Capital (Agriculture and especially Industrial) Age, the Coasian barrier of the power law distribution of stored capital makes impossible to eliminate collectivization, because individual labor can't generate economy-of-scale production autonomously and thus can't prosper autonomously without top-down organization and thus the clamor for redistribution. But the Knowledge Age changes this fundamentally.

Recently I realized that the currency wars, are beggar-thy-neighbor competitions to see who can reduce the cost of production below 0 with debt subsidies. This is because there are too many people and the Industrial Age doesn't need them (because factories can produce more than we need with only a fewer and fewer workers). The only solution is to move to the Knowledge Age. The Industrial Age economy will bifurcate into megadeath for all those who don't jump to the Knowledge Age.

Communist apologist please go away. If the abject failure of Communism is not enough evidence for you, then just proceed along your merry way to the next Gulag. I certainly don't want to stop you. I am talking to those who want to seek freedom. We are not wasting our time trying to convince Communists.

[contagion]

http://blog.mpettis.com/2014/12/how-might-a-china-slowdown-affect-the-world/#comment-108021

Currently, China is economically centralized and politically decentralized. If Prof. Pettis is correct, China will become more economically decentralized and more politically centralized.

That is a thought provoking point. You are I assume pointing out that local governments are given a lot of autonomy (to borrow and build) which is one of the primary causes of that the fixed capital investment dominates the share of the GDP in Pettis' model of China's dilemma. You are also implicitly pointing out for example that the central government will need to assume all of the bad debt.

...By the way, do you know how much cheaper transport costs by water are vs transport costs by land? When you add in the costs of the road and rail networks, we’re talking about a 70 fold increase in costs when you’re talking about transport costs by land...most of the navigable waterway lies in the south of the country ... protect everyone’s [physical not virtual Knowledge] trade, the free trade order we’ve had since World War II will be gone.

IMO irrelevant.

Again I find my disagreement with your analysis hinges on my theory of a fledgling Knowledge Age which will render the physical economy irrelevant. You are egregiously overvaluing the importance of physical trade in the future economy. I believe your model is wrong.

The top-down central government is entirely incapable of being in tune with this bottom-up global paradigm shift of economics. Even I assert Thomas Piketty got the facts wrong in his bestseller Capital in the Twenty-First Century.

The currency wars and China's subsidy of global manufacturing are a beggar-thy-neighbor competition into the deflationary abyss, because the Industrial Age is dying. Factories can produce more than humans can consume in a non-debt saturated economy and only require a small number of humans to do so. Even Oxford U. predicted that 47% of existing jobs would be replaced by automation before 2032. The world's population has to move into the higher valued Knowledge Age, but the governments are subsidizing the old Industrial Age statism model to prevent the masses from being motivated to make the transition. Thus the governments are pushing us to the precipice of a discontinuous, waterfall collapse adjustment and overshoot with a bifurcation of the global economy into a (potentially megadeath) dying statism cancer and a fledgling autonomous Knowledge Age.

I expect China to collapse into this deflationary abyss and fledgling Knowledge Age chaos along with the rest of the globe, but Asia will bottom first because it has much lower levels of constituent liabilities and taxes. It is as simple as that. Your model of the future of the USA is wrong. The future is about how much the State gets out of the way and allows the Knowledge Age to prosper. In the USA, Obama wants to use executive power to take totalitarian control of the internet regulating it as a public utility via the FCC and taxing it 16%. Ditto France. Spain taxes sunlight. The West is done, stick a fork in it. Asia is the future. Sorry Suvy your physical trade model is archaic.

{satire}Prof. Pettis is wise to be moonlighting as an economist while (to fund) his serious career is in his Chinese music label, because creative knowledge production is where the future value is.{/satire}

P.S. Also trade is a very small component of international capital flows, so trade has nearly no relevance on the imminent tectonic contagion of global finance.

[OROBTC]

...

@ contagion

I have not read enough of your comments to readily reply in a proper manner, but the "real economy" (production and transportation) is still extremely important not only in the USA but in the rest of the world (very much so in Peru, "my other beat").  WATER transportation (our internal river networks and how CHEAP such transport of bulk materials are) was and is a tremendous "capital investment" that we never even had to make!  And so we did not have to use up scarce capital like Germany (for example) did when they built their railroads in the late 1800s as their rough-equivalent of our riverine transport systems.  

The Stratfor guys have written columns and books (especially The Revenge of Geography (Robert Kaplan, 2014)) on this topic of capital and the "Real World" of MOVING stuff.

I closely watch economic developments, including and especially topics like "Economic Devastation".  Although I think the trend of your observations (Knowledge Economy, etc.) is correct, these evolutions typically take longer than we think.  

Michael Pettis is apparently a highly respected observer of China and their economy.  I wish I had more time to read him, as I think he has China pretty well figured out (and it ain't pretty in China).

I have not read Piketty's book (um, who has?), but presuming he is like 99% of all other Socialists, he is likely to be almost completely WRONG in his prescriptions.  Exhibit One: France.  And he thinks France is not Socialist enough... 

@ CoinCube

The "My Messages" tab above is so small that it is hard to notice, but you have a message.

[contagion]

Waterfall collapse of the Industrial Age to usher in the Knowledge Age

Although I think the trend of your observations (Knowledge Economy, etc.) is correct, these evolutions typically take longer than we think.

Just like the fall of the Berlin wall, bankrupt paradigms waterfall collapse to usher in the new.

http://kwout.com/cutout/9/i4/cr/wdc_bor.jpghttp://kwout.com/cutout/f/5p/bg/yjb_bor.jpghttp://kwout.com/cutout/h/vj/mj/bqs_bor.jpg

The physical economy is bankrupt because the economies-of-scale are too great and the maximum division-of-labor can not advance. It may seem valuable to you because the ruler you are using to measure with is the illusion of a massive $200 trillion global debt bubble. Society is trying to prop up that bankrupt Industrial Age paradigm with debt and socialism.

Knowledge production generates several orders-of-magnitude more value per human than the Industrial Age. Heck in just a few months in 1998, I (all by myself) wrote some software that was generating up to $30,000 a month in today's dollar. The internet has 10 times more population now.

Sorry the USA has lost the advantage of the waterways. That paradigm is dead. This is another reason China and Asia will rise, because they have more human capital and their economies aren't burdened with the political dead weight of an aging population that is not able to make the waterfall transition and $trillions of promises to boomers.

Knowledge workers will move to cities (this is already underway with integrated BPO communities for example in the Philippines), no need to move goods to remote sparsely populated locations. Besides, the physical goods are a small fraction of the wealth generated from knowledge work. There is no reason that Silicon valley has to be in the USA, it could be any where that knowledge workers congregate. And the knowledge workers will run away from the USA when it turns draconian when the economy implodes after 2016 and the totalitarian expropriation of wealth goes into hyperdrive.

Another two charts supporting my position of the death of stored capital and fixed capital investment Industrial Age model shows that interest rates and commodity prices have been declining inexorably since the damn of human civilization:

http://kwout.com/cutout/x/ke/6d/c36_bor.jpghttp://bigpicture.typepad.com/comments/images/cfn396_1.gif

Michael Pettis is apparently a highly respected observer of China and their economy.  I wish I had more time to read him, as I think he has China pretty well figured out (and it ain't pretty in China).

Pettis expects a top-down restructuring of China to rebalance from an economy that is highly unbalanced in the fixed capital investment and Industrial Age paradigm, to a more balanced consumer share of the economy. In other words, China has been subsidizing global manufacturing at below cost, by massively expanding debt and stealing from the workers by suppressing interest rates and their import purchasing power with the Yuan peg.

I think Prof. Pettis is wrong and the Communist Party will lose control of China as the contagion of the global bankrupt paradigm domino collapses. This is why war between China and Japan is probably imminent, as the leaders of China try to invoke nationalism to retain their grip on power.

But I think by 2032 (perhaps as early as 2024), China and Asia will fracture away from control and emerge with bottom-up high performance in the Knowledge Age.

Understand the Chinese people are just going with the flow of the Communist Party system but every step since the 1980s has been greater and greater freedoms and more autonomous governance and business. Now I read that Christmas is sweeping China a popular fad and the leaders are trying to outlaw it (haha the people ignore the leaders). Asia has been bottled up in cronyism since the mid 1900s, and now suddenly the cronyism is falling away because it is not viable economically, and the youth have woken up given the internet.

Even the youth in Japan want to get rid of the xenophobia.

[OROBTC]

...

contagion

It looks like I still have plenty of reading to do.  Thank you!



*  *  *

However, I do not think that even the Mighty Martin Armstrong can predict the future in the detail that he does (eg 2015.75).  I read much of his "prison work" (which was remarkable, probably better than the few-ish pieces I have carefully read since he got out).

Yes, you are correct about the amazing speed of the fall of the Berlin Wall and Soviet Communism.  I am an "ex-Cold Warrior" (from behind a desk), and NOBODY I knew predicted what would happen, not even close.

But, Armstrong's chart of Athens' fall is over some 50 years, and the Roman denarius lost its silver over a period of (hard to say from the graph) years.  OK, certainly things have sped up...

NOT trying to pick any fights (I just dropped out of Zero Hedge's Fight Club), and I think the various dialogues in this thread are of a very high caliber (pun intended).

*  *  *

Predicting the future is very hard, especially because it has not happened yet (thanks Yogi Berra).  Trends often get "Black Swanned" (thanks Nassim Taleb).

The physical economic realm is by no means dead -- being smart in Peru offers relatively few advantages.  Learning more and working smarter (here -- USA) is a great investment, but I would not bet serious money on any single imaginable scenario myself.  NOBODY knows what will happen.  The Banksters or .gov (ours or other .govs) could throw all kinds of monkey-wrenches that could change outcomes.  IMO, nothing is determined.  And that is why I diversify...


A Disclosure: I am now at the age where I want to preserve capital above all else, that in great part is the lens through which I view things.

[contagion]

Armstrong has been predicting events precisely to the day. The below $57 closing price for oil on Dec. 31, he predicted long ago (I saw it). There are many, many examples I have observed.

The build up to the waterfall crash is a 51.6 or 31.459 year cycle, but the final waterfall is about 8.6 years with the largest portion of the transition over 4.3 years.

Events change but the pattern of time and human nature repeats.

You can't preserve stored capital. The western governments are going to confiscate it also. Sorry it is all going poof (highly devalued relatively speaking) in the Knowledge Age. Sorry knowledge age workers don't need your stored capital. The capital startup costs are near 0 now. Everybody has a computer. It is the intellectual capital that is extremely expensive.

We will permanently move to negative real interest rates. The coming crypto-currency of the Knowledge Age will be debased 5 - 10% per year. The Knowledge Age doesn't want to be enslaved by the power law distribution of stored capital. It wants to motivate knowledge capital instead.

The negative interest rates are a sign of what is changing. Most people see them as corruption, because they don't understand the paradigm that is occurring. I am not referring to Communism, because the knowledge capital will still be power law distributed and this will be a free market, not a command economy. And the debasement of a decentralized crypto-currency won't be captured by corruption, rather it will be expended in electricity to secure the system and secure the freedom of the Knowledge Age from the slavery of stored capital.

You might as well spend it now. Enjoy your life.

Remember the Bible verse, you will throw your (worthless) silver and gold into the streets...look again at the commodity price chart for the inexorable decline.

[STT]

They keep printing, but it all goes to the cronies at the start of the pipeline.  These blessed few, this band of brothers, will hoard the $$ as long as they can gain a spread on them.  When they can no longer gain a spread, le deluge en suite.  All that cash reaching for spread means yields go down.  It gets so hard to find anything that hasn't been bid up to untenable risk/reward levels that investment is gradually grinding to a halt.

That money printed newly is largely going to governments.  If it was being distributed in a truly capitalist way the money would just be spent.   The biggest investment most ordinary people make is in their own family not crappy 1% bonds that wont even beat inflation in the end.
  We have a truly skewed economic system because it doesnt have cash apportioned to people as it should be, normal people just spend cash as they get it so all this low inflation is symptom of illness and their cure is to print more 
 USA largest trading partner is a Communist undemocratic dictatorship.   You cant really have much faith in a system which will execute dissenters, today it benefits the west to have China storing this cash not allowing their own people to use it but at some point it will turn bad against us Im pretty sure.  I really cant see how China would be so benevolent towards us, they will treat us harshly as and when it appears best for them

[Silverspoon]

so all this low inflation is symptom of illness and their cure is to print more 
 

[contagion]

so all this low inflation is symptom of illness and their cure is to print more  
 

http://memecrunch.com/meme/1Y6CY/i-m-not-even-mad/image.png

You hard resources and stored capital investor fools are misunderstanding the paradigm shift underway. The stored capital is the problem. It must be eliminated in order for the world to move forward into prosperity.

You can't preserve stored capital. The western governments are going to confiscate it also. Sorry it is all going poof (highly devalued relatively speaking) in the Knowledge Age. Sorry knowledge age workers don't need your stored capital. The capital startup costs are near 0 now. Everybody has a computer. It is the intellectual capital that is extremely expensive.

We will permanently move to negative real interest rates. The coming crypto-currency of the Knowledge Age will be debased 5 - 10% per year. The Knowledge Age doesn't want to be enslaved by the power law distribution of stored capital. It wants to motivate knowledge capital instead.

The negative interest rates are a sign of what is changing. Most people see them as corruption, because they don't understand the paradigm that is occurring. I am not referring to Communism, because the knowledge capital will still be power law distributed and this will be a free market, not a command economy. And the debasement of a decentralized crypto-currency won't be captured by corruption, rather it will be expended in electricity to secure the system and secure the freedom of the Knowledge Age from the slavery of stored capital.

You might as well spend it now. Enjoy your life.

Waterfall collapse of the Industrial Age to usher in the Knowledge Age

Although I think the trend of your observations (Knowledge Economy, etc.) is correct, these evolutions typically take longer than we think.

Just like the fall of the Berlin wall, bankrupt paradigms waterfall collapse to usher in the new.

...

The physical economy is bankrupt because the economies-of-scale are too great and the maximum division-of-labor can not advance. It may seem valuable to you because the ruler you are using to measure with is the illusion of a massive $200 trillion global debt bubble. Society is trying to prop up that bankrupt Industrial Age paradigm with debt and socialism.

Knowledge production generates several orders-of-magnitude more value per human than the Industrial Age. Heck in just a few months in 1998, I (all by myself) wrote some software that was generating up to $30,000 a month in today's dollar. The internet has 10 times more population now.

...

[STT]

Reminds me of a story I once read of a young man who disillusioned with western life went to study with the monks at a Zen Buddhism spiritual temple.    Day after day he was seen to be contemplating much greatness within his mediation studies for hours on end.   Finally they thought he had achieved enlightenment such was his calmness, however he fell ill and was found to be suffering a brain tumour and had lost a large part of his brain function due to constricted blood flow.
    Without any reasonable feedback with his mentors due to the language difference, his apparent progress and calm peacefulness had been mistaken as progress.

  I very much hope it is incorrect to suspect something is seriously wrong right now in trade and global economies but I believe people are too willing to accept the current situation as ok or positive even when there should be warning signs enough matters are unbalanced not stable or progressing

[aminorex]

Finally they thought he had achieved enlightenment such was his calmness, however he fell ill and was found to be suffering a brain tumour and had lost a large part of his brain function due to constricted blood flow.

False dilemma?

[Silverspoon]

however he fell ill and was found to be suffering a brain tumour and had lost a large part of his brain function due to constricted blood flow.

Get better soon bro, everything's gonna work out just fine.

[OROBTC]

...

contagion has a message.  Continuing the conversation.

I would be most interested in the answer to my question near the end about a Toshiba or Samsung entering the BTC/ASIC chip segment.

Also, please see my comment re the Bible reference you made.


Cheers! 

That goes for all the rest of you too!