we are getting widespread defaults worldwide.
These "defaults" are still occurring agonizingly slowly and at the least painful level for the banks - someone else's wallet. They aren't writing the debt off, they're trying as hard as possible to offload at as little a discount as they can - passing the buck the way a politician hands off a bigger problem than he started with. So until we have multiple
trillions in
realized losses from financial institutions, I doubt we'll have a sufficient cleansing.
as GDP started its inexorable decline in the 1980's, banks had to figure out how to get the avg Joe, and not just corporations, into the debt game in a big way. that way was thru mortgages.
Damn right. To clarify: long-term residential mortgages hit the big-time in the 30's as a way to keep farmers on their properties. Since then, 30+ year home loans have become the norm, allowing for a greatly amplified active debt rise.
by keeping a cap on interest rates, Greenspan slowly encouraged an ever expanding housing bubble during his reign that accelerated exponentially btwn 2002-2007 after the NASDAQ crash. secretaries were taking out USD million dollar loans to finance a house flip. that drove housing prices to the moon as well as leverage. Wall St leveraged these same instruments up even more in the form of CDO's, CDO squared's and all other forms of derivatives. now that the housing bubble has burst defaults are happening worldwide thus contracting the USD money supply. Ben already did his best to try to reinflate the bubble but it didn't work. he cannot do anymore due to self preservation and political constraints. this is why there has been no more QE. we have hit the debt ceiling limit.
with those same low interest rates, speculators took cheap money and speculated in all other forms of assets including gold. and even you yourself admits gold is an asset. it is not the worlds reserve currency. the USD is and 60% plus debt in the world is USD denominated. as the Age of Deleveraging sets in all assets will get hit and repriced lower. its inevitable.
both Weimar and Zimbabwe did not have developed debt markets like the UST market. they had to print. the UST market is the largest and biggest debt market the world has ever seen. but its debt based and not currency based.
everyone is scrambling for USD's right now, not gold. i've already linked to numerous Bloomberg articles attesting to this fact. gold/silver is dropping and the $DXY is rising. whats it gonna take to convince you this is the dynamic that is happening?
Aside from the striked-out sections, I agree. The dynamic wasn't denied. There are some structural elements that create the conditions necessary for hyperinflation. Again, we need to focus on the debt issue - debt had been treated like money instead of debt by the market itself; now that said debt is locked up, it remains as money until it can be unwound. If the debt is merely handed off, it hasn't been unwound. In addition, when the debt instruments are finally deciphered, there will remain such massive distortions that pricing will be still be heavily distorted. That leads us to gold.
Gold is not
officially acknowledged as the world's reserve currency, for that would defeat the purpose of US hegemony held in place by the dollar. The dollar is linked to gold whether it's admitted or not. This link is not fixed, but determined by floating exchange in a market environment. Why is it that gold is such a threat to the established financial institutions that gold is persistently manipulated? Why did Volcker suggest that allowing gold to rise too quickly was a mistake? Why is gold held by banks as reserves? Our assumption that the dollar is backed by GDP or government is a half-truth at best.
Gold remains the asset side of money that provides the functions of a store of wealth and metric of value; in extreme situations, also a means of exchange. Banks and governments obviously realize this, or they wouldn't view gold as a threat; actually, it wouldn't even register at all. Yet it certainly does. Save in gold, spend in fiat.
The Federal Reserve is walking a tightrope. Too much deflation
or inflation would result in upheaval and its demise, stemming from the entity's failure to maintain the mandates set forth. Self-preservation doesn't work to boost the deflation argument. Bernanke could have boomed from the rooftops that there would never be another QE if outright deflation were being given consideration. No, instead we see him
pussyfooting around the elephant in the room (isn't it a little suspicious that Hoenig announced months ago that he's leaving on October 1st and we're now
seriously on the precipice of European sovereign default?).
Instead, that self-preservation is seeking to delicately cut a narrow path through a financial and political minefield. Stability is critical to the Fed's survival. Too far in either direction and the angry cries rise to a crescendo. The real problem is that the actions being taken to remain in control are actually making that stranglehold more difficult to maintain. Is volatility not far greater than it was three years ago? Haven't the factors involved in the crises been shown to be larger in scale and scope than previously imagined? What happened to stability?
do you really think i was serious?
Hard to tell, plus you were on a roll. Oh, and you're too damned professional with your double spaces between sentences.
ask yourselves this: for much of the 40yr since the US depegged, the Fed's balance sheet stayed relatively the same size and was mostly composed of UST's. yet the USD kept dropping. why? b/c of the debt expansion, not printing. since 2008 the Fed has only added 2T to that same balance sheet, a mere pittance vs the total amt of USD denominated debt accumulated over those same 40 yrs.
now if that debt starts contracting via defaults as the graphs clearly show AND the Fed cannot or will not monetize it, what will the USD value do?
If the debt can be unwound quickly enough, yes. That would probably require major banks to effectively self-destruct. The world's myriad legal systems would also have to burn the midnight oil to even make a dent in the case load. If the backlog of RMBS-related foreclosure cases were a priority, would we have people living in houses for 3 or more years? That actually benefits the banks to a degree - the longer a debtor remains in a house (rent-free or making even irregular payments), paying utilities and maintaining the property, the less the banks will have to lay out for the same purpose - until they finally get around to legal proceedings.
The debt won't be unwound in a timely manner for the simple reason that the banks will attempt to muddle through this. It doesn't matter that they'll be so weak on the other side that they probably won't be around for long - they're in survive-at-all-costs mode. Granted, this is an assumption, but does it seem likely that they will? This means that the real key to a raucous deflationary outcome is not the Fed, but the world's major creditors, particularly the big derivative producers. Yes, I acknowledge that there are other factors, but none so overwhelming as this.
we've entered the Age of Deleveraging where that debt will be written down. it can no longer be marked to model and will soon have to be marked to market and with that will come a great contraction in the USD money supply (currency plus debt) driving UP the value of the USD and all asset values DOWN.
Fed mandate: price stability. If massive deleveraging occurs, price stability evaporates instantly. Without price stability, there is panic. Panic causes to civil unrest. That's politically unpalatable - it causes further contraction of business and the economy overall.
One solution: restrict the deleveraging as much as possible to slow the decline. This has been going on for three years now. It's too slow to bleed off a sufficient amount, but the rate can't be allowed to increase or major banks would blow up overnight.
Another solution: inflate the currency just enough to support market prices at or near current levels. Again, this has also been going on for three years. It's worked to a certain extent, preventing extensive defaults in financial instruments and other obligations. The effectiveness is wearing off and cannot be maintained with
POMO.
Yet another option: lie, cheat, steal, cover up and deceive. If only the truth were so easy to hide. Time is running out; the next stage of retreat will soon be necessary.
On top of domestic problems, the rest of the world's issues are exacerbating those in the US. Think non-linearly.
There's now a daily
backup of this thread just in case any Cosby-style craziness should happen again.
