Global Financial Crisis scenarios

[polynesia]

Hi,

I have a question, but please direct me to a post if already asked:

In case of another GFC, would BTC bitcoin price:

a) stays on the same level 
b) skyrockets 
c) tumble down 

Take your pick:

This is a beautiful pic that sums it all. Im going to translate this and show my parents and non geeky friends. It's easy to see how BTC is a legitimate place to put your wealth into. I hope when the world realizes this I have enough BTC to call it a day.

This chart is true for any crypto currency, but I don't see all altcoins succeeding.

[twiifm]

This chart is true for any crypto currency, but I don't see all altcoins succeeding.

Haha good point.   

[TaunSew]

I'm not sure if gold is that portable.  Are you going to chip off flakes to pay for lunch at a restaurant?  Never mind a $1 million gold bar weighs like 25 pounds.  Forget what you saw in some Indiana Jones Movie, nobody can throw 10 bars into their backpack unless they're the Hulk.

[tee-rex]

This is a beautiful pic that sums it all. Im going to translate this and show my parents and non geeky friends. It's easy to see how BTC is a legitimate place to put your wealth into. I hope when the world realizes this I have enough BTC to call it a day.

This chart is true for any crypto currency, but I don't see all altcoins succeeding.

There can be only one.

[polynesia]

This is a beautiful pic that sums it all. Im going to translate this and show my parents and non geeky friends. It's easy to see how BTC is a legitimate place to put your wealth into. I hope when the world realizes this I have enough BTC to call it a day.

This chart is true for any crypto currency, but I don't see all altcoins succeeding.

There can be only one.

Yes, widespread adoption is the key.
And bitcoin has a head start.

[madken7777]

This is a beautiful pic that sums it all. Im going to translate this and show my parents and non geeky friends. It's easy to see how BTC is a legitimate place to put your wealth into. I hope when the world realizes this I have enough BTC to call it a day.

This chart is true for any crypto currency, but I don't see all altcoins succeeding.

There can be only one.

Lots of new coins coming up. I won't dismiss all of them yet.

[polynesia]

Lots of new coins coming up. I won't dismiss all of them yet.

True. The myspace-facebook analogy could play out in crypto as well.

[CoinsCoinsEverywhere]

do you think we`ll see something again like 2008? Its been 6 years already ever since that moment.

The 2008 collapse was something that generally happens less then once per lifetime.

The conditions to get the 2008 collapse are all there only bigger : reckless doing, 0% interest rate, government manipulation of markets, heavy regulation; except this time they will probably inflate the USD to make everyone whole so the stock market may not nominally go down

What caused the 2008 collapse was loose lending for houses (this also spilled over into other types of lending as well), we are not seeing that today. A secondary factor that contributed to the 2008 collapse was excess leverage at banks so investors could not determine if they had sufficient capital to survive.

Lose lending was encouraged by the FED and the government with Fannie Mae and Freddie Mac

We have exactly the same situation now with very low interests rates that create the bubble, except now it is bigger, the same that were in denied are still in denied because they are participating to the foolish bubble

It does seem like housing may be getting into bubble territory again.  But what's a lot scarier, IMO, is the bubble in US treasuries.  If/when that sucker pops, interest rates will spike, and the US will be screwed.  We've been borrowing many trillions on the assumption that we get to keep financing all that at a couple percent.  If interest rates go up 2-3x or more, the extra drain on tax money or loss of government spending will probably throw us into a nasty recession.

This won't happen since Congress will pass an act and Fed will print as much money as needed to cover all outstanding debts. And with the newly printed dollars, the happy US treasury bearers would buy even more US treasuries.

As I stated in one of my posts above, it's not that simple--you can't just print money like that.  There are a lot of extra consequences, and a lot of assumptions that everything else in the scenario we're discussing is as it is now.  If interest rates triple, that already means that a lot of people are losing faith in US treasuries.  If the US just starts blatantly creating trillions of dollars, all faith will be lost and treasuries will crash very hard.  It doesn't matter if people have tons of extra money to invest.  They'll be plowing it into investments that go up with inflation, unlike treasuries and bonds, which go down.

Of course, the other part of this is what's happening to the economy while treasuries are crashing.  If it's sliding into a recession/depression (which is quite plausible), then deflation could take hold, which might make bonds look more attractive.  But treasuries would likely still suck.

[tee-rex]

do you think we`ll see something again like 2008? Its been 6 years already ever since that moment.

The 2008 collapse was something that generally happens less then once per lifetime.

The conditions to get the 2008 collapse are all there only bigger : reckless doing, 0% interest rate, government manipulation of markets, heavy regulation; except this time they will probably inflate the USD to make everyone whole so the stock market may not nominally go down

What caused the 2008 collapse was loose lending for houses (this also spilled over into other types of lending as well), we are not seeing that today. A secondary factor that contributed to the 2008 collapse was excess leverage at banks so investors could not determine if they had sufficient capital to survive.

Lose lending was encouraged by the FED and the government with Fannie Mae and Freddie Mac

We have exactly the same situation now with very low interests rates that create the bubble, except now it is bigger, the same that were in denied are still in denied because they are participating to the foolish bubble

It does seem like housing may be getting into bubble territory again.  But what's a lot scarier, IMO, is the bubble in US treasuries.  If/when that sucker pops, interest rates will spike, and the US will be screwed.  We've been borrowing many trillions on the assumption that we get to keep financing all that at a couple percent.  If interest rates go up 2-3x or more, the extra drain on tax money or loss of government spending will probably throw us into a nasty recession.

This won't happen since Congress will pass an act and Fed will print as much money as needed to cover all outstanding debts. And with the newly printed dollars, the happy US treasury bearers would buy even more US treasuries.

As I stated in one of my posts above, it's not that simple--you can't just print money like that.  There are a lot of extra consequences, and a lot of assumptions that everything else in the scenario we're discussing is as it is now.  If interest rates triple, that already means that a lot of people are losing faith in US treasuries.  If the US just starts blatantly creating trillions of dollars, all faith will be lost and treasuries will crash very hard.  It doesn't matter if people have tons of extra money to invest.  They'll be plowing it into investments that go up with inflation, unlike treasuries and bonds, which go down.

Of course, the other part of this is what's happening to the economy while treasuries are crashing.  If it's sliding into a recession/depression (which is quite plausible), then deflation could take hold, which might make bonds look more attractive.  But treasuries would likely still suck.

You are right indeed. But we are choosing not between the good and the bad, but rather between the lesser of the two evils. The worse being a default, so what would the US choose? Actually, we already know the answer, since the debt ceiling was already raised in the conditions when the US government had been no longer able to pay out interest.

[CoinsCoinsEverywhere]

do you think we`ll see something again like 2008? Its been 6 years already ever since that moment.

The 2008 collapse was something that generally happens less then once per lifetime.

The conditions to get the 2008 collapse are all there only bigger : reckless doing, 0% interest rate, government manipulation of markets, heavy regulation; except this time they will probably inflate the USD to make everyone whole so the stock market may not nominally go down

What caused the 2008 collapse was loose lending for houses (this also spilled over into other types of lending as well), we are not seeing that today. A secondary factor that contributed to the 2008 collapse was excess leverage at banks so investors could not determine if they had sufficient capital to survive.

Lose lending was encouraged by the FED and the government with Fannie Mae and Freddie Mac

We have exactly the same situation now with very low interests rates that create the bubble, except now it is bigger, the same that were in denied are still in denied because they are participating to the foolish bubble

It does seem like housing may be getting into bubble territory again.  But what's a lot scarier, IMO, is the bubble in US treasuries.  If/when that sucker pops, interest rates will spike, and the US will be screwed.  We've been borrowing many trillions on the assumption that we get to keep financing all that at a couple percent.  If interest rates go up 2-3x or more, the extra drain on tax money or loss of government spending will probably throw us into a nasty recession.

This won't happen since Congress will pass an act and Fed will print as much money as needed to cover all outstanding debts. And with the newly printed dollars, the happy US treasury bearers would buy even more US treasuries.

As I stated in one of my posts above, it's not that simple--you can't just print money like that.  There are a lot of extra consequences, and a lot of assumptions that everything else in the scenario we're discussing is as it is now.  If interest rates triple, that already means that a lot of people are losing faith in US treasuries.  If the US just starts blatantly creating trillions of dollars, all faith will be lost and treasuries will crash very hard.  It doesn't matter if people have tons of extra money to invest.  They'll be plowing it into investments that go up with inflation, unlike treasuries and bonds, which go down.

Of course, the other part of this is what's happening to the economy while treasuries are crashing.  If it's sliding into a recession/depression (which is quite plausible), then deflation could take hold, which might make bonds look more attractive.  But treasuries would likely still suck.

You are right indeed. But we are choosing not between the good and the bad, but rather between the lesser of the two evils. The worse being a default, so what would the US choose? Actually, we already know the answer, since the debt ceiling was already raised in the conditions when the US government had been no longer able to pay out interest.

Ok, fair enough.  If we have to choose between printing and default, then yes, printing is preferable.  Ironically, however, if we print too much, we'll probably be forced into default anyway because no one wants to hold on to bonds issued by a country that's massively devaluing their currency.

[tee-rex]

You are right indeed. But we are choosing not between the good and the bad, but rather between the lesser of the two evils. The worse being a default, so what would the US choose? Actually, we already know the answer, since the debt ceiling was already raised in the conditions when the US government had been no longer able to pay out interest.

Ok, fair enough.  If we have to choose between printing and default, then yes, printing is preferable.  Ironically, however, if we print too much, we'll probably be forced into default anyway because no one wants to hold on to bonds issued by a country that's massively devaluing their currency.

This would be true if other countries wouldn't actually fdo the same, i.e. devaluate their currencies all along with the US printing money. This is called competitive devaluation.

[crazyALT47]

You are right indeed. But we are choosing not between the good and the bad, but rather between the lesser of the two evils. The worse being a default, so what would the US choose? Actually, we already know the answer, since the debt ceiling was already raised in the conditions when the US government had been no longer able to pay out interest.

Ok, fair enough.  If we have to choose between printing and default, then yes, printing is preferable.  Ironically, however, if we print too much, we'll probably be forced into default anyway because no one wants to hold on to bonds issued by a country that's massively devaluing their currency.

This would be true if other countries wouldn't actually fdo the same, i.e. devaluate their currencies all along with the US printing money. This is called competitive devaluation.

When all the countries (or most countries) use QE then the exchange rates stay roughly the same while global inflation rises (or deflation is less)

[CoinsCoinsEverywhere]

You are right indeed. But we are choosing not between the good and the bad, but rather between the lesser of the two evils. The worse being a default, so what would the US choose? Actually, we already know the answer, since the debt ceiling was already raised in the conditions when the US government had been no longer able to pay out interest.

Ok, fair enough.  If we have to choose between printing and default, then yes, printing is preferable.  Ironically, however, if we print too much, we'll probably be forced into default anyway because no one wants to hold on to bonds issued by a country that's massively devaluing their currency.

This would be true if other countries wouldn't actually fdo the same, i.e. devaluate their currencies all along with the US printing money. This is called competitive devaluation.

When all the countries (or most countries) use QE then the exchange rates stay roughly the same while global inflation rises (or deflation is less)

Yes, very true, which is why it's worked so well so far.  But I'm thinking of an acute case of devaluation brought on by a crisis in which treasuries crash.  For example, the government says they're going to increase the money supply by 10% overnight to pay off a bunch of bonds.  Although, I suppose such large amounts wouldn't be needed immediately anyway since paying off bonds continues to happen on sort of a rolling basis, where some payments are made every week or month on different numbers of treasuries.  In any case, if we have to devalue the dollar a lot in a short period of time, it may make people sell.

[crazyALT47]

You are right indeed. But we are choosing not between the good and the bad, but rather between the lesser of the two evils. The worse being a default, so what would the US choose? Actually, we already know the answer, since the debt ceiling was already raised in the conditions when the US government had been no longer able to pay out interest.

Ok, fair enough.  If we have to choose between printing and default, then yes, printing is preferable.  Ironically, however, if we print too much, we'll probably be forced into default anyway because no one wants to hold on to bonds issued by a country that's massively devaluing their currency.

This would be true if other countries wouldn't actually fdo the same, i.e. devaluate their currencies all along with the US printing money. This is called competitive devaluation.

When all the countries (or most countries) use QE then the exchange rates stay roughly the same while global inflation rises (or deflation is less)

This is why QE did not cause such massive inflation. The economy was already on track to have deflation, but QE made the deflation be lower and instead had mild inflation

[boumalo]

You are right indeed. But we are choosing not between the good and the bad, but rather between the lesser of the two evils. The worse being a default, so what would the US choose? Actually, we already know the answer, since the debt ceiling was already raised in the conditions when the US government had been no longer able to pay out interest.

Ok, fair enough.  If we have to choose between printing and default, then yes, printing is preferable.  Ironically, however, if we print too much, we'll probably be forced into default anyway because no one wants to hold on to bonds issued by a country that's massively devaluing their currency.

This would be true if other countries wouldn't actually fdo the same, i.e. devaluate their currencies all along with the US printing money. This is called competitive devaluation.

When all the countries (or most countries) use QE then the exchange rates stay roughly the same while global inflation rises (or deflation is less)

Exactly and the inflation can be seen in the increase in the money supply (which is inflation) and the consequence is rising prices in the supermarket and stock market
The official US CPI is underestimating inflation

[Mobius]

You are right indeed. But we are choosing not between the good and the bad, but rather between the lesser of the two evils. The worse being a default, so what would the US choose? Actually, we already know the answer, since the debt ceiling was already raised in the conditions when the US government had been no longer able to pay out interest.

Ok, fair enough.  If we have to choose between printing and default, then yes, printing is preferable.  Ironically, however, if we print too much, we'll probably be forced into default anyway because no one wants to hold on to bonds issued by a country that's massively devaluing their currency.

This would be true if other countries wouldn't actually fdo the same, i.e. devaluate their currencies all along with the US printing money. This is called competitive devaluation.

When all the countries (or most countries) use QE then the exchange rates stay roughly the same while global inflation rises (or deflation is less)

Exactly and the inflation can be seen in the increase in the money supply (which is inflation) and the consequence is rising prices in the supermarket and stock market
The official US CPI is underestimating inflation

Rising money supply does not necessarily mean inflation. If the additional money supply is not lent and/or spent then it would just be more money sitting in the "bank" (aka the federal reserve). This is one reason why inflation has been so low (apart from the negative inflation prior to QE) as banks have a lot of excess reserves at the federal reserve because there is not enough demand for loans from borrowers that meet an acceptable credit risk.

[polynesia]

Rising money supply does not necessarily mean inflation. If the additional money supply is not lent and/or spent then it would just be more money sitting in the "bank" (aka the federal reserve). This is one reason why inflation has been so low (apart from the negative inflation prior to QE) as banks have a lot of excess reserves at the federal reserve because there is not enough demand for loans from borrowers that meet an acceptable credit risk.

If in spite of rising money supply and low interest rates, there is not enough demand for loans from borrowers, all it means is that Quantitative Easing has not really been effective. 

[tee-rex]

Rising money supply does not necessarily mean inflation. If the additional money supply is not lent and/or spent then it would just be more money sitting in the "bank" (aka the federal reserve). This is one reason why inflation has been so low (apart from the negative inflation prior to QE) as banks have a lot of excess reserves at the federal reserve because there is not enough demand for loans from borrowers that meet an acceptable credit risk.

If in spite of rising money supply and low interest rates, there is not enough demand for loans from borrowers, all it means is that Quantitative Easing has not really been effective. 

You can't say so, since they are targeting the inflation rate and have been successful so far while trying to pass between the upper (run-away inflation) and the nether (stifling deflation) millstone.

[botany]

Rising money supply does not necessarily mean inflation. If the additional money supply is not lent and/or spent then it would just be more money sitting in the "bank" (aka the federal reserve). This is one reason why inflation has been so low (apart from the negative inflation prior to QE) as banks have a lot of excess reserves at the federal reserve because there is not enough demand for loans from borrowers that meet an acceptable credit risk.

If in spite of rising money supply and low interest rates, there is not enough demand for loans from borrowers, all it means is that Quantitative Easing has not really been effective. 

You can't say so, since they are targeting the inflation rate and have been successful so far while trying to pass between the upper (run-away inflation) and the nether (stifling deflation) millstone.

Has it really been effective? The target was to get the economy moving again. These funds were supposed to make their way into the economy, not into various emerging market assets.

[tee-rex]

Rising money supply does not necessarily mean inflation. If the additional money supply is not lent and/or spent then it would just be more money sitting in the "bank" (aka the federal reserve). This is one reason why inflation has been so low (apart from the negative inflation prior to QE) as banks have a lot of excess reserves at the federal reserve because there is not enough demand for loans from borrowers that meet an acceptable credit risk.

If in spite of rising money supply and low interest rates, there is not enough demand for loans from borrowers, all it means is that Quantitative Easing has not really been effective. 

You can't say so, since they are targeting the inflation rate and have been successful so far while trying to pass between the upper (run-away inflation) and the nether (stifling deflation) millstone.

Has it really been effective? The target was to get the economy moving again. These funds were supposed to make their way into the economy, not into various emerging market assets.

I'm not very familiar with the effects and aims of QEs, but if I'm not mistaken, one target of the "money printing" campaign was to liquidate toxic assets (read write off). If these funds made their way into the economy that would simply increase inflation rates (now we are heading well into exogenous vs endogenous money debate).