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Author Topic: Gold collapsing. Bitcoin UP.  (Read 1808035 times)
adamstgBit
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December 05, 2012, 11:28:16 PM
 #3761

 Roll Eyes

cypherdoc's blowing little penguin's minds across the globe  Cool
so its not inflation that will deliver the final blow but deflation?
deflation sounds good, everything gets cheaper, whats the problem?

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December 05, 2012, 11:36:07 PM
 #3762

Roll Eyes

cypherdoc's blowing little penguin's minds across the globe  Cool
so its not inflation that will deliver the final blow but deflation?
deflation sounds good, everything gets cheaper, whats the problem?

Yup for the last year or so Cypher has been saying that gold and the stock market are about to implode and collapse due to deflation.  I've been saying that it isn't..  Whose been right so far?? Wink

A broken old school analog clock is right twice a day.. Eventually the market will go down and Cypher will point to it and say see I was right!! 

I'll say Cypher was right when we have $800 dollar gold (his target is 400) and the Dow drops to 7000 or so.  Till then we haven't had the massive collapse he claims is coming.

Oh and btw, a collapse is sudden, like 6 months or less.  So Cypher was wrong 12 months ago when he said we were about to collapse, yet he persists in saying that its about to happen, mhmm. Wink
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December 05, 2012, 11:41:21 PM
 #3763



One thing that is so exciting about Bitcoin is its censorship resistant properties. The main problem from the State's interference in money and currency is its massive interference in the pricing mechanism. With a censorship resistant currency the economy will be able price much more efficiently by being able to route around the State imposed damage from monetary and financial regulation.

This will allow economic calculation to happen on a scale never before seen in human history and is extremely bullish for the generation and creation of wealth on a ginormous scale.


Yes, I like to point out that bitcoin is the first monetary system humanity has ever created that *credibly* offers perfect information to all participants. It'll be interesting to see what the ramifications of this turn out to be.

precisely.  and what we have now is price obscurity and imperfect information promulgated by investment banks on a huge scale.  look at their resistance to moving derivatives to an exchange away from the OTC market.  look at the Libor scandal.  what were CDO's all about?  and on and on and on...  all this to inflate prices.  and what has been used to pay for those inflated securities?  debt.  why do you think Ben and the ECB are desperately trying to prevent Greece et al from defaulting?  b/c it would blow a hole in the asset side of the balance sheets of the Northern European banks. its all about the debt.  and debt is the main component of the money supply; by far.  Ben can't piss fast enough to fill the actively flushing toilet of debt defaults.  and all i hear you guys talk about is the minuscule part of the equation; money printing.  which quite frankly isn't occurring on that wide of a scale.  big whoop; $800 billion to 2.8 trillion of FRN's.  that's nothing compared to the magnitude of the debt contraction happening right now.

The massive debt you always talk about is built on the money supply leveraged to the umpteenth.  You don't think that new money Ben is printing isn't imediately leveraged that same way the old money was??  It starts out as a few billion that Ben pumps in every day, but then after the Wall street boys get done leveraging it, it offsets those huge numbers you like to talk about Wink

did you bother to look at misreality's graph a few posts back?  that's called hoarding.  they are doing a little bit of lending but no where near what they've done in the past.  they know consumers are tapped out and poor credit risks at this point.



do you not see a problem here that perfectly jives with the above?.  ppl's incomes are levelling off if not dropping:



did you not read my earlier post about how banks will only lend if they can immediately flip the loans to the taxpayer aka Fannie/Freddie/FHA?  the banks know the homes behind the loans are overpriced otherwise they would be glad to hold them for the yield or for the solid assets behind those loans.  this went on ad infinitum during the runup to the 2008 crisis and has been facilitated once again by Obama's unwillingness to clean out the bad acting banks.  the cost?  a doubling of the national debt in a mere 4 yrs compared to the entire history of this nation.  this debt is unpayable.  period.  and it will be defaulted.  this is going to wipe out more speculators on inflation than you can imagine.
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December 05, 2012, 11:46:13 PM
 #3764

Roll Eyes

cypherdoc's blowing little penguin's minds across the globe  Cool
so its not inflation that will deliver the final blow but deflation?
deflation sounds good, everything gets cheaper, whats the problem?

Yup for the last year or so Cypher has been saying that gold and the stock market are about to implode and collapse due to deflation.  I've been saying that it isn't..  Whose been right so far?? Wink

A broken old school analog clock is right twice a day.. Eventually the market will go down and Cypher will point to it and say see I was right!!  

I'll say Cypher was right when we have $800 dollar gold (his target is 400) and the Dow drops to 7000 or so.  Till then we haven't had the massive collapse he claims is coming.

Oh and btw, a collapse is sudden, like 6 months or less.  So Cypher was wrong 12 months ago when he said we were about to collapse, yet he persists in saying that its about to happen, mhmm. Wink

this thread started in March.  12 months?  we got a big dip into June with a bounce.  we are now lower than we were in stocks when this thread started.

btw, how wrong have you been with your gold stocks?  massively wrong.  and we have the data to prove it.  and the other miners you bought in 2011 have to be way down as well.

i know my accounts are way up in Bitcoin and stocks.  and that's having been on the short side for stocks.  nice try.  Wink
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December 05, 2012, 11:48:07 PM
 #3765

values only going to be higher then dip lol
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December 05, 2012, 11:54:24 PM
 #3766



Yup for the last year or so Cypher has been saying that gold and the stock market are about to implode and collapse due to deflation.  I've been saying that it isn't..  Whose been right so far?? Wink

A broken old school analog clock is right twice a day.. Eventually the market will go down and Cypher will point to it and say see I was right!!  

I'll say Cypher was right when we have $800 dollar gold (his target is 400) and the Dow drops to 7000 or so.  Till then we haven't had the massive collapse he claims is coming.

Oh and btw, a collapse is sudden, like 6 months or less.  So Cypher was wrong 12 months ago when he said we were about to collapse, yet he persists in saying that its about to happen, mhmm. Wink

this thread started in March.  12 months?  we got a big dip into June with a bounce.  we are now lower than we were in stocks when this thread started.

btw, how wrong have you been with your gold stocks?  massively wrong.  and we have the data to prove it.  and the other miners you bought in 2011 have to be way down as well.

i know my accounts are way up in Bitcoin and stocks.  and that's having been on the short side for stocks.  nice try.  Wink

Oh you two....


But in all seriousness any of you has balls to show trade logs? Smiley


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December 06, 2012, 01:05:29 AM
 #3767



Yup for the last year or so Cypher has been saying that gold and the stock market are about to implode and collapse due to deflation.  I've been saying that it isn't..  Whose been right so far?? Wink

A broken old school analog clock is right twice a day.. Eventually the market will go down and Cypher will point to it and say see I was right!!  

I'll say Cypher was right when we have $800 dollar gold (his target is 400) and the Dow drops to 7000 or so.  Till then we haven't had the massive collapse he claims is coming.

Oh and btw, a collapse is sudden, like 6 months or less.  So Cypher was wrong 12 months ago when he said we were about to collapse, yet he persists in saying that its about to happen, mhmm. Wink

this thread started in March.  12 months?  we got a big dip into June with a bounce.  we are now lower than we were in stocks when this thread started.

btw, how wrong have you been with your gold stocks?  massively wrong.  and we have the data to prove it.  and the other miners you bought in 2011 have to be way down as well.

i know my accounts are way up in Bitcoin and stocks.  and that's having been on the short side for stocks.  nice try.  Wink

Oh you two....


But in all seriousness any of you has balls to show trade logs? Smiley



well i just showed you a screenshot of my GG short a page or so back.  why doesn't silverbox show us a screenshot of his for GPL?
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December 06, 2012, 02:09:17 AM
 #3768



Yup for the last year or so Cypher has been saying that gold and the stock market are about to implode and collapse due to deflation.  I've been saying that it isn't..  Whose been right so far?? Wink

A broken old school analog clock is right twice a day.. Eventually the market will go down and Cypher will point to it and say see I was right!!  

I'll say Cypher was right when we have $800 dollar gold (his target is 400) and the Dow drops to 7000 or so.  Till then we haven't had the massive collapse he claims is coming.

Oh and btw, a collapse is sudden, like 6 months or less.  So Cypher was wrong 12 months ago when he said we were about to collapse, yet he persists in saying that its about to happen, mhmm. Wink

this thread started in March.  12 months?  we got a big dip into June with a bounce.  we are now lower than we were in stocks when this thread started.

btw, how wrong have you been with your gold stocks?  massively wrong.  and we have the data to prove it.  and the other miners you bought in 2011 have to be way down as well.

i know my accounts are way up in Bitcoin and stocks.  and that's having been on the short side for stocks.  nice try.  Wink

Oh you two....


But in all seriousness any of you has balls to show trade logs? Smiley



well i just showed you a screenshot of my GG short a page or so back.  why doesn't silverbox show us a screenshot of his for GPL?

lol I publicly stated that I bought at 1.98, on a day when it was in fact 1.98.  

I can edit up a screenshot to show anything about the past.

Your screenshot doesn't mean anything.  If your going to make a call, state it at the time of initiating the position, not months after the fact.

The only time in this thread you made a call you lost on it.

https://bitcointalk.org/index.php?topic=68655.msg991631;topicseen#msg991631

Right here, you stated you shorted GLD at 152.17.  Later you stated that you covered, at a LOSS.

This is the only trade you've disclosed on this thread with concrete numbers at the TIME YOU MADE IT, not after the fact.

The only trade I've disclosed at the time I made it, was to purchase GPL @ 1.98  and yes I'm losing money on it, I have traded around a core position, so I'm not losing as much as it would seem based on today's close of 1.65, however just to make the math simple count my initial position as 1.98.    It's been as high as 2.40 or so since I bought at 1.98.  Its a very small volatile silver miner it goes up and down 5-10% a day all the time.
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December 06, 2012, 02:23:05 AM
 #3769

I hate to break up this catfight  Grin but I'd love it if you guys would take a quick break to teach me something.   Cypherdoc is predicting deflation and he seems to believe that ppl defaulting on mortgages will cause it.  I understand how retiring debt is deflationary but I don't understand for defaulting.  I thought defaulting would cause inflation... because you can't take the USD back.  Its spent.  So its still out there but is no longer "backed" by the future earning power of the person who originally took the loan.

Thanks in advance for helping a macro-econ noobie!!!
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December 06, 2012, 02:29:02 AM
 #3770



Yup for the last year or so Cypher has been saying that gold and the stock market are about to implode and collapse due to deflation.  I've been saying that it isn't..  Whose been right so far?? Wink

A broken old school analog clock is right twice a day.. Eventually the market will go down and Cypher will point to it and say see I was right!!  

I'll say Cypher was right when we have $800 dollar gold (his target is 400) and the Dow drops to 7000 or so.  Till then we haven't had the massive collapse he claims is coming.

Oh and btw, a collapse is sudden, like 6 months or less.  So Cypher was wrong 12 months ago when he said we were about to collapse, yet he persists in saying that its about to happen, mhmm. Wink

this thread started in March.  12 months?  we got a big dip into June with a bounce.  we are now lower than we were in stocks when this thread started.

btw, how wrong have you been with your gold stocks?  massively wrong.  and we have the data to prove it.  and the other miners you bought in 2011 have to be way down as well.

i know my accounts are way up in Bitcoin and stocks.  and that's having been on the short side for stocks.  nice try.  Wink

Oh you two....


But in all seriousness any of you has balls to show trade logs? Smiley



well i just showed you a screenshot of my GG short a page or so back.  why doesn't silverbox show us a screenshot of his for GPL?

lol I publicly stated that I bought at 1.98, on a day when it was in fact 1.98.  

I can edit up a screenshot to show anything about the past.

Your screenshot doesn't mean anything.  If your going to make a call, state it at the time of initiating the position, not months after the fact.

The only time in this thread you made a call you lost on it.

https://bitcointalk.org/index.php?topic=68655.msg991631;topicseen#msg991631

Right here, you stated you shorted GLD at 152.17.  Later you stated that you covered, at a LOSS.

This is the only trade you've disclosed on this thread with concrete numbers at the TIME YOU MADE IT, not after the fact.

The only trade I've disclosed at the time I made it, was to purchase GPL @ 1.98  and yes I'm losing money on it, I have traded around a core position, so I'm not losing as much as it would seem based on today's close of 1.65, however just to make the math simple count my initial position as 1.98.    It's been as high as 2.40 or so since I bought at 1.98.  Its a very small volatile silver miner it goes up and down 5-10% a day all the time.

its really tough to argue with a guy that throws around figures and accusations so loosely like saying i said stocks would collapse 12 mo ago.  that was Dec 2011.  i was in fact bullish on stocks at that time.  this is from my blog back then.  read thru all the posts in Dec 2011: http://financialriskanalytics.weebly.com/1/previous/15.html

its laughable that you would make a claim that the only public trade i've made on this thread is one i lost on.  its clear you've made it your mission to try and make me look bad with your insulting behavior.  i'm constantly having to provide proof to you of what i've said and when.  it's tiring.

here's the thing.  i continually present reasoned economic arguments about what i think is going on.  this thread would not be so popular if i at the very least wasn't stimulating everyone to think about the world a little differently.  i present charts and figures and attempt to explain the logic and reasoning behind them.  i present links to articles i deem important for everyone to be aware of.  i try to share my experiences and insights that others on this forum might not have had the chance to go thru. i present anecdotes and trends and data.  i back alot of my claims to links of posts i've made other places on this forum.  i even share a screenshot of my GG short that is clearly not mocked up (yet you insinuate i would have the gall to do that).  

what do you contribute?  answer:  nothing.  you're just a troll who loves to criticize, insinuate, and accuse ppl of dishonesty.  go away from this thread or put me on ignore.
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December 06, 2012, 02:34:17 AM
 #3771

I hate to break up this catfight  Grin but I'd love it if you guys would take a quick break to teach me something.   Cypherdoc is predicting deflation and he seems to believe that ppl defaulting on mortgages will cause it.  I understand how retiring debt is deflationary but I don't understand for defaulting.  I thought defaulting would cause inflation... because you can't take the USD back.  Its spent.  So its still out there but is no longer "backed" by the future earning power of the person who originally took the loan.

Thanks in advance for helping a macro-econ noobie!!!

In the average case, the money goes to pay off the mortgage of the seller.  Poof, there goes the cash.

The only things that change the money supply are the lost interest and fees(deflationary) and the change in price (likely deflationary due to lower prices currently).

If the seller didn't have a debt to pay off, it would be inflationary, but that inflation would occur at the time of the initial sale.

https://www.bitcoin.org/bitcoin.pdf
While no idea is perfect, some ideas are useful.
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December 06, 2012, 02:35:13 AM
 #3772

I hate to break up this catfight  Grin but I'd love it if you guys would take a quick break to teach me something.   Cypherdoc is predicting deflation and he seems to believe that ppl defaulting on mortgages will cause it.  I understand how retiring debt is deflationary but I don't understand for defaulting.  I thought defaulting would cause inflation... because you can't take the USD back.  Its spent.  So its still out there but is no longer "backed" by the future earning power of the person who originally took the loan.

Thanks in advance for helping a macro-econ noobie!!!

why don't you have silverbox explain that to you? 
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December 06, 2012, 03:11:18 AM
 #3773

Here we go, some rapid-fire responses...

misreality, you just said about a month ago that that divergence wasn't likely to play out like you thought.  flipping around again?

Quote?

My stance is, and has been, that a paper/physical separation is very possible, but not guaranteed. That likelihood is not a fixed element. With multiple, independent sources of information available, it may be difficult for the paper prices to adequately mask physical dynamics before a revaluation.

seriously though, a couple of comments.  first, the bad debt needs to be cleared to allow us to evolve to the next level using all this great technology being developed.

Yes, where excessive debt exists. In places where debt is not immense or doesn't exist, this is not an issue. Guess what monetary instruments don't have debt? Physical gold, silver, and Bitcoin.

Bitcoin is going to help in this regard by causing widespread deflation aka price discovery.

Yes, at an increasing proportion in the global economy Smiley

this debt is in the process of actively defaulting decreasing the money supply and causing a scramble for the remaining currency to pay this debt off.

It doesn't go away just because the debt defaults because the debt had already been monetized. The loser becomes poorer while the winner reaps the wealth.

thus the USD should rise as it has already lost all its value since 1913 helping to create this mess.

So because the dollar has lost >90% of its value, it will magically gain in value? Monetization is accelerating, not slowing down. A 50% decrease in value of $100 is the same proportion as a 50% decrease in value of $0.01 - absolute value doesn't dictate a floor.

The massive debt you always talk about is built on the money supply leveraged to the umpteenth.  You don't think that new money Ben is printing isn't immediately leveraged that same way the old money was??  It starts out as a few billion that Ben pumps in every day, but then after the Wall street boys get done leveraging it, it offsets those huge numbers you like to talk about Wink

Couldn't have said it better myself.

deflation sounds good, everything gets cheaper, whats the problem?

Societal collapse, supply chain failures, war, famine, death. Sound good now?

did you bother to look at misreality's graph a few posts back?  that's called hoarding.  they are doing a little bit of lending but no where near what they've done in the past.  they know consumers are tapped out and poor credit risks at this point.

See silverbox's quote above.

do you not see a problem here that perfectly jives with the above?.  ppl's incomes are levelling off if not dropping:

While people in other economies have rising incomes. Yes, there is a world outside of the US.

did you not read my earlier post about how banks will only lend if they can immediately flip the loans to the taxpayer aka Fannie/Freddie/FHA?

...

this debt is unpayable.  period.  and it will be defaulted.  this is going to wipe out more speculators on inflation than you can imagine.

Real estate is not the only path for capital flows. You mentioned the lack of financial system transparency. This is part of that obscurity.
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December 06, 2012, 03:12:21 AM
 #3774

I hate to break up this catfight  Grin but I'd love it if you guys would take a quick break to teach me something.   Cypherdoc is predicting deflation and he seems to believe that ppl defaulting on mortgages will cause it.  I understand how retiring debt is deflationary but I don't understand for defaulting.  I thought defaulting would cause inflation... because you can't take the USD back.  Its spent.  So its still out there but is no longer "backed" by the future earning power of the person who originally took the loan.

Thanks in advance for helping a macro-econ noobie!!!

Your bolded statement is the key. It wasn't necessarily spent, but the debt has been securitised and traded, thereby monetized (basically treated as money). In effect, the debt is being exchanged as money before being paid off - there is no way to take back or 'sterilise' the funds.

What's at issue in respect to deflation is the process of writing down these 'assets'. By accepting less than face value for the debt, non-performing securitised assets are a reducing factor on the money supply. However, this is not happening in isolation - the process of securitising debt is continuing, as is the fractional reserve system. By comparison to the amount of debt being written off, there is much more being created at the same time.
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December 06, 2012, 03:19:54 AM
 #3775

I hate to break up this catfight  Grin but I'd love it if you guys would take a quick break to teach me something.   Cypherdoc is predicting deflation and he seems to believe that ppl defaulting on mortgages will cause it.  I understand how retiring debt is deflationary but I don't understand for defaulting.  I thought defaulting would cause inflation... because you can't take the USD back.  Its spent.  So its still out there but is no longer "backed" by the future earning power of the person who originally took the loan.

Thanks in advance for helping a macro-econ noobie!!!

In the average case, the money goes to pay off the mortgage of the seller.  Poof, there goes the cash.

The only things that change the money supply are the lost interest and fees(deflationary) and the change in price (likely deflationary due to lower prices currently).

If the seller didn't have a debt to pay off, it would be inflationary, but that inflation would occur at the time of the initial sale.

We are talking about when the owner defaults on the mortgage.  Let's say a new owner pays C for the house to the seller, and owes the bank C (100% mortgage just for simplicity).  The seller spends C so it goes into circulation. The new owner defaults.  Now presumably when someone buys the house from the bank they do so at a much lower price (say C/2).  Let's pretend they do it with cash.  So C dollars were injected by the original loan, C/2 were retired when the house was repurchased and C/2 dollars are still circulating and are not backed by the original loan.  Do this a million times (or whatever) and it seems to result in an increase in the money supply (inflation) to me.


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December 06, 2012, 03:26:40 AM
 #3776

I hate to break up this catfight  Grin but I'd love it if you guys would take a quick break to teach me something.   Cypherdoc is predicting deflation and he seems to believe that ppl defaulting on mortgages will cause it.  I understand how retiring debt is deflationary but I don't understand for defaulting.  I thought defaulting would cause inflation... because you can't take the USD back.  Its spent.  So its still out there but is no longer "backed" by the future earning power of the person who originally took the loan.

Thanks in advance for helping a macro-econ noobie!!!

Your bolded statement is the key. It wasn't necessarily spent, but the debt has been securitised and traded, thereby monetized (basically treated as money). In effect, the debt is being exchanged as money before being paid off - there is no way to take back or 'sterilise' the funds.

What's at issue in respect to deflation is the process of writing down these 'assets'. By accepting less than face value for the debt, non-performing securitised assets are a reducing factor on the money supply. However, this is not happening in isolation - the process of securitising debt is continuing, as is the fractional reserve system. By comparison to the amount of debt being written off, there is much more being created at the same time.

Hmm... I think you're saying (for instance) that if there was a sudden mass loss of confidence in silver (for example Grin) as money, then the other forms of money would have to cover all the economic activity that silver originally handled -- there would be a scarcity of currency resulting in deflation.  So since the debt was monetized, it behaves in this manner.  Fascinating!


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December 06, 2012, 03:32:09 AM
 #3777

I hate to break up this catfight  Grin but I'd love it if you guys would take a quick break to teach me something.   Cypherdoc is predicting deflation and he seems to believe that ppl defaulting on mortgages will cause it.  I understand how retiring debt is deflationary but I don't understand for defaulting.  I thought defaulting would cause inflation... because you can't take the USD back.  Its spent.  So its still out there but is no longer "backed" by the future earning power of the person who originally took the loan.

Thanks in advance for helping a macro-econ noobie!!!

In the average case, the money goes to pay off the mortgage of the seller.  Poof, there goes the cash.

The only things that change the money supply are the lost interest and fees(deflationary) and the change in price (likely deflationary due to lower prices currently).

If the seller didn't have a debt to pay off, it would be inflationary, but that inflation would occur at the time of the initial sale.

We are talking about when the owner defaults on the mortgage.  Let's say a new owner pays C for the house to the seller, and owes the bank C (100% mortgage just for simplicity).  The seller spends C so it goes into circulation. The new owner defaults.  Now presumably when someone buys the house from the bank they do so at a much lower price (say C/2).  Let's pretend they do it with cash.  So C dollars were injected by the original loan, C/2 were retired when the house was repurchased and C/2 dollars are still circulating and are not backed by the original loan.  Do this a million times (or whatever) and it seems to result in an increase in the money supply (inflation) to me.

I understand we are talking about the owner defaulting on the mortgage.  What I am saying is the seller rarely spends C, he pays off his own mortgage.  Even if he were to spend C, it would not trigger inflation at the time of the new owner defaulting.  The inflation has already occurred and should have taken effect before the default occurs.

So yes, there is inflation when the mortgage is created, but that is the past.  It is the future events that will matter, and those (loss of expected future interest and fees, loss of C/2 due to low resale) are deflationary.

Of course, the Fed is buying up mortgages, so that can send all kinds of false signals, and would have an inflationary effect on home prices that may or may not counteract the natural deflationary pressure of the debt collapse.

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cypherdoc
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December 06, 2012, 03:44:52 AM
 #3778

By comparison to the amount of debt being written off, there is much more being created at the same time.

you are wrong.  the net difference btwn shadow banking credit and traditional bank credit is shrinking.  this is a much bigger problem than you realize:

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December 06, 2012, 03:53:45 AM
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I hate to break up this catfight  Grin but I'd love it if you guys would take a quick break to teach me something.   Cypherdoc is predicting deflation and he seems to believe that ppl defaulting on mortgages will cause it.  I understand how retiring debt is deflationary but I don't understand for defaulting.  I thought defaulting would cause inflation... because you can't take the USD back.  Its spent.  So its still out there but is no longer "backed" by the future earning power of the person who originally took the loan.

Thanks in advance for helping a macro-econ noobie!!!

Your bolded statement is the key. It wasn't necessarily spent, but the debt has been securitised and traded, thereby monetized (basically treated as money). In effect, the debt is being exchanged as money before being paid off - there is no way to take back or 'sterilise' the funds.

What's at issue in respect to deflation is the process of writing down these 'assets'. By accepting less than face value for the debt, non-performing securitised assets are a reducing factor on the money supply. However, this is not happening in isolation - the process of securitising debt is continuing, as is the fractional reserve system. By comparison to the amount of debt being written off, there is much more being created at the same time.

Hmm... I think you're saying (for instance) that if there was a sudden mass loss of confidence in silver (for example Grin) as money, then the other forms of money would have to cover all the economic activity that silver originally handled -- there would be a scarcity of currency resulting in deflation.  So since the debt was monetized, it behaves in this manner.  Fascinating!




since silverdick won't answer your question i will.

its much easier to think of what happens in a default from the standpoint of the banks balance sheet.  that mortgage represents an asset.  remember that assets=liabilities + equity.  equity is composed of stock and deposits are part of its liabilities.  normally the leverage ratio would be 10% if they were fractionally reserving conservatively.  but in the rah rah leading up to 2007, companies like Fannie Mae were leveraged 120:1,  Goldman Sucks was maybe 50:1.  in the latter case it only took a 1/50 or 2% drop in the value of the houses backing those assets to wipe out the equity.  for a bank this is disastrous whereas for a homeowner you might just ignore it.  in this case the bank then becomes insolvent and the rating agencies have to adjust down the ratings causing stock investors to sell or short. banks would be forced to sell assets or raise more equity through stock dilutions as they scramble for cash.  this is deflationary and drives up the USD.  this is why banks so strongly resist taking the writedowns as it would wipe them out. this is why they are letting delinquent homeowners live rent/mortgage free for years on end.  this is what is happening to Greece and the Northern European banks; the ECB keeps extending loan packages to enable the Greeks to repay their loans to these banks.  it isn't sustainable as you can't solve a debt problem with more debt.
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December 06, 2012, 04:05:49 AM
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I hate to break up this catfight  Grin but I'd love it if you guys would take a quick break to teach me something.   Cypherdoc is predicting deflation and he seems to believe that ppl defaulting on mortgages will cause it.  I understand how retiring debt is deflationary but I don't understand for defaulting.  I thought defaulting would cause inflation... because you can't take the USD back.  Its spent.  So its still out there but is no longer "backed" by the future earning power of the person who originally took the loan.

Thanks in advance for helping a macro-econ noobie!!!

Your bolded statement is the key. It wasn't necessarily spent, but the debt has been securitised and traded, thereby monetized (basically treated as money). In effect, the debt is being exchanged as money before being paid off - there is no way to take back or 'sterilise' the funds.

What's at issue in respect to deflation is the process of writing down these 'assets'. By accepting less than face value for the debt, non-performing securitised assets are a reducing factor on the money supply. However, this is not happening in isolation - the process of securitising debt is continuing, as is the fractional reserve system. By comparison to the amount of debt being written off, there is much more being created at the same time.

Hmm... I think you're saying (for instance) that if there was a sudden mass loss of confidence in silver (for example Grin) as money, then the other forms of money would have to cover all the economic activity that silver originally handled -- there would be a scarcity of currency resulting in deflation.  So since the debt was monetized, it behaves in this manner.  Fascinating!




since silverdick won't answer your question i will.

its much easier to think of what happens in a default from the banks balance sheet.  that mortgage represents an asset.  remember that assets=liabilities + equity.  equity is composed of deposits and stock.  normally this would be 10% if they were fractionally reserving conservatively.  but in the rah rah leading up to 2007, companies like Fannie Mae were leveraged 120:1,  Goldman Sucks was maybe 50:1.  in the latter case it only took a 1/50 or 2% drop in the value of the houses backing those assets to wipe out the equity.  for a bank this is disastrous whereas for a homeowner you might just ignore it.  in this case the bank then becomes insolvent and the rating agencies have to adjust down the ratings causing stock investors to sell or short. banks would be forced to sell assets or raise more equity through stock dilutions as they scramble for cash.  this is deflationary and drives up the USD.  this is why banks so strongly resist taking the writedowns as it would wipe them out. this is why they are letting delinquent homeowners live rent/mortgage free for years on end.  this is what is happening to Greece and the Northern European banks; the ECB keeps extending loan packages to enable the Greeks to repay their loans to these banks.  it isn't sustainable as you can't solve a debt problem with more debt.

Ok... i think you're saying that my point is valid, but irrelevant because banks are hoarding many times that in cash in an attempt to bolster the equity side of their balance sheets because they were over-leveraged on mortgages so (now that the mortgages are underwater) their liability side really looks like N*liabilities where N is their leverage.  This hoarding is causing a deflationary pressure on the USD.  From what I've heard in the popular media, we are seeing the same hoarding on corporate balance sheets...

Interesting... does this mean that if they somehow do manage to deleverage it could release all that cash back into the system (i.e. inflation)?

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