Byron Wien -- "The Smartest Man in Europe"

[doom&gloom]

Always find these annual posts interesting. Worth a read... excerpt below.

http://www.businessinsider.com/byron...e-world-2012-7

“So what am I doing with my money? It is hard to hide in stocks. Even Danone is reporting disappointing earnings; people are so worried they aren’t even buying yogurt. The French auto companies are in trouble. I think gold is going much higher. I am buying energy stocks because I want to own something real. Preserving capital is my focus now, not making money, but I like IBM and Apple. Also some Swiss multi-nationals. If Obama wins in November the market will go down. A Romney victory will create a rally, but once he gets into office he will find there is not much he can do to make things better.”

I left The Smartest Man’s office somewhat dazed. My optimism was clearly diminished by what he had to say, but I still believe that somehow disaster has a way of usually not happening. It seems clear that world leaders are going to do everything possible to avert a financial catastrophe and I think they have the resources to accomplish that goal. It does seem, however, that the developed world has to resign itself to a prolonged period of slow growth.

[jk]

Re: Byron Wien -- "The Smartest Man in Europe"

the smartest man in the world sounds a lot like ej.

[Andreuccio]

Re: Byron Wien -- "The Smartest Man in Europe"

the smartest man in the world sounds a lot like ej.

Didn't EJ's friend Jeff say that he thought EJ was the second smartest man he knew?

[doom&gloom]

Re: Byron Wien -- "The Smartest Man in Europe"

We are starting to see this meme cropping up quite often now. I think the closer we get to a crisis, the more the 'smart people' will openly discuss it.

[vinoveri]

Re: Byron Wien -- "The Smartest Man in Europe"

"There won’t be outright financial disaster because by the time the defaults take place the banks will have sold most of the troubled sovereign debt on their balance sheets to the European Central Bank."



This idea has always intrigued me - which is essentially saying that CBs will print the money to retire all the bad debts. Have never understood why people think this will result in somesort of massive inflation. The money has already been spent on stuff and now we have the debt. The CBs are going to absorb the losses onto their balance sheets to keep the banking system solvent. How does any of this result in massive inflation? Yes, the money is printed, but it pays off existing debt - zero sum game. Even the argument that this results in massive reserves which will be then lent out against and produce inflation is not accurate. The CBs can incentivize/penalize banks for lending activity growth thereby controlling money velocity. I don't like the way the CBs get to control everything and pick winners, but looks to me like they will be able to continue.

[GRG55]

Re: Byron Wien -- "The Smartest Man in Europe"

"There won’t be outright financial disaster because by the time the defaults take place the banks will have sold most of the troubled sovereign debt on their balance sheets to the European Central Bank."



This idea has always intrigued me - which is essentially saying that CBs will print the money to retire all the bad debts. Have never understood why people think this will result in somesort of massive inflation. The money has already been spent on stuff and now we have the debt. The CBs are going to absorb the losses onto their balance sheets to keep the banking system solvent. How does any of this result in massive inflation? Yes, the money is printed, but it pays off existing debt - zero sum game. Even the argument that this results in massive reserves which will be then lent out against and produce inflation is not accurate. The CBs can incentivize/penalize banks for lending activity growth thereby controlling money velocity. I don't like the way the CBs get to control everything and pick winners, but looks to me like they will be able to continue.

It is the creditor, not the debtor, that is selling the debt (the so called "asset" on the creditor's balance sheet) to the CB in exchange for cash. And it is that cash that presumably gets lent out to new debtors...if the lender can find any takers...

[vinoveri]

Re: Byron Wien -- "The Smartest Man in Europe"

It is the creditor, not the debtor, that is selling the debt (the so called "asset" on the creditor's balance sheet) to the CB in exchange for cash. And it is that cash that presumably gets lent out to new debtors...if the lender can find any takers...

Agreed. The debtors have incurred the debt and acquired things (stimulative of the economy through 2007-08); housing equity vanishes, debts go bad, the creditors exchange the bad paper for cash (bank earnings have plummeted and their balance sheets are in the red for the same reason - no income coming in from defaulting debtors and no value from debt asset on books). New cash to lend against comes from CB "printing".

Why can't the banks find any takers. There are millions who would borrow to consume or lever up in asset speculation if they could (imo). Is it that the banks don't want to lend then? Why? The big banks know they are backstopped. Something is preventing them from lending, and I don't think it is because they are "responsible". People say its b/c the Fed is paying interest on reserves; if true, then the Fed could get lending going in a proverbial "15 minutes". Why don't they? Don't know, but believe they are waiting for something. There is nothing to prevent a coordinated effort between the taxing/regulatory authority of the gov and the FEd from generating immediate inflation. They must not want to (why? cui bono?)

[don]

Re: Byron Wien -- "The Smartest Man in Europe"

1) aggressive inflation hasn't kicked in because the money hasn't reached circulation.

2) the banks have a solvency problem, not a liquidity one. Over-leveraged debt/speculation takes seed money (from savers). On top of that, the banks don't trust one another. And don't overlook jumbo bonuses for failing concerns.

[vinoveri]

Re: Byron Wien -- "The Smartest Man in Europe"

1) aggressive inflation hasn't kicked in because the money hasn't reached circulation.

2) the banks have a solvency problem, not a liquidity one. Over-leveraged debt/speculation takes seed money (from savers). On top of that, the banks don't trust one another. And don't overlook jumbo bonuses for failing concerns.

My point is that inflation is not guaranteed simply because the bad debts are absorbed by the Fed and other CBs. Generating inflation will be motivated by a political outcome, not economic, e.g., to inflate away the debt. The Feds can generate all the inflation they want, but they choose to go a certain course at present.

Am not making any value judgements - I agree with you of course on the taking money from savers, however, believe this simple Austrian (and common sense) concept is less clear in circumstances when money can be created without being saved (i.e., FIAT by CBs). It seems that the debt bubble brings consumptions and mis-allocated investment forward whereas it is during the debt deleveraging and government imposed financial repression that steals from the savers - which is happening now in ZIRP environment - the theft from savers is post the credit/debt binge.

Question is how to avoid the financial repression of one's savings. Perhaps it does end in currency restructuring based in some way on gold; this however could be decades away; the theft from savers is real and present.

[cjppjc]

Re: Byron Wien -- "The Smartest Man in Europe"

Does anybody think Wein has invented this man, in order to have these conversations?

[c1ue]

Re: Byron Wien -- "The Smartest Man in Europe"

This idea has always intrigued me - which is essentially saying that CBs will print the money to retire all the bad debts. Have never understood why people think this will result in somesort of massive inflation. The money has already been spent on stuff and now we have the debt. The CBs are going to absorb the losses onto their balance sheets to keep the banking system solvent. How does any of this result in massive inflation? Yes, the money is printed, but it pays off existing debt - zero sum game. Even the argument that this results in massive reserves which will be then lent out against and produce inflation is not accurate. The CBs can incentivize/penalize banks for lending activity growth thereby controlling money velocity. I don't like the way the CBs get to control everything and pick winners, but looks to me like they will be able to continue.

Theoretically, you can print just enough to retire the debt (and screw the savers via devaluation).

In reality, the amount of debt that needs to be paid off is a moving target.

So are consumer and investor expectations.

Add on top of that bankster peculation and political maneuvering - is there any real surprise why theory hasn't yet worked? Even in the cases where the original 'impetus' was reasonably balanced, instead there was a subsequent failure to return to 'balance'.

It is like drinking shots of vodka. Theoretically you can drink just enough to get a buzz, but in reality you over/under shoot all the time.