FIRE Away

[astonas]

Re: FIRE Away

The problem is with ZIRP you are almost forced to "Trade" otherwise your savings will be inflated away day after day. If the blow up happens in a week or a month or a year, I will be OK. If it takes 10 years, just like "old" guy I am in trouble. The savings that I built up in a high wage job that does not exist any longer cannot be replaced.

Unless a hot war breaks out, I think the thing to watch will be inflation in staples. The fed is never going to undo QE, which means the gvt will always have a buyer for treasuries. What is going to break is the middle class. When the price of food, clothing, medicine, shelter, transportation, and taxes reaches some threshold, j6p is going to once again begin defaulting on this massive debt of mortgage, credit card, college loans, car loan etc.

Although i don't believe in substution in CPI, it is valid in this case. if food goes up in price people will switch from steak to chicken from chicken to turkey, turkey to beans. But at some point no matter what they are going to start defaulting in mass on their loans.

Ability for J6P to service debt is going to be the breaking point.

Forgive my ignorance, what is j6p?

Regarding what (I believe) is your broader point: that the average person will suffer well before those in power do, I completely agree. I also agree that living standards will decline broadly, and decline precipitously for some demographics. And I am not trying to assert that trading is not necessary for those whose income is fixed, in an inflationary environment.

However, I do not see a clear mechanism that will transmit the collapse of middle-class America into an incentive for the finance industry (including the Fed and government) to make changes. No meaningful changes were applied to the financial industry, or its relationship to the government, in the wake of the last financial meltdown, and therefore I see no reason for any breaking point to transmit from the middle class to those in power in the event of another one.

So when I say:

Anyone care to put down specific tell-tale signs to look for that would indicate this axiom is weakening in its relevance? If we can come up [with] signs that can differentiate between superficial cracks in the Fed's facade, and structural cracks in its foundation, then we will all be in a position to do very well indeed.

I'm not exactly the best one to come up with a list of such differentiators. But I would welcome very much the speculations of others more learned than I. What do the skilled Fed-watchers here think?

I am asking not for what societal cracks will appear. I hold these to be almost irrelevant (superficial cracks in the facade) to those in power in any event. Instead I'm specifically asking for what "cracks," or indicators, will appear that will directly threaten the immediate financial interests of those in power, at the Fed, at Goldman Sachs and other banks, and throughout the pool of large political donors. As long as these people can continue to grow their wealth in spite of (perhaps because of?) a financial crisis, I really don't anticipate it reaching a turning point.

When they begin to capitulate, that is when the investment tide will turn, and when the largest trading opportunities may exist. Any ideas on what to look for?

[astonas]

Re: FIRE Away

EJ had a lot to say about the iron bound nature of a zero interest rate but even EJ failed to foresee the manifold uses that FIRE utilizes in ZIRP.

The degree of class warfare is breathtaking . . .

Indeed. But if we can understand exactly how the trick is done, at least we might minimize the degree to which we ourselves are victims.

[shiny!]

Re: FIRE Away

j6p = Joe 6-pack. The average, ignorant guy who spends his life sitting in front of the TV with a 6-pack of beer.

[EJ]

Re: FIRE Away

Back in the late 1990s when I railed against the corruption that produced the tech bubble, against the religious fervor over magical concepts like Value at Risk and Efficient Markets, when everyone still believed that investment banks were lions of capitalism, that the U.S. economy was an unstoppable supertanker, that Greenspan was a genius, that Krispy Kreme and Corning and Worldcom were "can't lose" stocks, that the SEC and the Fed were watching out for us, that the ratings agencies were reliable judges of risk, that a house is a fool-proof retirement investment, and on and on; back when so many believed and had deep faith in so many things that turned out to not be true I warned that when the events I expected came to pass and this faith was lost that disillusioned and angry citizens will not learn from their mistake and then diligently seek out lasting truth.

I warned: When a people who lack critical thinking skills lose faith, they don't believe in nothing, they believe in anything.

Today we have 1000 flavors of erroneous belief, all of them as misguided and wrong as the beliefs they have replaced. The Tea Partyers. The 99%ers.

Where is the public policy debate about how to get the credit industry out of our schools and doctor's offices and hospitals, and the insurance industry out of our healthcare system? What's to be done about the world's largest public housing project, the U.S. housing market propped up by two 100% government owned banks that buy 90% of the mortgages in the secondary market, which mortgage rates are set by the central bank by mortgage security purchases? Where is the public debate over the policy of "yield curve shaping," a euphemism for Treasury bond price fixing by government and the Fed and the disaster such price fixing has visited upon the elderly who rely on a fixed income?

I get panicked letters from readers all over the world. They note that all of the worst FIRE policies I warned about in my book have continued and none of the TECI policies that we need are being developed.

They ask, Where is this heading? What's going to happen?

In truth, no one can say exactly how it will turn out.

If a boulder rolls down a hill. Where will it land? This cannot be foretold. What can be foretold is that a boulder on a soft hillside in an eroding stream fed by a steady rain will eventually break free and head down the hill. Our modest objective remains, as it has since 1998 before the first boulder fell in 2000, is not to be in the next one's path.

[astonas]

Re: FIRE Away

j6p = Joe 6-pack. The average, ignorant guy who spends his life sitting in front of the TV with a 6-pack of beer.

thanks shiny, that does make sense. For some bizarre reason, the first time I saw j6p my mind went to Japan, and I guess I got stuck there.

[astonas]

Re: FIRE Away

If a boulder rolls down a hill. Where will it land? This cannot be foretold. What can be foretold is that a boulder on a soft hillside in an eroding stream fed by a steady rain will eventually break free and head down the hill. Our modest objective remains, as it has since 1998 before the first boulder fell in 2000, is not to be in the next one's path.

Thanks EJ, for the gentle reminder of our purpose here. I occasionally get caught out trying to be overly ambitious, rather than focussing on what matters.

You are of course right that some things are essentially unknowable in the abstract, and that those circumstances are likely not worth betting on in any event.

(Nothing like logical positivism to strip the excessively speculative questions out of a discourse; I'd better go review my Tractatus before I resume.) ;)

[don]

Re: FIRE Away

Back in the late 1990s when I railed against the corruption that produced the tech bubble, against the religious fervor over magical concepts like Value at Risk and Efficient Markets, when everyone still believed that investment banks were lions of capitalism, that the U.S. economy was an unstoppable supertanker, that Greenspan was a genius, that Krispy Kreme and Corning and Worldcom were "can't lose" stocks, that the SEC and the Fed were watching out for us, that the ratings agencies were reliable judges of risk, that a house is a fool-proof retirement investment, and on and on; back when so many believed and had deep faith in so many things that turned out to not be true I warned that when the events I expected came to pass and this faith was lost that disillusioned and angry citizens will not learn from their mistake and then diligently seek out lasting truth.

I warned: When a people who lack critical thinking skills lose faith, they don't believe in nothing, they believe in anything.

Today we have 1000 flavors of erroneous belief, all of them as misguided and wrong as the beliefs they have replaced. The Tea Partyers. The 99%ers.

Where is the public policy debate about how to get the credit industry out of our schools and doctor's offices and hospitals, and the insurance industry out of our healthcare system? What's to be done about the world's largest public housing project, the U.S. housing market propped up by two 100% government owned banks that buy 90% of the mortgages in the secondary market, which mortgage rates are set by the central bank by mortgage security purchases? Where is the public debate over the policy of "yield curve shaping," a euphemism for Treasury bond price fixing by government and the Fed and the disaster such price fixing has visited upon the elderly who rely on a fixed income?

I get panicked letters from readers all over the world. They note that all of the worst FIRE policies I warned about in my book have continued and none of the TECI policies that we need are being developed.

They ask, Where is this heading? What's going to happen?

In truth, no one can say exactly how it will turn out.

If a boulder rolls down a hill. Where will it land? This cannot be foretold. What can be foretold is that a boulder on a soft hillside in an eroding stream fed by a steady rain will eventually break free and head down the hill. Our modest objective remains, as it has since 1998 before the first boulder fell in 2000, is not to be in the next one's path.

Thanks, boss. It's always good having you over the pay wall.

[Southernguy]

Re: FIRE Away

"They" (the powers that be) can roll on the ball by means of old and new kinds of financial innovation. They can print electronic money to buy whatever assets, stocks, mortgages, whatever.
But there is a physical constraint out of their control.
Itīs PCO, or even better just PO.
At some point the wave collides with the rock.

[Polish_Silver]

Dissing Tea Party and Occupy

Today we have 1000 flavors of erroneous belief, all of them as misguided and wrong as the beliefs they have replaced. The Tea Partyers. The 99%ers.

.

Neither political party looks very appealing, yet we have an electoral system that makes it almost impossible for third parties to elect a single congressman.

I have attended both Tea Party and Occupy meetings.

Contrary to media presentations, TP is not mostly old people, nor Occupy exclusively young people. Both groups were willing to learn and and had specialists present topics of importance.
Occupy attracts Marxists and other people who want alternative economic systems. But is that a surprise given how many pathologies we have?

At a TP meeting, only about half the discussion was about economic policy. About half was anti-war, and anti-Patriot act.

Is it bad that TP is upset about the budget?

[don]

Re: Dissing Tea Party and Occupy

Occupy attracts Marxists and other people who want alternative economic systems. But is that a surprise given how many pathologies we have?

That's prescient of you, Polish. History is replete with the left being the class constituency of change when conditions become intolerable. Where the society in question goes once revolutionary change has occur is another question altogether - China being a excellent case in point.

[Polish_Silver]

Re: Dissing Tea Party and Occupy

I think if we don't start fixing problems, we could go down hill a long way.