Folks i NEED your help (Please)

[D-Mack]

Re: Folks i NEED your help (Please)

Actually, I agree. Just because something is a bad idea doesn't mean there is a better idea.

Well, actually, those who propose we nullify the CDS contracts or declare a debt jubilee rather than printing money think that those are both better ideas. I don't know how I feel about that -- I think those ideas are sufficiently system-changing that they are outside the universe of possibilities being considered by the policymakers. Otherwise, complaining about inflationary policies -- and how they are going to backfire -- is really just sport.
...

There are $50 trillion of credit default swaps still outstanding. The hundreds of billions in taxpayer funds that have been poured into AIG have been used to pay out CDSs. According to the brilliant bank analyst, Chris Whalen, at least $15 trillion of these CDSs will need to be paid out. All the Central Banks in the world cannot create that much paper out of thin air. He insists that the government needs to let AIG go bankrupt and get our system functioning correctly:

“President-elect Obama and the American people have a choice: embrace financial sanity and safety and soundness by deflating the last, biggest speculative bubble using the time-tested mechanism of insolvency. Or we can muddle along for the next decade or more, using the Paulson/Geithner model of financial rescue for the AIG CDS Ponzi scheme and embrace the Japanese model of economic stagnation.”

http://www.financialsense.com/editor...2008/1209.html

Has anybody heard about this guy?

[The Outback Oracle]

Re: Folks i NEED your help (Please)

Sorry guys...I just can't buy this "let's just inflate our way out" It leaves all the fundamental imbalances intact. As a result you still have Steven Roach's "balanced on a pinhead" economies.
Now, it's a fact, that I don't have quantitave data to back my opinions here, just an overall view that everything is irreparably screwed.
So my guess is that,maybe, as you all opine, Bernanke reckons he can get the inflation genie, that he has encouraged out of the bottle to fix the disinflation (deflation), back into the bottle later. However I am certain that any attempt at doing so will result in an immediate great smash! He will be hitting an economy that is still fundamentally fragile and unbalanced with rapidly increasing interest rates. It's hard to stop on the top of the pinhead when you are doing 100 mph.
Now my apologies to Steve Keen Hudson et al who are all of far superior intellect to me....but......you're wrong! I have had enough experience to know that the only way to get rid of debt is to knuckle down, reduce your living standard, and pay the damn thing off. Believe me I have a lot of experience at that!!!!
Inflating it away will just, either spread the curse, or worse, postpone the debt onto future generations. Either way the problem is exacerbated not cured.

ON a note a little off thread, further, yes, Bernanke must be a somewhat academically bright lad and may understand what has happened. He may have known he is simply between a rock and a hard place. If that is the case he has been on the Fed Board for a long time so why didn't we hear from him years ago on the risks that were so readily apparent to many of us comparative dolts here. Also, if that is true, he has lied to Congress and the American people. How many people continued increasing debts because he and Paulson kept on saying the Economy was "fundamentally sound"?
How many of those people are now Bankrupt or have lost their homes? I'd like to hear one of these blokes just say either
"sorry....we didn't have a clue what we were doing and so we gave you the wrong advice and we are sorry you lost your home as a result"
or
"sorry...we knew what we were saying was wrong but we decided to lie to you anyway (for the greater good) and we are sorry you have lost your home as a result. But, you know, some sacrifices have to be made!"

Fat chance!!!
I dunno, the whole game just looks suss to me.

[The Outback Oracle]

Re: Folks i NEED your help (Please)

Specifically, in relation to Mike's post, another thread is very relevant. In tHE "FINANCIAL SENSE EDITORIALS - CREDIT CRISIS THE WORST IS YET TO COME" in the section "Fundamental causes of the Crisis"
""The current attempts by the Government are, above all, a desire to preserve the status quo, a desire to sustain the unsustainable, a desire to extend the life of a pathological system doomed to failure from the beginning"

[ASH]

Re: Folks i NEED your help (Please)

Has anybody heard about this guy?

More importantly,why doesn't he think the central banks can create $15T out of thin air?

[marvenger]

Re: Folks i NEED your help (Please)

Now my apologies to Steve Keen Hudson et al who are all of far superior intellect to me....but......you're wrong! I have had enough experience to know that the only way to get rid of debt is to knuckle down, reduce your living standard, and pay the damn thing off.

But the economy as a whole cannot pay it off, the more you pay the more you owe in debt induced deflation. That's why Hudson Keen etc want a debt jubilee, they don't want to preserve the status quo, but they know to allow debt deflation to run its course is not the way to go either.

[vinoveri]

Re: Folks i NEED your help (Please)

. Suppose the officials who understand the danger of hyperinflation -- and who plan to cut things finely so as to avoid it -- are replaced by populists who promise to give free money to everybody? Could that happen?

The way things ar going, I think this would sit better with me than the status quo of handing out money only to only the financial elite and power borkers. Come to think of it, maybe this is the plan; give the rich the first $20 trillion and a year or two later start doling it out to the common folk, but of course those who get the money later are disadvantaged by the inflation resulting from the first $20T


Cudos to you for your idealism and trust in the better angels of our rulers. You have more faith in the good will and intentions of experts than I. Remember what Keynes said about "in the long run ... we're all dead" though.
How can one not see the feudal system now - it's so transparent. Big government and Big business are, (at the risk of sounding like a conspiracy nut), allied and against the interests (read liberty) of the common man.
I've crossed the threshold of irreversible cynicism although still in a stage of semi-denial, as I simply do not want to accept the truth about our country. A culture built on a vice (greed) cannot endure.

[Munger]

Re: Folks i NEED your help (Please)

Now my apologies to Steve Keen Hudson et al who are all of far superior intellect to me....but......you're wrong! I have had enough experience to know that the only way to get rid of debt is to knuckle down, reduce your living standard, and pay the damn thing off. Believe me I have a lot of experience at that!!!!

Ahhh .... but can you print your own money?

[The Outback Oracle]

Re: Folks i NEED your help (Please)

Yeah ...sorry Marv...but my point still holds. It's just passing the problem off to somewhere else. It can be repaid if it is repaid by everyone. That means Government, Government employees, Lawyers, Banksters etc etc...Everyone takes one hell of a cut in living standards....If you have a "debt jubilee" it's got to have a corresponding confiscation of savings....So all the cost of the debt is simply passed on to "savers" The debt does not just disappear. Further as per the financial sense post...you are still left with the unsustainable. Governments, households, and companies, whole nations, with an appetite for debt that is too high because there is no risk to debt. The cycle would just start again.

Don't anyone jump on me...I didn't really mean to kick this old horse into a gallop again!
(Fears getting ripped to death by C1)

[marvenger]

Re: Folks i NEED your help (Please)

well for everyone to pay off debt savers must pay off debtors debt, what's the difference betwee this and debt jubilee to reboot?

[Starving Steve]

Re: Folks i NEED your help (Please)

Sorry guys...I just can't buy this "let's just inflate our way out" It leaves all the fundamental imbalances intact. As a result you still have Steven Roach's "balanced on a pinhead" economies.
Now, it's a fact, that I don't have quantitave data to back my opinions here, just an overall view that everything is irreparably screwed.
So my guess is that,maybe, as you all opine, Bernanke reckons he can get the inflation genie, that he has encouraged out of the bottle to fix the disinflation (deflation), back into the bottle later. However I am certain that any attempt at doing so will result in an immediate great smash! He will be hitting an economy that is still fundamentally fragile and unbalanced with rapidly increasing interest rates. It's hard to stop on the top of the pinhead when you are doing 100 mph.
Now my apologies to Steve Keen Hudson et al who are all of far superior intellect to me....but......you're wrong! I have had enough experience to know that the only way to get rid of debt is to knuckle down, reduce your living standard, and pay the damn thing off. Believe me I have a lot of experience at that!!!!
Inflating it away will just, either spread the curse, or worse, postpone the debt onto future generations. Either way the problem is exacerbated not cured.

ON a note a little off thread, further, yes, Bernanke must be a somewhat academically bright lad and may understand what has happened. He may have known he is simply between a rock and a hard place. If that is the case he has been on the Fed Board for a long time so why didn't we hear from him years ago on the risks that were so readily apparent to many of us comparative dolts here. Also, if that is true, he has lied to Congress and the American people. How many people continued increasing debts because he and Paulson kept on saying the Economy was "fundamentally sound"?
How many of those people are now Bankrupt or have lost their homes? I'd like to hear one of these blokes just say either
"sorry....we didn't have a clue what we were doing and so we gave you the wrong advice and we are sorry you lost your home as a result"
or
"sorry...we knew what we were saying was wrong but we decided to lie to you anyway (for the greater good) and we are sorry you have lost your home as a result. But, you know, some sacrifices have to be made!"

Fat chance!!!
I dunno, the whole game just looks suss to me.

When the time comes to put the inflation genie back into its bottle, I don't think that Bernankee will have the will to raise interest rates high enough to do it. The economy will be too weak, and most likely, the inflation will appear at the worst possible moment, when nothing can easily be done about it.

So enjoy the Argentina-style depression because here it comes.

Hopefully, Bernankee is faking the inflation risk. Hopefully, he is following the Bank of Japan-style deflation prescription.... Otherwise, we are in for a collapse of all paper money, consequent hyper-inflation, and then worldwide turmoil.

[ASH]

Re: Folks i NEED your help (Please)

Cudos to you for your idealism and trust in the better angels of our rulers. You have more faith in the good will and intentions of experts than I. Remember what Keynes said about "in the long run ... we're all dead" though.
How can one not see the feudal system now - it's so transparent. Big government and Big business are, (at the risk of sounding like a conspiracy nut), allied and against the interests (read liberty) of the common man.
I've crossed the threshold of irreversible cynicism although still in a stage of semi-denial, as I simply do not want to accept the truth about our country. A culture built on a vice (greed) cannot endure.

Sometimes idealism is just the result of youth and limited experience; in my view, it is almost always a luxury. A few years from now I will be older, I'll have had more experience observing how the financial crisis was handled, and quite possibly I'll be a lot poorer.

I don't think I'm entirely idealistic in my interpretations of policy or the motivations of policy-makers... I just tend to err on the side of "inadvertent clusterfuck as the result of a structural bias toward short-term thinking (and yes, greed), managed by largely well-meaning officials of limited capacity and vision" as opposed to "intentional clusterfuck orchestrated by corrupt officials for the benefit of the elite" on the scale of cynicism. That said, even in my world of relatively benign officials, I expect money and power to be taken care of first... until the populist reaction. I just don't think that money and power will dominate in the end.

Maybe I'll have a different view in two years.

[The Outback Oracle]

Re: Folks i NEED your help (Please)

Perhaps this is where I don't get the point - why are savers paying off debtors debts? In my world, savers would be relatively better off. Currently savers are the only ones carrying the burden. They get nil interest and their savings are confisacted so others can have cheap borrowings. So any scheme which spread the load around would certainly be of some worth.
You're right, practically it isn't going to happen. Already we have Governments raising taxes to make ends meet rather than reduce the size of Government or its benefits. Similarly, the greates trade union of all, the Law Society, is not going to allow any cut in its members standard of living etc etc
So I guess my position is, contrary to Keen, Hudson et al...there is no solution . The solution, by my estimate, in Aus case lies back in about 1957. We'll just keep on doing what we have been doing over and over and expecting a different outcome!

[marvenger]

Re: Folks i NEED your help (Please)

Perhaps this is where I don't get the point - why are savers paying off debtors debts?

I thought this is what you were saying. If debtors pay off their own debts, the more they pay the more they owe and you get deathspiral. This is because the amount that gets paid off is less than the resultant swelling of the dollar due to contraction of economic activity and deflation. That's becasue most people are debtors and they make up the workforce and are the biggest consumers overall. The top 1% just keep getting richer and don't contribute much to activity. So the top 1% "savers" need to take a hit to stop debt deflation and economic contraction.

In my world, savers would be relatively better off. Currently savers are the only ones carrying the burden. They get nil interest and their savings are confisacted so others can have cheap borrowings.

I'm more referring to creditors when I mean savers, j6p doesn't save. he may have some money in the bank earning no interest but he's also got a mortgage.

You're right, practically it isn't going to happen. Already we have Governments raising taxes to make ends meet rather than reduce the size of Government or its benefits. Similarly, the greates trade union of all, the Law Society, is not going to allow any cut in its members standard of living etc etc
So I guess my position is, contrary to Keen, Hudson et al...there is no solution . The solution, by my estimate, in Aus case lies back in about 1957. We'll just keep on doing what we have been doing over and over and expecting a different outcome!

yeah they're getting away with murder, it can't go on forever though. I believe this debt backed fiat currency central bank double accounting usury bullshit system can function, but the economy needs to grow for it to function and that means there has to be productive investment. the latter hasn't happened enough and the debt has gotten beyond the ability of the economy to pay and the problem cannot be solved by more debt double accounting currency issuance let your banking mate have first stab bullshit. There has to be a change to the system, whether its default, staight up printing to reflate, bretton woods 2 to disguise default. I dunno if the US has the authority to call the shots anymore and disguise a default through new bretton Woods.

[oddlots]

Re: Folks i NEED your help (Please)

Mega,

Keen had some positive things to say about the British 2 yr. debt moratorium on failing mortgages here (can't tell if this is subsumed under the Bloomberg piece or not, but same idea I think):

http://www.debtdeflation.com/blogs/2...ght-direction/

As others have said it fits the general debt jubilee idea but its worth reading for the full argument.

I think its too easy to confuse these programs with solutions as opposed to making the best of a bad situation. I think they should be seen as the latter and are valid as such. I don't think its incompatible to believe both that the current crisis is a devastating indictment of what has passed for sound economics and political stewardship in our lifetimes and that the results are dire enough due to knock on effects that extraordinary efforts need to be taken to ensure that the patient survives the trauma.

Or more concrete: not having a functioning mortgage market does not undo years of having a dangerous and unsound one. Presumably there are many worthy borrowers in the UK and it serves no-one's best interest to have them unable to provide support to the market.

My argument is basically: it's triage. It doesn't mean the patient will walk again or he won't.

That said I think its worth contemplating the manner of bailouts and what it means. London Banker had a good post on what each CB's choices say about the political economy in their respective countries:

http://londonbanker.blogspot.com/200...in-crisis.html

What I found scary about this analysis is the way it lays bare the fatal bias toward "saving" - as if that were possible - insolvent FIRE economy entities like Citi and AIG while the productive economy burns. What could motivate such behaviour? Possibly its a realistic assessment that these FIRE economy activities are the business of America now (just as manufacturing-for-export is Korea's core) and so require a last ditch defense even if its doomed. That's sobering and I think is in line with EJ's recent pessimism regarding both

1) the epiphany moment - the fire economy is not coming back - which coincides with a 1929 busting drop in the stock market

2) the next shoe: recognition that, at the point where the yawning gap between productive output and debt levels is greatest we'll have to return to relatively low-margin (at least in comparison to ponzi schemes) in order to bridge it.

[*T*]

Re: Folks i NEED your help (Please)

So my guess is that,maybe, as you all opine, Bernanke reckons he can get the inflation genie, that he has encouraged out of the bottle to fix the disinflation (deflation), back into the bottle later. However I am certain that any attempt at doing so will result in an immediate great smash! He will be hitting an economy that is still fundamentally fragile and unbalanced with rapidly increasing interest rates. It's hard to stop on the top of the pinhead when you are doing 100 mph.
Now my apologies to Steve Keen Hudson et al who are all of far superior intellect to me....but......you're wrong! I have had enough experience to know that the only way to get rid of debt is to knuckle down, reduce your living standard, and pay the damn thing off. Believe me I have a lot of experience at that!!!!

There is not enough money in the system to pay the debt off - the money would have to be created by more debt. So we have defaults and writeoffs - creating price and wage deflation. This makes it harder to pay off the same nominal debt and raises the debt burden - not lowers it. The economy goes in a downward spiral to zero activity and zero employment - disintegration.

Since this is politically unacceptable and would not work, debt forgiveness is necessary. The form chosen will be inflation. The only form of inflation that will work is real wage inflation. Then people will be able to afford to pay off the debt.

Replacing private debt with govt debt will not work (what they are doing). Outright monetisation or printing money will work as a form of debt reduction. The obvious risk is hyperinflation. Bernanke has no choice.

Actually, there is a choice. We could create new money that is not allowed to bear interest, is legal tender for old debts, and limit debt:equity to 1:3. But that ain't going to happen until this system fails and the heads of those who run it are on pikes outside DC. Pretty unlikely in our lifetimes.