History and Economies

[loosecannon]

The government can't possibly be selling enough new bonds to cover a 1.4trillion deficit two years running since the Chinese and Japanese stopped buying our bonds and the oil rich states have been hampered by low oil prices.

Only the Fed can cover the gap, hence the use of the term "monetizing the debt". The debt service is still cheap due to low interest rates for 9 years. But the new debt is off the charts.

 

[william the wie]

So what do you see as the new format of banking over the next 4-6 years, Willie? By shadow bankers are you refering to the Fed or the commercial bohemoths like Citi, BoA and GS.

No they are being absorbed by insurance companies such as Berkshire Hathaway with Goldman Sachs or being converted to public utilities as with Citi and BoA. As banks become the accounting/marketing dept for insurance companies, money markets and other financial institutions that the Fed doesn't regulate the Fed is becoming more impotent. I have no idea what the new banking format will be because that will be decided by the market as the internet becomes more secure.

 

[william the wie]

i must be missing something about the government not being able to service debt. is that real?

Servicing the debt within interest rate and inflation targets requires monetization. Plus writedowns are destroying the money base.

 

[loosecannon]

So what do you see as the new format of banking over the next 4-6 years, Willie? By shadow bankers are you refering to the Fed or the commercial bohemoths like Citi, BoA and GS.

No they are being absorbed by insurance companies such as Berkshire Hathaway with Goldman Sachs or being converted to public utilities as with Citi and BoA. As banks become the accounting/marketing dept for insurance companies, money markets and other financial institutions that the Fed doesn't regulate the Fed is becoming more impotent. I have no idea what the new banking format will be because that will be decided by the market as the internet becomes more secure.

Well there is no doubt that Warren Buffet is partially co opting two major banks. I don't get how GS is an insurance company, but ok. I don't either get how BoA and Citi are transforming into utilities. Tho I would love to hear more details.

I get the gist tho, those with the real money are subordinating banks to roles within larger architecture.

At the moment this sounds like monopoly squared. I had never considered Berkshire a kind of dangerous new monopoly, but it could be true if they integrate strategically. I don't see Buffet as being that sinister, but others (Asians esp) could be.

I expect Asians will own most of the biggest shares of US banks within 10 years. Or maybe I am just paranoid.

 

[william the wie]

I must have miswrote GS is still an investment bank but it is in the process of becoming a subsidiary of Berkshire Hathaway which is an insurance company/industrial bank on the German model.

 

[loosecannon]

I must have miswrote GS is still an investment bank but it is in the process of becoming a subsidiary of Berkshire Hathaway which is an insurance company/industrial bank on the German model.

Did Berkshire bail out GS?

The German model is state incubation of strategic industries along with vertically and horizontally integrated monopolies that tend to raise all boats within the motherland. Same in Switzerland.

The Germans understand the holistic implications of racism and solidarity and the nation state concept.

So you think BH is a German monopoly clone? Good thinking, it may be true. Rothschilds of Omaha.

 

[william the wie]

Yeah I checked to make sure in return for buying $5 B 10% preferred shares in GS, BH also obtained warrants to buy $5 B of common at $108/sh.

 

[antagon]

The government can't possibly be selling enough new bonds to cover a 1.4trillion deficit two years running since the Chinese and Japanese stopped buying our bonds and the oil rich states have been hampered by low oil prices.

Only the Fed can cover the gap, hence the use of the term "monetizing the debt". The debt service is still cheap due to low interest rates for 9 years. But the new debt is off the charts.

this does not account for what goes around coming back around. my old axiom that if china moves into sterling or other euro banks, those will in turn move into the dollar.

japan?

http://www.treas.gov/tic/mfh.txt

 

[loosecannon]

The government can't possibly be selling enough new bonds to cover a 1.4trillion deficit two years running since the Chinese and Japanese stopped buying our bonds and the oil rich states have been hampered by low oil prices.

Only the Fed can cover the gap, hence the use of the term "monetizing the debt". The debt service is still cheap due to low interest rates for 9 years. But the new debt is off the charts.

this does not account for what goes around coming back around. my old axiom that if china moves into sterling or other euro banks, those will in turn move into the dollar.

japan?

http://www.treas.gov/tic/mfh.txt

Of those foreign holders of US debt within the top ten only China and Russia actually increased their holdings.

But I still have no idea what you are trying to say, I must have lost track of the conversation.

 

[antagon]

note that the chart runs left to right, respectively latest to earliest.

what i am saying is that the common 'china is not buying our debt' observation is irrelevant because the nations from which china does buy debt react by buying US debt. every economy operates a peg to the dollar. not all are as tightly fixed nor employ china's market restrictions, however.

 

[editec]

Guys, what the median household income?

I think that it's dropped about $10,000 since its high at about $57,000.

Now, what is the median home price?

See the problem?

The median family income cannot purchase the median priced home.

Really, unless they come at the purchase with enormous downpayment, they do not qualify for a fixed rate mortgage.

So...what does that mean for the market price of existing housing?

Doesn't it mean a slow painful decline in property values? (and the only reason its slow and painfiul is because people like me aren't willing to sell, even if we're throwing good money after bad)

It does mean a slow decline in prices UNLESS hyperinflation kicks in.

Now I know some of you expect a hyperinflation to start soon, (and I understand why you think that, too and yes I do think you argements makes sense as far as they go) but I cannot understand how that will happen if the worldwide depression continues since unemployment is a worldwide problem.

Inflation is a problem of demand Iactualy cash in the pockets of consumers) outstripping supply (all good and services).

I cannot see that happening in the near term when people who have jobs are socking away money like crazy and a huge percentage of the population is either un or under-employed.

I would not be at all suprised to see the US economy moribund for most of my son's working life.

 

[midcan5]

The sky is falling the sky is falling.... Henny Penny returns like that old quote on history too frequently. (The first question after the talk is a profound one. Listen to it. See Q&A link.)

Where is FDR when we need him? Anyone real good at cloning?

Weird but notice some of those real bad socialist nations are not listed? LMAO

Debt debt debt now tell me how simple this could be fixed? Guesses?

If I can solve this problem so simplify why can't politicians? Taxes and spreading the wealth is so simple yet so hard.

Jared Diamond on why societies collapse | Video on TED.com


From PDF PP presentation. Links below for those interested.

'Usually, only 3 ways out'

XXX 1 A higher growth rate of GDP
XXX 2 A lower interest rate on the public debt
XXX 3 A bailout, meaning either a current transfer payment or a capital transfer from abroad
4 Fiscal pain, meaning an increase in taxes and/or a cut in public spending
5 Increased recourse to seigniorage (revenues from monetary issuance) by the central bank
6 Default, including every form of non-compliance with the original terms of the debt contract, including repudiation, standstill, moratorium, restructuring, rescheduling of interest or principal repayment etc.

Event: Fiscal Crises and Imperial Collapses: Historical Perspective on Current Predicaments

Event Multimedia: Fiscal Crises and Imperial Collapses: Historical Perspective on Current Predicaments

http://www.iie.com/publications/papers/niarchos-ferguson-2010.pdf


Civilization stages

From bondage to spiritual faith
* From spiritual faith to great courage
* From great courage to liberty
* From liberty to abundance
* From abundance to selfishness <<<< We are here.
* From selfishness to complacency <<<< Our youth is here.
* From complacency to apathy
* From apathy to dependence
* From dependence back to bondage
Source: In the early 1700s, Professor Alexander Tyler wrote this about the fall of the Athenian republic over a thousand years ago.


Replace OSHA in quote below with Taxes or ????

"OSHA appears caught in a cycle of liberal presidents - who want to retain some health and safety regulatory programs, but also need economic growth for political survival - and conservative presidents, who focus almost exclusively on the growth side of the equation. Such a cycle will always tend to subordinate the need for safe and healthful workplaces.... ensuring that commitment to OSHA will only be as strong as the priorities of business will allow." William Grover

And see America today here: [ame=http://www.amazon.com/Culture-Contentment-Penguin-economics-Galbraith/dp/0140173668/ref=sr_1_19?s=books&ie=UTF8]Amazon.com: Culture of Contentment, the (Penguin economics) (9780140173666): John Kenneth Galbraith: Books: Reviews, Prices & more[/ame]

 

[loosecannon]

note that the chart runs left to right, respectively latest to earliest.

what i am saying is that the common 'china is not buying our debt' observation is irrelevant because the nations from which china does buy debt react by buying US debt. every economy operates a peg to the dollar. not all are as tightly fixed nor employ china's market restrictions, however.

I do not believe that every economy maintains a peg to the dollar. Nations must buy dollars to purchase commodities priced in dollars. Hence the export driven economies of today and current accounts surpluses.

And I do not believe that there is sufficient demand for US bonds without the fed monetizing the debt.

Just in the last two years the deficit, that is new debt, has increased by $2 trillion, or about 2% of global GDP. But US debt is far from the only debt that must be supported by bonds worldwide. The EU, Japan, UK, all have considerable bond service requirements as do many states and municipalities. That must amount to a drain on world GDP of at least 5%. Esp if you include securitized consumer debt.

I get the distinct feeling that the ship is sinking and Ben Bernanke is running the bilge pumps around the clock, while casting away anchors and other marine essentials to keep the vessel above the waterline.

 

[antagon]

note that the chart i've put forward shows foreign reserves of US debt. trade in dollars for commerce will be above and beyond the cash reserved by these central banks. it supports the idea that these other economies have indeed moved into the dollar in ways they had not previous to china's reserve policy seeking other species. because currencies are valued relative to eachother, particularly relative to the dollar, it cant be said hat countries dont aim to have a specific relative value of their currency to the dollar. each of the euro, sterling and yen are concerned with exactly that on a daily basis.

new debt isnt a drain on the GDP... not in its sum total as you propose. the cash derived from its issuance is a pump for the GDP, however. without claiming that this is sustainable in the least, i remind that treasuries are mechanisms for borrowing... from the future... not the cash on hand.

something will have to happen for your dollar scare to come to pass... like a US economy non-recovery. it has only happened with respect to china and russia as you've pointed out.

 

[loosecannon]

I will look at your chart again and try to track down one that includes 2007,8,9.

But US bonds are a drain on the world's GDP because we are talking about new bonds generated to support new deficit spending.

And assuming that our debt is 13 trillion and has to be rolled over every 3 years on average then an increase in our deficit by $1trillion/year has increased our need to sell bonds by about 20%/year over the past two years. Or approx the equivalent of the two QE bouts.

 

[loosecannon]

I just tallied the top 10 entries from your chart and indeed the top ten foreign nation bond holders only increased their US bond exposure by $550 billion yoy. Which is enough to cover less than half of our new deficit spending, not including debt service.

 

[antagon]

its about $700 billion all up YoY with respect to reserves, but again, reserves don't represent the total debt created and auctioned by the treasury.

browsing around treasury direct the YTD net issuance is $1,483,785,033,426.46, overall.

1,611,544,812,899.90 was how they did jan-jan last year, but the site says they issued $8.4T gross in 2009.

there's no total as to how much they've grossed this year. all of the auction results are per-auction. i'm not feeling your claim as to a fear of treasuries or serious financing issues in our government are corroborated. debt service is budgeted as $414B this year.

can you explain your GDP drain idea? do you mean that these instruments are competing with equities?

 

[loosecannon]

"i'm not feeling your claim as to a fear of treasuries or serious financing issues in our government are corroborated"

that's because the fed is buying bonds! They admit they are buying bonds, it is an open secret, and each time they do they are monetizing our debt. Don't try this at home.

"can you explain your GDP drain idea? do you mean that these instruments are competing with equities? "

You yourself have admitted that China is making their own economy suffer by investing trillions in foreign reserves.

If the world has to spend $10 trillion/year to finance public debt that is a tax levied against all commerce. Which really shouldn't come as a surprise since we all understand that governments have to: repay debt and pay debt service on debt. If they aren't doing that then other orgs are in the form of accepting rollovers into ever more debt.

The alternative to that money shifting toward the equities market is that that money would circulate thru the goods, services and employment economy, Main street.

If anything I would consider the equities markets as another kind of tax on the greater economy.

 

[antagon]

isn't there an extent that this money finds profit somewhere though? china's not lapping up the investment. elsewhere in asia, africa seems to be booming over it. most of it is stuck in arbitrage. this reminds me of tales i heard of the 80s crossed with the tron-effect from the machines doing the work at lightspeed this time around.

this cash will come back in a rush... it will only be worth something when it hits our economy or if/when china lets it land there. the fed will have some brakes to pull when it does.

the fed buys up treasuries, but $8.4T last year? do you really think that the dollar is not the most crucial reserve currency on the planet anymore? doubt it, man.