One of the things that was revealed in the 2008 mortgage crisis was the fragility of the global financial system. The system that was born of the Louvre Accords was supposed to be robust and resilient, unlike the previous arrangements. The masters of finance would be able to keep a steady hand on the tiller, guiding the world economy through each storm, rather than have a free-for-all ever time there was a little turmoil. Up until 2008, everyone knew something like the mortgage crisis was impossible.
A credit based financial system was supposed to get around the problem of currency devaluation to solve political problems. That’s been a problem since the advent of coinage. When the state gets in trouble, the easiest ways to solve it is to spend money on the public. Whether it was debasing the coinage or printing paper money, the solution to spending money that did not exist was the create it. That always created new and bigger problems for the society down the line.
One way of looking at the mortgage crisis is as a form of currency devaluation. The global financial system is based in credit. That’s the base unit of value. Government debt and to a slightly lesser degree, corporate debt, is the foundation of the global financial system. Government issues debt, which increases the supply of money in the system, as that debt is used as collateral in the system. Central banks can buy and sell debt to control the supply of money in the system.
What no one thought much about, it seems, is how players in the system could devalue credit, in the same way governments devalued currency. That’s exactly what the mortgage brokers were doing. By lowering credit standards for borrowing, they were debasing a fundamental unit of currency in the system. This went unnoticed for a long time until everyone started noticing at the same time. The panic to unload the debased currency – those bad mortgages – set off the mortgage crisis of 2008.
That’s something to keep in mind as the next crisis appears on the horizon. The Wall Street Journal ran a story on General Electric’s financial issues. It’s based on a report by independent watchdog Harry Markopolos, who got famous sounding the alarm over Bernie Madoff’s scheme. For those familiar with global corporate finance, it is an interesting read, as GE is the exemplar of corporate legerdemain. It is not unreasonable to say that GE exists to exploit gaps in the regulatory system.
General Electric is one of those companies that looks like one thing, but in reality is just a financial scheme masquerading as a legitimate business. For example, their stunning growth in the 1990’s was not due to great manufacturing innovation. It was the result of GE Capital, a banking arm of the company. This arm not only financed their clients, who bought GE products, it financed GE’s expansion through acquisition. Without GE Capital as its credit creation vehicle, there would be no General Electric.
When you dig through the report, there are the familiar signs from the 2008 crisis. The allegation is GE is exaggerating one side of the balance sheet and minimizing the other, in order to make its liquidity appear much higher than reality. The whole point of this is to maintain a credit rating that allows it to borrow at competitive rates. Those lenders are not all that interested in the facts behind those numbers, as they have no incentive to examine the credit worthiness of General Electric.
Now, GE is one firm and maybe this is both exaggerated and isolated. That’s not the way to bet though. One of the ignored aspects of global business is that even tech oligopolies rely on a financing arm to exist. Apple, for example, is really a hedge fund that makes phones. Braeburn Capital is a wholly owned asset management company based in Reno, Nevada. Other tech giants are far less transparent, but every bit as wedded to the credit system to maintain their positions.
In theory, having global corporations as nodes in the global credit system is not a bad thing, because it makes them easier to regulate. In reality, as we saw with the mortgage crisis and now with General Electric, it also encourages everyone to overstate their credit worthiness. It also encourages opacity. The more complex and opaque the financial statement, the more costly the audit. Again as we saw with the credit agencies in 2008, the simple answer it to take the statements at face value.
That was the other thing revealed in the mortgage crisis. The system was a black box, even to the people inside it. The decisions makers in the big banks were unaware of what was happening upstream to pollute their asset pools. Of course, they had no incentive to care, so they never looked. Those people upstream had no way of knowing what they were creating downstream, but they had no reason to care. Regulators, of course, had no skill to examine the system and they did not care either.
Global debt, which includes government, corporate and household, is now 50% higher than it was at the time of the 2008 financial crisis. Due to the massive expansion of government debt, the stated quality of the overall debt is higher than in 2008, but this assumes government never runs out of money. Given that government solvency is tied to corporate and household solvency, that’s not an indisputable assumption. All anyone can really know is the world is awash in debt at all levels.
One read of the 2008 crisis was that it was a proof of concept. Instead of the system collapsing the world into depression and war, it withstood a huge blow and slowly eased the world out of the crises. The other read is that it was a warning about the internal logic of the system. A credit based economy is a house of cards. If the wrong card falls, the whole system collapses. It could be that the warning over GE is like the warning over mortgage lending. A warning to the house of cards.
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Consider the principle of mediocrity. If GE is totally leveraged in this manner, it quite likely that most of corporate America is leveraged in such a manner. Remember the accounting scandals that emerged in the wake of Enron? I think we’re going to see a repeat of this, only on a larger, worse scale.
That’s my sense, as well. hence the title of the post.
OT: Looks like Tucker Carlson offended Fox and the Jews with his statement that “white supremacy is a hoax”. He got a instant vacation.
The big civ nat sites went silent on this.
Even if he comes back, his stay won’t be permanent. He’s finished.
In Covington’s novels, after the Northwest American Republic won its independence from the USA, it took steps to preclude the financialization of the economy, including outlawing the stock market.
I would modify that to allow for a stock market that traded equities but no derivatives except for futures on crops.
How would you reduce or preclude the financialization of the economy?
I use the notion developed by Walter Bagehot in “Lombard Street” that to understand the credit system you must understand that loans should be properly collateralized and that debtors shoudl be able to make their payments.
In 2008 as a result of decades of government policy home mortgages were undercollateralized and the debtors couldn’t make their payments. Therefore Armageddon.
The problem is that ever since the Dutch invented central banking to fight their war of independence against Spain the government has been at the center of the financial system and governments have a permanent itch to misbehave.
Are global corporations tangled up in incomprehensible debt that they don’t even understand themselves? Probably. Do many CEOs really understand what they are doing? Probably not.
But then I suspect this has always been so.
I really don’t think that “the mortgage crisis is as a form of currency devaluation” is why the 2008 financial crisis hit.
The runway financialization of all aspects of society aside, the models still in use for the economy are largely false and the people still propping them up know this.
The classical model of liberal capitalism still holds sway in most government and corporate circles. It still assumes that an unregulated market will work towards a sort of equilibrium point where both buyers and sellers are happy.
All of the models predict this and also assume that with enough time even a disruption will right itself and again become magically path dependent towards equilibrium thanks to the invisible hand…
The predictions never pan out because there is not just a single equilibrium point. There are many. There are numerous factors such as time knowledgeable, time preferences, interests, motivations, behaviors, and many more that create all of these differing equilibrium values. Such a system does not work well long-term in even a bio-culturally unified country. Add race and thus cultural differences to this mix and the problems will only grow. In the present milieu all “fixes” simply set the stage for the next disruption.
The treatment of economic models as if they were simply the physics of the economy is wrong. Equilibruim has a very specific, well defined and well tested meaning and application in actual physics that does not translate well into a system as fragmented and volatile as is economics. They are shopping and borrowing concepts from the wrong science.
Modeling it as part of and in service to the the overall health and well functioning of the organic society should be the starting point. This would require the ending of profit as the sole motive in economics… and the accumulation and worship of acquisitions as THE ideal and driving force of our civilization.
What sort of fantasy world do you live in?
The US and the rest of the West’s capital market are the most top-down rigged and regulated, at whim, that they have ever been,
What we are seeing is the inevitable, and long forseeable failure of policy, not of markets.
All that is in doubt is the timing, not the result.
You’ve missed the whole point…
From the get go A. Smith tried to glom Newtonian mechanics onto economics.
And it’s been a flimflam operation ever since. Classical market dynamics is about as scientific as is Marxism.
Markets are always planned. The free self regulating market is a fantasy and has always been a fantasy. If the money and credit are being controlled then the market is planned.
The concept Smith built his creation around was the idea of equilibrium. It doesn’t exist in markets because different groups of people pursue different agendas in all kinds of different frames of reference. In such a system equilibrium between 2 forces, in this case supply & demand, will never be attained. It isn’t structurally possible.
Such a system is forced to continually grow in order to avoid the conflicts it creates from destroying itself.
agreed. furthermore, such growth is contingent on producers wanting to continually produce something of higher value than the last, and the consumer willing to pay a higher value, which in many markets and professions is a quite limited endeavor. therefore these markets reduce themselves to trusts and governments holding the producer and the consumer hostage.
so far in my limited reading, integralism works best. slow growth in very limited locally-controlled techno-elite cities, a higher proportion of landed fertile homesteads in the countryside, small nodal/factory towns, natural culling through the betas being sent to the monasteries and hospices and asylums (and foreign missions, if they so desire to embrace and uplift POC so much). tariffs, low biz tax, high upper bracket personal tax and tax on non-producers, border walls, permission to locally segregate ethnically, slightly higher min wages, a public health option and nothing more, Hungarian tax-cuts for those having 2-4 children, infrastructure in alliance w private industry and unions, defense of the right to keep and bear (the most sacred right of revolt, even Jesus carried a whip), and maybe some more solid currency than unending-debt.
and sure, with some computers and highly-taxed-regulated vice too.
Instead of trying to figure out what is going to happen, prepare to a point where you don’t get caught out no matter what comes down the pike. The range of near term to medium term possibilities is exceptionally broad these days.
Dutch said: “Instead of trying to figure out what is going to happen, prepare to a point where you don’t get caught out no matter what comes down the pike.” YES! Words of wisdom at last! Be the future you want to happen.
Think about this. The value of a trillion dollars of stock (e.g. Apple) is basically valued on the last trade. If the last trade on Apple is sharply lower (say down 10%), you just burned up about $100 billion in value. That’s the risk of paper investments, no bid, and all the value set to the mark-to-market last trade. The last 10 or 100 shares of stock traded sets the value for a trillion dollars in investments. Think about that for a minute. It’s crazy, actually. Add in a credit economy, where every piece of paper investment represents not only equity and an anticipated cash flow, but also an obligation in some other direction. Equity and cash flows go up and down, but obligations are eternal. Ask student loan borrowers. 2008 was a burning down of obligations, stick saved by an aggressive central bank remonetizing most of the busted and frozen assets, that were knocked way down in value.
The Fed and the gummint will remonetize things every time (that’s their job, and the basis for their continued survival—that is, continued fat paychecks and pensions for everyone in the Fed and gummint houses). The rest of us can get chewed up in the process. Diversify, including gold, land, all the necessities of life, and keep the debt within reason, and always fixed at a low rate—low rate fixed rate debt, with the means to pay it back over time, is like stealing money in a high interest rate/high inflation environment. Make it work for you. But variable rate debt and especially credit card debt will kill you. Finally, life is short. Enjoy it, don’t let this stuff drive you nuts. You have your own brain and your own two hands, and you can get there from where you are with some discipline.
Dutch said: “Make it work for you. But variable rate debt and especially credit card debt will kill you. Finally, life is short. Enjoy it, don’t let this stuff drive you nuts. You have your own brain and your own two hands, and you can get there from where you are with some discipline.” Yah! Sensible, level headed advice. I wish I could give you a thousand up votes.
Dutch;
You’re right, ‘mark-to-market’, i.e. valuing the whole outstanding balance of a security on the basis of the last day’s trading transactions, is ‘crazy’. After all, ‘everybody knows’ that were any substantial fraction of any security’s total outstanding balance to be dumped into the market at once, the price would be hammered down, maybe drastically.
But, what’s the alternative_? At least this is an objective measure of value for any non-physical asset*, however imperfect. Any other measure of value is complete guesswork, based on easily manipulated assumptions with large effect, after all.
BTW, one of the indirect factors in the 08 collapse was Wall St.’s political string-pulling to make the SEC give up its proposed ‘mark-to-market’ valuation rules as part of required disclosure.** Anyone with half a brain had to be wondering why there was so much political pushback. The logical implication was that there was a lot of dirty laundry in their balance sheets that the Banksters didn’t want revealed. So anyone holding financial firms’ paper had to be constantly and nervously eying the exit just before the break-down. That made the huge rush inevitable.
____________________
* Thinly traded physical assets have a similar set of valuation issues.
**To be fair, a reasonable sticking point was the FASB’s dumb idea that valuation changes in securities held as assets had to be flowed through the P & L. Surely there was another alternative.
Here’s a short actical intitled: ” A Brief History Of U.S. Dollar Debasement.” Dated, Jan. 8, 2013
https://seekingalpha.com/article/1100331-a-brief-history-of-u-s-dollar-debasement
Here’s a little artical intitled: “Food Packaging Shrinks, Prices Stay the Same.” Dated, 8/28/08. Obviously, things have gotten way worse since then.
https://www.newsweek.com/food-packaging-shrinks-prices-stay-same-88345
There’s lots of ways we get screwed every day. One little bit at a time.
The brilliant author of “Grant’s Interest Rate Observer”, James Grant, looked at GE’s accounting when it was still flying high, maybe 15 or 20 years ago. He found entire divisions that existed one year were gone the next, re-appearing again the following year. An entire division existed just to mine the tax code. I sold, but it’s taken a long time to reflect the fraud.
Grant has a great podcast by the way. It’s dry and inside the ballpark, and sells luggage 15 minutes in, as Z Man will eventually, but very good.
Can’t download it though.
Had the government not bailed out Wall Street and the banks the whole system would have imploded followed by lots of violence and chaos.
We came that close and it cost the tax payer trillions to bail out the super rich.
Now it’s much worse, should the same sort of collapse happen. It’s doubtful we can stop it. The banks are in even worse shape today than then, who knows who badly the big investment banks and other institutions are stretched. And then there’s the stock market which is so over inflated it’s insane. The housing market isn’t far away either. Banks ares are already giving out NINJA loans again, and to illegals at that.
I drive around town and I see illegals driving brand new Toyota’s and Nissans, especially pick ups. And you know they can’t make the payments.
Just like in 2007 before the collapse.
“…Had the government not bailed out Wall Street and the banks the whole system would have imploded followed by lots of violence and chaos…”
Is this true??? Could there be another way???
What if we took all the money the banks got at close to zero interest during the bank bail out and gave it to citizens instead? We know they gave them $16 trillion and I’ve read analyst that say the amount was closer to $29 Trillion. And these figures were from years ago. The total is bound to be much higher. At $29 Trillion and 300 million Americans we could have given a zero interest loan for every family of four of $386,666. Housing crisis solved and the economy would have roared with all that cash going into people’s pockets.
As it is we are just further in debt, housing cost have not gone down and we have nothing to show for it and the banks own everything.
Anybody here have their finger on the pulse in California?
My understanding is that CalPERS can’t survive a 5% hit without having to force a nasty bowlcut on all those retirees now ruining Colorado, Texas, Oregon, etc.
Vegetius said: ” Anybody here have their finger on the pulse in California? ” Here’s the site for the Mercatus Center at George Mason University on State Fiscal Rankings for 2018.
https://www.mercatus.org/statefiscalrankings
It looks to me that California will eventually go the way of Illinois.
I live in California (5th generation) and you cannot believe how fukked things are here 🙁 talk about Arkham Asylum. Calpers is Illinois ^ Illinois. No way it ever pays out for all the pensions it is supposed to support. which is fine because fukk public workers in the ass. Imagine the bloated carcass of a dead dog on the side of the road, in 120 degree heat — that is Cali.
the only good news is the the Mexicans are driving all the nigs out.
CA is IL, but bigger and with good weather. We will be crushed soon. CalPers has been contractually guaranteed a 7% return for years. This adds to the debt pile, which will materialize as equities go into the tank.
If Prop 13 is ever breached, look out down river!
https://www.youtube.com/watch?v=xH-_9cwdLug
You mean if it is repealed? What is the political likelihood of that happening?
NYC dept of Education employees have an (optional) tax-deferred annuity as part of the retirement package; they can contribute up to 25% of pre-tax salary into it.
It earns a guaranteed 7% return.
Probably not a sustainable system over the long term, but as Keynes reminds us, in the long term we’re all dead.
I have lived in CA all my life and yeah CALPERS is on borrowed time.
The only thing keeping the state barely solvent along with CALPERS is the stock market. Should the market say make a serious correction the state and CALPERS go belly up.
In terms of tax revenue it depends on less than 1% of the population to keep it going and most of those people are connected to Silicon Valley. And any hit to the stock valuations will cause a massive revenue loss and a set off a shit storm across the state and a chain reaction across every other state that is marginal.
CA depends on the stock price of Google, Facebook, and Apple. Take those three out and the coast is dead. Inland, biz as usual for the most part (fingers crossed).
Dutch said: “CA depends on the stock price of Google, Facebook, and Apple. Take those three out and the coast is dead. Inland, biz as usual for the most part (fingers crossed).”
I don’t know if you’ve heard of this guy. Victor Davis Hanson. He was born in Califonia and lives in the San Joaquin Valley, Here’s his Wiki page. https://en.wikipedia.org/wiki/Victor_Davis_Hanson
He wrote a book called “Mexifornia.”
Here’s an artical intitled: “Mexifornia and the Prophetic Voice of Victor Davis Hanson.”
https://www.crisismagazine.com/2018/mexifornia-prophetic-voice-victor-davis-hanson
VDH is always a good read. His problem is that his neighborhood has Mexified. He would be fine in a self-supporting white neighborhood in CA (for now).
Dutch…he’s 4th generation. A statue of his grandfather in the town square. He laid his daughter to rest in the rich earth of California. His immediate family is intermarried with Hispanic. He will not leave. I expect to one day hear he was taken out on his grape growing/raisin property. It’s not about waking him up. He has clarity on these matters and is making a choice. And he is content with that choice.
Hanson is smart, good on immigration, and a fine writer.
However, he need to be bullied into his grave unless/until he apologizes for his role as an Iraq cheerleader. He was one of those Ziopuppets who tried to bullshit everyone into thinking W was some sort or Periclean man of destiny for going into Mesopotamia.
I would imagine that a one-two combination of a serious recession and capital controls in China would tank California, and then the rest of the real estate market from the Rockies to the Pacific.
Vegetius said: ” I would imagine that a one-two combination of a serious recession and capital controls in China would tank California, and then the rest of the real estate market from the Rockies to the Pacific.” Canada as well. The Chines have poured an enormous pile of cash into the North American real estate marketing. If that money goes you’ll be able to buy a three bedroom house in Vancouver for around two hundred and fifty thousand.
In reality, as we saw with the mortgage crisis and now with General Electric, it also encourages everyone to overstate their credit worthiness.
A similar point: the world oil economy encourages oil producers to overstate their known reserves. It’s likely that a number of oil-producing nations are almost tapped out but keep saying they have plenty of oil in order to keep their peasants from uprising.
Well done Z.
Bookmarked this one.
thezman said: “By lowering credit standards for borrowing, they were debasing a fundamental unit of currency in the system. This went unnoticed for a long time until everyone started noticing at the same time. The panic to unload the debased currency – those bad mortgages – set off the mortgage crisis of 2008.”
Huge piles of foreign money setting in American banks turned into massive misinvestment, including those bad mortgages. Then those bad mortgages where turned into CDOs ( Collateralized debt obligations ) and sold to investors. Then AIG, the worlds biggest insurance company at the time, decides to insure the whole thing with truck loads of financial agreements called “credit default swaps” for (wait for it), five hundred billion dollars. And in 2008, the trap door springs open. The best laid plans… Oh, and lest we forget. the Obama administration was demanding that the Fannie may, Freddie mac system pour gobs of cash into the subprime housing market. There were lots of finger prints of the great recession.
O/T, a quick note referring to yesterday’s Z:
Why, thank you Zman, you are most considerate of your readers.
I think the flaw in the thinking of Right, Left, and Center (libertarianism) is this:
Absolutism.
Defending “principles” as if they were one’s inheritance. This ignores the large, necessarily grey area of public decency and behavior, one’s neighbors.
Thanks, readers, for the sharp, the sweet, and the savory, here in the Hunker Down era.
Must work! The Zman keeps making me late!
One of the most important points. Context and practicality are always relevant, and social animals always have to consider the desires of others. Balance is always the goal, not reaching a Platonic ideal in any one aspect of something without regard for the other moving parts.
Very late, but you are most gracious.
The Z-readers do make me wish I were educated.
I’d also add that the globalist position of making the dollar the global reserve currency, means that the “house of cards” system so brilliantly described by Z has to be kept propped up. For the globalist elites, they cannot just hoard gold in their tax havens, but they have to keep the game moving, buying ever-increasing Western government debt, and lending it out to the ever-more-enserfed kulaks and producer-peasants of the world. Thus the wheel keeps turning, grinding ever so loudly. Only few remaining dummy Keynesian centrists, such as the few remaining Obamaites, cheer.
No way (((these aforementioned elites))) will make the cheap yuan their currency, by the way. China will eventually have to make a similar choice between its local welfare-underclass, the increasingly heavy state bureaucracy, and the newly-found financial muscle; the latter of the three funds both neocolonialist Third World exploitation through “investment”, and Western breakdown through emigre invader-“investors” (see: Yang Gang). Both of these strategies may come back to economically bite the local Chinese, as the money eventually lost on the Third World credit scheme, and the Western nationalist tariff-friendly reaction against similar moves on their turf, will eventually make it so China has to devalue the yuan until it is not possible. Meanwhile the local Chinese’s increasing exposure to consumerist comfort may combine with the rise of globalist SJW values and deliver a Modernist-Maoist leftwing shock to the system, with a consequent establishment CPC reaction. The Hong Kong troubles at the moment are the prelude, though perhaps in an inverse way, as the hypercapitalist HongKongers try to pull off what Tiananmen couldn’t; they probably will fail as well (even Jackie Chan has deserted them), but the event will surely radicalize the two strains within Mao-Zedong-Thought-Land. From there on, they will either enthrone credit to live off their kulaks for a while (going West, really), or skip that and go back to the 50s already.
The Establishment Left and Right in the West play along. One stuck in the Radical 70s calls for wage stagflation, unbacked handouts, and tax-spend regulation jobs for bureaucrats to get their pinches on; while erasing and deracinating traditional cultures and middle classes with the worst guests of the world. The other stuck in the Buckley-neocon paradigm calls for deregulation of everything in favor of the elites, war abroad for buying out the military and bureaucracy through mutual profit and refugee-harvesting; and other myriad degenerative policies against the dwellers of small cities and rural towns, unions, manufacturers, small business, and Christian faith communities. Casually, the latter groups in the last sentence pretty much compose the West’s Main Street: whose savings used to be the backbone of the American dollar (and old European currencies) and finance, as well as the cultural hearth of the Western nations; many of whom voted en masse for the Orange Knight and his nationalist friends as saner third-way positions. Both Establishment positions are for kicking the can down the road while the masters of the universe keep toasting and making the most of it. Will the nationalists save us, or will the postwar status quo prevail again?
I agree that we cannot right now all hoard gold and make for the Montana hills, specially considering that at least nationalist thought has been put into the normie mind, and reaction may yet happen without a breakdown requiring it. However, in general, the usury-and-welfare scheme we got going, will eventually have to split into its unstable components. People who cannot pay their debts will have to go off to work the land, or the Amazon factory line, again. (((People))) who will not have other suckers to hand out credit to, will have to invest in the rubes through higher real wages and real local investment (for example, forcibly decentralized taxes and charities, and forcibly trust-busted and partly local- and worker-owned corporations), instead of usury; or else they will have to hide in castles and gated ghettos, again and forever. Finance, if it survives, will have to revert to using one standard for credit, another for wages, and another for welfare. This realistic age-old paradigm has been tried to be approximated forever with a trillion kinds of instruments since the Adam Smith Age, as the post-Enlightenment Whigs and their descendants (and (((enablers))) and internationalist allies in other ethnocultures, ie Jesuits, Freemasons, libertarians, commies of all races, etc) have always wanted universal free trade to be able to con everyone. But, the simplest and most elegant solution still remains the old gold-silver-copper(and/or pretty much donated paper) scheme, adapted to whatever each particular nation needs. Some nations will need more copper and welfare paper than others, others will be able to sustain even bitcoin safely. Globalism will safely die from there; and yet international trade will be more stable due to strong universal minerals, if slower due to lack of usury.
And yet… entropy will always be with us. The Romans still eventually went too much into handing out copper, while the (by then Latinized) Germanics had the iron advantage. Then again, this is why the slower yet still producerist schemes will eventually win anyway, however they are implemented – because, maybe it’s better to have smaller car crashes and panics every few decades, and big material paradigm shifts every 3-5 centuries; as opposed to big radical middle-and-under-class-sinking earthquakes every decade or two since the last 50 years, papered-over with material largesse loaned off by the elites to shackle us until the fireworks happen. Even the most coke-loaded investors will eventually realize this is a long-burning-fuse self-defeating strategy for life… or so I’d hope. Drugs have been getting stronger and more available, after all…
For it is consumption above all, OF all, what libertarians and Keynesians and commies and all other ranks of evil want…
Ezra Pound:
With usura hath no man a house of good stone
each block cut smooth and well fitting
that design might cover their face,
with usura
hath no man a painted paradise on his church wall
harpes et luz
or where virgin receiveth message
and halo projects from incision,
with usura
seeth no man Gonzaga his heirs and his concubines
no picture is made to endure nor to live with
but it is made to sell and sell quickly
with usura, sin against nature….
https://www.poetryfoundation.org/poems/54319/canto-xlv
Pound sounds better in German 🙂
Well, Pound. And look what happened to him…
Trump has thwarted most of the normal gimmicks that Democrats use to steal an election, and as such they need to resort to the nuclear option if nothing else works. They played the “collapse the economy” card in 2008 to ensure that we got Obamacided in that election, and now we will see the replay. Normally they wait until a few months before an election to play this card, but desperation may trigger it sooner. Yes, the financial cancer is systemic, but the elites will never let a good crisis go to waste.
their real trick in 2008 was getting the GOP to nominate mr brain cancer as their nominee.
This is not the first allegation made against GE’s accounting practices. A similar issue came up a couple years ago. People assume that because they’re audited by one of the big four accounting firms that everything is okay. Those firms, like the credit ratings agencies, last did their jobs in the 80’s and are now paid prostitutes who will rubber stamp anything. This is happening at the same time that banks have been disemboweling themselves of great analysts. Only the periphery short selling funds are looking into these matters, people like Jim Chanos. The system has never been so big, so indebted, and so blind.
You may recall that GE’s culture changed with Jack Welch, continued by Jeff Immelt. This was about the same time, the early 80s, where financialization of the economy really picked up. All kinds of leveraged deals were happening. Companies with a 10 year horizon to bring a product to market began to only care about the next quarter. Welch brought GE into banking, and the broad base of scientific knowledge and expensive to maintain labs was left to languish. Welch also had a system where he fired the bottom 10% performing managers each year, so it created a hyper competitive management culture with zero loyalty to the company. When you look at it the story of GE is the story of America. A now hollowed out place, with no loyalties, full of nothing but debt. GM did the same thing with GMAC, etc.
This brings us to 2008 and the eventual crisis. NOTHING WAS SOLVED during that crisis. The TARP fund shoveled a couple trillion into the system to keep it going. The Fed dropped rates to zero, and then had three quantitive easing programs. The TARP fund was mostly paid back when the economy began to lift again, but it was the Fed (which, per its balance sheet became technically bankrupt last December, only tiny blurbs in the press about that) that retained all of the bad debt. The Fed balance sheet, to this day, never returned to normal. By the way, the Fed will have a fourth quantitive easing later this year to absorb all of the debt issued by the Trumpian Federal Govt. Otherwise these Treasuries will soak up the last of the remaining liquidity, which is already running low in the eurodollar market.
The government has also reached a point where the debt will exponentially escalate regardless of tax receipts. This is also technical bankruptcy. While the government and the Fed are technically bankrupt they have the power of credit creation. We will soon be on the road to where the Japanese are, with their central bank owning all of the government debt, and buying equities and other assets as well to keep everything going. It will be a mass socialization of the economy that will one day create a currency crisis.
From here I see the following:
Dollar liquidity will dry up worldwide, and more and more credit must be issued to service exponentially more debt.
Interest rates will return to zero by next January, and more quantitive easing will happen by November to accommodate this problem, as well as fund the government.
The world will enter recession (Germany is already looking bad) as the natural cycle to purge bad debt reemerges.
This will create a banking crisis in Europe (Italy) that spills over into U.S. markets, as equities become more and more volatile.
Will Japan finally break next year? Big question. China is a mess and they will be pumping debt into their banking system to keep it afloat by the trillion.
Very interesting times. It’ll end in a 2008 style catastrophe, only without the self congratulation at the end for staving off a broader crisis. No staving off this time. Trump will be a one termer, with MA finger wagger carrying the mantle of failure into 2024.
Everything we knew and thought was solid will be swept away. People will have way more to think about than gender fluid transexuals using public restrooms.
Yep. Anyone who still relies on credit rating agencies or Big Accounting learned nothing from Enron or 2008.
Exile;
Agreed as a generalization. One major underlying problem is that the old accounting and financial information systems which were the basis of all investment valuations are now hopelessly behind the machinations of clever Wall St. ‘machers’. These systems were not designed for a world-wide financialized environment. The accounting profession seems unable to respond pro-actively and is constantly playing catchup, or has effectively given up.*
The Western accounting systems were designed/evolved in the long era where physical production was primary: So physical production’s direct and indirect factors were what was measured. When an auditor could go and actually count the widgets in the warehouse, only so much finagling was possible outside of blatant fraud. That meant that the credit rating agencies could ordinarily rely on the audited reports, and, in turn that investors could ordinarily rely on agency ratings.**
After financialization, financial asset valuation is an informed guess at best. Who can say what a derivative in a thinly traded ‘shark market’ is worth_? The more removed the financial instrument is from any physical quantities the more true this is. In 2008, the so-called ‘assets’ that collapsed financial institutions were at least 3, if not 5 levels removed from the physical assets (i.e. houses) that supposedly secured them: Mortgage being 1 times removed, resold mortgage twice removed, mortgage pool three times removed, CDO four times, etc.
At each degree of removal, a slight change in the valuation assumptions *at each level* (e.g. default rates, future interest rates, etc.) has a compounding effect that multiplies and magnifies uncertainty the further away from the physical asset it is. And, being assumptions, the financial engineers*** pushing the envelope can and do argue that they are not culpable when things go Tango Uniform.
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*The sure evidence is that the big accounting firms are much more focused on ‘diversity’. etc. then on regaining relevance.
**Of course, a smart analyst/investor had to apply some windage based on industry type, management’s reputation and experience.
***The old GE was run by real engineers. The failure became baked in when the financial engineers took over.
Good discussion about vaporware accounting. I never thought of it in those terms, but it makes sense. One more reason I’m shy about investing in “concepts,” “story stocks,” and financials that don’t actually produce anything.
The logical progression seems sound, but the timing? Timing seems unpredictable. Additionally, the aspect of additional expenditures via hardwired social programs (I assume that’s what you meant) also seems unpredictable. SS for example, need not be funded through borrowing, one simply trims benefits to match receipts from work force. Medicare, similarly trimmed via copay increase.
Seems politically improbable, but given the growing divide between the dying off Boomers and the follow on, debt burdened, generations—who don’t particularly care about aging, fat, White guys—does not seem beyond the pale. Just a matter of pain increasing until attention is focused.
Social security and medicare will be able to survive with changes to those systems, but yes, there will be “death panels.” Keeping baby boomers alive at the cost of hundreds of thousands per month won’t be worth it. Also, SS would have to be radically transformed on the disability side. Everyone has a back injury these days. The big thing with SS is eliminating the cap on payroll taxes. Big tax increase for high earners.
The timing on QE4 to finance the recent treasury sales is pretty predictable.
one problem i see, however, with the newer and debt burdened generations, is that they tend to be less athletic, less healthy, more risk taking, and more drug taking. true, there’s a ton of gym rats and dieters (taking God knows what supplements), but many more emaciated basement dwellers and obese catpeople. ergo, maybe the debt-funded-healthcare scam will go on…
or maybe, hopefully, the establishment paradigm will break in this regard too. for example, a proxy war between establishment and dissidence, is being formed between independent keto and meateaters and the general healthy omnivores – against the coming corporate plant-sugar-climate-scare-based push. even if climate change was partly anthropogenic, it is shale gas pushing methane up, not cows…
The vast majority of Americans now believe health care is a right. So we’ll end up with “Medicare for all” but it will only pay for amputations. So we’ll be like Mexico. Guaranteed health care, that no one uses, and you go to your private doctor above the bodega and across from the lavanderia.
I’d like to take a small poll here,re: debt load. I have been paying down my personal debt load ASAP over the last 5 years. Goal is $0 debt within 5 more years (mortgage). Is anyone here doing the same, letting it ride, or adding more?
Cash good, debt bad.
Zero debt is always a good thing. There are people who talk about mortgage debt being positive. Those are Kool-Aid drinkers. It’s amazing how cheap living can be when you don’t owe anyone interest. You’ll feel good when the bank owes you money. Even if it’s a nickel in this interest rate environment.
plus, the people who advocate for keeping a mortgage, never envision a day when they can’t make the payments.
Completely debt free for the last 5 years. Since then I have been stacking metals (silver, brass, and lead) and building up a supply of ready cash in case the banks choose to give their clients a hair cut a la Cypress during their debt crisis. No line of credit, credit cards paid off once a month like clockwork. I am not rich… but knock on wood – I am free.
and a little charcoal and saltpeter, to go with the lead?
I have a four-year supply of precious metals held in safe locations. If the geniuses in government manage to destroy the currency, I can ride it out. It takes about four years to return to a stable currency after the shit hits the fan. If I die with precious metals in my possession, so what? I sleep well. Old Money families have three things they don’t talk about: 1) land, 2) old masters art, & 3) gold. All three are hedges against inflation.
The world has been in a credit bubble since at least the 1990s. 3 different bubbles in a row just doesn’t happen. When the stock market bubble popped in 1929, people learned their lesson and you didn’t see non-investors in the markets again until the 90s.
You have to wonder just how much of big tech can survive outside of a bubble. YT has a business model where they upload thousands of hours of video per minute in ever higher resolution in perpetuity while also never deleting old videos or even putting them on a secondary storage system (old videos with a couple hundred views from 2007 play instantly).
Now we have a social media platform that wants to introduce its own money.
When the tide rolls out, the beach is going to be strewn with a lot of rubble.
In the words of the great Andrew Mellon, Treasury Secretary in the 1920s, “liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate. Purge the rottenness out of the system. High costs of living and high living will come down. … enterprising people will pick up the wrecks from less competent people.”
That’s how you solve these things. Extinguish bad debt. This literally hasn’t been done since the recession of 1981 with Volker’s interest rate spike. We have years and years of kindling.
Extinguish student loan debt. Make the private colleges eat the bad debt and public universities liquidate investments & cut bloated admin staff – no taxpayer bailouts, the banks eat the rest. Create a national bank for proles with small checking & savings accounts & get rid of FDIC.
Some of the fattest pigs in the country are in education, both literally and fugitively. Education has been turned into something of minimal cost (a library card) into this ridiculous behemoth. Nothing in our modern society has gone unperverted.
i’d argue to just return to the US Bank, which was nationally owned instead of chartered to the (((bankers))), and give proles basic cash packages there.
the elites could get some (very limited and productive) instruments too, however i’d bring back gold and silver backing for these accounts, to avoid usury. there could be middle level accounts for productive proles, specially silver backed, but again, strictly limited and productive.
As I understand it, the fed has always been a (((banker))) institution. Most of the founders strongly opposed a national bank and from what I understand, there was never anything other than very short lived attempts at central banking in America before the fed.
I think this time it is going to be more like “liquidate the kulaks.”
Did the stock market crash in ’29 cause the bank failures that actually caused the depression? Genuine question.
The stock market crash came because too much money was borrowed on stocks to buy more stocks. Sort of a collapsing Alonzo sort of thing when the stocks couldn’t inflate any more and smart money began exiting.
The bank holiday and bank failures came later, as the reneging on debts spread from stocks to other assets as the economy slowed down, and the banks were left holding the bag. So there was a relationship, but sort of indirect and the bank failures came a few years later.
Ponzi, not Alonzo, damn autocorrect.
In the event of a downturn, we have to go over on the offensive and pin it on our enemies, not engage in autistic philosophical discussions about the nature of money as is our habit.
In some places this will mean continuing the deconstruction of libertarianism, supply-side voodoo, and conservatism in general.
In others, it will mean putting a face on the problem. And that face is going to be a merchant rubbing his hands together.
And in a few forums it will be both of these at once.
The shitlords can’t be allowed to let Trump Disappointment Syndrome keep them from doing what they do best.
As populists who put the people before Red Team/Blue Team, we’ll be the guys best positioned when the globalists slip up next. They don’t have any solutions except “bail us out b/c scary monsters.”. While we’re waiting for them to f*ck up and give us that chance, we need to keep spreading the ideas of anti-degenerate social policy and economic populism and generally build our own infrastructure. Tomorrow really does belong to us – they don’t have and would never embrace any vision of the future that doesn’t amount to putting more lipstick on the rotting pig status quo.
Agreed. If downturn happens while Trump is still in office, he should declare war on the Fed and the investment banks and tie it to Epstein, and we should support this.
But if a big crash happens my guess is he’ll go along with whatever he is told to do, the way both W and Obama did.
I don’t think they can rerun the fall of 2008 for two reasons.
Politically, I don’t think most people on either Red or Blue will put up with another bail-out. I think that episode did more to destroy the social contract than all the other scandals from Watergate to WMDs combined.
Practically, I don’t know that a bail-out will work. I think Bernanke, Paulson and Geithner should be in cages, but they did manage to prevent the house of cards from collapsing ten years ago. But that was then. The notional value of the derivatives market is now supposedly betwween 500 trillion and 1.5 quadrillion. No one knows what a sudden 20% hit to that looks like.
If I was Xi, Putin, the Ayatollahs, Indian, etc., I would check my six and then use the chaos to dethrone the dollar as the global reserve currency. In which case things could get Mad Max real quick in the western hemisphere: cities like Chicago and Lagos only have about a week’s worth of chlorine stocked up to treat their drinking water, assuming they can even find it…
>The global financial system is based in credit.
That’s the way it was before the 1970s. I think at this point it is more accurate to say that the global financial system is based on lying about credit.
>exaggerating one side of the balance sheet and minimizing the other
I think the term for this is accounting fraud. Or control fraud, per Bill Black.
People talk about GE being a problem, and it is. But Tesla is a pure Ponzi that lives on subsidies. A financial wreck with a 30 year old CFO who’s in over his head and likely made to sign things by filthy carney Elon Musk.
you are being too hard on Tesla. they have an important new technology that is worth supporting — up to a point. where they went wrong, IMO, is not getting established car guys in there to set up proper assembly line. they have to do a lot of hand assembly and that is what is killing them.
They don’t have important new technology. That’s all carnival barker Musk. They don’t have self driving, just cruise control with your hands still on the wheel (that people abuse). The whole auto-summon is a scam. It won’t get off the ground. Their R&D budget was gutted last year to keep the lights on. One recall will kill them and they have two major engineering flaws, one with overheating batteries and one with aluminum cast suspension, not to mention quality deficiencies across the board from paint to upholstery. You can go on and on. It’s not far off from bankruptcy. Not to mention the debt load is just too high to grow out of in time.
So, um, I’m still not entirely clear on what happened in 2008. The DR likes to say that Dubya put pressure on the banks to give loans to Hispanics to buy homes. Which led to NINA loans without any collateral. These mortgages were bought up as packages full of a massive number of mortgages by the stock market? Which created a feedback loop demanding more mortgages. But then the system collapsed, which exposed all the shady shit the eurocrats had been doing to join the eurozone. And it snowballed from there.
Is that basically it?
The banks & entire global financial industry inflated the bubble. Dems blame W, Reps blame Fannie/Freddie. Plenty of blame to go around. They’ve learned nothing from it except how willing we are to tolerate backing their bets b/c “muh global finance system.” We’ll see this again. It might not be a bad idea to leverage against bad economic conditions for 4Q 2019 into 2020 – Orange Man isn’t exactly Orange Manager and there are plenty of agendas out there foreign & domestic that would be well-served by tanking the economy during the election season. Count on the media to turn any bad news into the upcoming Great Depression. Anything in economics is a 60/40 guess at best, but if I had to make a bet, I’d bet on a manufactured and/or astroturfed recession for Christmas. For what it’s worth, we’ve been using Obama’s funny unemployment & other econ statistics for the entire Trump administration, so maybe a recession won’t be all fake.
That is basically right but I’d add a couple of steps.
First a sidenote: the extent to which shitty loans to nonwhites caused the problem is debatable – some fixate on it, but in truth it was one of several causes. That said, for purposes of outreach and propaganda, sure: it was POC’s fault.
As you say, the mortgages were packaged as bonds (called CDOs) and sold, often broken up into pieces, to larger invetors, like banks, big hedgefunds and pension funds as AAA-rated investments (basically as safe as government bonds).
Then these bonds were insured by instruments called credit default swaps. But you did not have to have any relationship to the bond to buy insurance on it. This was the play by those guys in that Big Short movie.
But then some people – most famously at an echoey outfit called Magnetar – figured out that they could make a killing by creating dogshit CDOs that were set up to fail, selling them, and buying insurance on them. This is the part that Michael Lewis missed.
The way I have heard it put before runs something like this:
A builds a house made of straw and douses it with gasoline.
A sells it to B, a known chain smoker.
A buys insurance on the house from C.
https://www.propublica.org/article/the-magnetar-trade-how-one-hedge-fund-helped-keep-the-housing-bubble-going
I like to read your posts and then consider the previous warnings from decades (or centuries) earlier. On the problems of rampant centralization and Hamiltonian federalism I like to read Jefferson and the anti-Federalists, along with The Southern Agrarians. But now to the problems of globalism and debt-based currency … well, you’re really lifting Pandora’s box now! For this is not a 21st century concern that began in 2008, and you correctly reference that this problem has been with us from the beginning of coinage. As for American history, Andrew Jackson was our last political hero in this regard, crushing the financiers and their Bank of the U.S. But as with all Progressives, they’re never defeated, they just slink underground awaiting a generation of ignoramuses. Everyone intrigued by this post, the 2008 debacle, and GE shenanigans should put “The Creature From Jekyll Island” on their must-read list. I’m not shilling for Ron Paul or libertarians, but I do think Austrian economics theory and Murray Rothbard correctly skewered Keynesian globalists on The Great Depression and every economic downturn since. Also not pushing the gold standard, but a commodity-based currency makes sense.
Interestingly, consider that a silver-based dime and a half (15 cents) bought about a gallon of gas through the 1930s & 40s, then about two dimes for another 20 years. Today, the commodity value of silver in those same coins will still buy you about a gallon of gas. You could make the same comparison with any commodity from the old days, from tobacco bale to gallon of whisky to pound of nails. But it’s the “black box” complexities of modern finance that has blinded us to inflation. Apparently regulators can’t keep up with the complexities either.
Moving beyond economic theory to everyday reality … avoid debt and “build it yourself” whenever possible. The “antifragile” concept isn’t new – my great-grandfather was antifragille because a 72-hr power outage wouldn’t have killed him. He had a piece of land, a wife who would cheerfully put in 16-hr days, and knew how to solve just about every problem with his pair of hands and a strong back. We need to get out of our 72-degree cocoons and learn how to live life without dependency on GE, Apple, DC, elitists, AND regulators.
Amen. I’m commenting on a cellphone on a mountainside drinking coffee from a propane stove next to my backpack & tent right now. If SHTF I have enough gear in my car to get by for awhile. I’ll be in a suit in San Diego on Monday. Most of us can develop some survival/outdoor skills without going 24/7 mountain man. Useful & damned fun once you get the hang of it.
Exactly right. I’m of the firm opinion that we humans were designed/created to interact with creation … it’s why we have hobbies like hunting & camping, and why we feel invigorated after a cup of coffee on a mountainside. Money can be made in cubicles and air-conditioned offices, and it can buy you a cookie-cutter McMansion, but that ain’t living. Men that can’t do something constructive with their 5-fingered appendages are going to be in the hurt-locker when this low-intensity conflict goes hot.
That’s one of the things Steyn gets right in the America books – he had a section in one of them where he talked about being able to do something with your hands instead of just living through words and ideas. It’s very grounding. When I’m not messing around outside I like to cook because it’s so different from what I do for a living. Overspecialization especially on the intellectual side isn”t natural for us social small-group primates. Balance it out.
Have fun, Exile.
Something simple. Basic Husband took his Range up mountain to decompress, enjoy 20 degrees cooler temp, roast a couple of hot doggies, sip an adult beverage and enjoy the antelope cavorting and having a Dissident Right confab of over 30 antelope-does..big buck boys… and younguns.
While quietly musing, a truck bumped up the rutted dirt road and stopped, two men got out and started over, Basic Husband wandered over to Basic Gun as we assessed the men. Must assess in a nanosecond. Body language, truck and attire indicated probably not haywire. Turned out bow hunting season begins today and they were hoping to scope out Mr. Big Buck that appears in early evening to stroll out from the ponderosas into the picnic meadow. The unspoken was they had concern we were horning in on the big boy buck they were scoping. After seeing we were elders enjoying each other and a picnic, they left. They couldn’t quite understand elders quietly picnicking and were puzzled that we had bumped along to the high mountain meadow just to sit and eat. They are youngers and can’t imaging not DOing something active.
Will stay away from the outdoors this weekend as hunting guys everywhere. Always some drunk who goes off half cocked or half crocked.
Up the hill today as we speak. Hot weather but glorious.
I’ve got plenty of food moo-ing and baa-ing in the pastures just outside my yard. I worked from home nearly 20 years (with a lot of business travel mixed in) and for all that time and five years before that I started and ended every day with dirt under my fingernails. Since I retired, the routine hasn’t changed much, just minus the work-related stress in between.
“I’ve got plenty of food moo-ing and baa-ing in the pastures just outside my yard.”
You might be raising it only to feed the first organized mob that comes by after SHTF. The more stuff you have, the more allies you need to keep it.
The neighboring farmers and people in the community will be with me. A bunch of hungry city people will regret they came out here to be eaten by the hills.
My two favorite intentional errors with this kind of story:
leDgerdemain and double book entry keeping.
We’ve had two “Minsky moments” – the 2000 crash, the 2008 crisis.
The problem is the daisy chain where entities with a few million in assets (which might not be liquid) are insuring/guaranteeing a few billion in promises.
AIG was mostly a stodgy reinsurance company but one not so rogue trader in London destroyed it and the taxpayers bailed it out.
I think the next minsky moment won’t be as easily or quickly solved.
Eventually the debt pyramid collapses. 100% of the time. But it can be stabilized longer than is prudent.
Also consider that there is very little physical money left – a few bills and notes, no precious metals except for collectors. Everything is a database entry somewhere including bitcoin. The total amount of value promised in these databases exceeds any productive value in the economy by – I’d estimate 2 orders of magnitude.
If any of the utilities go down, you won’t be able to get to your electronic entries, and even if you could what would they be able to buy when things collapse/
It sounds like a prepper thing, but everyone really should take some of this into account and have some barter-worthy goods at hand. High utility, versatile, transportable and concealable, non-perishable. Guns & ammo. Water & food purification. Power sources (solar/renewables big here). Medicine. Having some of this kind of stuff in your trunk or house is minimal hassle and gives you options.
For less dramatic situations, keep a decent amount of cash on hand. The Cypriots who found their bank accounts frozen for weeks then coercively rationed would recommend this.
Exile;
Extra cash for the early days of disruption. Silver coins (not bullion – impossible to valuate) not gold (who could make change_?) for the intermediate period. Guns and bud’s to protect both. Gold’s OK if you want to start a bank. But if you could hope to start a bank, you don’t really need the gold.*
Long term_? Be the warlord (or in his hoard) not the helpless peasant. Depressing, but such is the history of our species.
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*Gold as an inflation hedge is a different story.
The only question I want an answer to, regarding this topic is:
inflation, or deflation
Once I know that, I know where to place my bet.
No one can credibly say with any certainty beyond educated guessing. The reason guys like Buffet and Soros get and stay rich has more to do with their ability to play the system than being witchy-good predictors of macro trends worldwide. Insider information and political access/influence matters more than smarts or ability (although those do put a ceiling on what you can accomplish). Almost everyone who gives you financial predictions with confidence has an agenda. You can try to filter for that by finding out how they’ve bet their own money, but even then their best guess is still a best guess.
I know 🙂 If I was capable of answering that question (inflation/deflation) I wouldn’t be posting here 🙂
Buffet was an amazing stock picker when he was young. But once the amount of money he managed grew too large to invest in microcap stocks, he switched to buying value companies with a quality tilt, which would produce very good but not Buffet like returns. So how did he juice his returns?
Leverage.
He bought GEICO and used the float to lever Berkshire 50%. Buffet’s second genius (the first being his earlier stock picking) was buying his own source of margin. He also created this folksy image that garned trust among his investors allowing him to weather so really horrible times.
He also has political connections which ensure that insurance laws & estate laws are to his company’s benefit.
for all his money he seems like a genuinely boring twat. his imagination doesn’t extend past banging his secretary.
He likes bridge, but outside of that, he doesn’t seem like much of interesting guy. Just seems to love making money.
Buying value on leverage is what traditional businessmen are supposed to do. Credit lines for nobles and merchants have existed for centuries. Buffett is an honest investor.
It’s all this derivative nonsense that concerns me.
Plan for both.
Deflation use treasuries, TIPs, cash and, maybe, gold (would help in really bad times)
Inflation use commodities, gold, emerging markets, int’l RE, TIPs
Just use an all-weather type portfolio (25% cash, 25% TIPs or treasuries, 25% stocks and 25% gold/commodities/REITs) and move on with your life.
If you can afford a piece of land between San Antonio and Austin, I’d get some of that, too.
And more guns.
anyone can afford land in Texas. problem is, you can’t move it somewhere worth living.
Nobody said anything about living there. I said buy land.
Austin and San Antonio are growing towards each other, with San Marcos in the middle. In another thirty years it will be unbroken Mega Lo Mart Sprawl.
It’s been over one hundred degrees there for what, the last two months or so. Hot ugly scrub but with great winter weather and some nice water resources with the rivers and springs.
+1 CoSC. I have half my holdings in a Permanent Portfolio as outlined by Harry Browne (no libertarian homo). It grows slowly, think singles and doubles rather than triples and homeruns. But it really has low volatility and protects from the downside. Maybe it’s not ideal, but it provides peace of mind.
You need to understand two things.
1. Inflation/deflation is entirely under Federal Reserve control. It’s not something that “just happens.” And when I say entirely, I mean entirely. If there’s a 2% inflation rate, it’s because the Fed wants a 2% inflation rate.
2. If you look at a chart of US monetary value and inflation over the history of the US (see link below), you’ll see that the Fed, since the end of the great depression, has pursued a strategy of mild, continuous inflation. The fed has only allowed very brief, mild deflation a few times since then — most recently a bit in late 1954 and 1955, 2009 and a couple months of small deflation in 2015.
https://www.in2013dollars.com/us/inflation/1900?amount=1500
https://www.usinflationcalculator.com/inflation/historical-inflation-rates/
Always bet on mild inflation. If we get to massive deflation, it’s because the Fed is no longer calling the shots and the entire financial system has toppled, in which case you may not be able to collect on your bets no matter how you bet.
how long can mild inflation be sustained though? over the years, it seems not so mild anymore…
If your economic growth keeps pace with your inflation rate. indefinitely. A certain amount of inflation is reasonable to account for an expanding economy.
Via quantitative easing since 2008, the Fed and the US government have managed to print an enormous amount of paper without greatly raising interest rates or inflation (virtually print, not on actual presses). An economist would have to explain to me how they are managing that. I am under the impression that a lot of the money is essentially being held in a sort of limbo — the proportion that is the US govt’s debt to the Fed, but that’s probably a simplistic and wrong understanding.
so Germany wanted hyperinflation in the 20’s?
Karl;
Yep. Enabled the Weimar Govt. to pay WWI reparations with paper. Really bad unanticipated consequences, though.
As Al says, yep.
Same with Venezuela. They hyperinflate as the only way to pay their obligations.
Both Venezuela and Weimar Germany could have chosen not to inlfate and simply stopped paying for stuff with money they didn’t have, but doing that gets you kicked out of power faster, as it’s obvious how badly you’ve failed, and your creditors and constituents you’ve promised gibmes are the last people you want to piss off, if you’re a power-hungry politician trying to hang onto the reins of power.
ETA: Greece was an interesting case. Since they don’t control their own currency, they couldn’t inflate their way out of debt. They did the next best thing with confiscations of personal savings and negative interest rates. But, because they couldn’t go full economic retard, they might come out better than if they had been in control of their currency.
Nowadays as in Venzuela, the IMF also operates as an extra offshore insurance fund to help connected elites cushion their own assets and expatriate their own cash before the hyperinflation black hole sucks the strip-mined national economy into oblivion.
Land, guns, gold…and above all Men.
A group of like minded men.
Without which you have nothing.
Absolutely. Every person pitching in is an exponential improvement in time abilities and anti-fragility.
vxxc💂🏻♂️😉 said: “A group of like minded men.Without which you have nothing.” What about like-minded women? If all you have is a bunch of well armed male commrades, eventualy all you’ll get is a camp full of Spartan soldiers bangin’ each other in the ass. Never forget the White Ethno-Nationalist nookie.
Women? Don’t you know?
https://youtu.be/Oo9buo9Mtos
Place your bet on yourself with a piece of land, a milk cow, a water source, a trade with all the tools, a self-built rifle, complete with reloading bench stocked with ample brass/powder/lead.
It is not just the financial system, the entire thing is held together by spit and duct tape. Any sign of inclement weather and the stores clear out in hours. Same when the EBT system goes haywire and the beneficiaries riot. Everything runs just in time and there is little room for error.
So how does the U.S. pay for a global military and 4 million immigrants a month Which Biden assures us is cheap?
The answer I get is kulaks.
Biggest part of public debt is pensions. Next, welfare. Everybody wants a free lunch.
GE’s slogan is ‘Imagination at Work’. That’s gotta be a cruel insider joke
I like the old Dilbert, roughly “We need a slogan that shows we’re action-oriented.” “How about ‘Measure once, cut twice?'” “I like it!”
Moran ya Simba said: ” GE’s slogan is ‘Imagination at Work’. That’s gotta be a cruel insider joke.” Their slogan used to be ” We Bring Good Things to Life.” That was before they became Vulture Capitalists.
The credit bubble is to a large extent driven by lots of money being printed, driving the interest rates to zero. You can get as much free money as you want… if you’re not a deplorable. When interest is high, only active, risky investments pay. Now, you can do something asinine like borrow money to buy mortgages and drink the spread.
The genius economists have decided the only risk of printing money is The Big Inflation, and therefore, it is good to print as much money as possible. They pretend this is a new insight, but really, it is just throwing some old caution to the wind.
I have heard the same about GM and Ford credit, that which keeps them afloat and in the black. Reminds me of McDonald’s statement to it’s franchises that they are not in the hamburger business but in the real estate business.
McDonald’s statement to it’s franchises that they are not in the hamburger business but in the real estate business.
That actually makes sense in a cynical, ‘the world is all about business’ way.
A huge (IIRC big majority) percentage of our corporate profits come from investments rather than production sales and services. That’s a “financialized” economy. That’s bad from every angle. It incentivizes the wrong priorities, encourages short-term thinking and malinvestment of time and resources, on and on.
Wise men from ancient Sumeria to the present have always distinguished between productive economic activity and parasitic economic activity. Farmers producers artisans and the like who make things and employ people are producers. Parasites live by leasing and lending, profiting from mere ownership rather than productive activity Debt jubilees were an ancient Near East practice that shook the parasites out of the economy. It freed farmers and other producers from the multi-generational debt that tended to accumulate over decades of parasitic profiteering, and it served to circulate the elite among the parasites by ruining a few, also discouraging usury and other abuse of debtors by creditors in that the king could call a jubilee whenever the population got sufficiently pissed off.
One of Z’s best pieces of advice is that we have to shake the libertarian induced worship of the wealthy and adopt some ideas that sound downright commie for the good of our Folk. Elevating the farmers & artisans & dethroning the lenders, exchangers and investors is one way to keep the best of the market system and rein in its abuses & abusers.
More conservatives need to read Belloc. “The mercy of Allah” describes exactly how modern business types operate.
not all franchise’s own the real estate they occupy.
I guess that’s why those new franchisees are so eager to go to their new McDonalds in places like Moosejaw, Alaska.
Yes. And any car dealer will tell you the same: not cars, R.E.!! Same with downtown surface-parking lots, by the way.
It’s wise to take a middle position on economic collapse scenarios. Z’s mentioned the “NeverBulls” before – perma-Bears who’ve predicted 10 of the last 3 recessions at ZeroHedge, complete with “Cross of Doom” graphs for midwit quants. I spent a lot of time awaiting that Apocalypse in the last 20 years and suffered financially for it (looked smart in 2001 and 2008 but that made me 90% wrong). The libertarians and GOP (same thing on economics) rely on fiscal fearmongering to sell their snake oil, and I bought in hard.
I think 2008 (and the Cyprus crisis a few years later) showed how collapse will play out in the near future. The owners of the global financial casinos will simply dip into the taxpayers till to back up their bad bets. The guys pimping “gold or die” on the Blaze Levin show and even some credible dissident right outlets are selling their own brand of snake oil.
That said, if recent Wall Street divorce trials and the Epstein scandal show us anything, the global financial system is run by high IQ cokehead degenerates at best and midwit cokehead degenerates on average. Some combination of these guys may cause damage that the system can’t absorb. We can’t completely rule out a collapse even though I think it’s a fairly low probability event. They don’t call these things black swans because they’re predictable or manageable.
The best thing those of us who aren’t plugged into the elite system can do is be antifragile in either circumstance. Follow the Dave Ramsey strategy of avoiding debt and consumerism. Everyone should read this guy and incorporate at least some of what he’s saying into their life planning. Take some of your surplus and do some investing using Taleb’s barbell strategy – keep everything you actually need and then some in cash or other super safe stores of value. Use the surplus to make a number of small high risk/return bets like Bitcoin, startups, volatile stocks etc… The trick is to have a lot of irons in the fire with high enough return that justifying the risk requires only one or two of them to pan out The most important thing to worry about in the barbell is to never risk more money than you can afford to burn. Taleb was very big on emphasizing that the first thing you need to do to succeed in investing is not get ruined and that means never placing yourself in a position where you could possibly be ruined. 2008 crushed a lot of people because they mistook their home and/or 401k for “super safe” investments. Their ruin was a lot more possible than they appreciated. The basic rule that our dads told us about gambling applies – assume any money you gamble is a loss and be able to live with it or don’t make the bet.
The world of investing is really for connected Insiders with access to information or other unethical or illegal advantages. You can play around the edges of it but make sure your ass is covered nine ways to Sunday first. The average individual investor probably has better odds getting rich at the local sportsball book then they do with Charles Schwab or FOREX.
” The owners of the global financial casinos will simply dip into the taxpayers till to back up their bad bets. ”
I notice Corzine is back.
When things go sideways, “borrow” your clients’ money.
Fiduciary duties be damned.
Nice post, but I would suggest a barbell not of cash and risky bets, but one of cash, real estate and index funds. I have enough in cash that I don’t mind drops in the market because I can buy in at lower levels, all the way down to a 50% market decrease. Beyond that, we are all screwed anyway.
I won’t disagree with anyone on the details. I wanted to put something out there conceptually. There are a million ways to execute the strategy and if I were sitting down to give someone actual detailed financial advice I would probably end up with something closer to what you are describing than what I was spitballing above.
I tend to agree, however if there is a collapse, cash would seem worthless for survival. I keep some around for short term emergencies, but long term? What are the lessons taught to us from Argentina, to Zimbabwe, to Venezuela. What retains—or increases in value—yet is liquid enough to exchange or take with you should dollars become worthless or are refused?
That’s the hard collapse scenario. Cash is still great to have in anything short of that. See my comment below re general ideas on what retains “barter” value.
Check out The Rural Ranger (https://www.amazon.com/RANGER-SUBURBAN-SURVIVAL-MANUAL-SNARES/dp/1411600738) for some good advice for harder collapse survival. I’m listening to the Audible this weekend.
Balvenie
Jim Beam.
Glenfittigh
Breyer’s
(that’s ice cream)
Mmmmmm
“What retains—or increases in value—yet is liquid enough to exchange or take with you should dollars become worthless or are refused?”
I’ve thought a lot about that and am still not especially persuaded that any source of value is completely reliable. Even gold isn’t good as gold. You have to store it someplace; tell me where you can store it that’s completely safe. A vault in Switzerland? Allocated gold in the Perth Mint? Your gold won’t dissolve, but your government can negate your passport so you can’t get to the hoard.
Gold coins? Silver coins? Will your grocery or shoe store accept them as payment? Even if you find a way to use them for public transactions, the word will get around and you’ll be marked down for a visit from your friendly local burglar or worse.
You will no doubt be able to redeem your gold for fiat money … leaving you back at square one.
I don’t want to run the point into the ground, but every kind of “hard goods” (farmland, real estate, commodities, etc.) has its own problems as a store of value.
We have some bright commenters here. I’d be interested in your thoughts on bitcoin.
@Gravity Denier. Knowledge plus skill plus experience. If you have those, you can survive just about anywhere.
Good point. How’s that real estate and farmland working out for whites in Zimbabwe and South Africa?
Yep, watch out for the Doom and Gloomers, even the honest ones such as John Hussman, who really does great research but has been more or less wrong for a decade. Red-pilled white guys are particularly susceptible to the message.
A barbell approach is a good alternative, but I’d suggest a little less concentrated and unusual investments than bitcoin or individual stocks. Just go with small/mid cap value funds for the risk side such DVP or QVAL for U.S., IVAL or a RAFI fund for international and RAFI or Cambria’s EYLD emerging markets fund. Historically, small value has the highest returns of stocks; indeed, private equity is really just investing in small/micro cap stocks but with huge fees so don’t do it.
Basically, just read Larry Swedroe’s Reducing the Risk of Black Swans book and use that. He throws in a couple of other type investments that you could keep or throw out. Small value works fine.
You might want to throw in gold and commodities as insurance policies. Their long-term expected real return is zero but they’re nice to have around in inflationary times. Real estate – either personally owned or through a REIT – is also a decent idea.
I’d also suggest using a trend screen on part of your portfolio. Doesn’t improve returns but it does protect against the big downturn, which is what you’re afraid of. Even better, check out Gary Antonacci’s Dual Momentum book and blog. You also could check out Allocate Smartly which has dozens of dual momentum strategies. Those strategies actually do improve returns by combining relative and absolute momentum. A dual momentum strategy is a nice addition to a portfolio.
Also, Dave Ramsey is a good guy, but his 12% estimate for stock returns is nuts.
Basically, don’t bail out on risky assets because of the coming demographic doom. That’ll take a very long time to play out. But do protect yourself.
I agree. I use Vanguard ETFs due to low fees. Just 4 funds (VTI, VBR, VEU and VNQ) can give you a nice mix of total US, small value, international and real estate. You can park your cash in TIPs or s/t corporate bonds (e.g. VCSH), but I like high yield savings accounts, which are in the 2.0%-2.5% range.
I also agree that 12% is the high end of expected market returns, even though there are long periods that small-cap value funds have averaged this. I would expect more like 7%-10% (nominal) over the long run, but I use the 4% rule for the short run.
Vanguard was God’s gift to retail investors. Btw, I wouldn’t bank on 7% to 10% nominal from U.S. stocks over the next decade. Good bet is ~2%-3% real plus a bit of a boost from value so let’s say 3% to 4% real, 5% to 6% nominal. Just a guess.
Research Affiliates is a nice site for checking out ball park future returns estimates. Check under Asset Allocation. For small and value premium expectations, check under Smart Beta. Their estimates are reasonable.
John Hussman has the “what” nailed down. The “when” is the hard part.
Agreed. He’s a good researcher and respected by other researchers in the biz. That’s what makes his record so scary.
If an honest, bright guy who’s probably generally correct can be “wrong” for so long, how do you rely on any strategy.
The answer is that you can’t. Use a variety of assets (US stocks, int’l stocks, bonds, real estate, commodities, etc.) and strategies (buy and hold, trend, value, momentum, prepper, etc.).
Citizen, agree.
Dave Ramsey is big on mutual funds and all of the same bad incentives exist for mutual funds that exist for stocks, not to mention mutual funds are just (mostly) collections of stocks anyway.
If some major meltdown happens, most of the banks will go bankrupt.
I agree about the gold pushers. In some cases you can find the same literal people when they were young in the 80s predicting hyperinflation in the very near future. I saw a video of Doug Casey predicting hyperinflation on some talk show where they were saying the newly elected, but not yet sworn in Ronald Reagan would not be able to stop the hyperinflation all but guaranteed in the next 18 months. People lost their shirts in both gold and silver in that era. Gold was right around $800/oz when that show was taped. I worked with a guy in the early 90s who had purchased kilograms of silver in 1980 or so when it $50/oz. These people cause real harm.
Whatever happens, the one thing you can be sure about is they will change the rules. They will do everything imaginable and unimaginable to defend the status quo. If that means seizing your money and assets, that is what they will do. MF Global, anyone.
Your last point is the scary one. We can diversify our portfolios all day, but even if we do a good job side-stepping the financial disaster, the government can simply change the laws and take it from us.
Your advice is excellent. I’ve been around long enough to know that “the sky is falling” crowd aren’t terribly helpful. That said, the title of this post says it all. And not to overplay on cliches, but at some point the music WILL stop. Not sure if that’s my lifetime, my kids, my grandkids. The crisis du jour prognosticators aren’t sure either. But when the music DOES stop I want my family surrounded by their own tribe, preferably ones with tools and know-how.
That’s very sad, what has become of the state of big companies in America. GE used to be a marquee, brand name company that stood for all things innovative and great about America. Companies and big business, before the global era, at least cared somewhat about the health and culture of their own nation before. Now its all just about creating the most profit as possible, regardless of how much pain is inflicted.
Global pirate ships. The modern market isn’t about investing in a company long term unless you’re a value/dividends guy. Sears/KMart is another now-joint American flagship Enterprise that’s been strip-mined by slimy ownership. Skin in the game is the antidote. My ideal ethnostate would outlaw the “limited liability entity” concept along with the idea of corporate personhood in general. If you invest in a company you’re on the hook for its liabilities, not just the money you put in through a string of 40 offshore holding companies or some such nonsense. Libertarians of course will squeal about the chilling effect on investment. It’s an act for their corporate paymasters. Guys who stand to make Microsoft size money are going to be willing to take those risks even if it means risking their entire fortunes. Those who aren’t willing to take those risks aren’t men enough to play the game. That iron law alone would weed out the nepots, trustafarians and parasites that overpopulate today’s upper echelons of industry.
OK, but GE was a value play. P/E beaten down, long history of paying a solid dividend. Then black box financialization bullshit and now we have a crap investment that cannot really afford its one-penny-a-share dividend.
Reminds me of BAC. Storied American bank, trading in mid 40s and paying a 5% dividend on the regular. Just what every portfolio needs. Then in 2008, regulators forced them to take over that nuclear turd of NINJA loans Washington Mutual. Before long BAC was trading under $3 per share and paying a penny dividend. It has clawed its way back to upper $20s and $0.19 dividend. I didn’t buy the “dip” then nor will I with GE. The whole system is stacked and utterly lacking in transparency. How any average joe with a 401(k) is meant to navigate it without loss is a mystery and a joke. This black pill is irredeemably bitter.
Playing the present system without insider info or friends in high places is essentially gambling with unknown “house rules.” Investor beware and pray.
Today’s financial market is the broken-home child of the managerial state divorce of ownership and accountability. We need to reconcile those parents in the sane ethnostate of the future. My state’s investors would not buy tiny pieces of vast and far away enterprises run by people they will never meet. Those wishing to invest would buy in with private finance contracts and lending – no “publically-owned” market. This would localize and down-scale investment and compliance. No limited liability entities, those who hold an ownership share are on the hook for the commensurate share of the businesses entire liabilities – to reap the profits you must risk the losses. There would be major changes to wind-downs, dissolutions and business bankruptcies, still working on ideas on that.
All the markets are fixed for the benefit of the globalist insiders. See Ann Barnhardt’s posts on the commodity markets. John Corzine is back in the game after stealing millions. No negative impact at all on his freedom.
“…John Corzine is back in the game after stealing millions…”
A good example of the power Jews have in the US. He straight up stole peoples money and used it to gamble in the market. If he would have won he would have put the profits in his pocket. He didn’t but instead of being thrown in jail nothing at all happened. Serious corruption.
Actually it was Angelo Mozilla and Countrywide. I had the opportunity to ask Ken Lewis about the deal in front of a room full of people, all of which knew how much the deal stank. Lewis assured me that there was no way this wouldn’t work out brilliantly. Lots of murmurs and giggles in the room.
I agree, GE does things that every boy loves. They build giant turbofan jet engines. That’s pretty damn cool. Apparently they are a Wall Street bank w an aircraft engine factory instead of the other way around. Sad….
I dont know Marty, seems a majority of these CEOs are all in on the PC and damn the profits. Could be I’m missing the strategic game and the PC thing is a mask for importing cheap labor or something.
Dunno, I never claim to be highly intelligent. I just know the number of corporations this midwit gives money to willingly is few and far between. The pozzed CEO runs their gob and I then buy things second hand. All in all it is a money saving endeavor that I know my Scots ancestors approve of.
Buying politicians is the best investment, in a fascist economy – ” all within the state, nothing outside”. Giving words is cheaper than cash. If you owned a company, would you dare offend the PC crowd? Not smart.
Way to go, Z. Rabid anti-semites inbound, impact in approximately 3, 2, 1…
🙂
Not faster than the rabid anti-anti-Semites.
Shoots, scores.
I stand corrected. Usually when I see posts like this, the comments fill up with yarns about the Rothchilds and cabals of fiendish joos hiding behind the scenes.
But – point of order: the stage was set for the sub-prime crisis when Jimmeh Carduh decided that it was racism, and not stupidity that kept blacks from qualifying for mortgages and loans. Some of you may remember his asnine involvement in ‘Habitat For Humanity’ and similar dog and pony shows. His administration leaned heavily on the banks to begin suicidal loans programs for blacks and the economists of the day went nuts – predicting the melt down that would result almost to the day.
But when Jimmeh played the race card – it was all over. Loans programs for blacks weren’t good enough – Lefty and their endless victim groups all wanted in on the action. So it was that blacks and other marginals that couldn’t even read the terms of their mortgage loans – began to bid on houses worth $800K with jobs that paid $40K per year.
Reagan made a half assed attempt at correcting things but was shot down almost immediately, as was anyone else that was fluent in elementary economics.
For me the road ahead is unclear. Housing is a huge sector of the economy and with the kids effectively locked out of home ownership because of stagnating wages and suicidal economic policies – it’s only a matter of time before that economic engine flames out. If I had to speculate – the way to socialism is through the underclass. With the Donks flooding the country with immigrant trash – most of whom are so stupid that they destroyed their own countries with socialism… this is not going to end well.
Trying to separate Jews from accounting fraud is like trying to pick gnat shit out of pepper.
George? George Soros? Is that you?
I like it when they say “joos” because they’re so used to being deleted by comment sections. Makes me laugh.