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Re: Global Debt Time Bomb explodes soon

Posted: Wed Jan 25, 2012 3:26 pm
by phil_in_cs
Fed says recovery is years away
http://www.nytimes.com/2012/01/26/busin ... -2014.html" onclick="window.open(this.href);return false;
WASHINGTON — The Federal Reserve said on Wednesday that it was likely to raise interest rates at the end of 2014, but not until then, adding another 18 months to the expected duration of its most basic and longest-running response to the financial crisis.

The announcement means that the Fed does not expect the economy to complete its recovery from the 2008 crisis over the next three years. By holding short-term rates near zero beyond mid-2013, its previous estimate, the Fed hopes to hasten that process somewhat by reducing the cost of borrowing.

The Fed said in a statement that the economy had expanded “moderately” in recent weeks, but that unemployment remained at a high level, the housing sector remained in a deep depression, and events in Europe continued to threaten renewed prosperity.
More at the link

Re: Global Debt Time Bomb explodes soon

Posted: Wed Jan 25, 2012 4:29 pm
by raptor
Note the Fed says they EXPECT rates to stay low until 2014. They go out of their way to not say rates WILL stay low.

They are simply providing their opinion and making no promises of any kind.

Re: Global Debt Time Bomb explodes soon

Posted: Wed Jan 25, 2012 5:34 pm
by TC
Meanwhile at the Legion of Doom... I mean Europe:
Reuters wrote: Greece focused on quick debt deal, talks to resume

(Reuters) - Greece hopes to wrap up tortuous negotiations on a debt swap this week when private creditors return to Athens for a fresh round of talks to avert a chaotic default, it said on Wednesday.

After weeks of bargaining, deadlocks and an intervention by euro zone ministers, Greece and its bondholders find themselves back at the drawing board as they search for a compromise needed to clinch a bailout for Athens before it runs out of money.

With time slipping ahead of a March deadline when Greece faces major bond redemptions, the top negotiator for private creditors, Charles Dallara, returns to Athens on Thursday to resume talks with officials, both sides said...(continued at link)
Reuters wrote: UK economy heads for recession

(Reuters) - Britain's economy may have entered a mild recession in the last three months of 2011, hampering the government's core policy aim of spurring growth and raising the chances that the Bank of England will inject more cash soon.

Britain's recovery from the 2008/2009 recession - the deepest since the depression-hit 1930s - has already been sluggish, and unemployment has crept up to a 17-year high as the government cuts spending deeply to erase a huge budget deficit.

The economy shrank by 0.2 percent at the end of 2011, the Office for National Statistics said on Wednesday, a bit more than economists expected as a stagnating services sector failed to offset a slump in manufacturing and construction...(continued at link)

Re: Global Debt Time Bomb explodes soon

Posted: Wed Jan 25, 2012 8:36 pm
by phil_in_cs
http://www.guardian.co.uk/world/2012/ja ... l-meltdown" onclick="window.open(this.href);return false;
Angela Merkel casts doubt on saving Greece from financial meltdown
German chancellor speaks candidly to the Guardian and five other leading European newspapers as part of a unique collaboration to explore the EU's predicament

Angela Merkel has cast doubt for the first time on Europe's chances of saving Greece from financial meltdown and sovereign default, conceding that Europe's first ever multibillion euro bailout coupled with savage austerity was not working after a two-year crisis that has brought the single currency to the brink of unravelling.

In an interview with the Guardian and five other leading European newspapers, the German chancellor also insisted – against widespread resistance elsewhere in the eurozone and in the UK – that the European court of justice (ECJ) be empowered to police public spending and budget policies of the 17 countries in the euro.

She also called for the eventual creation of a European political union, with many more national powers ceded to a central government, a strengthened bicameral European parliament, and the ECJ assuming the role of Europe's supreme court.

Days before the latest EU summit, which, at Merkel's insistence and evoking scant enthusiasm elsewhere, is to finalise an international treaty between eurozone governments entrenching German-style fiscal and budgetary rigour in all single currency countries, the chancellor admitted having doubts about the strategy she had pursued during the crisis.

"We haven't overcome the crisis yet. Of course, there's Greece, a special case where, despite all the efforts that have been made, neither the Greeks themselves nor the international community have yet managed to stabilise the situation."
more at the link. Also: default fears for Portugal now http://www.ft.com/intl/cms/s/0/49916f7a ... z1kWXfX1ZW" onclick="window.open(this.href);return false;

Re: Global Debt Time Bomb explodes soon

Posted: Wed Jan 25, 2012 9:12 pm
by J.C.
raptor wrote:Note the Fed says they EXPECT rates to stay low until 2014. They go out of their way to not say rates WILL stay low.

They are simply providing their opinion and making no promises of any kind.
They may stay low for much longer. Inflation is one way to forestall the reckoning still to come in the US housing market. Banks are still holding way too much foreclosure inventory that they won't write down. One way to bring the prices back up is to make the money worth less.

Re: Global Debt Time Bomb explodes soon

Posted: Wed Jan 25, 2012 9:30 pm
by phil_in_cs
J.C. wrote:
raptor wrote:Note the Fed says they EXPECT rates to stay low until 2014. They go out of their way to not say rates WILL stay low.

They are simply providing their opinion and making no promises of any kind.
They may stay low for much longer. Inflation is one way to forestall the reckoning still to come in the US housing market. Banks are still holding way too much foreclosure inventory that they won't write down. One way to bring the prices back up is to make the money worth less.
I've been hearing about hyper inflation 'any day now' since How To Prosper In The Comming Bad Years, published in 1979. The arguments those guys made then are still valid, but anyone saying 'very soon' is likely mistaken.

Re: Global Debt Time Bomb explodes soon

Posted: Wed Jan 25, 2012 9:44 pm
by raptor
phil_in_cs wrote: I've been hearing about hyper inflation 'any day now' since How To Prosper In The Comming Bad Years, published in 1979. The arguments those guys made then are still valid, but anyone saying 'very soon' is likely mistaken.
You are right, many people have been predicting hyperinflation and various collapses for a very long time.

Remember in 1978 the rate of inflation was 7.62% it had come down from 11.03% in 1974. then the next few years were all double digit until 1982 when the Fed induced a recession to kill inflation. There predictions of hyper inflation were at least credible. Now 10+ inflation is not technically hyperinflation it is miserable and tough on the average consumer.

source:
http://inflationdata.com/Inflation/Infl ... ation.aspx" onclick="window.open(this.href);return false;

That said hyperinflation is a fear of mine, but honestly I am more worried about the possibility of deflation if the Fed is saying there will likely not be a change in interest rates until 2014.

Re: Global Debt Time Bomb explodes soon

Posted: Wed Jan 25, 2012 9:55 pm
by WhoShotJR
phil_in_cs wrote:
I've been hearing about hyper inflation 'any day now' since How To Prosper In The Comming Bad Years, published in 1979. The arguments those guys made then are still valid, but anyone saying 'very soon' is likely mistaken.

We are operating under very different circumstances today. Our current debt to GDP ratio is nearly three times higher than it was in 1979 and getting worse every day. Anyone saying very soon is making a reasonable bet imo.

Re: Global Debt Time Bomb explodes soon

Posted: Wed Jan 25, 2012 10:11 pm
by Nashoba
I am clueless as far as modern economics goes, my head hurts and I get the urge to jump off of a bridge whenever I try to keep track of the multitude of economic variables that political/economic occurrences affect. Reading through this post though I see that a lot of you are fairly versed on the subject, so I will refer this question to y'all; Is there any single person or group that can alter the current course of the global economy? and if they can, will they? or is this entire mess just a natural economic happening that can not be stopped?

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 1:09 am
by SeerSavant
I won't speak for the others, as I am but a layman who knows just enough to scare the shit out of me...

However, I get the impression that we've passed the time when we might have had the ability to forstall an economic collapse. Hyper inflation? It's more likely, but in a weird way, I think the economy is too bad for it to happen. Stagnation, deflation, are more likely. A long steady decline.


Put it this way... you know the old story about the frog and the boiling pot? Throw a frog into boiling water, it does everything it can to get out. Throw it into a room temperature and slowly bring it to a boil, and the frog will cook, never realizing a thing.

We are in the pot, and bubbles are starting to rise to the surface.

Unfortunately no one in the pot thinks it could be boiling just yet. They know it might happen, but they refuse to believe it can happen "now".

So... Unless somebody admits to farting in the water, it's time to think seriously about getting out of the pot...

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 7:32 am
by phil_in_cs
Nashoba wrote: so I will refer this question to y'all; Is there any single person or group that can alter the current course of the global economy? and if they can, will they? or is this entire mess just a natural economic happening that can not be stopped?
I don't think so. The system is too complicated - too many variables and actors - for that. That isn't to say the whole house of cards will come crashing down, just that it will take many groups working together to keep it going.

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 8:28 am
by Liff
A long time ago someone told me of a way to think of inflation that changed the way that I think about it. Inflation is the velocity that money changes hands (or ownership). During periods of hyperinflation, people spend money as soon as they get it. During deflation, people are not spending money, so money takes a long time to change hands. And in-between is in-between.

Now with a craptastic economy, people don't have money to spend, so the velocity of change in ownership is low, so inflation is also low.

My bs opinion: Start to worry about inflation as the economy is getting better. This is not soon.

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 9:48 am
by raptor
There is no one group who can throw a switch and fix things. If any group could it would be the Fed. They have made it clear they cannot fix things.
It took decades for the world to get in this mess. It will not be fixed quickly. This not to say it cannot be made better within a decade. Only that cure will take a very long time.

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 9:53 am
by SlobberToofTigger
Nashoba wrote:I am clueless as far as modern economics goes, my head hurts and I get the urge to jump off of a bridge whenever I try to keep track of the multitude of economic variables that political/economic occurrences affect. Reading through this post though I see that a lot of you are fairly versed on the subject, so I will refer this question to y'all; Is there any single person or group that can alter the current course of the global economy? and if they can, will they? or is this entire mess just a natural economic happening that can not be stopped?
I have never met an expert in any field (I have multiple patents blah blah blah in mine and I am no expert) so I am certainly not one when it comes to money. I have a relative who somehow manages to make from $200k to $600k a day in the commodities market (and spends it about as fast as he makes it) and he is a moron, so I am not sure that anyone really has a clue. What I can tell you is that the rocket scientists who run around claiming that there is a group of behind the scenes world leaders who are controlling this mess are fools at best and every time they open their mouths demonstrate their lack of rational thought. As a few others have pointed out the variables are to great and changing to be able to predict what any specific move will mean in the log term. I believe that your question when modified just slightly represents the truth of the situation: "this entire mess 'is' just a natural economic happening that can not be" controlled.

What you can do is look at history for "general knowledge" of the future and you will have a "general" idea of what "might" happen. You will still not know when or to what extent so the knowledge will be only partially useful. Based on history, it is reasonable to say that at some time the US dollar will lose its current status. It is also reasonable to say that the US dollar will be devalued in the eyes of the world market. But you can say this about any other country who gets into our same position, which by the way is where the UK was before we took their place.

In short, I have an amazing grasp of the obvious and have probably not told you anything useful.

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 10:14 am
by the_alias
Is there any single person or group that can alter the current course of the global economy? and if they can, will they? or is this entire mess just a natural economic happening that can not be stopped?
Bilderberg Group, G8, WEF in Davos all might TRY to.

Basically: Rich White Men (and a few women).

On a serious note the time for decisive political action and will power has sorta come and gone, in my humble opinion. Who rules the world: GS, S&P, etc.

On another topic
Germany and France are going to use this crisis to try and build a more powerful EU superstate with them at the head.
http://www.guardian.co.uk/world/2012/ja ... NTCMP=SRCH" onclick="window.open(this.href);return false;
She also called for the eventual creation of a European political union, with many more national powers ceded to a central government, a strengthened bicameral European parliament, and the ECJ assuming the role of Europe's supreme court.
She's going for what Napoleon, Hitler and Stalin all couldn't...

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 10:20 am
by SlobberToofTigger
the_alias wrote: Germany and France are going to use this crisis to try and build a more powerful EU superstate with them at the head.
http://www.guardian.co.uk/world/2012/ja ... NTCMP=SRCH" onclick="window.open(this.href);return false;
She also called for the eventual creation of a European political union, with many more national powers ceded to a central government, a strengthened bicameral European parliament, and the ECJ assuming the role of Europe's supreme court.
She's going for what Napoleon, Hitler and Stalin all couldn't...
Now were talking!
Heil Angela!!!

Oops. I mean, wow what a wonderful person she is to be looking out after all of the EU states... Grin.

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 10:24 am
by scottiej
I wouldn't worry too much about hyper-inflation... there's too much control to let that happen. It would only help the borrower and hurt the lender. Since the lenders (i.e. banks) are in control, they much prefer deflation. Think of it this way:

It's all about resources and who owns them OUTRIGHT. So if I "own" my home it means I don't owe anyone, anything (except the fed of coarse), but if I'm paying off a mortgage on a house it means the bank owns it. So, if I owe the bank $100,000 for my home and bread costs $3 per loaf, it means it's going to take me a long time to pay off that loan (and anything can happen between now and then, allowing the bank to foreclose on my house and resell it).

Now if hyper-inflation occurs (say the way it did in Germany before the war), then it might cost a wheel barrow load of money to buy a loaf of bread (say $1000/loaf). BUT I still owe the bank $100,000 no matter what. So then lets say I mosey on up to the bank with 100 wheel barrows loads of $1 bills and pay off my debt. I win, the bank loses. (unless they refuse to let me pay off my debt, which is possible).

On the other hand, in a period of deflation (say bread is now $0.50), it means there's less money to go around but it's worth more... to bad I still owe $100,000 on my house and I'm only making $3/hour (fed still gets 20%). I wonder how long it's gonna take me to pay off that loan, or will I even be able to make the monthly payments?

So unless someone accidently leaves the power on to the printing presses, hyper-inflation is unlikely (unless the powers that be are purposely trying to run things into the ground, but that's a whole other topic).

But hey, I'm no expert.

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 1:27 pm
by Kommander
After centuries of antagonism it's amazing what France and Germany can do when they work together. Soon all that will be left of Europe is England, the Frank-Deutch co-op, and a hungry bear.

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 1:31 pm
by phil_in_cs
cross posted in Iran Nuke thread, but Iran is cutting off the oil now, and not waiting 6 months for the sanctions to start. Greece and Italy will be very hard pressed to make up the difference

Image


full story
http://www.spiegel.de/international/world/a-811507.html" onclick="window.open(this.href);return false;

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 1:44 pm
by Krustofski
Kommander wrote:After centuries of antagonism it's amazing what France and Germany can do when they work together. Soon all that will be left of Europe is England, the Frank-Deutch co-op, and a hungry bear.
And the Benelux, if we go along with you little vision. If Belgium manage to avoid a civil war, that is. :P

All joking aside, Benelux, the Netherlands in particular, are a paramount example of science funding, R&D, and a focus on high-tech done right. Or done better than most everybody else, at least. They benefit from their efforts in the past now, and it will do them a lot of good in the long run. Germany and the UK are economic powerhouses (or used to be, and will be again) simply because of their infrastructure and hordes of trained people in general. They are dependent on industrial supply and demand, and booms can quickly turn into busts. But these small countries were clever and focused on their particular strengths. Not an option for societies with millions of people and a classical focus of heavy industry, but a wise move nonetheless.


Oh, and (to the government's dismay), Germany's grip on the ECB isn't as tight as it used to be. Not since Mario Draghi and his men took over.

ETA: Also, who bought shares in crude oil that is already en route to the refineries? This guy. Looks like I'll be one of those cockroaches profiting from a crisis again.

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 8:07 pm
by Collie of Doom
raptor wrote:
phil_in_cs wrote: I've been hearing about hyper inflation 'any day now' since How To Prosper In The Comming Bad Years, published in 1979. The arguments those guys made then are still valid, but anyone saying 'very soon' is likely mistaken.
You are right, many people have been predicting hyperinflation and various collapses for a very long time.

Remember in 1978 the rate of inflation was 7.62% it had come down from 11.03% in 1974. then the next few years were all double digit until 1982 when the Fed induced a recession to kill inflation. There predictions of hyper inflation were at least credible. Now 10+ inflation is not technically hyperinflation it is miserable and tough on the average consumer.

source:
http://inflationdata.com/Inflation/Infl ... ation.aspx" onclick="window.open(this.href);return false;

That said hyperinflation is a fear of mine, but honestly I am more worried about the possibility of deflation if the Fed is saying there will likely not be a change in interest rates until 2014.
Yeah, hyperinflation doesn't worry me. A sustained recession worries me some. War with Iran worries me slightly. Terrorist attacks worries me slightly less than that. Overall, I'm actually fairly optimistic about the future. I think things will be okay in a few years. We night never get back to full employment, but unemployment will go down, housing prices will stabilize and then increase slowly over a long period period of time, and barring any REALLY stupid decision by someone with a lot of power, things will be alright. But then again, I'm a Cubs fan. We're optimists by nature. Tomorrow there'll be sun! This is the year we'll get that pennant!

Re: Global Debt Time Bomb explodes soon

Posted: Thu Jan 26, 2012 11:41 pm
by WhoShotJR
Collie of Doom wrote:Yeah, hyperinflation doesn't worry me. A sustained recession worries me some. War with Iran worries me slightly. Terrorist attacks worries me slightly less than that. Overall, I'm actually fairly optimistic about the future. I think things will be okay in a few years. We night never get back to full employment, but unemployment will go down, housing prices will stabilize and then increase slowly over a long period period of time, and barring any REALLY stupid decision by someone with a lot of power, things will be alright. But then again, I'm a Cubs fan. We're optimists by nature. Tomorrow there'll be sun! This is the year we'll get that pennant!

The only reason the economy isn't in much worse shape is massive additions of debt over the past few years at the national level of many governments. It's a hugely unsustainable system teetering on an edge. Just a rise in interest rates would cause a cascading series of calamities. And that will happen at some point. Not to mention the thousand other issues that could bring things to a head.

We may teeter along for years just like we are now, but a simple look at the numbers shows that we are approaching a tipping point. It will be a downhill ride from there for a while.


You Can't Fool Mother Nature For Long: The Substitution of Debt for Productivity (January 19, 2012)


The "big story" of the U.S. economy is that we have substituted expansion of debt for meaningful increases in productivity.

For the past 30 years, the U.S. economy has become increasingly dependent on explosive debt expansion for its "growth" rather than on meaningful rises in meaningful productivity. Growth is in quotes because growth based on secular increases in productivity--that is, the same investment of labor and capital produces goods and services of greater value--is qualitatively different from "growth" based on a pyramiding of debt.

Real growth based on rising productivity is sustainable, "growth" based on ever-greater expansions of debt is not.

What has kept the Status Quo from falling off the debt cliff over the past four years is the substitution of exploding Federal/public debt for no-longer-rising private debt. If Federal borrowing were to return to 2006 levels, the economy would immediately experience a severe contraction.

We can understand this reaction as that of a debt junkie economy suddenly deprived of massive infusions of fresh credit.

This substitution of public debt for private debt is simply an attempt to fool Mother Nature. The justification of the Status Quo for impoverishing future generations is the massive expansion of Federal debt is needed to "kick start" the economy, i.e. "get us through a rough patch."

After four years of kick-starting and muddling through rough patches, the economy has yet to recover benchmarks set in 2007, much less grown. Meanwhile, the kick-starting added $6 trillion in visible public debt and trillions more in off-balance sheet obligations and backstops.


Substituting debt for productivity is also an attempt to fool Mother Nature. Here's how the substitutiion works: when productivity is flat, then "growth" can be created by leveraging the economy's surplus into greater amounts of debt, which can then be squandered on mal-investments and consumption to foster an illusion of "growth."

Note that I use the phrase "meaningful productivity." If a highrise tower is built in the middle of nowhere and sits empty, the construction and related costs (inspections, transport of goods, utilities, etc.) are added to the gross domestic product (GDP) as "growth," even though the empty building is not adding any real value to the economy.

The same can be said of millions of unneeded medical tests, millions of doses of medications that don't work as advertised, etc.--all the costs of sickcare that rarely add productive value to the economy but which are all added to the GDP as "growth."

If you leverage $100 per month in surplus capital in a household into a $100,000 home equity loan that is squandered on luxury cruises, a new kitchen, boats and dining out, then that explosion of spending boosts "growth" like a shot of cocaine.

But then what happens when the borrowed money has all been spent? What happens when the borrower defaults? The underlying assets--the boat, home, etc.--can all be auctioned off, but a massive loss remains to be swallowed by the lender.

Needless to say, the bankrupt borrower will be unable to borrow another $100,000 any time soon, even if interest rates are lowered to near-zero.

That's what happens when you try to fool Mother Nature by substituting debt expansion for increases in meaningful productivity. Eventually the surplus that is being leveraged into debt reaches the point where it cannot leverage any more debt, and the over-leveraged borrower defaults at the first financial bump.

An economy that is dependent on constant massive increases in debt to fund its "growth" is not sustainable. In a very real sense, the U.S. has been fooling Mother Nature for 30 years. Now we've overleveraged the nation's shrinking pool of surplus capital and assets, and the last rabbit has been pulled from the magician's hat. Mother Nature (i.e. reality in the form of a transparent, marked to market balance sheet) is about to take her revenge on all those who reckoned she could be fooled forever by ever-expanding debt.
http://www.oftwominds.com/blogjan12/pro ... 01-12.html" onclick="window.open(this.href);return false;

Re: Global Debt Time Bomb explodes soon

Posted: Fri Jan 27, 2012 1:55 pm
by phil_in_cs
more downgrades
http://www.businessinsider.com/fitch-go ... ium-2012-1" onclick="window.open(this.href);return false;
Fitch just cut the long-term issuer ratings of 5 EU countries:
Belgium: AA+ to AA
Spain: AA- to A
Italy: A+ to A-
Cyprus: BBB to BBB-
Slovenia: AA- to A
It affirmed Ireland's BBB+ rating with a negative outlook.

Re: Global Debt Time Bomb explodes soon

Posted: Fri Jan 27, 2012 6:04 pm
by Krustofski
Belgium could do so much better if they pulled their crap together. :(