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THE Credit Bubble Thread (merged)

Discussions about the economic and financial ramifications of PEAK OIL
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Economics 3.0

Unread postby Cojock » Tue 17 May 2005, 16:53:52

$this->bbcode_second_pass_quote('Tyler_JC', '
')
Having read your "Reversing the Polarity" post, I'm interested in finding out your take on all of this.


I believe that we are actually seeing the "emergence" of new forms of financial capital based upon the sharing of risk and reward using "partnership-based" legal models and tools (such as the US LLC and the "new" UK LLP - which is NOT the same as a US LLP).

In essence the "Capital Partnership" - simply put - a way of "Co-owning" productive capital where the investors and the users share revenues in "n'ths" (ie shares but not as we know them Jim) - introduces an entirely new way of funding which is neither debt nor "equity" as we know it, but something new.

www.opencapital.net/articles.htm

Moreover, the "Clearing Union" or "Guarantee Society" allows individuals to create credit "peer to peer" - backed by a mutual guarantee and operating within an accounting system/barter network and with a manager of credit creation/ guarantee limits.

Together, these tools will come to replace the existing system simply because any enterprise which does NOT use them will be at a disadvantage to one that DOES - which is an "emergent" phenomenon.

We will need to invent new language and mechanisms to encompass this.

eg a "National Equity" rather than a "National Debt" and so on, since public investment (by pension funds) in a "Capital Partnership" is not a Debt at all......

Underlying all this are questions in relation to the metaphysical assumptions underpinning Economics.

ie it's not "either/or" (debt or equity: freehold or leasehold; subject or object; guilty or not guilty) but "both/and" (ie "open capital"/ "temporary equity": "Co-ownership"/ "ownership in common": Pre-intellectual "Reality"; "not proven")

All of this heads away into abstractions I do not understand. I am interested in applications; ie "what works" and I think we have here in the "Clearing Union" and "Capital partnership" new ways of sharing risk and revenue which "work".

Best Regards

Chris Cook
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Re: Oil is the Fuse, Debt Bubble is the Bomb

Unread postby spot5050 » Wed 18 May 2005, 19:59:41

$this->bbcode_second_pass_quote('MD', 'O')il is the Fuse, Debt Bubble is the Bomb

It appears that one moderate oil shock from the disruption of several hundred million barrels of oil could trigger the implosion of the US economy.

Debt increases the tension on all economic formulae.

Debt is a magnifying glass or amplifier which makes the economy more sensitive.

Debt is 'gearing'.

BUT

Debt is not a switch. It doesn't have a level beyond which it 'snaps'.

Economics is full of swings and balances, not binary switches. There are some switches, but debt isn't one of them.
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Re: Oil is the Fuse, Debt Bubble is the Bomb

Unread postby MD » Thu 19 May 2005, 03:33:21

$this->bbcode_second_pass_quote('spot5050', 'D')ebt increases the tension on all economic formulae.

Debt is a magnifying glass or amplifier which makes the economy more sensitive.

Debt is 'gearing'.

BUT

Debt is not a switch. It doesn't have a level beyond which it 'snaps'.

Economics is full of swings and balances, not binary switches. There are some switches, but debt isn't one of them.


Where was debt referred to as a "switch"?
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Unread postby Leanan » Thu 19 May 2005, 09:35:34

$this->bbcode_second_pass_quote('', 'D')ebt is not a switch. It doesn't have a level beyond which it 'snaps'.


What if it becomes clear that you cannot and will not ever repay the debts you have incurred?
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Unread postby MD » Thu 19 May 2005, 09:48:23

$this->bbcode_second_pass_quote('Leanan', '')$this->bbcode_second_pass_quote('', 'D')ebt is not a switch. It doesn't have a level beyond which it 'snaps'.


What if it becomes clear that you cannot and will not ever repay the debts you have incurred?


You file bankruptcy, The pressure has increased until a decision is made. A decision that certainly resembles a switch.
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Unread postby spot5050 » Thu 19 May 2005, 14:35:51

$this->bbcode_second_pass_quote('MD', 'W')here was debt referred to as a "switch"?

Your OP uses the word 'trigger' which I'm always suspicious of when discussing economics. If I see that word, then I'm immediately looking for some justification of its use.

$this->bbcode_second_pass_quote('MD', 'O')il is the Fuse, Debt Bubble is the Bomb.
It appears that one moderate oil shock from the disruption of several hundred million barrels of oil could trigger the implosion of the US economy.


Economics is about upward pressure on X, downward pressure on Y, etc etc.
I suppose really I'm questioning your use of language.

$this->bbcode_second_pass_quote('MD', 'Y')ou file bankruptcy, The pressure has increased until a decision is made. A decision that certainly resembles a switch.

That's exactly my point. People see switches like that one, which occur on a personal level, and translate them to a macro level. eg;

"I've lost my job. It feels like the end of my world so it must be the end of everyone elses too."

But if you depersonalise the way you think about it, you see things rather differently.
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Unread postby Leanan » Thu 19 May 2005, 15:59:15

I don't understand what you're trying to say.

If I declare bankruptcy, it's not the end of the world for me. Really sucks for everyone who's lent me money, though.
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Unread postby FatherOfTwo » Thu 19 May 2005, 16:22:14

$this->bbcode_second_pass_quote('Leanan', 'I') don't understand what you're trying to say.

If I declare bankruptcy, it's not the end of the world for me. Really sucks for everyone who's lent me money, though.


It depends on how the bankruptcy laws are written, and what you are prepared to accept. At a minimum getting credit will be next to impossible. Forget about having any assets.

Additionally, with the new laws in the US, it is a lot harder to get your debt erased. Essentially it depends on whether or not your income is higher than the median in your state. If it is, you're on the hook for more of your debt.

http://www.bankruptcyaction.com/bankreform.htm
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Unread postby jmacdaddio » Thu 19 May 2005, 17:07:53

I'm not very religious, but I rememeber reading Revelation as a teen. One part was intriguing and I will paraphrase: the number 666 is the mark of the beast, and without this mark no man shall be able to buy or sell. Or something like that. Meaning you have to be one of the beast's followers to be able to conduct business of any kind.

My own personal interpretation is that credit cards are the mark of the beast since you need one for practically every transaction big and small in our modern era (ever try booking a hotel room without one?). Unless things change soon, they will trigger the next financial meltdown. The explosion of easy consumer credit over the last 20 yrs is a bomb unlike any other.
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Unread postby MD » Thu 19 May 2005, 18:00:42

$this->bbcode_second_pass_quote('spot5050', '')$this->bbcode_second_pass_quote('MD', 'W')here was debt referred to as a "switch"?

Your OP uses the word 'trigger' which I'm always suspicious of when discussing economics. If I see that word, then I'm immediately looking for some justification of its use.

$this->bbcode_second_pass_quote('MD', 'O')il is the Fuse, Debt Bubble is the Bomb.
It appears that one moderate oil shock from the disruption of several hundred million barrels of oil could trigger the implosion of the US economy.


Economics is about upward pressure on X, downward pressure on Y, etc etc.
I suppose really I'm questioning your use of language.

$this->bbcode_second_pass_quote('MD', 'Y')ou file bankruptcy, The pressure has increased until a decision is made. A decision that certainly resembles a switch.

That's exactly my point. People see switches like that one, which occur on a personal level, and translate them to a macro level. eg;

"I've lost my job. It feels like the end of my world so it must be the end of everyone elses too."

But if you depersonalise the way you think about it, you see things rather differently.


Several problems:

First: The "trigger" was referencing an oil shock, not debt.

Second: You argued against one analogy(oil shock as a trigger)using another unrelated analogy (debt as a switch). There is no relation between them, therefore the argument, in that context, has no meaning.

Third: Since it was mine, I will explain what I meant by the reference. There currently appears to be a problem in the US, sometimes referenced as "debt bubble". There has been serious questions raised as to the sustainability of the current debt situation. It has also been suggested that a moderate oil shock could very well push the "debt bubble" past the level of sustainability, which in concert with oil shock could then seriously disrupt the US economy. Thus the somewhat loose, but I thought nice sounding "fuse, bomb, target" like "oil, debt, economy" analogy. *shrug*
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Unread postby OilsNotWell » Thu 19 May 2005, 18:25:36

This figure is shocking...If true, and interest rates rise any further...we'll see as mass wave of bankruptcies and foreclosures...

$this->bbcode_second_pass_quote('', 'B')ut seriously, taken as a whole this speech may be Mr. Greenspan's "irrational exuberance" moment for what's ahead in real estate, with Fannie & Freddie being the most fragile part of the bubble. He understands what they're up to. There are plenty of other alarming real estate trends out there that the Fed Chairman could relate in plain language. In California, for example, "interest-only" loans account for 61% of the home mortgages taken out in the first two months of 2005. In 2002, the figure was 2%.

ElliotWave


61% of housing loans as 'interest-only'. Cripes!

This really only solidifies my view that periods of inflation (increasing 'money supply'/credit) and deflation (decreasing 'money' supply/credit), have consistently bled real wealth from average citizens..

I recall a post regarding an article from the American Banker Association's magazine in the early part of this century where the planned, in advance, a recession, by reducing the money (debt) supply.
I also recall a quote (threat) from a very powerful banker during this time period of causing a recession intentionally, and he did. I wish I had the quote and links handy...

$this->bbcode_second_pass_quote('', ' ')I believe that banking institutions are more dangerous to our liberties than standing armies . . . If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] . . . will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered . . . The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.

Letter to the Secretary of the Treasury Albert Gallatin (1802) ; later published in The Debate Over The Recharter Of The Bank Bill (1809



$this->bbcode_second_pass_quote('', '"')I sincerely believe... that banking establishments are more
dangerous than standing armies, and that the principle of
spending money to be paid by posterity under the name of
funding is but swindling futurity on a large scale." --Thomas
Jefferson to John Taylor, 1816. ME 15:23


$this->bbcode_second_pass_quote('', '"')I hope we shall... crush in its birth the aristocracy of our
moneyed corporations, which dare already to challenge our
government to a trial of strength and bid defiance to the laws of
our country." --Thomas Jefferson to George Logan, 1816.
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Unread postby Leanan » Fri 20 May 2005, 10:09:21

$this->bbcode_second_pass_quote('', 'I')t depends on how the bankruptcy laws are written, and what you are prepared to accept. At a minimum getting credit will be next to impossible.


No, it won't. I know, because my credit history once got mixed up with some one in Arizona's. She has my first name and a social security number one number off from mine. She had a bankruptcy, but it didn't seem to stop her from opening accounts. Of course, she paid for it in higher interest rates.

In any case, my point was that often the one that suffers most in a bankruptcy isn't the debtor. Think Long Term Capital Management.
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Unread postby spot5050 » Fri 20 May 2005, 15:08:11

$this->bbcode_second_pass_quote('MD', 'S')everal problems:

First: The "trigger" was referencing an oil shock, not debt.

Second: You argued against one analogy(oil shock as a trigger)using another unrelated analogy (debt as a switch). There is no relation between them, therefore the argument, in that context, has no meaning.

Third: Since it was mine, I will explain what I meant by the reference. There currently appears to be a problem in the US, sometimes referenced as "debt bubble". There has been serious questions raised as to the sustainability of the current debt situation. It has also been suggested that a moderate oil shock could very well push the "debt bubble" past the level of sustainability, which in concert with oil shock could then seriously disrupt the US economy. Thus the somewhat loose, but I thought nice sounding "fuse, bomb, target" like "oil, debt, economy" analogy. *shrug*


I take all your points.

I still object to the way you use emotive words like 'bubble', 'shock', 'fuse', 'bomb' etc. That's all I'm trying to say.

Language is important, it paints a picture. Reading about 'shock', 'bomb', 'crash' etc leaves a very different impression to reading about 'slowdown', 'upward pressure', 'downward pressure', 'easing off' etc. Do you see what I'm getting at?

The language you use matters. If you use inappropriate language, you create a false picture. Some people use emotive language deliberately, some accidentally; but either way the result is the same - a distorted worldview is created, full of imaginary switches, precipices, crashes, bangs, pops, bubbles, exploding bubbles etc etc.

Language is important. You can use it to help you get to the truth, or you can twist it for your own ends. You can either shoehorn the world into your belief system, or remodel your belief system to match reality.
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Unread postby MD » Fri 20 May 2005, 17:16:03

$this->bbcode_second_pass_quote('spot5050', '
')I take all your points.

I still object to the way you use emotive words like 'bubble', 'shock', 'fuse', 'bomb' etc. That's all I'm trying to say.

Language is important, it paints a picture. Reading about 'shock', 'bomb', 'crash' etc leaves a very different impression to reading about 'slowdown', 'upward pressure', 'downward pressure', 'easing off' etc. Do you see what I'm getting at?

The language you use matters. If you use inappropriate language, you create a false picture. Some people use emotive language deliberately, some accidentally; but either way the result is the same - a distorted worldview is created, full of imaginary switches, precipices, crashes, bangs, pops, bubbles, exploding bubbles etc etc.

Language is important. You can use it to help you get to the truth, or you can twist it for your own ends. You can either shoehorn the world into your belief system, or remodel your belief system to match reality.

VERY well said! Thank you.
Now then, my original post indicated my opinion that the combination of economic pressures could indeed produce a result that in some fashion resemble more of an "implosion". What are the economic factors that would tend to soften the problems created by the coincidence of oil schock and debt ratio in the US economy?
Last edited by MD on Fri 20 May 2005, 17:40:04, edited 1 time in total.
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Unread postby bobcousins » Fri 20 May 2005, 17:35:40

$this->bbcode_second_pass_quote('spot5050', 'L')anguage is important, it paints a picture. Reading about 'shock', 'bomb', 'crash' etc leaves a very different impression to reading about 'slowdown', 'upward pressure', 'downward pressure', 'easing off' etc. Do you see what I'm getting at?


I think you are making a mountain out of a mole hill.

I quite enjoyed the metaphor. :-)

-- No mole hills were harmed in the making of this post. Portrayals of matter conversion were simulated. --
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Unread postby spot5050 » Sat 21 May 2005, 05:34:55

$this->bbcode_second_pass_quote('MD', 'W')hat are the economic factors that would tend to soften the problems created by the coincidence of oil schock and debt ratio in the US economy?

Nice try :)

I think I've made my point.

Lets agree to disagree. You see back and white, I see grey scales. We have differing views of the world and that's fine. I doubt anything I could write would change your view, and I'm damn sure nothing you could say would change mine.
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Unread postby MD » Sat 21 May 2005, 13:00:31

$this->bbcode_second_pass_quote('spot5050', '')$this->bbcode_second_pass_quote('MD', 'W')hat are the economic factors that would tend to soften the problems created by the coincidence of oil schock and debt ratio in the US economy?

Nice try :)

I think I've made my point.

Lets agree to disagree. You see back and white, I see grey scales. We have differing views of the world and that's fine. I doubt anything I could write would change your view, and I'm damn sure nothing you could say would change mine.


I am not sure what we are agreeing to disagree about, but no problem.

I am looking for economic discussion which unfortunately in this thread turned into a semantics debate over use of word choice and analogy which completely missed the original intent. It's time for me to abandon this one.
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Unread postby spot5050 » Sun 22 May 2005, 13:16:13

$this->bbcode_second_pass_quote('MD', 'I') am looking for economic discussion...

Utter tripe. Self delusion of the highest order.

Read your own OP...

$this->bbcode_second_pass_quote('MD', 'O')il is the Fuse, Debt Bubble is the Bomb..and the US Economy is the target.

It appears that one moderate oil shock from the disruption of several hundred million barrels of oil could trigger the implosion of the US economy.

That is my strictly intuitive conclusion based on casual research over the past few months.

Opinions?

You don't want any dicussion, you've already made up your mind. You're seeking out people who agree with your viewpoint. You are seeking peak oil mutual masturbation. Well you're in the perfect place. Enjoy yourself :)
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Unread postby RG73 » Sun 22 May 2005, 13:41:07

$this->bbcode_second_pass_quote('spot5050', '')$this->bbcode_second_pass_quote('MD', 'I') am looking for economic discussion...

Utter tripe. Self delusion of the highest order.

Read your own OP...

$this->bbcode_second_pass_quote('MD', 'O')il is the Fuse, Debt Bubble is the Bomb..and the US Economy is the target.

It appears that one moderate oil shock from the disruption of several hundred million barrels of oil could trigger the implosion of the US economy.

That is my strictly intuitive conclusion based on casual research over the past few months.

Opinions?

You don't want any dicussion, you've already made up your mind. You're seeking out people who agree with your viewpoint. You are seeking peak oil mutual masturbation. Well you're in the perfect place. Enjoy yourself :)


Ummmm, he posed a legit question: the US is carrying too much debt (both individual and government debt), what will happen if there is a gap between oil supplies and demand?

The first proposition is not in question--the US has an obscene amount of debt and I don't think any economist thinks it is structurally sound or tenable. There will be corrections, with or without oil shock.

The question--what will be the effect of an oil shortage in such an economic climate--is perfectly reasonable. Instead of making smug proclamations about why MD's word choice is incorrect you could actually enlighten us as to why the question, and the proposition of unsound debt that it depends on, are absurd.
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Unread postby spot5050 » Sun 22 May 2005, 15:05:25

$this->bbcode_second_pass_quote('RG73', 'I')nstead of making smug proclamations about why MD's word choice is incorrect you could actually enlighten us as to why the question, and the proposition of unsound debt that it depends on, are absurd.


What is "unsound debt"?!

Only on PO.com can you get away with making such ridiculous statements without anyone questioning you. What are unsound debts? Unsound debts - a concept unheard of previously, but presented here as fact, and not questioned by anyone. PO.com is weird. Weird weird weird.

In the weird world of po.com, if you dare say anything positive, you get ripped to shreds; but say something negative, no matter how ridiculous, and noone bats an eyelid.

<rant mode off>

It's interesting that it looks as if po will occur at approximately the same time as peak-debt. When we look back at the peak from a post-peak viewpoint, maybe the coincidence of the debt-peak and oil-peak will have seemed predictable; like we should have seen them both coming.

Logically it makes sense that post-peak, debt will fall. The higher interest rates are, the less people want to borrow. As oil gets more expensive, prices of everything go up, ie. inflation goes up, so the central banks raise interest rates to control their money supplies. So almost by definition, does po mean peak-debt.
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