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Has the Great Contraction Begun?

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Re: Has the Great Contraction Begun?

Postby MonteQuest » Wed 20 Jan 2016, 15:28:57

$this->bbcode_second_pass_quote('pstarr', 'T')his is it. In the past this zero inflation coupled with record-low crude prices would have sparked a construction boom.


Zero interest rates alone would have sparked inflation beyond belief. I have been saying this for years. While Pops and I were debating this morning, this market plunged 565 points,--down about 400-when I last looked. Oil is below $27. 8O

Stocks are down 20%. Only 34% more to go to match 1937.
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Re: Has the Great Contraction Begun?

Postby Pops » Wed 20 Jan 2016, 16:07:34

$this->bbcode_second_pass_quote('pstarr', 'S')o is it hyperinflation, great deflation, excitement or snoozeville?

Thanks Pete, but I gave up on predictions, too hard simply identifying all the dots.

The paper I linked from the Minneapolis Fed laid out a big, if not-hyperinflation scenario, basically some banks decide all the other banks are going to begin leveraging excess reserves to make new loans so they do it first.

The NY paper I linked earlier said the fed is in total control... just raise the rates paid to the banks on reserves.


Here from another paper in "Journal of Monetary Economics" titled Speculative runs on interest rate pegs that is a little more blunt...

$this->bbcode_second_pass_quote('', 'A') CB [central bank] that persisted using only interest on reserves as its policy tool in the face of a run would face hyperinflation.



One way is inflation (increase in money supply decreases dollar value raises asset prices)
the other way is deflation (increase in interest rates increases dollar value/lowers asset prices)


I've always argued against hyperinflation of the dollar but I was thinking that the government was in control and would want to keep control, more or less. I'm not so sure now that they already hyperinflated reserves and effectively gave the banks control. Doesn't mean it will happen, "could" is bad enough if a person is looking to cash as an asset.

I don't know about excitement or snooze tho. Piketty said as long as the rate of return is higher than the rate of growth, the rich get richer. I'm thinking that is target, just keep business usual.



Here is a good vid talking about the reason for bailouts — bailouts...
https://www.prageru.com/courses/economi ... -big-banks
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Re: Has the Great Contraction Begun?

Postby Pops » Wed 20 Jan 2016, 16:56:50

Yeow! 8O

Fear & Greed Index is at 9

$this->bbcode_second_pass_quote('', 'W')hen the S&P 500 (SPX) plummeted to a three-year low on Sept. 17, 2008 - the height of the financial crisis -- the Fear and Greed index sank to 12.
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Re: Has the Great Contraction Begun?

Postby MonteQuest » Wed 20 Jan 2016, 17:11:05

$this->bbcode_second_pass_quote('Pops', 'T')he paper I linked from the Minneapolis Fed laid out a big, if not-hyperinflation scenario, basically some banks decide all the other banks are going to begin leveraging excess reserves to make new loans so they do it first.


This infers that there is a huge new demand for loans that some banks wish to beat other banks to make.

Why would banks suddenly decide to make a bunch of new loans on excess reserves? Are their existing reserves exhausted?

$this->bbcode_second_pass_quote('Pops', 'I')'ve always argued against hyperinflation of the dollar but I was thinking that the government was in control and would want to keep control, more or less. I'm not so sure now that they already hyperinflated reserves and effectively gave the banks control. Doesn't mean it will happen, "could" is bad enough if a person is looking to cash as an asset.


Cash as an asset? Taking out a loan to get cash? Bank reserves, in the form of cash, are used to fulfill demand depositors need for physical cash. This where a typical "bank run" occurs where banks run out of cash money or can't liquidate assets to cash reserves.

But a bank run to borrow cash in the face of rising inflation that the banks can't control? That's a bit out there. It would entail borrowing at a high interest rate while the money was inflated and then paying it off with deflated money when the inflation went away. Theoretically possible, but a purely speculative move.
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Re: Has the Great Contraction Begun?

Postby dolanbaker » Wed 20 Jan 2016, 17:24:30

$this->bbcode_second_pass_quote('Pops', 'Y')eow! 8O

Fear & Greed Index is at 9

$this->bbcode_second_pass_quote('', 'W')hen the S&P 500 (SPX) plummeted to a three-year low on Sept. 17, 2008 - the height of the financial crisis -- the Fear and Greed index sank to 12.

Looking at the chart at the bottom of this page, It's as stable as a windsock in a gale!

http://money.cnn.com/data/fear-and-greed/?iid=EL

Goes from what appears to be 90 down to 0 in a couple of weeks and back up to 60 again.
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Re: Has the Great Contraction Begun?

Postby Pops » Wed 20 Jan 2016, 17:29:54

LOL, likely why the stock market is a crappy indicator of anything except the stock market.
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Re: Has the Great Contraction Begun?

Postby MonteQuest » Wed 20 Jan 2016, 20:06:53

The following charts do not in any way say “this is it”, that this is the Great Contraction, but it does show you what the problem is and how we have gotten to this point in time. The world debt is at 313% of GDP.

Image

A 2002 projection to 2015.

Image

Actual data to 2010.

Image

It takes $4.6 to produce a $1 of US GDP in 2016. In China, $5.4 dollars to $1 GDP.

Image

Image

The problem with “debt saturation” is this, all Ponzi scheme debt-based money systems must have new investors in order to “grow”. We must “reflate” the economy by new waves of borrowing. We tapped the tech stocks limit of debt, we tapped the mortgage market limits of debt, and now we have monetized the bad debt in order to reflate.

A report by the Group of Thirty, an international body led by former European Central Bank chief Jean-Claude Trichet, has warned that "zero rates and money printing were not sufficient to revive economic growth and risked becoming semi-permanent measures."

What’s left to tap? Inflate the price of gold?
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Re: Has the Great Contraction Begun?

Postby MonteQuest » Sat 23 Jan 2016, 00:18:28

Looks like Venezuela is in for a rough ride. Their economic collapse will rein in some oil production for sure.

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Re: Has the Great Contraction Begun?

Postby C8 » Sat 23 Jan 2016, 02:09:22

Shouldn't low oil prices guarantee growth eventually? Isn't energy the prime driver of the economy? Or is debt more important?
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Re: Has the Great Contraction Begun?

Postby MonteQuest » Sat 23 Jan 2016, 11:03:46

$this->bbcode_second_pass_quote('C8', 'S')houldn't low oil prices guarantee growth eventually? Isn't energy the prime driver of the economy? Or is debt more important?


Increasing debt seems to be the only driver of the economy. Low oil prices have not translated into growing consumer demand. Many people are using the gasoline savings to pay down their debt.
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Re: Has the Great Contraction Begun?

Postby Pops » Sat 23 Jan 2016, 11:09:46

Low oil price and abundant supply isn't a bonus, it's a basic requirement.

This last bit of economic growth has been about putting the 3rd world on the payroll. Probably some more profit growth will come from greater "productivity" as smart machines lower human costs.

But the basic model is "global" and you can't be global without transport cheaper than the labor differential.

At some point we need to substitute for declining fossil energy.
How/if/when we do or don't is the question.
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Re: Has the Great Contraction Begun?

Postby onlooker » Sat 23 Jan 2016, 12:14:08

The financiers and the Global corporations and banks that bestride the world seem to unrealistically have expected that their chimera of seamless globalization would continue apace. Guess they forgot about how simultaneously they have been decimating economically the masses/consumers. The price of growth has been paradoxically setting up for contraction via demand destruction.
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Re: Has the Great Contraction Begun?

Postby ennui2 » Sat 23 Jan 2016, 13:55:56

$this->bbcode_second_pass_quote('onlooker', 'T')he financiers and the Global corporations and banks that bestride the world seem to unrealistically have expected that their chimera of seamless globalization would continue apace. Guess they forgot about how simultaneously they have been decimating economically the masses/consumers. The price of growth has been paradoxically setting up for contraction via demand destruction.


Yet another Baptist preacher pronouncement. Sorry, everyone belongs to the cult of growth, not just global corporations and banks. You go convince the average voter that steady-state or de-growth would be beneficial and see how far you'll get.
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Re: Has the Great Contraction Begun?

Postby onlooker » Sat 23 Jan 2016, 13:57:51

Ennui, I am not commenting on opinions about growth. Simply that the policies are contradictory in creating this growth. Lowering costs has many times meant reducing wages or even eliminating jobs. That is demand destruction.
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Re: Has the Great Contraction Begun?

Postby ennui2 » Sat 23 Jan 2016, 14:27:12

$this->bbcode_second_pass_quote('pstarr', '
')They don't want growth.


Anybody who has more kids than the rate of replacement or lives above 1 earth footprint votes for growth and you know it. Stop portraying the plebes as helpless martyrs.

$this->bbcode_second_pass_quote('pstarr', '
')that is not the formula the Masters have planned for us.


More useless boiler-plate mustache-twisting tinfoil.

Last time I checked, the Reindeer on St. Matthew's island didn't have banksters. They did have tragedy of the commons, though, which is the diffuse problem underlying humanity.
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Re: Has the Great Contraction Begun?

Postby onlooker » Sat 23 Jan 2016, 14:44:45

I think we all are savvy enough to realize that their has been an individual element as well as a systemic (capitalist) element to growth. Tragedy of the commons and a voracious capitalist system set up to maximize this tragedy. So that actually accounts pretty much for our current global situation.
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Re: Has the Great Contraction Begun?

Postby onlooker » Sat 23 Jan 2016, 17:34:29

Looks like massive amounts of default are in the cards considering how over leveraged the planet is. https://www.rt.com/business/329566-worl ... s-economy/
This in accordance with those who predicted correctly the 2008 crash.
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