Financial Crisis

[Abrak]

12Drinkmore,

I mean you have basically got it all.

There are very powerful deflationary forces out there. Unemployment, a feeling that you might be unemployed, a feeling that there might be deflation, a desire to deleverage etc. This is affecting consumption and the desire to consume. Actually having deflation would make everything worse. 5% deflation is like a 5% interest rate hike.

I also totally agree with you that his policies are working to the extent I actually see 'inflation' now rather than 'deflation' in a very deflationary environment. Stockmarket, commodities and even expectations on property. So to an extent he is already achieving his goals but what he actually wants to achieve is 'inflationary expectations' and I dont think he has done that.

So to make it simpler....

Nominal GDP = Real GDP X Inflation

Debt is essentially fixed. (Obviously you can increase it or decrease it) but at any point in time the problem is essentially a very high....

Debt/(real GDP x Prices ratio).

Now tell me what is the easiest way of solving that equation. And that given your goal is to increase real GDP improving that equation is productive.

We agree we cannot increase real GDP without actually making things worse.

So the only real figure you have to play with is prices.

Deflation will increase the underlying problem by definition (as well in my opinion decreasing real GDP to make matters worse. (See 1929 - 1933).

If we assume zero interest rates and inflation then the equation improves. (It also promotes consumption which does not necessarily lead to an increase in debt as the fiscal deficit may be reduced.) It is to degree supposed to be a virtuous cycle if consumption is artificially depressed which it is not.

The reason you do not get import cost push inflation is because imports as a percent of GDP are very low in the USA. Luckily commodities are mostly priced in dollars so their rise will make up for it. Say the USA produces 90% of its oil and imports 10% you get inflation without import cost push.

Bernanke is not trying to produce hyperinflation just a bit of inflation. Replacing the US$ as the reserve currency is tricky. But you are right, if you read 'The Bernanke Doctrine' it is 100% clear he can produce inflation but the measures he advocates may well not be politically acceptable.

And negative interest rates (higher inflation than interest rates) Bernanke is well aware has its costs. He calls it an 'inflation tax'. I.E. a transfer from depositors to debtors. But that is how you recapitalize the banking system. Reducing nominal GDP simply adds the cost of the unemployed, the cost of a collapsed banking to taxes on a decreased private sector real income. Ultimately if someone borrows too much someone has to pay.

Reducing nominal income relative to GDP increases the losses on the debt while increasing the percentage of GDP that must be paid to repay those losses relative to the size of the losses created.

Final point. 'Increasing private debt fueled consumerism' is probably non productive because debt might well rise faster than GDP. So 'inflation' will help cure the problem by definition. Increasing debt really isnt the key to solving a debt/GDP problem.

Edited November 9, 2009 by Abrak

[creditambassador]

The best way to avoid a financial crisis is to spend less than you earn. You'll be better prepared for unexpected expenses or life-changing events that might dramatically reduce your income or increase your expenses.

[12DrinkMore]

The best way to avoid a financial crisis is to spend less than you earn. You'll be better prepared for unexpected expenses or life-changing events that might dramatically reduce your income or increase your expenses.

Well, what can I say, after 4,600 odd posts and 83,000 views, there it is, in one succinct sentence.

Just a small pity that the message is a few years too late and with too small an audience.

[12DrinkMore]

Bring out the sick bags

I'm doing 'God's work'. Meet Mr Goldman Sachs

http://www.timesonline.co.uk/tol/news/worl...mp;attr=2015164

With huge profits and an average pay of $700,000, considerably more than Bernanke, King, Obamah, Brown and Darling, one has to wonder whether the guys running the countries and central banks are really up to it. Maybe we should just give up now and bring in the professionals?

Moving over to the current USD devaluation,

Here we go with calls for devaluing the Euro.

http://www.bloomberg.com/apps/news?pid=206...KVMcs&pos=5

Based on past experience, the end result will be huge profits at GS and me feeling even poorer. Why does it always work out this way?

And whatever happens, everything is going up up up, hurrah! We're all saved!

“You should buy stocks now,” said Duessel, who helps manage $400 billion. “There’s an idea that they’re taking away the punch bowl by indicating they’re raising interest rates. But you can still get a decent rally after that.”

http://www.bloomberg.com/apps/news?pid=206...5rvEk&pos=3

Unfortunately the other things going up are unemployment and tax payers' debt.

Edited November 9, 2009 by 12DrinkMore

[sokal]

I do not understand why the Central Banks through QE are creating bubbles in stock markets and commodities . They have partially succeeded in boosting house prices in the UK but not in the US , through low interest rates -

Whilst people believe that markets and currencies are a one way bet , as in the Dot Com boom , everyone makes money - but it can all come crashing down , and will sometime soon , and most will loose their perceived gains .

So what benefit is QE creating apart from a tempory feeling of wellbeing and that markets etc are moving in the right direction .

It depends if you are an American. All the gains in the DOW are not keeping up with the devaluation of the dollar. Americans have no gain in anything when priced in gold.

That is not an anti American statement, I like the USA but I can help that they rehired Banana Ben.

[midas]

12Drinkmore,

I mean you have basically got it all.

There are very powerful deflationary forces out there. Unemployment, a feeling that you might be unemployed, a feeling that there might be deflation, a desire to deleverage etc. This is affecting consumption and the desire to consume. Actually having deflation would make everything worse. 5% deflation is like a 5% interest rate hike.

I also totally agree with you that his policies are working to the extent I actually see 'inflation' now rather than 'deflation' in a very deflationary environment. Stockmarket, commodities and even expectations on property. So to an extent he is already achieving his goals but what he actually wants to achieve is 'inflationary expectations' and I dont think he has done that.

'inflationary expectations' - Abrak this is the part I cannot visualise.

I mean how many years does Bernanke need for his grand plan to work ?

As 12Drinkmore said, I can only see it affecting limited parts of the economy.

I can see inflation on minor items such as foodstuff etc and oil for example but real estate

is the most significant. It was subprime that got us into this mess. BUT wages are going down

and real estate is hugely overvalued in many parts of USA. So how long will to plug this “ gap ” ?

On top of that you other underlying very negative trends – e.g. teenage unemployment at

27% - so many teens wont be getting married in a hurry and taking out a mortgage ?

And this is from an article about the upcoming commercial real estate “ bust “

"It's one of the largest losses we have forecasted for an individual loan," says Steve Kuritz, a senior vice-president at Realpoint, an independent credit-rating agency. The property, once valued at $246 million, is now worth just $93 million

http://www.businessweek.com/magazine/conte...55042792563.htm

I mean these are huge figures that need to be “ absorbed ” and sooner or later residential and commercial assets will have to be sold

at whatever they can achieve ?

[sokal]

12Drinkmore,

I mean you have basically got it all.

There are very powerful deflationary forces out there. Unemployment, a feeling that you might be unemployed, a feeling that there might be deflation, a desire to deleverage etc. This is affecting consumption and the desire to consume. Actually having deflation would make everything worse. 5% deflation is like a 5% interest rate hike.

I also totally agree with you that his policies are working to the extent I actually see 'inflation' now rather than 'deflation' in a very deflationary environment. Stockmarket, commodities and even expectations on property. So to an extent he is already achieving his goals but what he actually wants to achieve is 'inflationary expectations' and I dont think he has done that.

'inflationary expectations' - Abrak this is the part I cannot visualise.

I mean how many years does Bernanke need for his grand plan to work ?

As 12Drinkmore said, I can only see it affecting limited parts of the economy.

I can see inflation on minor items such as foodstuff etc and oil for example but real estate

is the most significant. It was subprime that got us into this mess. BUT wages are going down

and real estate is hugely overvalued in many parts of USA. So how long will to plug this “ gap ” ?

On top of that you other underlying very negative trends – e.g. teenage unemployment at

27% - so many teens wont be getting married in a hurry and taking out a mortgage ?

And this is from an article about the upcoming commercial real estate “ bust “

"It's one of the largest losses we have forecasted for an individual loan," says Steve Kuritz, a senior vice-president at Realpoint, an independent credit-rating agency. The property, once valued at $246 million, is now worth just $93 million

http://www.businessweek.com/magazine/conte...55042792563.htm

I mean these are huge figures that need to be “ absorbed ” and sooner or later residential and commercial assets will have to be sold

at whatever they can achieve ?

[midas]

sokal yes I know that very huge amounts of money have been pumped into the system, gold is going to the moon and that

the dollar is crashing

But your graphs dont help my question about REAL ESTATE. This by far is the biggest purchase

in the average persons life and i cant see how people in USA can move on from where they are now in a hurry ?

Bernanke can pump all the money he wants into the system but how does that create jobs

if the opportunities are now more in India and China and SE Asia ( unless you just want people in USA to

dig holes and fill them up again ).

On top of that the small business person wont hire in a hurry

even if they can get capital because they dont what sort of taxes they are get slugged with down the track.

The question I am addressing is how can you even begin to think about

shifting the massive housing stock now on Fannie and Freddie's rental porfolio ( which is meant to be carried

only until things get better - but when ? ) if the jobs are not coming back soon ? Without that you can never

generate " inflationary expectations " in the property market ?

Edited November 10, 2009 by midas

[midas]

" inflationary expectations " in the commercial real estate

market ? not likely

" The real tsunami is coming, probably in the second quarter of 2010

because that’s when banks will have to start preparing for the wave of mortgages that

were written near the market top and are maturing in 2011-12. Unlike home loans,

commercial loans tend to be relatively short-term in nature (average 5-7 years), because -- -

outside of apartment building loans backed by Fannie or Freddie -- - there are no government

programs to subsidize longer-term ones. These guys mature in bunches

Imagine what will happen to the estimated $2 trillion in commercial mortgages

that mature between now and 2013.

And even that is not the end of it. There’s a second huge wave on the way in 2015-16 "

TCR_Commercial_Real_estate_ZHB.pdf

[flying]

Not too Worry it is just the................

Twilight Zone Economy

Richard Benson

Nov 9, 2009

From 1959 to 1964, Rod Serling created and directed the ground-breaking series “The Twilight Zone” which will never be forgotten by anyone growing up in the 1950’s with a black and white TV. The weekly episodes revealed with ironic, perplexing and totally unexpected results, what happened to otherwise normal people whose lives were forever changed once they were transcended into a parallel world where different rules applied. This altered world correlates in many ways to the US economy today as millions of people are realizing that nothing our government says seems to be real, and the rules we thought applied, don’t any more.

For example, the price indexes continue to be manipulated down with hedonic adjustments which continually change price weights to always favor lowered-priced, over higher-priced, goods. This manipulation in the price indexes virtually guarantees that GDP, which is a price-adjusted number, will grow 1.5 to 2 percent each and every year, even if there is no real economic growth at all! Moreover, the White House has created a novel way to measure how it has created or saved 640,000 jobs through economic stimulus. Only in a world where rules no longer apply would you see a big brother government claim they created 640,000 jobs when, in fact, over 640,000 jobs were actually lost in the last three months alone. The surge in the headline unemployment rate to 10.2 percent, and the broad measure of unemployment (the U-6) which hit a mind-numbing 17.5 percent, make a mockery of the economic stimulus package.

I’m also not alone in pointing out that over the past 12 months the Bureau of Labor Statistics Birth Death Model has added 850,000 mythical jobs to the Payroll Employment Survey. By all accounts, this data is false and is a stunning example of statistics created in outer space where only happy talk is allowed, and, unbeknownst to the people, psychological warfare is actually taking place against them behind the scenes.

The official numbers are so bad and inaccurate that a business has emerged to show what the real economy actually looks like. (See John Williams’ excellent “Shadow Government Statistics” at www.shadowstats.com).

In this world of illusion, the government wants you to look the other way. They certainly don’t want you to see that less than half of the credit losses that will need to be taken have been taken, for home mortgages, credit cards, and toxic commercial real estate loans. And that’s not all. Economic statistics that show real declines (but at a slowing rate of decline) are advertised as increases, and even though new records have been set for the length of time that workers have been collecting unemployment, and filings for early retirement, food stamps and social security disability have spiked, these facts are rarely reported.

Government tricks are wearing thin and consumer confidence is waning as a massive credibility gap begins to widen between the people actually living in a real nightmare they have never before experienced, and the world as reported by government statistics and markets. This has caused concern on Capitol Hill that restive peasants may gather in the streets and go after bankers with their pitch forks when these same bankers should be contributing to PACs in the coming election year.

Past recessions were caused by an overbuilding of inventories that needed to be corrected. This recession is far worse, however, and it mirrors a 1930s-style depression that needs to purge a massive over-extension of credit. The next few years are going to be rough for many people living on the edge, and nothing, in my view, will change until new good paying jobs are created. Remember that in any recession, meaningful job growth lags the official end of the recession by 12 to 24 months, so we can expect unemployment to continue well into 2011 for sure.

It’s unfortunate that Rod Serling has passed on because if he were alive today, he would be filled with plenty of ideas for a killer episode of his program, showing how propaganda and the Fed’s printing press can be used to wipe out jobs, eliminate prosperity, and rob savers. The cast of characters would be played by real unemployed people playing truly heart-wrenching roles. The economy desperately needs new scriptwriters.

Edited November 10, 2009 by flying

[Abrak]

'inflationary expectations' - Abrak this is the part I cannot visualise.

I mean how many years does Bernanke need for his grand plan to work ?

Well I mean Japan has been struggling with this whole issue for 20 years and they really havent succeeded in getting anywhere (BTW they started with much better fundamentals than the US is starting debt problems.) Bernanke has written copious amounts on Japanese deflation and certainly sort of feels that he can resolve the US's I suspect within 5 to 10 years possibly sooner. How many years do you think it is going to take to resolve this mess. As far as I know Sokal is the only person to have suggested a solution that would restore growth quicker but it is largely based on depressing real GDP so far say 25%

BUT wages are going down and real estate is hugely overvalued in many parts of USA.

At this point Midas and with the remains of your quote you are either (1) repeating your belief that Bernanke cannot create inflation or (2) you really dont understand the concept of what he is trying to achieve. You also state the stockmarket is hugely overvalued which again is simply a reflection of either 1 or 2.

The conclusion that either the stockmarket or property is grossly overvalued is 'totally' a reflection of your low 'inflation or deflation expectations' and presumably based on Ben Bernanke not being able to create inflation.

Ok lets make some assumptions....

1) Ben Bernanke is very committed to inflation and believes he can create it in a deflationary environment. While you may not think this is achievable (or impossible) I would simply argue that say the finance minister of Zimbabwe is almost certainly not a miracle worker or a genius.

2) Lets take as a valuation model for property the Case Schiller index. I.E. an underlying relationship between house prices and 'nominal' GDP per head. Where over the last 130 years the ratio has varied between 7x a very obscure aberration in 2006 and 3.2x with an average I believe of 4.2. And lets assume it is now at 5.0 so 20% overvalued.

3) Also accept there is already a wide range of inflationary expectations from Krugman (deflationary) to Faber (hyperinflationary). So in a highly deflationary environment Bernanke has at least created 'some' inflation expectations. With both economists theories, the underlying assumption is that 'real' growth will be very low.

Now readjust your inflation expectations to sort of get the Bernanke concept. Just assume there is 5% per annum inflation over 10 years and short term rates are kept at zero. This is a theoretical argument not exactly Bernanke policy. And Bernanke realizes BTW that in order to achieve that expectation to convert someone like you to that 'expectation' he may need to increase inflation to 10% in the short term. Again we are only pretending, Midas, I am just telling you that in order to get 'you' to believe in a certain inflation figure he knows he needs to overshoot it first. And remember the stockmarket is up, gold is up, commodities are up - so while you cannot visualize it obviously other people can. And he only needs enough belief to actually create it.

Now at inflation of 5% and ZIRP both the stockmarket and property are actually 'cheap'. Cash yielding zero, would in real terms virtually halve. If you say based on the Price Shiller index properties in the US are say at the moment at 5.0x income then if the price didnt move for 10 years they would be on about 3.0x income (assuming no real growth). They have never been that cheap in 130 years. If you assume that they are at their long term average in 10 years time than housing will appreciate 50% compared to cash (and yes still have a negative real return).

And I do slightly feel you are missing the point of Bernanke policy which is to trash cash. The stockmarket is not going up - the value of cash is going down. And once you have destroyed a lot of its value by reducing interest rates to zero you can only continue to destroy it by raising expected inflation rates. This is what is going on - it is not market support police. If you believe in deflation - prices say falling 5% a year - then sitting on cash appears quite sensible because you make a real rate of 5%. But if he can take rates highly negative then he can sell off those properties and keep his banking system solvent.

But here is how Bernanke sort of justifies his theory. Lets say inflation expectations move to -5%. And lets assume that your expectations are zero now. Also make the same assumption of no growth. The Case Shiller index would go to 10x in 10 years if prices were flat so in nominal terms they would have to fall over 50% more to be fair value. That simply creates huge losses for the banks which you are going to have to pay for anyway through increased taxation, on decreased nominal income. Now there is a LOSS, if you have inflation its an 'inflation tax' and if you have deflation the 'real' loss maybe even bigger and paid for by taxes. Bernanke would argue that the 'real' adjustment will be cheaper through inflation. But even if you assume the 'real' adjustment costs are the same, most economists would argue it is 'quicker' to make real adjustments through inflation. Namely that prices are 'sticky' downwards.

So I believe your argument is very much along the lines that stock prices and property prices are overvalued. And this overvaluation is being exascerbated by people having false expectations of inflation creation by Bernanke which he cannot achieve. That is very fair and is the belief of many economists like Krugman, however, you have to understand why they think that and to some extent you have to understand this is why markets have moved. So his policies are working to a degree.

And you Austrian's should get this, Sokal does, he simply despises it as policy (robbing the good to pay for the stupid). I suspect from a moral standpoint as much as an economic one. And on the 'moral' side I agree but I believe a) there is no choice and capitalism is essentially an immoral economic model based on increasing immorality. (But there isnt a better one)

Please accept that your 'overvaluation' argument is solely dependent on your 'real interest rate assumption' which is largely dependent on your 'inflation' assumption. (Faber has a very good theory why this will be totally disastrous but it is based on Bernanke being 'successful'.)

Edited November 10, 2009 by Abrak

[Abrak]

Bernanke can pump all the money he wants into the system but how does that create jobs

if the opportunities are now more in India and China and SE Asia ( unless you just want people in USA to

dig holes and fill them up again ).

Honestly Midas, isnt that an unfair question. I mean how does 'anyone' create new jobs in the US. I mean one way to do it is just increase the budget deficit to US$3bn and even that might not work.

I will offer one and only solution I can think of and while you think it might be crap, you have to be vaguely imaginative to think of any. (In fact, if I was Obama I think the best policy is to sell austerity high unemployment as a sacrifice we need to make for future generations.)

GDP = C + I + G + NX

We also assume the simply borrowing more model is dead.

So you cannot increase (C + G) because if you do debt increases. So it is a waste of time making up reduced consumption by increased budget deficits.

So you have to increase I + NX which you can only do one way which is to destroy your assumption. What you do is float the yuan.

This is why it will happen. You must realize that the investment led Chinese economy is just as out of balance as the US economy.

For example, consider this. In 2007 the Chinese consumer spent 35% of GDP and China spent 11% of GDP buying short term treasuries to subsidize its 45% export orientated investment. Essentially they lend money to Americans at cheap rates to buy their exports.

Secondly investment has outgrown GDP for the last 10 years, so returns on investment must be falling.

Thirdly, as Midas points out, there is no potential growth in the US so either China cant increase its exports or if it does it will reduce their potential GDP further and increase their financing.

Realistically the imbalance of the peg will now reduce their long term growth rate and will lead to an overcapacity, investment led financial crisis rather like the opposite of the US consumer led financial crisis. Longer it waits the bigger the potential crisis. Investment this year is till growing faster than consumer demand.

Floating the yuan will be contractionary for China and expansionary for the US. China can afford it though especially as they dont have to buy treasuries and run a sustainable budget deficit. Lending to your customer is bad enough, bankrupting him is not good and a return to growth will be beneficial.

But the key to all this is to simply realize how 'wonky' and 'out of balance' the Chinese economy is.

[SNGLIFE]

" The real tsunami is coming, probably in the second quarter of 2010

because that’s when banks will have to start preparing for the wave of mortgages that

were written near the market top and are maturing in 2011-12. Unlike home loans,

commercial loans tend to be relatively short-term in nature (average 5-7 years), because -- -

outside of apartment building loans backed by Fannie or Freddie -- - there are no government

programs to subsidize longer-term ones. These guys mature in bunches

Imagine what will happen to the estimated $2 trillion in commercial mortgages

that mature between now and 2013.

And even that is not the end of it. There’s a second huge wave on the way in 2015-16 "

Co-signed. Cheers!

[midas]

At this point Midas and with the remains of your quote you are either (1) repeating your belief that Bernanke cannot create inflation or (2) you really dont understand the concept of what he is trying to achieve. You also state the stockmarket is hugely overvalued which again is simply a reflection of either 1 or 2.

The conclusion that either the stockmarket or property is grossly overvalued is 'totally' a reflection of your low 'inflation or deflation expectations' and presumably based on Ben Bernanke not being able to create inflation.

So I believe your argument is very much along the lines that stock prices and property prices are overvalued.

More to the point when will potential buyers be in a situation where they can qualify for a loan again - i.e. be employed so they can get a loan ?

Abrak I am sorry if I appear to be repeating myself . But I never said the stockmarket is “hugely overvalued ”.

I think it is overvalued but I never used the word hugely. But anyway I would put it to you that today -

none us plebs have a bloody clue what is really going on behind the scenes really unless you are with GS.

Yes I said the real estate market is hugely overvalued – and I am referring to commercial mainly but also residential

in some parts of the country. One thing about residential property though unlike other assets like stocks, oil, gold is that

it is not quite so easy to distort the facts. I mean we can always get a general picture of the real housing market by chatting to people in

a whole street – wheras markets for other assests can be seem very remote and be manipulated to hel_l and we would would never know otherwise.

FOR EXAMPLE – today we learn that the crooks in the Obama Admin have been acused of distorting the oil markets

so quite frankly I would no longer believe a single thing that these clowns say regarding any government statistics

–after the unemployment figures that have no credibility whatsover……….it is all lies lies lies.

Key oil figures were distorted by US pressure, says whistleblower

http://www.guardian.co.uk/environment/2009...l-energy-agency

You see why i say are worse than the mafia..........these people will do and say ANYTHING to get what they want

But back to real estate...

The question I am raising about residential property is that Bernanke’s problem may not just a commitment to inflation-

if people can't get jobs how can they can get a mortgage this time around? what if there has been a simultaneous ( i.e. with the financial crisis )

shift in the employment patterns in USA in that because employment costs ( e.g. taxes ) are likely to

keep increasing to pay for Obama’s spending bosses will really look hard at cheaper alternatives –

i.e. finding solutions offshore ?

Today through technology I could outsource most desk top tasks to a English speaking university educated person in India

at a fraction of the cost and more importantly I don’t have to worry about possible taxes or future US healthcare costs for my Indian employee ?

I am just suggesting that the demand for residential property could remain weak for a very very long time and commercial

property could be a disaster for who knows how long ? So if people dont see the values of their homes increasing and ( maybe they

will keep falling ) like they did last time it is possible people will put off their purchase of other items whenever possible for as long as possible

as indeed 12 said earlier ? In other words if they see " deflation " in their house prices this will encourage them to wait and see

- like they have been doing in Japan.

[AlexLah]

Here an excellent article about the whole flation question.

http://www.marketoracle.co.uk/Article14911.html

And here some other trend: http://www.lasvegassun.com/news/2009/nov/0...faces-day-labor

[Naam]

The best way to avoid a financial crisis is to spend less than you earn. You'll be better prepared for unexpected expenses or life-changing events that might dramatically reduce your income or increase your expenses.

Creditambassador for Gobble Prize!

[Abrak]

I am just suggesting that the demand for residential property could remain weak for a very very long time and commercial

property could be a disaster for who knows how long ? So if people dont see the values of their homes increasing and ( maybe they

will keep falling ) like they did last time it is possible people will put off their purchase of other items whenever possible for as long as possible as indeed 12 said earlier ? In other words if they see " deflation " in their house prices this will encourage them to wait and see - like they have been doing in Japan.

I agree with everything you say 100%. I hope you can see that this is exactly the issue that Bernanke is trying to address. Through a combination of QE and ZIRP has actually worked very well in the UK where expectations of a 15% decline in prices has actually turned into a 10% appreciation but they did not start with the same oversupply problem as the US.

This is Bernanke's point when people see 'deflation' they will put off purchases of other items as well as housing which cause deflation and reduces real GDP. Your other point is when will they banks lend? Well they wont lend when their collateral on existing loans is declining.

So Bernanke would 100% agree with you - in fact you know it is his central thesis that Japan's depression was so long and so bad because people saw 'deflation'. Now Faber thinks US property is a good buy because he sees 'inflation'. And Bernanke's trick is going to be creating enough 'perceived deflation' in real terms of cash (inflation low interest rates) so that you 'perceive less deflation' in real terms of owning a home. If you look at the stock market it didnt bottom at usual bear market lows - only ok value against very low interest rates. Now the housing market is taking longer but I bet somewhere things are beginning to take shape like increased transactions (which is the key to market clearing). He knows the problem and agrees with you 100%. I just hope you see you are part of the problem for him, he is going to have to create inflation for you to 'really' see it. You know that last sentence there could have been written by Bernanke. And it is not total bullshit for one simple reason - prices used to be 50% higher and people were all over them even when interest rates were higher. So prices have already fallen 30% or whatever and interest rates are zero. Turning real rates negative and getting some capital into the banks should sort things out pretty quickly (say 15% lower within a year).

So bottom line Bernanke agrees with you 100%. We can get a perception of inflation going by 1) selling all excess properties tomorrow at the market clearing price but that will destroy household worth, the banks and the economy by reducing prices 40% 2) we raise inflation or perceived inflation in devalue cash to the level you think property is a good buy. And you dont realize what a Bernanke fan you are because his criticism of Japan is exactly what you think might happen in the US. It might well happen but it wont happen under Bernanke.

And one thing you me and Bernanke 100% agree on is that nobody is going to buy until they think prices are going up.

[midas]

Oh no I am not interested in joining the Bernanke club thank you

Now the housing market is taking longer but I bet somewhere things are beginning to take shape like increased transactions (which is the key to market clearing).

I disagree with you that there is any meaningful trend o the positive side.

He knows the problem and agrees with you 100%. I just hope you see you are part of the problem for him, he is going to have to create inflation for you to 'really' see it. You know that last sentence there could have been written by Bernanke. And it is not total bullshit for one simple reason - prices used to be 50% higher and people were all over them even when interest rates were higher. So prices have already fallen 30% or whatever and interest rates are zero. Turning real rates negative and getting some capital into the banks should sort things out pretty quickly (say 15% lower within a year).

You are missing my point Abrak.......its not when will the banks lend money again .......I am asking HOW can the banks

lend money to people that cannot get a job. But actually the second link in AlexLah's post does address my point...........

I dont think people are aware how much things have changed in USA and I dont think you are factoring this into your analysis IMO

[Abrak]

You are missing my point Abrak.......its not when will the banks lend money again .......I am asking HOW can the banks

lend money to people that cannot get a job. But actually the second link in AlexLah's post does address my point...........

I dont think people are aware how much things have changed in USA and I dont think you are factoring this into your analysis IMO

Ok good point, there maybe an extent to which asset prices reflect overly optimistic assumptions about growth and possibly there are maybe 2 people in the US that believe growth will be so strong as to cause demand pull inflation.

But the graph below shows you how expectations of real interest rates have changed since March and why everything has gone up. If there is a V shaped recovery obviously Bernanke will increase interest rates at some point to prevent real growth getting out of hand. People are increasingly assuming low interest rates combined with higher inflation which will only happen under a low growth scenario. Midas, you say the if people 'see deflation' they will delay purchases etc, now just how much inflation does Bernanke have to create to make you change your mind so you start purchasing. And if you are right and there is say deflation (not that you arguing that) then positive real rates return and the markets will collapse. But achieving the highest negative interest rates in the last 30 years or so is quite an achievement in such a deflationary environment and one which has the highest deficit ever.

Please see from this graph that the movement of real interest rates more than justifies any rise to date in the Dow without changing your real earnings numbers or assuming any change in economic growth.

P.S. I know I overdo the someone should recognize Bernanke's achievements bit but even on the gold thread noone shows him any appreciation despite the fact that no man has worked so hard, so devotedly and so passionately to inflate their asset

I dont know much about the US housing market but back in February I noticed this

http://www.businessweek.com/the_thread/hot...ornia_home.html

And I forgot to apologize in my previous post about saying sorry for daying you called the rise in the stock market 'hugely overvalued' more like general unenthusiastic about the rise and poor value.

[midas]

Ok good point, there maybe an extent to which asset prices reflect overly optimistic assumptions about growth and possibly there are maybe 2 people in the US that believe growth will be so strong as to cause demand pull inflation.

OK i will come straight to the point

IMO the fallout from this mess may be to show that in a world based on entirely fictitious credit and very big numbers

( eg 600 trillion notional value of CDS ) we may find in due course that a considerable amount of our so called

" economic activity " over the past few decades has been no more than people shuffling bits of paper around.

Maybe when the world population in 1920 was only about 1,888,034,127 and USA's population was only

about 105,710,620 and they had factories to make things all those people could be " absorbed "

Next year the world population is projected to be 6,908,688,000 and what is USA - about 320 million or so ?

My question is how can we be so sure that at these numbers the world and USA can continue to offer people meaningful and

lucrative full time employment as we saw before the crisis ? I put it to you we will see eventually the answer is no

Edited November 11, 2009 by midas

[midas]

' extend and pretend ' not possible in the airline business...........

its simply no bums on seats

Financial crisis could force bmi out of business in under a year

http://business.timesonline.co.uk/tol/busi...icle6911708.ece

Singapore Airlines posts second quarterly loss

http://www.businessinsider.com/singapore-a...ly-loss-2009-11

British Airways makes record loss of £292m

http://www.guardian.co.uk/business/2009/no...ays-record-loss

[quiksilva]

I read recently that 97% of all businesses in the UK employ 20 people or less. Firms there being either large or small, but very few smaller firms are able to take grow to the next level, mostly I think due to poor access to capital. I think there could be quite a bit of latent opportunity that could be tapped into here.

If only the government would focus more of its efforts to support emerging businesses.

[Naam]

Ok good point, there maybe an extent to which asset prices reflect overly optimistic assumptions about growth and possibly there are maybe 2 people in the US that believe growth will be so strong as to cause demand pull inflation.

OK i will come straight to the point

IMO the fallout from this mess may be to show that in a world based on entirely fictitious credit and very big numbers

( eg 600 trillion notional value of CDS ) we may find in due course that a considerable amount of our so called

" economic activity " over the past few decades has been no more than people shuffling bits of paper around.

notwithstanding the irrelevant mentioning of 600tr existing derivatives i would like to point out that "shuffling bits of paper around" provided for a lot of people a very comfortable life style. in my case it surely did and it will do so [insha'allah] in the future.

[sokal]

Ok good point, there maybe an extent to which asset prices reflect overly optimistic assumptions about growth and possibly there are maybe 2 people in the US that believe growth will be so strong as to cause demand pull inflation.

OK i will come straight to the point

IMO the fallout from this mess may be to show that in a world based on entirely fictitious credit and very big numbers

( eg 600 trillion notional value of CDS ) we may find in due course that a considerable amount of our so called

" economic activity " over the past few decades has been no more than people shuffling bits of paper around.

notwithstanding the irrelevant mentioning of 600tr existing derivatives i would like to point out that "shuffling bits of paper around" provided for a lot of people a very comfortable life style. in my case it surely did and it will do so [insha'allah] in the future.

I don't know how you can say that derivatives are irrelevant. The way banks "fix" interest rates on mortgages is through derivatives so just wait and see what happens when everyones 30 year "fixed" rates start blowing up.

Do people actually think that their "fixed" interest rates are written in stone ?

[midas]

Ok good point, there maybe an extent to which asset prices reflect overly optimistic assumptions about growth and possibly there are maybe 2 people in the US that believe growth will be so strong as to cause demand pull inflation.

OK i will come straight to the point

IMO the fallout from this mess may be to show that in a world based on entirely fictitious credit and very big numbers

( eg 600 trillion notional value of CDS ) we may find in due course that a considerable amount of our so called

" economic activity " over the past few decades has been no more than people shuffling bits of paper around.

notwithstanding the irrelevant mentioning of 600tr existing derivatives i would like to point out that "shuffling bits of paper around" provided for a lot of people a very comfortable life style. in my case it surely did and it will do so [insha'allah] in the future.

I don't know how you can say that derivatives are irrelevant. The way banks "fix" interest rates on mortgages is through derivatives so just wait and see what happens when everyones 30 year "fixed" rates start blowing up.

Do people actually think that their "fixed" interest rates are written in stone ?

Naam is very very touchy about this matter

And Naam its because of people like you that I am a " doom and gloomer "

[midas]

I read recently that 97% of all businesses in the UK employ 20 people or less. Firms there being either large or small, but very few smaller firms are able to take grow to the next level, mostly I think due to poor access to capital. I think there could be quite a bit of latent opportunity that could be tapped into here.

If only the government would focus more of its efforts to support emerging businesses.

quiksilva I haven't studied UK so much but I do carefully watch events in USA

and if you examine the background and beliefs of the entire Obama Admin( especially

the " Czars " ) and their policies to date i cant see a shred of evidence that their " game plan "

includes meaningful support for small business..........in fact to me it seems its quite the opposite

[quiksilva]

Quite aware of that, and the same can be said for many countries throughout the world, its a shame.

However, I think eventually they will have to look at greater support for SME's and start ups as they seem more likely to be the ones who'll dig us out of the unemployment hole.

[midas]

Naam is very very touchy about this matter

Woooaaah Naam.............VERY VERY BIG numbers here .......be afraid

outstanding_derivatives.PDF

[flying]

Credit-card countdown: Higher rates abound

Credit cards gouge consumers ahead of new law

I pity those that carry a balance on their cards.

But at the same time I wonder if the banks are firing another bullet into their feet

[Naam]

Naam is very very touchy about this matter

Woooaaah Naam.............VERY VERY BIG numbers here .......be afraid

derivatives have been discussed and explained ad nauseam in this forum. those who still don't understand the purpose of derivatives and that the lion share of them are necessary to conduct certain financial transactions are either ignorant, not interested or use deliberately their sum to spread doom&gloom and prophesy apocalyptic times. i am as afraid of derivatives as i am afraid of the bogey man, the Texas chain saw murderer and Dracula the vampire