Thursday, Jul 29, 2010
Brutal Combination
Mish: Mish via Bill Gross ponders demographics
stimulus won't work not because of demographics per se, but rather because of the enormous amounts of consumer debt (as a result of decades of Keynesian and Monetarist stimulus) in conjunction with unfavorable demographics and global wage arbitrage.
Posted by bellwether @ 09:51 AM (448 views) Add Comment
20 Comments
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1. techieman said...
Hi B/wether
Not read all of this, but i have read the Harry Dent book which analysis demographics - and actually bases a fair bit of market analysis on it. [Will read it late]
As for this part though:
"Bernanke can flood the world with "reserves" and indeed he has. However, he cannot force banks to lend or consumers to borrow.
Here is a simple analogy that everyone should be able to understand: You can lead a horse to water but you cannot make it drink. And if the horse does not want to drink, it was a waste of time and energy to lead the horse to the water."
have they been reading this blog?!?!?
"its the adage about leading the horse (lenders and borrowers) to water (funds) but not being able to make them drink it..
Paddy does a good job IMO : http://marketplace.publicradio.org/display/web/2009/09/03/whiteboard-inflation/
Friday, July 16, 2010 07:56AM"
nice to see you back!!
2. easybetman said...
Don't agree with that though this will have other consequences - if the Fed mails everyone a Visa credit card with an interest
rate of negative 1% pa, people will use and go out to spend..
Deflation in Japan? Asset price maybe. Big Mac price in Japan was Y294 in 2002
(http://www.stanford.edu/class/msande247s/bigmac.html) and
Y320 in 2009. http://www.oanda.com/currency/big-mac-index
Deflation ?!
3. hpwatcher said...
"Bernanke can flood the world with "reserves" and indeed he has. However, he cannot force banks to lend or consumers to borrow.
I think you will find that he can. Expect to see increasingly bizarre methods to distribute cash. Can I hear a helicopter?
4. techieman said...
How HPW - will he mount a quadzillion snickers bars on his helicopter and fire em at the US population and say "spend Fool" :-). ?
No the next thing they COULD do would be to swap sh1t assets for money. But they will resist that. If they start buying junk bonds / MBS etc. without guarantees, then they will have some big problems with the markets. If they do and that dont work then what next?
"f the Fed mails everyone a Visa credit card with an interest rate of negative 1% pa, people will use and go out to spend.. " Right and if my nan had wheels she would be a car!
Fear v greed, Expansion v Conservatism.
ReC [one for S2R1] : displayed Armstrong
5. rumble said...
"Expect to see increasingly bizarre methods to distribute cash." -- Inclined to agree. Wouldn't underestimate their knack for convoluted innovation.
How to make a horse drink? Turn up the heat. Though I'm sure this is more about sheep.
6. bellwether said...
Hi Techie, hope you are well.
As far as other comments are concerned I'm like everyone else, I don't know how this plays out. It is all for better or worse best guess, an interesting question, but hardly an immediate one. An immediate question might be what is avoided by spending a great deal of time on any web site posting the same stuff.
7. techieman said...
I have read the whole article now liked this bit the best.
"The idea one can spend one's way to prosperity is preposterous. As Japan has proven, attempts to do so in tantamount to a can-kicking escapade at best, and an unsustainable Ponzi scheme at worst. I lean towards the latter.
Not once do any of the Keynesian clowns ever address the question "What happens when the stimulus runs out?"
Keynesian Definition of Temporary is Forever
Take note of the $8,000 housing tax credits. Demand picked up and then subsequently collapsed. What next? Do we buy everyone a house whether they need one or not?"
The point is its what they are allowed to do that's the issue. Dent calculates that 47 is the age at which we earn and spend the most, so once the boomers have reached this age its all literally downhill from there. That really in a nutshell is the demographic argument. Had they not stimulated demand by encouraging debt then we would be able to do that now - on a temporary basis - but the debts are huge, because they have been drugged to see this as the way forward.
The boomers tighten their belts and who takes up the slack and how can they? It looks to me that if HPW et al are right - and EVENTUALLY (its actually timing where i disagree) they may well be then the US IS doomed. Not a very palatable thought.
8. hpwatcher said...
No the next thing they COULD do would be to swap sh1t assets for money. But they will resist that. If they start buying junk bonds / MBS etc. without guarantees, then they will have some big problems with the markets. If they do and that dont work then what next?
Didn't they make payments - about two years ago - directly to US citizens?
There is no limit to the amount of money they will spend in order to distribute more unlimited money...
9. mountain goat said...
A thing that shook me up recently was what I wrote about here a few days ago:
"But with Vince Cable threatening banks to lend more and the BoE coming in with the next nuclear option : banks able to submit almost all forms of consumer credit as collateral for liquidity loans, the can will be kicked a bit further down the road."
As people see these more and more desperate actions by Central Banks and Treasury Dept, billions thrown to bankrupt banks, then forcing them to lend even more, debt forgiveness for the feckless etc, confidence in the monetary system is being destroyed. I suspect that hyperinflation is basically a loss of confidence in money, it is a psychological/social event rather than a monetary event, that can happen very quickly, days or weeks. The years of currency abuse build up to a point when the population panics.
The other day Jim Rogers answered the question does he expect Bernanke to start QE2. He said no there arn't enough trees. Which I take it he means he can't get away with it right now. More panic and blood in the streets needed (and I am expecting more panic soon). "Never let a crisis go to waste" and all that.
But clearly these distorted Keynesian's won't stop till they are locked up and people literally regard cash as trash. If this happens in a few years time I don't want to be sitting with all my personal wealth in cash!
10. mountain goat said...
Wavering deflationist ;-)
11. techieman said...
"Didn't they make payments - about two years ago - directly to US citizens? " - as did Japan - about £50 wasnt it, and did it work? Maybe they used it to buy snickers bars!
ok so for some balance let me post this video from Pento as to what he thinks the feds next move will be. I agree that rates arent going to go negative, and its unlikely that the Fed will take more cr8p on its balance sheet... but what he raises is interesting. Of course this may deal with incentivisng the banks to lend but will it incentivise the peeps to borrow?
For the text of this Market Oracle has a reasonable summary. http://www.marketoracle.co.uk/Article20511.html [although the title is really a mis-quote].
12. techieman said...
HPW - "There is no limit to the amount of money they will spend in order to distribute more unlimited money."
I actually like that one - is it your own work? [honestly not patronising there].
13. techieman said...
"Didn't they make payments - about two years ago - directly to US citizens? "
yes here it is - $300 tax rebate. http://thescotsman.scotsman.com/latestnews/Cash-bonanza-for-US-taxpayers.3761315.jp
BUT did they spend it - is the question. $8,000 towards a house mentioned above...
14. hpwatcher said...
I actually like that one - is it your own work? [honestly not patronising there].
Yes, my very own - but the concept if/when realised is truly, truly dreadful.
15. hpwatcher said...
yes here it is - $300 tax rebate. http://thescotsman.scotsman.com/latestnews/Cash-bonanza-for-US-taxpayers.3761315.jp
BUT did they spend it - is the question. $8,000 towards a house mentioned above...
They will probably have weekly rebates of ever increasing amounts.
The only thing that will stop it, is a change of heart in Washington; it will happen - sooner or later - but will it be in time?
16. techieman said...
"They will probably have weekly rebates of ever increasing amounts."
Well if they were to do that they would have to give the money in the form of vouchers so that it would be spent rather than saved. I think that doesn't work (the septics dont like it when you tell them HOW they must spend their money - even if you are giving it to them!) but you may be right.
In any case it wont be deemed necessary if they don't see the threat of resurgent deflation. Of course the definition of when that gets to a stage that they go for the nuclear option is an interesting subject of debate.
17. bellwether said...
I guess the policies being pursued eventually lead to some kind of state run economy. It is worth bearing in mind that people only loose faith in what is called money, if there is an alternative. If the future is as bleak as some think, the state will not be accomodating towards alternatives.
I guess I don't see things as being that bad, or at least not as bad within any sort of time scales I'm going to span. Of course things will get bad eventually, there will be wars and all sorts of horrific things but that is simply much as there have been before. Not that it makes it any less unimaginable.
18. techieman said...
9. mountain goat said...
..... BoE coming in with the next nuclear option : banks able to submit almost all forms of consumer credit as collateral for liquidity loans, the can will be kicked a bit further down the road."
MG : http://www.bankofengland.co.uk/markets/marketnotice100719.pdf - need to absorb that one!! :-).
19. mountain goat said...
TM - yeah needs some time to sink in. Seems to be a horrified silence on the subject at the moment.
Thought the S&P bears were waking up earlier today but seem to have gone back to sleep again.
20. techieman said...
MG - re the S&P bears and the dollar bulls - including yours truly.... the fat lady is doing her scales!
http://1.bp.blogspot.com/_TwUS3GyHKsQ/TFHTxUHsXgI/AAAAAAAAGrw/zFhvppSS8I4/s1600/spx5.png
and this:
http://www.elliottwaveforex.com/2010/07/29/spx500-elliott-wave-analysis-%E2%80%93-28th-july-2010/#more-9685
and the video : http://www.elliottwaveforex.com/2010/07/29/spx500-elliott-wave-analysis-%E2%80%93-27th-july-2010-video/
the invalidation point was interesting i.e. couldnt break 1091.4 - close but no cigar :).
for the dollar:
http://www.elliottwaveforex.com/2010/07/26/usd-index-forex-elliott-wave-analysis-%E2%80%93-26th-july-2010-video/
Recap: by crocked