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interestrateripoff

A Secular Change In Interest Rates Since Wwii

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MovingAverage.JPG

Doubling.JPG

Two charts, the top one shows the moving average of interest rates over a ten year period, although the last 10 year period from 2005 is effectively a 120 month countdown, so that data is not 100% accurate. However it does show that post WWII there have been two very distinct phases in interest rates, the first being rates slowly increasing and after the 1980 Fed interest rate spike rates have been constantly declining.

Table 2 offers a narrative post 1980 as to why, looking at the table I need to have a trawl through my data and expand it from 1950 onwards, but this does show that since 1980 as US total credit liabilities have doubled interest rates have been successively reduced.

No complex analysis but it does a very clear pattern.

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"In the 1970's global capital controls were liberalised which allowed trading surplus nations' cash to be reinvested in target countries driving down interest rates."

wrong propaganda. The real cause of rates falling was because after the global monetary system was cut loose from gold(Bretton woods) , credit(debt/money) issuance went ballistic. Increase the supply of money and the price(rates) of money falls. Supply and demand 101

Now we are debt soaked and monetary policy is impotent. Velocity is falling and deflation has got the world by the throat. Every dollar of new debt increases the GDP by less and less(the decreasing marginal utility of debt). Keynes called it pushing on a string. The falling GDP cannot service the growing debt at any price, the interest is consuming the principle. This debt based money system is terminally dying. Here is a lucid explanation :

http://www.tradethetape.com.au/weekend-wisdom-velocity-of-money/

.

Edited by evetsm

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Yeah, can't track just one variable - IRs.

Look at the rise in debt - personal + government.

Demand for debt is huge these day. Increase denasnd=increase price.

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Evetsm, interesting read. Were screwed. Going by Japan doesn't look like any way out, we NIRP to infinity.

Asset prices to rise to infinity, all owned by the fat cats. If only there was an interest rate trigger..

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If anyone looks at the stock market, some of the real dog shares look like this.

1.png

This one was in terminal decline. They just burned investors cash, and had to dilute shareholders (circled in red) just to pay the directors wages. The first circle is 1:100. So for every £100 invested it was still worth £100, but you now own 100x the amount of shares. It gives you the feeling you own more of the company, so you stay invested or even average down to maintain your % share holding. In the end this company had over 4bn shares in issue, it probably only started out with 100m shares in issue (I can't confirm that though).

The more shares that are released, the more buyers and interest there needs to be to lift it out of the quagmire, as the value of the shares approach infinitely to zero. You can have value drop 50%, and then 50% again, and so on. The curve flattens out at the end, but the patient is ultimately dead. Reflation or a massive consolidation (as opposed to dilution) temporarily revives, but it is the same board of directors steering the ship.

Now compare this to the fiat debt world. Fiat currency is now a sub penny share. There are a lot of parallels.

Edited by 200p

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Evetsm, interesting read. Were screwed. Going by Japan doesn't look like any way out, we NIRP to infinity.

Asset prices to rise to infinity, all owned by the fat cats. If only there was an interest rate trigger..

It ends, greendevil, when the money is debased to a point where it is rejected. That is the definition of hyperinflation. It ends in an hyperinflation flameout, like all fiat currencies eventually do. The only remaining unknown is when.

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Yeah, can't track just one variable - IRs.

Look at the rise in debt - personal + government.

Demand for debt is huge these day. Increase denasnd=increase price.

of couse, the bigger the weight on the end of the lever, either you have a longer lever, or you decrease the weight...you do this by making the interest charge ( the weight and force of money) lower.

cant end well. eventually, with a less than weightless weight, you get tossed into the ground and the weight lands on you.

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Two interesting posts, thanks chaps.

Essentially too much debt and no growth = even more debt, somebody eventually loses big time.

Oh and wage rises lower than actual loan rates.

But they keep banging their heads against that wall.

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"In the 1970's global capital controls were liberalised which allowed trading surplus nations' cash to be reinvested in target countries driving down interest rates."

wrong propaganda. The real cause of rates falling was because after the global monetary system was cut loose from gold(Bretton woods) , credit(debt/money) issuance went ballistic. Increase the supply of money and the price(rates) of money falls. Supply and demand 101

Now we are debt soaked and monetary policy is impotent. Velocity is falling and deflation has got the world by the throat. Every dollar of new debt increases the GDP by less and less(the decreasing marginal utility of debt). Keynes called it pushing on a string. The falling GDP cannot service the growing debt at any price, the interest is consuming the principle. This debt based money system is terminally dying. Here is a lucid explanation :

http://www.tradethetape.com.au/weekend-wisdom-velocity-of-money/

Broadly correct, except that credit issuance went ballistic before Bretton Woods collapsed. So-called eurodollar deposit markets were a contributory factor in that collapse. Being unregulated, European subsidiaries and affiliates of American banks were able to operate on much narrower margins than in the US. Over time a huge and de-stabilising volume of dollars was built up outside the United States, beyond the regulatory authority of the Federal Reserve.

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Can't draw comparison to Japan.

Massive debt bubble,followed by demographic fall in working age. Japan has done really well.

Very little external debt holders.

I would guess tyhe UK is burning tyhgru itsd goodwill of being able to borrow in its own currency. Watch where the Gilt buyers are. There's some external demand to balance currency exposure, a bit to diversify holdfings but there's nowhere enough to Hoover up much more.

The current account deficit ius genuinely scarey. The budget deficit is still horrendous.

The UK finances look like a developing countries.

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Evetsm, interesting read. Were screwed. Going by Japan doesn't look like any way out, we NIRP to infinity.

Asset prices to rise to infinity, all owned by the fat cats. If only there was an interest rate trigger..

at some stage, the important bit, essential purchasing power, stops too....your mortgage wont pay for a box of eggs, your equity is worth less.

actual possession becomes what you need. renters need muscle to stay housed.

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I don't think it will get to the stage of not being able to buy eggs. The masses will get the eggs, the I phones and the flat screen TV. However the masses won't own their roof over their head. The peasants will be endebted to the landowners pay their taxes, there will be no security of tenure, sounds like the middle ages, oh yeah it is..

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I don't think it will get to the stage of not being able to buy eggs. The masses will get the eggs, the I phones and the flat screen TV. However the masses won't own their roof over their head. The peasants will be endebted to the landowners pay their taxes, there will be no security of tenure, sounds like the middle ages, oh yeah it is..

Casnt operate a society like that in a democracy. It's hard doing that in a feudal system.

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Broadly correct, except that credit issuance went ballistic before Bretton Woods collapsed. So-called eurodollar deposit markets were a contributory factor in that collapse. Being unregulated, European subsidiaries and affiliates of American banks were able to operate on much narrower margins than in the US. Over time a huge and de-stabilising volume of dollars was built up outside the United States, beyond the regulatory authority of the Federal Reserve.

Yes, you are correct. The USA inflating the dollar to pay for Vietnam caused Bretton Woods to collapse. The London Gold pool was established in the late 60's to manage(cap) the price of gold , which under Bretton Woods was fixed at $35 per oz. Gold from the large nations was pooled and sold into the market as the dollar inflation pushed up the price of gold. Instead of doing the right thing and withdrawing dollars they tried to rig the price of gold. That ended when the French, under the finance minister Reuff knew the game was up. France sent a gunboat to NY to fetch their gold. Nixon later defaulted on gold by cutting the dollar loose. Gold went from $35 to $800 (over 2000%) in the next 9 years. Volcker raised rates to nearly 20% and from then until now due to the steady excess issuing of credit rates have fallen to zero and now below, even as demand for debt is falling. Asset bubbles are everywhere and jobs are being steadily lost.(even though through zero hours, falling salaries, and other chicanery they are officially not being lost). The next event is monetary collapse or hyperinflation.

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

- Ludwig von Mises

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Casnt operate a society like that in a democracy. It's hard doing that in a feudal system.

All it takes is another doubling of hpi and the peasants will be priced out for good in all areas, not just London where they already are.

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Can't draw comparison to Japan.

Massive debt bubble,followed by demographic fall in working age. Japan has done really well.

Very little external debt holders.

I would guess tyhe UK is burning tyhgru itsd goodwill of being able to borrow in its own currency. Watch where the Gilt buyers are. There's some external demand to balance currency exposure, a bit to diversify holdfings but there's nowhere enough to Hoover up much more.

The current account deficit ius genuinely scarey. The budget deficit is still horrendous.

The UK finances look like a developing countries.

Europe has a welfare system that is unfundable with the present inverted demographic pyramid. Europe has zero population growth with an increasing shift from young to old . That is why , some say , that migrants were actually welcomed into europe(despite lip service to the contrary) in order to try and build out the tax base.

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All it takes is another doubling of hpi and the peasants will be priced out for good in all areas, not just London where they already are.

Economies are dynamic. Can't increase costs of sherlter without a reaction.

Listen to the griping about not being able to recruit. Doh pay more!

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Europe has a welfare system that is unfundable with the present inverted demographic pyramid. Europe has zero population growth with an increasing shift from young to old . That is why , some say , that migrants were actually welcomed into europe(despite lip service to the contrary) in order to try and build out the tax base.

Dumb. Picked wrong prayer group.

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Europe has a welfare system that is unfundable with the present inverted demographic pyramid. Europe has zero population growth with an increasing shift from young to old . That is why , some say , that migrants were actually welcomed into europe(despite lip service to the contrary) in order to try and build out the tax base.

Population replacement doesn't help if there are no jobs for the younger generations to earn a living from. Youth unemployment is nearing 50 per cent in Italy, for instance. It's not so high in the UK, but that's partly because almost 50% of under-22-year-olds are in university, and remember, many young people are in jobs but earning the square root of naff all.

Distribution of resources is what matters, not population on its own.

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boxplotGDP.PNG

MovingAverGDP.PNG

Whilst there are issues with GDP as an meaningful measure, even using the data shows the terminal decline in GDP growth in the global economy. All that debt and very little growth to show for it.

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Economies are dynamic. Can't increase costs of sherlter without a reaction.

Listen to the griping about not being able to recruit. Doh pay more!

As Einstein put it, "for every action, there is an equal and opposite reaction." - a principle that applies to economics just as well as it applies to physics. Sadly its a principle TPTB fail to consider. Pricing the peasants out will have consequences.

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As Einstein put it, "for every action, there is an equal and opposite reaction." - a principle that applies to economics just as well as it applies to physics. Sadly its a principle TPTB fail to consider. Pricing the peasants out will have consequences.

{pedant on] That's Newton's 3rd law [pedant off]

I might not have turned out an engineer, but I did do O level Physics.

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Population replacement doesn't help if there are no jobs for the younger generations to earn a living from. Youth unemployment is nearing 50 per cent in Italy, for instance. It's not so high in the UK, but that's partly because almost 50% of under-22-year-olds are in university, and remember, many young people are in jobs but earning the square root of naff all.

Distribution of resources is what matters, not population on its own.

This ^^^^.....but they don't tell you that, a job is a job is a job.....or is it a non job.......thousands are already working hard doing all sorts of good work totally unpaid.....are they counted?

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{pedant on] That's Newton's 3rd law [pedant off]

I might not have turned out an engineer, but I did do O level Physics.

Whoops....so did I, a long time ago & it would appear I have slept a few times since. The principle still stands though, irrespective of who said it.

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