Credit Bubble Bursts: First Snows Of K-winter

[council dweller]

He was wrong about hemlines.... thank god.

Yes, no mention of women putting on tights but forgetting to put a skirt on. This may the bottom, the end will soon be in sight.

[Laughing Gnome]

this is confusing, if REAL prices fell 50 per cent in 5 years and inflation was 25 % then surely the actual value of the house when sold was even less than 50 per cent of its original value ie 75 % ?

example

house in 1989 bought for 50,000 sould for 25,000 in 1994 = REAL fall of 50 per cent.

however inflation of 25 % cumulative over that period made the 25.000 in 1994 equal to only 12,500 in 1989.

hence fall was 50k to 12.5 k = 75 %

or am i talking rot

Not quite. You are making the common error of conflating inflation with rising wages.

If your wages have not risen, or fallen even, whilst inflation has increased your cost of living, the "real" price is still real.

[Roman Roady]

I'm glad we are in a nostalgic mood.

Heres my 2nd favourite post by 'serpico' starting on page 2 of this now legendary thread. I have bumped this before but it deserves all the publicity it can get. If you havent read serpicos posts here then put aside half an hour with a mug of coco and read about his rise and fall last time around.

Happy reading.

Life in the trough

[scepticus]

bump for the evening readership.the OP is well,well,worth a read

thanks for that.

My own 10 pence worth is that K-cycles are derived from empirical observations over the last 300 years. That period was characterised by rampant population growth, the settling of more or less vacant new lands, exploitation of new resources opened up by new technologies, all presided over by the economic paradigm of capitalism based on metallic money concepts.

While nothing is for sure, I think it's safe to say the next 300 years are more likely to be characterised by stagnant or falling population, scarce resources, very limited room for territorial expansion (save for the oceans and cyberspace), and presided over by money concepts derived more from information tech than metal.

Therefore I question the validity of k-cycle thinking as a guide to the future. The K-cycle oscillations have gotten more and more severe in recent times with greater duration and amplitude. So I wonder whether this last swing is the one that sees us all achieve escape velocity from the cultural attractors we've been orbiting since before the south sea bubble and sends us off on a new vector.

Question is, what will the trajectory be, where are the new attractors and at what speed shall we be leaving the comfort zone.

[MarkG]

I think it's safe to say the next 300 years are more likely to be characterised by stagnant or falling population, scarce resources, very limited room for territorial expansion (save for the oceans and cyberspace), and presided over by money concepts derived more from information tech than metal.

Considering that the next 300 years will allow us to take over the entire solar system and some of the nearby stars, I can't help but feel that your 'very limited room for territorial expansion' is a bit pessimistic.

Well, unless the eco-loons manage to take control of the world, but their 'Global Warming' scam appears to be collapsing around their ears right now and suggesting deliberate destruction of the global economy during a major recession would not be good for a party's election chances.

[steve99]

Not quite. You are making the common error of conflating inflation with rising wages.

If your wages have not risen, or fallen even, whilst inflation has increased your cost of living, the "real" price is still real.

Also, if you have saved up a lump of cash it will never make enough interest to equal the rate of inflation, to top it off you have to pay tax on it. Interest rates and wages always lag inflation by a big margin and that was in the days before outsoursing, offshoring and mass immigration. In fact for most people, the last 10 years and probably the next 10 years, nominal prices are the real prices.

[Guest DissipatedYouthIsValuable]

Considering that the next 300 years will allow us to take over the entire solar system and some of the nearby stars, I can't help but feel that your 'very limited room for territorial expansion' is a bit pessimistic.

Well, unless the eco-loons manage to take control of the world, but their 'Global Warming' scam appears to be collapsing around their ears right now and suggesting deliberate destruction of the global economy during a major recession would not be good for a party's election chances.

Have we been to the moon yet?

[scepticus]

Considering that the next 300 years will allow us to take over the entire solar system and some of the nearby stars, I can't help but feel that your 'very limited room for territorial expansion' is a bit pessimistic.

Well, unless the eco-loons manage to take control of the world, but their 'Global Warming' scam appears to be collapsing around their ears right now and suggesting deliberate destruction of the global economy during a major recession would not be good for a party's election chances.

Thats very optimistic. Some have unshakable faith in the march of technology. There are small matters like resource shortgages, population decline and so forth which most likely will result in a significant slowdown in progress.

We certainly won't be reaching into interplanetary space until we've licked our earthbound energy issues.

The oceans are a more likely target for near term exploitation and cultivation.

[Oliver Sutton]

He was wrong about hemlines.... thank god.

For hemlines read fat slags/wannabee snowbaoarders showing off their knickers.

Seen a lot less of this lately.

[Little Professor]

For hemlines read fat slags/wannabee snowbaoarders showing off their knickers.

Seen a lot less of this lately.

http://www.pantsoffdanceoff.co.uk

Not work-safe, obviously. A show on national television in which fat slags dance to music videos whilst taking their pants off. What hasd this country become

Edited November 27, 2009 by Little Professor

[shell]

Also, if you have saved up a lump of cash it will never make enough interest to equal the rate of inflation, to top it off you have to pay tax on it. Interest rates and wages always lag inflation by a big margin and that was in the days before outsoursing, offshoring and mass immigration. In fact for most people, the last 10 years and probably the next 10 years, nominal prices are the real prices.

So if you've saved £200 k and the house you want to buy falls from £300 k to £200 k . . .?

[Wuluf]

So enough of the economics. What else will change?

Better bands??

[shell]

Today's blurb at Topshop online 'Maxis are back on fashion's radar! But don't be afraid of their ankle skimming lengths, it's time to embrace fashion's favourite new hem line. If you keep things simple, maxi skirts are surprisingly easy to wear.'

[steve99]

So if you've saved £200 k and the house you want to buy falls from £300 k to £200 k . . .?

That is when a saver with cash wins. What I was getting at was that there is an asumption that if say we have inflation of 20% and you have savings of say 100K and houseprices are say 200K then after 1 year the house price has dropped 20% in real terms even if still selling for 200K whereas your savings of 100k will in all probability have risen by say 5 - 7K as interest rate rises on savings rarely catches up with reality then you pay tax on it. Now many people blelieve that if we have this inflation of say 20% and say the house stays at 200K it will be in 'real' terms 20% cheaper in comparison to wages which will have gone up by 20%, the flaw of course is that for the vast majority wages will not go up at all regardless of real inflation, this was true also in the old days where wage increases lagged inlfation by a couple of years but eventualy caught up. What is different now of course is that we have weak unions (all cheer!) ofshoring (even better!) and mass immigration (bingo!) no wage inflation and in fact for a large section of workers we have wage deflation, in real and nominal terms.

So unless you are one of those rare workers who have proper pay rises matching or exceeding your particular inflation every year, then the only thing that matters is nominal prices.

[MarkG]

There are small matters like resource shortgages, population decline and so forth which most likely will result in a significant slowdown in progress.

99.99999999999999999999999999999999999% of all the resources in the universe are up above our heads. And I'm puzzled why anyone would complain about resource limits _and_ a declining population which would increase resource available per person.

We certainly won't be reaching into interplanetary space until we've licked our earthbound energy issues.

99.99999999999999999999999999999999999% of all the energy in the universe is up above our heads too. Energy production is trivial in space, even a hundred times further from the sun than Earth is.. all you need is a big mirror and a solar thermal generator.

The oceans are a more likely target for near term exploitation and cultivation.

Living in oceans is far, far more difficult than living in space and vastly more constrained.

Get a million people off of Earth this century and we'll have colonised the entire solar system and nearby stars within 300 years. The only way that won't happen is if we wipe ourselves out or the luddite fanatics manage to trap the planet's population here with their 'sustainability' ********.

Edited November 28, 2009 by MarkG

[ccc]

Living in oceans is far, far more difficult than living in space

Tell that to Monkfish.

[JustYield]

Considering that the next 300 years will allow us to take over the entire solar system and some of the nearby stars, I can't help but feel that your 'very limited room for territorial expansion' is a bit pessimistic.

You don't seem to appreciate the distances involved if you think this will be achieved in 300 years. We will probably never leave the solar system.

It would make more sense for human race to become physically smaller. That would increase the resources available per capita.

[Errol]

It would make more sense for human race to become physically smaller. That would increase the resources available per capita.

Eh? You mean like dwarves?

[JustYield]

Eh? You mean like dwarves?

Actually I was thinking an order or two of magnitude smaller.

[shell]

What is different now of course is that we have weak unions (all cheer!) ofshoring (even better!) and mass immigration (bingo!) no wage inflation and in fact for a large section of workers we have wage deflation, in real and nominal terms.

So unless you are one of those rare workers who have proper pay rises matching or exceeding your particular inflation every year, then the only thing that matters is nominal prices.

Thanks. People like me TRY to understand effects of inflation but need it drilled in. Hard. Because it's difficult to understand . . . until it happens. The HPC gurus warned us to hedge into euros / dollars some months before Gordy devalued the £ and most of us here still didn't understand how it could possibly happen. Then it did.

What I still don't get is how house prices can possibly increase in the inflationary scenario? Especially when there is no / not enough wage inflation, no unions, mass unemployment, and GB is broke - 'the next Iceland', as a top economist on a Radio 4 news feature suggested this very morning.

[The Masked Tulip]

You don't seem to appreciate the distances involved if you think this will be achieved in 300 years. We will probably never leave the solar system.

It would make more sense for human race to become physically smaller. That would increase the resources available per capita.

Blue Harvest - Family Guy otherwise known as Star Wars IV - A New Hope

Chris (Luke Skywalker): Is it a fast ship?

Peter (Han Solo): Are you kidding? It's the ship that made the Kessel run in less than 12 parsecs.

Chris (Luke Skywalker): Um, isn't a parsec a unit of distance, not time?

Peter (Han Solo): This is a story of love and loss, fathers and sons, and the foresight to retain international merchandising rights. This is the story of Star Wars. Let's begin with Part Four.

General Tagge: Any attack made by the Rebels against this station would be a useless gesture, no matter what technical data they've obtained. This station is now the ultimate power in the universe.

Stewie (Darth Vader): That is fantastic. Terrific work. So no weaknesses at all?

General Tagge: N... no.

Stewie (Darth Vader): You, uh, you hesitated there. Is there something I should know?

General Tagge: No, it's virtually indestructible, like 99.99%.

Stewie (Darth Vader): Uh, okay, wouldn't be doing my job if I didn't ask what's the 0.01?

General Tagge: Well, I mean, there's this little hole. It was kind of an aesthetic choice by the architect. And if you shoot a laser into this hole, the station blows up.

Stewie (Darth Vader): Whoa, whoa, whoa, whoa, whoa! That sounds like a pretty big design flaw, then.

General Tagge: No, no, the hole's only two meters across.

Mayor Adam West (Grand Moff Tarkin): Well, that's no bigger than a womp rat.

General Tagge: Exactly. And even to get within range of it, you have to skim along this whole trench. It's not a big deal.

Stewie (Darth Vader): Can't we board it up or, you know, put some plywood over it or something?

General Tagge: Well, that would look terrible. I mean, we gotta think about resale.

Stewie (Darth Vader): Resale? What are you talking about? This property is right above Sunset. The value is only going to go up.

General Tagge: Lord Vader, your inside references to the Los Angeles real estate market haven't given you the clairvoyance to turn a profit on that condo in Glendale. Nor has it...

Stewie (Darth Vader): [Vader begins to choke him] I find your lack of faith disturbing. That property is in a prime location! Twenty minutes to the beach, twenty minutes to downtown!

General Tagge: [choking] There's nothing to do downtown!

Mayor Adam West (Grand Moff Tarkin): Enough of this! Vader, release him!

Stewie (Darth Vader): As you wish.

[releases Tagge]

Stewie (Darth Vader): All right, so were' going to plug up that hole?

Imperial Officer: Yeah, we can get it done tomorrow if price is no object.

Stewie (Darth Vader): Ehhhh...

Imperial Officer: We'll get estimates.

Stewie (Darth Vader): Get estimates, yeah, yeah.

[ParticleMan]

The golden rule of credit bubbles seems to be that whatever assets, or Magic Money Tokens, people use credit to bid up in the bubble, are the main areas of price implosion during the bust. I don't think it's any sort of well-kept secret that the main MMT in this one has been housing. The usual margin on a MMT is 90%, that is people put 10% down and borrow 90%. That was certainly true for Wall Street stocks in 1929 and nothing I've read of the other bubbles indicates them as having been grossly different. Housing in his bubble has been unprecedented in garnering 100% loans and even 110% or 120% for pretty much anyone who could fog a mirror. Even the South Seas Bubble, the previous largest, brought in only one third of the UK population. The Millenium Bubble (Hell, someone has to name it eh? Any better suggestions?) has typically involved 70% of the population of those countries affected (and in the advanced westernised countries, I see only Japan and Germany not taking part). The price of the main MMT's will generall fall between 67% and 90% in the aftermath. This fits well with what happened in Japan and it's what I expect to see happening here.

What we all missed back then (and I could kick myself because it's staring us all right in the face) was that the MMT isn't housing.

It's retirement income.

We've literally borrowed 90% of it into existance on the back of 10% of real capital.

So we're going to see "unstoppable waves of selling" moving swiftly from fixed income (Treasuries, GSE debt, commercial paper, et al) into currencies (it's essentially one big happy marketplace these days) then into the asset markets (go take a look at the inward investment stats for China and ask yourself what happens when the margin calls happen).

And boy can those markets move quick (I of all people should know).

And we're going to see it soon - once the FI market has its own private Minsky moment.

You think bailouts will save us this time through?

Think again.

If governments buy their own debt fixed asset and commodity (ie, consumer) prices will rise, and demand will crater.

If governments cease buying their own debt monetary asset prices will fall (yields will spiral) and demand will crater.

There is absolutely nothing at all left in any reserve bank's arsenal (because it's already been spooged boxing the ghosts of your grandparent's depression, instead of focussing on what makes this one tick).

When tax revenue shortfalls evenutally force even governments to choke on their own "risk-free" instruments (ask the Chinese about that, they're talking openly about suffering capital losses on Treasuries now) - we're going to see prices of monetary assets fall, and fall, and fall (and corresponding yields on those instruments spiral, and the attendant slump in demand measures, tailing off in trade volumes, and spikes in disemployment and defaults).

That's not to say we won't see the occasional feeble market rally (such as 2009's, on exceedingly thin volume), though.

But these conditions continue until we're done wiping out the mostly fictional income (the mostly fictional "savings") tomorrow's retirees are expecting to draw.

2500 on the Dow.

Edited December 31, 2009 by ParticleMan

[Injin]

What we all missed back then (and I could kick myself because it's staring us all right in the face) was that the MMT isn't housing.

It's retirement income.

We've literally borrowed 90% of it into existance on the back of 10% of real capital.

So we're going to see "unstoppable waves of selling" moving swiftly from fixed income (Treasuries, GSE debt, commercial paper, et al) into currencies (it's essentially one big happy marketplace these days) then into the asset markets (go take a look at the inward investment stats for China and ask yourself what happens when the margin calls happen).

And boy can those markets move quick (I of all people should know).

And we're going to see it soon - once the FI market has its own private Minsky moment.

You think bailouts will save us this time through?

Think again.

If governments buy their own debt fixed asset and commodity (ie, consumer) prices will rise, and demand will crater.

If governments cease buying their own debt monetary asset prices will fall (yields will spiral) and demand will crater.

There is absolutely nothing at all left in any reserve bank's arsenal (because it's already been spooged boxing the ghosts of your grandparent's depression, instead of focussing on what makes this one tick).

When tax revenue shortfalls evenutally force even governments to choke on their own "risk-free" instruments (ask the Chinese about that, they're talking openly about suffering capital losses on Treasuries now) - we're going to see prices of monetary assets fall, and fall, and fall (and corresponding yields on those instruments spiral, and the attendant slump in demand measures, tailing off in trade volumes, and spikes in disemployment and defaults).

That's not to say we won't see the occasional feeble market rally (such as 2009's, on exceedingly thin volume), though.

But these conditions continue until we're done wiping out the mostly fictional income (the mostly fictional "savings") tomorrow's retirees are expecting to draw.

2500 on the Dow.

It's the simple fraud that's at the heart of the banking system.

To Joe Public saving = stuff that's put aside and is stored, unused, unowing, onowed, waiting.

TO F.C banker savings = IOU's and crossed fingers.

The public is sat there, waiting for their version of savings and that mean they aren't working to pay up F.C. Banker.

The heart of the con.

[council dweller]

What we all missed back then (and I could kick myself because it's staring us all right in the face) was that the MMT isn't housing.

It's retirement income.

We've literally borrowed 90% of it into existance on the back of 10% of real capital.

So we're going to see "unstoppable waves of selling" moving swiftly from fixed income (Treasuries, GSE debt, commercial paper, et al) into currencies (it's essentially one big happy marketplace these days) then into the asset markets (go take a look at the inward investment stats for China and ask yourself what happens when the margin calls happen).

And boy can those markets move quick (I of all people should know).

And we're going to see it soon - once the FI market has its own private Minsky moment.

You think bailouts will save us this time through?

Think again.

If governments buy their own debt fixed asset and commodity (ie, consumer) prices will rise, and demand will crater.

If governments cease buying their own debt monetary asset prices will fall (yields will spiral) and demand will crater.

There is absolutely nothing at all left in any reserve bank's arsenal (because it's already been spooged boxing the ghosts of your grandparent's depression, instead of focussing on what makes this one tick).

When tax revenue shortfalls evenutally force even governments to choke on their own "risk-free" instruments (ask the Chinese about that, they're talking openly about suffering capital losses on Treasuries now) - we're going to see prices of monetary assets fall, and fall, and fall (and corresponding yields on those instruments spiral, and the attendant slump in demand measures, tailing off in trade volumes, and spikes in disemployment and defaults).

That's not to say we won't see the occasional feeble market rally (such as 2009's, on exceedingly thin volume), though.

But these conditions continue until we're done wiping out the mostly fictional income (the mostly fictional "savings") tomorrow's retirees are expecting to draw.

2500 on the Dow.

Maybe you should contribute to one of those 'pension threads'...many on here seem to see pensions as risk free rather than being the ultimate ponzi.

[Dorkins]

But these conditions continue until we're done wiping out the mostly fictional income (the mostly fictional "savings") tomorrow's retirees are expecting to draw.

Absolutely. More than anything this crisis is an intergenerational conflict between the older owners of assets and the younger providers of future labour. Older people's savings have been used to build and buy shops, factories, houses, blocks of flats, hotels, cinemas, land etc etc and now everything is ready and in place with price tags on the merchandise ready to be snapped up. Younger people are looking at their wage packets, looking at the price tags, and walking on by. The scales will balance when prices are lower relative to wages again. Yields will come and old people will get a retirement income, but it won't be as big as the man promised.