I have just moved the blog to a new ISP after my previous provider IXWebhosting proved to have intractable problems with malware.
The new hosting is being provided pro bono by Cyanide Web Hosting, which I greatly appreciate.
Some posts may have been lost in the process, but that was preferable to putting up with a site that distributed viruses to all and sundry. So if you have made a post and it hasn’t turned up here, please re-submit.
I have also been away for a couple of days when there was quite a bit of traffic on the blog, and I’m not sure that I’ll be able to respond to all queries that came in during that time. My apologies, but traffic on the blog is getting hard enough to cope with on a day by day basis, let alone when I take a couple of days break from the internet.
That said, I’d like to second a recent subscriber’s observation about the quality of and civility of discussions on the blog. That’s something that reflects the users who have signed on, and I appreciate it too–and learn quite a bit from the discussions myself.
All the best, and welcome aboard Cyanide’s web server.
January 17th, 2009 at 1:05 am
Hi Steve , good you are back and have the ISP stuff sorted.
I too found the Hoisington article link provided by ‘nwoodman’ on jan 15th. very interesting and in sync with your debtdeflation view.
It provides some interesting ( and alarming ) parallels with previous debtdeflation periods which had very long term consequences.
Would be interested in your opinion about the relevance to the current situation and your take/explanation on the “turnover and velocity of money” and it’s impact on “nominal GDP” in terms of the current debtdeflation period on which we are well embarked.
January 17th, 2009 at 5:33 am
Good luck with the new site.
Re reasons question – last one on the previous blog.
You will enjoy the entire article at :
http://www.nakedcapitalism.com/2009/01/bernanke-expert-on-great-depression.html
and note that it is almost entirely complementary and over-the-top in an American way, especially in the comments.
There are about 30 comments, with the comment raised by reason being the last. However, it is a worry that at the beginning of your own piece you say that you haven’t even yet read Bernanke’s book Essays on the Great Depression. I do wonder if writing such a critical piece before reading the book was a bit of an error in light of the subsequent international coverage. I too would like to see your comments after reading the whole book.
In fact I doubt whether your conclusions will prove to be different, and it is amazing how some high profile Americans can gain fawning fame based upon weak scholarship that is later never challenged.
One example of this is Condi Rice, the great Soviet expert (who does not even speak any slavic languages). One review of her book “The Soviet Union and the Czechoslovak Army,1948-1983:Uncertain Allegiance.Princeton: Princeton University Press. 1984 ” began with the devastating sentence ‘To write a scholarly study on the relationship of the Soviet Union and the Czechoslovak army without access to relevant Czechoslovak and Soviet documents is dif?cult.’ And from there it was downhill all the way.
January 17th, 2009 at 8:36 am
Yes, I agree that it would have been better to wait until I read the whole book Gordon,
But I am under ridiculous time pressure now, and might never have had the time to do so (I’m trying to be creative with new theories these days, rather than labouring to trash neoclassical nonsense–reality is doing that job for me these days). However I did read the whole 1995 paper before writing the post.
That said, I did quote Bernanke somewhat out of context, and my initial criticism was of the generic neoclassical reading of Fisher, rather than Bernanke’s. I’ve now (for the second time, after the ISP changeover) edited the post to improve those aspects of it.
And al49er, the concepts of turnover and velocity of money are critical–but this is the turnover and velocity of endogenously-generated credit money. I’m explaining all this in a very large February Debtwatch–which I’d better get back to!
January 17th, 2009 at 8:52 am
Great this new server!
I wonder if we are getting closer to a Minsky moment in regards to the US treasury market?
It seems China and USA are having increasing tensions after a Chinese central banker calls Paulson a “bandit”. using gaster logic, when he blames the credit crisis on china increasing their domestic interest rates last year.
January 17th, 2009 at 12:16 pm
I commend readers to take a look at this blog linked below. It captures pertinent daily US and Euro economic developments and with commentary fits it into running themes as they unfold.All rather well thought out and researched
The post of 16th looks particularly dark.
http://theautomaticearth.blogspot.com/
It is becoming increasingly clear that the US is entering a momentous period where its very economic survival, as we know it, will be challenged.
January 17th, 2009 at 1:23 pm
Technically it looks as 10 year treasuries could have bottomed out, and are on an upwards trend, the timing of this is kind of perfect, compared to the start of Obamas spending binge. This could be the moment treasuries atleast sell off, or worse case experience a run, where interest rates have to be raised or the fed have to buy them to keep them rates down. General Electric, one of the 5 AAA rated companies, are selling at a P/E ratio of 6,8, dividend of 8,8 %, return of equity of 18,7 %, Price/Book of 1,22, Cash of 16B and debt of 522 B.
This company GE, is leveraged to the hilt, and it’s like the backbone of America, AAA rated, just like the US dollar. It’s still cheap. They look like they can handle the debt, and as their interest rates ar pretty much fixed, my hunch is that the solution will not only be to inflate away this debt, through inflation, but that this will sink into the market sooner or later, and through that context, that these 500 billion will just disappear through inflation, and that the value of what GE bought with th 500 billion is going to increase, GE is cheap. I’m pretty sure that people soon will start to buy stocks, and kind of think that this is as cheap as it get’s, and that will push inflation upwards, due to a steep yield curve, and put an end to the deflation discussion, later the money multiplier might start working again, and the fed might not take all that money they put in out of the economy, and you would have very high inflation in some years from now.
January 17th, 2009 at 2:04 pm
I have been doing some thinking about who would dump treasuries, China or Japan, since there have been newspaper articles about the Japanese central bank are considering writing off their holdings of treasuries, and that there is enough consumers elsewhere to support Japan, also given the more fundamental strength of the yen, and the fact that they have been net sellers of treasuries for 4 years now, that seems as the most likely scenario if someone is going to dump it. However, I think the most likely scenario, is that treasuries just sells off, and that the “liquidity”, comes back. It’s the mechanism of this liquidity, that will be able to cause inflation, no matter what the consumer psychology might be at the present, I think.
January 17th, 2009 at 2:48 pm
Prudentsaver,
There is so much corruption, BS and outright lying going on with US stocks right now, I wouldn’t be touching them with a barge pole , no matter how cheap they look. I just don’t accept that level of risk.
The USD may halve in value over the coming 2-3 years, leaving foreign investors in US securities f****d and far from home.
January 17th, 2009 at 3:33 pm
Hi Prudent,
Just over a week ago when I said the CBOE put/call ratio had reached the level it hit in Oct ‘07 and could signal the next down phase for the share markets. You told me that stocks were about to explode. Also today you tell me they are about to explode. If you are long equities now (and have been), you will have no capital left at this rate.
US markets are in a small relief rally (Late Thursday and today) from the fall that began Friday a week ago. After a modest retreat the markets will likely move down hard and head for the previous low (DOW 7449). Once that is breached, the market will be setting up for the hardest and longest rally since this whole fall started. A multi month rally.
Whilst the rally will be long and hard. I believe by the end of 2009 the market will be finding new lows. This will break the hearts of many investors that have been “holding on”. I believe the “point of recognition” will occur around August/September. (This is an out and out guess by the way)
Your hyperinlfation idea is floored. The US has $60T+ in debts and that credit is being destroyed. The FED and the treasury are creating money (about $2T to date). Most of that has flown back into treasuries (velocity has died) or gone poof up in the air. The destruction of credit is far far greater that the production. Re-read the definition of delfation and you will see that what we face for the next year or two is deflation not inflation.
Social mood is turning more and more negative. As people switch from being spenders to savers. The debt destruction will dwarf anything the FED can come up with and already is despite that massive wasteful bailouts. The US Government will give up pumping by the end of 2009 as they see the waste and failure. As the social mood continues to turn negative. The voters will demand that the Government switch to being savers as well (just like them). All this will take a lot of time though.
Also, the $US should trend up (not fall), because during deflation, dollars are what people want. Commodities and assets fall in value, but cash rises.
January 17th, 2009 at 4:12 pm
thanks for the lnik ‘MACCA’.
Good one.
‘bulturnedbear’ I see that today our esteemed treasurer is now coneceeding that neither Treasury nor budget forcast made last Nov will be realised and that we now have a “shrinking’ US economy and “China is not growing as fast as expected”. He finds this “..deeply deeply concerning” deeeeer !
What are your thoughts about the time it will take for Wayne, Kev and Co ( supported Julia’s timing on the industrial front) to realise that priming a la 10.1 billion gifts vouchers is not the answer.
Assuming that it will be as least as long as it takes for the US to realise that Barak’s own versions of this model won’t work ( and we couldn’t possibly see the light and act independently).
Any guesses on local unemployment arks.
January 17th, 2009 at 4:51 pm
Hi Al,
At this stage I am finding the “what” easier to predict that the “when”.
During the second half of 2007 and early 2008 I was in quite a panic. Because I was not prepared for deflation or a depression. I had massive debts against property. It took me until about August ‘08 to get my financial affairs in order. That time was very stressful. To me, the process seems to be moving very slowly. But to most, they talk about “how fast everything is changing”. I don’t take pride in this, I just think I “got it” a bit sooner.
In saying that, I believe the process is moving slowly until “the point of recognition”. I read that term somewhere (can’t remember where) and I love it. When that point is reached though, I believe the process will accelerate considerably. My understanding of “the point of recognition”. Is the point where the masses realise how big this problem is and how long it will take to get out of it.
In terms of Australia. I have read a few times, that we are 8 months behind the US. (Maybe Brett4homes has said that, sorry Brett if I have that wrong). I think we are about 12 months behind though. In saying that, when the US reach the point of recognition, we may catch up quickly. Because I believe Europe is tracking a similar path to the US. The World will drag us along when the process picks up pace.
The estimates of 6% unemployment in Oz are lah lah land. Australian banks are drunk on home loans. Oz banks source between 1/4 and a 1/3 (on average, there are weaker banks) of their funding from international markets. those markets will dry up overnight when the point of recognition is reached. Maybe even before. This will cause monumental panic in Australia. Unemployment will jump dramatically within a matter of months and businesses will fail enmass. I expect this to occur some time in 2009.
January 17th, 2009 at 4:55 pm
And further commentary on how the INSOLVENCY of the US and elsewhere is evolving, due to the debt-implosion, take a read of this;
http://www.leap2020.eu/GEAB-N-31-is-available!-Phase-IV-of-the-systemic-crisis-The-sequence-of-global-insolvency-begins_a2688.html?PHPSESSID=74ea6bf2dbbee1e76c4915f223eabce8
The US, and therefore the whole western world , is in uncharted waters now. And we had better be prepared for treacherous times ahead.
al49er,
You are most welcome.
The (bad)news from China, like all before it, will drip out and become worse and progressively worse. Essentially, all their customers are broke, going broke or have resolved to stop buying.China is in the process of adjusting it’s massive (over investment in) output to substantially lowered (and lowering) world demand. This restructuring of a whole economy at what apears to be warp speed will be far from pretty. That has had and will have profound effects on Australia’s economy- all of it bad. But the news is managed so expect to receive it with a healthy dose of spin. Kind of like property prices…..
January 17th, 2009 at 7:37 pm
‘MACCA’ you done it again!
I have been on to be Global Europe Anticipation Bulletin for some weeks now, since an earlier reference to the site from this blog.
I found them a bit like Steve “having the score on the board” going back to 2006. Obviously they have a lot more resources than Steve and have a Europe focus whilst obviously monitoring and commenting on the unfolding disaster in America.
I have printed off several of their bulletins, and referenced them in a folder to follow the accuracy of their forecasts.
One of the pieces which really caught my attention as it seemed to be referring to the what I call ‘Hollow’ or ‘funny’ jobs/money that have developed in recent decades – futures, CDO’s etc etc, was the following piece.
from GEAB
“In 2007, LEAP/E2020 announced that US banks and consumers were both insolvent. More than a year ago, our team estimated that USD 10,000-BILLION worth in « ghost-assets » would vanish in the crisis. Both announcements came in complete opposition with the common opinion of that time; however they proved perfectly justified in the months after. In the same line, LEAP/E2020 today estimates that a new sequence of the fourth phase (so-called « decanting phase ») of the unfolding global systemic crisis has began: the sequence of global insolvency.”
And ‘bullturnedbear’ this is also relative to your “point of recognition”. I agree with what you say, some people have become cautious and are paying down debt and generally “pulling in their horns” (but many many others it appears to me haven’t started along this track yet).
It is the small minority who have identified that there is a tsunami headed their way, whilst the very significant majority are swallowing the crap (and money) being handed out by Kevin & Wayne, coupled with their human nature which is saying to them
“yeah but like, it’s not going to be THAT big a wave and surely it will pass fairly quickly and things will be better soon -she’ll be right ! ”
To me in his these more technical and obscure things that I don’t fully comprehend, such as the above-mentioned process of rolling towards “Global Insolvency”, together with the ramifications of so many things happening on so many fronts at the one time, that really are scary.
January 17th, 2009 at 7:45 pm
You know the other thing that really scary?
It is that people like us, those who subscribe to Steve’s thesis and more particularly STEVE himself, who are regarded as the ‘WACKO’s’,
ordinary people with unremarkable skills
(speak for yourself Al) and perceptiveness -
whilst all the ‘experts’ the bureaucrats who are supposed to be on top of it, and the government who should be at least informing if not protecting us, who haven’t got a clue.
now that really is the scary bit !
January 18th, 2009 at 3:37 am
I just don’t understand how the US don’t go bankrupt themselves, or how they can avoid creating a lot of inflation. First, nobody outside the US are buying treasury bonds, as that game stopped in October when the fed started to print, since then, the world have been a net seller of treasury bonds. If there was a big faith in deflation, why is not the world a net buyer of treasuries anymore? The US have a budget, with big financing needs, add the net selling pressure for foreigners on bonds ontop of that, and the only way to keep long term treasuries down, is for the federal reserve to print money to buy them, that is the only way to avoid skyrocketing bond yields. This are “latin american” and inflationary. Deflation are simply the latest fad. I got really into deflation and had that as a main scenario from around 2006. Since around October last year, I have turned more and more to the inflation side of it, as I have realized of much the qualitative issue that are simply ignored, as in comparison to the quantitative issue of debt. I think the notion that Asia would collapse, if their greatest consumer collapsed, is one of insanity, as the US economy is fundamentally, horrible, while the fundamentals are good in Asia.
January 18th, 2009 at 4:13 am
Let me add that the US debt, is just as subprime as the AAA rated subprime securities was. It’s just a slower process. Eventually nobody wanted it, so the fed had to turn on the printing press to buy subprime, in order to avoid a collapse, as there only was buyers at 20 cents on the dollar. It’s the same thing happening with treasury bonds, unless someone bail the US out, the fed will have to buy treasury bonds bigtime, unless they want’s to cause a lot of pain by raising interest rates.
That will be bad for the dollar. I think the problem of the US, UK, and other countries like Spain, Hellas, Italia is the subprime quality of their goverment debt. The countries, don’t have anything near sound economies, if you subtract the artificial debt demand, that masked service economies that were empty shells, unlike japan that had some productive capability, and were a net creditor, that is why I think the debt deflation bust are exposing this qualitative issue, and will prove inflationary, similar to Iceland when the bust eventually happens, if it happens, it could just be a milder sell off, a move back into the markets, and a new housing boom, and negative real interest rates as from 1975-1980.
The other scenario I envision, is deflationary boom in the US. That will be the 0 % boom. It’s entirely possible. Stocks in the US are selling at ridiculous evaluations, if the US can pump prime their economy, like Japan from 2001, together with deflationary pressures in commodities. Then US bonds, will be valued similar to Japanese bonds now, in a few years. As I have compared Japanese stocks to US stocks, not the market as a whole, but I have compared the pricing of similar companies, in similar businesses. The US companies are priced
at around 1/3 the price of the Japanese. I therefore assume that a deflationary boom, would expand profit margins, and also stretch valuations to the level of Japans, that could mean those companies selling at 1/3 of japans levels, like railroad companies, could increase around 10 times, as a combination of increasing profit margins, and repricing to japans levels of valuing a company. Actually, the whole market cap of US railroad is less than in 1920 adjusted for official inflation. Like in the railroad boom after 1865, the US had deflation of 3-5 % each year to 1873, when you have deflation after a inflationary period, it tends to be good for stocks. That’s how it might be now. When you have deflation after a deflationary boom, like after the railroad boom ending in 1873, that is bad for stocks. Deflation boom, then deflation = bad. Inflation boom, then deflation = good, then deflation = bad In 1920, the US stock market was just as cheap as in 1980. I should also add that 9 out of 10 deflationary periods in the US have been booms.
January 18th, 2009 at 5:17 am
Here is a company that show the inflationary trend. It’s a fertilizer company.
http://finance.yahoo.com/echarts?s=TNH#chart11:symbol=tnh;range=my;compare=gold;indicator=volume;charttype=line;crosshair=cross;ohlcvalues=0;logscale=off;source=undefined
I have added randgold resources as well. The trend started in 2004.
There was some beginning of a trend in the era leading up to the crisis in Asia. What this shows is how marginal the world food supplies is when asian , and emerging market growth becomes dominant. The balance between supply and demand, are such that it takes very little to whack things out of balance. If the dollar crashed, the likely effect would be that the balance of food, would shift towards asian and emerging markets in such a way, that food prices would explode in the west.
January 18th, 2009 at 3:37 pm
OTM al49er
Commercial TV news is starting to straight out avoid negative business news. People just don’t want to hear it. It used to be that when you suggested to someone that you thought a depression was on the cards you were treated like a harmless eccentric. Now you’re taken as some sort of heretic, as if even mentioning the GFC will make it get worse.
And as ever financial planners are telling people to leave their money in the market because a 20% rebound is just around the corner. I hope the FPs have thought about what might happen if the market halves again this year. They might all need personal bodyguards.
And how ’bout the Storm Financial saga – $4.5bn of loans and funds under management in 2007 yet they couldn’t find $10m to meet a margin call. Oh dear.
January 18th, 2009 at 4:22 pm
Hi Boma,
To add to your post. Several people I have talked with recently have said. “I am sick of hearing the doom and gloom from the media”. “If only they would stop the negative talk, things would improve”.
When I point out that if anyone says “this downturn will be really bad” in the press, they are laughed out of town. These people then stop and ponder.
The media is still winning with the message that more borrowing, spending and investing is the answer. Just wait until the majority of people realise that saving is the answer, not borrowing. The media will turn on a dime and this downturn will turn into a depression overnight.
The same media types will then tell us that we were all foolish and that we need to save more and spend less. Governments included.
That will be very scary. But it will also allow the healing to start.
There is only one solution for this crisis. People and Countries stop living beyond their means and pay off or default (most will) on their debt.
January 19th, 2009 at 3:06 am
I think the point is that most countries with service economies would loose their government bonds ratings and have dramatically higher interest rates, if people totally stopped to borrow and spend, as the economies would collapse, making it inflationary. So therefore the government would have to spend up to the point that real interest rates turned negative, and pushed people to borrow again. That would bring “liquidity”, back into the markets, in fact I think that is what is happening, as markets have been on an upwards move since nov. 21. The effect of negative real interest rates would also stop house prices from falling (in nominal terms), even they are at a high level. The debt in the US is not that bad, look at the UK, that is much more of a banana republic with twice the private debt. The resource countries, probably get the “soft landing scenario”, I think, from the continuation of the resource boom. I checked the statistics from my own country. House prices rose every year between 1950-1982, most notably I think, was that the “nominal” part of the rise every year was totally the same as in the last years, (the only down years are (1988-1992, and 1998 , 2002 and 2008) it just makes me think, that the central bank are inflating as much as they always have done, or even more, it’s just that the CPI inflation are not happening as it used to because of china, and other black holes for western money, however as the time when you put money in and get deflation back ends (I’m already seeing huge price increases in Chinese goods, around 30 % since last year), this era of more money in and lower prices out, ends. The stagnation part, probably means that central banks, might inflate just as before, but now it flows much more right into the CPI compared to before. I think the average rate of house price increases, seems to be around 12 %. That seems to be the normal number since the 1970, to now, so, I guess that’s probably the average inflation the central bankers are pumping out.
January 19th, 2009 at 4:43 am
One comparison I also like to make. Is some relationships, I think reflect our current environment.
I think Asia are stronger now, than before or during the Asian Crisis.
Some companies that reflect the growth trend in Asia are Apple, most gold mining companies, such as randgold resources, as the Asian Growth generate inflation in our economies.
A stock like apple have never really been really hot in the west, but in Asia these products, ipods, iphones, even in the BRIC, these products are burning hot and have much more appeal due to their lower standards of living, and desire to have something the neighbor does not. The desire for brand products in China are extreme.
The companies I have selected are randgold resources, a good gold mining company, that increase revenues with the asian growth, then Apple, they are a great company, with different opportunities than before due to the emerging market trend (it’s this trend that is correcting in my opinion), and phillipines long distance phone company. This company to are on a good growth trend.
Here are those randomly selected stocks.
http://finance.yahoo.com/echarts?s=GOLD#chart3:symbol=gold;range=my;compare=phi+aapl;indicator=volume;charttype=line;crosshair=cross;ohlcvalues=0;logscale=on;source=undefined
The other thing are yields on government bonds.
Estimates are said to give growth in the devenloped world around 0-1 %, while it will be in the 3-4 % range for the devenloping world. Second, yield curves for emerging markets, look now, just as they did in 1981-1982 for some developed markets, while other semi devenloped market look as they did in 1988. Inflation are coming down, and they can lower interest rates. Every great bull market have taken place in the past with 3-4 % growth rates, give me an example of a country with 3-4 % growth rates without a bull market in stocks! Don’t exist. The conclusion is that decoupling is right around the corner. When we in the west see that they have consumers that borrow, real estate prices that rise, etc, we will be happy to pouring our money in to those economies.
That will cause the boom in apple, stocks like Nokia, gold mining, emerging market stocks etc, to go on, real estate to correct, stagflation, possibly stagdeflation to go on.
http://finance.yahoo.com/echarts?s=GOLD#chart7:symbol=gold;range=my;compare=phi+aapl;indicator=volume;charttype=line;crosshair=cross;ohlcvalues=0;logscale=on;source=undefined
I have studied this extensively. These stocks will go on booming. It’s just in my opinion that people are looking at the US, and the west, maybe we think we are more important than we really are.
January 19th, 2009 at 11:17 am
Hi everyone,
Does anyone have the stats of Debt/Mortgage paid of in no of years vs risk of defaulting?
January 19th, 2009 at 11:29 am
Hi Boma and Bullturnedbear and others on this blog.
Has anyone else had trouble logging in? I spent a lot of time yesterday trying to log in with my password not being accepted and the email from WordPress that says it’ll provide a new password just redirecting to this site without a new password. So I’ve had to use another email address and change my username from Effit to Morde. Anyone tell me what I’m doing wrong? I did send an email to WordPress but no response.
Anyway as I’ve said before I learn so much from all of you. And Boma you’re so right with the financial planners telling everyone to sit tight and leave everything as it is as ‘You have to be in the market when it turns.’ Hey, do you think it’s got anything to do with them trying to salvage their commissions and large fees for absolutely doing NOTHING??
I finally bit the bullet and pulled my money out of Super (Allocated Pension) and it’s sitting in a Term Deposit earning not as much Interest as it would have if I’d pulled it out sooner! But I’m now sleeping better at night and not watching my money in Freefall. Of course in 6 months time when the Term Deposit comes up for renewal who knows what the Interest Rates will be, but I’ll worry about that at that time. I’m wondering if there’ll be Class Actions against these irresponsible FPs if their predictions that ‘the market is about to turn’ doesn’t happen and the people who ‘held on’ find their money still disappearing.
And I read in The Australian newspaper last week about a young couple who have been given a loan of $340,000 for a house with a selling price of $384,000, and they’re so chuffed to be using the 1st home owners grant and a State Government grant as the main deposit.
I may sound old and decrepit with my memories of the early 1970s when getting a loan from the bank meant that the female’s wage was not taken into account with the attitude that the female would stop working to have babies. In my case we found a very modest house in an outer suburb, the government grant at that time was a pittance and you had to prove that you’d saved a certain amount for a deposit BEFORE the grant was approved and then the bank MIGHT give you the loan for the remainder. Our house was paid off in nine years on two quite modest wages, with improvements to the house done by our own hard work.
I guess I feel quite cheated now that my hard earned money over forty years in the workforce was put in with all those ‘cowboys’ money, (via my Super fund). And many of these ‘cowboys’ and CEOs of companies were just in and out to make a fast buck, and money was loaned out to people to negatively gear properties, and take on so much debt that finally the ‘house of cards’ has crashed taking my money with it!
January 19th, 2009 at 1:14 pm
Hi Steve,
apologies for posting this hear – there was no “Contact Us” section so to speak.
The RSS for your articles appears to be broken and i have not been able to receive updates on your psost dude to this error thought you may like to know – link error here:
http://www.debtdeflation.com/blogs/feed/
when you load this you will see the fll error script.
Which is:
Index of /blogs/feed
* Parent Directory
* podcast/
Apache/2.2.10 (Unix) mod_ssl/2.2.10 OpenSSL/0.9.8b mod_bwlimited/1.4 PHP/5.2.6 Server at http://www.debtdeflation.com Port 80
Cheers, C.
January 19th, 2009 at 2:47 pm
Hello ‘Morde’
I had exactly the same problem several weeks back and after a similar frustrating. To that which you have suffered, managed to get around it by : opening the page, pressing “log on”,
putting in username, shifting cursor to password at which time it came up with the dots indicating a password already in place,
then just pressing ENTER.
This took me to the WORDPRESS site and from here I simply placed the cursor on the little part of the top left corner for the link to the debt deflation site.
Have a crack at this with your old username.
Next point. Not so much of the “old and decrepit” referring back to the seventies (and even earlier ! ! ).
People today ‘knock’ the period of the
“white picket fence”, but it was a time when ‘rights’ were matched by ‘obligations’ and the use of the word ‘discipline’ and application and adherence to its principles was accepted as underpinning anything that was worthwhile achieving.
It was also a time when you were personally much safer, ‘happiness’ and ‘contentment’ quotions were high AND people (strangers) even talk to each other in the course of their daily travails.
That all went out the door with PC and the disappearance of ‘clerks’ (read by earlier postings on this topic).
Finally there is a very good article in today’s ‘Australian’ page 12 “opinion” at the bottom of the page, (titled Compulsory superannuation a train wreck in the making”
by Mirko Bagaric.
January 19th, 2009 at 3:20 pm
The RSS feed should work fine now, since Steven Richards of Cyanide Web Hosting has repaired the link.
My apologies to everyone for the inconvenience in the meantime. It was probably yet another hassle from the site’s previous ISP. It shouldn’t happen again.
January 19th, 2009 at 4:15 pm
Hello Morde,Al49er and others.
I’m a recently returned expat and until 2007 managed my own super for many many years (still do). Thankfully I put it all into cash mid 2007 in Australia as the window closed on large lump sum contributions.
Prior to doing so though I did extensive economic and market research prior to talking this super change through, over the internet, with various FP’s. The upshot being I found all, ALL to be a bunch of no brain morons when it came to having an educated view of the market and economic situation. I had formed a view early 2007 that the housing and derivative debacle unfolding in the US was going to cause untold worldwide economic turmoil. No timeframes but I assumed before end 2007.At that time not one FP had a clue what I was on about- not a single one. This was before “sub-prime” became so popular.All they could recite was the mantra coming from the big bank analyses (the ANZ and Craig James type blurbs) and the major fund manager types. It was all growth ahead and excessive debt wasn’t even on their radar.Their recommendations were all geared to securing the fees from the various Fund Managers.
I came to the conclusion that this FP industry is a rort.Worse, it’s a legalised scam subtley devised to fleece superanuants out of their hard earned super. Snakes in suites. I resolved back then to manage this myself because I could see no FP worthy of the fees they charge. I use Accountants simply to stay legit on the paperwork. And I sleep at night too.
January 19th, 2009 at 5:37 pm
Ah, all so true when we all had ‘accountabilities’ and the ‘professions’ were there as a beacon to moral rectitude! Now they all (fp’s etc) want to get rich over your hard work and harder earned money! The law is, of course, on their side (let the buyer beware!)and those of us who did not enter the super (market) early on must now work till we drop or live a very frugal life on the pension! if the govt. will continue it!
It is now very interesting that today access econ. has said we are all in for a tough time!! wow! THEY said it so it must be right eh!the ‘psychology’ is turning now very slowly with the govt. blessing I think, as Mr Swan has immediately come out to confirm access’s view and assure us all it (the govt.) will do everything it can!! warning! warning!! aliens approaching!!
January 19th, 2009 at 6:07 pm
Hi All,
I really do enjoy the informed discussion on this site. It is a haven from the uninformed discussion “on the street”.
On Super. After my super got creamed in 2001 and 2002, I switched to a self managed fund. It has been a great decision. My returns have been much better than the professionals. Some years my fund has made over 100%. It turns out that the FPs were all just long shares and “diversified”. Surely there is more to it than that. What about trying to predict the future. With stops in place if you get it wrong. I don’t think that really occurred to many FPs or Fund managers because it is much safer to stay with the herd. The system is floored because it rewards mediocrity.
Still on super. The problem remains though, that most people can’t manage their own super. It is way beyond them. Most people can’t pay their credit card on time. I am quite experienced in markets, finance, property, bonds, options, futures, etc. I don’t say this to show off, just for the sake of the discussion. I get it wrong all the time (mostly with stops in place though). I just make the point that these guys are necessary, they are just not very good. Whether it is your health, your education or your finances. Finding the “right” experts to “trust” is very hard.
January 19th, 2009 at 6:14 pm
Comment for Steve,
Your theories and models focus a lot on debt. I think this is way ahead of the curve.
I think debt creation or destruction all flows from social mood. Positive social mood leads to bull markets and debt creation. Negative social mood leads to bear markets and debt destruction.
Is there provision in your models for social mood? Or could you build social mood into your model.
Also social mood seems to go in cycles like your Minsky model. That is, after times of extreme and long running positive social mood comes a time of negative social mood. The size of the previous social mood trend also seems to predict the size of the next trend.
Maybe too hard to measure. Just thought I would mention it.
January 19th, 2009 at 8:59 pm
Yes following on from Access Economics saying that the government’s budget is “buggered”,
Wayne has quickly done a doorstop to ensure us that the government will be acting “decisively”
(boy they have bashed ‘decisively’) adding that they will do it (act decisively)
“in a way that is timely”. Too late Kevin,
‘timely’ has gone, you and your mates are in a game of ‘catch up’
It is a long time ago that the media gained such control over what and how politicians (and others expressed themselves) that part of the solution to the situation that we have now,
is totally and utterly off the agenda, out of the question and will not be countenanced in any situation.
Speaking the truth – saying it how it really is, being open, honest and frank.
Cannot, will not happen.
And that is such a shame, as I believe part of what should be happening here is a bit like the
Aids Campaign.
“this is real, this is nasty and there are things you need to be aware of, and in certain circumstances action required, to afford you the best possible protection.”
Probably the first among many things would be to re enforce your personal ‘employability’.
look at the field/industry you are in, how your skills abilities and attitudes stack up against your peers and think about extra actions you might take to reinforce your position.
Then of course you need to reassess your lifestyle and expectations and prepare some sort of a “what ifs plan”. What if some part of the family income stream is affected. what economies can I make in our family spending, etc.
Then I think and very importantly there has to be a change in the national psyche and attitude
to what ‘bulturnedbear’correctly described as
“uninformed discussion on the street”.
We all know that the quickest way to put yourself on the outer in this society is to attempt to engage others earnestly in discussion on such things as politics, social issues and dare I say economics.
Part of the reason as you know is that it takes ‘work’ in the form of Reading, enquiring, research, interest (genuine) and learning, to acquire sufficient knowledge to be able to engaging in intelligent conversation/discussion on the subjects.
All too hard !
Much better to be a “conspicuous compassionate”,(symbolised by laying a wreeth at the gates of Buckingham Palace or signing a Condolence book for someone you never knew),
Certainly a, “Global warming devotee” – then all laws, rules and science are settled FOR EVER and you just need to be a parrot, learn a few phrases and vilify anyone who questions the science.
Or Are “Conspicuous Celebrator” finding a reason to celebrate anything and everything in an over the top way, just for the sake of it.
With these sorts of things being the level of national engagement – all over arched by “conspicuous consumption”, then the media is simply reinforcing what the masses want and what we they are comfortable with, whilst pointing the way as to whom should blamed (anyone but our selves) if things go, pear shaped.
This is what is so fascinating about the whole GFC thing. Led by people like Steve who have “done the work” we have put ourselves in position of being able to “see the elephant in the room”.
The fascinating and scary bit is looking at all those who can’t. (or won’t) !
January 19th, 2009 at 11:22 pm
We are getting closer to a break down.
The shares of the US railroad companies, look like leveraged versions of the curves of the debt of the country Spain. it’s soon going to break to the upside, with increasing yields as spains debt are being downgraded.
I think it’s scary that warren buffet really think’s that US debt will face a downgrade like spain, since he have bet so heavily on the railroads.
January 20th, 2009 at 8:33 am
Hello Steve you might be interested in this gem from ‘The Australian’ business section.
“AUSTRALIA is likely to avoid a 2009 recession and a collapse in housing prices, according to the latest analysis by one of the world’s largest credit insurers.
The French insurer Coface said it believed Australia could be one of the first economies to resume solid growth when the international recession ends, which it predicted for the end of this year.
A crucial factor insulating Australia from the worst impact of the global credit crunch was that its property market was not suffering the sort of real estate bubble that had helped undermined the worst-hit countries, the firm’s analysts said at their annual Country Risk Conference in Paris.
The five developed countries that were most violently hit by the financial crunch — the US, Spain, Britain, Ireland and Iceland — were left vulnerable by real estate bubbles and high levels of consumer debt, Coface said.
“But we think there is no housing bubble in Australia,” said Christine Altuzarra, an advanced economies analyst for Coface.”
http://www.theaustralian.news.com.au/business/story/0,28124,24935552-5017999,00.html
Wow!
January 20th, 2009 at 9:27 am
Great article ‘AL49er’! spot on! your understanding of the Aussie psyche is commendable! scary because of its ‘truth’ in that a country with so much to offer;natural riches;great talented people;great work ethic;small population and yet! an unending loathing of anything which looks at all remotely like ’social understanding’ and economics!! But that is the symptom of extremely poor leadership and media ‘lackies’.
Donald Horne said in “the lucky country”"…It’s leaders (in all fields)so lack the curiosity about the events that surround them,that they are often taken by suprise…” Tjis is so at the heart of what is wrong and sad about our economy! as you have said, any discourse foreign to the ‘p.c.’ is treason!
January 20th, 2009 at 9:50 am
Hi Steve,
I was wondering if your best case and worst case scenarios have changed? I think you said in an interview the best case was a severe recession lasting 2 years (90-91?) and the worst case a depression. Then debtpodcast I heard you say that it means more companies going bankrupt bad times ‘D. Rubini was also saying the same thing but from his RGE website his company is now saying it will last 2 years see below.
RGE Monitor-”it is clear that 2008 was a dismal year for the economy and financial markets and it is now official that the current U.S. recession started already in December 2007. So, how far are we into this recession that has already lasted longer than the previous two (the 1990-91 and 2001 recessions lasted 8 months each)? We forecast that the U.S. economy is only half way through a recession that will be the longest and most severe in the post war period. U.S. GDP will continue to contract throughout all of 2009 for a cumulative output loss of 5% and a recession that will thus last about two years. Our forecast is much worse than the current consensus forecast expecting a growth recovery in the second half of 2009; we also predict significantly weak growth recovery – well below potential – in 2010.”-RGE Monitor
Do you agree with Rubini’s take on this one and what is your take on the best and worst case scenarios now?
January 20th, 2009 at 10:00 am
I also found this at http://www.rgemonitor.com/roubini-monitor/255127/the_latest_bear_market_suckers_rally_is_losing_its_steam_as_an_onslaught_of_awful_macro_and_earnings_news_takes_its_toll.
“Our research at RGE Monitor suggests that the US and global recession will continue at least all the way until Q4 of 2009 (a nasty 24 months U-shaped recession) and that the recovery in 2010-11 will be very weak with growth in the 1% range that is well below a potential of 2.75%. And we cannot rule out that a more severe L-shaped stag-deflation (as in Japan in the 1990s) will take hold. “
January 20th, 2009 at 10:02 am
This is also taken from the link found above.
“So 2009 will be a painful year of global recession and further financial stresses, losses and bankruptcies. Currently, the probability of an L-shaped, stag-deflation is now rising to a third, while the probability of a severe U-shaped recession is two-thirds. Only aggressive, coordinated and effective policy actions by advanced and emerging-market countries can ensure that the global economy starts to recover — however slowly –in 2010, rather than entering a more protracted period of economic stagnation.
So while our benchmark scenarios sees a severe U-shaped global recession with very weak growth recovery in 2010 we cannot exclude the possibility of a worse outcome, i.e. an L-shaped recession that – in our view – has at least a one third probability. So the worst is ahead of us rather than behind us for the real economy and for financial markets. With my forecast of 2009 earnings per share for S&P500 firms being in the 50 to 60 dollars range and with P/E ratio likely to be in the 10 to 12 range given a severe global recession the S&P500 could bottom – at some point in 2009 – at best at a level of 720 and, in a worse scenario, as low as 500 or 600. So, the worst is indeed still ahead of us.”
January 20th, 2009 at 10:28 am
Steve,
I read parts of your book “Debunking Economics” and whilst much of it was ‘heavy going’ for a non-economist like myself, you did a very thorough job in showing how wrong some economic theories are and I am now totally convinced that the stuff I have been hearing from corporate economists during my business career should have been largely ignored.
It is staggering to think that over the last 50 years or so governments and central banks, as well as financial institutions and universities, were following a fallacious path. The world has seen several major economic cycles, including depressions, over the last 300 years and perhaps naively I thought that by evaluating each of these it would have been possible to see the wrong way the world was heading in recent times.
You make it clear that some economists did understand the fundamentals, but the majority did not. I am not an economist and I don’t pretend to understand all the things you and your learned bloggers say, but as far back as 2005 I felt intuitively that the US in particular was heading into rough waters. I based this view on a number of factors, particularly high stock valuations, property prices that looked like Japan’s in the 1980’s and the high level of debt. I also scanned the internet and found some credible views that supported this fear. This prompted me to sell all my shares and some investment properties, starting in late 2006. At the time my friends though I was crazy.
My point in saying this is that it wasn’t necessary to be highly qualified in economic theory to ‘see the writing on the wall’. It is therefore very surprising to me that the brightest and most qualified people in the land could get it so wrong.
You have the ability to not only say that ‘they got it wrong’, but you can also explain in technical terms why this is so. Our government is still being led by people with the wrong paradigm and it seems to me very important that the leaders who control our economy be made aware of the false theories they are following and you would be the right man to do this.
I know you have been active in the Centre for Policy Development, but I think a more direct and urgent approach is desirable.
To this end I suggest, if you are willing, that all the bloggers who support your views write a letter to the Prime Minister suggesting that his government engage you to advise them how this present mess is best handled. I think your talents shouldn’t just be hidden within the university walls but be used for benefit of our nation.
There are good reasons why the people in Government should take you seriously. You are an academic of high standing, you have been involved in advising on policy development, you have a media profile and above all you predicted the problem the world is now encountering as far back as 2001, you are one of the few who ‘got it right’.
I would be interested to hear your views on this and also those of the other bloggers. Maybe this won’t get us anywhere, but in the interests of Australia I think we should at least try.
January 20th, 2009 at 10:34 am
Hi ‘tommyt’, it is nice to find others (and there are a number of them who are visitors and contributors to this site) who are particularly interested in the sociological aspect of this GFC.
I certainly struggle with all the pure economics of the issue, especially the operation of the world financial and monetary system(that some forecast has still a fair way to go toward imploding) and the sort of things that can be happening, that we really can’t see, such as the 10,000 BILLION US$ worth of “ghost assets” that seem to underpin the losses that are going to affect us all, particularly through superannuation funds etc (reference GEAB site)
That is why we turn to especially Steve and regular posters here like ‘prudentsaver’ and ‘bullturnedbear’ in order to gain an understanding of economic machinations
that we believe are a direct result of a total breakdown in human behaviour.
‘tommyt’ and others might enjoy the following article which among other things highlights how ordinary people prefer to bury their head in sand, in this instance through “conspicuous partying”, rather than studying and trying to learn what is really happening and likely to happen.
http://theautomaticearth.blogspot.com/
Hang in there ‘tommyt’ so we can keep highlighting among all pure economics, that in the end (or rather the beginning) that,
“it’s the people stupid, or the stupid people” !
January 20th, 2009 at 10:59 am
Thanks Otto,
But I think it’s too early for any government–except perhaps the USA’s–to take my advice. Unfortunately it will take complete capitulation by both politicians and their advisers before alternative policies will be considered. This won’t happen until the financial system of the relevant country is effectively bankrupted as a result of the crisis; to attempt the policies I’d recommend before then would be to risk having the policies blamed for the downturn, rather than the GFC itself.
January 20th, 2009 at 11:04 am
Hi Joshua,
Nouriel Roubini is one of only three economists around the world who publicly predicted this crisis before it happened–the other two being myself and Peter Schiff. I have far more time for Roubini’s analysis than Schiff’s, even though I agree with Peter on many points, and I now have my blog posts cross-posted on Roubini’s websites.
That said, I actually think Roubini’s forecasts understate how severe the downturn will be–and that may well be deliberate on his part. We get accused often enough of having caused this crisis by having pointed out the bleeding obvious (rather like the subtitle to my Debunking Economics, it’s asserted that if we hadn’t pointed it out, the Emperor wouldn’t actually be naked.
My worst case involves a downturn as deep as the Great Depression; my best case remains a recession slightly deeper than the 1990s recession, but lasting much longer.
January 20th, 2009 at 1:28 pm
Thanks Steve,
Christopher Joye seems to be very unhappy with you. I sense a bitter reference to you in many of his articles and blogs. Would like to see your counter analysis of his someday
But you might have already done so in your collective response about Neoclassical way of thinking and Bernanke an Expert on the Great Depression?? blogs.
January 20th, 2009 at 1:52 pm
Hi Steve and all,
I’m with you Steve, thinking that things will be much worse rather than better. I think the economic situation will turn out to be worse than the Great Depression.
Despite my thoughts on this I rarely tell people. I have found that when I do, they switch off.
I find it much better to talk in practical terms like: “You can’t fix a problem of too much debt by borrowing and consuming. One has to save and produce their way out of debt”. People relate to stuff like that.
The prevailing wisdom is that the Government will save us. There is also a perception that the US will save us. I feel the World is looking to America to solve this problem. What a laugh. It’s like something from a Hollywood movie.
The only Country that is remotely talking about fiscal and monetary responsibility is Germany. Time will tell if they hold that line.
My tip is that this problem will escalate to crisis level when the people realise the Government has no idea how to fix the problems.
January 20th, 2009 at 2:06 pm
Some Updates from the weekend.
The state of California has postponed tax refunds and State pension payments from 1 February. Some of this is political and some is for budgetary reasons. All up they have sent out IOUs to residents totaling $3.7B as of Friday. THEY ARE BANKRUPT.
Ireland has nationalised one of its four major banks and the shares of the remaining 3 fell by about another 50% on Friday.
The Sharemarket has pushed the shares of RBS (Royal Bank of Scotland) almost to zero. The market is betting that they will be fully nationalised shortly.
A professor in China predicted that this year 50 million “migrant workers” in China will lose their jobs. Two problems arise. Many gave up their farm lands to move to the city and secondly wages in the City were up to 4 times more than the country. The shocks coming in China are massive.
When I said in September that China will have a depression (on this site). Someone came on to tell me I had rocks in my head. China has geared up for massive growth, yet they are going to go backwards. This shortfall will have large negative feedback loops.
January 20th, 2009 at 3:47 pm
Bullturnedbear, I couldn’t agree with you more about China. Nobody seems to have noticed that they have (or had, their inflation is probably dropping rapidly) interest rates similar to their inflation rate, great way of creating a bubble. It looks like they have had a manufacturing bubble, where business builds factories because they will be worth more in the future.
January 20th, 2009 at 5:03 pm
On some themes;
- The latest Access Economics report is damning. It is no surprise therefore that Rudd/Swan spin it that AE have it wrong. Rudd’s Govt fully believe they are able to manipulate public opinion and sentiment with their rose tinted spiel of what is clearly a fast approaching economic disaster. The Australian are being mislead by Rudd’s Govt It is absolutely disgraceful.
- I’ve read Roubini for nearly 2 years and he has been spot on. In the beginning he was villified- he is now a rock star ( Steve, Please note!).But the last 2 months has seen a change in Roubini. Whilst his analysis has proven correct and still is, his medicine is to create more debt and plenty of it- in effect borrow HUGE to spend your way out of this almighty hole. HE supports those snakes in suites that Obama has chosen on his economic team. You know, the one who fiddled his taxes (Geithner- SecTreas) and Summers ( who , along with snake Rubin promoted the repeal of Glass-Seagal that set the US banks up for this looting mission). So NR’s quality analysis should be seen in that suspect light.
- The Chinese economic situation is in freefall, much worse and faster than KR or MSM would have us believe. But, the real news gradually drips out along with it’s horrendous impacts on the Australian economy . The Chinese economic translates directly into slowing demand for those employed in the service economy of Australia who make their livelihood from cashed up workers in the resources sector. This negative feedback loop has a long way to run.
-With resources, service industries, construction, finance and retail sectors all simultaneously being comprehensively nailed – PLEASE EXPLAIN TO ME HOW AUSTRALIA IS TO AVOID RECESSION MR RUDD?? Yet that is what he would have us believe. And then, urge families to go out and continue amassing debt in the face of what he KNOWS is a once in a generation (century?)financial and economic shitstorm. It’s bloody disgusting.
- We are on a train headed into an earlier train wreck that is the GFC. KR is hoping the tracks will clear before we get there. It won’t. The AE report also predicts a decline of 5-8% in Australian houseprices nationally. Not a brave call as they are close to that now- with many innercity postcodes at 20%+ declines) AND FALLING. The news here is that a mainstream organization is actually brave enough to slander the god given Aussie right to ever higher property prices. Steve has been on the money with property prices collapsing and I expect that along with unemployment dramatically rising, these will be the 2 biggest stories in Australia in 2009.
January 20th, 2009 at 6:05 pm
Steve,
My suggestion was born out of frustration with the poor economic decisions by governments and felt some attempt should be made to correct this. But I understand the position you take and on reflection agree with your reasoning.
The day will come when the economic tide turns in your direction.
January 20th, 2009 at 6:09 pm
Steve
I have almost finnished my comments on Bernanke’s papers which I will send in the next few days.
The most stiking omisions that I have found in his work is disregard of time as an important variable. The seems to apply to all of neo-classical economics.
I note your comment that things will need to get much worse before your recommended corrections are applied because these turkeys will blame the corrections for continuing problems, sad and frustrating but very true. For now we can just use some words of Henry Lawson for comfort “though the cause seems cronk to me we’ll say it’s in accordance with the things that have to be”.
Bullturnedbear
In your closing comments on China you mentioned negative feedback loops. I think you may be refering to feedback loops which make the problem worse by amplifying the changes. In engineering terms these feedback loops are called positive because of this amplification, not negative. Such loops pulled the global economy up, and now they are pulling it down and such loops have been doing this to the world economy for over 200 years but these idiot haven’t noticed! yet???
January 20th, 2009 at 6:32 pm
Hi Brightspark,
Yes, that’s the key failing: they omit time from their analysis, and then presume that the present can be related to the future via the assumption that both are in equilibrium! In many ways this is from rank ignorance of the techniques that engineers and mathematicians have developed to handle out of equilibrium analysis, combined with a near religious belief that a capitalist system is always in equilibrium.
Therein lies most of the reason why they completely failed to anticipate this crisis.
I do look forward to your comments. Don’t spare the technical analysis–I can parcel that into a separate post if needed.
January 20th, 2009 at 9:34 pm
Hi all,
Check this out:
http://economictimes.indiatimes.com/News/International_Business/US_and_UK_on_brink_of_debt_disaster/rssarticleshow/4004567.cms