A dollar …. a dollar

  By Mystic | August 27, 2012 - 04:02 |

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Written by: Mystic on August 27, 2012.
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  • windslice

    For some reason your narrative ground to a halt several times. But at least the links work, even if there is no visual indication where they are.

    We have established that a deposit is created every time a debt is issued.

    So the graph representing depositors accounts does not represent how much people are saving, but merely reflects the exponential (Hi BC!) issuance of debt, leading to a vast amount of money in the system.

    But thinking around this has unleashed a number of questions.

    1. How can you measure how much people are saving? Maybe some figures showing private deposit accounts and security holdings?

    2. How can the amount of wealth (assets) be compared with the amount of  money sloshing around? Is the comparison even valid?

    3. There is clearly little point in a debtor also being a big saver, as normally without government distortion through tax allowances it would be better to pay off the debt than to build up savings. So who is accumulating all these deposits?

    4. As the GDP has not gone up exponentially, all the rapidly increasing debt pile does not seem to have generated a corresponding rapid increase in GDP. Does this mean that the money has gone mainly into asset price inflation and purchasing stuff from China?

    5. Maybe all the excess reserves are sitting there in the CB because the dealing costs of buying/selling Treasuries outweigh the tiddly bit of interest on short term bonds, coupled with the risk that the Bernank will raise interest rates at some time, dropping the bond price?

    6. With the recent defence of the ZIRP/QE policy, the CB’s have stated that the pension schemes have benefited through increased bond and stock prices. I imagine that this will be totally reduced by the fund managers having a bit of a “bonus fest”.

    But, on the other hand, how are they now going to raise interest rates?

    If the Cb’s go to the governments and ask, “how can we help now?”, what can the reply be?

    1. Reduce interest rates to zero. Already ticked.

    2. Monetise government debt. Already ticked.

    3. Stuff more cash into the banks so they don’t collapse. Already ticked.

    4. Drop the exchange rate. Already ticked.

    What is left?

    5. Become employer of last resort????

    • http://overthepeak.com/wordpress/ Mystic

       Jobs are the problem.
      I think it is more important to have a new `jobs system`, than a new `money system`; but maybe one would have to go with the other.

    • Bigcollapso

      You got it. The debt has grown to the point that it is not realistic that more debt can be serviced, the system is saturated. Now it is just try to manage the collapse by convincing everyone that is dumb enough to stay in, to stay in. Expect even more lies and manipulation in the media to instill confidence in the system.
      First that any hard assets are a bad investment, and then that the ensuing hyperinflation will be controlled.
      Even though we all know what is coming, set limits for yourself. For instance if you see 100% inflation in one year, etc.
      In Michigan the prices are now inflating so fast that they have stopped using price tags. That makes it a real pain in the ass to track inflation.
      What I suggest is to bring a felt pen with you to the store and write the price on some key items as you buy them. This way you can track the inflation yourself. It is still difficult though, as they are also cheapening the products and shrinking the sizes.

      • windslice

        We are not going to see 100% inflation in the next year.

        Inflation is built into the human genes.

        For some reason everybody expects to be better off next year than in this year. Even if they are at the same or even lower level of productivity.

        I can’t find anything supporting your claim that inflation is more rampant in Michigan than in other parts of the States. Food and fuel prices have surged a bit over the last year.

        Expect more.

        But no where near 100%, more like the 3 to 5%.

      • http://www.richnewbold.co.uk/ Richard

        Nothing wrong with a bit of inflation – it keeps the money moving and as we all know: the economy grinds to a halt if the money isn’t moving ;-)

        • windslice

          Actually I find a lot wrong with a little bit of inflation.

          The “little bit” is a persistent and insidious loss of wealth and standard of living. And the “little bit” of official inflation rate is generally lower than what is felt.

          • http://overthepeak.com/wordpress/ Mystic

             The buying power of `saved money` may decrease, but I don’t see `loss of wealth` or `standard of living` decreasing.

            We have had `inflation` for the last hundred years.
            Are people less wealthy …….. Do they have a lower standard of living, than a hundred years ago~?

            • Windslice

              Not compared to 100 years ago.

              The decline started around 1970, with prices rising and wages not keeping pace.

              So from one wage earner/house we are now at two wage earners plus food stamps…..

          • http://www.richnewbold.co.uk/ Richard

            I have this funny little picture in my head where the nutters (like Collapso) are living in a post (or pre) money world. They’ve worked really hard for a summer and harvested a whole field of potatoes – far more than they could ever eat. So, being the nutters they are they decide to hoard their potatoes so they never have to plough a field again! But after a while the potatoes go bad and the nutters are very upset their hoard has diminished and they complain how unfair it is they didn’t get to eat all the potatoes they earned (oops – I mean harvested) and they complain about how un-constitutional (oops – I mean unfair) it is they must work the fields again.

            • Windslice

              So what about all those retired old gits like me, who saved, and do not want to end up on food stamps, in soup kitchens and generally a burden on the younger gits (presumably you), who are now working years longer in order to support those older gits irresponsible enough not to have saved?

              Tell ja what, maybe I should now go and have one humongous party for a couple of years and then come to knock on your door for a handout?That is, it seems, what you are implying should be the case.

              Or should I carry on, responsibly paying my way with what I have saved, expecting that TPTB will not completely destroy the currencies I hold?

              • http://www.alda-architects.co.uk/ Alan

                Advice from one old git to another, use it or lose it.

                Your money has to be invested to earn a return and to hold value. The Government is  the largest borrower so don’t expect them to have the interest of savers at heart.

                Most unfair, but that is how it is.

                • windslice

                  Well, yep, invested it is.

                  But it is now very difficult to find a place to put it that will provide even an inflation proofed return with minimum risk. And that is really all I want.

                  I am not interested in becoming massively wealthy, or even wealthier. Just want to get through the rest of my life without worrying which will run out first, me or the money.

              • http://www.richnewbold.co.uk/ Richard

                I’m not implying anything. I’m commenting on the nature on money and the way people seem to think money should / does work. And, for the record, as somebody with savings I’m not immune to the effects of inflation.

  • windslice

    QE : The next step. “No Limits”.

    http://www.reuters.com/article/2012/08/26/us-usa-fed-stimulus-idUSBRE87P03820120826

    “While fresh measures are not assured and the timing of any potential moves are still in question, some officials have said any new bond buying, or quantitative easing, could be open-ended, meaning it would not be bound by a fixed amount or time frame.
    “I am inclined to think that if the Fed decides on more QE it would be of the open-ended variety,” said Michael Feroli, chief U.S. economist at JPMorgan and a former Fed economist.
    Because it would have no set limit other than the supply of Treasury or mortgage securities available, this method could eventually lead to very aggressive action, particularly if it is tied to an economic target – such as bringing the nation’s 8.3 percent jobless rate down beneath, say, 7 percent.”
    Surely the effective limit of monetary policy has now been reached? Job creation now must come through fiscal policy and a massive rework of all the employment inhibiting legislation that the west has generated.
    Unfortunately it would seem that the easy way to kick the can down the road is to empower the Bernank to carry on with what he is doing and give him limitless fire power as his discretion. So all those cowards in the government are merely passing the buck to the buck maker himself.

    • http://overthepeak.com/wordpress/ Mystic

       Yes, and one day the governments will be a bit bold and grab the CB and use it for some new `plan`.

  • safeinsuburbia

    Deficits don’t matter, or say they say.  Right, that doesn’t apply to government debt.
    No worry, sure the US will find a way for the lesser countries to pay.
    It’s only right to pay tribute to the empire.

  • http://www.alda-architects.co.uk/ Alan

    Agree jobs are a major problem, got to keep the masses busy. With jobs comes hope and the illusion of a possible better tomorrow. Having lots of well educated unemployed not good at all.

    So a political and economic necessity.

    Will they be able to unwind a lot of the rights and safe guards that workers now have? Now there is a difficult one for much of the problem is government off loading its own responsibilities to employers. Pensions, sick pay, maternity leave, the collection of tax, limits on working week,………………. Perhaps it is time to consider everyone as self employed and more responsible for themselves?

    Totally unrelated, but before I forget, this may be of interest.

    http://www.villagemagazine.ie/index.php/2012/01/remembering-when-germany-was-bailed-out-with-irelands-help/

    Worth keeping in mind that it was then in everyone’s political and economic interests. It would seem that it would also be in everyone’s interest to adopt a similar stand now. In any case it would be facing reality.

    • axionication1

      I like your comment in the link.

      Why don’t we just move on? At what point do we just move on?
      There surely will come a time (?).

      • http://www.alda-architects.co.uk/ Alan

         The problem is conflicting interests. Those with money want to maintain the value at all cost, everyone else wants employment and the opportunity to earn. Politicians are trying to keep a foot in both camps so total lack of coherence. For myself, I think having large numbers unemployed a sin when there is plenty of useful work to do.

        I would pay lip service to Prudence but do everything possible to get the economy moving. Investing in the future mantra. Just get on with reducing tax on labour, and grant aiding (or tax breaks) for investment over wide sectors. To help pay for this I would  increase taxes on  a range of consumer goods that tend to be imported. I am sure that the clever lads in Whitehall can think of sound reasons; towards a less consumerist and traditional Christmas. Ascertaining traditional values, part of the austerity package, tightening belts and so on.  Corporation tax; propose to match Ireland at 12.5%. Do it in N. Ireland immediately. Now that would cause so much uproar that most will fail to notice the other protectionist measures (for a while).

        Easy to be flippant, but they need to either grow the economy or inflate their way out of this. My money would be on inflation being the great leveller.

        • windslice

          Growing the real economy is not going to happen any time soon.

          And hoping that the wide boys in the “city” will come along and bail out the UK is not going to happen either. They will either be reduced or leave (and I am not sure who will want them)If TPTB get inflation going, then it would- cause the bond rate to soar as bonds are sold off into the market, maybe Merv will also try to get a mandate to do QE unilaterally as and when, the same as maybe the Bernak? The BoE would have to buy up shed loads of bonds if they want to keep the interest rates down.- trigger automatic rises in pensions and other benefits, adding to the mess.- put the workers into penury as wages cannot rise due to large unemployment

          But the best deal they can possibly hope for is

          - slowly declining real estate prices

          - flat lining GDP

          - low interest rates

          - 2 to 3% inflation maximum

          - unemployment stable at the current level

          - a stable exchange rate against the EUR

          - no more banking system issues

          Add in 

          - a slowly declining GBP against Asian currencies

          Until a global rebalancing of trade is achieved.

          Five years have slipped by, I fully expect that the next ten years plus  will bring more of the same.

          • http://overthepeak.com/wordpress/ Mystic

            15 years would be like the Great Depression (don’t forget the war thing is included).

            I agree with most of your list.  (not so sure on the rise of the Asian currencies though~!)

          • axionication1

            (…ref Alan) I hope for controlled inflation option. Savers will be screwed, gamers will be let off the hook/rewarded.
            Seeks to me’ that any other form of reboot would see more blood.

            Upsidedownworld.

            • http://www.alda-architects.co.uk/ Alan

               Savers always seem to get screwed. Agree re inflation. Hopefully we don’t end up with stagflation.

          • http://www.alda-architects.co.uk/ Alan

             Never underestimate the ability of politicians when elections loom! They have to try to go for growth or face a political battering. Applies in UK and also Germany. In Germany interesting political problem re the Euro and consequences of action versus inaction.

            My guess is that UK unemployment will decline slowly. I also believe the black economy is growing as support for Government, Banks and all the rest declines. I would imagine that more people would have strong negative views than say 5 years ago and few need much justification to reduce tax take from themselves.

            I also think inflation will rise due to food and oil; and in turn transport, manufacturing costs etc. Inflation in the last few decades has been exceptionally low, in part due to exporting of manufacturing to countries with lower costs. Now if there is inflation in any of these countries it will push up our own. Inflation a few years out will be over 5% and driven by factors outside our control so increasing interest rates will have little impact.

            A sharp rise in the currency values of emerging economies could have severe political consequences so those governments will resist such increases, that in turn may prove inflationary.

            The dollar dominates, but is in decline. When will the tipping point come and what will replace it?

            Totally agree the West is declining in relative economic importance, with it will come reduced political importance. I see nothing at present that would suggest resurgence. Interesting decade ahead.

  • joebhed

    It’s often hard to see how these charts are a real metric of the pain and the problem, but they are.

    Notably consumer savings going up 2 Trillion while loans to commerce and households are flat in the same period. Who’s balance sheet did you say that was?

    Proving all the more the lack of any NEED for these excess reserves – the major consideration for which should be with what will happen to them during and after the crash.
    Un-payble debts will cascade across the major banking sector, leaving nothing to keep the wage economy going, leading to a humongous pool of private losses. Unpaid loans will transfer securitized real  wealth to the debtors, who will have a huge pool of capital available for that old habit of asset acquisition. 
    Sorry ’bout that.
    Not my problem.
    Move along.

  • http://www.richnewbold.co.uk/ Richard

    No audio available on my iPad (they don’t run flash).

    • ModernMystic

      Well Knumbnuts, if you weren’t so brainwashed and stupid to buy a device that was intentionally disabled by its makers (Apple) so it wouldn’t run Flash, you wouldn’t have a problem now would you????

      • http://www.richnewbold.co.uk/ Richard

        Fuck off you twat. If you weren’t such a fucking muppet you wouldn’t have gotten your retarded self banned from this website and had to resort to trolling. Nobody is fooled by your stupid shit and I’m very sorry you’re so poor you can’t afford an iPad ;-)

        • ModernMystic

          Listen Fuck Face, the problem isn’t with me, it is you that bought an IPad that everyone on the planet knows doesn’t have Flash

        • ModernMystic

          BTW I am not a Troll, I comment as much as anyone on this site so fuck you

          • http://www.richnewbold.co.uk/ Richard

            You’re a scared little troll who has to pretend to be someone else because you don’t have the balls to use your real name – most likely because you know that you talk shit all the time and don’t Iike it when you’re dumb ass is called on it.

  • windslice

    No peak oil but peak cheap oil?

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9500667/Peak-cheap-oil-is-an-incontrovertible-fact.html

    AEP has moved off the EUR-Bashing for a bit. Doubtless he will return to that theme.

    • http://overthepeak.com/wordpress/ Mystic

       He’s a good boy, that AEP~!