If you want to get a reading of what the bond market has to say about the inflation vs deflation debate I would suggest that you perform the following comparison of spreads: Go to Stockcharts.com and run the daily spreads for $UST2Y:$UST3M then do the same for $UST5Y:$UST3M; $UST10Y:$UST3M; $UST20Y:$UST3M; and $UST30Y:$UST3M. The spreads for these effective Nov 12/08 are: 6.61; 13.17; 20.83; 24.67 and 23.17 respectively. Compare these spreads to the 50 day moving averages for each spread prior to Sept 17/08 (the day that the AIG bailout was announced). These current spreads are approximately 3.4x (times); 5.8x; 7.8x; 8x and 9.3x the spreads that existed prior to the AIG bailout. This tells me that the bond market is requiring significantly greater spreads to hold long term USGov’t money since the AIG bailout. Why? Since all US debt is considered “default risk free” then the only difference must be expectations of inflation over those periods. So since the 2 yr spread has increased by over 300% since Sept 16 the bond market is that much more fearful that the dollars that they will receive from the treasury will have a lower purchasing power than the dollars they invest today. Comments?
I would say that our current system is neo-mercantilist whereby government and corporations transfer wealth from the working class to the rich through collusion and other nefarious means. Mercantilism was the political-economic model that Adam Smith railed against in "Wealth of Nations". He created "capitalism" as a mechanism that would allow those who create the wealth to be the ones that profit from that creation based upon market & political forces he had studied/observed. I still believe capitalism is a best model amongst the other -isms and would hate to mischaracterize our current system with that noble possibility.
Davos, I’m reading my way through this transcript right now and there’s a lot to digest in it. I’ve been contemplating the effects of hyperinflation on my retirement accounts for some time now, and wondering if I shouldn’t just pull the money out, pay the taxes and penalty and invest in real estate. Now that I’m reading about the possibility of 401ks being turned into government managed pensions, I’m thinking that is not as crazy an idea as it first seemed to me a month or two ago… This interview isn’t going into any detail on practical steps to take to protect one’s apparent economic worth, but has this been addressed elsewhere in his writings?
many thanks for posting this link,
Sue
bsm20 said "These people are free-market, exponential growth economists." There is nothing free market about any of this, exponential growth yes but not free market. In a free market all these companies and individuals would have no choice but to file bankruptcy.
Sue:
I cant advise you. I would see if you can contact that Jason Pierce guy if he is a financial advisor. I’m an ex airline captain who barely made it through high scool. I will tell you that I made a killing 2 times before the real estate market popped, and I as a result had to pay tons in capitol gains.
We did the maximum deleveraging and when our friends were buying commercial real estate and macMansions and fancy cars we ourselves built a home 1/2 the size of our last one (1800 sq ft for a family of 4). and we bought 1999 cars, paid cash, they get good mileage. We also figured we needed to sell our land before it went down or before there were no buyers, despite the cg tax.
I also emptied my 401ks in 2006. We wound up with an unexpected one and we just bailed on it, my other half refused to listen to me until she lost a wheelbarrow of money.
Looking back I have zero regrets. A lot could change depending on how proactive they are, but the new administration is smart. The only way they can destroy there debt it to inflate. It will destroy the peoples debt mortgages to.
Thats just me and what I did, I’m not telling you it is what you should do nor am I advocating you do it. I could be wrong. I just read a lot but that doesn’t mean I always get it right.
Take care
PS Sue: We sold off excess real estate - that is just me. I’d pay down everything and get some PMs. When the Great Depression hit in 1929 1/4 of the real estate in Mississippi went up for auction.
There are no sure things. PM’s were executive ordered away from their owners.
Also, you can listen to the show rather than read, that is what we did.
http://www.netcastdaily.com/broadcast/fsn2008-1108-3a.asx (44 minute scroll to that point- prior part stunk)
http://www.netcastdaily.com/broadcast/fsn2008-1108-3b.asx really good
I’m posting the second on the deflation thread, it changed my prosepective, I guess I was in the confusionist camp.
Humbled again.
Froggy,
They have a dynamic yield curve on stockcharts. It looks like the spreads you’re looking at are due to decreases in short term yield. The longer term yield, as the 20 year haven’t moved much. Might be Fed pushing on the short term rates or flight to "safety" or parking money from the stock market where the holder at least gets back principal, etc.
Caasi
Article from the BBC in England.
How much does the average chinese manufacturing worker earn in dollar terms?IN 2004 the Association of Asian Research said
" A recent study shows that the average monthly income of 70% of business
workers in Mainland China is between 800 yuan (US $97) to 2,500 yuan
(US $302)."
If the BBC’s analysis is correct on a convergence of the US and China’s economy then the deflationary wave that is about to hit the US and the UK is a Tsunami that will wash the vast majority of people’s finances ( that is anyone with any debt of any kind) - completely away.
I try not to be pessimistic I really do!
Forced convergence of China and US
- Robert Peston
- 12 Nov 08, 08:35 AM
So
how much of the US economy, the home of free enterprise, will end up
being nationalised or bailed out by the state during the current
economic crisis?
So far we’ve seen banks, mortgage companies, and a mighty insurer
all being propped up and bossed around by the federal government.
And now it’s the real economy, manufacturing, that US taxpayers are set to rescue.
Last
night, for example, the Democrat Speaker of the House of
Representatives, Nancy Pelosi, urged Congress to provide emergency
financial help for the crippled US automotive industry.
What’s being requested by General Motors, Ford and Chrysler is $50bn
in loans, on top of the $25bn in low-interest borrowing approved by
Congress in September for retooling plants.
As cash-strapped US consumers continue to feel this is not the best
time to buy a car, and are purchasing fewer vehicles than at any time
since the early 1990s, most at risk of collapse is General Motors, the
largest US carmaker.
Pelosi made clear that she felt the big automakers had to be kept
out of bankruptcy at all costs, because of the danger that its failure
would lead to massive damage to suppliers and connected businesses,
with the possible loss of millions of jobs. A recent study by the
Center for Automotive Research concluded that the failure of just one
carmaker would lead to 2.5m job losses.
The scale of what’s at stake was captured chillingly in a quote from
a bankruptcy lawyer at White & Case, Alan Gover, who is quoted on
Bloomberg: "Trying to reorganise the auto industry in bankruptcy would
be as close to reorganising the whole US economy as you could get," he
said. "The vast supply chain involves thousands of businesses, millions
of existing jobs and just as many retirees, as well as whole
communities and states".
But here’s what some may see as ironic, even - in a dark way - slightly amusing.
The fundamental cause of America’s woes (and ours too) is that its
consumers, businesses and government all borrowed too much in the good
years, especially from China.
China’s semi-nationalised, heavily state-controlled economy
generated huge financial surpluses through its massive trade in
manufactured goods with America. And those financial surpluses were
recycled back to America in the form of loans, so that US consumers and
businesses could buy even more from China’s factories and workshops.
These massive trade and financial imbalances were unsustainable -
and are now being brought closer to equilibrium in a painful way.
Because US financial institutions both borrowed and lent too much,
and because many other mighty companies took on far too much debt, they
have been facing collapse. And where they are perceived as too big too
fail (where the collateral damage were they to fall over would be
devastating), the US government is stepping in with financial succour
from taxpayers.
For years the great trend in the world was the embracement of free enterprise in China.
But now, in America’s darkest hour for generations, the US is
embracing a form of state-control and intervention that looks
remarkably Chinese.
http://ap.google.com/article/ALeqM5iRxZox4GFoIweckPDP1oRhKBlHOwD94CCDU00
I’ve posted this before under a different thread. If you listen to the audios above that I posted it will make sense why I posted it.
Basically, I think one area of this that a lot of us don’t want to address (myself included) is the remification aspect.
The audio a few links up points out that this is so big (debt) that we have to go back to the 17th century to get a historical prospective on what could happen when it happens.
The economist in the audio says there are 4 possibilities:
- Dissentigration - back to the stone ages
- Dictatorship (why I think article has merrit)
- Some sort of a Congressman Ron Paul revolution
- A leader like the guy at the turn of the 19th century in England who got the economy turned around
So, GE gets $139 billion worth of FDIC protection, the day after Amex becomes a bank to pick up its share of plunder. During the presidential interregnum, the boodling and logrolling has spiraled completely out of control. Nobody’s minding the store, and the corporate looters are stripping the shelves bare.
Never mind that it ain’t working – this is the retest of S&P 850. Right here, right now.
This gleeful, hooliganistic looting spree just toasts my ass. I would like to barbeque me some plutocrats on a slow spit, as ah sang this song:
Welcome to Paulson’s underground
We’ve got a barbeque all year round
Plenty of corporate looters around
Gonna have ourselves a ball
So pull up a chair, you can chew on the fat
Gets a might dry, but we like it like that
Dance with the devil in a stetson hat
WELCOME TO ‘BK’, Y’ALL!
http://www.daveandtracy.com/lyrics.php?uid=606
ah ha ha ha
AH HA HA HA
Check out this link, it’s real:
Davos, the thread you poste was to a news article from Associsted press. I would really like to listen to the audios. Can you repost?
Knd Rgds
Northern soul
Hello Northern Soul:
Certainly.
Since I don’t know what media player you have here is the best link: (Please note the times becuase a lot of it is a waste.)
http://www.financialsense.com/fsn/BP/2008/1108.html
On the top of that page you will see:
The BIG Picture Transcript
November 8, 2008Part 1 RealPlayer | WinAmp | Windows Media | Mp3
Part 2 RealPlayer | WinAmp | Windows Media | Mp3
Part 3 RealPlayer | WinAmp | Windows Media | Mp3
Times:
Part 1 start at the 44 minute point and go to the end.
For Deflation/Inflation and the US destruction of its debt (how I truly believe they are going to get all their crud off all their balance sheets) watch Part 2 from the beginning on, I am still finishing it, making notes and fact checking, but so far I’d bet my last buck on this!
Hope that helps & take care,
The changes in this plan were planned well in advance of its being written. Once the central boys got their bonus’, it was on to taking care of the others and throwing some smaller bones around as a way to make the deals look ‘fair’. Ford and GM are major manufacturing organizations, and they stand as national icons. They will do well at our expense, and we will allow it. Why? Because we allowed our system to bamboozle us into allowing this monster to be created.
Overall, none of us here should find any of this surprising, but nonetheless angering. The failure of the press to report on the blatant refusal of the Treasury to show where/when/how this money is flowing, besides not even asking about it, speaks to a level of collusion we may never uncover.
The real potential here for multi-national monetary structures to abound, all controlled by purely banking interests, coupled with outrageous increases in government controls and regulations is not just possible, but happening. If one uses all the information offered on this site, it should be quite clear that what is happening today has been in the planning stages for decades - if not longer.
The potential for both a dictatorship-like structure is looming on the horizon for the US. But, given the propensity towards violence in this country, and the availability of arms that other nations don’t have, civil unrest and mass carnage would almost certainly be the result - then again, this could all be planned on as well.
We’re being played folks!
Bob:
I thought about this. You may be quite right. If you are, Paulson looked a lot like the deers I have seen in my headlights.
I’m betting that he is a clueless exNixon assistant to convicted plumber. One word: moron. I really don’t think they have a plan and if they did I doubt he could read it let alone carry it out.
Having said that I wouldn’t doubt that the bankers in the early 1900’s didn’t forsee this leading to a global currency and power. But if there is a plan, I don’t think Paulson is part of it.
Thanks Davos, i’m off to listen to the second interview right now. Are you meaning that you not only took your 401k out of stocks and bonds, but you withdrew the money entirely from the vehicle? Is gold what people buy when they do that? It’s so inflated (seeming) right now and difficult to buy, I’m quite intimidated by that move…
I’m at a loss, in part because I’m only a month or two into this whole new understanding of the world’s economy, but also because we’ve intuitively been downsizing and simplifying our lives ever since we had kids 10 years ago. The advice I’ve read is to crank down on spending and pay down debt fast. But we have no debt, aside from our mortgage, which is half the size it was in California (we were lucky to sell a year ago and move to somewhere cheaper.) So that’s $70k at a fixed 6 percent. And we have cars that are ancient by most people’s standards, 95-2000, but still run fine. And we have $22k in savings, but I’m thinking I should spend that on durable goods that will make us more self-sufficient (a woodstove, insulated windows and blinds, a chest freezer) before hyper-inflation hits and destroys the value of it. Now I’m wondering if we were stupid to get a smaller mortgage and stay out of debt, as it sounds like debt will be erased through hyper-inflation…
I need to subscribe to the site and start reading through Chris’ report. I’ve been waiting for current events to unfold and, as they have, continue to reinforce his message, but it’s clearly time to dive more deeply into this educational process.
Again, many thanks!
Sue
Hello Sue:
There are more qualified people to get advice from than me!
Having said that, you look like you are in SUPER shape.
To clarify, I sold EVERYTHING, every peice of land (save for the small house we built ourselves) every stock, every 401k and IRA gone penalties paid, taxes paid. Better to have no debt than to lose everything.
If I were in your shoes: pay down everything you can. Hang on to a few bucks to make your mortgage payment. Gold, if (I’d say when) there is hyperinflation will pay nutty prices that you and I could (will) see. A few pieces is a great insurance policy. It is getting harder to get. Buy bullion, know that the feds confiscated it in 1933, know also that Ben’s paper (you can find and download it) says he doesn’t believe in the gold standard. But he is an id*^t so I’d expect he will be asked to resign and who knows that the G20/7/8 will insist on.
I’d be able to heat by wood (put a metalbestos chimney in they are safe, use a Jotel stove or a soapstone stove), if there is hyperinflation people will freeze is my guess. Generator?
Guns and lots of amo to hunt with. Seeds and a garden. Freezer and a generator. Spend 2-3 grand on food and stuff you will use over the next year. Look poor, dress poor act poor.
Hope that helps, don’t hate me if I’m wrong!!!
Take care.
PS Raise some chickens, great fresh organic eggs provide super protein.
I listened to the audio program at Financial Sense. Overall I think it was a good summary of both the inflationist and deflationist arguments. However, what they did not mention in their argument for inflation (unless I missed it) is that in order to have a monetary expansion both lenders and borrowers are needed. The problem at the moment isn’t so much a lack of people willing to lend as it is a lack of people willing to borrow.
Mish has published several posts on this over the past few weeks which strongly suggest that consumers are tightening their belts, spending less, and borrowing less. Without willing borrowers, it’s impossible for the money supply to expand. With asset prices continuing to fall and less money being borrowed, deflation seems the likeliest outcome in the short term. Inflation will only begin if people start borrowing again.
I’m no expert, so feel free to correct me if I’ve missed something.
Here’s a recent post by Mish on the subject: http://globaleconomicanalysis.blogspot.com/2008/11/industrial-bond-yields-strongly-support.html
Hello Switters:
Let me preface my take with your discalimer, "I’m no expert, so feel free to correct me if I’ve missed something."
That said: I’m listening again (third time now - I’m a little thick) but I believe what he said was if or when there is Quantitative easing (Fed goes to zero interest like in Japan) and the Feds balance sheet will increase ny 50% by YEARS end. Also G3 US ECB and BOJ that balance sheet is over 5.5 trillion. Budget AND trade deficits are bother almost 1 trillion/and over 1 trillion repsectively. Remember that everything big is off balance sheet (war, Katrina bailout etc.)
So they buy more bonds to keep interest low with Quantitative easing. 6 months later (post stimulous) watch out becuase they will "monitize" (counterfiet or as Rudy G would likely say, "print, baby print") their stimulous package(S) and God knows, there will be HUGE stimulous packages. My hunch, Paulson’s will look like something that can buy a loaf of bread.
Doing this will DESTROY fixed debt. I guess there is a way to do total foregiveness of debt.
That is my high scool take on it.
Be interested in hearing someone with more "gray matters" take on it.
Take care
It is scary. The numbers being thrown around are simply crazy and it is our money. Here is my proposal for a bailout plan. Give everybody who has a social security number one or two million dollars to do with as they will. The total cost for that bailout is under a billion. then everybody would have a little cushion as they let everything else survive or fail based on their own merits.
Radical but at least less costly.
good suggestions on what the Fed should do? I don’t think there’s any conspiracy theory here… Paulson isn’t incented to destroy the financial system and I truly think he’s a bright individual. Is he helping out Goldman at the same time? Maybe but is it the driving force behind his agenda? I don’t think so… for all those brilliant theorists out there, how about a few suggestions on what they should do? I’ve seen so many people make calls on what will happen, where the market will go etc… but when they’re wrong, you don’t see them coming on the board and saying that they had it wrong… they’ll wait until they hope people forget their ill conceived prediciton or they will wait for a lucky moment in time when they seem like they’ve got it right and then brag about it. Meanwhile for those who predicted a rebound to 9000 on the Dow, I doubt they’ll be admitting they were wrong at these levels and then if it does come back up, they’ll come on the boards and say what geniuses they were. In the meantime, they might not mention that they would have been off by 800 points before they were right… sigh
Anyways, enough of the rant… let’s see some good suggestions, document them and then see if they stand the test of time.