Cynics are silent
- Thread starter FunSugarDaddy
- Start date
There is an attemt by the freak shows like Alex Jones/tinfoil hat/lightbearer/cocksuskers to highjack the reality of this economic disaster. You are getting them mixed up.Oh, don't get me wrong, I'm still in gold with both feet, and accumulating more as I go. I'm just a lot more quiet about it these days
I just don't see how the US can get itself out of the huge official debt they have ($11 trillion or $37K for each American), not to mention the crippling amount of unofficial debt ($61 trillion or $200K per citizen). Add an aging workforce and a gutted manufacturing base to the equation and I don't know where the fundamentals for a rebound come from.
Wess , you and I disagree about the Federal Reserve, but if you have 26 minutes to kill and want to watch a compelling argument for the other side, you should check this out: http://www.youtube.com/watch?v=Rz1b__MdtHY
There really is a depression coming up because the central banks have flooded the world with cheap money for a decade but that does not mean that those cocksuckers are right. They are making the problem worse by misleading the population with goofball theroies. Fiat currencies run their course and die out but that does not mean that everything that mother fucking duche bag Alex Jones says is true. That mother fucker makes us guys look like tinfoil hat wearers because we are buying gold.
Peter Schiff, Marc Faber, Max Keiser and Jim Rogers are all really rich guys that are also buying gold and calling for a depression but NONE of them believe any of this fucking garbage that tin foil Alex-the-child-molesting-cocksucker-Jones is peddling.
Funny how there's a corellation between having Lightbearer & Krustee being banned, and a noticeable drop in those types of posts, eh?
The video I mentioned above has no association with Alex Jones. It's a PBS Bill Moyers interview of an ex-US government bank regulator and now University of Missouri professor, William K. Black. He talks about the widespread corruption in the US banking system and how this financial crisis was, in his opinion, largely a planned operation.
I didnt have time to watch the video but I did now. I thought it was just some freak show conspiracy video which it is not.
Planned operation is not the right way of putting it. It turned into a way bigger disaster then any banker wanted it to. If you dont think so then ask the current CFO of Freddie Mack, well I guess you cant, he killed himself yesterday. Ben Bernanke is a Jew, intentionally bancrupting the American empire is not in his interest.
Of course. It was the last post I made before these ones in this thread.
The post date was March 12, 2009. The thread... https://perb.cc/vbulletin/showthread.php?t=104331
I said,
And it did. Since then we have seen the greatest rise in the market (over a similar time span) since 1934.
Where will the market be in 6 months? As I said I am back to being Bearish. I liquidated my stock holdings last Friday and I am sitting on the sidelines. I feel another significant crash in the offing.
even if things level off for a couple years, I am still just going wait for the US $ to crash.
There seems to be a crack in the genie's crystal ball, as the markets are on rocketing skyward and of course you cashed out. Big mistake.
Somehow I suspect I'm going to hear how you never really cashed out (or cashed out for a week) and you are heavily into the market and you made a fortune.
I strongly advise you invest all you've got into the stock market FSD.There seems to be a crack in the genie's crystal ball, as the markets are on rocketing skyward and of course you cashed out. Big mistake.
Somehow I suspect I'm going to hear how you never really cashed out (or cashed out for a week) and you are heavily into the market and you made a fortune.
As a matter of fact - you should take a second mortgage on your house & buy like there is no tomorrow.
It's ALL good!!!
Talk to ya in 6 months.
Just throwing this out there...
If you are familiar with permabear speak, the hard asset crowd doesn't think about the DJIA in terms of pure numbers, but in terms of the DJIA to gold ratio. This ratio peaked out at approximately 20:1 and has gone as low as 1:1 during true bear markets. We are now at about 10:1.
Leaving open the possibility that the stock market may not go down significantly in nominal terms but stay high as investors exit cash and buy anything rather than hold fiat currency bonds paying 1% to 2% per year, I believe in a real depression or stagflation scenario, we could still see DJIA to gold at about 5:1 or less before it's all said and done.
If this sounds weird, don't forget that the DJIA is actually measured in dollars, so the ratio is valid is you subscribe to the belief that gold is real money. In nominal terms, the Zimbabwe stock market is head and shoulders the best performing stock market in the world, but no one cares because their currency is not worth the paper it's printed on.
Look at the exchange rate of the US$ vs. the C$ the past few days (or even back to early March when this rally began), and also the yield on the long term US treasuries is creeping up despite the best efforts of the Federal Reserve to keep rates down by buying the long bonds themselves.
Whenever I think this maybe, just maybe, is the light at the end of the tunnel, I look at this picture and crawl back into my monetary bunker:
If you are familiar with permabear speak, the hard asset crowd doesn't think about the DJIA in terms of pure numbers, but in terms of the DJIA to gold ratio. This ratio peaked out at approximately 20:1 and has gone as low as 1:1 during true bear markets. We are now at about 10:1.
Leaving open the possibility that the stock market may not go down significantly in nominal terms but stay high as investors exit cash and buy anything rather than hold fiat currency bonds paying 1% to 2% per year, I believe in a real depression or stagflation scenario, we could still see DJIA to gold at about 5:1 or less before it's all said and done.
If this sounds weird, don't forget that the DJIA is actually measured in dollars, so the ratio is valid is you subscribe to the belief that gold is real money. In nominal terms, the Zimbabwe stock market is head and shoulders the best performing stock market in the world, but no one cares because their currency is not worth the paper it's printed on.
Look at the exchange rate of the US$ vs. the C$ the past few days (or even back to early March when this rally began), and also the yield on the long term US treasuries is creeping up despite the best efforts of the Federal Reserve to keep rates down by buying the long bonds themselves.
Whenever I think this maybe, just maybe, is the light at the end of the tunnel, I look at this picture and crawl back into my monetary bunker:
Last edited:
No, FSD, I am out of the market because I believe the current rally is a bear market trap.There seems to be a crack in the genie's crystal ball, as the markets are on rocketing skyward and of course you cashed out. Big mistake.
Somehow I suspect I'm going to hear how you never really cashed out (or cashed out for a week) and you are heavily into the market and you made a fortune.
Could I be missing out?
Absolutely. My best gains were with Teck Resourses (bought at $3.60 and sold at $12.59. Today it is at $16.35)
We have not yet turned the economy around. I believe there are just too many problems to work through and an unwillingness to accept the inevitable solutions.
Recall, I bailed last year in August before the largest crashes came and I think I have done so again.
And I admit, despite my apprehensions, it’s looking much more likely we’ll see more upside in the short-term than the start of a downturn.
Why? Because we haven’t run through all of the phases of a bear market rally.
Bear market rallies are unique events. They come when they’re least expected and can last a few days, weeks, or months. There’s no telling exactly when they will end. But if you pay attention to the life-cycle of past market movements, you can get a good idea of when this one is going to end.
The 3 stages of a Bear Market Rally...
Stage 1: “It’s all over”
The first stage of a bear market rally starts when the markets react to bad news as if it was good news. Whether it’s because bad news isn’t as good as bad as expected or it’s one of those “Green Shoots” (what a stupid slogan) which provide a glimmer of light perceived to be the end of the tunnel.
This happens when everyone thinks it will never turn around. It’s when many investors throw in the towel and proclaim “it’s all over.”
We hit that point in early March when I said that was the time to get into the market again.
Stage 2: Popular Declaration of Bear Market Rally
This is the stage where most commentators admit we’re in a bear market rally. The upswing has just been too strong and has lasted so much longer than initially anticipated by most, it’s obvious to everyone.
This call is always made in bear market rallies because there ere are no fundamental drivers and the fundamentals matter very little in this stage. Dividend yields, P/E’s, growth, and forward estimates aren’t focused on very much. The prevailing “thesis” is much more important than the underlying fundamental situation.
Today that 'thesis' is that stimulus spending will be great news for infrastructure stocks. Reality tells you that fundamentally many of these companies are still very, very weak - yet their stock takes off like a rocket.
Most everyone goes on to warn this is a bear market rally and advise against buying too much of anything now.
Commentators have been at this point for the last 3 weeks and I believe firmly that we were in stage two when I made my last post.
Stage 3: “All clear! Get in before it’s too late.”
This is the final stage. It’s when the bear market has been forgotten by most. Stocks move up, but the big upswings have disappeared.
This is when the very real risk of “panic buying” sets in. This is a result of the big money fearing 1) it has missed all the chances to buy low, 2) their performance will suffer, and 3) customers will take their money elsewhere.
To make up for lost time, they buy very aggressively. Many of them think short-term and want to deliver the numbers to keep pace with the competition in the money management industry. This is an extremely profitable stage for those who went against the grain and bought during the earlier stages of the rally.
I noted that this fact was identified on BNN on Tuesday as they credited as the host at 11:05 credited with upswings with a rush of investors to get in for fear of missing out.
Yet when the big money runs out of cash to buy shares, watch out, the end of a bear market rally is near.
So where are we?
Last week, Stage 2.
As of Tuesday we started to move into Stage 3. I believe what we are seeing now is that 'panic buying'.
Comments like FSD's confirm that for me.
I still contend that what we are seeing this week is a the requisite build up of false confidence which precedes most market declines.
There are still a lot of problems. Commercial real estate debt, deflation (and the debasing of currencies to prevent it), rising unemployment, and increasing and changing regulation to consistently change the rules and keep entrepreneurs and investors from tackling new opportunities.
No FSD, I am not back in the market.
A bear market rally is not something to bet against.
Hopefully you will get to gloat about how wrong I am on this.
Strangely enough I was talking to someone who about 2 months ago wanted to borrow about 100k and invest in the stock market. He ran the idea by me, and we discussed it and I thought it a pretty good idea, given how low the market was and that he didn't have any equity holdings in his retirement, as he has a nice pension and a commerical building worth a couple of million. Talked to him yesterday and it turned out he never acted on this. We were both discussing the fact he would have been up by a good 20-25%. Strange as it sounds he just can't get excited about a 15-20K gain as the numbers are too small to interest him, but such is life.I strongly advise you invest all you've got into the stock market FSD.
As a matter of fact - you should take a second mortgage on your house & buy like there is no tomorrow.
It's ALL good!!!
Talk to ya in 6 months.
Of course we're in a bear market trap if that's what you want to call it, but that doesn't mean money can't be made in it. (see post above)
But for the most part easy money, whether it's in real estate or in the stock market, isn't going to be easy to achieve. People are going to have to lower their expectations and be happy with single digit returns going forward, at least of the forseeable future.
Then you already have your answer as to what is going to happen over the next six months or less.
I am sure you would agree that anyone who wants to pull up a chair at the market casino in the near future should keep moving the stop/loss up on a daily basis.
As for me, as I said - I've gathered up my chips and am watching from the sidelines.
I'm just waiting to see if you local real estate market is going to collapse by the 40% that many claim it was going to. While the jury is still out, it appears the market has stabilized.
The sad truth is most investors have been forced to either sell while the market dropped or ride out this entire correction, with the latter course being the wiser of the two options. This applies to pensions as well as most owners of mutual funds either in registered or non registered accounts. Very few advisors, even those managing the QPP had your foresight. You're wasting your talents not running one of these entities.
===========================================================================
"In 2008, the rate of return on the Québec Pension Plan's reserve was -26,4%. The reserve's value fell from 34,7 billion $ as at 31 December 2007 to 25,7 billion $ as at 31 December 2008"
http://www.rrq.gouv.qc.ca/en/regie/salle_presse/fonds_regime_rentes.htm
Back seat drivers typically gloat. Hind sight is 20/20. Only time will tell. We are not out of the woods yet. We are only in the 2nd leg of downward trend. Predictable Spring RE bump and government intervention induced low interest rates has suckered greater fools to think they are taking advantage of a once in a life time bargain. I also suspect heavy activity from rich china mainlanders picking up assets for cash propping this uptick.
See the big picture folks. Case Shiller Index. Vancouver is the fastest declining from the peak compared to other Major NA markets.
http://1.bp.blogspot.com/_rt16FZ_z1...jQ9Quw/s1600-h/cs+total+decline+from+peak.jpg
Long term risk factors
1. Increasing Unemployment
Employment grew by 36,000 in April, the result of an increase in self-employment. Despite this increase, overall employment has fallen by 321,000 since the peak in October 2008. The unemployment rate was unchanged at 8.0% in April, remaining at its highest level in seven years, with the growth in employment coinciding with an increase in the labour force
http://www.statcan.gc.ca/subjects-sujets/labour-travail/lfs-epa/lfs-epa-eng.htm
2.Boomers retiring in next 10 years who just saw their stock wealth decimated and will depend on cashing out their biggest asset - house. 9,000,000 of them in Canada, comprising 32% of the population. On average, they are between five and ten years from retirement, and that has been pushed forward dramatically by the Recession. <excerpt Garth Turner>
3.Hyper Inflation forcing governments to signficantly raise interest rates from historic lows. Rates have no where to go but up.
http://www.etobicokehomes4sale.com/rates.jpg We are currently though economic contraction and deflationary pressure combined with billions of government stimulus plan injection. That's a recipe for a boomerang effect to drive potential hyper inflation in the future. No one knows as this economic situation is unprecedented.
Last edited:
Some counter-points:
1. why are you using current employment rates to discuss "long term risk factors" what's the employment rate going to be in 3-5 years? It would seem to me the current employment rate would affect current housing market prices.
2. Boomers still have to live somewhere and what's likely to influence the market locally is employment, interest rates and migration into/out of Vancouver. Currently there's likely a pend up demand as many young adults have been waiting years to get into the market. Most likely some of the boomers will downsize and their retirement will come from the difference between the house they current live in verse where they will move to. But that in itself doesn't mean the house they currently live in so goind go drop in value because of lack of demand. That's pure speculation.
3. Hyper Inflation -Time will tell where we are. You have an opinion and so do I and mine's just as valid as yours, and I think the market is aware of these factors you mentioned. They're hardly earth shattering.
Nobody really knows if hyper inflation is going to be a problem or not. Certainly the central banks believe they can control it, and there's no indication the bond market is panicked over it. Certainly mortgage rates aren't reflecting a huge anticipation in their inflation expectations.
So the real quesition is, do you know more than the central banks and the bond/mortgage markets?
I'm sorry i couldnt but I couldn't write a whole dissertation and research report on my gloomy outlook. But this topic is much more complex than just quick sound bite comments on Perb. Also it takes a basic broad understanding of many complex topics and issues which frankly I don't have time to ramp everyone up on.
You forgot to address the Case Shiller Index but let me address your points. See that steep decline? One better pray that there is a one hell of an magic bullet that will erase the last 8 years which created this structural economic mess.
<1. why are you using current employment rates to discuss "long term risk factors" what's the employment rate going to be in 3-5 years? It would seem to me the current employment rate would affect current housing market prices.>
Because I didn't have time to find historical trend in the past year. And the current trends based on the underlying structural problems of economy does not bode well for employment. And I NO can't predict the future and timing but I will provide an educated outlook and not get excited on 1 snap of data point of uptick. Yes young home owners have been waiting and now they have bitten. What's your point? Didnt I acknowledge that with the uptick induced by cocain low interest rate injections by the feds? Isn't that what got us trouble in the 1st place in this orgy of cheap credit for last 8 years? Governments, hedge funds and consumers?
This is just one of many. Read to really understand the economic situation. And NO Canada is not different. 80% of GDP is tied to exports to USA.
http://www.scribd.com/doc/13899164/2008-Jamie-Dimon-Letter-to-JP-MorganShareholder
<2. Boomers still have to live somewhere and what's likely to influence the market locally is employment, interest rates and migration into/out of Vancouver. Currently there's likely a pend up demand as many young adults have been waiting years to get into the market. Most likely some of the boomers will downsize and their retirement will come from the difference between the house they current live in verse where they will move to. But that in itself doesn't mean the house they currently live in so goind go drop in value because of lack of demand. That's pure speculation.>
Yes its speculation but still a risk factor. There has been major decline in wealth. Now that's a fact. Will they recapture it fully before retirement? Maybe. Maybe Not. Isn't that a real risk factor to consider and plan for? Isn't a majority of peoples wealth held in RE asset? Let's see mmm a horde needs to trade down....all those big homes who's going to buy? All those young folks who maybe sitting on little equity or no equity due to over leveraging with cheap credit today? Do you think when a bubble bursts or rallies its a simple straight line drop/rise from the peak/trough? There are gestation periods caused by short term government intervention and psychological factors of the marketplace.
<3. Hyper Inflation -Time will tell where we are. You have an opinion and so do I and mine's just as valid as yours, and I think the market is aware of these factors you mentioned. They're hardly earth shattering. Nobody really knows if hyper inflation is going to be a problem or not. Certainly the central banks believe they can control it, and there's no indication the bond market is panicked over it. Certainly mortgage rates aren't reflecting a huge anticipation in their inflation expectations. The real quesition is, do you know more than the central banks and the bond/mortgage markets?>
Hell ya. The world central banks didn't even forsee this crisis. Hell Carney and Bernake were all saying everything is all rosey while unemployment and economy was crumbling. Greenspan actually induced this whole mess with his low interest rate policy and letting the banks freely raise their reserve loan ratio over 40x! What about Clintons supported policy of Freddie Mac and sisters to issue subprime loans - every American must own a home policy!
Where was the central banks intervening during the last 8 years before the bubble burst? Answer that?
Hyperinflation is a real possibility. The government has put in a stimulus plan that is UNPRECEDENTED. Trillions of dollars pumped into the marketplace. Combine that with manufacturers and natural resource producers who have stopped production until built up inventory levels are reduced. Think about it. Low Inventory and Unprecedented $$$$ and low rate injection. If you know your economic history that is a potential recipe for disasterous hyperinflation.
You place too much faith in Government. Governments have clearly demonstrated reactionary behavior vs proactive. Where was the government to steer us away from this mess?
So far you have given me very tactical narrow arguements based on snapshots of current activity. Give me some fundamental reasons or solutions which address the serious situation to justify a rosey outlook.
Humor me, tell me what is the core cause of this economic mess/implications and what has the feds done to fix this?
You forgot to address the Case Shiller Index but let me address your points. See that steep decline? One better pray that there is a one hell of an magic bullet that will erase the last 8 years which created this structural economic mess.
<1. why are you using current employment rates to discuss "long term risk factors" what's the employment rate going to be in 3-5 years? It would seem to me the current employment rate would affect current housing market prices.>
Because I didn't have time to find historical trend in the past year. And the current trends based on the underlying structural problems of economy does not bode well for employment. And I NO can't predict the future and timing but I will provide an educated outlook and not get excited on 1 snap of data point of uptick. Yes young home owners have been waiting and now they have bitten. What's your point? Didnt I acknowledge that with the uptick induced by cocain low interest rate injections by the feds? Isn't that what got us trouble in the 1st place in this orgy of cheap credit for last 8 years? Governments, hedge funds and consumers?
This is just one of many. Read to really understand the economic situation. And NO Canada is not different. 80% of GDP is tied to exports to USA.
http://www.scribd.com/doc/13899164/2008-Jamie-Dimon-Letter-to-JP-MorganShareholder
<2. Boomers still have to live somewhere and what's likely to influence the market locally is employment, interest rates and migration into/out of Vancouver. Currently there's likely a pend up demand as many young adults have been waiting years to get into the market. Most likely some of the boomers will downsize and their retirement will come from the difference between the house they current live in verse where they will move to. But that in itself doesn't mean the house they currently live in so goind go drop in value because of lack of demand. That's pure speculation.>
Yes its speculation but still a risk factor. There has been major decline in wealth. Now that's a fact. Will they recapture it fully before retirement? Maybe. Maybe Not. Isn't that a real risk factor to consider and plan for? Isn't a majority of peoples wealth held in RE asset? Let's see mmm a horde needs to trade down....all those big homes who's going to buy? All those young folks who maybe sitting on little equity or no equity due to over leveraging with cheap credit today? Do you think when a bubble bursts or rallies its a simple straight line drop/rise from the peak/trough? There are gestation periods caused by short term government intervention and psychological factors of the marketplace.
<3. Hyper Inflation -Time will tell where we are. You have an opinion and so do I and mine's just as valid as yours, and I think the market is aware of these factors you mentioned. They're hardly earth shattering. Nobody really knows if hyper inflation is going to be a problem or not. Certainly the central banks believe they can control it, and there's no indication the bond market is panicked over it. Certainly mortgage rates aren't reflecting a huge anticipation in their inflation expectations. The real quesition is, do you know more than the central banks and the bond/mortgage markets?>
Hell ya. The world central banks didn't even forsee this crisis. Hell Carney and Bernake were all saying everything is all rosey while unemployment and economy was crumbling. Greenspan actually induced this whole mess with his low interest rate policy and letting the banks freely raise their reserve loan ratio over 40x! What about Clintons supported policy of Freddie Mac and sisters to issue subprime loans - every American must own a home policy!
Where was the central banks intervening during the last 8 years before the bubble burst? Answer that?
Hyperinflation is a real possibility. The government has put in a stimulus plan that is UNPRECEDENTED. Trillions of dollars pumped into the marketplace. Combine that with manufacturers and natural resource producers who have stopped production until built up inventory levels are reduced. Think about it. Low Inventory and Unprecedented $$$$ and low rate injection. If you know your economic history that is a potential recipe for disasterous hyperinflation.
You place too much faith in Government. Governments have clearly demonstrated reactionary behavior vs proactive. Where was the government to steer us away from this mess?
So far you have given me very tactical narrow arguements based on snapshots of current activity. Give me some fundamental reasons or solutions which address the serious situation to justify a rosey outlook.
Humor me, tell me what is the core cause of this economic mess/implications and what has the feds done to fix this?
Last edited:
Hyper-inflation? Maybe..maybe not
Here's a decent counter-argument about hyperinflation I read prior to posting earlier today.
It's a recent article from the Economist.
http://www.economist.com/daily/news/displaystory.cfm?story_id=13605679&fsrc=nwl
WHETHER it is for affordable homes or cheap goods, Americans are peering through the wreckage of the credit crunch and starting to buy again. After falling sharply in the second half of last year, consumer spending rose in the first quarter, and even sales of homes and cars have edged up from deeply depressed levels. Anticipating a rebound, shares of retail companies, especially those selling inexpensive items, have soared.
Ben Bernanke, the Federal Reserve chairman, characterised the news on consumers as “somewhat better” on Tuesday May 5th. Still, that cautious endorsement qualifies as downright ebullient compared to the gloom of a few months ago. A Fed survey of bankers, released on Monday, gave a hint of good news for consumers; though banks are still tightening standards on consumer loans, fewer of them are doing so than three months before. Meanwhile, there has been a long-overdue flurry of activity in the Fed’s programme for restarting the securitisation market. On Tuesday it supported the issuance of $10.6 billion of securities backed by student, auto, credit-card, small-business and equipment loans.
But do not mistake a bottom for a vigorous rebound. Consumption may be growing again, but there is every chance it will remain depressed in coming years because of weak income growth, depleted wealth, and tightened credit. Since the early 1980s, spending by households on goods, services and homes has grown faster than GDP, making it the locomotive of American—and global—expansion. By 2006, it accounted for 76% of nominal GDP, the highest since quarterly data begin in 1947.
This was accompanied by a steady decline in the personal saving rate and a rise in household debt relative to income. By itself, this was not a problem; household debt has risen relative to income since the 1950s, as a growing share of the population bought homes with mortgages. Despite the higher debt burden, falling interest rates kept total household financial obligations—interest payments, rent, and leases—range-bound during the 1980s and 1990s.
An inflection point occurred around 2000. Income growth stagnated but debts continued to grow rapidly from 94% of income to 132% in 2007. The share of income devoted to servicing those obligations also jumped. A study in 2007 by Karen Dynan and Donald Kohn of the Federal Reserve attributed that partly to more of the population reaching home-buying age, and mostly to a rise in home prices which made it possible to borrow more.
Financial innovation also played a role, they say, as the industry devised new ways for Americans to borrow against their homes. One manifestation was the plethora of credit-card offers to even marginal borrowers: more than 8 billion poured through Americans’ mailboxes in 2006, according to Mintel Comperemedia, a consumer-research firm. From 2003 to the end of 2006, consumers borrowed almost $2 trillion against their properties via home-equity loans and “cash-out” mortgage refinancings. A dramatic reversal is now under way. Last year, household wealth fell by 18%, or by $11 trillion. Macroeconomic Advisers, a forecasting firm, estimates the resulting negative “wealth effect” will depress consumption by 2% this year.
The financial crisis has killed off many of the loan products that had expanded access to credit during the boom. Subprime mortgages have disappeared and refinancings that deliver cash to homeowners are subject to stricter underwriting standards and higher fees. In the first quarter, the credit-card industry sent out just one-quarter as many solicitations as it did a year earlier.
A more enduring restraint will be the pressure on consumers to reduce their debts to more manageable levels relative both to income and to the much lower value of their homes. This effect is difficult to quantify since so many factors determine consumers’ preferred saving rate and level of debt: assets, retirement goals, expected income, risk tolerance, access to credit, age, and so on. Some bearish analysts argue that debt ratios and saving rates have to return to their levels of the 1950s, but others argue it would be sufficient to return to their levels of 2000 for households to feel comfortable with their debts again.
This process, known as deleveraging, requires consumption to grow more slowly than income in coming years. The longer it takes for debt to return to more sustainable levels, the more it can occur through rising incomes. A sudden rush to return debt ratios to their level of 2000 would require ridding households of some $3 trillion in mortgage debt—an impossible task. More likely, mortgage debt will grow more slowly than income through a combination of lenders writing off impaired loans, homeowners paying down existing mortgages, and new homeowners taking out smaller mortgages than in the past. Bruce Kasman of JPMorgan Chase estimates that the most dramatic phase of rising saving has already occurred and spending will grow only a bit less income.
But Martin Barnes of BCA Research, a financial-forecasting service, is more pessimistic. For debt to return to a more sustainable level, real consumer spending would grow just 1.3% a year from 2009 to 2013, the weakest such five-year stretch since the 1930s. It could grow even more slowly if taxes rise more quickly, he reckons, or if stagnant productivity impedes real income growth.
This implies that for America to grow at a trend rate of about 2.5% something else will have to grow more quickly. Ideally that would be exports and investment. But given the torpor in the rest of the world that will not be easy.
========================================================================
Now that article didn't address inflation directly but assuming the normal demand of supply and demand, they certainly see a significant shift in demand and normally inflation is associated with situations where demand exceeds supply and production is at or near full capacity. So while the fed's may have thrown trillions at the problem, it might be that this was to prevent deflation and it may serve as a substitute for consumer demand. If it turns out that consumer demand comes back to pre recession rates and the government stimulus is tacked onto it, then yes, hyper-inflation could occur, if this happened before the fed's could significantly raise interest rates. However if the markets thought that was going to occur they wouldn't be offering 5 year mortgage rates at under 4%, because unless the fundamentals of economic theory has changed since I graduated in the early '90s, interest rates are a function of the real return someone wants plus the anticipated rate of inflation. And I think it goes without saying that if you and I are aware of the potential of hyperinflation, those setting mortgage rates are as well.
Here's a decent counter-argument about hyperinflation I read prior to posting earlier today.
It's a recent article from the Economist.
http://www.economist.com/daily/news/displaystory.cfm?story_id=13605679&fsrc=nwl
WHETHER it is for affordable homes or cheap goods, Americans are peering through the wreckage of the credit crunch and starting to buy again. After falling sharply in the second half of last year, consumer spending rose in the first quarter, and even sales of homes and cars have edged up from deeply depressed levels. Anticipating a rebound, shares of retail companies, especially those selling inexpensive items, have soared.
Ben Bernanke, the Federal Reserve chairman, characterised the news on consumers as “somewhat better” on Tuesday May 5th. Still, that cautious endorsement qualifies as downright ebullient compared to the gloom of a few months ago. A Fed survey of bankers, released on Monday, gave a hint of good news for consumers; though banks are still tightening standards on consumer loans, fewer of them are doing so than three months before. Meanwhile, there has been a long-overdue flurry of activity in the Fed’s programme for restarting the securitisation market. On Tuesday it supported the issuance of $10.6 billion of securities backed by student, auto, credit-card, small-business and equipment loans.
But do not mistake a bottom for a vigorous rebound. Consumption may be growing again, but there is every chance it will remain depressed in coming years because of weak income growth, depleted wealth, and tightened credit. Since the early 1980s, spending by households on goods, services and homes has grown faster than GDP, making it the locomotive of American—and global—expansion. By 2006, it accounted for 76% of nominal GDP, the highest since quarterly data begin in 1947.
This was accompanied by a steady decline in the personal saving rate and a rise in household debt relative to income. By itself, this was not a problem; household debt has risen relative to income since the 1950s, as a growing share of the population bought homes with mortgages. Despite the higher debt burden, falling interest rates kept total household financial obligations—interest payments, rent, and leases—range-bound during the 1980s and 1990s.
An inflection point occurred around 2000. Income growth stagnated but debts continued to grow rapidly from 94% of income to 132% in 2007. The share of income devoted to servicing those obligations also jumped. A study in 2007 by Karen Dynan and Donald Kohn of the Federal Reserve attributed that partly to more of the population reaching home-buying age, and mostly to a rise in home prices which made it possible to borrow more.
Financial innovation also played a role, they say, as the industry devised new ways for Americans to borrow against their homes. One manifestation was the plethora of credit-card offers to even marginal borrowers: more than 8 billion poured through Americans’ mailboxes in 2006, according to Mintel Comperemedia, a consumer-research firm. From 2003 to the end of 2006, consumers borrowed almost $2 trillion against their properties via home-equity loans and “cash-out” mortgage refinancings. A dramatic reversal is now under way. Last year, household wealth fell by 18%, or by $11 trillion. Macroeconomic Advisers, a forecasting firm, estimates the resulting negative “wealth effect” will depress consumption by 2% this year.
The financial crisis has killed off many of the loan products that had expanded access to credit during the boom. Subprime mortgages have disappeared and refinancings that deliver cash to homeowners are subject to stricter underwriting standards and higher fees. In the first quarter, the credit-card industry sent out just one-quarter as many solicitations as it did a year earlier.
A more enduring restraint will be the pressure on consumers to reduce their debts to more manageable levels relative both to income and to the much lower value of their homes. This effect is difficult to quantify since so many factors determine consumers’ preferred saving rate and level of debt: assets, retirement goals, expected income, risk tolerance, access to credit, age, and so on. Some bearish analysts argue that debt ratios and saving rates have to return to their levels of the 1950s, but others argue it would be sufficient to return to their levels of 2000 for households to feel comfortable with their debts again.
This process, known as deleveraging, requires consumption to grow more slowly than income in coming years. The longer it takes for debt to return to more sustainable levels, the more it can occur through rising incomes. A sudden rush to return debt ratios to their level of 2000 would require ridding households of some $3 trillion in mortgage debt—an impossible task. More likely, mortgage debt will grow more slowly than income through a combination of lenders writing off impaired loans, homeowners paying down existing mortgages, and new homeowners taking out smaller mortgages than in the past. Bruce Kasman of JPMorgan Chase estimates that the most dramatic phase of rising saving has already occurred and spending will grow only a bit less income.
But Martin Barnes of BCA Research, a financial-forecasting service, is more pessimistic. For debt to return to a more sustainable level, real consumer spending would grow just 1.3% a year from 2009 to 2013, the weakest such five-year stretch since the 1930s. It could grow even more slowly if taxes rise more quickly, he reckons, or if stagnant productivity impedes real income growth.
This implies that for America to grow at a trend rate of about 2.5% something else will have to grow more quickly. Ideally that would be exports and investment. But given the torpor in the rest of the world that will not be easy.
========================================================================
Now that article didn't address inflation directly but assuming the normal demand of supply and demand, they certainly see a significant shift in demand and normally inflation is associated with situations where demand exceeds supply and production is at or near full capacity. So while the fed's may have thrown trillions at the problem, it might be that this was to prevent deflation and it may serve as a substitute for consumer demand. If it turns out that consumer demand comes back to pre recession rates and the government stimulus is tacked onto it, then yes, hyper-inflation could occur, if this happened before the fed's could significantly raise interest rates. However if the markets thought that was going to occur they wouldn't be offering 5 year mortgage rates at under 4%, because unless the fundamentals of economic theory has changed since I graduated in the early '90s, interest rates are a function of the real return someone wants plus the anticipated rate of inflation. And I think it goes without saying that if you and I are aware of the potential of hyperinflation, those setting mortgage rates are as well.
Last edited:
