Get It Right, by Robert Gore
The received wisdom before last week’s US stock market plunge was that China’s economic and financial problems would remain local. After the plunge, the revised received wisdom is that it’s all China’s fault. Neither analysis is correct. China has entered a debt contraction after one of the greatest, if not the greatest, debt expansions in history. Its problems are exacerbated by its lack of freedom and its command and control government (they’re communists, after all), which stands revealed as unable to dictate economic outcomes. It has its fingers crossed that its inability does not cross over into the political realm, probably a vain hope.
The US has entered the same debt contraction phase as China—just a few months later—after a debt expansion that dates back to the 1960’s, when Presidents Johnson and Nixon opted for guns and butter on the installment plan. Nixon cut the last fiscal tether to reality in 1971 when he closed the gold window. The US’s problems will not be solved by the command and control ministrations and manipulations of its government and central bank, any more than China’s have been.
Governments and central banks are the problem, not the solution. The market-based solutions of debt contraction, asset repricing, insolvency, bankruptcy, reorganization, economic contraction, reduced consumption, and unemployment are not planks of a platform designed to win next year’s US election or quell Chinese unrest. They will, however, happen regardless of who’s running things in either nation. The one certainty is that the powers that be in both nations will make matters worse.
This is an excerpt. The rest of the article can be accessed by the link above.
The US has entered the same debt contraction phase as China—just a few months later—after a debt expansion that dates back to the 1960’s, when Presidents Johnson and Nixon opted for guns and butter on the installment plan. Nixon cut the last fiscal tether to reality in 1971 when he closed the gold window. The US’s problems will not be solved by the command and control ministrations and manipulations of its government and central bank, any more than China’s have been.
Governments and central banks are the problem, not the solution. The market-based solutions of debt contraction, asset repricing, insolvency, bankruptcy, reorganization, economic contraction, reduced consumption, and unemployment are not planks of a platform designed to win next year’s US election or quell Chinese unrest. They will, however, happen regardless of who’s running things in either nation. The one certainty is that the powers that be in both nations will make matters worse.
This is an excerpt. The rest of the article can be accessed by the link above.
Who made that claim?
“At the first hint that the rate won’t be raised we’ll see one of those one- or two-day wonder rallies that crucify the shorts. In the long run, it will be an almost imperceptible upward squiggle on a stock chart”
This claim is true at any time. Financial articles speculate and wring their hands over monetary policy decisions not because they matter so much but because they're easy. We know when decisions are coming and when the sealed deliberations will be released a few months later. It doesn't mean that's important information for investors.
“For those who are prepared and who get it right intellectually, there will be comic, even hilarious, moments.”
You could look at it that way. I remember listening to commentators at age 12 after the Oct 1987 crash. Something happened in the financial markets that supposedly shocked the adults of the world. I listened to some of it in the recession of '91, which I recall as more like prolonged whining that lasted five years. When I got my degree in engineering and made money with incentive options, I believed the world had changed. We were creating something that would end war and the nation state, and blow away previous valuation models. It was early 2001 sitting in a bar on a business trip watching financial news that I realized how wrong I was. The recession of '01 caused about 20% of my colleagues in the electronics world to leave the industry. I remember hearing people saying the world as we know it coming to and end. I had heard that before after the crash of '87 and the recession of '91. Eventually the recovery got under way. I sold my condo in '04 for twice what I paid for it and rented a decently nice house all through the recession of 08-09. Histronics hit a fever pitch when my first son was born in '08, and it occurred to me then that people were probably going equally ape during the recession of '75 when I was born. I remember laughing about it and filming my wife rocking our first baby to song Disturbia. We joked we were capturing a bit of the zeitgeist of his infancy. I guess it was like Network when I was baby. Where coming up on ten years after the last recession. Our investments from those times have doubled. For the past few years, with a few exceptions, we've found it easier to get customers and easier to raise prices. So I predict a serious of rate hikes and major hand-wringing and histrionics. It has to get to that point before we even begin to solve problems like the fiscal deficit. I'm confident we will, but it only comes after we after to raise rates to control inflation and long-term rates are too high to allow us to borrow our way out of it as in the stagflation when I was baby. Lots of bellyaching will be forthcoming. I guess I agree the best approach is to laugh. I'll just turn off the news and turn on some Pearl Jam and pretend like it's the recession of '91.
https://youtu.be/p47fEXGabaY
Except people with stuff to trade can use Bitcoin or foreign currencies. People with wealth to invest and people with good ideas that require investment can come together in other ways. The national banks and financial institutions think they're the source of the one thing that allows people to trade without mutual coincidence of wants. If they can't manage it right, though, people will find alternatives much more quickly than they could in the days when you could buy a news paper in one city, get on a train, and sell it at your destination to people wanting news from another city.
BUT remember: 1929 - 1940 was before birth control and legalized abortion as well as so many "military-industrial complex" endless nonsensical wars of attrition.
You need people to create supply-and-demand. "Credit" is a mortgage on the future. If there is no future, then there is no need for mortgaging it.
Frankly, I think that we are doomed...mostly because of lack of a long-term philosophical view of life.
I know one does not like to be the harbinger of bad news. :( Sooner or later these policies must end badly. The most unfortunate thing is that the more bandaids and short term solutions that do not address the underlying bad economics only portend a more devastating outcome.
As I write this the market is down another 347.85... for those with retirement funds relying on the market this must be terrifying.
Respecfuly,
O.A.
http://straightlinelogic.com/2014/11/...