Credit deflation and the reflation cycle to come (part 5)

[Starsend]

Or they could say Putin nicked all your money - yeah that would do it.

[TNS]

3 minutes ago, Bilbo said:

I think just one delivery a week would be ok for most domestic homes.

Telegraph today.

https://www.telegraph.co.uk/business/2023/03/28/royal-mail-bosses-threaten-administration-amid-strike-chaos0/

 

Most post I receive is from the likes of the council. The bulk of companies have entered the 21st century and just send an email / app notification.

[Yadda yadda yadda]

19 minutes ago, Starsend said:

The devil will be in the detail. I'll wager that they didn't have as financialised an economy as we have - I doubt mortgages even existed. I don't see how you could gift half the country a free house while stealing that directly from those who've worked a lifetime to pay for theirs and save for their old age - leaving them in poverty. I cannot see how this could possibly work without ripping the entire country apart (never mind working well).

The only way they could get away with it (without being hung from the nearest lamp-post) is by making sure that only a small number lose while a majority gain. What was being suggested would mean many losing, more than those who gained.

 

The government would be by far the biggest gainer. No debt rather than 100% of GDP. They can cut taxes to assuage those that lose. Who has all their money in cash or bonds? Shares are winners. I'm unclear on private pensions in payment. If they're sacrificed then that causes trouble.

Cash and bonds would be near enough worthless at the point of reset anyway. Disaster first then reset.

[Castlevania]

This popped up on my Twitter feed. Lloyds Bank don’t seem to have learnt anything from the last crisis. Maybe debt deflation cometh.

 

[Long time lurking]

Who would have thought it 

Who would have thought it 

Who would have thought it 

[Pip321]

41 minutes ago, Starsend said:

The devil will be in the detail. I'll wager that they didn't have as financialised an economy as we have - I doubt mortgages even existed. I don't see how you could gift half the country a free house while stealing that directly from those who've worked a lifetime to pay for theirs and save for their old age - leaving them in poverty. I cannot see how this could possibly work without ripping the entire country apart (never mind working well).

The only way they could get away with it (without being hung from the nearest lamp-post) is by making sure that only a small number lose while a majority gain. What was being suggested would mean many losing, more than those who gained.

 

About mortgages in a reset.

There was another chap on video posted last year (sorry forget when/who) but he had studied resets and was close to one in South America, might have been Mexico.

The mortgage ‘rights offs’ weren’t quite as simple as just being forgiven. He described hyper inflation taking place in the old currency which depreciated really fast but also high interest rates upon those old mortgages….so if you have a mortgage it depreciates fast but the payments rocket. The example he gave was interest rates of say 40/50%, so you had to keep paying (albeit in a depreciating currency) but you may have been better off if you had the old currency just getting rid of the debt in the first place. He described it that many people then defaulted (due to these high rates) the bank takes the asset (which is real) and the borrower end up with no debt but no asset.

What is interesting was that interest rates on dying currency went up….but only a bit. Basically the house wins every time. 

I am not sure if what I describe will happen but it perhaps makes a bit more sense.

[Virgil Caine]

33 minutes ago, Yadda yadda yadda said:

The government would be by far the biggest gainer. No debt rather than 100% of GDP. They can cut taxes to assuage those that lose. Who has all their money in cash or bonds? Shares are winners. I'm unclear on private pensions in payment. If they're sacrificed then that causes trouble.

Cash and bonds would be near enough worthless at the point of reset anyway. Disaster first then reset.

How are governments going to raise money post any debt write off. No one would want their bonds or cash so they would have to rely on taxes. The British economy is also pretty dependent on government spending. You would need to have the money in assets outside the U.K. because any write down is going to cause a collapse in demand far greater than any conventional recession. That in turn would also lead to mass unemployment and hit the tax take. The most recent national debt write off in the west was in Germany post World War 2 but in that case the economic rebuilding was paid for in US dollars (ie there was an external source of capital funding).

Edited March 28, 2023 by Virgil Caine

[Talking Monkey]

14 minutes ago, Pip321 said:

About mortgages in a reset.

There was another chap on video posted last year (sorry forget when/who) but he had studied resets and was close to one in South America, might have been Mexico.

The mortgage ‘rights offs’ weren’t quite as simple as just being forgiven. He described hyper inflation taking place in the old currency which depreciated really fast but also high interest rates upon those old mortgages….so if you have a mortgage it depreciates fast but the payments rocket. The example he gave was interest rates of say 40/50%, so you had to keep paying (albeit in a depreciating currency) but you may have been better off if you had the old currency just getting rid of the debt in the first place. He described it that many people then defaulted (due to these high rates) the bank takes the asset (which is real) and the borrower end up with no debt but no asset.

What is interesting was that interest rates on dying currency went up….but only a bit. Basically the house wins every time. 

I am not sure if what I describe will happen but it perhaps makes a bit more sense.

That does make sense as it describes a situation where debt holders get stripped of assets as the system accelerates towards reset and fits with the house always winning. 

[Plan-b]

24 minutes ago, Long time lurking said:

Who would have thought it 

Who would have thought it 

Who would have thought it 

Definitely worth saying 3 times...

The west is being run by mouth breathing morons, I can't remember seeing a good idea from any western Government for a long time. 

 

[Yadda yadda yadda]

27 minutes ago, Pip321 said:

About mortgages in a reset.

There was another chap on video posted last year (sorry forget when/who) but he had studied resets and was close to one in South America, might have been Mexico.

The mortgage ‘rights offs’ weren’t quite as simple as just being forgiven. He described hyper inflation taking place in the old currency which depreciated really fast but also high interest rates upon those old mortgages….so if you have a mortgage it depreciates fast but the payments rocket. The example he gave was interest rates of say 40/50%, so you had to keep paying (albeit in a depreciating currency) but you may have been better off if you had the old currency just getting rid of the debt in the first place. He described it that many people then defaulted (due to these high rates) the bank takes the asset (which is real) and the borrower end up with no debt but no asset.

What is interesting was that interest rates on dying currency went up….but only a bit. Basically the house wins every time. 

I am not sure if what I describe will happen but it perhaps makes a bit more sense.

This is much more what I would expect with the caveat that long term fixed rates would be just that. Another advantage for Americans.

Clive's view that mortgages and other debts whither away presupposes that you are paid in new pounds and those new pounds are freely convertible into old pounds. I think that if you have debt that you can easily afford pre-reset you would be alright. If it is not comfortable at the time of reset then you cannot guarantee that it will be easily paid afterwards.

Again a reset will only occur after hyperinflation has started. There has to be a selling point. Hyperinflation in the west could be very rapid onset if the dollar loses status at speed.

Edited March 28, 2023 by Yadda yadda yadda

[Yadda yadda yadda]

22 minutes ago, Virgil Caine said:

How are governments going to raise money post any debt write off. No one would want their bonds or cash so they would have to rely on taxes. The British economy is also pretty dependent on government spending. You would need to have the money in assets outside the U.K. because any write down is going to cause a collapse in demand far greater than any conventional recession. That in turn would also lead to mass unemployment and hit the tax take. The most recent national debt write off in the west was in Germany post World War 2 but in that case the economic rebuilding was paid for in US dollars (ie there was an external source of capital funding).

People loaned money to Argentina on long term bonds. With their history. They loaned to Austria, I think, on 100 year bonds at near zero coupon.

[Virgil Caine]

1 hour ago, Yadda yadda yadda said:

The government would be by far the biggest gainer. No debt rather than 100% of GDP. They can cut taxes to assuage those that lose. Who has all their money in cash or bonds? Shares are winners. I'm unclear on private pensions in payment. If they're sacrificed then that causes trouble.

Cash and bonds would be near enough worthless at the point of reset anyway. Disaster first then reset.

It all comes down to what is considered debt. Legally equity is a contractual claim to property rights but in accounting  terms it is a liability on the companies books just like any other debt. In addition the bond market is massive compared to the equity market as a source of funding. To work bond holders would want at least an equity share otherwise corporate funding would simply evaporate.  
 

My personal view is that debt write off would simply be the theft of the accumulated savings of workers and a massive gift to speculators. Therefore any debt write down needs to be via a formal resolution through bankruptcy (ie the debt gets written off but the assets are redistributed to the creditors). The mechanics might be tweaked about who gets what but the principle that the debtor should not benefit in any material from taking on risky leverage should not be violated.

Edited March 28, 2023 by Virgil Caine

[belfastchild]

1 minute ago, Yadda yadda yadda said:

Again a reset will only occur after hyperinflation has started. There has to be a selling point. Hyperinflation in the west could be very rapid onset if the dollar loses status at speed.

Another good point to tout 'When Money Dies' and wiemar hyperinflation. Just replace the new mark (and its various iterations) with digital currency.

Anyone notice the Nationwide giving 5% cashback on using their debit card to purchase food for 3 months?
Certain retailers. Including Tesco, Lidl ... Fortnum and Mason.

 

oh and cant edit a previous post where I said mortgage in 2005 when I meant 1995 but still sort of makes sense.

[DurhamBorn]

6 minutes ago, Plan-b said:

Definitely worth saying 3 times...

The west is being run by mouth breathing morons, I can't remember seeing a good idea from any western Government for a long time. 

 

My gypsy friends wont be happy,they have set up contacts in South Africa to import ICE cars from ther "second hand" to the UK once new car sales of them here are banned.Now that Europe have dont that UK will have to follow,or we will have zero car industry and all cars imported.Utter lunacy the lot of it.

[JMD]

12 hours ago, Starsend said:

Complete nonsense. All those debts are somebody else's assets, often pensions. So somebody gets gifted a free house by having their mortgage wiped out at the expense of somebody's lifetime savings (pension) being wiped out. It would be absolute anarchy. Many people, myself included, would  refuse to pay anybody a penny ever again, including taxes, council tax etc.

They'll have to come up with something better than that.

Given the right (politically manufactured) set of crises circumstances, I could easily see a CBDC/currency reset being tried. After all the COnVID crises successfully shut down the world economy sporadically for 2 years on and off, and moreover the majority even thought this was done by a caring responsible government! Dumb I know, but personally I'm awaiting the even dumber part deux.

Having said that It could be that the CBDC/currency reset turns out to be only useful as a framing narrative for future risk (rather like the chicken coup video posted here recently, comparing the existence of the chickens within the coup to the proposed 15 minute cities for us humans). Perhaps it's a useful warning analogy...  with the CBDC being the equivalent to the enclosures act - and we are the digital-serfs being robbed of assets and freedoms? 

Anyway I have previously expressed that I don't think the proposed CBDCs will have all the - often discussed - control features mainly because of the complexity involved. However, I do still think that the coming CBDC, with its £20k(?) proposed limits etc (recent BofE speech below), once the infrastructure is in place, will become an irresistible tool for our (dumb and dumber) politicians to implement bigger 'solutions'.

You say the subject is preposterous sounding. But only a few decades ago, who would have seriously believed that today the economy would operate a $100trillion global gdp compared to a $20trillion gross market and an even bigger $600trillion notional value (full leveraged risk) derivatives market?

As Palisades gold radio likes to remind - We live in a fantasy world NOW, reality has been destroyed!

 

(...Please excuse this long post. I realise this stuff doesn't actively help make investment decisions, but I find it useful in helping to frame the very broad macro social and economic headwinds and risks)

https://www.bankofengland.co.uk/speech/2023/february/jon-cunliffe-speech-at-uk-finance-update-on-central-bank-digital-currency#:~:text=A limit of £10%2C000,the Bank's earlier modelling work.

 

Edited March 28, 2023 by JMD

[No One]

18 hours ago, Democorruptcy said:

If you want physical gold in a SIPP and aren't worried about cost, you could own actual physical via such as bullionvault, royal mint

 

what is that? Is it like a badge prize? @spunko

[spunko]

5 minutes ago, No One said:

 

what is that? Is it like a badge prize? @spunko

Yes, it was for being the only member to correctly guess when Stuey would be suspended.

[afly]

19 minutes ago, No One said:

 

what is that? Is it like a badge prize? @spunko

Ahh, another was for me to express my inner child

[JMD]

9 hours ago, Talking Monkey said:

But that type of debt jubilee would destroy those who held the other side of that debt as an asset. There would be utter carnage. 

I understand the point you make. Though who knows what the details of the fantasy economics will actually be. Though no dought will involve different levels of pain for most but not all.

So yes social carnage would be unleashed (by our politicians of course) - but to prevent absolute economic oblivion (btw, also caused by those same politicians).

...'There are no solutions only tradeoffs', Thomas Sowel.

Edited March 28, 2023 by JMD

[baffledbyzirp]

1 hour ago, Virgil Caine said:

How are governments going to raise money post any debt write off. No one would want their bonds or cash so they would have to rely on taxes. The British economy is also pretty dependent on government spending. You would need to have the money in assets outside the U.K. because any write down is going to cause a collapse in demand far greater than any conventional recession. That in turn would also lead to mass unemployment and hit the tax take. The most recent national debt write off in the west was in Germany post World War 2 but in that case the economic rebuilding was paid for in US dollars (ie there was an external source of capital funding).

You are ignoring the US defaulting on its debt by closing the gold window in 1971, which Nixon claimed was "temporary". That word crops up regularly. By converting its debt from specie to Fiat, Uncle Sam ushered in the period of reckless money creation; the underpinnings of currency were thus removed so that governments and bankers were subsequently constrained only by their own self-discipline and political aspirations. A system dependent on the objectivity, altruism, intelligence and restraint of politicians is bound to fail. There are various other countries including Russia, Argentina and famously Zimbabwe that reissued or reconstituted their currencies since WW2 not to mention all the adoptees of the Euro and China. 

The key feature of a debt jubilee is not that it wipes the slate clean afterwards, but that it influences action beforehand. People are less inclined to seek rentier income via passive investment if it may be cancelled by executive whim. This encourages saving and investment in the productive part of an economy rather like the beneficial results of the Protestant Work Ethic in Calvinist Europe in the 19th Century. Our main problem is the reliance on unproductive service related activity. We make nothing but waste. We shuffle paper and move money but it is a nil sum game. Hence the countries with the raw materials will realise they have been selling the family cow for 5 magic beans and demand real value in exchange hereafter. 

[Errol]

The gold window closure was a default - clearly and unequivocally.

[Axeman123]

8 minutes ago, Errol said:

The gold window closure was a default

Yes, but I would argue it was a disguised default. QE/NIRP was similarly an incremental disguised default. Further defaults will try to emulate this model, ie inflating away debt while pretending not to. An outright reset would be an admission of failure in comparison, and far less lucrative.

[Virgil Caine]

1 hour ago, baffledbyzirp said:

You are ignoring the US defaulting on its debt by closing the gold window in 1971, which Nixon claimed was "temporary". That word crops up regularly. By converting its debt from specie to Fiat, Uncle Sam ushered in the period of reckless money creation; the underpinnings of currency were thus removed so that governments and bankers were subsequently constrained only by their own self-discipline and political aspirations. A system dependent on the objectivity, altruism, intelligence and restraint of politicians is bound to fail. There are various other countries including Russia, Argentina and famously Zimbabwe that reissued or reconstituted their currencies since WW2 not to mention all the adoptees of the Euro and China. 

The key feature of a debt jubilee is not that it wipes the slate clean afterwards, but that it influences action beforehand. People are less inclined to seek rentier income via passive investment if it may be cancelled by executive whim. This encourages saving and investment in the productive part of an economy rather like the beneficial results of the Protestant Work Ethic in Calvinist Europe in the 19th Century. Our main problem is the reliance on unproductive service related activity. We make nothing but waste. We shuffle paper and move money but it is a nil sum game. Hence the countries with the raw materials will realise they have been selling the family cow for 5 magic beans and demand real value in exchange hereafter. 

The US defaulted by currency debasement which is a form of write down but not a debt write off as would occur in a debt jubilee.

I can understand wanting to direct investment into productive activity but that  is not necessarily going to happen in a debt jubilee. It should also be noted that in the ancient world it was the big institutions such as temples and the royal palace that owned all the assets and that the debtors were the peasantry. It was therefore the state and its officials such as ministers, priests and tax gatherers who were the creditors that were wiping out the debts of farmers etc. The poor benefitted at the expense of the rich. The aim was specifically to boost agricultural production and to provide a body of peasants willing to serve in the royal armies.  This is not what is going to happen in a modern debt jubilee and I have absolutely zero confidence that governments and institutions are going to run any such exercise to reduce their wealth or power to the benefit of the wider population.
 

Incidentally in 19th Century Calvinist Protestant England defaulting debtors such as Charles Dicken’s  father got thrown into prison until their debts were paid or the creditors forgave them. Ordinary individuals had no access to protection from creditors until the Bankruptcy Act of 1869.

As mentioned earlier full bankruptcy resolution is the best way to encourage prudent investment. The market should be applying the discipline.

Edited March 28, 2023 by Virgil Caine

[geordie_lurch]

This is well worth a read if you have Shell shares or planning on doing so

 

[No One]

14 minutes ago, geordie_lurch said:

This is well worth a read if you have Shell shares or planning on doing so

 

WSJ Paywall, I aint paying them shit, whats the tl;dr