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

[geordie_lurch]

7 minutes ago, No One said:

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

It loads fine for me without a paywall but you can paste it or any other paywall web link in archive.is and see it 100% fine as per this link: https://archive.is/EQCDR

Edited March 28, 2023 by geordie_lurch

[ashestoashes]

8 minutes ago, No One said:

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

he's going to pump more oil

[JMD]

9 hours ago, Virgil Caine said:

The word there is “ancient”. There are over two millennia and an Industrial Revolution separating the modern world from the debt jubilees of the Middle East in the  pre classical period.

The laws of Hammurabi cover lots of things apart from debt relief. The jubilees in the codes were also largely concentrated on the farmers and traders who paid the taxes that funded the royal armies. Anyway I look forward to the “eye for an eye” laws, particularly the ones where cowboy builders get put to death or the unsuccessful surgeon has his arm cut off

https://empoweryourknowledgeandhappytrivia.wordpress.com/2017/10/12/282-laws-of-the-code-of-hammurabi/

It should also be remembered the Old Babylonian empire lasted 250 years and then collapsed.

Incidentally the modern western world has a well established mechanism for ending debt bondage not open to Babylonians. It is called Bankruptcy. 

Given that fact only debt liabilities not covered by that process such as Student Loans should really be candidates for Jubilees.

The problem in the west is that no one wants to accept that allowing the business cycle to takes its natural course is the best way to liquidate unpayable debts.

 

Yes debt jubilees are ancient, but were an inherent part for what passed for business cycles back then. So I don't think 'modern' (creative destruction) bankruptcy is incidental to the wider topic of debt jubilee. They are connected.

I agree that business cycles should have been allowed to naturally happen. But it is the (artificially installed) polos who decided against them and unfortunately it's a similar set of polos who'll decide upon solutions - to the problems they created in the first place (I think they call this the political cycle!).

Government activity, on average, already represents over half the gdp of Western economies. Private enterprise is not able to turn things around and in any case government would not relinquish any of its controls. So ever bigger and more lumbering state intervention is what we'll get...  It will of course be disguised as slick fashionable policy, and might not exactly resemble those 'archaic' debt jubilees - but underneath all the faux dressing-up, it will still be clumsy, chaotic and crass - but this time around labelling itself 'modern' government credit guarantees.    (Other very similar government interventionist 'indulgenges' are available!)

Edited March 28, 2023 by JMD

[No One]

@DurhamBorn Do you still own CIG? I'm thinking of rotating some money out of energy and putting it into Tobacco for the tax free dividend yield as these tend to do well in recessionary enviroments.

[JMD]

8 hours ago, Lightscribe said:

Yup, same as it ever was.

People are people at the end of the day. You will always get sub sections of society who are dumb as rocks, and push the envelope as far as they are able to until it all goes pop.

Then the process resets, fingers are burnt, lessons are learnt (then forgotten) and it all starts again.

The central banks and governments this time around - ‘no more boom and bust’ Brown, have blown up a natural cycle into one of systemic risk of implosion (perhaps by design).

Yes Brown actually boasted in a parliamentary speech (early 2000s I think) that he had solved the 'boom and bust' cycle. And as far as I know no one at the time criticised him for saying it, or thought the whole premise dangerous. Was it economic illiteracy or something more devious going on as you suggest?

Edited March 28, 2023 by JMD

[Funn3r]

20 hours ago, Wight Flight said:

Oddly i recently tried to register a company with 'King' in the name.

Companies house declined it, and I had to seek permission from the Cabinet Office (which was granted)

That's why the fast food chain had to go with their second choice of name

[DurhamBorn]

40 minutes ago, No One said:

@DurhamBorn Do you still own CIG? I'm thinking of rotating some money out of energy and putting it into Tobacco for the tax free dividend yield as these tend to do well in recessionary enviroments.

Yes i do,and they are up 6% today.I wont be selling anything in Latin American,feed the divs into tobacco if needed.Id rather we got more pullbacks to be honest as id like some more there,though im very much positioned now with big holdings across what i wanted.This cycle wont be about recession,it will be about the destruction of currencies,mainly western ones,CIG is a huge energy producer in a country i think will see its currency outperform sterling.

[JMD]

8 hours ago, Lightscribe said:

Quite. Perhaps a necessary casualty in the grand scheme of things.

From a systematic perspective this 40 year disinflation cycle and the pumping of the ‘‘everything’ bubble has enabled too many sections of society to become ‘asset rich’. Early retirement, FIRE, paid off houses, landlords, debt free etc. It’s not even just the boomer demographic, it’s gen-X and some millennials too.

On the other end of the scale you have a benefits system that have allowed an alternative lifestyle for some of the working age population.

What good is an economic system if large sections of the players have won and withdrawn themselves from the game?

I see the reset being done under the banner of ‘equality’ and equity. We are going to continue to have large migration demographic after all. 

Firstly those with unmanageable mortgage debt (as well as other debt) will be converted to interest only so that the big banks will essentially become institutional landlords.

Student loans will be reset and forgiven.

Everyone will receive UBI which will be an expiring currency (CBDC) so that you can’t save it that can be spent on nationalised assets (energy, food vouchers, transportation etc).

That will exist alongside a digital £ of which previous money will be converted at a ratio (a bit like the 70s decimalisation). 

Yes the CBDC/currency reset would be a fantastic policy 'funnel' for our politicians. Enabling them to excuse themselves from making difficult economic and social decisions, whilst they 'filter' out debt and 'block' assets from entering their new-currency/digital pound. 

I'd go as far as saying the CBDC/reset could well be the most powerful political tool ever invented, surely no politician would ever reject it!! (That's why I consider it foolish to reject the idea out of hand). And if this is , I'm thinking we probably have only a few years until it's implemented... I believe 2026 figures in many of the cycle theories, just saying!? 

 

Edited March 28, 2023 by JMD

[Long time lurking]

 

[Long time lurking]

3 hours 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. 

India ,they lost something like 5000 tonne of gold ,they were by far the biggest casualty 

[Long time lurking]

12 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. 

Yep you can`t even start to compare coming of the gold standard with whats playing out now as there was only one side in that game ,whats happening now is because their is another side and that side is the one that holds all the cards ,they hold vast amounts of western debt and they control vast amounts of the commodities the west need ,then you have the worlds workshop China in the mix 

IMO the USA`s inflation reduction act points to which way the wind is blowing ,this is how China funds it`s industries /5 year plans

[DurhamBorn]

14 minutes ago, Long time lurking said:

Yep you can`t even start to compare coming of the gold standard with whats playing out now as there was only one side in that game ,whats happening now is because their is another side and that side is the one that holds all the cards ,they hold vast amounts of western debt and they control vast amounts of the commodities the west need ,then you have the worlds workshop China in the mix 

IMO the USA`s inflation reduction act points to which way the wind is blowing ,this is how China funds it`s industries /5 year plans

Exactly,debt is cut in half when inflation goes up 50% when people are getting 3%pa coupons.In reality this cycle is simply moving capital from one place to another.No need to reset anything.Food has reset 50% already,energy will settle at 100%,just the leads and lags,savings and labour lag.

[TNS]

anyone buying wisdom tree gas ? tempted to bang 1 or 2k in in case gas rockets next winter. Would cover the bills.

[Funn3r]

4 hours ago, afly said:

Ahh, another was for me to express my inner child

<---  "Who ya gonna call?"

[Ma2]

Just catching up and this discussion on currency defaults/resets has been top drawer. 
I remember some discussions around revaluing gold that could also contribute to this playing out. 

- First the update to Basel III

‘Allocated gold, in tangible form, will essentially be classified as a zero-risk asset under the new rules, but unallocated or “paper” gold, which banks typically deal with the most, won’t — meaning banks holding paper gold must also hold extra reserves against it, said Brien Lundin, editor of Gold Newsletter. The new liquidity requirements aim to “prevent dealers and banks from simply saying they have the gold, or having more than one owner for the gold they have” on the balance sheet.’

- You have central banks on a gold buying spree 

- Talk of a basket of commodities against which to value currencies

- manipulated gold market with more paper claims than physical gold

Stop the manipulation suddenly and how much does gold revalue?
Talk of revaluing to $20k to sort the US out. 

Suddenly central and other banks have a lot healthier balance sheet. 

[Onsamui]

2 hours ago, JMD said:

Yes the CBDC/currency reset would be a fantastic policy 'funnel' for our politicians. Enabling them to excuse themselves from making difficult economic and social decisions, whilst they 'filter' out debt and 'block' assets from entering their new-currency/digital pound. 

I'd go as far as saying the CBDC/reset could well be the most powerful political tool ever invented, surely no politician would ever reject it!! (That's why I consider it foolish to reject the idea out of hand). And if this is , I'm thinking we probably have only a few years until it's implemented... I believe 2026 figures in many of the cycle theories, just saying!? 

 

Republicans Against a Central Bank Digital Currency (CBDC) | Armstrong Economics

Why Bank Bailout of Depositos is Critical | Armstrong Economics 

 There is also not enough paper currency to facilitate bank withdrawal on a grand scale. Bank robbery will come to an end without cash.

None of that will unfold if a hedge fund fails. We must look deeper into this entire question.......

 

[JMD]

5 hours 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 is a very good interjection. Clive Thompson himself describes mortgage debts as withering away, via devaluation/inflation of the old-currency, so debt forgiveness is not the principle at work here.

Thing is Thompson is just answering questions put to him and is not, unfortunately imo, putting forward a complete or cogent thesis. But he readily admits that his answers are based on knowledge he has of past currency resets. So although they are valid in terms of being specific answers to direct questions, taken together they might appear contradictory. He tries to highlight that most people will do ok and supports for some will be put in place for things like pensions, etc.

However what is important is that Thompson says there are common themes across all the resets he has studied, from ancient times to post war West Germany and recent Brazil. Cash and bonds lose out. Equities and hard assets do ok. Small debt upto say mortgage size does ok, large debt for unprofitable companies is terrible. Oh, and a crises always precedes a reset.

I hope Thomson develops his ideas further because think they are a valuable contribution for debate. Plus he is very different from most other financial commentators. He worked nearly 50 years in finance industry, with last few decades as a wealth manager. Quintessentially British but worked/lived most of his life in Switzerland and where he still lives. He retired last year but apparently got bored and just wants to get his information and warnings out to the public.

Edited March 28, 2023 by JMD

[Ma2]

5 hours ago, JMD said:

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.

I don’t know what you had in mind specifically @JMD but The below from @belfastchild shows some capability is there already for most of this control. 
Imagine goods are prohibitively expensive unless you shop at an approved shop in which case You get a discount. 
In this case Nationwide control the discount, the shop and therefore to an extent the goods that are purchased. 
Easy for the government to direct visa/mastercard/your bank to do the same.  Sorry no cash - for hygiene reasons. You know covid  

I don’t think the government could sort this out but they could demand this of existing payment providers for payments from your personal account. 

5 hours ago, belfastchild said:

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.

Maybe this is a soft trial benefitting people So they adopt it 

Edited March 28, 2023 by Ma2

[JMD]

34 minutes ago, Ma2 said:

I don’t know what you had in mind specifically @JMD but The below from @belfastchild shows some capability is there already for most of this control. 
Imagine goods are prohibitively expensive unless you shop at an approved shop in which case You get a discount. 
In this case Nationwide control the discount, the shop and therefore to an extent the goods that are purchased. 
Easy for the government to direct visa/mastercard/your bank to do the same.  Sorry no cash - for hygiene reasons. You know covid  

I don’t think the government could sort this out but they could demand this of existing payment providers for payments from your personal account. 

Maybe this is a soft trial benefitting people So they adopt it 

Yes exactly that. Why should a CBDC duplicate processes that are already happening/or that counterparty expert finance companies could do better. But also I don't buy the authoritarian credit/social score features that China is attempting to do, and think a subservient Asian culture there helps achieve levels of obedience that simply wouldn't be possible here. The other point I'd make is that programmers etc might feel slightly queazy writing code to control their own relatives and children! 

I have also been recently learning how CBDCs might possibly be used in a hard currency reset. Might be a fanciful idea, but imo the prize would be so valuable for tptb that im sure all efforts and focus will be directed toward that potential goal. 

Edited March 28, 2023 by JMD

[Lightly Toasted]

5 minutes ago, JMD said:

Yes exactly that. Why should a CBDC duplicate processes that are already happening/or that counterparty expert finance companies could do better. But also I don't buy the authoritarian credit/social score features that China is attempting to do, and think a subservient Asian culture there helps achieve levels of obedience that simply wouldn't be possible here. The other point I'd make is that programmers etc might feel slightly queazy writing code to control their own relatives and children! 

I have also been recently learning how CBDCs might possibly be used in a hard currency reset. Might be a fanciful idea, but imo the prize would be so valuable for tptb that im sure all efforts and focus will be directed toward that potential goal. 

Current plan seems to be that the CBDC platform (as opposed to what might be built on top of it by third parties) will be neutral, without any differentiation between different kinds of money.

...

This raises, particularly for the Bank of England, the question of how we can continue to ensure that all of the types of money used in the UK are denominated in Sterling, remain safe and that each is interchangeable on demand and to all of the other types of money without loss of value, including publicly issued, Bank of England money.

...

Neither the Government nor the Bank would program a digital pound or restrict how it was spent. Instead, the Bank would provide the infrastructure and minimum functionality for the private sector to provide programmability features for users. Those features would require user consent.

...

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.

[Noallegiance]

32 minutes ago, Lightly Toasted said:

Current plan seems to be that the CBDC platform (as opposed to what might be built on top of it by third parties) will be neutral, without any differentiation between different kinds of money.

...

This raises, particularly for the Bank of England, the question of how we can continue to ensure that all of the types of money used in the UK are denominated in Sterling, remain safe and that each is interchangeable on demand and to all of the other types of money without loss of value, including publicly issued, Bank of England money.

...

Neither the Government nor the Bank would program a digital pound or restrict how it was spent. Instead, the Bank would provide the infrastructure and minimum functionality for the private sector to provide programmability features for users. Those features would require user consent.

...

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.

Is this like 'inflation is transitory'?

[Long time lurking]

 

[belfastchild]

1 hour ago, Ma2 said:

Easy for the government to direct visa/mastercard/your bank to do the same.  Sorry no cash - for hygiene reasons. You know covid 

Already have. During covid. Over here.
Every adult got a credit card with 100 quid on it to spend only in 'local' shops. Of course tesco got wind and asked to be included in the local bit. Fine but people then went in and bought 100 quids worth of amazon vouchers from next to the till.

Shop local it was called.

I said to everyone at the time (and posted here) it could be used as part of a bigger trial. Of course it was month and months late, the first batch sent out didnt work etc etc.

[Ash4781b]

3 hours ago, DurhamBorn said:

Exactly,debt is cut in half when inflation goes up 50% when people are getting 3%pa coupons.In reality this cycle is simply moving capital from one place to another.No need to reset anything.Food has reset 50% already,energy will settle at 100%,just the leads and lags,savings and labour lag.

Where’s the route out for interest only BTL? Running HMO’s when they push immigration to the next level.

Still I thought the national living wage sets a floor. They don’t seem too interested in productivity growth or labour market reforms.

[Long time lurking]

What shes saying is we can not compete ,think about what she means by "private money " "free banking"