tag:blogger.com,1999:blog-9134766026846012346.comments2023-10-25T04:11:19.797-07:00Economics, Trading, Investing and ISarel Oberholsterhttp://www.blogger.com/profile/10489682646595339301noreply@blogger.comBlogger23125tag:blogger.com,1999:blog-9134766026846012346.post-55773148938641577962022-01-28T11:34:45.068-08:002022-01-28T11:34:45.068-08:00How Mr Benjamin Lee service granted me a loan!!!
... How Mr Benjamin Lee service granted me a loan!!!<br /><br />Hello everyone, I'm Lea Paige Matteo from Zurich Switzerland and want to use this medium to express gratitude to Mr Benjamin service for fulfilling his promise by granting me a loan, I was stuck in a financial situation and needed to refinance and pay my bills as well as start up a Business. I tried seeking for loans from various loan firms both private and corporate organizations but never succeeded and most banks declined my credit request. But as God would have it, I was introduced by a friend named Lisa Rice to this funding service and undergone the due process of obtaining a loan from the company, to my greatest surprise within 5 working days just like my friend Lisa, I was also granted a loan of $216,000.00 So my advice to everyone who desires a loan, "if you must contact any firm with reference to securing a loan online with low interest rate of 1.9% rate and better repayment plans/schedule, please contact this funding service. Besides, he doesn't know that I am doing this but due to the joy in me, I'm so happy and wish to let people know more about this great company who truly gives out loans, it is my prayer that GOD should bless them more as they put smiles on peoples faces. You can contact them via email on { 247officedept@gmail.com} or Text through Whatsapp +1-989 394 3740. Lea Paige Matteohttps://www.blogger.com/profile/11647599914869935821noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-53668467715616053842022-01-09T01:31:13.946-08:002022-01-09T01:31:13.946-08:00I will post an update on 9 January 2022 for the ma...I will post an update on 9 January 2022 for the markets close as at 7 January 2022 before the markets open in Europe. The update will include the three vaccine stocks as well as more than 50 other assets for a more general market overview ranging from technology stocks to commodities and indexes, travel to retail, etc.Sarel Oberholsterhttps://www.blogger.com/profile/10489682646595339301noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-14260494670571075522010-10-24T19:02:07.507-07:002010-10-24T19:02:07.507-07:00Well, it’s amazing. The miracle has been done. Hat...Well, it’s amazing. The miracle has been done. Hat’s off. Well done, as we know that “hard work always pays off”, after a long struggle with sincere effort it’s done.<br />-----------<br />marqgibs<br /><a href="http://www.neverstopsaving.com" rel="nofollow">High Interest Savings Accounts Australia</a>krishbond17https://www.blogger.com/profile/17992809269038714483noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-36523370723799130612010-03-19T12:17:57.607-07:002010-03-19T12:17:57.607-07:00Nice work!Nice work!David Hillaryhttps://www.blogger.com/profile/12270742541175771322noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-46562578336451664802009-08-06T16:53:35.154-07:002009-08-06T16:53:35.154-07:00Dear Douglas
Thank you for the new post and the v...Dear Douglas<br /><br />Thank you for the new post and the valuable information on demographics. I must mention that the link to atimes.com had me wondering if I had the right link when it started out with Michael Jackson. Mixing demographics with Jackson was a unique approach.<br /><br />Your emphasis on the demographic impact is most relevant and I think it is expressed vividly in the problems surrounding health and medical care policies of the US. Having a global economy in the grips of crisis while exposed to the burden of an aging population is certainly one more crisis dimension. This dimension is not restricted to the US and Japan but is also very real in Europe.<br /><br />I can only agree that this is just one more complication and vulnerability that expresses itself as a contributing factor to a deflationary scenario at a time when compounded debt formation and loose monetary policies have created a structural environment conducive to deflationary outcomes. <br /><br />See also my comments to Rodger under “The Pile High Club”.<br /><br />Kind regards,<br />Sarel OberholsterSarel Oberholsterhttps://www.blogger.com/profile/10489682646595339301noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-84108126064093049602009-08-06T16:50:01.848-07:002009-08-06T16:50:01.848-07:00Comment continued;
This brings us to deflation, i...Comment continued;<br /><br />This brings us to deflation, inflation, hyperinflation and its relationships with currencies. I am not of the opinion that the UDS is in serious danger of severe weakening against challenger currencies or in danger of being replaced as reserve currency of the world. Not because of a misplaced faith in the FED but because of a faith in the ability of other central banks in outperforming the Fed in creating local currency growth from thin air in a greater proportion relative to their economies than the Fed’s ability to do the same with the USD. This view contributes to my expectation that the USA will remain stuck in the deflation model. Those economies where loose monetary policies and stimulatory fiscal policies are allowed to develop into a sovereign debt crisis will experience a currency collapse and with it hyperinflation events.<br /><br />I find it very difficult to envisage a collapse of the UDS against any other currency in the world today. A hyperinflationary event without a sovereign debt default and an exchange rate currency collapse is almost impossible to envisage.<br /><br />I would not like to pinpoint any particular country or currency as we are looking at a global economy where severe distortions are everywhere and a trigger for crisis can originate from a small Latvia to a UK, China or USA. <br /><br />The global economy needs to restore some semblance of sustainable economic equilibrium and harmony without structurally distorting unfunded monetary credits (money from thin air), unsustainable levels of public or private debt and must practice conservative fiscal policies. I expect that we will stumble from one crisis to the next until we arrive at that point.<br /><br />Kind regards,<br />Sarel OberholsterSarel Oberholsterhttps://www.blogger.com/profile/10489682646595339301noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-77152756688285304852009-08-06T16:47:21.541-07:002009-08-06T16:47:21.541-07:00Dear Rodger
Good to hear from you again.
I have ...Dear Rodger<br /><br />Good to hear from you again.<br /><br />I have discussed the channeling of liquidity via the central banks to the banking sector and beyond in War on Savings and a number of other posts on my blog. The convenient conversion of investment banks into Bank Holding entities which gave them access to central bank liquidity is of particular importance. It has opened a direct channel from the Fed to the trading activities of these entities and as such to the trading markets in commodities (oil of importance), derivatives and the stock exchanges. Combining the liquidity of the Fed with derivative leverage poses an extreme danger to orderly markets and has seriously undermined the price formation processes in these markets.<br /><br />The Chinese authorities channeled their liquidity formation into commodities as stores of value and have stagnated their USD debt portfolios. They have shown a particular preference for base metals. Their ultra stimulatory loose monetary policy found expression in real estate lending, motor vehicle loans and always a favorite, brokerage trading accounts. Thus channeling liquidity (unfunded monetary credits) into real estate, the automobile sector and the stock exchange. <br /><br />We note that commodity hoarding and commodity speculation are combined with an open liquidity channel into stock exchanges to create yet again asset bubbles through the use of “money from thin air”.<br /><br />In the end it is always supply and demand that breaks up the party and each new cycle is shorter. Thus at some stage China would not want to increase its “strategic commodity reserves” for its demand would not justify it. The over stimulation of capacity during the hoarding period will fall away. The lack of consumption demand would re-assert itself and the malinvestments will initiate the deflation adjustment as discussed in War on Savings. The lack of new brokerage account lending would dry up the stock exchange stimulation and pop the asset bubble. I expect these events to be in the near future given the global economic conditions. I do not see any gains for China in this game.<br /><br />I believe that the EU may be more resilient than the expectation of the Black Swan Trading report. It is good to acknowledge the trends that they identify but I believe that the EU will find ways of dealing with these problems without having members leaving the EU. I would also expect particularly that straying EU members will continue to try and gain unfair advantage. It is in the nature of the EU relationships that these will be harmonized in political processes. I do not foresee a collapse of the EU or the euro from a structural point of view.<br /><br />I do agree that the euro and the EU may be in for some heavy weather given the problems of the PIGS, the banking exposures to Eastern Europe, some reckless current account and trade deficits and the almost general cheating on budget deficits.<br /><br />The USD as a store of value and with full knowledge of the activities of the FED is still a better bet than most other currencies. Compare for instance the rhetoric of Russia while they are creating new money at around 50%pa. Hardly a platform from which to throw stones. China as a total control economy with an export bias and weak currency policy must, as did Japan, always over stimulate money creation in Yuan to pay exporters in local currency for their export dollars. Same model as Japan and it is almost inevitable that they would follow a similar economic outcome.Sarel Oberholsterhttps://www.blogger.com/profile/10489682646595339301noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-60064724151393310752009-08-06T00:29:07.574-07:002009-08-06T00:29:07.574-07:00As the biggest bubble in history deflates (still m...As the biggest bubble in history deflates (still much more to come), the governments around the world are replacing it with government liquidity bubble. <br /><br />While in the US the liquidity flooding is massively insane, China looks to be the more extreme. At least so far. In a certain sense, I think China is becoming a humongous, gigantic hedge fund, run by the communist government.<br /><br />The bubble & government schemes -- and cycles -- are analogous to what happened in the past, even centuries ago. The details are different, but the story is the same. In the end, one thing is certain: it's always unsustainable & it brought a multitude of pain & suffering, sometimes a revolt.<br /><br />In the past, the bubble exploded in different ways. In the present financial system, what will likely cause the end of this government bubble? <br /><br />In addition to that, do you also explore the ongoing problems in Europe, Sarel? I think people are now focusing too much on the US, while the next big bust may come from somewhere else. Collectively, the EU is the world's largest economy. China looks to be the grounds upon which Asian emerging markets growth & optimism hinges. In reality, I think China is heavily depended on US growth, even more so these days. <br /><br />I had some readings regarding China & Europe. On China, Michael Pettis discusses the issue very well: http://mpettis.com<br /><br />As for Europe, I found this interesting paper:<br />http://www.blackswantrading.com/files/EuroReport.pdf<br /><br />Regarding Asia (China, in particular) and Europe, do you have any insights, Sarel?<br />I certainly look forward to your takes & insights. Thanks in advance.<br /><br />Cheers,<br />Roger.Roger Jnoreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-55845305140311771042009-07-27T14:23:31.866-07:002009-07-27T14:23:31.866-07:00Sarel,
I found another article on Japanese demogr...Sarel,<br /><br />I found another article on Japanese demographics. It is from <br />the Asia Times, July 14, 2009, and in part says,<br /><br />America's demographics look frighteningly similar to Japan's at the beginning of its "lost decade" of 1990-2000. Japan's population had just began to age dramatically. In 1990, the elderly dependency ratio stood at 17%, but it had risen to 25% by 2000. As the Japanese aged, their appetite for savings grew, and as their stock portfolios and home values crashed, they saved more and more. The more they saved, the worse the economy did. Interest rates of 0.25% or less and spectacular government deficits couldn't make a dent in the vast shift towards a propensity to save. The result was deflation: falling asset values and a strong yen. <br /> <br />and<br /><br />There is another deflationary dimension to aging. Old people are creditors, young people are debtors. Inflation is a transfer of wealth to debtors from creditors (debtors pay back debt in cheaper dollars). A country with a preponderance of old people will show strong political pressures against inflation. That's why the Japanese never objected to deflation. As an aging people, too many of them benefited. <br /><br />Japan Dependency Ratios Medium variant 1970-2020 <br /> <br />Year--Total--Child--Old-age<br /><br />1970----45----35-----10<br />1975----47----36-----12 <br />1980----48----35-----13<br />1985----47----32-----15 <br />1990----43----26-----17<br />1995----44----23-----21<br />2000----47----21-----25 <br />2005----51----21-----30<br />2010----56----21-----35 <br />2015----63----20-----43 <br />2020----67----19-----48<br /><br />The dependency ratio chart says that in 1970 out of every 100 people there were 35 children, 10 elderly and 55 productive adults as a broad generalization. In 2020, it is projected that there will be 19 children, 48 elderly, and 33 productive adults. So roughly speaking the number of kids will drop in half, the number of elderly will go up 5x and the number of productive adults carrying this load will be 60% of 1970. They will have to convert their schools into nursing homes. <br />As one who has raised kids and who has taken care of elderly parents I can tell you I prefer kids. <br /><br />http://www.atimes.com/atimes/Global_Economy/KG14Dj05.html<br /><br />and on the propensity of Japanese to use cash from Newsweek July 18, 2009, <br /><br />The Japanese, on the other hand, love doctors and visit them, on average, 14.5 times per year, three times the U.S. rate. They do this in an orderly, ritualized way, usually bringing a bottle of sake or cash in an envelope as a gratuity.<br /><br />http://www.newsweek.com/id/207410Unknownhttps://www.blogger.com/profile/05075125164987283046noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-11481711530659713682009-01-28T04:06:00.000-08:002009-01-28T04:06:00.000-08:00Dear CorporatebullyI have compassion for your plig...Dear Corporatebully<BR/><BR/>I have compassion for your plight and understand the agony of your loss. However, my blog is not a forum for this dispute.<BR/><BR/>I hope that you can find an amiable way in which you can move forward.<BR/><BR/>Kind regards,<BR/>Sarel OberholsterSarel Oberholsterhttps://www.blogger.com/profile/10489682646595339301noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-23110761225156097272009-01-23T05:58:00.000-08:002009-01-23T05:58:00.000-08:00Hi RodgerThank you again for your feedback. Your p...Hi Rodger<BR/><BR/>Thank you again for your feedback. Your probing questions are as always a challenge.<BR/><BR/>I could not fathom the use of the term death-spiral as I have never used such a term in my work. I then note that it is a term used by Ambrose Evans-Pritchard. I would prefer that the authors of those articles answer for their comments as I my work do not suggest a death spiral of assets. I do however define the destruction of the currency (the national monetary unit used in a country) as part of a Hyperinflationary Depression and the very obvious example is that of Zimbabwe presently. Zimbabwe is but one more member to this club. Hyperinflationary episodes and currency destruction occurred in Weimar Germany, Japan, Italy, Turkey and many other countries. It is a fairly common occurrence in history but is normally reserved for specific countries and always requires extremely irresponsible monetary and fiscal policies. <BR/><BR/>It would be an economic first to see a number of top ten economies explode into hyperinflationary episodes. I maintain my stance that the greater probability is Deflationary Stasis. <BR/><BR/>The events in the UK in my humble opinion have not reached a level of intervention which would trigger a hyperinflationary episode but the depreciation of the currency against other currencies will certainly bring inflationary consequences. Maintaining low interest rates in such an environment will invite further weakening of the currency and will more likely trigger a substantial rise in UK interest rates rather than a hyperinflationary episode. The deflationary depression will prevail in Stasis as defined and the difference between the UK and Japan will thus be expressed in the higher and lower interest rates. Japan’s savings, weak currency policy and export orientated economy can therefore tolerate a Stasis with near zero interest rates but the UK economy has no such luxury and will probably suffer the Stasis with high interest rates before reaching the trigger level for a hyperinflationary depression.<BR/><BR/>The bottom line is the choices that politicians will make. Force the interest rates to zero and allow the GBP to depreciate out of control and the risk of a Hyperinflationary Depression accelerates. The UK will be unable to finance their borrowing needs, not nationally or internationally. The need for foreign finance would probably force them to raise interest rates and keep them in the grips of Stasis. I would therefore postulate that cause and effect indicates that the UK will suffer in Stasis with high interest rates but will not trigger a Hyperinflationary Depression.<BR/><BR/>As you rightly say, the UK and in fact the whole global economy is currently a case study for the economic theories contained in War on Savings.<BR/><BR/>Kind regards,<BR/>Sarel OberholsterSarel Oberholsterhttps://www.blogger.com/profile/10489682646595339301noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-63986163051841038632009-01-21T09:26:00.000-08:002009-01-21T09:26:00.000-08:00Hi Sarel, The most recent story on a system under ...Hi Sarel, <BR/><BR/>The most recent story on a system under extreme stress is UK. This is a very large economy, 5th in the world.<BR/><BR/>With foreign debts of 4.4T, twice the size of its economy, it is facing extreme stress.<BR/><BR/>Perhaps, this will also be the all-important study case for your theory -- how can stasis be maintained in a world under death-spiral or can it?<BR/><BR/>I'm supplementing you with two articles:<BR/>1.<BR/>http://www.dailymail.co.uk/debate/columnists/article-1121427/PETER-OBORNE-We-8217-nation-brink-going-bankrupt.html<BR/><BR/>2. <BR/>http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2009/01/20/seriously_alarmed<BR/><BR/>Do you expect this economy to escape stasis into hyperinflation?<BR/><BR/>Your in-depth & insightful discussion & comments, particularly related to the credit theory you presented, will be greatly appreciated.<BR/><BR/><BR/>Kind regards,<BR/>RogerAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-16897682663875645962008-12-19T11:40:00.000-08:002008-12-19T11:40:00.000-08:00Thank you again for your kindly reply, Sarel.I wil...Thank you again for your kindly reply, Sarel.<BR/><BR/>I will definitely wait for your "War on Savings" papers to come out. It has been quite a journey for me to find the answers, too. <BR/><BR/>I admit it's very difficult to find these kinds of answers anywhere. First is because my questions mostly deal with Austrian economics school of thought, which is not mainstream. Second is because I could not find an Austrian economics literature dealing with this issue intimately enough (the ones being closest are the Rothbard works I mentioned). And third is because it's even harder to find an Austrian economist dealing closely with the issue. <BR/><BR/>I'm glad that after quite a while, I have found many of my questions answered. I hope that "War on Savings" will complete those answers and maybe more. <BR/><BR/>I am certainly thankful for these and I know that it must have been a very satisfying intellectual journey for you too.<BR/><BR/><BR/>Kind regards,<BR/>RogerAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-52552469111941243822008-12-19T09:11:00.000-08:002008-12-19T09:11:00.000-08:00Dear RodgerWar on Savings is a 70 page working pap...Dear Rodger<BR/><BR/>War on Savings is a 70 page working paper with full technical details. Your questions are insightful and similar to the questions that I have been wrestling with for the past 8 years. The answers to your questions are in War on Savings and as the answers are somewhat complex and requires some economic theory adjustment (particularly Keynes and the principle that I=S), I would ask to please bear with me while I complete the process with the publishers which have been on-going for the past 3 weeks. Alternatively I will Blog “War on Savings” after 7 January 2009 as a pre-published version. Here is a snipped:<BR/><BR/>“War on Savings – Modern Monetary Policy Deficiencies Exposed.<BR/><BR/>“The great inflations of our age are not acts of God. They are man-made or, to say it bluntly, government-made. They are the offshoots of doctrines that ascribe to governments the magic power of creating wealth out of nothing and of making people happy by raising the "national income”." <BR/>Foreword by Murray N. Rothbard to The Theory of Money and Credit - Mises, Ludwig von (1881-1973).<BR/><BR/><BR/>1 Introduction<BR/><BR/>The war upon Savings is an ancient one. Even the alchemic desire of turning lead to gold was part of this war. Saving is a sacrifice. Savings can be stolen, plundered but most of all used to protect against the ravishes of fate. Savings and the vessels of Savings have been lusted after since the production of the very first economic surplus. The inventions of deceit to dispossess Savings have no match in any other human endeavour. Wars were fought with it and over it. Everybody wanted some but not all were prepared to gather it the hard way.<BR/><BR/>Japan was the focus of my research when I set out on this journey of discovery. The Japanese economic miracle turning into a disaster of systemic failure needed to be understood. The reason for the research became more compelling with the advent of the global financial crisis in 2007. <BR/><BR/>The Austrian School of economic thought was going to be important for my research but a rigorous drive into economic theorising took me to the heart of Austrian economics.”<BR/><BR/>I deal specifically with the Liquidity trap (which requires the I=S precondition). I would have to reproduce my whole working paper to answer your questions (you are surely aware that your questions are not of the garden variety type) so 3 weeks should not be a burden to wait for answers.<BR/><BR/>You can also read “Economic Accounting” (October) or “Praxeology of Commodity Repricing” (August) (http://sareloberholster.blogspot.com/2008/08/praxeology-of-commodity-repricing.html) for an explanation of how the monetary stimulation impacts on the production surplus of an economy.<BR/><BR/>Monetary Policy actually does not solve any “time preference problems” (a faulty Keynesian construct), and has devastating negative economic effects through the creation of liquidity posing as artificial savings and creating boom/bust economic cycles.<BR/><BR/>I promise to answer any questions remaining (if I can, it’s a big promise) after you’ve read War on Savings. Your questions are welcome.<BR/><BR/>Kind regards,<BR/>Sarel OberholsterSarel Oberholsterhttps://www.blogger.com/profile/10489682646595339301noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-49881544058390972002008-12-19T08:25:00.000-08:002008-12-19T08:25:00.000-08:00Dear Sarel,Thank you for your great explanations o...Dear Sarel,<BR/><BR/><BR/>Thank you for your great explanations on the topic. It answers clearly many questions I have had for a while. I also eagerly look forward to your “War on Savings” article. I hope that I can find more insightful technical details.<BR/><BR/>Just a little bit more technical details, I have recently read 2 books by Murray Rothbard. What I can infer from the interventions is that the governments are using liquidity (demand for money) measures to solve a time-preference problems. According to Rothbard, these two are completely unrelated. “… the savings-investment-consumption proportions are determined by time preferences of individuals; the spending-cash balance proportion is determined by their demands for money.” [pg. 39, America’s Great Depression by MN Rothbard).<BR/><BR/>Basically the government interventions are Keynesian measures to stimulate spending. A situation like now is what they (Keynesians) describe as “liquidity trap”. So, I guess my main question to you in the previous post is whether liquidity measures, taken to the very extremes, can finally bear impact on time preferences. And from what you said, the answer is that it can, but only through chaos & economic system collapse (hyperinflationary depression). Am I interpreting you correctly on this?<BR/><BR/>As for the turn from Stasis to Hyperinflation, how is the anatomy? Is it an abrupt change (directly to a very aggressive inflation state) or more gradual (low inflation, moderate, then very aggressive inflation), perhaps? <BR/><BR/>I really hope that I don’t bother you with these questions. It’s kind of long again. <BR/><BR/>Thank you again for your help and insightful answers.<BR/><BR/>Kind regards,<BR/>RogerAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-19345473213308967742008-12-19T03:42:00.000-08:002008-12-19T03:42:00.000-08:00Roger Jarema has left a new comment on your post &...Roger Jarema has left a new comment on your post "Stealth Tax and the Money Tree": <BR/><BR/>Dear Sarel,<BR/><BR/>I have recently read your "Beware 29th December" and "When Debt Comes Calling" articles. They are excellent articles and I should thank you for making clear explanations about debt creation-destruction process.<BR/><BR/>I do have several questions, which if you don't mind you would explain in more detail. So, from your essay, it can be concluded that the endgame of an exponential debt creation & debt saturation are either a deflationary spiral (Japan & 1929 case) and hyperinflationary depression (Weimar Germany). And according to your essay, the 2 quite opposite paths are determined by the nature of intervention: if debt-paying just involves printing more paper money, it will lead to hyperinflation and if it is channeled through debt, it will end up like Japan.<BR/><BR/>My questions are:<BR/>1. What makes channeling the debt collapse through debt creation -- deflationary? Is it that the debt destruction in the private sector massively outpacing the debt creation (mainly by government)?<BR/><BR/>2. In Japan, the deflationary spiral is still going. Is this because the government spending is creating more malinvestment and that malinvestment is being liquidated -- hence deflation? The US government under Obama will try similar measures. Do you expect same outcome?<BR/><BR/>3. Japan had the advantage of high savings rate and boom period in other parts of the world when their credit bust occurred. In light of that, with the present world essentially heavy in debt (including China, who is said to have high savings-rate, although in reality it's printing RMB for incoming USD), what will likely happen, in your view?<BR/><BR/>4. It looks like the present policy of major economy governments are to devalue their own currencies ("beggar thy neighbor" tactics). What will likely happen? Could the hyperinflationary measure be finally explored? Who has the advantage in this game? <BR/><BR/>5. Finally.. gold. I feel that the sentiment is too bullish on gold for now for it to be really bullish. I think LT govt bonds (so far still despised) will perform better. Do you agree?<BR/><BR/>That is all my questions for now. I apologize if the questions are too lengthy. I hope that you can discuss them because they are essential to our outlooks in several years to come. <BR/><BR/>Thank you for your help & for having been so enlightening. <BR/><BR/><BR/>Best regards,<BR/>Roger Jarema<BR/>Dear Rodger<BR/><BR/>Thank you. <BR/><BR/>I treat a Deflationary Depression and a Hyperinflationary Depression as events in series but a determined government can bypass the Deflationary Depression into a Hyperinflationary Depression, for example Zimbabwe. Your questions are very astute and I deal with them all on a technical level in War on Savings which is with the publishers at present. I will try and publish a pre-publication version on my blog by the 1st week of Jan 2009 if it is still not published at that time. It breaks new ground and as such seems to be in a longer process of evaluation and assessment. <BR/><BR/>1. An abridged explanation is as follows. Debt Saturation causes the collapse, which occurs when lenders can no longer find willing and able borrowers. Able borrowers are borrowers with financial standing and collateral to support their borrowing. The slowdown in debt formation brings about a collapse of asset bubbles which in turn feeds back into the collapse of debt formation. I do not like the word debt destruction and I am not sure exactly what it is supposed to mean. Debt repayment however is more appropriate as it means that debt previously incurred must now be repaid through an act of saving. Savings imply a sacrifice of income as opposed to the act of taking up debt which is discounting future income. A Government cannot borrow on behalf of taxpayers without creating Stasis (the Japan outcome) or Hyperinflation (the Zimbabwe outcome).<BR/><BR/>2. The Stasis (Japan) outcome is the activity by a Government to prevent the liquidating of the malinvestments accumulated over many cycles of monetary stimulation. The structural distortions accomplished by such monetary stimulations are not allowed to adjust. Monetary policy is taken to the extreme and fiscal irresponsibility follows thereafter. Still stasis is maintained in a long term economic limbo.<BR/><BR/> <BR/>3. There is something of an illusion of a Savings Rate for a country. A population can have a high savings rate while the Government can have a high propensity to utilise those savings (including exchange rate manipulation) which leaves the country with a net savings rate not nearly as impressive. Both Japan and even more so, China are controlled economies. The levels of government intervention are very high and contribute to the achievement of Stasis when the economic distortions are excessive and are not allowed to clear. I favour a non interventionist path and show in War on Savings that such a path though seemingly harsh actually has the least social cost. Governments seem to favour the modern monetary approach a la Japan for Stasis. China is certainly on the same policy platform as Japan. I fear the risk of hyperinflation as it is a choice for currency destruction and severe economic hardship.<BR/><BR/>4. The Yen Carry trade was actually the proposed (Fed – see Bernanke (1999), Japanese Monetary Policy: A Case of Self-Induced Paralysis) cause of action for a “Beggar thy neighbour” approach and has contributed to the accumulated global structural distortions. Currency devaluation and fiscal irresponsibility has very real potential to initiate a Hyperinflationary spiral. There is only one outright winner – Government. Government gets to hyperinflate away all its debt. Everyone else loses, even those entities who benefits from the debt alleviation through hyperinflation as the economic destruction transfers all the wealth of the country to government. A broken economy and broken currency with government as the single largest economic entity (fascist/socialist nature) will remain afterwards and it will be a fresh start for all but people will literally starve as the production processes of the economy (and globally) will need to be readjusted and rebuilt. It is the democratic version of the collapse of socialism.<BR/><BR/>5. Gold has its place as a store of value. Gold will probably perform poorly in the Stasis period but any risks of a Hyperinflationary event will boost the demand for and the price for gold into the stratosphere. Own Government Bonds will yield a positive real rate of return (even with a zero interest rate) in the event of deflation and Stasis with default risk contained but will be worthless pieces of paper in the event of a Hyperinflationary depression. <BR/><BR/>In War on Savings I find that we stand globally before 3 choices – (i) Liquidation and pay for the sins of Debt with the least social cost, (ii) Stasis and we follow a long term downward spiral hoping for external events (say a few new technological advances) to allow us an escape from Stasis in time and to pay for our Debt sins in say new technologies (middle outcome) and, (iii) chose Hyperinflation and start all over in chaos and suffering (worst outcome).Sarel Oberholsterhttps://www.blogger.com/profile/10489682646595339301noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-45951394980908135212008-12-19T01:00:00.000-08:002008-12-19T01:00:00.000-08:00Dear Sarel,I have recently read your "Beware ...Dear Sarel,<BR/><BR/>I have recently read your "Beware 29th December" and "When Debt Comes Calling" articles. They are excellent articles and I should thank you for making clear explanations about debt creation-destruction process.<BR/><BR/>I do have several questions, which if you don't mind you would explain in more detail. So, from your essay, it can be concluded that the endgame of an exponential debt creation & debt saturation are either a deflationary spiral (Japan & 1929 case) and hyperinflationary depression (Weimar Germany). And according to your essay, the 2 quite opposite paths are determined by the nature of intervention: if debt-paying just involves printing more paper money, it will lead to hyperinflation and if it is channeled through debt, it will end up like Japan.<BR/><BR/>My questions are:<BR/>1. What makes channeling the debt collapse through debt creation -- deflationary? Is it that the debt destruction in the private sector massively outpacing the debt creation (mainly by government)?<BR/><BR/>2. In Japan, the deflationary spiral is still going. Is this because the government spending is creating more malinvestment and that malinvestment is being liquidated -- hence deflation? The US government under Obama will try similar measures. Do you expect same outcome?<BR/><BR/>3. Japan had the advantage of high savings rate and boom period in other parts of the world when their credit bust occurred. In light of that, with the present world essentially heavy in debt (including China, who is said to have high savings-rate, although in reality it's printing RMB for incoming USD), what will likely happen, in your view?<BR/><BR/>4. It looks like the present policy of major economy governments are to devalue their own currencies ("beggar thy neighbor" tactics). What will likely happen? Could the hyperinflationary measure be finally explored? Who has the advantage in this game? <BR/><BR/>5. Finally.. gold. I feel that the sentiment is too bullish on gold for now for it to be really bullish. I think LT govt bonds (so far still despised) will perform better. Do you agree?<BR/><BR/>That is all my questions for now. I apologize if the questions are too lengthy. I hope that you can discuss them because they are essential to our outlooks in several years to come. <BR/><BR/>Thank you for your help & for having been so enlightening. <BR/><BR/><BR/>Best regards,<BR/>Roger JaremaAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-65997786731720082472008-12-07T11:52:00.000-08:002008-12-07T11:52:00.000-08:00Comments appreciated. Yes, I agree that inflation ...Comments appreciated. Yes, I agree that inflation is always and everywhere a monetary phenomenon but Friedman & Schwartz work with CPI and a limited macroeconomic model. The reverse is also true; deflation is the reversal of a previous inflation. I go into detail in War on Savings but it also ties in with currencies. Very abridged. The monetary stimulations are much broader than just money creation and goes into debt formation. Debt formation is leveraged via the Basle Accord Risk Weightings to levels unheard of in history as credit Risk Weightings can be managed, rolled and even restricted to securities with zero capital risk weightings (AAA-AA). Debt formation goes the way Private Banks channel it. “Unlimited Liquidity” finds its way into asset inflations rather than CPI. The Stock Exchanges and Real Estate markets are favoured via the Basle Credit Risk Weightings to be recipients of a large portion of such monetary stimulations. Only when the channels are blocked off will the CPI inflation become the main inflation problem. The steps taken after the 1929 crash to prevent monetary stimulation from reaching the “Mortgage Banks” or “Investment Banks” and even "Vehicle Finance Banks" forced inflation into consumption items in the 1970’s. Globally these barriers have since been removed and money creation found the traditional asset inflation areas. At some point debt saturation prevails and the asset inflations cannot be sustained. A deflationary spiral is initiated. The compounded monetary stimulations having taken place over many years will now reverse. It happens in the supply side of the economy where malinvestment and overinvestment leaves insufficient demand in the absence of full blast debt stimulation. The amount of money creation required to overcome the deflation spiral can only be deployed via fiscal irresponsibility and will unleash a Hyperinflationary Depression if pushed far enough. Monetary and Fiscal irresponsibility will chase the savings into stores of value or alternative currencies. Note the content of Silver Smoke & Golden Mirrors. Governments will not sit on their hands. The Japan experience was, as you correctly pointed out, based on a huge current account surplus. The yen money creation could escape into the international markets for a good return and a capital appreciation but it left the fiscal irresponsibility behind in Japan. This was sustainable while the world bubbles were raging, now it is reversing and the Japanese Government has indicated an unwillingness to go that final push into Hyperinflation. Japan is in much deeper trouble than most investors realise.Sarel Oberholsterhttps://www.blogger.com/profile/10489682646595339301noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-54474068594370418632008-12-07T08:55:00.000-08:002008-12-07T08:55:00.000-08:00thank you for the intelligent posts. do you belie...thank you for the intelligent posts. do you believe that milton friedman and anna schwartz are correct when they said that inflation is always and everywhere a monetary phenomenon? i have always thought that they make a convincing case. I have struggled, however, to understand why japan's zero interest rate policies, plus quantitative easing, etc. has never kindled any meaningful domestic inflation, despite the CB's heroic (if misguided) efforts to do so. What am i missing? Is it that the yen were not deployed in the country (but left via the carry trade)? does the existence of a large current account surplus at the inception of the policy-implementation play into the analysis?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-20800990543672938112008-12-05T17:25:00.000-08:002008-12-05T17:25:00.000-08:00A well crafted essay from an informed author. I ha...A well crafted essay from an informed author. I have no issues with Professor Fekete and find him the only other essayist who shares my view that Deflationary Depressions and Hyperinflationary Depressions are events in series. My compliments to Professor Fekete. I may add that “Black Markets” are a condition particular to goods or services of which the price is controlled by a central authority. The existence of premium markets in physical gold and silver is in fact “Black Markets” in these precious commodities. Backwardation adds to the market signals that we receive of a market subject to price control. I believe you and Professor Fekete will enjoy my working paper “War on Savings” which is with the publishers. I’m hoping that it will be available by Monday 8th.Sarel Oberholsterhttps://www.blogger.com/profile/10489682646595339301noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-6347533397035699502008-12-05T14:33:00.000-08:002008-12-05T14:33:00.000-08:00Sarel, have you seen this article: Red Alert: Gold...Sarel, have you seen this article: <A HREF="http://www.safehaven.com/article-12012.htm" REL="nofollow">Red Alert: Gold Backwardation!!!</A>.<BR/><BR/>I'm wondering what your take is on it.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-2354198727543860722008-09-01T06:28:00.000-07:002008-09-01T06:28:00.000-07:00Hi Phil. I have a grave respect for the future. It...Hi Phil. I have a grave respect for the future. It does not belong to anyone. I prefer cause and effect. Borrow too much today and you will have to save/repay tomorrow. The current economic dispensation has most certainly built immense debt towers, an 8th wonder of the world, The Hanging Tower of Debt. Unfortunately this one has been collapsing in bits and pieces despite lots of government support. The risk of a total crumbling of the Tower of Debt is very high. Economic structures and institutions are very resilient. Predicting their demise is an “event” prediction rather than a “trend” prediction, the latter is always the safer choice. Institutions adapt and change and survive with a little help from friends. I expect a return to prudent financial management, some savings inclinations if only to mitigate risk and rediscovery of frugality. My views on outcome are contained in my working paper on Mises “When Debt comes calling”. Here I may mention that I am leaning increasingly towards the Japan outcome as similar policies are being followed but the USA trade deficit is a complication. I assume that you refer to an alternative monetary system. Money wise, we have a stand off: Settlement vs. Store of value. I have and will continue to ponder this duality. The current fiat money system is the only system on my radar that delivers on Settlement. It fails miserably as a store of value but I still wrestle with a store of value, looking for one not faith based. I ponder a single world currency (sovereign problems); gold or commodity standards (settlement problems); and combinations. My personal believe is that monetary (and fiscal) discipline is a political function and will only be restored in the face of political pressure. I would love to hear your views. SarelSarel Oberholsterhttps://www.blogger.com/profile/10489682646595339301noreply@blogger.comtag:blogger.com,1999:blog-9134766026846012346.post-43274643225859958422008-09-01T04:37:00.000-07:002008-09-01T04:37:00.000-07:00Good analysis-- I enjoyed it-- and I just wanted t...Good analysis-- I enjoyed it-- and I just wanted to add to what you said about nobody bailing out the next bubble-- <BR/><BR/>Do you know what the result is going to be? Horror. A major crash. We are sitting on the edge of a precipace so awful I'm dumbfounded. <BR/><BR/>Is there a solution? Yes-- but it's not going to save the current system. Instead, we have to "flip" into another system-- Do you know what that is? I'll wait for your response-- THEN tell you the answer.Rick Potvinhttps://www.blogger.com/profile/16405357824368245453noreply@blogger.com