Right on the money KD. The fact is Europe is worse. I sense Europe has tried to keep together generations of debt. It has worked because the USA has produced enough credit over the years to keep it afloat.

Shanearthur brought up financial debt. Think CDO's and MBS. FNM and FRE are financial debt. They borrow from one and lend to another. Best guess is a lot of this is what has been downloaded at bargain prices to politically attached banksters at dime on the dollar prices. It has been replaced by the swollen government debt.

Think of it this way. We are near 400% GDP in debt when you sum it all up. This is 4 years of future income. It is also a lot of the savings of others, as we face the paradox of debt and savings being imprints on the same coin, one implies the other, just as Lincoln implies the Lincoln memorial. Then we have the illusional home equity, apartment equity, commercial equity, which draws income out of the system as well. Then we have shareholders equity, which also much draw income out of the system. If the savings is rotting, it is going to draw out of all of these as the saver is going to have to restore his own balance.

There are 2 accounts, borrowing to support the debt and borrowing to stimulate demand. Maybe at 100% GDP, it takes 5% new debt to maintain the status quo. That might mean it takes 20% or more at 400% to maintain the status quo. Seems we were running around 30% new debt at the peak in 2007. The more dope, the more dope to keep running.

The circle goes this way. It has to flow income from who is owed to who owes in order to keep the game going. The career of a working man is about 45 years, so if he is to liquidate 4 years of debt over his lifetime, it is going to take about 10% of his income plus interest to do so. What is the real rate of interest? Lets say it is 6%. So we are looking at 16% of someones income to liquidate the debt. If the debt payment merely flows back to another, the debt really hasn't been erased, as it becomes the debt of the banking system and the only way the bank can maintain this credit is to have a reduction somewhere else.

The problem is manifold. It relates to Obama making the statement "a responsible country pays their debts, so give me some more credit to pay it". That is a start. The solution is to have more debt. But, debt that can't be repaid isn't debt at all. It is worthless. So, we have a system that implies the current debt is good and runs on the idea that repayment will actually come from a new loan in the system.

At what point does this system fall apart? And, if it can be maintained, at what point does debt service overwhelm equity? The debtors and creditors aren't the same. In the case of institutions, they are one and the same, a middleman that owes depositors and policy holders and holds debt on others. This group is also part of equity, but their equity is only as good as the debts owed them. The income from the credits is flowing to this equity group, which I contend includes the big time bankers who are mere employees of the institutions.

There is only one solution being employed, the socialization of debt. Problem here is the creditor remains the same and the other side can't pay. it can't pay because the compound equation and the fact that those that have performing credits (cash and other debt instruments which they are the owner)know not to end up on the other side of the equation. Being the reduction of debt requires those in debt acquire net credits in excess of what they owe the system, this becomes deflationary or the debtor must default.

I have read enough conspiracy books to see at this time what they were talking about. This is about running the world. Watch the dance in Europe. The aim in Europe is to shame northern Europe into buying into giving up their sovereignty to a small group of bankers. Who did they put in charge of Greece and Italy? Rockefeller/Goldman Sachs men. Deflation is going to break every government in the world, including those that use phony money like China. if their debits aren't any good, neither are their credits.

This is really about bubbles. Bubbles are always money induced. Or, should I say to please Karl, leverage induced. They create economic activity through mal investment that increases employment and debt and when they break, the employment disappears and the debt goes bad. Solendra was merely an attempt to blow a new bubble, in hopes their products would generate huge financing needs. Ditto the shovel ready projects nonsense and the war nonsense, where we are told building stuff and blowing it up is good for the economy, when afterwards we have nothing and have destroyed valuable resources.

The problem is deflating this mess isn't politically expedient. First of all, the governments and their employees would have to take a smaller slice. The bankers, which control the governments, because they feed the money to them, would be broke. The receipients of socialist money would have to take cuts. The depositors would likely have to take haircuts in the form of equity ownership in the banks. The equity positions in all assets would either become nearly worthless or at least would lose such a massive amount of cash flow, their owners would suffer. Pension plans would be insolvent, as they run off the return on the equity positions or debt instruments they own. You only have to look at Europe, where bankrupts are now demanding more money to spend to attempt to blow another bubble or keep the bubbles they are floating intact.

So, the solution is more debt and time in order that those trapped in this mess can rearrange the deck chairs to where they end up on the life raft, while the rest of us get screwed. This isn't a solution, it is a screwlution.

I'm reading the prior posts. Deflation will wipe out equity, because the cash flow collapses. With houses, you still have taxes, insurance and maintenance. I still expect rents to decline 33% or more, which wipes out at least 50% of the equity take. For those with debt service, it would become a real drag.

Then there is talk of inflation. If there is going to be sustained inflation, there has to be widespread credit availability. inflation, based on a few people being able to eat more, while the masses wilt or stay the same, won't last. This is an abstract idea, but inflation implies a lot of things. The only inflation I know that will have an effect is going to take currencies to zero and likely move us to a world wide dictatorship. Cash is on the credit side of the balance sheet, not the debit side, where QE ends up. Also, there is a hell of a lot more debt in the system owed by those that can't pay, which will reduce shareholders equity in banks. Bonzilla has to awaken in inflation and this will destroy the value of bonds in the system, effectively making those institutions holding them insolvent, as in the S&L's of the early 1980's.

Peterm99 wrote..

It seems as if that would make DEFLATION the desired course of action for TPTB.

That way, they will end up owning the assets themselves, not just the paper. Of course, that doesn't work out well for things such as houses as they are not "productive assets", but it would certainly work out well for all productive assets, such as the aforementioned manufacturing, transport, farmland, etc.

Why aren't they clamoring for deflation?

Because they own so much BOGUS paper, that's why. But whenever push comes to shove, and Benny Boy's balancing act starts breaking plates faster than he can add them, they aren't going allow all of it to die.

"Rats from a sinking ship"...

Realizing deflation makes anyone who borrowed against and leveraged those assets instantly INSOLVENT... That includes "homeowners", banksters and sovereigns.... EVERYTHING we've witnesses since the crash of '08 has been about finding a way to keep the bubbles inflated...

Reminds me of these inflatable things ya rent for the kids birthday parties. Once there's a massive tear in the lining no amount of blowing by the fan keeps it standing...

Yep, what happens to your insurance company and pension and just about any government financed pot of skittles that assumes 8% returns. They were assuming credit would rise faster than GDP forever. Deflation wipes that all out. Just think about what happens to the health care system? What happens to Trump's 5% equity position on all his real estate during deflation.

People have been assuming inflation would last forever and have become rich doing so, but they are worth less than 0 if inflation simply stops (the interest itself will wipe out their equity) let alone a drop in the money supply.

But it is the politicians that make the decisions and while they fed off the inflation to get rich, they also have to deal with the poor people who have seen prices rist 33% while Obama has been in office. That is what stops them. That is why CPI only measures the effect of inflation on poor people, because the goal is to inflate the money supply and hand yourself money as much as possible while not*****ing off the poor people enough that they revolt.

In the first sentence replace the word "would" by "will".
I read in Market Watch that stocks are up over hopes for more Fed stimulus,whenever I see this I think about a passage I read in a book about Stalingrad,it went something like this.
Manstein was coming,on the the southern edge of the pocket they could hear the sound of gunfire and see the signal flares, but then it slowly died away and was gone.And as they stared across the frozen waste a terrible thruth dawned,they were doomed.So is Bernanke going to be another Manstein.

These ****ers WILL try to print again.

The ****storm will happen in the third world where people die because they can't afford rice.

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The language suggests that all economys have benn going along quite nicely and are just now starting to slow.They have been trying to clutch start the car for what, four years but now they have reached the bottom of the hill and are now trying to start it by pushing it uphill. What I rarely see in the MSM is any discussion on how and why we are here in the first place and what action needs to be taken to remedy the causes in the first place.I am only a cleaner so maybe I lack the education and wisdom to understand and appreciate such people as Bernanke and his ilk.

Realizing deflation makes anyone who borrowed against and leveraged those assets instantly INSOLVENT... That includes "homeowners", banksters and sovereigns.... EVERYTHING we've witnesses since the crash of '08 has been about finding a way to keep the bubbles inflated...

Reminds me of these inflatable things ya rent for the kids birthday parties. Once there's a massive tear in the lining no amount of blowing by the fan keeps it standing...

I thought you could only become insolvent if you are forced to declare "what is" "as is" or that seems how the system works. I don't know to highlight the first paragraph.

"It seems as if that would make DEFLATION the desired course of action for TPTB."

imo, tptb make their money from 'loaning' money they've created into existence. if there is certain deflation, loans are tougher to justify. they have to show tremendous payback potential. deflation = less business for them.

that's why the natural course of the world driven by technological advancements, deflation imo, is not allowed to transpire.

if you could save your earnings from your working life in a coffee can and every year they were worth more, what would be your incentive to play the money-changers, and wall street's games? why would you need 'interest'? under what circumstances would you ever accept debt?

would their be a need for collectivist enterprises like social security or medicare? how would they skim your savings from a coffee can? how could they control you?

'moderate' inflation is a key to their power, imo. it's what nearly obliges you to play along in some form or fashion.

Corporateraiter -

Deflation allows those who hold paper from those who borrowed against productive assets to obtain the assets themselves rather than having just the paper.

I don't know for certain which is more profitable: charging rent for a productive asset one owns or collecting interest on the paper one holds against such an asset. However, one thing seems clear to me: the first seems to be sustainable over the very long term, the second, not so much (as evidenced by where we are today).

Peterm99 wrote..

I don't know for certain which is more profitable: charging rent for a productive asset one owns or collecting interest on the paper one holds against such an asset.

At the end of a long-wave cycle, when the math of exponential growth demand its due, genuinely productive assets become more and more scarce. So to keep the usury flowing, lenders begin fronting frauds and ponzis as if they were real assets. Which works great right up until they quit performing, by which time hopefully, one will have carried off enough loot to survive personally. After which a deflation, a Kondratieff Winter, remains the only mechanism by which to separate the wooly sheep from the sheared goats.

Within the human ecology, it's a natural phenomenon. Just because he wants to, that doesn't mean Benny Boy can stop the change of season. He can't.

A remarkably frank interview with Harper, Prime Minister of Canada, on the euro zone crisis (scroll to the 2 min mark). Fortunately, this one is also in English -- often the English interviews aren't as forthcoming as the French ones, but this one is, and surprisingly so...

http://www.cbc.ca/news/world/story/2012/....

Jstanley -

Here's what I think you're saying: Only a small subset of the all of the paper held by TPTB represents a real claim on productive assets. Thus, in a deflationary environment, only a small subset of the holders keep their wealth (by ending up owning a productive asset) and the rest can use their paper only for feeding a fire.

If that's the correct interpretation, then let me pose the following: TPTB may be dirty, rotten, scheming, mofos, but they can't all be stupid. Some of them should certainly be able to figure out what paper represents real wealth and which paper doesn't. Thus, there should be a schism in TPTB's POV - those with "good" paper should be screaming for deflation while the rest scream for continued ponzi inflation. Yet, we appear to have a monolithic bloc of TPTB, all of whom want to continue with inflation. Why?

(And if I didn't correctly interpret what you said, please try again. The next time it just may sink in. )

Bobrice -

Interesting discussion. While I have no idea how good or how bad a leader Harper might be for Canada, It seems to me that he's much more articulate and much more intelligent than any President we've had here in the US for quite a long time. While he was diplomatic, he did not sugarcoat his view of the situation.

Do you believe Canada is as isolated from adverse impacts of the European crises as he tried to imply?

Quote:

Some of them should certainly be able to figure out what paper represents real wealth and which paper doesn't.

Nope, nobody is that smart. Nor is any collection of nobodies operating outside of that price discovery mechanism which employs all who buy and sell as its brain trust, a.k.a. the market.

Remember, climbing the parabola, everything is inflated by unsupportable asset valuations -- the good, the bad, and the ugly. After which, when the math takes charge, the only ones qualified to sift through the rubble of the blowoff for gems are the savers, whose money has been allowed to appreciate to its true value via deflation.

There's a reason that hyperinflation is resorted to only in societies under severe stress like Weimar Germany and Zimbabwe. "Cause when you got nothin', you got nothin' to lose."