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2019-09-12 09:33 by Karl Denninger
in Monetary , 200 references Ignore this thread
The Crazy Has a Name: Draghi
[Comments enabled]

When you see someone with a gun in their own mouth threatening to blow their own brains out, the correct action is not to follow their lead and place a gun in your mouth.

The ECB effectively declared "MMT" as their monetary policy this morning.  This will guarantee the fiscal destruction of the Euro -- and all nations who use it.

It renders the tension between taxation and desired government services an anachronism, declaring that governments can run indefinite and indeterminate "fiscal stimulus" without concern for whether their bonds are marketable or whether investors believe they'll be paid.

It renders pension funds instantly and permanently insolvent should they purchase said instruments as a coupon source, since there will either be no or a negative coupon -- and thus government bonds in the Euro world shift from being capital reserves to capital destroyers.  The only reason to buy such a bond, in other words, is because you believe there will be a sucker who will buy it from you when rates go even more negative.  This turns the entire premise of bonds -- the senior piece of a nation or firm's capital structure -- on its ear in that the only purpose for owning such an instrument is speculation.  In other words in terms of capital safety bonds are now not far from a purchased option for which you have paid a decaying premium!

Of course these policies are not exactly new in the European complex, but the underlining this morning makes clear that the policy has failed to produce the expected results.

This, by the way, is the danger -- which nobody seems to care about.  If you do something with an expectation of a result and not only don't get the result you get further deterioration it's highly likely whatever you're doing is either ineffective or making the problem worse.

If you keep this up and that turns out to be the case then you've guaranteed your own destruction.

So what comes next?  Good question -- but I'll bet the nations using the Euro won't like it.

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Wifi
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Seagrove Beach
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https://twitter.com/realDonaldTrump/stat....
Mnuchin says the Treasury is seriously considering issuing a 50-year bond next year
https://www.cnbc.com/2019/09/12/mnuchin-....


Treasury Secretary Mnuchin says Trump has approved reform plan for Fannie Mae and Freddie Mac
Quote:
The Treasury released a plan last week designed to recapitalize the two, which currently back about half of the $10 trillion U.S. mortgage market, and to release them from government conservatorship. The deal is being negotiated with their regulator, the FHFA. The Treasury plan would require some kind of payment for continued government backing.

Mnuchin said what were negotiating is making sure the taxpayers receive compensation for that.
https://www.cnbc.com/2019/09/12/treasury....

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Hurricane Evacuation Plan
1.Grab Beer
2.Run Like Hell
Asimov
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Somebody will start a big war. Wait and see. It's time.

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It's justifiably immoral to deal morally with an immoral entity.

Festina lente.
Click
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"50 year bond".. is a trial balloon.

Behind the scenes they are hoping to issue a hundred year bond --- just like Argentina did...

You don't have to be Ludwig von Mises in order to see how this **** ends...

Kiss your pensions good-bye, kiss you SSI goodbye and then kiss your ass goodnight.

Anybody who doesn't see what's coming and prepare accordingly only deserves what (s)he gets...

Flappingeagle
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Quote:
Somebody will start a big war. Wait and see. It's time.


You mean that instead of owning up to their financial malfeasance? Of course, that is pretty much every government on the planet.

Flap

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Here are my predictions for everyone to see:
S&P 500 at 320, DOW at 2200, Gold $300/oz, and Corn $2/bu.
No sign that housing, equities, or farmland are in a bubble- Yellen 11/14/13
Trying to leave the Rat Race to the rats...
Aztrader
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They are all backed into a corner and showing desperation. No way to fix and support this ponzi. The end game will be bloody.
Bodhi
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It boggles my mind that we have reached the point where our so-called economic experts think negative rates and MMT are good ideas. As a businessman, Trump should and does know better, but I believe it's simply a case of extend and pretend to try to delay the inevitable from too many years of debt accumulation. No way he wants an epic crash to happen on his watch, and like all office holders will go along with any hare brained plan to win re-election.

The sweet asteroid of death can't come too soon.
Jfms99
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Msumelle, Ar
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This was covered somewhat in a post of Karl's yesterday.

Ten years of The Fed keeping rates too low has destroyed the bond ladders for pension and insurance companies, the average investor has no where to invest for any kind of safe return. Once upon a time bonds and Cd's paid well for the retiree's to live on. Now everything is a crap shoot for a return.

As I said yesterday The Fed needs to go away and we need the market to determine the true cost of money by the interest rates float. Ten Year bonds would be maybe 6% and 30 year 8%. Of course that blows up the budget and trying to pay interest on the Debt.

As to longer term bonds, some of that has been tried in the past. In fact England still has bonds that they refinanced a couple of years ago still paying for W.W. I, and at a good rate. So we may well see 50 and 100 year bonds.

The ECB and The Fed are going down a bad road here with no good ending. And yes it's possible another big war be "Break Out" to a total disaster.
Inline
Lenguado
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A True American Patriot!
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Quote:
If you keep this up and that turns out to be the case then you've guaranteed your own destruction.

So what comes next?

Mr Kotter, Mr Kotter!

Pick me! Pick me!

smiley smiley smiley smiley smiley smiley

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"War is when your government tells you who the enemy is. A revolution is when you figure it out yourself." --Unknown

"Those who make peaceful revolution impossible, make violent revolution inevitable." - President John F. Kennedy
Little_eddie
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War? and this would be against WHO? That doesn't end in smiley

I don't think the old war plan works anymore, now I think you need small (civil) wars that throw one or two countries under the bus. Ideally large oil importing countries like India/Pak, China and most of the EU so they stop importing energy. Then the u.s. could import energy in exchange for food and war supplies with a price around $20 per barrel.

That kicks the can down the road a few more years and keeps the top 10% safe for a while

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Think of how stupid the average person is, and realize half of them are stupider than that. - George Carlin

Reason: Edit:should have put in more atomics
Emg
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"War? and this would be against WHO?"

It was supposed to be US against Russia with Crazy Clinton in charge. Remember her 'no fly zone' in Syria, where US planes would have been fighting Russian planes?
Oliver1655
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Bodhi wrote..

No way he wants an epic crash to happen on his watch, and like all office holders will go along with any hare brained plan to win re-election.


Tough **** for him. I think he is done anyhow.
He should have came in day 1 and fired every appointee and everyone that was not elected and cleaned house with a live streamed "you are fired" cavalcade for the first 2 days solid.

Then kicked Sessions ass out when he recused himself and not tried to play nice with the politicos like Prebius and accepting Benedict Arnolds from other campaigns who only played saboteurs behind the scenes and prevented anything from happening. He wasted too much time and opportunity trying to play nice.

Day 3 should have been wholesale indictments of the entire medical complex from CEO's, admins, Ins execs, PBM's and anybody else he could get the clamp on.

Immediate depression clearing of the scams, extortion, and extraction not to mention solving the fiscal mess overnight as prices collapsed.

We would be out the other side with a roaring economy,jobs pouring back in, actual improved wages and purchasing power for everyone.

Instead of worrying about the stock market(remember it was a big fat ugly bubble during the campaign) and the Fed and getting re-elected, he could be leisurely approving carvings for his face being added to Mt Rushmore for saving the nation.

Now he wants more juice, more frauds, more extractions, and plans on screwing everybody out of their lifetime of hard labor by advocating zero or negative interest rates.


He is a fraud like everyone who has come before.

I'm voting Karl either as a listed candidate or as a write in.

The show's over.

Drifter
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I've been watching this economic ****-show evolve since 2000. I can only conclude that economists and bankers would rather be wrong than right. Doing the right thing is too terrifying. Besides, what short-term profits are to be had if they copied the lessons of the 1921 depression?

Let it crash. Let it burn.
Redjack
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Iowa
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I am going to admit my ignorance here.

Under what possible situation would it be a good idea for me to loan you $100 on the promise of getting $90 in the future? I am an engineer, but in the processes I use that means... well everything is going to pot.

How is this the new savior for all things?

I am not even joking. I am seeing what seems to be pure madness being preached as pure gospel, and while I know that the pundits are trying to F me, I am struggling to see how anyone can't see it as stupid.
Dieselbob
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Quote:
I am going to admit my ignorance here.

Under what possible situation would it be a good idea for me to loan you $100 on the promise of getting $90 in the future?

Glad Im not the only one that this makes absolutely no sense to.
Asimov
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Quote:
Under what possible situation would it be a good idea for me to loan you $100 on the promise of getting $90 in the future?


You just have to make more loans, for more money and make it up on volume!

The question should be, why WOULDN'T you?!

It's sorta like taxes and your benefits from taxes. If they tax you more, you'll get more benefits from the government... Right?

Negative interest rates are just another tax. You can pay your ****ing tax or you can revolt.

Chose one.

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It's justifiably immoral to deal morally with an immoral entity.

Festina lente.
Elkad
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Just put the money in the cookie jar instead.
Tickerguy
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@Asimov - That's revolting!

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Winding it down.
Peterm99
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Quote:
Under what possible situation would it be a good idea for me to loan you $100 on the promise of getting $90 in the future?
How about these scenarios?

1) If you live in a country in which uniformed thugs can legally steal with impunity any money you have in your possession at any time. (E.g., the US)

2). If you live in a country with banks that are barely solvent and laws exist that will "save" the banks by a "bail in" process that, in a de facto sense results in a forfeiture of funds you have on deposit. (E.g., much of the EU)

3). If you live in a locale in which you have a very high likelihood of getting burglarized/robbed on a frequent basis and are not allowed to protect yourself against such theft. (E.g., many areas of any large US city outside of wealthy "gated" communities)

There is a good chance that getting back 90 bucks several years later for an initial 100 buck bond purchase would be a better deal than what you'd be left with in these three three examples.

And, yes, this is tongue-in-cheek (but not entirely!)

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". . . the Constitution has died, the economy welters in irreversible decline, we have perpetual war, all power lies in the hands of the executive, the police are supreme, and a surveillance beyond Orwells imaginings falls into place." - Fred Reed
Ronniemcghee
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There is no need to sell bonds to others. At zero percent or a negative percent, a government can buy their own bonds. Since 2008, each and every month, I have been telling myself the economy is going to crash next month, then the next month, the next month, year after year after year. It's the definition of insanity. I have been living in insanity for over a decade! I see no practical barrier, at this point, to any world government running deficits up to 160 trillion dollars if they simply buy their own bonds. They can fund any and all social, medical, and military projects they desire. The only issue it seems to me is, does the country have the raw materials to keep building and or/selling. If there are systems that need yield to survive (e.g. pensions), they can be diverted to the country's stock market. That is a win-win for the top 5% heavily in the market. Since 2008 I have thought the economy was an out of control 'train wreck' in slow motion but in 2019 I have come to believe that it is a a group of individuals intentionally and robustly digging their own graves and there is room for all of us. The question I am asking myself daily is... Will every country allow the other countries to begin buying all of heir own bonds - similar to what is happening in Japan. Will we all become Japanese?
Bullitt5768
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NY
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Quote:

Under what possible situation would it be a good idea for me to loan you $100 on the promise of getting $90 in the future? I am an engineer, but in the processes I use that means... well everything is going to pot.


They are FINALLY using science! Monetary entropy

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Less bad is the new good, pass the Brawndo 'tard!

"He that lives upon hope will die fasting." - Ben Franklin

Reason: fix quote
Bagbalm
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Just North of Detroit
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If you get $90 back on a $100 bond you will be ahead of the fellow who bought after you and will only get $80 back.
Radiosity
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Sunny UK
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Aaaand this is why Brexit will never happen. Not on October 31st, not ever. We still provide the third largest chunk of change to that bureaucratic hellhole of a system, they can't afford to lose that much in a single go. Or at all, really.

"He should have came in day 1 and fired every appointee and everyone that was not elected and cleaned house with a live streamed "you are fired" cavalcade for the first 2 days solid."

The Apprentice, but with government employees? Damn, I'd pay good money to see that.
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