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U-Know! Forum » The financial system - it's completely fucked, isn't it? |
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TheBear 981 posts |
Feb 16, 2009, 11:32
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Right I'm getting officially scared now. I know this piece is from the Telegraph but.... : http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/4623525/Failure-to-save-East-Europe-will-lead-to-worldwide-meltdown.html The mess is so bad our useless so-called leaders are going to lower interest rates to zero... hello global hyperinflation (((shudder))) http://en.wikipedia.org/wiki/Hyperinflation Stock up on beans people! :(
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stray 2057 posts |
Feb 16, 2009, 13:15
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I don't think IIRC (worked in the city,systems design IT bod) it's legally possible to set interest rates to zero. I mean, that creates a stagnant market, stagnant markets aren't markets. Basically a stagnant market just simply dies. But yeah, the market, as compared to it's activity previously is pretty much stagnant. It's trading in bursts at the moment it seems, but it's hard to really know without actually being in it as a lot of trades aren't that visible (particularly in our own domestic market which has odd laws/loopholes when it comes to publishing trades, I'm simplifying though). A zero percent rate may be applicable to inter bank lending, I'd have to think about it a bit more, it would be a serious headfuck however. But that wouldn't be trading, it would be something, well, amazing. It wouldn't solve any problems though. Zero percent rates is end game, all over. Yes though, it's fucked, seriously, seriously fucked. Thing is debts are in fact assets to banks. They have their realisable value, which is massively out of whack with their current value if they were to be sold, so they're not moving. If they shipped out these toxic assets for their current worth (fuck all), they would be open to some serious legal action from their investors. Writing off these assets is also legally, and economically, impossible. The 'toxic bank' idea that would buy all this shit up is pretty reasonable,but it assumes that they will at least get close to their marked value eventually. IMO, they won't get near to it, the various states of the world are going to have to get us to make up the massive shortfalls. The toxic bank idea also assumes that removing these assets/debts will mean the banks will be mad keen to lend again... er..risky assumption. The TARPA hearings still available on the C-SPAN site are a good place to hear these problems being discussed. Hyperinflation ? meh, deflation is more likely imo. Which will lead to whole areas of the market ceasing to be economically viable. The best indicator is the commodities market at present (as in, real things and their supposed real value). Just check it out since this year started, it's fucking insane, it's slipped by around 50% since this year started. Even copper is getting cheaper. If it ceases to be economically viable to produce, farm, mine commodities then WAAAHHH!!!!!! . I think, personally, that the major thing to avoid is massive levels of unrest caused by sudden swings into uncontrollable poverty. What I'd like to see is a lot of these bail out billions being used to create a credit union like bank that will lend to us (as in consumers). Set the maximum loan to something around 1K to 5K with stupidly low interest and mad long repayment schemes. Just so a lot of people can bridge their way out of their immediate shite. A small, seperate, macro economy that runs fundamentally parallel to the larger market. That maybe, maybe, could then feed upwards. Mind you, I'm just plucking ideas out of my arse here, I've not thought it all through properly. If you have a credit card though, clear that thing asap, things are going to go crazy in consumer credit shortly.
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TheBear 981 posts |
Feb 16, 2009, 14:09
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Thank you for the great post. Yes, I agree it does currently look like deflation, but I'd wager this is short-term deflation. The amount of toxic debt out there seems to me to be just too large which, politically, means that governments (being some of the largest debtors of all) will opt for the "easy" option of "quantitative easing", i.e. inflating the money supply.... resulting in inflation. Which, according to the Austrian School, is an increase in the amount of money around, not the price of things or assets. Prices subsequently increase to reflect the abundence of new extra money... but hey, you knew that :D Agreed that asset prices such as houses and shares are currently falling, but they were massively and stupidly overpriced anyway, reflecting little or no relation to any underlying real productivity (certainly none in the case of fantasy house prices!). Check the price of gold recently! Nice one Gordon! :D Mind you, all this depends on whether the Chinese or Japanese as major holders of US debt will allow their "investment" to decrease in value - that will be interesting! Thanks again for your post - off to stock up on more beans :)
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PMM 3155 posts |
Feb 16, 2009, 14:27
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Deflation? So if I put £100 in the bank and it attracts bugger all interest, it's purchasing power will increase anyway. Is that right? So as an investor, I keep hold of my money, rather than invest it or use it to buy things with. Result: Further negative growth (now there's a phrase), no demand for goods and services, and the spiral quickens. Don't take all the beans will you Bear? I've put a quid under my mattress, and I'm planning on buying Tesco's entire stock with it in a few months.
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stray 2057 posts |
Edited Feb 16, 2009, 14:39
Feb 16, 2009, 14:39
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PMM wrote: Deflation? So if I put £100 in the bank and it attracts bugger all interest, it's purchasing power will increase anyway. Yeah, pretty much, it'll be noticed first in the consumer market with large ticket luxury goods. People will put off buying things as they expect (probably correctly) that shops and producers will constantly mark stuff down in order to shift it. Yep Bear, there is a good chance that more money will be pushed into the market as you say, which always leads to incredible inflation (Zimbabwe being the most recent example). However, rightly, every govt has said 'last resort' to that. Also, mechanically, it won't to me, work in any fashion. Maybe I'm missing something. Good call on China, yep, was going to mention there in my post. There are a lot of possible outs that China could provide, which it will need to when it's customers (us) can't buy their products anymore. China is very interesting as it has no real internal consumer market to speak of, well not as in relation to the size of foreign currency its sitting on anyroad. I have heard recently of layoffs at companies in China, but I haven't done any decent research into those reports yet. There is every chance of some major upheavals in China now its encouraged so many people into it's cities, trained them, and now there is a serious prospect of not being able to employ any of them. These are people well versed in revolutionary theory and self organising too (yep, sorry, simplification, it is THE 'crack down' country after all. Still, they do all know the political theory). Mind you, with the shit load of surplus foreign cash they have they could pay/bribe their own population for a few years I think.
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TheBear 981 posts |
Edited Feb 16, 2009, 14:44
Feb 16, 2009, 14:43
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Initially deflation sounds cool, things get cheaper - groovy! Trouble is with the deflation scenario when there's no demand for goods or services... everyone gets laid off :( No jobs and lots of bored people sitting around blaming foreigners for their woes is perfect feeding ground for fascists and other nasties who promise easy solutions backed by thinly veiled hate. Even if that doesn't occur, I doubt the population is willing to endure a generation of economic stagnation, Japanese style just to please our banking overlords... either way I fear civil unrest :( That's why I think the politicos will attempt to inflate their way out of the mess. Personally I'm not keeping my money in paper or electronic form :D Beans it is! Wll definitely save you a tin PMM - although you'll need the new 1 Trillion Reich Pound to buy it off me :(
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Moon Cat 9577 posts |
Feb 16, 2009, 14:45
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Great post Stray. Your idea of a credit bank is one me and me Dad were thrashing out over a pint a few weeks back. It's something the Government should have thought about instantly. As a side line, the levels of sheer hubris and gall (still) on display in the financial sector is so audacious as to be almost admirable if it weren't from the fact it should make any half-decent individual vomit. Still trying to pander to the whims of shareholders, still they are 'what counts" after all that's happened. I was watching this woman from a banking association being interviewed regarding the bonus culture the other day and her defence was that a lot of banks had contractual obligations to pay these bonuses out and therefore it is right to continute to do so. Even the newsreader guy was struggling to keep a cool, objective head when she was chuntering on like this as he was referring to job losses, reposessions and poverty. God knows but the obsession with growth over stability and that somehow the old idea of paying dividends is simply not enough anymore just seems to have a stranglehold on the whole industry. I'm glad the Northern Rock lot failed in their bid to have their situation become a 'human rights' issue ffs!! Buying shares, ultimately it's a gamble, doesn't matter how well the economy is; it's a gamble. It's like putting all your money on the red and then trying to sue the casino when black comes up. Gah!
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handofdave 3515 posts |
Feb 16, 2009, 14:54
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I'm putting all my money in tulips and Hostess Ding Dongs. -Zippy
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stray 2057 posts |
Edited Feb 16, 2009, 15:14
Feb 16, 2009, 14:59
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Exactly that's the nub of it, growth over stability. Its pretty much a capitalist maxim that if you don't grow you die (Edit : Stability = Growth). Risk management is the key, but if auditors are lying to you about the risk of a given product then you may as well be putting your economy on the roulette wheel. I worked on the design of Deutsche Morgan Grenfell's Risk Management system (big data warehouse with analysis tools). It is accepted that crashes happen, anyone who says otherwise is lying. Its a perfect storm in that the wholesale credit market is fucked at the same time that the commodities market was being gamed to the point of being meaningless. A lot of what happened I have absolutely no doubt was predicted, I know what kind of simulations are run, and to some reasonable degree how risk is actually calculated. All said, if someone lies about a products risk (which is what happened by performing mathematical gymnastics to reflect a lower risk than the reality) then there is no way you can fix it, BUT that is part of the simulations they run, they do regularly run worst case scenarios. I honestly cannot see anyway the market can be kick started without creating wholly seperated markets, protectionism (but at a financial product and trade level rather than at a national level) and well, destroying the fundamentals of capitalism, free trade, and investors rights. None of this makes me sad, it puts a grin on my face to be frank. However, like Bear, I fear the massive civil unrest we're all heading towards. We are imo at the edge of the largest social transition humanity has been through since mercantilism arrived.
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TheBear 981 posts |
Feb 16, 2009, 14:59
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handofdave wrote: I'm putting all my money in tulips and Hostess Ding Dongs. -Zippy There must be a joke about Ding Dongs, Hostesses and tulips in there somewhere.. damned if I can find it though...
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