Below is a very valuable 40 minute lecture on the current situation. The expert talking is a bond dealer, and he knows his stuff. When Clinton was elected president, full of delusions of grandeur, he summoned the political leaders, the majority leader, the speaker of the house and others, to Arkansas to tell them how it was going to be. The photos show a beaming Clinton welcoming his guests. The next set of photos showed a somber Clinton at a farewell to these advisors. (If anyone can find these..)
What happened at that meeting?
Some capitalists will say the regime is abused and we get malinvestment and misallocation when the state picks winners and losers, by manipulating interest rates, lending credit when it is not backed by assets, and inflating the currency by printing too much. To be sure, all bad things, but they do not note the heart of capitalism which is irredeemably evil: charging interest on a loan. All versions of capitalism depend on this one constant.
The problem with charging interest is the simple fact it is the perennial means of concentrating ever more economic power in ever fewer hands. Now, no one denies this, the problem is just about everyone aspires to this. Nothing new under the sun, most of us want to wield the whip, not take the stripes, fearing a false dichotomy.
Poor Michael Lewis, writing an expose´ on the heart of Wall Street, Liar's Poker, with a view to warning off the next generation from this casino of greed and economic abuse, was overwhelmed by Ivy League graduates all pleading for help getting a job doing what Lewis decried.
The communists noted the great threat of capitalism is when the system fails, as it inevitably does, the capitalists merely start a war, wipe out all of the malinvest and misallocation by bombing it to the stone age, then start over. Not a bad observation. And note the capitalists (as well as the communists) call all of this the free market.
Now, a pox on both their houses, the communists and capitalists. For those of us trying to live genuinely productive lives, there are free markets, free from force and fraud, free to contract. Free, free free! Would I outlaw usury (charging any rate of interest on any loan)? No. I would simply delegitimize it, meaning, should anyone who agreed to pay interest at any time could with impunity not pay it. Like no court in USA will enforce a gambling debt. As a way to make money, it would shrivel up.
But without concentrating ever more power in ever fewer hands, we'd never have the iPhone! You do not know that, nor do you see anything better that might be.
Businesses depend on credit! True, it can be asset backed and private, or asset-less backed and public. The former is good, the latter is bad. I recall when private asset backed credit came with no interest. But once banks were allowed to lend asset-less backed credit, credit inflation was a powerful vacuum into which people could pay cash for a hamburger today, or buy a meal tens times as expensive today, and pay only the cost of the hamburger at the end of the month. Yes, a debt at interest was created, but that is for the future. Once this proved to be viable, banks in the 1970s began mass mailing live credit cards loaded with $500 limits. At on point I have about 75 credit cards, for airlines, department stores, bank cards, AEX. I just managed the balances. Today people have maybe five, for the powers that be have consolidated banking and lending into ever fewer hands, concentrating power to the point it takes extremely few people to call the shots. Now we manage the balances on five, instead of 75. Capitalism marches on!
This expansion of credit, and Mish is one of the first and only to note it, caused credit inflation, a version of the monetary event that occurs when you print too much currency. Rothbard notes inflation benefits the first to get the excess money, and by analogy this is true of credit.
We are not any longer in credit inflation, we are in credit deflation. This is news only to people in government, those outside are quite well aware of this.
So what makes the video below very important is, the first time I've heard it said, that deflation of asset-less backed credit has the reverse effect of inflationary asset-less backed credit. This guy would know: PhD Temple, worked for Rockefeller at Chase, headed up HSBC economics dept when HSBC was the largest bank in the world, and so on... now managed $6 billion in bonds for pensions out of his home in Texas.
Here is his big point: When deflation is 2%, and the bond yield is 2%, you are netting 4%. To chase yield by buying junkier bonds at 4% is delusional since those two points are not covering the risk premium. Even at 2 + 4 = 6 what's available is junk. (Guess what you pension is loaded up with.) But but but, it's all rated triple A! (So you are falling for the bought-off rating agencies scam AGAIN?!) (And as a bond dealer he has nothing to say about equities, currently a fools game.) You are being scammed into buying junk by dealers who point out the nominal rates, not noting the structural rates. But so what, those who invest in bonds deserve what they get, the more useful info to we in small business is his other points:
1. The winner in deflation is the opposite of the inflation winner: the last person to get paid is paid in harder dollars.
2. The lowest actors can deal in harder assets (gold instead of currency, currency instead of credit) and benefit the most. Mr. Hunt notes businesses will rather keep their cash receipts in the safe and pay workers cash from the vault, than keep money in the bank, just like when I was a kid.
So what you need to listen to is his explication of how deflation works, now that we are in it.
In essence, what I have been advocating, extending non-usury credit at retail and wholesale to customers, as an ethical matter, means now in deflation when you do get paid in 30 days, while we are in deflation, you are getting paid later in harder dollars. The rule of 72 in operative: at 2% deflation, your wealth (the float as accounts receivable) has doubled doing nothing over your career, say 36 years.
Going back to pay packets instead of paychecks is not only a good thing, it is smart money management.
And think about it: more customers will prefer to simply sign for their goods than put it on an interest bearing loan card. They think you are doing them a favor, and you are making 2%, and not losing all those card fees.
Yes, you then have to manage credit, but when I was a kid "blackballed" and "86'd" were common terms. I recall being asked while entering a shop by a bystander if I would buy something for the fellow, who offered the cash to do so, at the store since he was "blackballed." Managing credit is a community thing, not a Washington/Wall Street axis of evil thing.
One minor point, Mr. Hunt says:
Detroit is presently being bailed out in advance of the next crash by the extension of EZ auto credit to unqualified "buyers."
Student loan debt has surpassed credit card debt in USA, student loan debt is not bankruptable. We lost 4-8 years of productivity while people went to school to learn skills they will never use and pile up debt they lived on and can never pay back.
Turns out those hundreds of billions banks risked to bail out countries has quietly been sold to European pensions. (Note in the graph it says the banks create money to buy bonds from financial institutions. Here again is where language has to be abused, for if this was stated accurately, it would reveal the delusion. Accurate: "Banks create credit, to buy credit." If described accurately, it makes no sense, highlighting the delusional basis your pension is funded. When your pension is useless, you cannot complain, because you wittingly bought into the delusion.
The hard part here is to go with the better unseen than the clearly malicious seen.
Check out this video, hat tip to Mish... it's a 40 minute seminar....
Feel free to forward this by email to three of your friends.
What happened at that meeting?
At a meeting in Little Rock, Arkansas, Rubin and several other members of Clinton's economic team persuaded him to renege on this campaign pledge in favor of deficit reduction. They argued that tackling the deficit, which was then running at close to 5 percent of G.D.P., would impress the bond market, bring down long-term interest rates, and allow the Federal Reserve to cut short-term rates, all of which would boost investment and make the economy healthier. As Bob Woodward reported in his 1993 book, The Agenda, Clinton was initially skeptical of this argument. His face turned red with anger and disbelief. "You mean to tell me that the success of my program and my reelection hinges on the Federal Reserve and a bunch of fucking bond traders?" he said.Yes, USA economy depends on debt, and debt dealers are commonly referred to in USA as #%çi#g bond traders.
Some capitalists will say the regime is abused and we get malinvestment and misallocation when the state picks winners and losers, by manipulating interest rates, lending credit when it is not backed by assets, and inflating the currency by printing too much. To be sure, all bad things, but they do not note the heart of capitalism which is irredeemably evil: charging interest on a loan. All versions of capitalism depend on this one constant.
The problem with charging interest is the simple fact it is the perennial means of concentrating ever more economic power in ever fewer hands. Now, no one denies this, the problem is just about everyone aspires to this. Nothing new under the sun, most of us want to wield the whip, not take the stripes, fearing a false dichotomy.
Poor Michael Lewis, writing an expose´ on the heart of Wall Street, Liar's Poker, with a view to warning off the next generation from this casino of greed and economic abuse, was overwhelmed by Ivy League graduates all pleading for help getting a job doing what Lewis decried.
The communists noted the great threat of capitalism is when the system fails, as it inevitably does, the capitalists merely start a war, wipe out all of the malinvest and misallocation by bombing it to the stone age, then start over. Not a bad observation. And note the capitalists (as well as the communists) call all of this the free market.
Now, a pox on both their houses, the communists and capitalists. For those of us trying to live genuinely productive lives, there are free markets, free from force and fraud, free to contract. Free, free free! Would I outlaw usury (charging any rate of interest on any loan)? No. I would simply delegitimize it, meaning, should anyone who agreed to pay interest at any time could with impunity not pay it. Like no court in USA will enforce a gambling debt. As a way to make money, it would shrivel up.
But without concentrating ever more power in ever fewer hands, we'd never have the iPhone! You do not know that, nor do you see anything better that might be.
Businesses depend on credit! True, it can be asset backed and private, or asset-less backed and public. The former is good, the latter is bad. I recall when private asset backed credit came with no interest. But once banks were allowed to lend asset-less backed credit, credit inflation was a powerful vacuum into which people could pay cash for a hamburger today, or buy a meal tens times as expensive today, and pay only the cost of the hamburger at the end of the month. Yes, a debt at interest was created, but that is for the future. Once this proved to be viable, banks in the 1970s began mass mailing live credit cards loaded with $500 limits. At on point I have about 75 credit cards, for airlines, department stores, bank cards, AEX. I just managed the balances. Today people have maybe five, for the powers that be have consolidated banking and lending into ever fewer hands, concentrating power to the point it takes extremely few people to call the shots. Now we manage the balances on five, instead of 75. Capitalism marches on!
This expansion of credit, and Mish is one of the first and only to note it, caused credit inflation, a version of the monetary event that occurs when you print too much currency. Rothbard notes inflation benefits the first to get the excess money, and by analogy this is true of credit.
We are not any longer in credit inflation, we are in credit deflation. This is news only to people in government, those outside are quite well aware of this.
So what makes the video below very important is, the first time I've heard it said, that deflation of asset-less backed credit has the reverse effect of inflationary asset-less backed credit. This guy would know: PhD Temple, worked for Rockefeller at Chase, headed up HSBC economics dept when HSBC was the largest bank in the world, and so on... now managed $6 billion in bonds for pensions out of his home in Texas.
Here is his big point: When deflation is 2%, and the bond yield is 2%, you are netting 4%. To chase yield by buying junkier bonds at 4% is delusional since those two points are not covering the risk premium. Even at 2 + 4 = 6 what's available is junk. (Guess what you pension is loaded up with.) But but but, it's all rated triple A! (So you are falling for the bought-off rating agencies scam AGAIN?!) (And as a bond dealer he has nothing to say about equities, currently a fools game.) You are being scammed into buying junk by dealers who point out the nominal rates, not noting the structural rates. But so what, those who invest in bonds deserve what they get, the more useful info to we in small business is his other points:
1. The winner in deflation is the opposite of the inflation winner: the last person to get paid is paid in harder dollars.
2. The lowest actors can deal in harder assets (gold instead of currency, currency instead of credit) and benefit the most. Mr. Hunt notes businesses will rather keep their cash receipts in the safe and pay workers cash from the vault, than keep money in the bank, just like when I was a kid.
So what you need to listen to is his explication of how deflation works, now that we are in it.
In essence, what I have been advocating, extending non-usury credit at retail and wholesale to customers, as an ethical matter, means now in deflation when you do get paid in 30 days, while we are in deflation, you are getting paid later in harder dollars. The rule of 72 in operative: at 2% deflation, your wealth (the float as accounts receivable) has doubled doing nothing over your career, say 36 years.
Going back to pay packets instead of paychecks is not only a good thing, it is smart money management.
And think about it: more customers will prefer to simply sign for their goods than put it on an interest bearing loan card. They think you are doing them a favor, and you are making 2%, and not losing all those card fees.
Yes, you then have to manage credit, but when I was a kid "blackballed" and "86'd" were common terms. I recall being asked while entering a shop by a bystander if I would buy something for the fellow, who offered the cash to do so, at the store since he was "blackballed." Managing credit is a community thing, not a Washington/Wall Street axis of evil thing.
One minor point, Mr. Hunt says:
Three Problem Types of DebtThe best debt is the non-interest bearing debt that undergirds all peaceful, prosperous and just comities, that is debt with no "income stream" attached.
- Borrowing to finance daily living needs
- Debt that leads to bankruptcy
"Good debt" to Lacy is debt that yields an income stream sufficient to pay back principal and interest.
- Worst type of debt is where excess debt creation inflates asset prices. And that only leads to economic instability.
Detroit is presently being bailed out in advance of the next crash by the extension of EZ auto credit to unqualified "buyers."
Student loan debt has surpassed credit card debt in USA, student loan debt is not bankruptable. We lost 4-8 years of productivity while people went to school to learn skills they will never use and pile up debt they lived on and can never pay back.
Turns out those hundreds of billions banks risked to bail out countries has quietly been sold to European pensions. (Note in the graph it says the banks create money to buy bonds from financial institutions. Here again is where language has to be abused, for if this was stated accurately, it would reveal the delusion. Accurate: "Banks create credit, to buy credit." If described accurately, it makes no sense, highlighting the delusional basis your pension is funded. When your pension is useless, you cannot complain, because you wittingly bought into the delusion.
The hard part here is to go with the better unseen than the clearly malicious seen.
Check out this video, hat tip to Mish... it's a 40 minute seminar....
Feel free to forward this by email to three of your friends.
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