Discussion
  • Read More
    EvanrudeJohnsonHamilton Nolan
    7/28/16 11:33am

    Been a while since I took econ, but from what I remember, this could have been prevented by raising interest rates slowly a few years back, but then we would most likely have higher unemployment right now, along with higher deficits and our underfunded pensions would be in worse shape as we would have a lower stock market. But the plus side would be no big shock when it all collapses.

    As it stands now, it will probably come down within a year, recession will hit, and the next President will get 100% of the blame eventhough this seems to be caused by the Federal Reserve.

    Reply
    <
    • Read More
      Mac SpainEvanrudeJohnson
      7/28/16 11:39am

      Ding Ding! We have a winner! 25bps raise in December resulted in 10% downside to major indices. You don’t have to be remotely political one way or another to see the that the data was goalseeked for years and now the Fed has become a reactionary to market moves. Bernanke set this path, Yellen kept driving on it. They missed so many opportunities to bake this in and now they’re simply...stuck.

      Reply
      <
    • Read More
      SnakeMcEyepatchEvanrudeJohnson
      7/28/16 11:45am

      We’re seeing yet another side effect of our stupid political leaders and the silly economists that shill for them failing to engage in fiscal stimulus forcing the Fed to keep rates low.

      A stimulus package sufficiently large to deal with the loss of wealth would have increased the debt in the short term, but would have helped generate a quicker recovery - a recovery based on actual people working, making, and spending money. Instead, we had to slowly creep out of the hole with interest rates stuck at the zero bound.

      I don’t necessarily blame the fed. Their options were constrained by the total inability of our political systems to respond to the crisis. They did the only thing they really could with monetary policy. Raising those rates would have devastated the already pitiful recovery.

      Reply
      <
  • Read More
    Nick DentonHamilton Nolan
    7/28/16 12:17pm

    The messed-up possibility? The rise of the Trumpists and other populists triggers the financial meltdown that propels them into office.

    Reply
    <
    • Read More
      Jerry-NetherlandNick Denton
      7/28/16 2:13pm

      Right on, Nick. To explain to people why you’re correct:

      There’s been almost no discussion of what is the greatest threat presented by Donald Trump’s campaign rhetoric (and has already been test-case proven by Brexit). Trump has said time and again that, as he has done in business negotiations, he would reduce the national debt by renegotiating repayment at a discount (like 70¢ on the dollar).

      The US Dollar is the only default currency left in the world (Brexit killed the stability of both the £ and the €, and gold is highly volatile). Every finance minister and central banker on Earth has to be watching this election in abject horror, and the dollar would plummet if Trump were elected.

      Nations, enormous wealth funds, wealthy individuals, and institutional investment funds (civil service retirement funds and private pensions) all are heavily invested in the US Dollar, even as it pays no interest, precisely because it is the one stable, secure harbor for investors of every stripe.

      The threat posed by Trump’s proposal could (again, see UK) tank banking, housing, agriculture, employment, and create hyperinflation - globally.

      I’ve been looking for a way to explain this to people in a pithy bumper-sticker length slogan, but the underlying concept that the $18 trillion in “debt” is actually representative of the confidence in the US$ held by investors at home and at every point on the globe must be understood.

      Thanks for reading this - what is a stake is a genuine global financial collapse.

      Reply
      <
    • Read More
      TotoroRecallJerry-Netherland
      7/28/16 2:36pm

      I try to explain to people money is basically a reflection of countries’ relations with each other. Yes, at one point money was backed by gold or goods or some shit, but in today’s global world a return to that is highly unfeasible. Gold is not some magical quality substance that somehow perfectly sets currency.

      Reply
      <
  • Read More
    Mac SpainHamilton Nolan
    7/28/16 11:29am

    Thank you SO much for even mentioning this.

    People need to understand the impact and role of Central Bank decisions in their everyday lives. It’s so much more than “I can’t get anything for a saviings account.” When I tell my friends, that this is the policy mandate to force a wealth effect, they glaze over.

    Janet Yellen, not the next prez, is the most powerful person in the world. If people actually realized how growth is borrowed from the future to prop up risk assets, they might actually start to ask questions.

    Why don’t you show the comparison between the indices and the Fed Balance Sheet. It’s pretty amazing.

    Reply
    <
    • Read More
      illinobbinMac Spain
      7/28/16 11:43am

      Monetary policy seems to have no tie to economic indicators anymore. Instead of letting economics dictate borrowing rates, we have bureaucrats blowing up big economic bubbles. Thomas Jefferson warned us that our children will end up homeless if banks are allowed to control our currency.

      Reply
      <
    • Read More
      Orlandu7illinobbin
      7/28/16 11:53am

      They *are* letting economics dictate borrowing rates. Specifically, they’re basing their decisions on inflation. As long as inflation is below 2%, it doesn’t make any sense to intentionally cause a recession just to stave off a hypothetical future larger recession. That’s how you end up with deflation and stagnation. The idea is that the economic indicators will indicate that inflation is going up as the economy actually recovers, and they’ll take action accordingly. That hasn’t happened yet, because it’s still a fairly weak and unstable recovery.

      Reply
      <
  • Read More
    sour duckHamilton Nolan
    7/28/16 11:27am

    God I can’t wait for the housing economy to collapse so I can live in these luxury condos they are building everywhere.

    Reply
    <
    • Read More
      Whatthefoxsayssour duck
      7/28/16 11:31am

      You may be joking but there are lots of people who actually think like this. And they’re all in for a shock (unless they are one of the lucky few who have saved enough to pay all in cash).

      Reply
      <
    • Read More
      festivusazilisour duck
      7/28/16 11:35am

      Hungry? Why wait?

      Kill and eat the residents. Get your dream home today.

      Reply
      <
  • Read More
    Josh SalaamHamilton Nolan
    7/28/16 11:28am

    “Then, starting with the bull market of the 1990s, wealth took off. As Ms. Fosler describes it, capital came to overshadow income as the driver of spending on goods and services.”

    None of this is an accident—our politicians and their appointees paper over the real problems with cosmetic “fixes” that allow re-election campaigns to sail along b/c you can be damn sure their incomes are rising like a motherfucker.

    Reply
    <
    • Read More
      Promnight Dumpster Baby FireJosh Salaam
      7/28/16 11:35am

      In layman's terms, people took out second mortgages to buy jet skis and quads and Hummers.

      Reply
      <
    • Read More
      CakeisbetterthanPiePromnight Dumpster Baby Fire
      7/28/16 12:06pm

      To be fair, the endlessly increasing equity made them feel rich.

      In fact, a large portion of those same people will never be that “rich” again.

      Reply
      <
  • Read More
    Dave Hamilton Nolan
    7/28/16 11:17am

    GIANT SNAKES!?! IS IT GIANT SNAKES?

    Reply
    <
    • Read More
      pre-emptive sighDave
      7/28/16 11:19am

      Typically it’s bears rampaging through the streets mauling anyone stupid enough to go outside.

      Reply
      <
    • Read More
      neuroradicalnewDave
      7/28/16 11:21am

      I’m pretty sure it is invasion from Mordor

      Reply
      <
  • Read More
    IAMBlastedBiggsLostBurnerHamilton Nolan
    7/28/16 11:26am

    Trump's plan for dealing with such an economic collapse will be strikingly similar to what he did with his own businesses: just declare bankruptcy! Multiple times, in fact! See, you don't really need to know how to swim to get in the water, so long as someone is there to throw you a line and save your ass because you have no idea what you're doing.

    Reply
    <
    • Read More
      AlmostThere2IAMBlastedBiggsLostBurner
      7/28/16 11:40am

      There was a movie about America going broke, it will now be a documentary.

      Reply
      <
    • Read More
      fritzoIAMBlastedBiggsLostBurner
      7/28/16 11:46am

      There’s more to it than that- he made money fromdeclaring bankruptcy by being part of the liquidation company that claimed the assets. So, if one of his casinos was going belly up, he would declare bankruptcy, fire the employees, liquidate the holdings, and give the money from the sold company back to himself.

      It’s almost comical when people say “He’s a brilliant businessman” when in reality he’s more of a sleeze that’s using legal loopholes to his own benefit with no regard to who he’s affecting. He also only has a 42% success rate in his businesses.

      When you write your own resume, you tend to pad it a bit. Trump starts with 100% padding then squeezes in a fact or two to make it look legit.

      Reply
      <
  • Read More
    Sid and FinancyHamilton Nolan
    7/28/16 11:26am

    Dat asset tho.

    Reply
    <
    • Read More
      pre-emptive sighSid and Financy
      7/28/16 11:31am

      I like big bonds and I cannot lie

      Reply
      <
    • Read More
      CakeisbetterthanPiepre-emptive sigh
      7/28/16 12:07pm

      BUT WE’VE GOT THE BIGGEST, BONDS OF THEM ALL!

      Reply
      <
  • Read More
    ARP2Hamilton Nolan
    7/28/16 11:50am

    By constantly operating in “fight or flight” mode and keeping interest rates artificially low, when there’s a real recession, we’ll be powerless to soften the landing.

    It also fails to address the systemic issues that would allow us to better tolerate recessions. Income inequality, saving rates, U6 unemployment rates, etc. haven’t been directly addressed because 1) It’s easier to focus on easy metrics like GDP, NASDAQ, and U3, and 2) It requires changing our tax and spending polices.

    Reply
    <
    • Read More
      stryxARP2
      7/28/16 1:16pm

      Just exactly what is the natural rate of interest that we are artificially keeping depressed?

      Reply
      <
    • Read More
      ARP2stryx
      7/28/16 1:30pm

      We can look at history as guidance, but 0.5% is usually the amount set when we’re in a negative situation, not during growth (albeit, anemic).

      http://www.tradingeconomics.com/united-states/…

      Reply
      <
  • Read More
    ShaunyPHamilton Nolan
    7/28/16 1:28pm

    “Past performance is not necessarily indicative of future results.” That’s prominent on every single investment prospectus, but every single amateur thinks they just know that a crash is coming. Hamilton himself has been making this same case for years now, like he saw a Zero Hedge post and thought, “oh shit I know economics now.” If you want to understand the current situation then google “liquidity trap” or “secular stagnation.” Stock markets aren’t really worth a lot to predict the future. (Really, no indicator is on it’s own.) I would ask all the bubble boys out there to explain this to me: If the Fed is somehow inflating an artificial bubble, then why is the yield curve flattening? That’s not the Fed doing that. The asset side of their balance sheet has not even expanded since the end of 2014. (That means they aren’t buying anything or engaging in QE.) Seriously, you can look this shit up for yourselves.

    https://fred.stlouisfed.org/series/WALCL

    Stock valuations may or may not be too high. You can pick any metric you want and get the answer that you want. But one thing is for sure, corporate profits are high and buybacks in the past few years have been aggressive. So why wouldn’t equities be high?

    Reply
    <