Of Interest

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Monday, December 24, 2012

KYLE BASS - Japan is about to "detonate" a "debt bomb"


http://youtu.be/JUc8-GUC1hY Japan is about to "detonate" a "debt bomb" and will be forced to massively devalue its currency, Kyle Bass says. Bass, of course, is massively bearish on Japan, having bet (incorrectly so far) on a fiscal crisis. In an interview with University of Virginia business school professor Ken Eades posted on TheTrader.se, Bass argues Japan is already in a crisis, and that the likely election of Shinzo Abe next month (an election we already admonished readers to pay close attention to) will set off a chain of events that will result in a devaluation of the Yen and treasury yields skyrocketing. "In the next 12 to 18 months, I think you're going to see a move in their rates. Basically Japan is entering its final 'checkmate' phase of the chess game." Japan is already running a -$100 billion trade balance, Bass says, and the country's GDP has been hit by Chinese boycott stemming from the Diayou/Senkuku islands dispute. "You have a secular decline in the population happening, you have a balance of trade that's literally being rewritten and falling off a cliff and their GDP is now tracking -3.5, -4 percent. Bass sees December's election as a foregone conclusion that will dangerously exacerbate the situation. "We think Abe's a shoo-in. And he said he's going to do everything possible to get to 3 percent inflation. He doesn't even know what he wishes for, because if he gets there, he detonates his debt bomb. " But Bass argues the Bank of Japan's independence has been "usurped." "When there's a press release put on the BOJ's website from the MOF [ministry of finance], the BOJ and the government — that's analogous to Bernanke, Geithner and Hillary Clinton issuing a joint press release saying 'we're going to end deflation'. This is how it begins to happen" He concludes "Their backs are against the wall. They have a full crisis. They absolutely have to change the manner in which they deal with their currency." Here's the full interview: Kyle Bass seemed surprised that events in Japan were happening as fast as they are. I think Europe will implode before Japan though. I think the market has to see that the Euro was in fact a failed experiment and has fragmented before it will accept that Japan will default. I think the first domino is going to be Greece and/or Portugal. I think that one of them will decide to leave the Euro because of social unrest/political change due to austerity. Once that happens, perhaps they exit together as some sort of strategy. I don't know anything about their international relations though. Ireland could also default around this time. Then I think there will be a bit of market panic, with flight to the dollar, but followed by some 'stable period'. Whether this is weeks or months, or even years I don't know. But then due to the relationship between Portugeuse debt and Spain, it could be possible that Spain is the real domino, the real triger because of the size of its economy and its bank exposure. I think Italy will then default in timing close to that of Spain. I have difficulty determining what the trigger would be in Itally though because they don't seem to be owed much by PIGS if I'm interpreting this previous post. http://www.zerohedge.com/news/2012-11-20/world-wide-web-debt In any case, Spains default would probably affect the UK, specifically if Santander were to go under as Santander has a lot of UK 'assets'. Then if the UK is in trouble, France is going to be impacted due to debt exposure and the Euro will have essentially imploded. It is around the time that the UK has trouble that I think the market will notice Japan and restructuring will eventually take place. While all this is occuring I think there will be flight to the dollar (and commodities of course), however temporary, before the Keynesian endgame occurs in the US. Perhaps that is an overly simplistic view, but thats kind of the order I see things happening.

Predicting the world in 2013

Predicting the world in 2013: A Hangout with The Economist In a live Google+ Hangout on December 14th The Economist discussed predictions for the year ahead, Our editors took questions from readers about what 2013 could hold. Daniel Franklin, editor of The World in 2013, answered questions on the euro crisis, the future of technology, higher education, and world politics.

Sunday, November 25, 2012

I think I'm Turning Western


Japan is turning into the United States. Usually, the comparisons flow the other way around, with pundits saying that the United States might be going Japanese, due to all the economic stagnation, deflation fears and general malaise. After all, Japan is into its third lost decade, after also having a huge real estate (and stock) bubble. In the past, I've already written that due to several factors, the United States is not like Japan. These factors were: Demographics. The U.S. population is still growing, Japan's isn't; Valuation. U.S. stocks are much cheaper than Japanese stocks were or are. Inflation. For all the fears of deflation, the U.S. has had consistently higher inflation since the popping of its stock and real estate bubbles when compared to Japan. So, for the most part, one can't really say the U.S. is turning into Japan. Or at least there are very obvious differences between the two cases. But today I am going to make a different suggestion. Quite the other way around, it might be Japan that's turning into the United States! And that doesn't mean anything good, because Japan is taking the worst of its own situation, and adding it to the worst of the United States' own travails. Why is Japan turning into the United States? After its giant real estate and stock bubble, Japan's economy fell into the general malaise it's been in ever since. This malaise has led the Japanese state to run huge budget deficits and as such, to accumulate a huge public debt-- and to no avail as the malaise continued. It also led the Bank of Japan to print money left and right, much like the Fed today with the quantitative easing programs. But something still set Japan apart from the United States all this time. Japan had a large trade balance surplus, whereas the U.S. had a huge trade deficit. Japan also had a population bent on saving heavily, where the U.S. population for the most part was spendthrift. The thing is, for many different reasons this isn't the case anymore. On one hand, things like quitting on nuclear energy and having to import more energy goods, China economic weakness, China Japanese-focused xenophobia and Japanese corporate weakness have led to Japan losing its trade surplus (see chart below: Source). On the other, Japanese demographics destroyed its saving ways. (click to enlarge)
So there you have it. Whatever meant that Japan's travails were mostly internal, is now inapplicable since if the country starts running a trade deficit, it will at some point need external financing. What you are left with is a country with 211.7%/GDP public debt, a 9.7%/GDP budget deficit, a declining population AND a trade deficit, while printing money! What you're left with is the U.S. minus a growing population! Not only that, but the numbers are actually much worse to boot. Conclusion Amazing as it is, this doesn't bode well for either the Japanese yen (FXY),(YCL),(YCS),(JYN) or for Japan's stock market (EWJ),(EZJ), even after having fallen more than 75% in the last 22 years. I am thus turning long-term negative on JPY. On the plus side, as the Japanese yen tanks, it might be possible to find Japanese equities which rely mostly on foreign markets and stand to benefit. Finally, some would say that the very best way to play this trend would be to short JGBs. The problem here is that JGBs are issued in yen and Japan can print as many yen as it likes and buy those bonds, so it's not a given that JGBs will collapse. It will be mostly an (unlikely) political choice to let those prices reflect reality. Not so with the JPY.

Wednesday, September 19, 2012

Why Japan is Not Greece


Why Japan is Not Greece


























Many economists believe that Japan will become a net debtor nation. Analysts differ about when. Earlier this year we reported that Jesper Koll, managing director of research at JPMorgan Securities Japan, said, "The time is now... It’s here. It’s 'Sayonara Japan' as a net creditor country." Richard Katz believes that point is years away -- he's not even sure it is going to happen or if it does, that it will cause capital flight as has happened in Greece. Katz is editor-in-chief of the Oriental Economist Report. He is a distinguished lecturer, a former adjunct professor, and an economist who has written about Japan and US relations for three decades. Joining us to explain his latest thinking, is Katz -

Solomon: Why is Japan not going to become the next Greece?

Katz: The point at which Japan is in danger of capital flight, like Greece, is when Japan's current account becomes chronically in deficit. Some people say that could be five or ten years from now. I think it will be later -- I'm not even sure it's going to happen. Japan will most likely become a chronic trade deficit country within this decade, but the current account is different. The current account is the sum of Japan's trade balance plus the income earned on Japan's overseas assets (profits of overseas subsidiaries as well as stocks and bonds held outside Japan). Japan is not vulnerable now because it runs a big current account surplus. Even though the trade balance has been in deficit so far this year, the current account is still in surplus and will remain so for some time to come. If and when Japan does turn into a chronic deficit country, that would be a game-changer which would gradually raise the now-tiny risk of a Greek type crisis. But it would not spark an immediate crisis because Japan has a cushion of $3.3 trillion in net overseas assets.

Solomon: Why is the current account so crucial?

Katz: Running a current account deficit means that you are borrowing money from foreigners, who can easily withdraw it. All of the Euro-crisis countries had not only big government debts, but also big chronic current account deficits. Other European countries with government debts just as big, but without big current account deficits, did not go into crisis. To see this, take a look at the four quadrants of this chart. On the horizontal axis is net government debt as a percentage of GDP. The vertical axis is the current account as a percentage of GDP and presented as averages for the period from 2005 to 2010. Every one of the crisis countries -- Greece, Portugal, Spain and Ireland -- are in the right hand lower quadrant represented by the big boxes. The countries that were borrowing huge amounts of money from abroad got into trouble when the Lehman shock sent their deficits way up. They were vulnerable to capital flight; foreigners started taking their money away. 
Chart I

Yet not a single country in the upper right-hand quadrant has gone into crisis. These countries have a current account surplus, which means they can finance their debt by themselves. They're not vulnerable to capital flight. Not even all the countries in the lower-right hand quadrant have gone into crisis -- not the UK, not France, nor the US.

Even when Japan runs a current account deficit, that will not immediately make it vulnerable because it has a big cushion of built-up foreign assets. Here's the same chart, but replacing the current account as a percentage of GDP on the vertical axis with Japan's net international assets. 
Chart II

Again, crisis countries are in the lower right-hand quadrant. They owe a lot of money because they've been borrowing for many years. Yet all the countries in the upper right have been running surpluses for many years. They have built up a cushion of assets.

When a country has both internal and external imbalances, that's when you have a crisis. A domestic crisis alone is manageable. That's why Japan isn't Greece.

Solomon: How would that cushion work in practice?

Katz: Suppose Japan were running a current account deficit and, for some reason, foreigners became reluctant to lend to Japan. In that case, Japan could easily sell some of their international assets. At the end of 2011, the Ministry of Finance’s foreign exchange reserves amounted to $1.29 trillion. At today’s exchange rate, that is equal to 20% of GDP. In addition, net private overseas assets at the end of October 2011 amounted to $2 trillion (¥155 trillion). That equals another 33% of GDP. About 60% of those private assets are liquid financial assets, such as stocks, bonds and bank loans. That foreign investors can see this cushion is yet another reason they are unlikely to bet against Japan’s creditworthiness for years to come, just as deposit insurance reduces the chance of a run on the banks.

Solomon: Why would private parties that own foreign assets feel pressured to sell them? They're not under the control of the Japanese government.

Katz: If Japan were having a capital flight crisis that raised interest rates at home, it would pay private investors to shift some of their overseas bond and stock investments back to Japan to take advantage of those higher rates. Also, if Japan is running a big current account deficit, that means that private parties in Japan are building up debts to foreigners that they must pay in foreign hard currencies -- mostly in dollars. They need to get these dollars from somewhere. Japanese overseas assets are one source.

Solomon: Would not the government's sale of $1.29 trillion in foreign reserves simply increase the budget deficit? The ratings agencies and bond vigilantes, I think, would take notice.

Katz: They have no impact on the budget deficit, but do have an impact on the balance of payments and on the government’s cumulative balance of international assets and liabilities. That is a flow issue vs. stock issue. Rating agencies actions do not seem to have had much impact on market rates of government notes and bonds. Total overseas assets amounting to 55% of GDP, 20% owned outright by the government, should be enough to deal with bond market vigilantes.

Solomon: Can you explain why it doesn’t affect the budget deficit?

Katz: Today, Japan is running a current account surplus. Its net stock of private and government-owned foreign assets is increasing. If the current account turned negative, those assets would decrease. In this scenario, the government and private entities are not issuing new bonds to finance the current account deficit; they are selling existing assets, just as if they had sold a bridge to pay down debt. The net international assets of Japan as a whole would decline. But this action would no more increase the government budget deficit, than the Ministry of Finance increasing its reserve assets lowers the budget deficit today. The balance of payment and budget deficit issues in this case are separate issues, because Japan does not have to issue new debt to finance a current account deficit.

Solomon: Earlier this year I asked J. Koll to comment on the notion Japan had a huge cushion of overseas assets on which it could rely to finance its trade deficit. He said, "The income account is not huge. It is only 2% of GDP, almost nothing..... As anyone who has ever tried it, living off your assets is a very difficult thing to do." How do you respond?

Katz: The income account is about 3% of GDP, not 2% as you can see by the gray area in this chart. 
Chart III

The goods and services trade deficit expanded to 1.5% of GDP in the first half of 2012. It would have to double to wipe out income surplus and end the current account surplus. The trade deficit would have to triple to bring the current account to a deficit of about 1.5%. While I was wrong in expecting the trade surplus to return this year, it remains to be seen how that will go in the coming years. I still think Japan is heading to toward a chronic trade deficit, but its size is uncertain. I thought six months ago that this would occur in the 2015 to 2020 period. It may come forward a bit because of the combination of the nuclear shutdown and the ongoing troubles in Europe. A lot depends on the price of fossil fuels, which no one has been good at predicting in periods of economic uncertainty. It depends, for example, on demand from Europe and China, which is uncertain. It also depends on expansion of oil and natural gas production in the US. The upshot is the picture for the current account balance is uncertain, but I think the likelihood of Japan turning to chronic current account deficit by 2015 is very low. It will be driven by the trade situation, and the domestic investment-savings balance will adjust to that.

Solomon: Is the critical factor for Japan’s trade surplus its exports to China and Asia?

Katz: Japan’s exports to China and the rest of Asia hinge on China/Asia’s own exports to the US and Europe. 
Chart IV
Most of Japan’s exports to Asia serve as capital or parts inputs for these countries’ own exports. It is the sluggish recovery in the US and the travails in EU that count the most for Japan’s exports. It is the nuclear shutdown and price of fossil fuels that count the most for imports.

Solomon: What does all of this mean of policy going forward?

Katz: The good news is there is no urgency to raise taxes when the global economy is still weak and uncertain. The consumption tax hike passed by the Diet should be delayed until Japan is in better economic health. Second, Japan has the breathing room to apply structural reform to improve long-term growth while being able to use fiscal stimulus as the anesthesia to make the pain of structural reform bearable. Fiscal stimulus need not mean bridges to nowhere. It could be a combination of temporary consumer-oriented tax cuts and public works that help the economy. For example, linking suburban and semi-rural homes to sewage lines and gas pipelines -- homes now served by septic tanks and propane gas tanks -- would greatly reduce air and water pollution while cutting Japan’s energy needs. That would eliminate the need for trucks to service the septic tanks and propane tanks.

Richard Katz is editor-in-chief of The Oriental Economist Report. Katz has written about Japan and US relations for over three decades. He was a visiting lecturer in economics at the State University of New York in Stony Brook and an adjunct professor of economics at New York University Stern School of Business. He's authored two books about Japan -- "Japan, the System That Soured: The Rise and Fall of the Japanese Economic Miracle" and "Japanese Phoenix: The Long Road to Economic Revival". In “A Nordic Mirror”, he explained why Scandinavia has recovered from similar structural defects far more quickly than Japan. Richard holds a BA in history from Columbia University (1973) and holds a masters degree in economics from NYU (1996). www.orientaleconomist.com 

Sunday, September 16, 2012

Plans for a new Yamanote Line station was announced this year. in 2012



Plans for a new Yamanote Line station was announced this year. in 2012

East Japan Railway Co. may build the first new station on the Yamanote Line since 1971, adding the site would be between Shinagawa and Tamachi stations.
JR East is looking to start building the 30th station on the Tokyo commuter loop line in fiscal 2014 as part of its redevelopment of 50 to 75 percent of a 20-hectare rail yard located between the two stations in Minato Ward, the sources said.

The story below (Heading above) in the Japan Times highlights the application for a real estate buying strategy in Tokyo. The East Japan Railway Co is building a new railway station between Shinagawa and Tamachi stations.
 http://www.japantimes.co.jp/text/nn20120105a2.html

Sites to look at are in areas where subways might be extended or new stations added. a principle guiding decision will be:
1. Local minimum population density - look at neighbouring areas
2. Distance between train stations - look for anomalies
3. Explanation for anomalies - why is there no station there? Topographic anomaly so no settlement; perhaps a park, etc.
4. Growing population density - historical evidence that the area is growing in population. High rise developments, new stores like HokkaHokkaTai-obento shops or Mackers,etc are good signs to keep an eye out for, take a look at Japan's very good population statistics. They offer monthly changes in demographics.
http://www.citypopulation.de/Japan-TokyoKu.html
http://www.demographia.com/db-tokyo-ward.htm

5. Space for growth - stations need to be supported by near-station development. It is harder to develop a station if the railway company cannot build some type of shopping precinct to service it.

Buying mortgagee bank owned property to 'hold' as a rental property to profit from anticipated future development. After a proposed new station is announced, you could expect property prices (Cap Gains) do very well.

QE3 & the Ponzitards

As depicted by the thtle of this post, we are now witnessing geopolitical/economic/environmental meltdown in real-time.  It's an accelerating train wreck that has the public paralyzed - frogs in boiling water.  Their only recourse is American Idol, South Park and Faux News

No sooner had I written my most recent diatribe against the alpha males who bulldozed their way to the top by repeating the same moronic strategies over and over again, than I am presented with yet more mind boggling examples.

First off, with respect to Monetary Policy, I was remiss in not pointing out the most egregious (albeit obvious) aspect of the latest policy moves.  Which is the constantly overlooked fact that monetary policy - cheap money - got us into this mess in the first place.  Once again, it's the signature of the Idiocracy to believe that the way to get out of a problem is to just apply MORE of the same bad policy that caused the problem to begin with.  As a reminder, both the ECB (via OMT) and the Fed (via QE3) this past week declared that they will print as much money as necessary to resolve these ongoing debt problems that were created by easy money.  

With respect to Fiscal Policy, that Full Retard moment has been building for years across all Western Nations.  However, the recent climactic moment occurred when non other than Larry Summers - Dean of Harvard and a key architect of the 2008 meltdown, said that the best way for the U.S. to get out of debt is to borrow MORE money.  

I try not to get too political since I have outright disgust for the two party pseudo-democratic system, but when Mitt Romney indicated that his election platform involves yet another tax cut for the wealthy, I almost shit a brick.  Bush's tax cut from a decade ago is still baselined into the recurring deficit and requires ongoing borrowing i.e. it's a tax cut paid for by America's grandchildren.  And apparently paying for 60% of the Federal budget (borrowing the rest) is just too much burden for today's 'taxpayer'.  So, they need a bigger break.  Leave aside the fact that the wealthy, including Romney himself, already pay a lower tax rate than the middle class and they keep their real money in offshore bank accounts paying 0% tax.  Meanwhile, lest we forget, Bernanke's latest lubing of the stock market (and all risk assets) is a direct income benefit to the wealthy and a commodity inflation tax on the middle class.

The Economist Goes Mad Magazine
Speaking of insanity, the subject that spawned this latest diatribe - geopolitics.  Just this week "The Economist", in examining the recent spate of Anti-American protests across the entire Muslim world, declared that the best response for the U.S. was to interfere MORE in the region.  So again, the best response to a failed policy leading to widespread anarchy, poverty and disillusion is to just double down on the same bad policy.  To be specific, "The Economist", which is ostensibly an economics-oriented magazine devoted an entire article giving glib armchair general advice on how the U.S. should provide military support to the rebels in Syria.  I didn't realize that the pencil necked geeks at "The Economist" were military strategists.  Of course, the same magazine was a proponent of U.S. involvement in Libya where the U.S. embassy was just blown up.  Who knew that intervention could have such high and immediate ROI?  And dare I state the obvious, but if a Danish cartoon or homemade video on YouTube can cause a billion Muslims to go apeshit, then stay tuned for a lot more cartoons and homemade videos...

Wow, this shit is melting down in real time and the only thing preventing public acknowledgement of the fact is the new season of NFL football commanding attention.  Also redirecting attention away from reality is the impending election to determine which of two Harvard buffoons will be the best spokeman for the 14,000 special interest groups operating in D.C.

Lastly, with respect to iPhoney 5 (really 6, but who's counting), as expected, the Idiocracy really, really wants one: lol this is hilarious... 

Sunday, September 9, 2012

Angus & Julia Stone - Mango Tree (Live at the Vanguard)


A Microcosm of Japan’s Tough Future?


A Microcosm of Japan’s Tough Future?

The population of Yubari in Hokkaido has shrunk more than 90% of its peak, services are vanishing and white elephant public works projects have left the greying inhabitants with a mountain of debt. Welcome to Yubari, Japan in miniature. 

If the city of Yubari is, indeed,  a glimpse of future Japan,  this may be what the Nikkei has been or starting to discount.  The index is still down a stunning 77 percent from its December 29, 1989  all-time high and has only managed a 27 percent bounce off the October 2008 low.
It’s the economy demographics,  stupid!

Japan has suffered through severe trials and tribulations, including the bursting of a real estate and stock market bubble, a prolonged depression,  and a tragic earthquake and tsunami.   One can only wonder about the social stability of, say, the U.S.  or other western countries if they were to experience the same scale of testing.  Just imagine a similar stock market nightmare which would put the S&P500 at 282.99 in August 2026.  Ouch!
What a testament to the non-entitlement  mentality of the Japanese people.   Godspeed, our Japanese friends.

Friday, September 7, 2012

Steve Keen Study Economics At UWS September 2012

Steve gave the talk at UWS's Open Day, as an intoduction to economics for prospective university students. 

the Economics & Finance program at UWS has been almost unique amongst economics departments around the world in deliberately pursuing a "pluralist" approach to economics.


Robert Glasper - The Spirit of Jazz - Reflection of Society

Rob hits so many good points regarding the current state of jazz.Its both refreshing and fantastic that Glasper is pushing the genre forward as apposed to staying in the nostalgic style of play. it's like jazz quit progressing after the 80s. the 70's was like the last major shift in jazz and as a result it stagnated . I love what the Experiment are doing! 

Peter Schiff - US Real Estate & Stocks outlook 08-06-12.

Peter Schiff bearish when it comes to the US dollar and economy. He as an ardent opponent of the Federal Reserve, and proposes reduced government spending and taxes and increased personal savings as the solution to the US debt problem. He blames the collapse in housing prices on unrestrained lending by banks and predicts a similar economic collapse in the near future triggered by sovereign debt.

Sunday, September 2, 2012

Two Guys in Bow-ties Jim Grant

The bow-tied-and-bespectacled bringer-of-truth was on Bloomberg tv this providing his own clarifying perspective on what we should hope for (and what we should not) from Jacksons Hole this weekend. Jim Grant's acerbic comments on Krugman's view of the world, on the gold standard as a "force for growth and stability", and the "unproven and truly radical methods" of the SNB and Fed, pale in significance when he is asked about the stock market distortions: "I think we live in a hall of mirrors in finance thanks to the zero interest rate regime and the chronic nonstop interventions," and when asked when Bernanke should start raising rates, the simple (yet complex) response is "Last Year! And Eric Rosengren would be in a different line of work." Must watch to understand the central-banker-meme-du-decade.

Saturday, September 1, 2012

KONDRATIEFF WAVES


KONDRATIEFF WAVES (or, for short, K-waves) may be defined as a pattern of regularity characteristic of structural change in the modern world economy. Some 60 years in length, it consists of an alternation of periods of high sectoral growth with others, start-up periods of slower growth. The study of this pattern helps to trace the evolution of the global economy, and aids in politico-economic prediction.
One of my earliest introductions to the world of economics came from someone who was a true believer in the Kondratieff Wave – the idea that there is a much longer cycle, lasting approximately fifty years, which overlays the ordinary, and shorter business cycle. You'll be pleased to know that if the present crisis marks the start of a classic Kondratieff downswing, then we've got between five and thirty-six years of slump still to come.
In any case, it was a delight to have my attention drawn to an article, published back in October 1987, which postulated that the stock market crash of that month marked the crest of a Kondratieff Wave, ergo it would therefore be downhill from then on for the next 20-30 years. Well there was a recession shortly afterwards, albeit shallow and shortlived, but thereafter decent levels of growth resumed and continued but for another brief hiccup around the turn of the century right up to the present crisis.
Nor was this the only error in prediction. Kondratieff Waves tend to be associated with the eclipse of one world superpower and the rise of another, so it was logical to assume back then that the still apparently unstoppable rise of Japan would eventually dislodge the United States from its position of economic hegemony. How wrong can you be?
However, none of this disproves the Kondratieff theory. The mistake made in article may have been merely to misread the cycle. Kondratieff, a Russian economist who died in Stalin's Gulags, identied three distinct long waves, the dates of which you can see in the table below. The downswing in the last of these waves begins during the First World War or shortly afterwards.
Subsequent students of Kondratieff cycles have placed the end of this third cycle during or shortly after the Second World War, which seems logical enough, and have identified a further two cycles thereafter, with the fifth upswing beginning in the 1980s and ending with the current crisis. On past durations, we are now in a downswing phase lasting anything between ten and forty one years. Dating the beginning of the crisis from 2008, that's between five and thirty six years to go (See table below).
Part of the difficulty with Kondratieff is deciding precisely what the cycle is. Kondratieff himself observed the waves first in capital investment dynamics – high periods of investment followed by low periods – and then later in production of pig iron. Subsequent followers have observed the cycles in price indices, or relatively elevated periods of inflation followed by low ones. A further explanation connects them with waves of technological innovation. Kondratieff himself observed that "during the recession of the long waves, an especially large number of important discoveries and inventions in the technique of production and communication are made, which however are usually applied on a large scale only at the beginning of the next long upswing".
The Austrian economist, Schumpeter, was also a disciple of this latter explanation. Intuitively, it seems likely there is something in it. Periods of very high, transformational innovation are followed by rapid development and high investment as the new infrastructure is rolled out. The consequent increase in productively leads to big gains in living standards. But then the development phase comes to an end and there is a pause for breath before the next big thing comes along. In the modern age, there have been five or six great transformations, starting in Britain with the industrial revolution and then on to the transport revolution brought about by rail. Subsequently there was the era of electricity and the automobile, then came eletronics, air travel, and televisions. The present one, perhaps now largely over, is that of mass communications.
Oh come off it, If you are talking about the intermittent march of progress, that's one thing, but to connect it with a discernible, time specific wave of ebbing and flowing economic activity is quite another. Well maybe, but research by Andrey Korotayev and Sergey Tsirel published by the University of California on its eScholarship website suggests that there is indeed some correlation between the long K-cycle and world GDP.
However, somewhat confusingly, their analysis suggests two interpretations of the current global economic crisis. One is that it doesn't mark the start of the fifth Kondratieff downswing at all, but can be interpreted as a temporary depression between two peaks on the upswing, where the second peak may even exceed the first. On this interpretation, the big meltdown doesn't begin until 2018-2020 (memo to self: liquidate all positions by 2020).
However, there is also quite a bit of evidence to suggest that the current financial crisis does indeed mark the start of the downswing. Given that this is not a normal recession, but a downturn caused by an all-embracing banking crisis, 2008-2010 seems the more likely inflection point. It also correlates quite closely with the separate "40 year rule", an old piece of Wall Street folklore which has it that really serious banking crises only happen once every forty years because this is how long it takes for all institutional recollection of the last one completely to die out, allowing the new generation of banking hotheads to let rip once more.

Yet another good  way to expand your knowledge is check out the website of the Long Wave Group whose publications cover the global economy from the long-term prospective.  You will discover that over the past decade the company's President, Mr. Ian Gordon has accurately predicted the banking crisis , the housing crisis, the stock market crash, the pension crisis, the sovereign debt crisis and  the double bottom of the gold bullion market in 1999-2001. 

One last point worth adding, no school of Economics has a theory of technology, yet it is technology improvements that drive wealth improvements in general.
At the moment we are in a situations where an awful lot of easy gains over the past thirty years have stopped happening, due to the maturing of computer technology.  For example, an iPad is an innovation, but it is only a marginal one from a laptop and does not completely replace it.  It is a much smaller gain than from desktop to laptop, or from PC to multimedia PC and multimedia to Internet.
Now humanity is back in our usual position of having to find something new to do.  And greatly impeded by the metastatic growth of government that computerisation has allowed, effectively rendering further computerisation almost useless and economically harmful. 
So here we remain until something happens in someone's garage to open things up again, assuming their garage is located in a entrepreneur friendly jurisdiction, so nowhere in the West.
Something similar happened in the 1930s with the motor car.  All the easy gains from replacing horses over the previous 30 years stopped dead.  Suddenly it was all about marginal improvements and on the back of that change there was the most enormous recession.  Same thing in the 1840s about railway technology, and again in the 1870s.

If Kondratieff was right. If is the the key word here.  Because frankly a Soviet-era Socialist economist has probably very little to teach us.  
I use the term Soviet-era Socialist economist in the sense of schools of economics. Classical, Neoclaissical, Keynsian, Monetarist, Socialist, Fascist, and Austrian/Neo Austrian. 
The Fascist school is also known as Corporatist in modern parlance. Monetarist could also be called Neo-Keynesian. What is techically Neo-Austrian is usually just refered to as Austrian today. Of them all, the (Neo)Austrian school is the best, but there is much that is not explained by any school, such as the role of technological development.


Instead of parroting bien-peasant economic theories popular with those who don't actually think about it, why not take a look at Austrian economics.  The Austrian school is able to explain why there is a depression much more effectively than Kondratieff voodoo, and what to do to exit the recession - stop diverting productive resources by inflating the money supply and radically shrink back the metastatic state, and allow liquidation of bankrupt assets.
Austrian economists were predicting a major depression of unlimited duration since the early/mid 2000s,
Food for thought.   




Tuesday, August 21, 2012

A Freshman’s Guide to Commercial Real Estate Analysis: Becoming an Excel Bully, Free CRE Excels

As a new member of this Blog, Scroll down to "Networkedblogs" and click "Follow" & I will forward to you Free Commercial Real Estate Analysis Spreadsheets & Guides. (Free-Excels)



(If you’re looking for professional Real Estate Analysis Models or Real Estate Analysis Services its all here) you might find the analytics / financials overwhelming, so I’ve developed a freshman course, and for those
 long-time veterans, I promise not to tell as you wipe the rust away.


We’re here to make it easy… so sharpen your pencils, master the finances, and add my blog and I will forward you the following spreedsheet Excels. 






Free Excels include
Cap Rate Calculator & Matrix – A basic Cap Rate calculator including a sensitivity matrix. Great for basic pricing with a Net Operating Income!
GRM Calculator & Matrix – A basic GRM calculator including a sensitivity matrix. Great for basic pricing with Gross Rent.
Cash on Cash Calculator & Matrix – A basic Cash on Cash calculator including a sensitivity matrix based on Rates, Loan-To-Value (LTV), and Amortization. Great for understanding Positive vs. Negative leverage.
Debt Service Coverage Ratio Calculator & Matrix – A basic Debt Calculator utilizing the Debt Service Coverage Ratio (DSCR) including a sensitivity matrix based on DSCR, Cash Flow, and LTV.
Positive V Negative Chart – A PDF guide to Positive vs. Negative leverage.
PMT – The Excel Formula ‘PMT’ explained, with basic and advanced application.
IF Statement – The Excel Formula ‘IF’ explained, with basic and advanced applications. From the blog: Becoming an Excel Bully.
Other IF Statements – The Advanced ‘IF’ statements explained with application. From the blog: The “other” IF Statements
Custom Cell Formatting – Easy application of custom cell formatting within excel specifically tailored to commercial real estate analysis. From the blog: Excel for Commercial Real Estate: Custom Cell Formatting.
Present Value – An Excel Spreadsheet outlining the importance of PV and its practical use.
Future Value – An Excel Spreadsheet outlining the importance of FV and its practical use.
Cold Call Tracker – An Excel Spreadsheet for Commercial Real Estate Cold Call Tracking.

Monday, August 13, 2012

Sunday, August 12, 2012

Steve Keen: Why 2012 is Shaping Up to be a Particularly Ugly Year




At the high level, our global economic plight is quite simple to understand says noted Australian deflationist Steve Keen.
Banks began lending money at a faster rate than the global economy grew, and we're now at the turning point where we simply have run out of new borrowers for the ever-growing debt the system has become addicted to.
Once borrowers start eschewing rather than seeking debt, asset prices begin to fall -- which in turn makes these same people want to liquidate their holdings, which puts further downward pressure on asset prices:
The reason that we have this trauma for the asset markets is because of this whole relationship that rising debt has to the level of asset market. If you think about the best example is the demand for housing, where does it come from? It comes from new mortgages. Therefore, if you want to sustain he current price level of houses, you have to have a constant flow of new mortgages. If you want the prices to rise, you need the flow of mortgages to also be rising.
Therefore, there is a correlation between accelerating and rising asset markets. That correlation applies very directly to housing. You look at the 20-year period of the market relationship from 1990 to now; the correlation of accelerating mortgage debt with changing house prices is 0.8. It is a very high correlation. 
Now, that means that when there is a period where private debt is accelerating you are generally going to see rising asset markets, which of course is what we had up to 2000 for the stock market and of course 2006 for the housing market. Now that we have decelerating debt -- so debt is slowing down more rapidly at this time rather than accelerating -- that is going to mean falling asset markets.
Because we have such a huge overhang of debt, that process of debt decelerating downwards is more likely to rule most of the time. We will therefore find the asset markets traumatizing on the way down -- which of course encourages people to get out of debt. Therefore, it is a positive feedback process on the way up and it is a positive feedback process on the way down.
He sees all of the major countries of the world grappling with deflation now, and in many cases, focusing their efforts in exactly the wrong direction to address the root cause:
Europe is imploding under its own volition and I think the Euro is probably going to collapse at some stage or contract to being a Northern Euro rather than the whole of Euro. We will probably see every government of Europe be overthrown and quite possibly have a return to fascist governments. It came very close to that in Greece with fascists getting five percent of the vote up from zero. So political turmoil in Europe and that seems to be Europe’s fate.
I can see England going into a credit crunch year, because if you think America’s debt is scary, you have not seen England’s level of debt. America has a maximum ratio of private debt to GDP adjusted over 300%; England’s is 450%. America’s financial sector debt was 120% of GDP, England’s is 250%. It is the hot money capital of the western world.
And now that we are finally seeing decelerating debt over there plus the government running on an austerity program at the same time, which means there are two factors pulling on demand out of that economy at once. I think there will be a credit crunch in England, so that is going to take place as well.
America is still caught in the deleveraging process. It tried to get out, it seemed to be working for a short while, and the government stimulus seemed to certainly help. Now, that they are going back to reducing that stimulus, they are pulling up the one thing that was keeping the demand up in the American economy and it is heading back down again. We are now seeing the assets market crashing once more. That should cause a return to decelerating debt -- for a while you were accelerating very rapidly and that's what gave you a boost in employment --  so you are falling back down again.
Australia is running out of steam because it got through the financial crisis by literally kicking the can down the road by restarting the housing bubble with a policy I call the first-time vendors boost. Where they gave first time buyers a larger amount of money from the government and they handed over times five or ten to the people they bought the house off from the leverage they got from the banking sector. Therefore, that finally ran out for them.
China got through the crisis with an enormous stimulus package. I think in that case it is increasing the money supply by 28% in one year. That is setting off a huge property bubble, which from what I have heard from colleagues of mine is also ending.
Therefore, it is a particularly ugly year for the global economy and as you say, we are still trying to get business back to usual. We are trying to rescue the creditors and restart the world that is dominated by the creditors. We have to rescue the debtors instead before we are going to see the end of this process.
In order to successfully emerge on the other side of this this painful period with a more sustainable system, he believes the moral hazard of bailing out the banks is going to have to end:
[The banks] have to suffer and suffer badly. They will have to suffer in such a way that in a decade they will be scared in order to never behave in this way again. You have to reduce the financial sector to about one third of its current size and we have to also ultimately set up financial institutions and financial instruments in such a way that it is no longer desirable from a public point of view to borrow and gamble in rising assets processes.
The real mistake we made was to let this gambling happen as it has so many times in the past, however, we let it go on for far longer than we have ever let it go on for before. Therefore, we have a far greater financial parasite and a far greater crisis.
And he offers an unconventional proposal for how this can be achieved:
I think the mistake [central banks] are going to make is to continue honoring debts that should never have been created in the first place. We really know that that the subprime lending was totally irresponsible lending. When it comes to saying "who is responsible for bad debt?" you have to really blame the lender rather than the borrower, because lenders have far greater resources to work out whether or not the borrower can actually afford the debt they are putting out there.
They were creating debt just because it was a way of getting fees, short-term profit, and they then sold the debt onto unsuspecting members of the public as well and securitized their way out of trouble. They ended up giving the hot potato to the public. So, you should not be honoring that debt, you should be abolishing it. But of course they have actually packaged a lot of that debt and sold it to the public as well, you cannot just abolish it, because you then would penalize people who actually thought they were being responsible in saving and buying assets.
Therefore, I am talking in favor of what I call a modern debt jubilee or quantitative easing for the public, where the central banks would create 'central bank money' (we cannot destroy or abolish the debt, which would also destroy the incomes of the people who own the bonds the banks have sold). We have to create the state money and give it to the public, but on condition that if you have any debt you have to pay your debt down -- no choice. Therefore, if you have debt, you can reduce the debt level, but if you do not have debt, you get a cash injection.
Of course, this would then feed into the financial sector would have to reduce the value of the debts that it currently owns, which means income from debt instruments would also fall. So, people who had bought bonds for their retirement and so on would find that their income would go down, but on the other hand, they would be compensated by a cash injection.
The one part of the system that would be reduced in size is the financial sector itself. That is the part we have to reduce and we have to make smaller.  That is the one that I am putting forward and I think there is a very little chance of implementing it in America for the next few years not all my home country [Australia] because we still think we are doing brilliantly and all that. But, I think at some stage in Europe, and possibly in a very short time frame, that idea might be considered. 


CRE Investment Writers Top Comments


funglestrumpet's picture
funglestrumpet
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Posts: 14
The Finance System
Professor Keen makes the point that the finance sector needs to be reduced by about two thirds. Perhaps a start could be made by making the finance sector grow up and do some real work instead of the rather silly behaviour that we witness at present. When one looks at the way the finance sector currently operates, one can only shake one's head in sorrow. Society does not need 'call' and 'put' options, derivatives, ridiculous mergers with their attendant fees by the mergers and acquisitions departments only to be followed by subsequent restructuring with their attendant fees again, etc. etc. Society needs loans, bank accounts and advice on real world financial matters. Leave the gambling to the bookies and betting shops etc.
Why, oh why don’t we take the finance sector back to basics? For example loans should only be made after due diligence checks on the prospective borrower, shares and other financial instruments that cannot be redeemed or sold on until twelve months have elapsed (unless genuine need can be shown); dividends only paid to AGM attendees i.e. shareholders should take an interest in the business, they do, afterall, employ real people with a real need for wages generated by the work they do; bonuses only earned for exceptional performance, not simply for doing what their salary is supposed to cover; no fractional reserve system of creating money. If a bank or other financial institution does not have the funds, it should not be allowed to make a loan.
These are only a taste of what is possible. If applied, I’ll bet that Professor Keen’s desired reduction in size would be achieved and then some. The only downside would be the need for the public to find another target for their anger at the mess we are currently in. Perhaps the politicians had better brace themselves, though I expect they are used to it, heaven knows, they are a deserving case.

rlmrdl's picture
rlmrdl
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Posts: 4
The Flaws
I've been a huge fan of Steve's since I first encountered him at the launch of his Debunking Economics book However, his Jubilee proposal has a couple of key flaws.
The first is that we have specifically written out of our governments in the west, the ability for them to create money. They can sell bonds or take loans but both are just new debt which cannot be usedf to pay off old debt.
Despite all the yap about governments "printing money" it is not the case, ALL of the QE and its cousins, all the bailouts, have been in the form of new debt to replace old. The debt has only been transferred from one place to another.
Before the Jubilee can be implemented, legislation needs to be passed that enables governments to actually print the money and force the banks to accept it. Given that banks currently hold said goverments by the balls, that will take levels of courage that is far beyond any of them, except, perhaps, for the Malaysians. Beyond that, general financial and economic understanding is so trivial that the financial sector will have no trouble manufacturing outrage against it under some clever slogan to spike the political process anyway.
So regardless of the perils of the situation, I don't see it happening.
The second is that, if it were done, the size of the jubilee payment would have to be large enough to make a difference to the debt load, ie, over $100,000, probably it would need to be set at the average of the household debt of people with mortgages.
That would, however, dump a huge amount of money into the hands of renters who would certainly be able to clear their personal debts, but then what? The usual crew of sharks and financial predators will be waiting to rip off the least able, but in any case, all that money will have to go somewhere. Much of it will go into consumption causing an inflation spike, or into retirmeent accounts, once again goosing the incomes of the financial sector to no actual benefit. So there would also have to be some kind of sequestering process, such as Malaysia's exchange controls, where that part of the money not used to pay down debt (or to buy medical sevices maybe) had to be deposited in a savings account and could not be drawn down at more than 10% or so per annum.
So again, the sharks will be offering to lend us the money using the jubilee funds as collateral, which will have to be outlawed as well. We can't solve such a complex provblem with even more complex systems, the complexity is a key part of the problem.
Frankly, as one who has no debts and owns my own home, I could live with other people's debts just being forgiven provided only that they never be permitted to pass on their property nor incur new debt in their lifetimes. They could sell and buy, but only at par or better to allow downsizing or releasing cash for other purposes, but they could never leverage again while they live. It would have to be voluntary of course.
That way we would remove the debt burden and delay it coming back for at least a generation while we broke the leverage habit.
The fact that I would not directly benefit and others would be left with nicer homes than mine would be more than compensated for by knowing that I lived in a less stressed, more rational society and that, unlike those in the flash homes, should I wish, I COULD incur new debt because I had shown myself to be sufficiently responsible to do it sanely.
However, since all of this will entail the end of the advantages for powerful vested interests, it can't happen. In Jared Diamond's Collapse he talks about how the Greenland Norse refused to learn how to live sustainably on their land, preferring instead to maintain their old hierarchies until the chiefs had stolen all the food from the last of the subordinates and earned for themselves the right "to be the last to die of starvation" Our commitment to our social norms is THAT powerful, that is what we are up against.

19 Comments


bowskill's picture
bowskill
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Posts: 7
Great Interview
CM and Steve Keen are two of the best analysts and communicators of the worlds economic predicaments. To have both in one interview was excellent.
The first time I heard Steve Keen was in a national news radio broadcast here in Oz in 2006. At that time the world economy was pumping and he was a loud but lone voice trying to warn from his soap box that a financial crash was a mathematical certainty. He was trying to explain his graphs of debt to gdp ratios and compared the US and Aus with Japan in the late 80's. Most laughed or ignored him. Until quite recently many main stream media commentators were still trying to make a laughing stock of him because Australia is yet to really feel the pain. But his work is getting much more traction away from home.
Of all the thousands of economists in the world, Dirk Bezemer could find only 12 who (accurately with proper reason) predicted the GFC and Steve was one. As he says, his solutions are not likely to be favoured by the politicians but they make more sense than anything else I have read.
Thanks for a high quality interview.

idoctor's picture
idoctor
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Posts: 1728
CM And Steve Keen Are Two
CM and Steve Keen are two of the best analysts and communicators of the worlds economic predicaments. To have both in one interview was excellent.
+1

rlmrdl's picture
rlmrdl
Status: Member (Offline)
Joined: May 5 2008
Posts: 4
The Flaws
I've been a huge fan of Steve's since I first encountered him at the launch of his Debunking Economics book However, his Jubilee proposal has a couple of key flaws.
The first is that we have specifically written out of our governments in the west, the ability for them to create money. They can sell bonds or take loans but both are just new debt which cannot be usedf to pay off old debt.
Despite all the yap about governments "printing money" it is not the case, ALL of the QE and its cousins, all the bailouts, have been in the form of new debt to replace old. The debt has only been transferred from one place to another.
Before the Jubilee can be implemented, legislation needs to be passed that enables governments to actually print the money and force the banks to accept it. Given that banks currently hold said goverments by the balls, that will take levels of courage that is far beyond any of them, except, perhaps, for the Malaysians. Beyond that, general financial and economic understanding is so trivial that the financial sector will have no trouble manufacturing outrage against it under some clever slogan to spike the political process anyway.
So regardless of the perils of the situation, I don't see it happening.
The second is that, if it were done, the size of the jubilee payment would have to be large enough to make a difference to the debt load, ie, over $100,000, probably it would need to be set at the average of the household debt of people with mortgages.
That would, however, dump a huge amount of money into the hands of renters who would certainly be able to clear their personal debts, but then what? The usual crew of sharks and financial predators will be waiting to rip off the least able, but in any case, all that money will have to go somewhere. Much of it will go into consumption causing an inflation spike, or into retirmeent accounts, once again goosing the incomes of the financial sector to no actual benefit. So there would also have to be some kind of sequestering process, such as Malaysia's exchange controls, where that part of the money not used to pay down debt (or to buy medical sevices maybe) had to be deposited in a savings account and could not be drawn down at more than 10% or so per annum.
So again, the sharks will be offering to lend us the money using the jubilee funds as collateral, which will have to be outlawed as well. We can't solve such a complex provblem with even more complex systems, the complexity is a key part of the problem.
Frankly, as one who has no debts and owns my own home, I could live with other people's debts just being forgiven provided only that they never be permitted to pass on their property nor incur new debt in their lifetimes. They could sell and buy, but only at par or better to allow downsizing or releasing cash for other purposes, but they could never leverage again while they live. It would have to be voluntary of course.
That way we would remove the debt burden and delay it coming back for at least a generation while we broke the leverage habit.
The fact that I would not directly benefit and others would be left with nicer homes than mine would be more than compensated for by knowing that I lived in a less stressed, more rational society and that, unlike those in the flash homes, should I wish, I COULD incur new debt because I had shown myself to be sufficiently responsible to do it sanely.
However, since all of this will entail the end of the advantages for powerful vested interests, it can't happen. In Jared Diamond's Collapse he talks about how the Greenland Norse refused to learn how to live sustainably on their land, preferring instead to maintain their old hierarchies until the chiefs had stolen all the food from the last of the subordinates and earned for themselves the right "to be the last to die of starvation" Our commitment to our social norms is THAT powerful, that is what we are up against.

bientum's picture
bientum
Status: Bronze Member (Offline)
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Posts: 26
Greenland Norse
The Norse maintained their heirarchy because they lived during a bientum (2 centuries) when all of humanity was obsessed with hierarchy.  See my book 'The Secret Language of Eras' by Benjamin Rule.

mrobinson's picture
mrobinson
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Posts: 71
Private Debt Deleveraging
Excellent interview.
Handy to throw up a few of his graphs. Particularly the graph indicating the size of private debt to GDP peaking at $43t compared to public debt at $13t.
PRIVATE debt deleveraging.

Damnthematrix's picture
Damnthematrix
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Posts: 3972
The Flaws
G'day rlmrdl,
My understanding of a Jubilee is that it is NOT a payment......  it's the CANCELLATION of the debts.  No new money involved.
As far as I'm concerned, there are no other possible outcomes.  It's not IF it happens, but WHEN....
Oh and one other thing.....  this is the first time I've ever heard SK maention Peak Oil.  great to hear he's on the ball here, because virtually no other economists are, and it is the giant elephant in the room.
Mike

mrobinson's picture
mrobinson
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Private Debt Deleveraging
Here's the BBC link mentioned at the end of the CM interview.
Paul Mason interviews Steve Keen at the London School of Economics
DTM, i believe its cash. Quantative easing for the public.. BBC Interview point 19:00 min mark

Damnthematrix's picture
Damnthematrix
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Posts: 3972
A Jubileee Is NOT A Bailout........
mrobinson wrote:
DTM, i believe its cash. Quantative easing for the public.. BBC Interview point 19:00 min mark
A Jubileee is NOT a bailout........
Ultimately, a loan is a social arrangement and, like any other contract, it can be renegotiated. A few decades ago, archaeologists discovered the first ever legal contract in Lagash in modern-day Iraq. Dated back 4,400 years and carved into the bricks of a Mesopotamian temple, it was for the cancellation of debt. It's claimed that countries that don't repay their loans will be frozen out by lenders. Yet, as I wrote here last year, IMF economists have recently argued that "the economic costs are generally significant but short-lived . . . we almost never can detect effects beyond one or two years."
In his recent, brilliant history Debt: the First 5,000 Years, the anthropologist David Graeber calls for a modern-day debt jubilee, a cancellation of all debts, just as they had in Mesopotamia. His suggestion is provocative, but it should be taken seriously. Because the longer we keep protecting the haves over the have-nots and honouring the past while destroying the future, the worse this debt crisis will get.
Mike

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robert essian
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Posts: 510
Steve Keen And Charles
Steve Keen and Charles Smith with Mish sound as though they have the same handle on things. I relate to their way of thinking. However, as Chris says, "we will do everything else", and this too is true.
Mr. Keen also expresses a sort of in Depression out of Depression type response also, and I am banking on this as I wholly agree that as stimulas works off that a lull is created where you can short things, then buy on these dips as more stimulas is poured in. Wash, rinse and repeat.
We must eliminate debt that is a certainty, and with all things there is unintended consequences. Even Mr. Keens "Jubilee" must have some of those. Why not just let the market determine the winners and losers?
Wouldn't that be the true test?
Why is it so wrong to just let the consumer decide what is necessary or not? After all it will be the consumer who actually purchases what is necessary.
I know this, I understand best what is critical to my homes business so why mandate anything as if you know what's best for me. Let this beast shake out for a few years, we downsize and then move on? If everything is being propped up for fear of derivitives why not create a clearing house for the removal of this infectous desease?
So many here have simular thoughts or concerns but the participation in answering them is normally lacking except when Erik T. gets involved. He generates dialogue and is why (I suppose) he generates so many open discussions. I would put him on the payroll just for the important roll he plays in getting everyone thinking and juiced up.
Regards
BOB

Raf Manji's picture
Raf Manji
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Posts: 1
Re Printing Money
"The first is that we have specifically written out of our governments in the west, the ability for them to create money"
I'm not sure where you have that impression from. It is very straightforward for governments to print new currency (notes and coins or, these days, e-notes). I have proposed a different approach to this, which I call "Monetary Dialysis". 
Simply put, the government "prints" new money and spends it directly into circulation via infrastructure investment. At the same time, to ward off any inflationary effects, they limit new bank credit, thus keeping the growth in the money supply at an acceptable level. They can do this right away by focusing on public debt levels, simply not issuing any new bonds beyond a certain level. 
It's a win/win situation and will save money in terms of interest costs on bond financing.

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auntiegrav
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Posts: 5
Liquidation Is Wrong And Debts...
Liquidation of assets in a crisis is wrong per se because one should have accumulated assets that are USEFUL in a crisis (knowledge, tools to do your job, societal relationships, etc). If people are liquidating their assets when the economy turns down, then what did they accumulate in the first place that they can so easily discharge it?
A farmer that sells her assets is no longer a farmer.
On debts: A monetary debt is a promise by the borrower to consume resources somewhere in the future in order to pay back the money. A personal debt is a promise of only the amount plus interest. A government debt is a promise that authority will somehow be able to get 4 times as many people (at a 25% tax rate) to consume 4 times as many resources in order to be taxed to pay back the government loan plus interest. The current crop of robots are playing at only paying the interest, as though their spending is a personal, direct debt rather than an exponential accelerant of the fires of consumption.
The problem is the growth phase of the boom and bust cycle: not the bust phase. We are long past the point of remedy for the unreasonable idea of a Consumer Economy built on Perpetual Growth.
Get used to living without much. You will have what you can create with your local resources. Get to know your neighbors and your land and your skills.
Best of luck to you all.
Dan

funglestrumpet's picture
funglestrumpet
Status: Member (Offline)
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Posts: 14
The Finance System
Professor Keen makes the point that the finance sector needs to be reduced by about two thirds. Perhaps a start could be made by making the finance sector grow up and do some real work instead of the rather silly behaviour that we witness at present. When one looks at the way the finance sector currently operates, one can only shake one's head in sorrow. Society does not need 'call' and 'put' options, derivatives, ridiculous mergers with their attendant fees by the mergers and acquisitions departments only to be followed by subsequent restructuring with their attendant fees again, etc. etc. Society needs loans, bank accounts and advice on real world financial matters. Leave the gambling to the bookies and betting shops etc.
Why, oh why don’t we take the finance sector back to basics? For example loans should only be made after due diligence checks on the prospective borrower, shares and other financial instruments that cannot be redeemed or sold on until twelve months have elapsed (unless genuine need can be shown); dividends only paid to AGM attendees i.e. shareholders should take an interest in the business, they do, afterall, employ real people with a real need for wages generated by the work they do; bonuses only earned for exceptional performance, not simply for doing what their salary is supposed to cover; no fractional reserve system of creating money. If a bank or other financial institution does not have the funds, it should not be allowed to make a loan.
These are only a taste of what is possible. If applied, I’ll bet that Professor Keen’s desired reduction in size would be achieved and then some. The only downside would be the need for the public to find another target for their anger at the mess we are currently in. Perhaps the politicians had better brace themselves, though I expect they are used to it, heaven knows, they are a deserving case.

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derelict
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Posts: 3
Foreclosure = Jubilee
Therefore, I am talking in favor of what I call a modern debt jubilee or quantitative easing for the public, where the central banks would create 'central bank money' (we cannot destroy or abolish the debt, which would also destroy the incomes of the people who own the bonds the banks have sold). We have to create the state money and give it to the public, but on condition that if you have any debt you have to pay your debt down -- no choice.
Is this not foreclosure by another name? mortgage debt in the USA is going down. The foreclosed upon have their debt extinguished, and the banks are propped up thru QE/asset purchases. State money is essentially used to pay down the public's debt... with perhaps the difference that the people do not get to retain the asset (the house).
rlmrdl I don't know what you are on about with new debt not being able to replace old. It happens every day as treasuries are rolled over. It also happens when new treasury proceeds are used for asset purchases, however that is public debt replacing private.

Arthur Robey's picture
Arthur Robey
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Shades Of Zimbabwe.
I prefer Bob Mugabe's financial plan.

bowskill's picture
bowskill
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Posts: 7
Re The Finance System
funglestrumpet
I think a lot of people still believe that your back to basics vision of the finance sector is how it actually does operate. For an explanation of how it really is and for a great read check out the book Extreme Money by Satyajit Das. He shows how finance companies employ phD mathematicians to create financially repackaged "products" than even their bosses can't understand. Most "investment" in the finance industry is not actually in development of real world products and services but in the financial casino. When investment has been made in real companies very often it is in the form of things like the leveraged buyout - a more or less hostile takeover of a good company followed by camouflaged asset stripping and dumping the hollowed result back into the market. His book contains example after example of this sort of thing. It's immoral imho. 

SingleSpeak's picture
SingleSpeak
Status: Gold Member (Offline)
Joined: Dec 1 2008
Posts: 349
I Believe Steve Meant...
... It got through the financial crisis by figuratively kicking the can down the road...
      

Damnthematrix's picture
Damnthematrix
Status: Diamond Member (Offline)
Joined: Aug 10 2008
Posts: 3972
Private Debt Deleveraging
mrobinson wrote:
Here's the BBC link mentioned at the end of the CM interview.
Paul Mason interviews Steve Keen at the London School of Economics
DTM, i believe it's cash. Quantative easing for the public.. BBC Interview point 19:00 min mark
Right........  now I get it, thanks for posting that.  SK's "modern jubilee" isn't like a traditional jubilee.  Interesting concept, though SK, as much as I love him, doesn't understand the implications of the other two E's, especially the Energy bit.  He mentions PO in the podcast with Chris, but seems unaware that Australia will be totally out of oil before 2020!
"Saving" the economy, even at the expense of the finacial sector, is a waste of time if growth never makes a comeback due to insufficient energy.
Mike

Derek R's picture
Derek R
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Joined: Jun 11 2012
Posts: 1
The Flaws
Good comment, rlmrdl. That's very much how I see the debt jubilee proposal, flaws and all. 

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Jimmy PouchVille
Status: Member (Offline)
Joined: Jun 17 2007
Posts: 2
0
Vote Up!
Great Points And Well Written
You must be Aussie to think that clearly. Steve is definilty on the right track with his acceptance of inflation, specifically printed cash given to the people as being a way of reducing the total debt load. But I can't see debt write offs being done in an efficient or even corruption free way. Inflation all the way for me thanks, get it over with, I know how to protect any savings but I dred living through a forced depression so bank owners can aquire the Earth at fire sale prices.
One point that I differ is "it can't happen" . It can and it will but not by government decree. Its pointless for a prisoner to be begging the prison guards for a fairer system if its against the wardens interest ie debt forgiveness. Thankfully we don't need the guards to change their minds, we only have to make it unprofitable for the warden to keep us imprisoned.
Take away his leverage of our productivity and we become unprofitable for him to keep us imprisoned. Keep your bank account empty by converting wages or even government payments to printed cash to spend and demand unleveraged printed cash from your elected representatives when the bank runs dry. If they refuse, we find our own currencies to trade in that don't involve government.
Fractional reserve banking is the monopoly men's most powerful tool to control the world but it is also their most vunerable weak point that individuals without forming into collectives can participate in to take the power of money creation away from banks. Even an Aussie Yobo down the pub could understand that if he has a gripe against banks, he should take his money out as cash and tell the banks to F... off. I wonder how many people realise the link between the timing of the global roller coaster of ponzi schemes and wages starting to be paid as bank credits by default. We only need 20%? or less of the population to start keeping their bank accounts empty to reverse the trend and shrink governments in the process.