Davos, Dalio, and a Depression?!

So, how does a deflationary depression resolve itself?

By Bill Tilles and Len Hyman:

When Ray Dalio, founder of the world’s largest hedge fund, Bridgewater Associates, referred to a possible economic depression as he was being interviewed at the World Economic Forum at Davos, it does not mean what most people think it means.

Most of us think about recessions and depressions in a linear way. That is, a depression is a really, really bad recession featuring even higher levels of unemployment and lower overall levels of economic activity.

But for Mr. Dalio, recessions are kind of normal, business-cycle related economic events that regularly occur every 5-10 years or so. The economy begins to overheat, the Fed raises rates in response (the removal of the “punch bowl”), business activity slows perhaps a bit too much in response, and voila! A recession results.

Depressions on the other hand are secular or long term, occurring much less frequently. That’s because according to Mr. Dalio, it takes a long time (perhaps decades) to accumulate the excess levels of corporate and government debt that end up triggering this type of economic event. A depression is a condition where more debt cannot be added to the system and instead it must be reduced, or as we say, deleveraging must occur. A depression always threatens systemic solvency.

There are several hallmarks of a systemic deleveraging or depression if you will:

  1. Various asset classes begin to be sold (like oil and gas wells today for example)
  2. As a result of these widespread asset sales, prices decline
  3. Equity levels decline as a result
  4. This triggers more selling of assets
  5. Since there is less worthwhile collateral available credit levels contract
  6. Overall economic activity declines. In short, there isn’t enough cash flow being generated to service all the accumulated debt. As a result assets have to be sold, bankruptcies become more common.

What makes this such a pernicious process is that it is a self-reinforcing cycle of economic negativity.

There are two “interesting” features of a depression.

First, with interest rates already at the “zero bound,” monetary policy ceases to be effective. There is no “punch bowl” to remove so to speak. In his interview on CNBC, Mr. Dalio explicitly stated we should forget about expecting future rate increases from the Fed and get ready for QE4, more asset purchases. In other words, the much maligned tightening cycle will end up as “one and done.”

Second, depressions also bring economic deflation. The credit impact of deflation is to raise the real rate of interest. The “real” rate is simply the stated rate minus the rate of inflation. When inflation is negative, the result is additive (subtracting a negative means you’re adding). This makes things even worse for heavily indebted borrowers at every levels:  individual, corporate or government.

So if Mr. Dalio believes the Fed should resort to more QE, what does this mean? Quantitative easing has pushed up asset prices. But in doing so, it also lowers the value of expected future returns. As a result the economic risks have become, as he said, “asymmetric on the downside.”

In other words, too much risk for too little return. Almost as an afterthought he stated that if assets remain correlated and things continue to move in the “wrong” direction, ‘”there’ll be a depression.”

Sorkin and Quick, the CNBC interviewers, asked him what individual investors should do to protect themselves. His discomfort with the question was all but palpable. Diversification among broad asset classes was mentioned. But things really got weird when he cited self-help guru Tony Robbins, who has recently discovered finance, as having things to say. Ray Dalio citing Tony Robbins is like Albert Einstein suggesting that we consult Minnie Mouse for an explication of what he meant by the impact of gravitational forces on the time space continuum.

So, how does a deflationary depression resolve itself? Mr. Dalio was rather circumspect the other day. But in his words I thought I heard echoes of the late economist, Hyman Minsky. (I don’t think I’m alone here either.)

Dr. Minsky’s focus was long-term debt cycles and how prosperous economic times could lead almost inevitably to a financial crisis through the over accumulation of leverage. In good times, too much corporate debt is a minor hindrance. In bad times it leads straight to bankruptcy when contracting revenues prevent the timely payment of principal and interest.

He articulated almost presciently the financial excesses that led to the subprime lending crisis although he never lived to see it. Add to this the notion of banks further tightening lending standards at financially inopportune moments, and the self-reinforcing nature of the problem becomes evident.

For Minsky, who was a devotee of Keynes, booms and busts were an inevitable part of the free-market capitalist system. In part he saw it as hard wired into our nature. As inherent herd followers, we are inclined to act like momentum investors not value investors. This also means that by our natures, we exacerbate economic extremes both high and low. As a result he saw an important role for the Fed as a counter-cyclical agent and was staunchly opposed to financial deregulation.

What now? My guess is that Mr. Dalio, perhaps leaning on Dr. Minsky, sees the Fed as having a big problem. They can’t lower interest rates much because they’re already at historic lows. So that tool is gone. And even if they did encourage more corporate borrowing to stimulate the economy, they’d be adding more debt to already stretched balance sheets, thus furthering financial instability. Rock, meet hard place.

If the economy continues to wind down and the Fed, out of ammo, does nothing, they risk the prospect of sitting idly by, watching a self-reinforcing deflationary contraction — their worst nightmare.

The alternative to this unpleasant scenario is for the Fed to attempt to “reflate” the economy. In Dr. Minsky’s time, he probably would have advocated letting the Fed “run the printing presses” in the hopes of generating inflation. The idea is straightforward. If there is too much nominal debt, reduce the real economic burden by raising the inflation rate and hope the economy eventually grows out of it. The drastic way to accomplish the same thing is a currency devaluation followed by government guarantees of key financial intermediaries.

If we enter into a severe deflationary spiral, as suggested by Mr. Dalio’s comments, will our economic policymakers over-compensate with a hefty dose of inflation? No one ever said being an investor was easy. By Bill Tilles and Len Hyman.

But nothing goes to heck in a straight line. Read…  After $7.8 Trillion Got Wiped Out in three Weeks, “Global Stocks Surge Most since 2012”

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  90 comments for “Davos, Dalio, and a Depression?!

  1. Bruce Adlam says:

    We are all going to pay the price for rampant insider trading by the elite few

  2. Jonas says:

    Mr Dalio raises good points. But we individual investors have an advantage companies of that size don’t have: We can take positions without moving the markets, and we can diversify our investments in classes closed to them.

    I’m currently very comfortable with my portfolio: though I’ve taken some big losses on my favorite long term investment in RKDA, a company with crop yield traits, those are hedged by my short positions in stocks like tesla and various other bubble stocks. It’s good to hedge, and the big funds often can’t do that. But there is a world of opportunities beyond the stock market.

    Crowd funding is a good example. Or one could buy farm and logging land and lease it out, or invest in trusts doing so. Land, as opposed to volatile city real estate, is the ultimate limited, recession proof investment. I’d take an acre of forest over an ounce of gold any day. My favorite company RKDA is in the same sector and once royalties from one of their sixty projects comes in, will be recession proof. The seed industry, being integral to farming actually grew revenues in 2008/09 for example. There are many more examples of safe investments.

    That’s why I believe there will always be good places to put capital to work, even if they are just pair trades wherein one speculates on the relative outperformance of one issue over another. It needn’t be doom and gloom all the time.

    • prepalaw says:

      “I’d take an acre of forest over an ounce of gold any day.”

      I own both.

      Holding timber land (mixed woods) for more than 15 years. The forests are beautiful but not commercially profitable. Hardwood prices are abysmally low – both for pallet wood quality and veneer or furniture grade solids. Dimensional lumber for construction (like 2 x 4s) – softwoods – take a look at the lumber chart. I am low grading my forest under a 10 year management plan required by the State of VT. That means removing the low value stems. The demand from the mills for pulp and softwood is thin to non-existent. In summary, standing timber and timber land are very illiquid. You are plagued by fixed costs for real estate taxes, insurance and maintenance costs (roads, trails, downed-tree removals). It takes 80 years minimum and really 100 years to grow a tree in the NE to maturity. Timber is an investment for multiple generations. The only big upside is development for residential real estate – and that is completely location dependent.

      My gold has no counterpart risk and can be liquidated for cash 24/7 anywhere in the world.

    • Spencer says:

      Well Jonas, you might want to read this! Right up your alley, no?



    • Ron says:

      Jonas, regarding farmland as being recession proof:

      I was a relatively young farmer in Central Montana in the early 80’s. About everything we read encouraged us to borrow and invest in land and equipment to farm it. In a few short years farmland in our area doubled in price to about $750/acre. Then in the next year or two it was back down into the $300s. Woe unto those of us that had contracted at the higher prices. Many were undone.

      • d says:

        That period was almost like a rural pump and dump trail run, for what has become, subprime.

        Will some of the over-pumped urban developments suffer the same valuation cycle??

  3. Thaisleeze says:

    Depression has already arrived in the UK oilfield. A 72% rise in benefits claimants in December alone.


  4. shaba says:

    Although it is easy to dismiss Tony Robbins take on money, the book contains a lot of good info for the average joe. Dalio is referring to Robbins’ explanation on his (Dalio’s) ‘all weather’ fund (40% long term US bonds,15% medium US bonds, 30% stocks, 7.5% gold and 7.5% commodities). The reasoning is that this mix works in almost all scenarios; lets see what happens if we go into depression

    • Bill Tilles says:

      I didn’t mean to disparage Mr. Robbins although it may have come out that way. At a fundamental level, for me, the big difference between the two men is that Dalio is constantly asking questions and Robbins is providing answers. By the way, how will that “all weather”portfolio hold up under stagflation?

      • True to Form says:

        Interesting. I heard Tony Robbins lecture on his money book (numerous times, in fact). He’s a fast talker, and presupposes people agree with many points as he proceeds, but he does have tremendous respect for his wealthy subjects he interviews, even claiming to mentor or coach Paul Tudor Jones for many years.

        And I don’t doubt he does. Problem for me is I don’t know from one day to the next what he is talking about, or to believe that I wouldn’t be just throwing my $ away.

  5. Yancey Ward says:

    Ah, Minsky, believer in the wisdom of the so-called wise men.

    Minsky was surely right about the nature of markets and human beings, but fails to apply that insight to central bankers.

    • Bill Tilles says:

      Excellent observation. Minsky’s impact on modern day central banking is considered limited. Was he out of step with the current penchant for complex mathematical modeling? I don’t know. Looking back, two big influences on his thinking appear to be the professors he studied under at Harvard, Schumpeter and Leontief.

  6. Ptb says:

    I watched the Dalio interview and was impressed with his candid answers.

    • True to Form says:

      Dalio is extraordinary in his Top Ten Rules for Success with Ray Dalio as the subject for this one in the series, talking about radical honesty.

  7. Sgt Milstar says:

    Get use to seeing large numbers of bankrupt corporations, worthless golden parachutes for unemployed professional business leaders, and lack of jobs for anyone without trade type training. Think plumber, mechanic, wood worker and general handyman.

  8. Jonathan says:

    The solution to too much QE and ZIRP/NIRP is always, of course, more of it.

  9. Keith says:

    40 years ago most economists and almost everyone else believed the economy was demand driven and the system naturally trickled up.

    Now most economists and almost everyone else believe the economy is supply driven and the system naturally trickles down.

    Economics has been turned upside down in the last 40 years.

    All the Central Bank stimulus programs have been Neo-Keynesian, in line with the new economics. The money is pushed into the top of the economic pyramid, the banks, and according to the new economics it should trickle down.

    What we have seen is that the money stays at the top inflating asset bubbles in stocks, fine art, classic cars and top end property.

    The old economics looks as though it was right all along.

    More supply side stimulus is a complete waste of time.

    Keynes and the old economics suggested spending on infra-structure projects to create jobs and wages which will be spent into the economy and trickle up.

    When the Western consumer went on life support in 2008, China used Keynesian stimulus to keep its economy going. Unfortunately, it has reached max. debt before the Western consumer has recovered.

    Mainly because the West has done totally the wrong thing in the intervening eight years and just blown asset bubbles rather than helping its consumer base recover.

    • Keith says:

      In our wonderful new, supply side, trickle down world we have taken our eye off the global consumer.

      How is the global consumer these days?

      1) The once wealthy Western consumer has had all their high paying jobs off-shored. As a stop gap solution they were allowed to carry on consuming through debt. They are now maxed out on debt.

      2) Japanese consumers have been living in a stagnant economy for decades.

      3) Chinese and Eastern consumers were always poorly paid and with nonexistent welfare states are always saving for a rainy day. Western demand slumped in 2008 and the debt fuelled stop gap has now come to an end.

      4) The Middle Eastern consumers are now too busy fighting each other to think about consuming anything and are just concerned with saying alive.

      5) South American and African consumers are busy struggling with economies that are disintegrating fast.

      Oh dear, no wonder there is no demand for Chinese products or any other products for that matter.

      Commodities that real things are made from?

      No one needs them, we have laid waste to the global consumer.

      • Keith says:

        When push comes to shove and businessmen have to spend money they know that the old economics is the true economics.

        They won’t invest and expand until demand rises.

      • economicminor says:

        You have it totally correct! One half of the supply demand equation is overly indebted and the other is overly indebted and under paid.

        I just listened to a pod cast on the TPP and the argument for it by Obama’s side is that it will be good for trade. Except that under scrutiny it is also bad for jobs in the developed countries. Good for the industrial farmers, exporters of raw materials, well, good for exporters, including exporters of jobs.. Yet bad for the environment.. So in short a continuation/expansion of the policies that have led to the current problems and imbalances.

        Maybe the US consumer does consume to much but without the US consumer, the world economy doesn’t work. Having policies that benefit the few money managers and exporters at the expense of the many US consumers has just led us to edge of this current cliff where there is more than ample production which was created by extreme leverage and not enough ability to pay for that production because A/ the cost of production is to high due to debt and leverage and/or B/ those who have typically consumed that production do not have the income to buy it with.

        The answer to high prices is high prices.. Or the answer to to much debt is to much debt.. Unfortunately that at these levels, the re-balancing is going to be really ugly.

        • d says:

          Of the TPP nations, the Potential job export destinations are:

          Mexico, Vietnam, Malaysia.

          The vast majority of US jobs, that could be exported to those nations, were, long ago.

          China and India have since stolen quiet a few of those jobs from the countries the US exported them to.

          The rest of the TPP nations suffer equall job theft Issues with the US.

          Only 2 of the commodity suppliers in TPP, are not fully developed economies. They are not Job export destinations.

          The Job theft issue with TPP, is a smoke screen, by protectionist Americans.

          These protectionist Americans best remember TPP is not their nations creation, and everybody else in it, would be better off. If the US hadnt bullied its way into and then to the top of the TPP deal.

          Bottom line the US will get more than it gives in TPP just like every other “Free trade Deal ” it signs. Where the free trade is always Americas way.

          Us jobs are exported by US corporations and the congressmen they own. They are responsible not the trade deal.

          GM now expects Americans to buy Buick’s made in china.Thats how O bummer Government Motors, repays the US tax payer, for the billions it poured, into the bottomless pit of GM debt.

  10. Yoshua says:

    The Chinese economy is in a hard landing. The money printing, the credit expansion and investment boom has reach the limits of over production. New investments will no longer give any return on capital, but only add to over production and bad loans.

    China is today the epicenter of a financial crisis with too much debt and the cause of the global deflationary spiral. The Financial Crisis in 2008 and the Euro Crisis (both still unsolved) have now reached China.

    • Tux says:

      Rather disturbing the fate of the world hinges on a bunch of insulated, possibly out of touch, communist politburo die hards.

  11. Peepot says:

    But things really got weird when he cited self-help guru Tony Robbins, who has recently discovered finance, as having things to say. Ray Dalio citing Tony Robbins is like Albert Einstein suggesting that we consult Minnie Mouse for an explication of what he meant by the impact of gravitational forces on the time space continuum.


  12. Chris says:

    The economy will not revive itself until debt levels reach sustainable levels. Simply printing more money will not achieve this goal. In fact, it is counter-productive. The health of any economy revolves around a robust middle class and small businesses buying and selling goods and services. This concept seems to have been forgotten in the last couple of decades in favor of mega corporations and financial institutions. The former outsources jobs for profits and the later simply churns money. As much as I dislike the concept, the old Chapter 7 rules of bankruptcy would be effective towards achieving the goal of lower consumer and small family owned business debt. Under this old system, individuals could discharge unsecured debt in bankruptcy. This would wipe clean from the balance sheets of many households all credit card and other unsecured consumer debt. As many people are living off their credit cards simply removing this burden would free up tremendous income which would be interjected back into the economy. This one step is not a solution but a practical step towards individual solvency. I’m sure there are other (and perhaps better) approaches that can be taken. Regardless of the approach the bottom line remains the same. Improve the lot of the middle class and you improve the prospects of a speedier economic recovery.

    • economicminor says:

      Chris, a couple of things.

      1/ Bankruptcy does not fix the tremendous inequity or the bad trade deals that have created the problems..

      2/ In the *old* days when people went BK, they had to re-prove themselves capable of managing their finances and were not offered credit for up to 5 years. Without penalty the cure would be short term and not a FIX. With the penalty, these consumers are out of it for years.

      3/ The real problems underlying our economic problems are also much bigger than just the consumer. The inequity in power and income, the corporate leverage .. along with trade agreements that exacerbated the above problems..

      Fixing the some of the consumer’s debt issues would only be a short term patch at the expense of those who saved money and have little debt. Or in other words, benefiting bad behavior and punishing good behavior. Not such a great idea for the longevity of our country or the economy.

      This mess is going to resolve itself.. I hope that it isn’t thru war but that is a possibility. In the end, corporate debt must be slashed, manufacturing jobs must return to the US and those with special access need to pay enough tax on their incomes so that those at the bottom and middle don’t have to pay as much. Citizens United needs to be repealed. And the financial institutions need to be broken up and stopped from using client money to gamble and they need to be taken out of front running trades. HFT should be illegal.

      • nhz says:

        I think the rewarding of bad behavior and punishing of good behavior by central banks and politicians will only get worse. The system is going to blow up. Those who were financially responsible and didn’t engage in reckless speculation will pay, and the parasites will be rewarded, again. This will lead to very serious problems for many years, why would productive people participate in an economy after such a lesson?

        My government assumes I make 4% on my savings account and taxes this as income, even though the actual interest rate on savings has been below inflation for as long as the ECB exists, currently around 0.5% Our tax on savings is 2-3x more than the actual interest received, so even if you ignore inflation you lose big time over the years.

        I see others recommending to protect oneself by investing in land or real estate, but in most of Europe those are a huge bubble just like the stock market, the prices paid are way too high for the potential yearly income these assets can generate. Not a good investment if you have to use your own money.

        However, in my country (Netherlands) it is attractive to speculate in real estate if you have NO money. Mortgages of over 100% are still the norm, and fully guaranteed by the tax payer as long as the house costs less than about 250K euro. Mortgage rates are historically low and deductible from income tax (i.e. the tax payer pays almost half of your mortgage). This has strongly increased home prices and as a result, rents for the small rental market that exists (outside government subsidized housing) have increased even more. The monthly cost of ‘owning’ a home is now 2-5x lower than renting a similar home; people are hugely rewarded for speculating with OPM.

        We don’t have ‘jingle mail’ like in the US, but if you have to sell your home due to ‘unforeseen problems’ like divorce, problems with your boss etc. the tax payer will eat the loss. Worst case these speculators get some mandatory ‘debt counseling’ and can speculate again within 3 years of the previous RE disaster, again partly paid for and fully insured by the taxpayers. It doesn’t get any better for financially irresponsible people…
        When our real estate bubble finally pops (it started around 1990 and prices have increased over 10x in many areas) the whole country will be bankrupt and the financially responsible people will foot the bill, just like they will have to foot the bill for the TBTF banks, the pension funds for government workers and the huge army of new migrants that are never going to work in a lifetime :-(

  13. Keith says:

    The timeline for the collapsing global economy.

    Japanese banks had been on a maniacal lending spree into real estate and the bubble popped in 1989. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.

    Japan then had the rest of the world to trade with that was still doing well but it never really recovered.

    US banks went on a maniacal lending spree into real estate and the bubble popped in 2008. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.

    US banks used complex financial instruments to spread this problem throughout the West.

    Rather than own up to losses and admit their bankers were fools, the UK and Euro-zone covered up the problems with loose monetary policy.

    Japan, the UK, the US and the Euro-zone had the BRICS nations to trade with that were still doing well but they never really recovered.

    The BRICS nations are now heading for/in recession.

    Doesn’t look good does it.

    • Peepot says:

      ‘So, how does a deflationary depression resolve itself?’

      Deflation – Bernanke’s greatest fear….

      I do not think that he believed that helicopter money would stop a deflationary collapse….

      There is no way to fix this problem — a massive collapse is baked in.

      Joseph Tainter wrote The Collapse of Complex Societies… brilliantly disturbing…

      I also highly recommend this

      Trade Off: Financial system supply-chain cross contagion – a study in global systemic collapse


      He uses the EU in a case study — I think it starts around p 58 for those who don’t want to read the entire paper

      In a nutshell…. because of globalization … if you pull out one key ‘hub’ and collapse the global economy …. if it cannot be repaired within a couple of weeks…. the collapse quickly becomes permanent….

      Remember 2008 … global trade had stopped … if the central banks don’t step in then literally thousands of companies collapse…. and you cannot get the toothpaste back into the tube….

      Complexity – fragility

      • Bill Tilles says:

        Hi Peepot,

        Re “a massive collapse is baked in”.

        Up until fairly recently, as markets were moving upward (as God intended), Mr. Dalio was on record as describing that fortunate state of financial affairs as a “beautiful deleveraging”. I believe that was his phrase. Something in recent months has shaken his faith. And his interview comments suggest that the deleveraging we face may in fact be far less attractive than he previously thought.

        • Peepot says:

          Perhaps he has been made aware of this research paper that was put in front of investment and commercial banking clients….

          THE PERFECT STORM (see p. 58 onwards)

          The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy.

          But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.


      • jskith says:

        Always plenty of complicated talk form mouthpieces for what is not. Econ is wrapped in 20 layers of nonsense so that one would think it is rocket science. It is not, its money but be sure to keep the marks confused and get paid well to hide the bone.
        Zirp, nirp, all the way to …

      • Chris says:

        I think you’re last line, “Complexity – fragility”, really says it all. The problem with a fully integrated, centrally regulated, global economy is just that – it is fragile because it is too complex. It is too complex because we are not dealing with a single entity such as the United States. The US works (at least it used to work) because there are no barriers to trade and a common currency is employed to facilitate commerce. Until we reach the point at which nations cease to be nations and boundaries cease to exist there can never be a fully integrated global economy. Countries are like households. I look after the finances of my household much as you look after the finances of your’s. The global economy really needs to revert back to a nation based economic system where each nation produces goods and services. To the extent that there is a surplus, this can be exported. To the extent there is a deficit, the difference is made up by imports. The very notion that any economy can function in spite nationalistic barriers defies any degree of logic. Just look at the Euro – what a joke! Insomuch as I do not care to be part of a greater Saudi Arabia and they most assuredly feel the same, the concept of a global union of states is far, far off into the future, if ever. Globalization cannot occur without political union. Without political union it is doomed to failure. At this point in our evolution as a species I just don’t see it.

        • d says:

          “Globalization cannot occur without political union.”


          True globalization can not work without 1 set of rules and standards for: accounting, tax, Worker safety and conditions, conditions, environmental standards. Asset and property protection, along with unrestricted market and financial access, for all. Which must occur long before even considering, some form of political union.

          Globalization was a Nobel concept, intended to raise the bottom, and benefit all.

          Instead china. And its US global vampire corporation allies. Hijacked it, to leverage themselves to the top, at the expense of everybody. In the process destroying with O bummers help, the hated white western middle class.

          Whom they discovered, to be the goose, that lays the Global Economic golden eggs. After they killed it. Without first finding another one.

          Which is why there is nothing to save the global system from a period of deflation, possibly a harsh one. As deflation will strike hardest at the top, who can afford it, and eliminate many over-leveraged corporate entity’s. Except in china which aims to come out ahead, in this mess it knowingly helped create.

          Nation state Governments, are nothing more than legalized extortion gangs, modern “Robber barons”. Taxing all who tread on the land, they control, and claim to own, by force. Borders serve only them, and criminals.

          The mainland EU and EUR still dosent work, as there are to many sets of, “written to favor me the most” rules, just like globalization, cant work, when everybody, writes the local rule book, to suit themselves.

          TPP stared out as 1 trade production rule book for all member states. The US has probably turned it into something that heavily favors the US.

          However it must be better than the Anarchy that globalization has become. That favours only china, and its Globalized Vampire Corporation allies.

      • Keith says:

        Let’s face it, no one really has a clue what they are doing.

        2008 told us that.

        After 2008, even the Queen was asking the revered economists at the LSE “If these things were so large how come everyone missed it?”

        In the common parlance “What do you morons do all day?”

      • Keith says:

        Just reading your link, one mechanism to break supply chains is now in place.

        Using depositors money to bail-in banks.

        Firms have large amounts of money held within banks.

        If they are bailed in, they could go bankrupt over-night and whatever they produced is now missing from the supply chain.

        There are so many ways it could go wrong.

        In 2008, we discovered that no one in charge even understands a national housing market.

        • nhz says:

          Looking at the Cyprus model, I bet that politically connected firms and individuals will be warned (or even helped) to get their money out just before the bail-ins start. With the economic mess that results from massive depositor bail-ins I don’t think anyone will know for sure if some depositors were just ‘lucky’ to pull their money out right on time.

        • Keith says:

          I had an account with one of the Icelandic banks that went under and didn’t hear a thing.

          My rich friend heard in time to get his money out.

          (It was only later we found out that we both had accounts there).

          Luckily that time the UK government bailed out depositors up to the insured limit, so I did get my money back in the end.

          The wealthy will know, I have seen it already.

  14. Uncle Frank says:

    7.5 Year Global Business Cycle Trumps Central Bank Money Printing

    “…despite all of this intervention into what is suppose to be a “free market” the business cycle is rearing its ugly head. The 7.5 year business cycle is here and it is going to rock your bank account.”


  15. Kevin Beck says:

    How will a deflationary depression end?

    Based upon past events, we really don’t know. Every time there was the threat of one, the banksters stepped in to stop it before it was able to take over the system.

    My guess: The only way the system will be able to right itself is if the banksters DO step aside and let events unfold in real time. If they keep throwing helicopter money at the problem, the only way they would know when to stop is if they were able to figure out how much debt should be written off; then stop when they reach that amount of new money. But with their track record, they will keep doing plug-up measures: They will make small inputs of money each time a problem that they think will wreck everything shows up. When the effect dies out, they will think the problem was solved. Until the next bigger problem rears its ugly head.

    This is the endless feedback loop, and this has been the way the issue has usually been “solved.” Papered over would be a more correct term.

    They will keep trying to put out fires, rather than admit the real problem.

    • Phil says:

      How will it end? War. A big one. WW1 wasn’t big enough to reset the system. Think WW2, the U.S. Civil war, etc. At least we haven’t completely disarmed, as we did prior to WW2. Remember that when they talk about military budget cuts in response to the coming deflation.

      Don’t believe me, then please note that by December 1942, one year into WW2, we had exactly one operational aircraft carrier in the Pacific. One was being repaired and the rest had been sunk. If even one carrier had been at Pearl Harbor on the 7th then the entire war might have ended differently. It was that close.

      • nick kelly says:

        Sorry- no way. Japan had about as much business being in WWII as a kid pricing new cars. They only entered because with the Germans thirty miles from Moscow, they thought the war in Eurasia was over.
        From any measure of their economy, e.g, steel production, they were hopelessly out of their league.
        Note that unlike Germany versus USSR ( the real struggle in WWII) the Japanese conceded that no knock out blow against the US was possible.
        In fact it is not easy to construct Japan’s war aims even today, except for two things: they believed correctly that the sheer distance from the US was a huge handicap for the US.
        They also believed, amazingly, that the US might simply withdraw from the area.
        By means of enormous sacrifice Japan built up a large aircraft carrier battle group ( 5 fleet ACs I think) before December 7.
        They didn’t launch another fleet carrier for the rest of the war.
        They were using the same aircraft types at the end as at the start. They hardly had radar outside the lab.
        It is generally conceded by historians that Hirohito knew japan had lost after Midway where Japan lost 55% of her striking power in a few minutes.
        A striking difference between Japan and Nazi Germany was that high ranking Japanese could be extremely pessimistic in official reports- things that would get one shot in Germany, This may be because there was no question of surrender, so it was ok to be realistic. At any rate in 1944 the Army produced a bleak forecast saying that Japan would lose all conquests since 1890.
        So the lone US ACC is lost- the US just builds more.
        Now if Hawaii falls- that does make the game more interesting…but it won’t change the ending.

  16. Petunia says:

    Regarding your comments about the bank bailouts: If you want proof that the govt doesn’t know what it is doing this is it. They bailed out the banks, which effectively was a backdoor way of paying off all the bad mortgages, and they let the banks keep the houses too. Of course the banks took the money and kept the house too, they are not as stupid as the politicians we send to Washington. The people that lost those homes are not stupid either, they saw what happened. This is part of the disgust they feel for the politicians that is being expressed in the current election cycle. No one who has been damaged by the financial crisis will vote for an incumbent.

  17. Bobby says:

    i agree Kevin, you have hit the nail on the head.

  18. Bruce Adlam says:

    The blame lies at the usa printing far to much cheap money for far far too long .creating false data and sending false signals .

  19. Paulo says:

    They’ll try and fix it with a very big war over some godforsaken patch of sand populated by people who want everyone else to die. The insiders and connected companies will profit, there will be promotions and opportunities in the military, and regular folks will have their lives changed forever. They will be grateful to stagger home alive.

    Oh, I forgot. That’s already been tried this century, and last, and…

    Quit your worrying, Trump will make it all good, again. hah hah hah

    • nhz says:

      Yes, that has been the US strategy for many years. So they keep expanding the war zone (North Africa, more Middle East countries, former Soviet republics), try to enlist more countries in the war activities and use every trick they can think of to make Europe a war zone as well. Not just huge profit for the MIC and the banksters, but also a sure way to get rid of potential competitors before they restart the game.

  20. Bobster says:

    The Fed is made up of mostly people who have never held down a real job in the private sector. They can control everything? Why couldn’t they control events in 2008? The Fed is as all powerful as The Wizard of Oz.

  21. Vespa P200E says:

    “In Dr. Minsky’s time, he probably would have advocated letting the Fed “run the printing presses” in the hopes of generating inflation. ”

    Guess Fed does have few bullets left – print like crazy to stave off deflation. Alas – if it is that easy as dejavu late 70’s inflation with interest rate in teens as only way to tame the inflation monster is high interest rate.

    We’re in for hell of ride in next few years as the Fed experiments folks…

    • Bill Tilles says:

      Hi Vespa P200E,

      Regarding the “Fed running the printing presses” and having a few bullets left:

      Technically the Fed does not have a printing press or control the supply of currency. The phrase is probably more of a convenient metaphor. What they do is control the supply of available credit through the puchase of assets like U.S. Treasury bonds. But when pessimism reigns supreme (like when there is a raging deflation), there is precious little appetite for borrowed funds — especially when prospective borrowers believe the returns on assets will be skimpy or perhaps even negative. In this instance, the cost of money might be cheap but there is little demand. In his interview this is what Mr. Dalio referred to as “pushing on a string”. It could also be described as “out if ammo” or maybe out of luck.

      • Vespa P200E says:

        The expansion of M1/M3 since 2008 speaks loudly of increased money supply since 2008 (800 bil to 4 trillion). Ironically expansion of money supply has yet to spark inflation. Chalk 1 more unintended non-effect of QE I/II/III.

        This graph shows the money supply growth for US alone and as for China similar hockey stick chart:


      • AsYouLikeIt says:

        A bombshell that could destroy ‘Debt Star’ banking

        • Vespa P200E says:

          Yep – not too many folks know about the dirty little secret of banks creating money out of thin air and the Feds knowingly allow it.

          From your link:
          “Through a complex system of accounting, banks multiply those deposits to create larger amounts of credit. And although ‘credit’ is just lines of numbers in the banks’ accounts, it adds to the ‘money supply’ – the amount of dollars available to be lent and spent.

          When central banks lend money at very low interest rates, they enable this process to swell the supply of money in the economy. When official rates are high, less money can be created by the banks.”

        • Peepot says:

          Who are the owners of the Fed — and why do they get the power to print money and collect interest on every dollar printed?

          And use that power to control everyone from the individual to the corporation to countries (remember how quickly Berlusconi ran off and was replaced by a dictator -ah I mean a Goldman banker)

          Pray tell why the US government does not run the printing presses collect the interest, and build roads schools and hospitals with the interest.

          And use that power to control the world.

          Why does a private company get to be king of the world?

        • AsYouLikeIt says:


          I think a lot of people know about it.

          Don’t dismiss Keen’s argument that, “… huge levels of debt should not be created, but that debt should mainly be used to fund productive assets – assets that can actually generate a return to repay the debt.”

          Also the author’s argument was that increasing debt isn’t the solution to excess debt. Makes sense, no?

      • Sgt Milstar says:

        So who loaned out the 16 trillion dollars? We see in the Fed audit the money was loaned out. Credit or cash spends the same. So do one’s and zeros in banking accounts. Regardless, it’s money printing.

  22. Mike R. says:

    All very insightful comments above.

    I think the ‘end’ will come with the petro dollar. The Fed will continue to fight deflation with QE or variant. But that has growing costs associated with other countries resentment of the system that allows America to ‘get away’ with this when they can’t.

    The Fed can ‘print’ lots of money without materially impacting inflation in the US. That is because of the huge amount of dollars in the world economy. But everyone loses a little, of course.
    Other countries can’t inflate like this without totally trashing their economy with inflation.

    You see already the resentment and disgust with the incredible benefit the petro dollar gives the US. More QE will simply increase that resentment and there will be a break. Various countries will no longer require dollars for buying oil. Once this gets going, the dollars will wash back to the US. That is how I think the delationary spiral will happen.

    • Oliver says:

      Just read an interview with Raghuram Rajan, the governor of the Reserve Bank of India … his comment on QE/ZIRP:

      “One of my worries is the distortion that monetary policy that was put into place in response to the Financial Crisis is causing in asset prices. There comes a time when the damage of this policy outweigh the benefits and it is then that the markets look for a signal. That is what is happening right now.”

      Pretty blunt talk for a central banker of a large country – would love to seem him in a room with Mario “Make-my-Day” Draghi.

      • Bill Tilles says:

        Hi Oliver,

        Re “blunt talk for a central banker”.

        We agree. But his term at the central bank expires this year and he has not indicated whether he will seek reappointment. “Blunt talk” suggests the office may have a new occupant. It would not be at all surprising for him to look further afield or perhaps contemplate a return to “sweet home” Chicago.

      • d'Cynic says:

        Back in the days past 2009, the Bank of England somewhat unamusingly mused that they still have one arrow left, what they called the nuclear option; the BoE would buy all government debt and declared it void. That would be hugely inflationary, but it is nice to see that the gurus at the central banking world are so infinitely creative. /s

        • nick kelly says:

          So I guess investing in UK gov bonds is not a good idea?
          Buy it with what? If the idea is to default why involve BoE- just default.
          What would this do to pound’s status as one of four with IMF SDRs
          If the idea is to inflate the currency ( ‘hugely inflationary’) then there is no need for any of the above- the debt just melts away,
          along with everything else.

      • nhz says:

        Some of the central bankers from certain EU countries (e.g. from Germany, Netherlands) have made similar remarks about the damage of asset inflation now outweighing the benefits, but nothing happens. The Goldmanites are in charge almost everywhere.

        And of course, the BIS has repeatedly warned of these risks even though BIS is the same cabal of central bankers that are pushing these irresponsible policies ;-(

        I think these bankers are just covering their a** for when TSHTF.

    • RDE says:

      The Dollar reserve currency status may indeed be the trigger point for systemic collapse in the USA. It’s perpetuation is the prime mission of the military industrial complex (euphemistically referred to as National Defense.) Exactly how many wars would the US have fought in the Middle east if there were no oil or gas under the sand and no Saudi Royal Family to recycle the dollars into armaments and palaces?

      One need only to look at the American destabilization of Lybia to see an example of how far the USA was willing to go to suppress any threat to the Petrodollar. Do you really think that the Obama neo-cons chose to ally themselves with their supposed enemy Al Qaeda in a campaign to overthrow Qaddafi because he liked to wear weird clothes and camp out in a tent in the desert? The US preferred a chaotic failed state and hotbed of Islamic fundamentalism to a secular state trying to restructure the trade of oil in a gold-based non dollar currency.

      Fast forward a few years, and the Prime Mission of the Empire’s foreign policy is to build a wall of NATO missiles and economic sanctions around Russia and thus force it into submission and collapse. You don’t always get what you demand. In fact what you may achieve is the collapse of Dollar reserve currency status (along with the evisceration of every fracking and tar sands operation in North America)

      Exactly what would the financialized economy of the US look like if it were no longer able to create Dollars out of thin air to pay for the energy imports that drive its economy, and enforce the system through military hegemony? How much of the debt-driven “prosperity” that enables US consumers to buy I-Phones made in China and BMW’s from Europe is dependent upon that same ability to print dollars and send them overseas because they are seen as a world currency? (When in fact they are merely Federal Reserve Notes— a promise to pay issued by a private central bank.) What if the US had to once again build and sell things that the world needs instead of managing a giant shell game of moving digital pieces?

      And if half the world economy— the Russian/Chinese/Indian half— decides to trade the world’s most valuable commodity—oil– in something other than dollars how long will the US be able to buy its vital 40% of imported oil by creating virtual dollars?

      There has always been an answer for the Problem of capitalism. Creative destruction through large scale warfare. Somehow I don’t think it will work out as hoped this time when the target is a nuclear power with an advanced missile defense system.

      • nick kelly says:

        There aren’t any NATO missiles near Russia, except surface to air defensive ones. The NATO forces in Russia’s immediate neighbours are laughably small- they are only there as trip wires.
        Germany in particular is almost dangerously disarmed in conventional force- a few hundred tanks.
        What there is around Russia are a whole bunch of neighbours who were either part of the USSR or the Warsaw Pact ( which unlike NATO did a lot of ‘fraternal’ invasions of each other- East Germany. Czech, Hungary)
        The Russian leader openly laments the disintegration of the USSR and wants to restore it.
        Not surprisingly, the neighbours don’t want this.
        The big question for you to ponder is: why do all Russia’s neighbours want to join NATO?

        • d says:

          “Not surprisingly, the neighbours don’t want this.
          The big question for you to ponder is: why do all Russia’s neighbours want to join NATO?”

          Must not mention nasty little facts like that.

          It seriously upsets people, and gets them inventing all sorts of mythical, alleged, NATO, EU, Anti-Russian plots.

          I knew Lithuanian who worshiped the Waffen SS. As when they pulled out of Latvia, they took his parents and family with them.

          I asked him about the Jews, he said it was wrong. So how come the SS were good, was the next question “They saved us from the Russian”.

          73 years later. The inhabitants of the Russian border states, still want to be saved, from the Russians. By ANYBODY, that will save them

    • breadandcircuses says:

      How do we get deflation if dollars are repatriated en masse, looking for a home in hard assets that are in reasonably limited supply? Forgive me if this is made plain elsewhere, however from a global perspective it’s difficult to wrap one’s head around at times.

      In my metro (Bay) area virtually everything just becomes more and more expensive, even as the effects of the last QE and the suppressed interest rates partially wain and the layoffs have begun in unicorn land.

      I get that a strong dollar makes businesses less competitive internationally and domestically to the extent that they rely on foreign customers, but how do we get deflation if dollars are rushing back onshore?


      • AsYouLikeIt says:

        Those dollars actually have to be used to bid up prices. If everyone just sits on it, nothing happens. Also, for each and every transaction, there’s a buyer and a seller. So there’s a reciprocal that can be flipped. If I create scarcity by excessive pricing, the buyer may just as well perceive that as excessive demand for capital and ask for more asset in return for meeting that demand. As time runs, the buyer only has to look to lost opportunity, the seller looks to real losses in capital costs to finance his building loans. In the Bay area, the likelihood that the seller has outpriced his market is pretty high.

        If people are just sitting on the dollars they’re repatriating, what does that tell you?

        • breadandcircuses says:

          Understood, although I should have been more clear. I feel that the “capital incubating” is what’s been happening for a while now. As in hard assets like the housing market where it has been investor fueled, and the stock market fueled by the cheap debt, or gold as a presumably stable wealth store. The money has exchanged hands this cycle in a small section of the economy that had access. Would it be so far fetched to see a significant portion of the on or off shore gains funneled into more tangible stores of value, especially if it’s coming in part from foreign nationals who view the U.S. as a safe haven?

          And, doesn’t the buyer have to hedge against the increasing supply of dollars; especially if the Fed decides to stand pat or even ease again? I get it – the dollars must to be in circulation to truly increase the supply, and now that the punch bowl is trickling the potential for yield is less attractive, but doesn’t that just mean more money seeking safety or yield once there’s some price pressure?

          Or is the group that the Fed picked as winners this cycle really that addicted to the punch bowl? Wow that’s a sobering thought.

          And indeed, the entire west coast is a fantasy land.

        • AsYouLikeIt says:


          There’s no demand. Everyone talks about the market, but the market is you and I and thousands upon thousands of others in the low to lower upper classes. All capital goods, even 40 year industrial capital assets are invested in meeting that market demand. Everyone’s larded up with debt that’s significantly reduced demand or are working, those that are, with substantially reduced income or both. All paper assets (stocks, bonds and commodities) are headed south. Commodities have been for a while, but with demand destroyed, they’ve likely not found their bottom yet. Everything that could be bid up with QE is bubbleland, especially RE. This is all markets globally. China, Canada, Australia, Russia, Europe, the Brics, whose left? The risks that are being taken now is beyond comprehension. In a no inflation environment, you don’t have to hedge anything. Hang on to your dollars, in a deflation, they’re the only thing that’ll be going up.

        • prepalaw says:

          Hang on to your gold. The Dollar is so overpriced that it the asset that will fall the fastest and the hardest. When is another question.

  23. Phil says:

    You blame Reagan (and Stockman) for the additional national debt during his term as though he were a king or god with unlimited power. But please remember that in the ancient times of our Republic from 1789 to 2006 (the start of the Reid/Pelosi congress) budgets originated in the House, were then passed by the Senate, and finally signed by the President. The democrat party controlled the House for Reagan’s entire presidency, and the Senate for 6 of his 8 years.

    This isn’t a republican or democrat issue, especially given the debt rack up by Obama.

    The real issue is the continued expansion of the federal government into every corner of our lives and the ongoing minimization of the States, to which we as a society have accepted willingly. Pigs to slaughter, you might say.

    The only solution is to repeal the 17th amendment (direct election of senators) and give some power back to the states. Then start to try to rebuild this country. But I fear that it is probably too late. As a wise man once said: “Freedom is never more than one generation away from extinction. We didn’t pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children’s children what it was once like in the United States where men were free.”

    We have probably wasted our inheritance of Liberty. God help us all.

    • Jim says:

      You forget that the budgets Reagan proposed to Congress had LARGER deficits than the budgets Congress ultimately passed.

      As to eliminating direct election of Senators? Totally undemocratic proposal. If anything needs to be eliminated, it is the disproportionately unrepresentative Senate (weighting Wyoming and Vermont voters ridiculously more than California or Texas voters) and the Electoral College.

      I too wonder why Stockman thinks the bankster bailouts of recent years were somehow “Keynesian.” Wouldn’t Keynes have recommended massive fiscal stimulus, spending for projects and programs that would have kept people working? Instead, trillions were funneled to the TBTF financial monsters while the real economy crashed.

  24. Brian Richards says:

    I think Harry Browne beat Tony Robbins to the punch 30 years ago. It was called the permanent portfolio.
    It seems like a reasonable way to at least preserve most of your financial assets.
    But one more comment and that is I remember John Templeton, some 20 plus years ago saying, (and I paraphrase) “If you only lose 50% of your wealth, consider yourself lucky”. He was referring, I believe, to a future depression. It’s sobering.

  25. Ptb says:

    More QE is on the way. Buy the bad debt and let everyone of their friends have a “do over”. The Feds balance sheet can grow some more. It’s essentially become the ” bad bank” everyone talked about back in 2009.

  26. Baboo says:

    If the FED is apt to shift policy in the direction of QE, the correct move for investors is to front run the FED’s next move by moving money into equities. Once the investor’s money is fully ensconced in this asset class, they can kick back and watch the value of their investments expand into bubble territory.

    One caveat: Icarian ascent of asset prices face the vary same risk the mythological Dad of Penelope faced upon flying so close to the sun. The wax affixing his wing to his body melted and the wings were dislodged. With nothing to flap, Icarus was plunged.

    • Nicko says:

      “Once the investor’s money is fully ensconced in this asset class, they can kick back and watch the value of their investments expand into bubble territory.”

      ….are you so sure we’re not already in the bubble?

  27. d'Cynic says:

    What’s frustrating with every one of these economic gurus is, they are looking hard to find inflation, and wouldn’t know if it hit them in the head. They remotely mention the asset price bubble, but guess what, a prime asset for many is their home, and it has been prices out of reach for most who do not already own one. So CB types, start counting the full weight of housing increases as inflation and your problem is solved.

  28. Peepot says:

    Tony Robbins = clown.

    Remember this for 2010:

    Even Tony Robbins Is Warning That An Economic Collapse Is Coming

    Well guess what? Now Tony Robbins is warning that an economic collapse is coming. In fact, he has issued a special video warning about what he believes is about to happen. Considering the incredible connections that he has at the highest levels of the financial world, it makes a lot of sense to consider what he is trying to warn us about. Robbins says that a “major retracement” is coming to financial markets and that the coming collapse is going to be a “painful process” as we go through it. Those familiar with Tony Robbins know that he always goes out of his way to stress the positive, so if even he is openly warning the public about a coming economic nightmare than you know that things are starting to get really, really bad out there.

    The video that Tony Robbins published where he gives his economic warning is posted in two parts below. This is unlike any Tony Robbins video that you have ever seen before and it is absolutely jaw dropping….


    Here’s the video (the original is no longer available -surprise surprise)


  29. Julian the Apostate says:

    It’s dead, Jim. Get out the shredder since you think the US is a democracy. It was built to be a representative republic. All the things you want to scrap were called “checks and balances”. Ah the Grumbling Hive. Where is Bernard de Mandeville when you need him?

  30. Your Future says:

    The Depression is a tool of the Excession.

    There is no way to avoid playing the Excession Game.

    There is no winning move in any game played against the Excession.

    The Excession is the end of all games and final terminus of all players.

  31. Keith says:

    Four decades of supply side economics has created a world of massive over-supply.

    Supply never did create its own demand.

    Who’d have thought it?
    The old economics.

    40 years ago most economists and almost everyone else believed the economy was demand driven and the system naturally trickled up.

    Now most economists and almost everyone else believes the economy is supply driven and the system naturally trickles down.

    Economics has been turned upside down in the last 40 years.

    All the Central Bank stimulus programs have been Neo-Keynesian, in line with the new economics. The money is pushed into the top of the economic pyramid, the banks, and according to the new economics it should trickle down.

    What we have seen is that the money stays at the top inflating asset bubbles in stocks, fine art, classic cars and top end property.

    The old economics looks as though it was right all along.

    Keynes and the old economics suggested spending on infra-structure projects to create jobs and wages which will be spent into the economy and trickle up.

    When the Western consumer went on life support in 2008, China used Keynesian stimulus to keep its economy going through infra-structure spending and job creation. Unfortunately, it has reached max. debt before the Western consumer has recovered.

    The West has done totally the wrong thing in the intervening eight years and just blown asset bubbles rather than helping its consumer base recover.

    After Keynesian stimulus you have new infra-structure that you can hopefully use in the future.

    After Neo-Keynesian stimulus the asset bubbles burst and you have a deflation problem on your hands.

    For a deflationary recession you need Keynesian stimulus to increase demand.


    • Your Future says:

      Too much stealing from the majority by a tiny minority has as it always has created a depression of consumption.

      The wealthy have created a massive pool of money that doesn’t cycle through the productive economy.

      As of yesterday’s news 62 filthy parasites now ‘own’ as much wealth as the rest of the planet’s population combined.

      There is no way any economy or body can function with such maldistribution of its lifeblood.

    • Keith says:

      If you are using upside-down economics, you have rendered yourself incapable of finding a solution that works.

      What can we do to fix Greece?
      Job cuts in the public sector; wage cuts in the public sector; reducing pensions and other austerity measures.

      Put it though the lens of the old economics and you can see you are reducing demand in the economy.

      The old economics would suggest raising taxes on those that can consume no more to balance the budget.

      Upside-down economics at work:

      When South America was in trouble the World Bank stepped in and offered loans as long as they reformed their economies with less public spending, austerity and privatising previously public companies.

      It was a disaster.

      In the Asian Crisis in 1998 the IMF stepped in and offered loans as long as they reformed their economies with less public spending, austerity and privatising previously public companies.

      It was a disaster.

      When Greece got into trouble recently the IMF stepped in and offered loans as long as they reformed their economies with less public spending, austerity and privatising previously public companies.

      It was a disaster.

      The EU has applied the same prescription to Spain, Italy and Portugal.

      It didn’t work.

      Upside-down economics gives all the wrong answers.

      • nick kelly says:

        Ya but with the possible exception of Italy these are all poor countries wanting to be rich. And when they got a credit card from the EU (i.e., Germany) they were able to pretend to be rich.
        Spain’s economy pre- 2007 WAS real estate.
        But the real funny farm was, and is, Greece.
        It is not much of an exaggeration to say that Greece (a) is ungovernable and (b) didn’t have a government
        The first main task of the Troika was to find out what were the financial obligations of the government because it had little idea- in fact it didn’t know how many employees it had.
        It did however have four times as many teachers as Finland which has the best performance in the EU, while having the worst performance in the EU.
        No one has ever gone to jail for tax evasion and no receipt is ever given for any service.
        And on and on.
        See: Boomerang by Michael Lewis, author of The Big Short

  32. Vangel says:

    The problem is the other side of the equation. If real assets will be sold off the value of fiat money should increase. But how does that happen when the currency is just a piece of paper or bits in computer memory that are accessible to those who have access to the newly created liquidity?

    The resolution will come when the purchasing power of the fiat currency reaches its intrinsic value. It is very hard to find viable oil deposits, get the oil out of the ground, and transport it to a refinery. It is easy to print money. In the end, reality will prevail and the world will need to go back to a hard money system of some kind.

  33. nick kelly says:

    If there is one theme occurring most in these posts it is that the printing of money is illegitimate etc., and that this all began with the creation of the FED in 1913.
    Actually, the original thirteen colonies were printers of scrip, money whatever you want to call it. Benjamin Franklin was a printer and central banker rolled into one- with two rooms for the whole operation.
    He recounts sitting in his parlour wondering how much to print and then going into the small press room and printing.
    He also recounts, if memory serves, deciding on one occasion that he had printed too much and that a burst of what we might call irrational exuberance had hit the affected region.
    Later the states issued all kinds of bonds many of which defaulted. There is a society of bond holders in the UK who are still chasing (hopelessly) some of this stuff. The founder of the society said that when he died the words “Mississippi” would be found on his heart (or on his gravestone)
    BTW: Franklin was very interesting guy who wrote very clearly and is well worth reading today, although a biography with lots of quotes would do well.
    One thing he didn’t write too much about was being what today we would call a ‘swinger’ with membership in London’s Hell Fire club.

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