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So, the question of debt default turns from theoretical to quite imperative. If the Federal Reserve continues buying our debt with fiat, it means that the effects of the debt will only be delayed, the dollar will be dropped as the world reserve currency, and hyperinflation is a certainty.

 

The buying of debt with fiat does not increase the money supply, it just replaces credit with fiat plus the amounts are relatively small compared to the amount of debt out there. Sure this is all delaying tactics but there is now nothing that can be done to save the system. Even at current rates of swapping debt for fiat the dollar will remain the reserve currency for a long time but as the bond market will soon signal “no more printing” the dollar in my opinion will strength considerably from here as assets fall. There is no way hyperinflation is even remotely possible.

 

 

If they do not continue buying, then our government defaults, the country’s financial infrastructure ceases to exist, the dollar loses its world reserve status, and hyperinflation is a certainty. The banking elites haven’t just erected a prison, they’ve tossed us in Alcatraz!

 

This is wrong in so many ways that it’s hard to know where to start.

If they stopped swapping debt for fiat then some debt would default – this is inevitable anyway. It will certainly not destroy the financial infrastructure and would make cash and the debt that survives worth much more. If the government gets it right, implements financial restraint and allows some strategic defaults then the dollars continued roll as the world reserve currency is assured.

 

I just cannot understand all this nonsense about hyperinflation. Your debt is an asset of the rich & powerful- why do you think they will destroy this relationship?

 

Back to the HPC (the sublect of this thread) I think it's clear that whichever of the abve is correct, the debt bubble has peaked and this spells big trouble for the property market. They may be able to delay a little more but the big slide is coming.

 

 

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Okay, here you lost me. I've always read and thought that, generally speaking, peak oil will increase the value of urban land because urban residents use less energy, for transport and for heating. For instance:

 

http://www.walkablestreets.com/manhattan.htm

 

The suburbs and xurbs will die. Some rural communities with productive activities will thrive. But most people will be compelled to turn to urban living.

 

http://en.wikipedia.org/wiki/Environmental...n_New_York_City

 

Electricity_use_kwh_per_customer_2000-05.PNG

^^Average annual residential electricity usage by city, 2000-2005. Measured in Kilowatt hours per customer

I think you have to 'follow through' with Bubbs logic here. Financial collapse leads to Commercial collapse leads to societal collapse. This is where the 'walkable urban' metropolises lose their very raison d'être. You won't be able to have the NewYorks and Londons of the world functioning whilst the flow of food and water dry up. The 'walkable urban communities' is, IMO, merely a brief illusion or allusion to how we should have been living, or many will be living way into the future-after a sizeable 'die-off' has culled the population into a workable,sustainable relationship with the rural communities that will be relied upon to feed their urban brothers and sisters.

The transition stage would presume abject misery for the cities with no food and no supply lines. There are simply too many people and too many demands upon what will be available. So it is up to you to secure those things necessary for your survival while you may ie now. Can you imagine NY or London in24 hrs without food let alone a few months or a year. Picture Detroit. So I imagine Bubb is saying that you want to be as far away as poss and as set up as possible. It is a bit of an extreme view but one that I myself have little doubt is coming. The way we are being hustled into the cities for employment is in preparation for a good plucking and neck wringing IMO.

Besides in a commercial collapse just what jobs are going to be available? Nothing. There is absolutely nothing in the city that will help your life under such circumstances. I would go further and say that there has actually been anything of any great use in the cities anyway. All has been a phony facade and an extension of an oil based economy which has led us to where we are. All the wealth and excess is merely unnecessary effluent and evidence of a life spent wasted and a litany of urban and social problems to boot. These lives and these cultures will be proved useless and wither on the vine. The much derided bumpkins in the sticks meanwhile will probably inherit the earth-because they have the knowledge and the skills to feed themselves modestly and in accordance and rhythm of nature's life cycle.

Property in the city under such exingencies may resemble Detroits 100 dollar homes. And then unsellable...

So is now the time to find your plot in the outback for the duration?

 

On another note, has anyone not picked up on the age,similarity and portliness of Ruppert and Kunstler? These guys certainly talk a good game but I wonder how they would really fare in their ideas of our future?

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The buying of debt with fiat does not increase the money supply, it just replaces credit with fiat plus the amounts are relatively small compared to the amount of debt out there. Sure this is all delaying tactics but there is now nothing that can be done to save the system. Even at current rates of swapping debt for fiat the dollar will remain the reserve currency for a long time but as the bond market will soon signal “no more printing” the dollar in my opinion will strength considerably from here as assets fall. There is no way hyperinflation is even remotely possible.

 

 

 

 

This is wrong in so many ways that it’s hard to know where to start.

If they stopped swapping debt for fiat then some debt would default – this is inevitable anyway. It will certainly not destroy the financial infrastructure and would make cash and the debt that survives worth much more. If the government gets it right, implements financial restraint and allows some strategic defaults then the dollars continued roll as the world reserve currency is assured.

 

I just cannot understand all this nonsense about hyperinflation. Your debt is an asset of the rich & powerful- why do you think they will destroy this relationship?

 

Back to the HPC (the sublect of this thread) I think it's clear that whichever of the abve is correct, the debt bubble has peaked and this spells big trouble for the property market. They may be able to delay a little more but the big slide is coming.

 

An excellent post Wise Bear. I'm in a similar position to the poster that prompted your response. I would follow you advice to be letter but find that I have already done so. I'm also sceptical of the hyper-inflation scenario - as you ably demonstrate it destroys much of the assets of the very people and organisations who are trying to keep this show on road. Something that is often overlooked is that the very forces and policies that are pushing up the price of PMs are same as those that were designed to supporting high house prices in the UK (and other countries). Should their effect run out of stream and start to fail in achieving their objective, which I think they are; then the reason to continue to follow that route will be gone -- rates will rise (as they alrady are on domestic loans). As you state commodities will suffer under this scenario.

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I think you have to 'follow through' with Bubbs logic here. Financial collapse leads to Commercial collapse leads to societal collapse. This is where the 'walkable urban' metropolises lose their very raison d'être. You won't be able to have the NewYorks and Londons of the world functioning whilst the flow of food and water dry up. The 'walkable urban communities' is, IMO, merely a brief illusion or allusion to how we should have been living, or many will be living way into the future-after a sizeable 'die-off' has culled the population into a workable,sustainable relationship with the rural communities that will be relied upon to feed their urban brothers and sisters.

The transition stage would presume abject misery for the cities with no food and no supply lines. There are simply too many people and too many demands upon what will be available. So it is up to you to secure those things necessary for your survival while you may ie now. Can you imagine NY or London in24 hrs without food let alone a few months or a year. Picture Detroit. So I imagine Bubb is saying that you want to be as far away as poss and as set up as possible. It is a bit of an extreme view but one that I myself have little doubt is coming. The way we are being hustled into the cities for employment is in preparation for a good plucking and neck wringing IMO.

Besides in a commercial collapse just what jobs are going to be available? Nothing. There is absolutely nothing in the city that will help your life under such circumstances. I would go further and say that there has actually been anything of any great use in the cities anyway. All has been a phony facade and an extension of an oil based economy which has led us to where we are. All the wealth and excess is merely unnecessary effluent and evidence of a life spent wasted and a litany of urban and social problems to boot. These lives and these cultures will be proved useless and wither on the vine. The much derided bumpkins in the sticks meanwhile will probably inherit the earth-because they have the knowledge and the skills to feed themselves modestly and in accordance and rhythm of nature's life cycle.

Property in the city under such exingencies may resemble Detroits 100 dollar homes. And then unsellable...

So is now the time to find your plot in the outback for the duration?

 

On another note, has anyone not picked up on the age,similarity and portliness of Ruppert and Kunstler? These guys certainly talk a good game but I wonder how they would really fare in their ideas of our future?

Thanks for that articulation.

 

I suppose my own thoughts on peak oil have suggested that, since the oil won't disappear overnight, we'll have time to develop alternative energy sources and we'll have time to adapt to using less energy. This would involve more mass transit, smaller homes, and living closer to work - things that are more common in cities than the countryside. Of course, the countryside will always be important for agricultural production and other things, but how many people will be employed in agriculture? Unless we're going back to a pre-Victorian lifestyle, most people will still work in industry and services. Yes, both industry and to a lesser extent services are under pressure in the Western world at the moment, but they can be saved and eventually will be saved, whether through tariffs, higher transports costs, or an equalization of costs between West and East (and South).

 

Basically, most people will need to live leaner and living leaner will mean living in smaller abodes close to work in an urban area.

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Is anyone else struggling to hold the line?

 

I STRd in 2009 and felt glad to have got a price about 8% off 2007 peak in London's Docklands. Since then have moved rentals a couple of times - all part of a slow orbit outwards from the centre to more suburbia. 2 kids, including one small baby. Last rental has been a nightmare - total amateur landlord totally unaware of his responsibilities. Every issue comes close to litigation to get anything done.

 

Since STRing property in the area I am interested in (N2) has gone up by more than 10%, my rent is vast at nearly £4k per month, I shifted most of my pension into cash/near-cash only to see the equities market go up by 15%, and am seeing the 50% of my STR fund that I didn't put into gold rapidly erroding. I am genuinely the laughing stock of my friends and family and it's getting hard to hold the line.

 

Classic "when the last bear turns bull" stuff? MSE style hugs needed.

 

I STRed 7 years ago - convinced that (in my area) property was massively over-valued and, just like the market in 1988, would go down by a considerable amount (i.e. to become 'affordable' again.)

 

At the time it wasn't a bad decision. Interest on my STR fund paid the rent on a nice 4 bed detached and for a couple of holidays a year too.

 

But, look what's happened since. Massive lending by the banks, explosion in BTL, banking collapse, quantitative easing, 0.5% base rate for 2 years etc etc. I'm not a risk taker so I was never going to put my STR fund into gold or shares. Last year, I admitted defeat and bought a house again.

 

Overall the experience was reasonably positive. I have ended up about 50k better off. House prices in my area are the same now (give or take) as they have been for about 8 years or so. The house I bought last year was previously sold in 1988. I paid exactly, to the penny, twice what it sold for in 1988.

 

When I STRed I had no idea the goverment would do ANYTHING, including printing money, providing a safe haven for 'troubled assets' (don't you live that expression?) and slashing base rate to 0.5%.

 

Having seen the size of the financial hole the banks are in, it is clear to me that a house price 'collapse' (30% or more) must be accompanied by a banking collapse. There is no other way - unless they rewrite the rules on capital ratios so that a bank can have no capital reserves.

 

Where we're headed now is a period of global inflation during which wages will lag but, in a few years when the global economy picks up again, wages will rise. So times will be tight and house prices will fall - a LITTLE. Houses in nice areas near nice schools etc will fall very little, if at all.

 

I think you were nuts to STR given the costs of moving and the Stamp Duty you'll pay when you buy again. Renting with a family is a pain in the bottom - I know, I've just done it for 7 years and that was quite long enough.

 

I cannot imagine why anyone would STR now - at the moment I'd rather have my money in property than in cash. If you get a 30% or more property crash - will your money in the bank be safe? The FSA compensation scheme doesn't have enough fund to bail out one bank - let alone the whole lot of them.

 

I was much more concerned during 2008 and 2009 that I'd lose my money in the bank (despite spreading it around to be under the 50k limit) and/or that a banking crisis would close internet banking and my money would disappear. I actually like the fact now that, regardless of what happens, the house is mine and my money is no longer 0s and 1s in a computer.

 

We're either going to get some sort of catastrophe - banking collapse, social unrest, riots etc - or, more likely, we're going to slowly inflate our way out of the mess and, in the meantime, a generation is priced out of property.

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I think you have to 'follow through' with Bubbs logic here. Financial collapse leads to Commercial collapse leads to societal collapse. This is where the 'walkable urban' metropolises lose their very raison d'être. You won't be able to have the NewYorks and Londons of the world functioning whilst the flow of food and water dry up. The 'walkable urban communities' is, IMO, merely a brief illusion or allusion to how we should have been living, or many will be living way into the future-after a sizeable 'die-off' has culled the population into a workable,sustainable relationship with the rural communities that will be relied upon to feed their urban brothers and sisters.

The transition stage would presume abject misery for the cities with no food and no supply lines. There are simply too many people and too many demands upon what will be available. So it is up to you to secure those things necessary for your survival while you may ie now. Can you imagine NY or London in24 hrs without food let alone a few months or a year. Picture Detroit. So I imagine Bubb is saying that you want to be as far away as poss and as set up as possible. It is a bit of an extreme view but one that I myself have little doubt is coming. The way we are being hustled into the cities for employment is in preparation for a good plucking and neck wringing IMO.

Besides in a commercial collapse just what jobs are going to be available? Nothing. There is absolutely nothing in the city that will help your life under such circumstances. I would go further and say that there has actually been anything of any great use in the cities anyway. All has been a phony facade and an extension of an oil based economy which has led us to where we are. All the wealth and excess is merely unnecessary effluent and evidence of a life spent wasted and a litany of urban and social problems to boot. These lives and these cultures will be proved useless and wither on the vine. The much derided bumpkins in the sticks meanwhile will probably inherit the earth-because they have the knowledge and the skills to feed themselves modestly and in accordance and rhythm of nature's life cycle.

Property in the city under such exingencies may resemble Detroits 100 dollar homes. And then unsellable...

So is now the time to find your plot in the outback for the duration?

 

On another note, has anyone not picked up on the age,similarity and portliness of Ruppert and Kunstler? These guys certainly talk a good game but I wonder how they would really fare in their ideas of our future?

 

Whilst agreeing with a lot of what you have said ... can you live your life like that? To me it seems like walking around with a board on with the message 'world ends tomorrow' - too depressing for me.

 

And what to do? Fine if you've got the half a million (at least) you need for anything approaching a decent smallholding but, if the 'no food' scenario occurred - don't you think the city dwellers would be marauding across the countryside in gangs looking for food to steal?

 

For as long as I can remember people have been saying the system is going to break down - it hasn't yet and if it hasn't following what happened in 2008, maybe the system is a bit more resilient than some people think.

 

If we end up in Mad Max world - well, what the hell, you've got to die sometime.

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Thanks for that articulation.

 

I suppose my own thoughts on peak oil have suggested that, since the oil won't disappear overnight, we'll have time to develop alternative energy sources and we'll have time to adapt to using less energy. This would involve more mass transit, smaller homes, and living closer to work - things that are more common in cities than the countryside. Of course, the countryside will always be important for agricultural production and other things, but how many people will be employed in agriculture? Unless we're going back to a pre-Victorian lifestyle, most people will still work in industry and services. Yes, both industry and to a lesser extent services are under pressure in the Western world at the moment, but they can be saved and eventually will be saved, whether through tariffs, higher transports costs, or an equalization of costs between West and East (and South).

 

Basically, most people will need to live leaner and living leaner will mean living in smaller abodes close to work in an urban area.

Always appreciate your moderate posts, C and thanks for this one. My thinking set out here is simply following the logic through of financial, commercial and societal collapse that is out there at the moment. Reluctantly I can see things going that way-esp with a peak oil monster shock approaching. Did you listen to the recent interview with Robert Hirsch with Jim Puplava? (''and when peole understand there will be chaos''), I would recommend listening to that. But not just that. These little fragments are just pieces of the puzzle that I think everyone from Jim Kunstler to Ruppert to Greer to Foss to Prechters supercycle to Gordon to god knows who else all are part of the same picture. It goes something like this. No, oil won't disappear overnight. But it's increasing unavailability and cost will affect every facet of our life. In fact the trouble now could well be seen to be the early stages of peak oil and its ramifications. Our world is changing. And there is an increasingly growing awareness that our way of life has been wrong and put us on an unavoidable collision course with our future. Our whole way of life from food production to home decoration to banking will fall to pieces as a natural phenomenon collides with a system designed to grow or fail. Chris Martenson describes this the best. It is apparant that we will not have time to develop alternative energy sources in time or scale to counteract the downturn in oil. We wont have the money either. It is too late to turn our attention to these great goals. Not without a major major shock first. If you consider that there wont be much work then smaller homes and mass transit will appear like bow ties about a throat cancer. In a commercial collapse people will flee to the countryside in order to escape a societal nightmare. With less and less oil, or simply more and more expensive oil, more and more hands will be needed in agriculture-just like it used to be pre Victorian lifestyle...and maybe population size.

Growth has been a disaster for humanity. It has been feesible through cheap oil alone. And now we are at a of peak population and possibly on the downside of oil. Things could rapidly get far worse, beyond our scope of comprehension.

 

I am not saying all this is going to happen. I am just following the logic of collapse through. I have to say that the more I think about it and the more people I talk to and their varied backgrounds, it seems more likely. I have never liked or understood the pull of the city really anyway.

 

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Whilst agreeing with a lot of what you have said ... can you live your life like that? To me it seems like walking around with a board on with the message 'world ends tomorrow' - too depressing for me.

 

And what to do? Fine if you've got the half a million (at least) you need for anything approaching a decent smallholding but, if the 'no food' scenario occurred - don't you think the city dwellers would be marauding across the countryside in gangs looking for food to steal?

 

For as long as I can remember people have been saying the system is going to break down - it hasn't yet and if it hasn't following what happened in 2008, maybe the system is a bit more resilient than some people think.

 

If we end up in Mad Max world - well, what the hell, you've got to die sometime.

'Can I live my life like that'? What thinking about it? Or really living it? I consider many people living in the city have a target painted on their backs saying 'my world ends tomorrow'. For me that is depressing. In the UK I know you need a fair amount of money to acquire a small holding. The UK seems so out of sync with reality it is hard for me to fathom. But such has been the strength of the illusion. Yes I am sure hungry city dwellers will fan out form the cities looking for food if they have to. For this reason I really dont fancy the UK. Already violence and anti social behaviour is picking up. Thoughts are polarising.

 

No the system hasn't broken down yet thank god. And I would rather it wouldn't...and perhaps it won't. But if you believe 2008 was just the warm up-and today I pulled out my May 2010 EW Theorist for a bit of doomer porn, then the worst is yet to come in, wave upon wave.

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'Can I live my life like that'? What thinking about it? Or really living it? I consider many people living in the city have a target painted on their backs saying 'my world ends tomorrow'. For me that is depressing. In the UK I know you need a fair amount of money to acquire a small holding. The UK seems so out of sync with reality it is hard for me to fathom. But such has been the strength of the illusion. Yes I am sure hungry city dwellers will fan out form the cities looking for food if they have to. For this reason I really dont fancy the UK. Already violence and anti social behaviour is picking up. Thoughts are polarising.

 

No the system hasn't broken down yet thank god. And I would rather it wouldn't...and perhaps it won't. But if you believe 2008 was just the warm up-and today I pulled out my May 2010 EW Theorist for a bit of doomer porn, then the worst is yet to come in, wave upon wave.

 

When you talk about the 'logic of collapse' - what, exactly, is your logic?

 

To me it is logical that things won't collapse - not because there are no reasons for collapse (there are plenty I suppose) but because, as far as I can see, it's in no-one's interest for collapse to take place. Who wants society to disintegrate so there are food shortages and riots?

 

I think things happen when it is in someone's interest for that thing to happen.

 

Banks made lots of money by packaging up debt and, effectively, lending the same money over and over again. People borrowed the money because it looked to them (idiots, it is true) that house prices would go up forever and they would make money. It was in the government's interest to let this happen as they milked the credit boom for all the tax and stamp duty it generated. So, you can kind of see why the boom happened.

 

As far as I can see a bust is in no-one's interest. As far as I know there is no immutable law that there must be a bust and the property market seems to be staggering on despite the changes in fundamentals.

 

I think about the possible outcomes of the current situation but I've had a bit of a personality transplant over the last few years. I'm optimistic about the future now.

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I STRed 7 years ago - convinced that (in my area) property was massively over-valued and, just like the market in 1988, would go down by a considerable amount (i.e. to become 'affordable' again.)

 

 

I think you were nuts to STR given the costs of moving and the Stamp Duty you'll pay when you buy again. Renting with a family is a pain in the bottom - I know, I've just done it for 7 years and that was quite long enough.

 

I cannot imagine why anyone would STR now - at the moment I'd rather have my money in property than in cash. If you get a 30% or more property crash - will your money in the bank be safe? The FSA compensation scheme doesn't have enough fund to bail out one bank - let alone the whole lot of them.

 

 

We're either going to get some sort of catastrophe - banking collapse, social unrest, riots etc - or, more likely, we're going to slowly inflate our way out of the mess and, in the meantime, a generation is priced out of property.

 

Agreed, now inflation is in, we are not likely to see falls. See data from the 70's. S2Ring is high risk.

 

All Houses (UK)

1952 Q4 = 100 Index Price Annual Change

 

Q4 1969 228.1 4,312 5.5

Q1 1970 231.5 4,378 5.6

Q2 1970 235.5 4,452 6.0

Q3 1970 238.4 4,508 6.6

Q4 1970 242.4 4,582 6.3

Q1 1971 250.7 4,741 8.3

Q2 1971 259.6 4,908 10.3

Q3 1971 277.3 5,244 16.3

Q4 1971 292.6 5,533 20.7

Q1 1972 317.7 6,008 26.7

Q2 1972 346.8 6,557 33.6

Q3 1972 391.1 7,395 41.0

Q4 1972 416.7 7,880 42.4

Q1 1973 444.0 8,396 39.8

Q2 1973 467.1 8,832 34.7

Q3 1973 485.7 9,183 24.2

Q4 1973 516.6 9,767 24.0

Q1 1974 525.1 9,928 18.2

Q2 1974 530.3 10,027 13.5

Q3 1974 536.7 10,148 10.5

Q4 1974 539.9 10,208 4.5

Q1 1975 549.4 10,388 4.6

Q2 1975 567.4 10,728 7.0

Q3 1975 580.6 10,978 8.2

Q4 1975 597.0 11,288 10.6

Q1 1976 609.2 11,519 10.9

Q2 1976 620.9 11,739 9.4

Q3 1976 634.6 11,999 9.3

Q4 1976 645.7 12,209 8.2

Q1 1977 656.3 12,409 7.7

Q2 1977 671.1 12,689 8.1

Q3 1977 686.0 12,970 8.1

Q4 1977 695.5 13,150 7.7

Q1 1978 730.9 13,820 11.4

Q2 1978 766.4 14,491 14.2

Q3 1978 841.6 15,912 22.7

Q4 1978 889.7 16,823 27.9

Q1 1979 941.1 17,793 28.7

Q2 1979 1008.9 19,075 31.6

Q3 1979 1083.5 20,485 28.7

Q4 1979 1161.8 21,966 30.6

Q1 1980 1199.4 22,677 27.4

Q2 1980 1234.8 23,348 22.4

Q3 1980 1249.7 23,628 15.3

Q4 1980 1242.8 23,497 7.0

Q1 1981 1255.1 23,730 4.6

Q2 1981 1274.5 24,098 3.2

Q3 1981 1279.3 24,188 2.4

Q4 1981 1258.7 23,798 1.3

Q1 1982 1278.7 24,177 1.9

Q2 1982 1305.2 24,679 2.4

Q3 1982 1320.6 24,969 3.2

Q4 1982 1352.9 25,580 7.5

Q1 1983 1391.4 26,307 8.8

Q2 1983 1448.4 27,386 11.0

Q3 1983 1490.2 28,175 12.8

Q4 1983 1513.9 28,623 11.9

Q1 1984 1569.5 29,675 12.8

Q2 1984 1630.7 30,833 12.6

Q3 1984 1653.0 31,254 10.9

Q4 1984 1721.2 32,543 13.7

Q1 1985 1755.9 33,200 11.9

Q2 1985 1807.4 34,174 10.8

Q3 1985 1835.3 34,700 11.0

Q4 1985 1874.2 35,436 8.9

Q1 1986 1885.3 35,647 7.4

Q2 1986 1957.7 37,015 8.3

Q3 1986 2023.1 38,251 10.2

Q4 1986 2094.1 39,593 11.7

Q1 1987 2162.2 40,882 14.7

Q2 1987 2273.5 42,987 16.1

Q3 1987 2350.1 44,434 16.2

Q4 1987 2345.9 44,355 12.0

Q1 1988 2384.8 45,091 10.3

Q2 1988 2588.0 48,932 13.8

Q3 1988 2874.6 54,352 22.3

Q4 1988 3027.7 57,245 29.1

Q1 1989 3148.7 59,534 32.0

Q2 1989 3292.0 62,244 27.2

Q3 1989 3320.5 62,782 15.5

Q4 1989 3252.4 61,495 7.4

Q1 1990 3151.5 59,587 0.1

Q2 1990 3119.5 58,982 -5.2

Q3 1990 3027.7 57,245 -8.8

Q4 1990 2904.6 54,919 -10.7

Q1 1991 2885.0 54,547 -8.5

Q2 1991 2931.0 55,418 -6.0

Q3 1991 2903.8 54,903 -4.1

Q4 1991 2836.7 53,635 -2.3

Q1 1992 2760.1 52,187 -4.3

Q2 1992 2785.3 52,663 -5.0

Q3 1992 2763.1 52,243 -4.8

Q4 1992 2653.4 50,168 -6.5

Q1 1993 2651.3 50,128 -3.9

Q2 1993 2745.9 51,918 -1.4

Q3 1993 2736.8 51,746 -1.0

Q4 1993 2700.0 51,050 1.8

Q1 1994 2714.6 51,327 2.4

Q2 1994 2716.5 51,362 -1.1

Q3 1994 2736.0 51,731 0.0

Q4 1994 2756.3 52,114 2.1

Q1 1995 2701.8 51,084 -0.5

Q2 1995 2730.8 51,633 0.5

Q3 1995 2715.0 51,334 -0.8

Q4 1995 2693.7 50,930 -2.3

 

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When you talk about the 'logic of collapse' - what, exactly, is your logic?

 

To me it is logical that things won't collapse - not because there are no reasons for collapse (there are plenty I suppose) but because, as far as I can see, it's in no-one's interest for collapse to take place. Who wants society to disintegrate so there are food shortages and riots?

 

 

As far as I can see a bust is in no-one's interest.

I think Chris Martenson has this down to a fine point. ''When a financial system that is required to grow exponentially and it relies on energy (oil) for that growth which is in depleting supply; I know which side wins that battle''.

 

If this leads to financial collapse then that leads to commercial collapse and that leads to chaos and societal collapse.

 

I don't see it as 'being in no- one's interest' as a valid reason not to collapse whatsoever. In fact all the more reason to collapse as no-one is expecting it.

 

 

When what we know, need and require in order to grow (or simply not to collapse) suddenly comes into short supply, or even major price rediscovery, this will cause a major, major shock IMO.

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I think Chris Martenson has this down to a fine point. ''When a financial system that is required to grow exponentially and it relies on energy (oil) for that growth which is in depleting supply; I know which side wins that battle''.

 

If this leads to financial collapse then that leads to commercial collapse and that leads to chaos and societal collapse.

 

I don't see it as 'being in no- one's interest' as a valid reason not to collapse whatsoever. In fact all the more reason to collapse as no-one is expecting it.

 

 

When what we know, need and require in order to grow (or simply not to collapse) suddenly comes into short supply, or even major price rediscovery, this will cause a major, major shock IMO.

 

If push comes to shove there are lots of things society could change it's mind on to avoid complete collapse. GM crops, nuclear power, martial law, rationing, etc...

 

The financial system could collapse overnight, but we would still have all the same people, assets, production, goods, technology, knowledge, etc... All that's really gone is the record of who owes what to who. The knowledge of how to run an economy and setup a financial system still exists and we could knock out a partially functioning system in a matter of days, possibly even one that doesn't have the inbuilt self-destruct mechanism of requiring continuous growth of certain measures to function.

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I think Chris Martenson has this down to a fine point. ''When a financial system that is required to grow exponentially and it relies on energy (oil) for that growth which is in depleting supply; I know which side wins that battle''.

 

If this leads to financial collapse then that leads to commercial collapse and that leads to chaos and societal collapse.

 

I don't see it as 'being in no- one's interest' as a valid reason not to collapse whatsoever. In fact all the more reason to collapse as no-one is expecting it.

 

 

When what we know, need and require in order to grow (or simply not to collapse) suddenly comes into short supply, or even major price rediscovery, this will cause a major, major shock IMO.

 

If you throw oil into the equation, surely your timescale must be 50 years, not the next year or two?

 

What would the nature of the shock that you foresee be?

 

I see the current situation as a cartoon snowball of debt hurtling down the hill with bankers coming up with ever more obscure and inventive ways of increasing debt. One day one bank says to another - 'we're worried about you, we're not sure what you're up to' with the sub-text of - 'if you've been up to what we've been up to, this is going to end badly'.

 

We had a crisis - the banks stopped lending to each other. Just stopped. Some of the big banks were technically bankrupt and, to avoid systemic banking collapse, the government stepped in with pretty much a blank cheque. Whatever else happens, the banks are not going to be allowed to fail.

 

So, given that a 30% decrease in property values would make the banks fail, how do you see this playing out?

 

My take is that the snowball stopped - just on the edge of the cliff - and the goverment got underneath and just about pushed it back onto level ground. Now the snowball is inching away from the cliff courtesy of sane lending and low interest rates. I think we'll have low interest rates for a long time.

 

Crises we have had before (withdrawal from ERM) occurred because it benefited somebody - George Soros in that case. Things don't just happen - which is why I say that, unless it is in someone's interest to have a bank crisis, we won't have one. What do you see happening that will precipitate a crisis?

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Prices are likely to fall for a few more months until the uncertainty currently circulating is put to bed by telling those who are going to be made redundant who they are.

 

At present 1 in 4 people thinks it will be them. It’s worse in the public sector (1 in 3).

 

Any uncertainty over keeping your job won't be put to bed for long, at least not in most of the public sector anyway. The cuts are for the next 4 years at least and any joy over keeping your job is likely to be offset by knowing that next time (i.e. in about 6 months time) it could be you. After a year or 2 of this I think an air of gloom will have set in at most public sector workplaces.

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Any uncertainty over keeping your job won't be put to bed for long, at least not in most of the public sector anyway. The cuts are for the next 4 years at least and any joy over keeping your job is likely to be offset by knowing that next time (i.e. in about 6 months time) it could be you. After a year or 2 of this I think an air of gloom will have set in at most public sector workplaces.

 

Maybe after a year or two of the pretend cuts, the public sector will realise the gravy train is intact and undamaged after the 'collision'. As I understand it, government spending is set to rise year on year for the next 5 years.

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Any uncertainty over keeping your job won't be put to bed for long, at least not in most of the public sector anyway. The cuts are for the next 4 years at least and any joy over keeping your job is likely to be offset by knowing that next time (i.e. in about 6 months time) it could be you. After a year or 2 of this I think an air of gloom will have set in at most public sector workplaces.

From what I have been told, any major job losses will be announced this year. Future cuts will be based upon natural wastage (lovely term).

 

Bold as Brass is correct in that after this year, things will not be as bad as spending returns to "normal" levels (after inflation taken into account that is).

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Bold as Brass is correct in that after this year, things will not be as bad as spending returns to "normal" levels (after inflation taken into account that is).

 

In the years building up to the financial crisis people spent more than they earned i.e. net borrowing increased every year. For us to get back to "normal" levels of spending people will therefore need to revert to spending more than they earn and banks will need to revert to previous levels of lending. (I can't see this happening, in fact I think both borrowing and spending will continue to fall in the years ahead).

 

However, if you are correct and we do start running up ever more debt when do you think it will end? or do you just see credit expansion to infinity?

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However, if you are correct and we do start running up ever more debt when do you think it will end? or do you just see credit expansion to infinity?

Credit expansion to infinity, but inflation needs to outstrip credit expansion. That's how you get a nice (hyper-)inflationary depression. That's the way they wanna play it, because I don't think any of the central banksters really think that hardship can be avoided (cf. Mervyn King's recent speech). As for inflation, they can only ever err on the upside due to their deflation phobia.

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In the years building up to the financial crisis people spent more than they earned i.e. net borrowing increased every year. For us to get back to "normal" levels of spending people will therefore need to revert to spending more than they earn and banks will need to revert to previous levels of lending. (I can't see this happening, in fact I think both borrowing and spending will continue to fall in the years ahead).

 

However, if you are correct and we do start running up ever more debt when do you think it will end? or do you just see credit expansion to infinity?

 

Surely there is a middle path?

 

For example, between 1997 and 2007 personal debt increased at the rate of about £75 billion a year. As I understand it our financial system requires growth - and the ideal is moderate growth of 2%. This requires a 2% increase in debt - i.e. a 2% increase in the money supply. We had a situation where debt was rapidly increasing (1997 - 2007), we have recently (2008 to present) had a net pay down of debt (which reduces the amount of money in circulation) - why can't we have a situation where, in a year or two, we start increasing consumer debt by small amounts?

 

Surely we are in an extended soft landing.

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In the years building up to the financial crisis people spent more than they earned i.e. net borrowing increased every year. For us to get back to "normal" levels of spending people will therefore need to revert to spending more than they earn and banks will need to revert to previous levels of lending. (I can't see this happening, in fact I think both borrowing and spending will continue to fall in the years ahead).

 

However, if you are correct and we do start running up ever more debt when do you think it will end? or do you just see credit expansion to infinity?

I was referring to government spending, but yes, essentially credit expansion will continue, but as long as growth keeps up (which of course it doesn’t always) and inflation remains moderate (which of course it might not) then the expansion is controllable.

 

It’s worked for the last 100 years (on the whole).

 

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The buying of debt with fiat does not increase the money supply, it just replaces credit with fiat plus the amounts are relatively small compared to the amount of debt out there.

 

I mentioned this kind of thing before and talked it over with Ziknik on his blog since nobody was interested here.

 

It is true that if you are a bond holder with a million pound bond then you are wealthy and you have spending power. And if these bonds trade in a cash like manner (as they do) they are like money but they are not money.

 

Even so before this crisis there was an amount of wealth in the world and the total amount of wealth in the world must influence the amount of price pressure that creates the bubble that all prices exist in our current money system.

 

Once the crisis began many of these money like things began to revert to more traditional 'things' where for example an auction rate security simply became a bond that might pay you back in 30 years time rather than a 'cash like instrument'. So huge wealth, or a wall of liquidity that was existing in the world before 2007 was an illusion created by the perception of absense of risk or the perception a person could move to safety before the music stopped. A return to risk is itself a massively deflationary event.

 

QE has replaced a small amount of the evaporated wealth. Credit appears to be still rising.

 

QE swaps the wealth of the bond holder for an amount of similar wealth while the central bank holds the previously existing circulating wealth. If you argue the bonds are worthless then you arguing for an event that is deflationary creating because at the very least the perception of wealth that existed has been destroyed, and now all that has happened is the destroyed deflationary creating wealth has been replaced by a new deposit which you might argue is not worthless today. If you argue a deposit is worthless today then that is just more deflationary.

 

You can always argue they will produce yet more and more money to prevent deflation, but so far the amount produced is not so large in the context of so much wealth distruction.

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The buying of debt with fiat does not increase the money supply, it just replaces credit with fiat ...

How is that a replacement if the debt is still outstanding? Makes no sense IMHO.

 

If Deutsche Bank holds an MBS of turd quality and the Fed creates Federal Reserve Notes and buys this MBS off Deutsche Bank at an artificially high price, how can this not increase money supply? It does in itself, but now on top of that DB can increase the money supply even more as they can lever the Fed cash they get by 1:50 or so (whatever the non-existing reserve ratio is...).

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How is that a replacement if the debt is still outstanding? Makes no sense IMHO.

 

If Deutsche Bank holds an MBS of turd quality and the Fed creates Federal Reserve Notes and buys this MBS off Deutsche Bank at an artificially high price, how can this not increase money supply? It does in itself, but now on top of that DB can increase the money supply even more as they can lever the Fed cash they get by 1:50 or so (whatever the non-existing reserve ratio is...).

 

You are mixing things up. 1:50 leverage is a sign of a massive deflation pressures until banks with this kind of leverage have sucked money from the economy or become state owned and recapitalised. The example being Japans zombie banks which were kept alive rather than being killed off and recapitalised.

 

As you must be aware the Fed is not creating a large number of FRN's.

 

MBS bought by the Feds was not of terrible quality other than that which has to be bought back by the banks via the discount window. the purchase involves a haircut. MBS found to be fraudulent and not meeting requirements is going back to the banks.

 

QE included 1.25 T of agency mortgage purchases. A chunk of that has already gone due to refinancing and the receipts are being used to buy treasuries.

 

 

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You are mixing things up. 1:50 leverage is a sign of a massive deflation pressures until banks with this kind of leverage have sucked money from the economy or become state owned and recapitalised. The example being Japans zombie banks which were kept alive rather than being killed off and recapitalised.

Given that MZM is at an all time high, can you explain this in more detail and how your "sucking of money" leads to higher money supply measures? (Sounds ridiculously counter-intuitive, or doesn't it?)

 

As you must be aware the Fed is not creating a large number of FRN's.

And you must be aware that I am not talking of literal paper notes, but the monetary base. So, what is this here then?

 

fredgraphky.png

 

MBS bought by the Feds was not of terrible quality other than that which has to be bought back by the banks via the discount window. the purchase involves a haircut.

Last time I studied the Fed's balance sheet it said "face value". Not "face value after haricut".

 

MBS found to be fraudulent and not meeting requirements is going back to the banks.

Can you back this up?

 

QE included 1.25 T of agency mortgage purchases. A chunk of that has already gone due to refinancing and the receipts are being used to buy treasuries.

(i) What do you mean by "has gone due to refinancing"?

 

(ii) I can't believe that they first create money out of nothing, and then they don't destroy it when it comes back! This is highly inflationary.

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Given that MZM is at an all time high, can you explain this in more detail and how your "sucking of money" leads to higher money supply measures? (Sounds ridiculously counter-intuitive, or doesn't it?)

 

 

And you must be aware that I am not talking of literal paper notes, but the monetary base. So, what is this here then?

 

fredgraphky.png

 

 

Last time I studied the Fed's balance sheet it said "face value". Not "face value after haricut".

 

 

Can you back this up?

 

 

(i) What do you mean by "has gone due to refinancing"?

 

(ii) I can't believe that they first create money out of nothing, and then they don't destroy it when it comes back! This is highly inflationary.

 

A few days ago you showed that MZM was just barely rising above the 2007 levels?

 

The fed bought agency mortgages and in many cases people then refinanced due to the lower rates and the feds got the money back. Rather than reducing the QE amount they bought treasuries to keep the QE amount the same. Google to find agency mortgages are being put back to the banks where fraud was found.

 

As for monetary base it is still not clear to me the exact situation about regulations applying to Reserves. It appears that under bank rules this is money that can not be used by them for private purposes other than the amount that is part of their capital. If there are rules, then since this money is always in fed accounts on behalf of the banks it can be easily scrutinized.

 

On the money sucking, as you know the banks are being required to get more capital - which is a trend against greater loan creation.

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