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Tuesday, July 09, 2013

The biggest bubble

Arguably today's most important economist, Steve Keen, writes about the biggest bubble of them all on Zerohedge
Let's start by taking a closer look at the data than Alan [Greenpan] did. There are a number of surprises when one does - even for me. Frankly, I did not expect to see some of the results I show here: as I used to frequently tell my students before the financial crisis began, I wouldn't dare make up the numbers I found in the actual data. That theme continues with margin debt for the USA, which I've only just located (I expected it to be in the Federal Reserve Flow of Funds, and it wasn't - instead it's recorded by the New York Stock Exchange). The first surprise came when comparing the S&P500 to the Consumer Price Index over the last century - since what really tells you whether the stock market is "performing well" is not just whether it's rising, but whether it's rising faster than consumer prices. Figure 1 shows the S&P500 and the US CPI from the same common date-1890—until today. In contrast to house prices, there are good reasons to expect stock prices to rise faster than consumer prices (two of which are the reinvestment of retained earnings, and the existence of firms like Microsoft and Berkshire Hathaway that don't pay dividends at all). I therefore expected to see a sustained divergence over time, with of course periods of booms and crashes in stock prices.

That wasn't what the data revealed at all. Instead, there was a period from 1890 till 1950 where there was no sustained divergence, while almost all of the growth of share prices relative to consumer prices appeared to have occurred since 1980. Figure 2 illustrates this by showing the ratio of the S&P500 to the CPI - starting from 1890 when the ratio is set to 1. The result shocked me - even though I'm a dyed in the wool cynic about the stock market. The divergence between stock prices and consumer prices, which virtually everyone (me included) has come to regard as the normal state of affairs, began in earnest only in 1982.

Until then, apart from a couple of little bubbles in stock prices in 1929 (yes I'm being somewhat ironic, but take a look at the chart!) and 1966, there had been precious little real divergence between stock prices and consumer prices.

My causal argument commences from my definition of aggregate demand as being the sum of GDP plus the change in debt—a concept that at present only heretics like myself, Michael Hudson, Dirk Bezemer and Richard Werner assert, but which I hope will become mainstream one day. Matched to this is a redefinition of supply to include not only goods and services but also turnover on asset markets. This implies a causal link between the rate of change of debt and the level of asset prices, and therefore between the acceleration of debt and the rate of change of asset prices—but not one between the level of debt and the level of asset prices. Nonetheless there is one in the US data, and it's a doozy: the correlation between the level of margin debt and the level of the Dow Jones is 0.945.
For those who didn't follow, what Keen is saying is that the stock market has been one giant debt-inflated bubble since 1980.  And it means that when the change of debt goes negative, asset prices are going to contract at a speed proportional to the rate of the debt contraction.  This, of course, is why the Fed has been pumping so desperately for five years, and also why it was always doomed to eventual failure.

What I find particularly significant is that Keen has reached a very similar conclusion about the stock market that Karl Denninger and I both independently reached about the economy through a different approach, which involved calculating the dollar amount of debt required to buy one dollar of economic growth.  By any of our three methods, it readily becomes apparent that there has been no genuine economic growth in the USA since 1980, give or take a year.

That sense of national decline that most Americans sense isn't an illusion, rather, it is the idea that the US economy has expanded in any material manner over the last 30 years that is the illusion.  It is actually a debt-funded mass delusion that is no more substantial than drug-fueled hallucinations.

Labels:

115 Comments:

Anonymous Michael Maier July 09, 2013 1:08 PM  

Well you're just full of good news lately, ain'tcha?

Someone stop the planet. I want off.

Anonymous Mob-Rules July 09, 2013 1:08 PM  

So the Fed fooled itself into believing in it's own parlor trick?

Blogger Nate July 09, 2013 1:18 PM  

With much respect to Keen... I must take issue with the use of the word "biggest".

As of last week there was... 441 TRILLION dollars in interest rate based derivatives.

441 trillion dollars folks. That's rough 6 times the GWP. Meaning.. Gross World Product. The GDP of the whole freaking planet... times 6.

Or as a fella on my blog noted... you could take 5 dollar bills and lay them end to end... and stretch all the way to sun... 459.5 times.

I'm gonna let that sink in.

Anonymous Will Best July 09, 2013 1:18 PM  

Are they using the same CPI calculation the entire graph?

Anonymous Porky July 09, 2013 1:26 PM  

Think of margin debt as a 'risk amplifier'.

Then cover your ears.

Anonymous Salt July 09, 2013 1:30 PM  

One nice thing about drug fueled hallucinations, they're great till they aren't.

Anonymous Stilicho July 09, 2013 1:32 PM  

I'm gonna let that sink in.

Don't worry, it's all ephemeral, substance-less transactions that net out. The only thing that counts are the underlying assets...much like the relationship of credit to the underlying currency.../sarc

Blogger swiftfoxmark2 July 09, 2013 1:32 PM  

So let's see here: Nixon takes us off what was left of the gold standard in the early 70s. This results in stagflation, where Keynesian policies (or neo-Keynesian?) cause no economic growth but inflation. Then interest rates are raised greatly, which stops the inflation a little, but results in debt-fueled growth.

Is that about right?

Anonymous Supernaut July 09, 2013 1:33 PM  

Macro-economic issues seem so complicated.

But looking at it from a simplified Micro-econ perspective makes it all quite easy to understand.

Using credit cards to pay all your household bills will work for awhile...but eventually the minimum monthly payments required to service your debt supercede your monthly income.

Bankruptcy becomes inevitable.

It really is no different on the Macro-econ scale.

Anonymous Paul Krugman, PhD, Nobel Laureate, Genius July 09, 2013 1:36 PM  

...you could take 5 dollar bills and lay them end to end... and stretch all the way to sun... 459.5 times.

That's silly. They would all catch on fire if you did that.

Anonymous Zek July 09, 2013 1:37 PM  

That doesn't fit with the IS-LM model they forced me to learn in 1988.

You bastards!

Blogger Nate July 09, 2013 1:40 PM  

"Don't worry, it's all ephemeral, substance-less transactions that net out. "

And yet still thousands of bankers will jump out of windows over it.

Blogger James Dixon July 09, 2013 1:42 PM  

I should point out that dividend rates on stocks used to be substantially higher than they are now. AFAICT, his analysis completely ignores both that specific detail and the effects of dividend rates on stock prices overall. A lower dividend rate should, in theory, mean a faster rising stock price.

Other than that detail, I couldn't find a lot in the article to argue with.

Anonymous Porky July 09, 2013 1:43 PM  

And yet still thousands of bankers will jump out of windows over it.

You're just trying to cheer us up.

Blogger James Dixon July 09, 2013 1:45 PM  

> Using credit cards to pay all your household bills will work for awhile...

Actually, it will work indefinitely; as long as you pay the card off every month. And a really good card (Discover, say) will pay you for the privilege of doing so. :)

But yeah, I know what you meant.

OpenID ZT July 09, 2013 1:47 PM  

@Mob-Rules

When you lie all the time you start believing your own lie.

Anonymous Soga July 09, 2013 1:48 PM  

And yet still thousands of bankers will jump out of windows over it.

It would be nice if we could prevent them from dying. They'll crave death, but it will not find them. The price to pay for their foolishness. Black knighting: the suicide-preventing way. Because letting them burn in hell early is too good for them.

Anonymous Stilicho July 09, 2013 1:51 PM  

That's silly. They would all catch on fire if you did that.

Which would cause the aliens to take notice and start that alien invasion you've been calling for. Winning!

Anonymous Stilicho July 09, 2013 1:54 PM  

And yet still thousands of bankers will jump out of windows over it.

promises, promises...I wonder if we'll get flying cars before we get defenestrated banksters

Anonymous Stilicho July 09, 2013 1:59 PM  

This implies a causal link between the rate of change of debt and the level of asset prices, and therefore between the acceleration of debt and the rate of change of asset prices

We'll have to watch that margin debt acceleration and see if it accurately predicts the next market crash. Useful trading tool if it works.

Blogger Nate July 09, 2013 1:59 PM  

'promises, promises...I wonder if we'll get flying cars before we get defenestrated banksters"

Pay attention. We've already got flying cars.

Anonymous Paul July 09, 2013 2:00 PM  

Given that the CPI methodology was changed (to consistently under-report inflation, up to a cumulative 5.1% from 1980-2011), how much of the post-1980 divergence Keen observes is simply due to 'adjustments' made to inflation calculations? In other words, it's worse than you think ....

http://www.shadowstats.com/article/no-438-public-comment-on-inflation-measurement

Anonymous Pope Cleophus I July 09, 2013 2:07 PM  

Or as a fella on my blog noted... you could take 5 dollar bills and lay them end to end... and stretch all the way to sun... 459.5 times.

Someone didn't do their math homework.
$441,000,000,000,000 is 88,200,000,000,000 five dollar bills. The <a href="http://answers.yahoo.com/question/index?qid=20080212211027AAbbnxr>length</a> of a dollar bill is 6.1 inches.

The equation looks like this:
(((88,200,000,000,000*6.1)/12)/5280)/93,000,000 is 91.306.

Somtimes math is hard!

Blogger Nate July 09, 2013 2:11 PM  

It must be hard because so far we have three different answers.

441e12 * 6.14" = 2.707e15"

2.707e15" / 12in/ft / 5280 ft/mi = 42.7e9 mi (or 42 billion miles)

42.7e9 mi / 93e6 mi (93 million miles to the sun) = 459.5 times the distance to the sun

Anonymous vryedenker July 09, 2013 2:13 PM  

Are you aware of the dude from overstock.com and his crusade against naked shorting?

Anonymous Stilicho July 09, 2013 2:15 PM  

Somtimes math is hard!

So use dollar bills, and you get 456.53. The point remains.

Anonymous the bandit July 09, 2013 2:16 PM  

459.5 / $5 = 91.9

---

The question I have is: What happened circa 1982?

Anonymous Noah B. July 09, 2013 2:25 PM  

Whichever it is, leaving all our money in space seems like a bad idea.

Anonymous Peter Garstig July 09, 2013 2:26 PM  

The only thing that counts are the underlying assets.


That's probably closer to the truth than you meant it to be. The ultimate and last underlaying asset is your physical property, your labour force and you...and that's what will be transferred.

Anonymous Copperhead Joe July 09, 2013 2:26 PM  

James Dixon
Actually, it will work indefinitely; as long as you pay the card off every month. And a really good card (Discover, say) will pay you for the privilege of doing so. :)

Yes, I have been on Cabelas' payroll since 1999. They paid for most of my camping gear and ammo. Still patiently waiting for me to carry a balance.

Anonymous Pope Cleophus I July 09, 2013 2:29 PM  

It must be hard because so far we have three different answers.

441e12 * 6.14" = 2.707e15"
this is the number of one dollar bills.

I will reiterate for the comprehensionally challenged:

you could take 5 dollar bills and lay them end to end
((((441000000000000.00/5.00)*6.1)/12)/5280)/93000000 = 91.306

Anonymous Stilicho July 09, 2013 2:30 PM  

Peter, ultimately I don't dispute that. However, it's a long journey twist here and there and the unwinding of massive leveraged debt will have correspondingly massive consequences.

Anonymous anon123 July 09, 2013 2:30 PM  

@ the bandit
Reganomics

Anonymous Noah B. July 09, 2013 2:31 PM  

"you could take 5 dollar bills and lay them end to end"

Maybe he meant (5)(dollar bills) rather than (5 dollar)(bills).

Blogger Nate July 09, 2013 2:31 PM  

Ahhh... Eric did it for 1 dollar bills... not 5 dollar bills. gotcha.

Anonymous bob k. mando July 09, 2013 2:35 PM  

the bandit July 09, 2013 2:16 PM
The question I have is: What happened circa 1982?




one major thing that happened right about then, which i have now been pointing out for decades, was the explosion of participation in IRA / 401(k) retirement programs.

the retirement programs created a huge, concentrated, never seen before demand for investment vehicles and divisions of investing houses devoted to 'investing' monies that had very little real oversight ( because you are no longer a client dealing directly with a broker who is trading your individual account ) from the owners of those monies.

so the question becomes, were the 'retirement programs' created as a way to sink excess liquidity that they KNEW was going to be created by blowing up marginal debt?

if so ...

these people are WAY out in front of the curve.

Anonymous Mike M. July 09, 2013 2:35 PM  

In other words, Vox, you're telling us to get out of the markets.

Anonymous Peter Garstig July 09, 2013 2:37 PM  

Stilicho: well, yes, but it could accelerated quickly. From bail-ins already happening this day to outlawing possession of gold is not that big of a step.

Anonymous Stilicho July 09, 2013 2:47 PM  

Stilicho: well, yes, but it could accelerated quickly. From bail-ins already happening this day to outlawing possession of gold is not that big of a step.

It happens gradually...then all at once. Unexpectedly.

When the situation becomes that desperate, no one cares about government diktats. They care about what they hold and control and how they can eat and survive.

Anonymous jack July 09, 2013 2:47 PM  

Good grief folks. Who the hell cares how many 5$ bills, end to end, it takes to get to the damn sun. Here the economy is about to take the biggest gut fart in the history of the world and you're worried about five.dollar.bills?

Will someone give me a break...

Blogger James Dixon July 09, 2013 2:50 PM  

> What happened circa 1982?

Ronald Reagan and Paul Volcker.

> Vox, you're telling us to get out of the markets.

Not exactly. But limit your exposure to money you can afford to lose, definitely.

Anonymous Cederq July 09, 2013 2:51 PM  

I get the picture, we are screwed and will be carrying Dorothy's hand-basket to hell... You guys sure ruined my Tuesday, and here I was gonna invest some of my hard earned cash.

Blogger Jesse Bjorn July 09, 2013 2:53 PM  

So, should I max out my credit cards buying liquor and silver (and maybe some toys)? Or should I sell my (worthless) house and go pay rent somewhere instead of a mortgage?

Anonymous Shorty July 09, 2013 3:01 PM  

Chill, bro.

Anonymous RINO July 09, 2013 3:03 PM  

Stilicho: well, yes, but it could accelerated quickly. From bail-ins already happening this day to outlawing possession of gold is not that big of a step.

People are still talking about the gold ban that isn't going to happen?

Anonymous Noah B. July 09, 2013 3:06 PM  

"People are still talking about the gold ban that isn't going to happen?"

Right, because no government has ever confiscated privately owned assets.

Anonymous Will Best July 09, 2013 3:09 PM  

Yes, I have been on Cabelas' payroll since 1999. They paid for most of my camping gear and ammo. Still patiently waiting for me to carry a balance.

Your credit card company could give @#$#@ all if you carry a balance. They charge transaction fees from 2.5-5.5%, on a person that pays everything off at the end of the month they are still making 25-30% APR. Think about it this way, say you charge $1,000 and pay it off every month. How much money does the credit card company risk? Answer, $1,000. But they collect $420 in fees about 120-150 of which they kick back to you for a net of $270 on their $1,000 investment or 27% ROI

Now lets say somebody caps the card say $12,000 and then pays the min balance. Its the same net $270 in transaction fees, and they will collect another $2,640 in interest on say a 22% APR. But they are risking 12 times the amount of money so their ROI drops from 27% to 24.35%. Whats more in example one they actually had their capital returned where as in example two their capital is still at risk.

Anonymous bob k. mando July 09, 2013 3:11 PM  

Cederq July 09, 2013 2:51 PM
You guys sure ruined my Tuesday, and here I was gonna invest some of my hard earned cash.




invest in heavy metals; lead, gold and silver.

gold is down to the point where a lot of mines can't cover production costs ... so that's pretty much a hard floor.

silvers running relatively high right now, but there may still be huge upside.

lead ( as in, bullets and firearms ) is always good as a hedge ( protection for ) the first two.

Blogger James Dixon July 09, 2013 3:12 PM  

> They charge transaction fees from 2.5-5.5%, on a person that pays everything off at the end of the month they are still making 25-30% APR.

Correct. But when I buy my groceries at Kroger or Walmart, I don't get a discount for paying with cash. I pay the same amount whether I use the credit card or not. So why not use the card and get some cash back?

Blogger James Dixon July 09, 2013 3:14 PM  

> ...one major thing that happened right about then, which i have now been pointing out for decades, was the explosion of participation in IRA / 401(k) retirement programs.

Yes. But that explosion came at the expense of and largely replaced the investing of private pension plans. I'm not sure there was a net gain.

Anonymous Mike M. July 09, 2013 3:15 PM  

Actually, I think a gold ban is unlikely. Gold no longer equals money. It's just another commodity.

Bail-ins worry me, though.

Probably the most vexing issue is that all these measures hit the thirfty the hardest. You get what you incentivize, and we are rewarding laziness and punishing the productive.

Anonymous RINO July 09, 2013 3:23 PM  

Right, because no government has ever confiscated privately owned assets.

People here and on ZH need to get over the hypothetical gold ban. Even the original executive order wasn't a gold ban .. it was a cap of 5 oz for individuals and no restrictions on industrial use. And that was back when it correlated directly to money. A lot of metal is purchased in cash. I doubt they even know what they have let alone what you have.

Anonymous Orville July 09, 2013 3:23 PM  

The question I have is: What happened circa 1982?

Besides the 401K influx, it was the crash in interest rates too. One or two years before gramps was getting 13-15% interest on CDs. Volker, as mentioned above killed the high interest rate problem, which also started the first leg of the housing boom.

This is one of those times, being old pays off. I can remember stuff you whiny millennials can't :-)

Blogger IM2L844 July 09, 2013 3:23 PM  

Yes. But that explosion came at the expense of and largely replaced the investing of private pension plans. I'm not sure there was a net gain.

Well, I don't know what the total of private pension plans were, but IRAs/401(k)s account for about a 4.5 trillion dollars now, if that helps.

Anonymous Peter Garstig July 09, 2013 3:23 PM  

Actually, I think a gold ban is unlikely. Gold no longer equals money. It's just another commodity.

Bail-ins worry me, though.


You didn't follow the great debate closely, did you?

Anonymous Orville July 09, 2013 3:28 PM  

Granddad had a postal pension, but was living quite nicely off 13% of a few hundred grand in the very early 80's. Conversely, buying a house in 1981 with a 13% mortgage and 20% down sucked. For all you young ones this was before the invention of the McMansion.

Anonymous Orville July 09, 2013 3:30 PM  

Nobody, but the actually wealthy could afford a nice large house back then.

Anonymous Peter Garstig July 09, 2013 3:30 PM  

Even the original executive order wasn't a gold ban .. it was a cap of 5 oz for individuals and no restrictions on industrial use. well, they banned all gold a private person could own that was more than 5 oz. Note, it's rarely a complete ban. Even the prohibition was not a complete ban. There are always exceptions.

The bail in will never be 100%. The gold ban will never be for all your gold. Doesn't change the fact that they prevent you from owning something that is legitimate.

And that was back when it correlated directly to money.

Bach when exactly? So, which money, do you think, has any history comparable to gold? Gold has always been money. Today is no different. Of if you don't like the term money, call it asset, store of wealth, or whatever.

See, you look at the last 100 years, the gold bugs look at 1000, 2000 and more years.

Anonymous Peter Garstig July 09, 2013 3:35 PM  

People are still talking about the gold ban that isn't going to happen?

Up for a bet? There will be restrictions on how much gold you can own in a European and/or American (South or North) country by the end of 2017. 100 dollars? To get a kick out of it, let's make it 2017 100 dollars.

Anonymous bob k. mando July 09, 2013 3:36 PM  

IM2L844 July 09, 2013 3:23 PM
but IRAs/401(k)s account for about a 4.5 trillion dollars now, if that helps.






and the majority of the money is in the stock market.

and the Boomers are transitioning from contributors to withdrawing funds from their accounts.

you see where this is going?

Blogger Nate July 09, 2013 3:39 PM  

"well, they banned all gold a private person could own that was more than 5 oz. Note, it's rarely a complete ban. Even the prohibition was not a complete ban. There are always exceptions."

I would argue it wasn't a ban... it was confiscation.

Anonymous Noah B. July 09, 2013 3:43 PM  

"People here and on ZH need to get over the hypothetical gold ban."

Why? Because it hurts your feelings that people don't trust the government?

Bail-ins are a definite threat too. So is the confiscation of land and virtually any other asset of value. So is the sudden issuance of a new currency virtually overnight, with a limited window to exchange old currency for new and a cap on the amount that can be exchanged. So are reward programs to turn in "hoarders."

There is historical precedent for each of these scenarios, and you're simply myopic if you fail to recognize that they can indeed happen here, and soon.

Anonymous Stilicho July 09, 2013 3:47 PM  

Raw numbers comparison:
Current NYSE margin debt $377 billion, Dow 15K
2008 pre Lehman high $335 billion, Dow 12K
2009 post Lehman low $173 billion, Dow 7K
2000 high $278 billion, Dow 11K
2002 low $130 billion, Dow 7.5K

Anonymous Peter Garstig July 09, 2013 3:50 PM  

I would argue it wasn't a ban... it was confiscation.

And it will be sold as 'everyone has to do its part.' I'm sure some famous wealthy people will lead by example (like Bill Gates giving half his assets). That's how it's going to happen.

It won't be like Obama declaring one day: 'Give me all your gold, you sorry slaves'.

Anonymous Jack Amok July 09, 2013 3:52 PM  

The question I have is: What happened circa 1982?

Boomers began entering management positions, and staffed most front-line (i.e. worker-bee) positions in corporations.

The last of the GI generation were nearing retirement and disengaging from the economy.

The Most Aborted Generation in American History was starting to graduate High School and enter the workforce (and family formation years) in their small numbers.

The first public school students subjected to New Math were out of school and in the work force.

The Endangered Species Act was 9 years old, the Snail Darter case halting construction of a major dam was 4 years old, and in 1982 the ESA was amended to eliminate economic considerations in debating habitat protection.


I know it's fun to debate economic policy, but our problems are not caused by economic policy. It's more like they have been masked by it for the last 30+ years. Our problems have to due with lack of fundamental productivity.

Anonymous Stilicho July 09, 2013 3:55 PM  

If I had to hazard a guess based on that limited data, I would predict that margin debt will run up to about $400 billion, Dow approx. 15.6K before collapsing to $200 billion and 8K respectively if the pattern holds. There is always the chance they could overshoot to the lower side.

Anonymous RINO July 09, 2013 3:55 PM  

Why? Because it hurts your feelings that people don't trust the government?

Even if gold confiscation was attempted it would be a giant shit show.

Like right now, if you pay in cash there's little to no record .. if you buy over $1,000 at a time you avoid sales tax.

Are they going to go around shaking down everyone?

Anonymous Peter Garstig July 09, 2013 3:56 PM  

Our problems have to due with lack of fundamental productivity.

Which is caused by economic policy?

Anonymous Peter Garstig July 09, 2013 3:59 PM  

Are they going to go around shaking down everyone?

Will they get all gold? Of course not. Remember, the US has a ban on hard drugs. Are they shaking down everyone to make sure? No? But what's the effect? Translate to gold.

Your idea of bans, confiscations and legal stealing comes out of comic books and movies. Much better to look at actual history to see how it will come around.

Blogger James Dixon July 09, 2013 4:01 PM  

> ...if that helps.

Hmm. Well, let's see what Google comes up with and see if we can make any sense out the numbers.

OK, first, there's this: In 1980 there were approximately 250,000 qualified defined benefit pension plans covered by the Pension Benefit Guaranty Corporation. By 2005, there are less than 80,000 qualified plans.

So the number of defined benefit plans has dropped by 2/3rd's. We can probably safely assume that difference has been picked up by the 401K/IRA plans, plus some additional for population growth.

Second there's a link to a book, which states:

"One may therefore estimate that as of 1975 the unfunded liabilities of private uninsured pension plans were in the order of one-half of their assets, i.e., about $75 billion"

and

"The pension and retirement funds of state and local governments have large unfunded liabilities which have been estimated for 1975 at about $300 billion,’ or nearly three times the funds‘ assets."

That gives us a figure for 1975 for private and state/local governments of $150B and $100B. I couldn't find a good figure federal plans, but it's probably safe to add at least another $50B, for $300B total.

That doesn't tell us much unless we convert it to a current figure. I can think of two easy ways to do so. One is to simply take the value of stocks then vs. now. The other is to use the commonly accepted 8% return/year figure and approximate it out using the rule of 72. I leave the math to the readers, but I get a value somewhere in the range of $4.5T to $4.8T or so.

That's an amazing coincidence, which I didn't expect. The value of today's IRA/401K funds almost exactly matches the current value of the pension investments in 1975.

Anonymous bob k. mando July 09, 2013 4:05 PM  

RINO July 09, 2013 3:55 PM
.. if you buy over $1,000 at a time you avoid sales tax.





hanh? where is this?

Anonymous RINO July 09, 2013 4:06 PM  

Your idea of bans, confiscations and legal stealing comes out of comic books and movies. Much better to look at actual history to see how it will come around.

Not really. It comes back to those who own gold and aren't total idiots will be able to easily avoid whatever they attempt to do (if it happens at all) and yet they keep disproportionately fretting about it.

They won't be shaking people down .. and it's a long term asset anyways .. so just ignore it.

Blogger Cinco July 09, 2013 4:06 PM  

"...you could take 5 dollar bills and lay them end to end... and stretch all the way to sun... 459.5 times."

"That's silly. They would all catch on fire if you did that."

Yes, but you feeble minded people don't understand. It's about the SPENDING! Imagine all of the astronauts (new jobs) it will take to actually emplace all those individual 5 dollar bills.

Anonymous Noah B. July 09, 2013 4:07 PM  

Just a thought...it would be interesting to look at ratios of margin debt to various money supply metrics (I'm not sure which one would be the most appropriate) at various peaks in stock market indices to see if there appears to be an identifiable upper bound on the amount of margin debt as a fraction of the money supply that an economy can support. This, in turn, might provide a simple technique for estimating the upper limit on stock market indices based only on money supply metrics.

Anonymous Noah B. July 09, 2013 4:08 PM  

"Are they going to go around shaking down everyone?"

Yeah, that's basically what they already do.

Anonymous RINO July 09, 2013 4:10 PM  

hanh? where is this?

My apologies, it apparently depends on where you are:

http://thecoinologist.com/sales-tax-state-by-state-breakdown/

Anonymous Peter Garstig July 09, 2013 4:11 PM  

They won't be shaking people down .. and it's a long term asset anyways .. so just ignore it.

Sure. Just as you do today with your 1000oz of heroin. (well, I see, not exactly long term asset, but you get my drift)

Blogger IM2L844 July 09, 2013 4:11 PM  

That's an amazing coincidence, which I didn't expect.

I can't remember precisely where I got that figure, but I think it was from a white paper at the New York Fed Res site.

Anonymous Jack Amok July 09, 2013 4:12 PM  

Which is caused by economic policy?

Certainly not helped by it, but no, I think our problems arise elsewhere. Not enough people have it in them to do useful work. Too many want to shuffle paper and argue for a living.

Anonymous Noah B. July 09, 2013 4:13 PM  

It really doesn't take much imagination to see how this could happen, RINO. France just had a "one-time" wealth tax -- not an income tax, a wealth tax. The tax itself could be quite small, with massive penalties for noncompliance and large rewards for those turning in people hoarding cash or other valuables.

Government is really only good at one thing, and that's stealing from the productive. There's no reason to think they won't resort to even more theft as they grow more and more desperate.

Anonymous Molon Rouge July 09, 2013 4:13 PM  

*In other words, Vox, you're telling us to get out of the markets.*

So,pray tell, where does a good saver place her hard-earned retirement nest egg?

Gold, silver or perhaps farmland?

I hope not under the mattress as it is already lumpy.

Blogger James Dixon July 09, 2013 4:19 PM  

> So,pray tell, where does a good saver place her hard-earned retirement nest egg? ... Gold, silver or perhaps farmland?

There is no safety in this world. Diversify, diversify, diversify. In both assets and physical locations if you can. Not for the first time, allow me to recommend "Fail Safe Investing" by Harry Browne. It's not perfect, but it's a good primer.

Anonymous RINO July 09, 2013 4:20 PM  

large rewards for those turning in people hoarding cash or other valuables.

The average American is basically an idiot in these matters. Go around and ask people the silver content of various coins or what year our mint stopped using silver in common coins. Would they even know what they're seeing if you showed them something?

And the ones that do know are likely similar to you in mindset anyways, and therefore not likely to turn you in.

Anonymous Peter Garstig July 09, 2013 4:23 PM  

The average American is basically an idiot in these matters.

Most learn very fast if it gets them food.

An intellect lying around unused for decades doesn't mean it's dead. It can be used anytime it's really needed.

Anonymous Noah B. July 09, 2013 4:26 PM  

"Go around and ask people the silver content of various coins or what year our mint stopped using silver in common coins."

There's this place called the internet where people can learn interesting facts like this in a matter of seconds or minutes. We're not talking about rocket science here.

Anonymous Noah B. July 09, 2013 4:28 PM  

And if government SWAT teams raid the wrong houses, who cares? It won't matter if the informant who tipped them off didn't know the difference between a coin collection and a stamp collection.

Anonymous bob k. mando July 09, 2013 4:31 PM  

i would say 'arable land' rather than farmland. 'farmland' requires LOTS of fertilizer and equipment to stay productive. also take a look at that youtube video i linked a while back about dense packed herds of grazing animals being necessary to keep prairie from desertifying.

if the S truly HTF, access to things like fuel oils / gas / electricity, etc are going to collapse.

one thing i've pointed out to my friends here in the lesser Great White North ( Great Lakes States ) is that everyone is going to have a hell of a time trying to heat in the winter. very, very few houses here have provisioning for wood stoves or fireplaces.

how do you think that stick built house designed for central HVAC is going to work if you have to try and heat it with a split log fire?

yeah, good luck with that.

and that's assuming you make it to winter after the first world food supply chain collapses.

Anonymous Noah B. July 09, 2013 4:34 PM  

That said, land confiscations are probably a much bigger threat. They are historically more common and have happened here much more recently -- in fact, they happen so often that the vast majority of people accept them with little or no protest. Many people may even feel a great deal of personal shame at being unable to pay their taxes and interests. It doesn't occur to most of them that the entire game was rigged from the start.

Anonymous Copperhead Joe July 09, 2013 4:34 PM  

Will Best
"Your credit card company could give @#$#@ all if you carry a balance. They charge transaction fees from 2.5-5.5%, on a person that pays everything off at the end of the month they are still making 25-30% APR. Think about it this way, say you charge $1,000 and pay it off every month. How much money does the credit card company risk? Answer, $1,000. But they collect $420 in fees about 120-150 of which they kick back to you for a net of $270 on their $1,000 investment or 27% ROI
Now lets say somebody caps the card say $12,000 and then pays the min balance. Its the same net $270 in transaction fees, and they will collect another $2,640 in interest on say a 22% APR. But they are risking 12 times the amount of money so their ROI drops from 27% to 24.35%. Whats more in example one they actually had their capital returned where as in example two their capital is still at risk."

If you are going to calculate ROI with such precision, don't leave out the administrative cost of tracking all those transactions and paying all those vendors. That eats into the profit on the transaction fees. Also keep in mind that I've had 2 situations where someone obtained the credit card number somehow and made bogus charges. They ate those costs also - I just had to sign a statement that I didn't make the charges. So deduct all of that stuff from their profit margin on the revolving $1000 per month (I acknowledge that the last cost would apply in either example). There is also a soft limit (what cardholders can spend month after month) on what you demonstrate as the highly profitable portion of the business (the transaction fees), so comparing the profit margin on the interest part of the scheme to the profit margin on the transaction fee part isn't quite fair. In other words, the demand isn't there to automatically take the $11,000 I didn't rack up and invest it in fee producing transactions that are paid in full every month. Also, and I admit ignorance on this, but isn't there some consolation to the lender when people default, like a deduction from the corporation's taxable income? (Meaning that they are not really risking all of the $12,000).
Don't forget over the limit fees and late fees, which they would never get if people paid in full every month.
Your example is enlightening, but I am not convinced that they couldn't give a @#$#@ all if I carry a balance. Further evidenced by the consistent increases in my credit limit.

Anonymous Jake July 09, 2013 4:44 PM  

The average American is basically an idiot in these matters. Go around and ask people the silver content of various coins or what year our mint stopped using silver in common coins. Would they even know what they're seeing if you showed them something?

And the ones that do know are likely similar to you in mindset anyways, and therefore not likely to turn you in.


This is true, right up to the point where a PR campaign kicks in with prominent people appearing on the nightly news and talk shows, and your local friendly DARE officer going to your kid's school to explain how there's new money and old money and that the it's really important all the old money is returned to it's proper owner (the gov. of course) if the new money is to succeed in returning us to prosperity. "It's your civic duty to be on the look out! Don't let the stingy bad people succeed in ruining the future for us all!

...Plus you can get up to 10% value of any fines, confiscations, etc. resulting from informing."

None of this is even unprecedented here in the US, the tools just haven't been applied to this task.

Anonymous patrick kelly July 09, 2013 4:48 PM  

Sounds like the meme patrol wants to discourage PM collecting so they don't have to work so hard confiscating stealing it later.

Anonymous Jake July 09, 2013 4:56 PM  

Also keep in mind that I've had 2 situations where someone obtained the credit card number somehow and made bogus charges. They ate those costs also - I just had to sign a statement that I didn't make the charges.

Just FYI, your CC provider didn't eat those costs. The Merchant who sold the goods did.

Basically everyone pays more for everything they buy to subsidize the costs to the merchant associated with accepting credit cards. If you use a CC, they'll give you back some portion of that.

Anonymous patrick kelly July 09, 2013 4:56 PM  

What strike through tag do the commenting gremlins like here? I couldn't get s, strike, or del to work, even tried to wrap it in a span with a text decoration, no go, then accidentally hit publish after typing b just to see if that worked in the preview.

Anonymous patrick kelly July 09, 2013 5:02 PM  

"None of this is even unprecedented here in the US, the tools just haven't been applied to this task."

This is true of money in the bank/mattress, 401k, IRA, stoks, bonds, guns, ammo, land, whiskey, cigars, your garden, your nutz............... nothing special about gold or silver coins in this respect.

Anonymous JartStar July 09, 2013 5:07 PM  

Gold, silver or perhaps farmland?

Diversification. There's no other defense and it is an imperfect defense to say the least.

The problem with buying a lot of PMs is timing and they generate no income.

Blogger mina smith July 09, 2013 6:03 PM  

good analysis.

be prepping, that's all I can say.

Blogger Phoenician July 09, 2013 6:05 PM  

But looking at it from a simplified Micro-econ perspective makes it all quite easy to understand.

Using credit cards to pay all your household bills will work for awhile...but eventually the minimum monthly payments required to service your debt supercede your monthly income.

Bankruptcy becomes inevitable.

It really is no different on the Macro-econ scale.


No, it isn't.

For one thing, your analogy misses that most debt is owed within an economy - one entity's debt is another entity's asset. Try to imagine whether your analogy works if you yourself own the credit card company you're paying your household bill to...

This mistaken analogy is common among dipshits - http://www.salon.com/2013/03/14/government_budgets_are_not_like_family_budgets_partner/

Anonymous allyn71 July 09, 2013 6:24 PM  

What happens to the economy when one entities debt asset is defaulted on by the other entities non-payment of the debt?



Keen's charts show that if the slight correction of 1929-1933 caused the type of market disruption and dislocation historically associated with it when the debt to S&P ratio was only elevated to 3:1, it is gonna be a rough road when our current 10:1 debt to S&P ratio reverts back to the historic 1:1 ratio.

Anonymous Supernaut July 09, 2013 6:24 PM  

For one thing, your analogy misses that most debt is owed within an economy - one entity's debt is another entity's asset. Try to imagine whether your analogy works if you yourself own the credit card company you're paying your household bill to...

Try to imagine your analogy is not just wrong, but it's also ignorant of how the Federal Reserve System operates when it "prints" money.

All our debt is financed by the Federal Reserve "printing" dollars by "currency market operations." i.e. - they sell t-bills and other "instruments" on the international currency market. T-bills for which we the people must pay interest on aka "service the debt."

So no, dipshit (quoting Keynesian-hack articles from Salon.com? are you fucking kidding me? lolzozlozl), the debt-based monetary system does not resemble in any way, shape or form, your dumbass analogy "...you yourself own the credit card company you're paying your household bill to."

Anonymous bob k. mando July 09, 2013 6:26 PM  

yo, Phuckwit Phoenician is back.

didn't you learn anything after getting schooled on the fact that the SFWA is based in Massachusetts and operates under Massachusetts bylaws and case law?



Phoenician July 09, 2013 6:05 PM
For one thing, your analogy misses that most debt is owed within an economy



yerp, yerp.

except for all them there T-bills held ex-US of course. like the ones we owe to the Chinese.

Anonymous allyn71 July 09, 2013 6:38 PM  

What happens to that self-contained "economy" when the ChiComs don't get paid because they can't be paid?

Remind me again how debt doesn't matter?

I guess we could take Greenspan's road where debt doesn't matter because we can always print whatever we need to pay the bills. Of course all those Chinese and Russian trade deals that are setting up the mechanism to ditch the dollar from world reserve currency status might express their feelings about that route.

Blogger James Dixon July 09, 2013 6:50 PM  

So Phoenician is expounding on economics now. With the same accuracy as the rest of his pronouncements I see.

Anonymous Bgil July 09, 2013 7:51 PM  

About the whole "One person's debt being another person's asset" -- It would appear this works so long as the original borrower is capable of paying off his debts. If he can't, then no one one else can.

Anonymous FUBAR Nation Ben July 09, 2013 8:21 PM  

Vox you're early, just like Prechter and Harry Dent. The dollar is going to rise substantially as well as the stock market due to capital flight.

2015 seems likely to be the blowoff top for stocks.

Blogger James Dixon July 09, 2013 8:35 PM  

> 2015 seems likely to be the blowoff top for stocks.

Possibly. What's that old saw? Google to the rescue: "The market can remain irrational longer than you can remain solvent."

Blogger Phoenician July 09, 2013 8:52 PM  

except for all them there T-bills held ex-US of course. like the ones we owe to the Chinese.

Uh-huh - less than 8% owed to the Chinese.

What a bunch of dipshits

Anonymous Porky July 09, 2013 8:57 PM  

Debt is good! Soros puppet Robert Reich says so!

Thanks, Phoenician! I needed a laugh.

Anonymous Harsh July 09, 2013 10:00 PM  

Uh-huh - less than 8% owed to the Chinese.

What a bunch of dipshits


Phoenician is pretending to know something about economics. Too funny.

You fucking faggot.

Anonymous Anonymous July 09, 2013 10:15 PM  


Will BestJuly 09, 2013 3:09 PM
Your credit card company could give @#$#@ all if you carry a balance. They charge transaction fees... they are still making 25-30% APR. Think about it this way... Answer.. they collect ... a net of...27% ROI... they will collect another $2,640 in interest on say a 22% APR. But they are risking... so their ROI drops from 27% to 24.35%.

Uh, Will Best, I know I'm goimg out on a limb, but do you own a retail business?

- Azimus

Blogger Laguna Beach Fogey July 09, 2013 10:55 PM  

The biggest bubble is America ,itself.

Anonymous bob k. mando July 09, 2013 11:41 PM  

Phoenician July 09, 2013 8:52 PM
Uh-huh - less than 8% owed to the Chinese.




because China is the only foreign government we sell bonds too.

durrr hurrrr.

also because nobody else on the planet has purchased any of our other debt like, gee i dunno, mortgage backed securities and cds's and all the rest of the derivative based derivative based derivative based mortgage based ponzi scheme.

duh dee duh dee.

and we're not even getting into the fact that you're a phucking tard because you think you can wave a magic wand and pretend that pure domestic debt doesn't have any deleterious effects.


here's some commentary on the EU situation, where economies mutually owe each other 10s of billions of dollars ( to each major economy ):
http://www.youtube.com/watch?v=vnuAh3esdpE

of course, you will utterly fail to comprehend that mutual lending societies such as this in a fractional reserve banking system means that the banks and governments are conspiring to grossly inflate ( devalue ) their respective monetary systems and currencies ...

Anonymous David of One July 10, 2013 12:16 AM  

Incredible. You shift your gaze for just a moment ... again Dodd & Frank!

http://freebeacon.com/experts-say-dodd-frank-may-violate-fifth-amendment/

This crap existed in part with the Resolution Trust Corporation (RTC) back in the late 1980s during/after the "S&L Crisis".

http://wiki.mises.org/wiki/Savings_and_loan_crisis

http://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=2929&context=flr

This is all going to happen yet again, only much worse.

Then recently we have the "Home Loan Crisis". Before the "crisis" Barney Frank and Maxine Waters were at the heart of impeding any regulatory reporting & potential action. At that time the federal regulators testifying to serious problems were themselves accused by Waters/Frank as being the problem, not Freddie Mac and Fannie Mae.

Videos still exist demonstrating their complete complicity in preventing regulatory action.

In 2004: http://www.youtube.com/watch?v=UIjoW_IXos4

same stupid shit with the same names again and again and again ...

http://hotair.com/archives/2008/09/29/video-democrats-insist-nothing-wrong-at-fannie-mae-freddie-mac-in-2004/

http://directorblue.blogspot.com/2008/09/testimony-that-will-have-you-pulling.html

From the "New Deal" right up through 1977 with the Community Reinvestment Act this crap is coming due ... the economic destruction of the US.

http://en.wikipedia.org/wiki/Community_Reinvestment_Act

For so many years the same freaks keep at it .. Dodd, Frank, Waters, Schumer and others.

Even to this very day, July 9th 2013, they don't & won't stop.

This is more than just about the "poor". Much more.

How could this be anything else other than setting up the means to destroy millions of Americans and their families?

This is the means to confiscate financial resources and savings of individual Americans on a far larger scale than the RTC during the "S&L Crisis".

Why else modify existing law unless the intent is to confiscate assets with only 24 hours notice?

It has been a while since Vox published information and data regarding bank closures and the FDIC.

Anonymous sprach von Teufelhunden July 10, 2013 5:01 AM  

What happened in 1982?

Main Core

Followed by REX84..

Is that relevant to today?

Your kidding, right?

Anonymous DonReynolds July 10, 2013 10:18 AM  

It is much easier to create a welfare state in a country where there is plenty than in a place where there is little. Only a wealthy society can afford a welfare state, or at least, a society that thinks of itself as wealthy. Passing out funny money does not make us more wealthy, particularly when that money is borrowed from the same foreign nations that create the trade deficit. Even in Ricardian terms, the outsourcing of American manufacturing should have left the country poorer, but with the paperhangers at the Fed have managed to conceal this fact for decades with bulk printing. Food stamps, Obamaphones, and free birth control has silenced those most directly impacted by the economic insanity. But as Milton Friedman pointed out many years ago, no nation can have open borders AND a welfare state. Mass immigration is ruining it for everyone else....and when I say everyone else.....I am not just talking about the welfare recipients.

Anonymous John Regan July 10, 2013 11:23 AM  

VD, you might be claiming too much here. It's not so much that the data demonstrate a stagnant economy; they seem to demonstrate that the DJIA level is completely artificial and has nothing to do with real economic activity.

Other than the fact that huge amounts of borrowed "money" are being used to goose it, that is.

There is some truth, I think, to the idea that the US is nowhere near as genuinely productive as some data can make it seem, but that doesn't mean the country can be fairly characterized as unproductive.

I think it's remarkable how relatively prosperous the country is when you consider that all the major economic pillars - the stock market, the monetary system, and so on - are frauds and ponzi schemes that dramatically skew rewards toward the government and financial sectors.

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