You believe the same Fed that gave bankers billions of dollars and is actively working against congress to be audited, is going to 'decrease the money supply', ignore our huge debt and save us all?
You are drinking alot of government kool-aid. Keep watching CNBC.
You assume US can just slam on the brakes and the brakes would stop the car completely. When in fact, with the massive amount of baby boomers retiring/draining SS and medicare, the disappearance of our manufacturing sectors, the increasing commodity (food, oil) prices, and the need to pay back 100T+ debt owed to foreign countries and to ourselves, I suggest that it is impossible.
"massive amount of baby boomers retiring/draining SS and medicare"
This is deflationary, at least in asset markets. Retiring baby boomers = pulling their money out of the stock market = falling stock prices.
"the disappearance of our manufacturing sectors"
Deflationary in consumer markets, inflation in asset markets, at least to the extent that it results in job losses and concentration of wealth among a professional/capitalist class. Wealthy people tend to spend a lower fraction of their income.
"the increasing commodity (food, oil) prices,"
This is an effect, not a cause. Saying that higher prices cause inflation (while somewhat true...see wage/price spiral) is circular reasoning.
"the need to pay back 100T+ debt owed to foreign countries and to ourselves"
Deflationary. Debt increases the money supply; paying back that debt reduces it. This is a large part of why the Fed's actions haven't triggered inflation: they're compensating for destruction of money as homeowners default in droves.
I was talking more about the economy with my list.
As far as deflation is concerned, there's deflation in things we want (houses, cars, luxury items), and inflation in things we need (food, oil, gas, utilities).
That's a pretty link, but one that suffers badly from a lack of sourcing or context. The 'about' page says 'all debt clocks are updated constantly to the most precise calculations using complex formulas and exacting standards, and are verified from multiple sources.'
A pity that these exacting standards do not apply to the grammar on that page, which is a poor indicator for the quality of the (secret) formulas. As for the multiple sources, this may be true, but I am skeptical of a website with no names attached and registered in secret through domainsbyproxy.com, a GoDaddy spinoff which seems to provide registration services for a disproportionate number of GOP-friendly websites.
Not, mind you, that alarmist number vomit is the sole preserve of the GOP. One could find plenty of Democrats willing to scream with equal horror about the idea of $644 trillion in outstanding derivatives, without pausing to consider the global scope, long temporal horizon, or purely notional value of such a figure.
I'm sorry to be a pompous prick in response to what is probably a sincere desire to highlight issues you believe to be important. But I think to discuss them most effectively, you need to hone your arguments and your sources. I know it's hard to strike a balance between the dramatic statistic which highlights the urgency of an issue and the demands of accuracy, which can obscure that urgency with a mass of contextual and qualifying data.
You're not being a pompous prick at all; in fact, your arguments are thorough and to the point. And I do admit I am using dramatic statistics, but it is because I am trying to present evidence to an audience unfamiliar to the area of topic.
And the statistics are dramatic ....well...because they are. That's how bad things are.
I think an old saying really applies here. If you owe the rest of the world $1 million, it's your problem. If you owe the rest of the world $100 trillion, it's their problem.
Derivatives, overall, are a zero-sum game. Unless by some miracle of improbability all the liabilities fall on the US side, there is no way it's going to add up to 200T, unless US companies have been incredibly foolish - and I think the foolishness has been reasonably evenly spread around.
Oh, come now. What you say is correct and this is a big problem for the US, even more so for Europe, but that's a fiscal matter, not a monetary one. Indeed, if your hyperinflation scenario were to come true, one of the silver linings would be that we'd inflate away much of our external debt.
But really, we both know the Fed is tinkering with monetary policy in response to the recent financial crisis, not in response to the upcoming demographic one. Unless you want to go all tinfoil hat and say they provoked the former in order to deal with the latter by stealth :)
I feel you're shifting the goalposts a little with this post, although it is an interesting issue in its own right.
The US Savings Rate briefly fell into negative territory in Q2/Q3 of 2005. It has been positive in all other quarters. In 2008 it was well above 2%. People quote the low US savings rate like it's a doomsday scenario but in reality, it's a rational decision when your interest rates have been below 5% for a decade or more. Saving money when you make 1% on it is actually losing money due to inflation.
Why the Germans save as much as they do with such a low interest rate is a topic for another discussion.
hyperinflation has to do with a loss of faith in the currency. Foreign debt holders know that this America empire is sailing into sunset, and has no way to pay its trillions of dollars back. They'll all dump it one night, causing the dollar to drop 30-40%
Even if this happened (which I very much doubt it will because Japan, China etc. don't want to write off 40% of their holdings or get into a vicious economic war with the US), that's a long way from hyperinflation and general fiscal Armageddon.
US business would love the dollar to fall by 30%, our exports would soar and those companies that depend heavily on manufacturing in China could probably use other hard currency like the Euro. It would crimp our military operations overseas, but when you get down to it a lot of countries still want to be under the American nuclear umbrella and we paid for the nukes a long time ago.
True....to a degree. Our agriculture exports would soar. But alot of other things we produce are complex/advanced products, which depends on cheap parts/oil from....other countries.
As for the military, well, China will pick a good time to crash the dollar (when they've liquidated most of their dollar reserves). Then they'll be able to bring US to its knees without firing a single bullet. Why shouldn't they? it's their turn to be the empire.
China's is an command, export-based economy. Eviscerating its trading partners wouldn't be wise: high-interest rates and weak dollars in the US hurt the Chinese economy--like it or not, our fortunes are intertwined.
Empires are founded on more than just manufacturing capacity. Lacking a dynamic, principled base for its society, when the Chinese economy collapses it will not recover. The Chinese bubble will burst: http://www.foreignpolicy.com/articles/2009/07/23/the_china_b...
Upshot: don't finance your customers, or China 2009 == Lucent 1999
this America empire is sailing into sunset, and has no way to pay its trillions of dollars back.
The US will be able to pay the trillions of dollars back. How? Just printing more dollars and using them to pay. The problem for the investors is that those dollars might not be worth it too much.
But this will be in many years. Right now US creditors don't want to dump the dollar because it would decrease the value of what they hold.
Regarding the currency crash, actually you just need one country (i.e Russia) or a hedge fund dumping a large amount of dollars, forcing others to dump theirs as well in a speedy fashion (kinda like everybody rushing toward the fire exit when someone triggered an alarm)
I didn't feel like working so that my neighbor can walk away from their mortgage and my relatives can walk away from their credit card debt. So I don't anymore.
I didn't come here to see mindless talking points parroted back at me.
If you want to actually talk about the complexities of debt and the problems on all sides of the issue, by all means do so. If you want to shout slogans, please go somewhere else.
People are walking away from debt obligations.
- mortgages (12% of all mortgage, 50% subprime, 50% options)
- credit cards (13% default)
- personal bankruptcies (up 28% in second quarter)
federal/states/local governments are walking away from debt obligation
- pension reduction
- massive printing of dollar, $250B treasury selling this week
Companies are walking away from debt obligation
- commercial mortgages delinquency up 586% this half
- pension discharged by bankruptcy
Guess who's paying for this. That's right; the taxpayers.
So. Are you the sucker that's gonna keep on paying taxes?
All these you can google yourself (too many links to list here) I didn't come here to list all the bad things, since I doubt you even comprehend 1% of the atrocities. Therefore, I kept it simple for you.
If society decides to declare a general "jubilee" year, and cancel all debts, and you decide to pay off yours, it is true that you are at a disadvantage.
If society decides in general to massively devalue the currency to help irresponsible borrowers, that will punish responsible savers.
However, these do not imply "not working". That can imply not valuing currency as much, so you consider your salary less, or defaulting on your own debts even though it is distasteful to you, or all sorts of things, but it is unlikely to work out well for you if you are on strike while the prolifigrate borrowers are not.
If you want to go on strike, you will have much more effect by going on a spending strike rather than a working strike. I have been considering getting a bumber sticker for my rusty 1988 VW that says "I am going to keep fixing and driving this POS until the bailout money is paid back".
While I will agree there a tons of irresponsible borrowers but I wish people would give some anger over the irresponsible lenders that helped create this mess.
There were far too many companies willing to throw as much credit around as it was more profitable to lend more than people could handle.
It was getting to the point that all you needed to get $10,000 of credit cards was a pulse... and even then that wasn't needed.
Rather than refusing to work, doesn't it make much more sense to refuse to use credit cards and refuse to buy a house on credit (as much as possible anyway) ?
After all, the credit card rates you pay reflect their defaults. So just use cash or a debit card or other means until the credit card industry quits giving cards to those people. Your mortgage rate and "mortgage insurance" and other fees reflect the defaults of sub-prime mortgages and other unwise decisions; rent until you can buy a cheap house on a 15 year fixed rate mortgage, or perhaps you have enough savings to buy a house at foreclosure auctions.
Of course, if you are frustrated because you are paying interest on a lot of credit card debt and have a high house payment for a bigger house than you need, perhaps you are more part of the problem than you think. Perhaps by holding on you are just becoming the last level of a pyramid scheme.
Front running is illegal and is regulated (Rule 92 - also called the "Manning" rule I believe). This should not be keeping average investors away from the markets today.
To refute your second point, there are probably more firms trading today then there ever were before. It's really an economy of scales issues. The large firms have the capital and the resources to: lease fiber lines, buy servers, and hire analysts/developers to build the systems required to be an efficient player in the market players. Many smaller firms simply employ the services offered by these institutions.
To reply to a previous point, the article is very biased and tells a small part of the story. Most of the noise in the media and in blogs today about HFT is very one-sided. The fact is that these HF proprietary trading systems which trade on behalf of the big wall st firms are competing against similar systems offered as "algorithms" to the Institutional investors. To use an example, a mutual fund manager will try to buy 100,000 shares of IBM. That fund manager will go to an investment bank and route his order through a VWAP Algorithm. That Algorithm may be competing in the market against the same investment bank's HFT Black Box trading app. These two "Algos" don't know about each other due to "Chinese Wall" restrictions. I digress.
Bottom line is that these systems which are "gaming" the market are competing against similar systems which aim to prevent such practices. The playing field is much more level than the author leads his audience to believe.
Rule 92 is NYSE, Manning is FINRA, and both --- if I understand them correctly --- apply mostly to traders trading for themselves against their customers interests. (NB: this is just Google research).
The average investor accesses the equity market through mutual funds, which are large institutional investors that can compete with high frequency traders. If stuff like this keeps my uncle-in-law out of daytrading, I see that as a feature, not a bug.
There are markets where the entire order book is transparent, and the bulk of investment dollars don't even go to equities. Hard to see this as the end of the world.
Every single asset class experiences some firm using some software to effect some strategy. Moving into bond funds wouldn't eliminate exposure to Wall Street's technology.
The average investor is not going to leave the market. I spent time as a retail broker, and the truth is most have no idea what they were doing to begin with. I don't think this is going to persuade them to stop.
Their 401ks, IRAs and the like only work as tax shelters if they invest and (for the most part) they don't even have a choice of which firm they work with.
So long as the firms don't skim more than the tax benefit is worth to the average investor, it's still in the investor's best interest to keep contributing.
Those investors (no idea what they were doing to begin with) already got spooked by the 60% drop and pulled out of 401k/into bonds. I mean the average investors who have some knowledge of the market, and have decent capital (20k-200k) but is just trading normally using online trading services.
Trust me, they don't leave. There's something about the markets that make people think that they can compete against a firm with a multi-billion dollar IT department, a slew of economists, and direct access to the exchanges. I'm not denying that the game is in favor of Wall Street firms. I'm simply saying that this will not cause retail investors to exit the market.
You are drinking alot of government kool-aid. Keep watching CNBC.