The Black Swan

[anotherT34C]

The treasury dept prints the money. The federal reserve manages monetaty policy, is part public, part private, and operates independently from the government, though with oversight. The FR is also the lender of last resort, and is meant to guarantee banks when runs happen. Investment banks were not guaranteed banks, though I think they now are (they had to change their status to accept government help).

[AllezCat]

I use the word "print" very loosely - the FED determines how much money is in circulation - the mint and bureau of engraving actually create the physical money..
Most of this underhanded "printing" of money - does not actually result in any extra federal reserve notes. But does result in inflation..and, perhaps, much worse...

[speakeasy]

btw, for those reading who haven't run across it, the definition of:

The Black Swan Theory or Theory of Black Swan Events is a metaphor that encapsulates the concept that The event is a surprise (to the observer) and has a major impact. After the fact, the event is rationalized by hindsight.
The theory was developed by Nassim Nicholas Taleb to explain:

1. The disproportionate role of high-impact, hard to predict, and rare events that are beyond the realm of normal expectations in history, science, finance and technology
2. The non-computability of the probability of the consequential rare events using scientific methods (owing to the very nature of small probabilities)
3. The psychological biases that make people individually and collectively blind to uncertainty and unaware of the massive role of the rare event in historical affairs

[speakeasy]

I find the inflation vs deflation debate interesting and maybe the crux of the matter. The FED has created trillions in the last decade, especially the last few years, and yet there is no inflation judging by the yield on US treasuries, the “safest investment in the world”, it is said. Clearly some things are inflating in price, like food, energy, industrial and precious metals, etc., and some things are deflating in price, like housing, wages, paper assets and paper money. At the cost of impoverishing our savers, retirees on fixed income, small business people and workers with stagnant or falling wages it should be noted.


And too, the money the FED and Treasury are pushing out the door, isn't going to any productive enterprise, but only going to guarantee the TBTF money lenders cum speculators that are the big banks and insurance companies. The banks, holding the worthless paper debts they created themselves, and beginning to choke under “put back” agreements in contracts for some of the larger bank clients (who bought these tranches of quasi-junk debt MBSs with stipulation they could put it back to the banks under certain conditions of degradation of collateral), may end up having to eat their own poison fruit. As I understand it, the FASB mark-to-fantasy accounting rules change, that castrated the newly enacted “market-to-market” laws, has so far enabled the banks to hide the fact that they were insolvent as early as 2007, when the fraudulent mortgages began to default, their liabilities being hidden in off-balance sheet Frankensteinian creations (while their assets are often hidden off-shore to avoid taxation).


It seems to me, the FED's creating money, by adding zeros to certain computer accounts, has been, among many things, perhaps the deciding cause of the famine ongoing, particulary in Africa, and perhaps even the uprisings being termed the Arab Spring in N. Africa and the Middle East. People do reach a point of not being able to keep on keeping on, and if they have expectations of anything better, they revolt, and if not, they die in droves as in Somalia. Money is global now and flows freely wherever those with it think they can get the best return, flowing back out of those investments with electronic speed should their confidence in them wane or a prettier target emerge. It seems to be one big casino for the top 1% with the rest of us trying to dodge the squalls.


Black swans have been seen all over the place in recent years, far more numerous than statistics would endorse, and many seem able to see them coming, except for those blinded by their handfuls of money and the levers of power, and perhaps the view from their high terraces, where the world down below looks like ants scurrying about. It appears that Bernanke and whoever has his ear intend to keep pushing electronic money into the crumbling financial structures around the globe until the cost of debt, i.e. the price of bonds makes it impossible. Status Quo Uber Alles! Btw, for those who haven't taken economics, money is debt and debt is money. There is surprisingly little paper money given the total notional value of debt and transactions done daily in all spheres. Creating debt, creates money. Debt is what is in crisis. The collateral for it, where there is any these days, is deflating. Since there is nothing tangible backing money these days, confidence is the coin of the realm. I do believe Confidence is a deflating asset. A lee shore in a gale for sure.

[Extemporaneous]

Question?
If (at this point) it is the Treasury that is buying most (my understanding) of the Bonds and this is debt, can't they just forgive (this portion) themselves?
The TRUTH About Who Really Owns All Of America's Debt
Or would it be that "the Fed" would want it's money because It's not actually Government but at least in part the Banks?

Incestuous?

Extemp.

[AllezCat]

Originally Posted by speakeasy

As I understand it, the FASB mark-to-fantasy accounting rules change, that castrated the newly enacted “market-to-market” laws, has so far enabled the banks to hide the fact that they were insolvent as early as 2007, when the fraudulent mortgages began to default, their liabilities being hidden in off-balance sheet Frankensteinian creations (while their assets are often hidden off-shore to avoid taxation).

.

You really know your stuff.
Are the banks permitted to continue with this present mark-to-market charade?
i.e valuing the bonds at face...

[anotherT34C]

Debt the government holds, and pays interest to itself on, will never be paid back. It essentially has an interest rate of zero, and seems to be a squirrely way to print money without causing inflation. The lack of inflation depends on us collectively believing the fib that the debt will be paid back. Silly us, but it seems to work.

US debt that foreign entites hold are largely due to trade imbalances. Note the near trillion in US debt dollars Japan holds, while simultaneously having a debt of 200% of GDP itself (and a AA credit rating to boot).

The 'debt is money' argument is an important one, I think. In that context we should be aware that any change in the securities to lending ratio we allow banks, is also giving them license to print money, especially with the implicit (or is it now explicit) promise of bail out if things go bad.

I don't pretend to know what's really happening, nor do I pretend to have a solution. Mark Twain once famously wrote "for every problem there is a simple, obvious solution... And it's always wrong".

[VirtualVagabond]

Originally Posted by speakeasy

btw, for those reading who haven't run across it, the definition of:

Thanks. I hadn't heard the term before, so I'd guess I'm not the only one.

We get a lot of real black swans here in Aus. Magnificent birds. Hopefully the real ones will be enough for us... but I suspect the kind you refer to are global migrators

And thanks for your insights. You write well and with clarity... a rare talent these days.

On economics, I seem to remember hearing that an economist is someone who knows a lot about finance, but doesn't have enough personality to be an accountant!

[stillbuilding]

Originally Posted by VirtualVagabond

We get a lot of real black swans here in Aus. Magnificent birds. Hopefully the real ones will be enough for us... but I suspect the kind you refer to are global migrators

Up until Europeans discovered the Antipodes it was regarded as an incontrovertible truth that ALL swans were white. So your Australian black swans were precisely the stimulus for Taleb's book title.

[Extemporaneous]

I came across this last night and watched it.
If you can look past the underlying self advertising it is very informative. It is not the best production, but it explains (in simplistic terms) many aspects of our money system in a somewhat understandable way. Good for folks like me that are trying to understand some of the underlying issues/causes of our current economic situation.
I haven't come across ANYTHING that has cared to even try to explain this to the working dog.

I found it fascinating, pathetic, scary and very informative even if you ignore (if you like) the gold, gold, gold message. In terms of the Gold message, folks will have to decide individually how much salt to take with the message.

I wish I had more to do with this guy (but I don't).

Good Luck to us all,
Extemp.

Debt Collapse - $20,000 Gold - Mike Maloney (FULL PRESENTATION) - YouTube

[Extemporaneous]

Alternative to the Comex! Spot price allocated gold!
Pan Asian Metals Exchange - Google Search
Anyone else see this as a serious catalyst maybe even the introduction of the next world currency?

Extemp.

[anotherT34C]

(re: Mike Maloney) well... I recall a bunch of folks at the height of the housing bubble, usually folks pushing real estate, making similar arguments about how houses are actually undervalued, and you should buy, buy, buy.

Gold at $20K an ounce? Sounds a bit silly to me.

[Extemporaneous]

Originally Posted by anotherT34C

(re: Mike Maloney) well... I recall a bunch of folks at the height of the housing bubble, usually folks pushing real estate, making similar arguments about how houses are actually undervalued, and you should buy, buy, buy.

Gold at $20K an ounce? Sounds a bit silly to me.

So..... Did you get past "Mike Maloney" when you were reading my post or did you stop there and then post your comments?

Extemp.

[anotherT34C]

No, I just try not to talk, when I have nothing to say.

No slight intended.

[ImaginaryNumber]

Well, the world's economy hasn't fallen completely apart since this thread was first started in 2008 by TaoJones, but we're still in a world of hurt. I'd be curious how TaoJones and the rest of this thread's commentators judge our current economic situation to be? Is Europe going to pull itself back from the brink, or fall apart and take the rest of the world with it? Can the Democrats and the Republicans hammer out the painful compromises needed to get the US budget under control? How soon until recovery...or Armageddon?