"I hold this truth to be self-evident, that a debt crisis cannot be resolved with more debt"
This, dear reader, has been Sudden Debt's masthead for 12+ years, and it served well ever since I started writing in late 2006. I am changing it as of today.
Why? Because I want it to be more in tune with what is happening now and, maybe, in the future.
We all know that the global debt bubble burst spectacularly in 2007-08, that governments and central banks intervened with enormous cash injections, and that economies, mostly and eventually, avoided disaster. (Some didn't: Greece collapsed 10 years ago and is still trying to recover.) The Debt Crisis is yesterday's news, even if its pernicious effects are still with us.
Today, we live in the Brave New Monetary World where zero and negative interest rates are the norm, where central banks engage in quantitative easing operations lasting decades and amounting to trillions. Where serious, real money investors do not so much choose to assume risk as forced to. For example, if you run a huge public pension fund are you to buy a 10 year AAA government bond and thus guarantee losses? Or, even worse, if you run a bank, do you take deposits and make loans at such thin spreads that you are guaranteed to lose money after expenses and write offs?.
(I note with interest - pun intended - the exception of Norway: they just raised interest rates, again! Are them Vikings nuts? Or is it that they own the largest sovereign wealth fund in the world, valued at $1.1 trillion and aren't willing to throw money away?)
In today's brave new world Time Value Of Money, the bedrock of financial sanity, is out the window. It's as if the arrow of time is running backwards, the Second Law of Thermodynamics involving Entropy (aka there's no such thing as a free lunch) is inoperable, that Perpetual Motion machines actually exist. If negative rates were operative in agriculture, you would always reap less than you sowed. I could go on, but you get my drift.
It worries me that no one is screaming bloody murder about it, that Bloomberg, Reuters, WSJ, the FT, all take it more or less in stride. It just aint't natural. I mean it literally, it goes against natural law - unless the Universe has started shrinking. Which, as far as I know, it hasn't.
Apart from their unnatural state, negative rates resemble something I loudly warned about well before the CMO, CDO, CDS, etc crisis blew up in 2007-08. Namely, that if you take a pile of dogshit (subprime loans) and cut it into pieces (securitize and tranche it), then little piece A is magically transmuted into gold, B becomes silver, C is copper and so on, until only the tail end bit is still poop! Ahuh...that didn't work out great, did it?
Likewise, if an economy cannot be productive and competitive with 2% interest rates, throwing free money at it won't change a damn thing. MONEY is not the issue! But, central bankers seem to be like handymen who only carry hammers. Economy won't grow? Hammer it with money. Still doesn't grow? Hammer harder!! In the words of Super Mario: whatever it takes (as long as it involves a hammer).
Of course, all of the above is predicated on the thesis that money is, above all, a storehouse of value. If we abandon that, then ... who cares? Print it, burn it, devalue it, throw it out of the window in a ticker tape or pixel parade. Might as well eat that seed corn now, eh?
So, what is the new masthead?
I toyed with apocrypha like an equation of the Second Law, but I'm not THAT much of an egghead - and neither are you, right?
"Money For Nothing? Chicks Ain't Free" was rejected as too gauche and NPC..
Drumroll, please.....
ONLY YOU CAN CHANGE THE WORLD, MONEY CAN'T
Yeah, it sounds idealistic, starry eyed and all that. But, ya know, (a) it is literally true in the context of this blog and (b) I am a huge fan of responsible, informed social activism - go Greta Thunberg!!
Plus, I become more romantic as I age, hopefully into vintage instead of vinegar. Cheers!!
This, dear reader, has been Sudden Debt's masthead for 12+ years, and it served well ever since I started writing in late 2006. I am changing it as of today.
Why? Because I want it to be more in tune with what is happening now and, maybe, in the future.
We all know that the global debt bubble burst spectacularly in 2007-08, that governments and central banks intervened with enormous cash injections, and that economies, mostly and eventually, avoided disaster. (Some didn't: Greece collapsed 10 years ago and is still trying to recover.) The Debt Crisis is yesterday's news, even if its pernicious effects are still with us.
Today, we live in the Brave New Monetary World where zero and negative interest rates are the norm, where central banks engage in quantitative easing operations lasting decades and amounting to trillions. Where serious, real money investors do not so much choose to assume risk as forced to. For example, if you run a huge public pension fund are you to buy a 10 year AAA government bond and thus guarantee losses? Or, even worse, if you run a bank, do you take deposits and make loans at such thin spreads that you are guaranteed to lose money after expenses and write offs?.
(I note with interest - pun intended - the exception of Norway: they just raised interest rates, again! Are them Vikings nuts? Or is it that they own the largest sovereign wealth fund in the world, valued at $1.1 trillion and aren't willing to throw money away?)
Norway Bucking The Trend
In today's brave new world Time Value Of Money, the bedrock of financial sanity, is out the window. It's as if the arrow of time is running backwards, the Second Law of Thermodynamics involving Entropy (aka there's no such thing as a free lunch) is inoperable, that Perpetual Motion machines actually exist. If negative rates were operative in agriculture, you would always reap less than you sowed. I could go on, but you get my drift.
It worries me that no one is screaming bloody murder about it, that Bloomberg, Reuters, WSJ, the FT, all take it more or less in stride. It just aint't natural. I mean it literally, it goes against natural law - unless the Universe has started shrinking. Which, as far as I know, it hasn't.
Apart from their unnatural state, negative rates resemble something I loudly warned about well before the CMO, CDO, CDS, etc crisis blew up in 2007-08. Namely, that if you take a pile of dogshit (subprime loans) and cut it into pieces (securitize and tranche it), then little piece A is magically transmuted into gold, B becomes silver, C is copper and so on, until only the tail end bit is still poop! Ahuh...that didn't work out great, did it?
Likewise, if an economy cannot be productive and competitive with 2% interest rates, throwing free money at it won't change a damn thing. MONEY is not the issue! But, central bankers seem to be like handymen who only carry hammers. Economy won't grow? Hammer it with money. Still doesn't grow? Hammer harder!! In the words of Super Mario: whatever it takes (as long as it involves a hammer).
German 2-Year Notes: Negative Rates Since 2014
Of course, all of the above is predicated on the thesis that money is, above all, a storehouse of value. If we abandon that, then ... who cares? Print it, burn it, devalue it, throw it out of the window in a ticker tape or pixel parade. Might as well eat that seed corn now, eh?
So, what is the new masthead?
I toyed with apocrypha like an equation of the Second Law, but I'm not THAT much of an egghead - and neither are you, right?
"Money For Nothing? Chicks Ain't Free" was rejected as too gauche and NPC..
Drumroll, please.....
ONLY YOU CAN CHANGE THE WORLD, MONEY CAN'T
Yeah, it sounds idealistic, starry eyed and all that. But, ya know, (a) it is literally true in the context of this blog and (b) I am a huge fan of responsible, informed social activism - go Greta Thunberg!!
Plus, I become more romantic as I age, hopefully into vintage instead of vinegar. Cheers!!
Tremendous as usual! We live in interesting times no doubt.
ReplyDeleteThanks C. Unprecedented times, I would say!
DeleteIn order to keep things propped up, 'things' mostly being their self interest, they are consigning a world to shift every bit of it's capital into consumption and away from investment.
ReplyDeleteThis is not an intellectual exercise. They are destroying the future and everybody sits around and pretends like those shit-for-brains egomaniacs know what they're doing.
I'm pretty sure that this, too, will burst like all bubbles. I just hope that climate change won't destroy us before then.
DeleteYou said "Of course, all of the above is predicated on the thesis that money is, above all, a storehouse of value."
ReplyDeleteWhere did you get this idea from? Money is an artificial construct which government aims to maintain a constant purchasing power, apart from inflation. But monetary policy has failed, largely because the private interest which now have effective control of it, do so in their own interest, not the public's.
So saying, if interest rates are negative did it strike you that in a deflationary environment, purchasing power could still be increasing?
Anyhow your new strapline is closer to reality than the old. It does beg the question what anyone is supposed to do to change the world at the level of macroeconomic policy. So do have a look at https://opencredit.network/
Thanks for your comment.
DeleteMoney hasn’t been solely a facilitator of trade/exchange for many decades, if not centuries. Savings accounts, bills, bonds, etc. are all money - and if they cease being storehouses of value then.... good luck!
In fact, money’s use as a transaction medium is tiny compared to its use as capital/investment.
Love the new theme and thoughts Hell. Like some of our political leaders of late it seems the government money managers have painted themselves into a corner. Raise rates, and you induce a recession, keep cutting rates and you get negative rates. At negative rates the market dries up for the bond market, forcing the central bankers to sop up all of those negative bond offerings, thus eventually destroying the value of money. And at the same time forcing “real” investors to dump all of their money into higher risk assets.
ReplyDeleteHistorically, is shrinking the money supply v accelerating asset values, the safer, in terms of social stability, route to take?
The safest route is not to create bubbles in asset values OR money supply. It’s a very, very difficult balance to achieve, mostly because the political/vested interest pressure is huge. Unfortunately, we are now in an era were monetary policy’s chief concern seems to be the support of asset values.
DeleteWe have moved from questioning Irrational Exuberance to unquestionably supporting it...