Creditors Finally Wake Up To An Apocalyptic Reality: Bond Losses As High As 99%

[Mad Max]

https://www.zerohedge.com/markets/creditors-finally-wake-apocalyptic-reality-bond-losses-high-99

"Well, I'm no expert, but, what we used to have was a sound monetary system, backed by gold and silver. In fact the American dollar is technically 1 troy oz of fine (.999) silver. As this was heavy to lug around and make purchases, the treasury department created Bill's, or notes rather, that act as the same legal tender. Worked well, America prospered.

Well, on December 23, 1913, that system was destroyed by a private banking cartel that still operates to this day know as The Federal Reserve. This privately held institution essentially usurped the monetary system from The People, and has been systematically strip mining wealth out of the country. Enter Richard Nixon on August 15, 1971 removed any peg of the USD to physical metals. Since then, the FED can simply print money out of nothing and you end up with massive inflation and subsequent loss of purchasing power.

All that was necessary next was the invention of complex computer systems to digitize wealth and create an instantly accessible network of bonds and interlinked bank accounts, mortgages, bond products, insurance, etc. From here, the owners of the FED can simply push few keyboard strokes and viola, trillions of wealth stolen. They do this by lending the money they created out of nothing to banks (themselves really), who then lend it out to poor schmucks like you and me for "All Debts Public and Private". The banks know there will be loss rates for some bad loans that they gave people people with zero real chance of paying the loans back, and bundle them into what called a CDO, or collateralized debt obligation. They do this to hide bad loans with some good loans in a bundle, and then sell those CDOs to other banks as the yield goes up. Then, knowing the CDOs they sold were utter crap, the banks then take out insurance policies on the CDO at leverage, 40, maybe 50:1 even, so a CDO worth 1 billion is now 40 billion in insurance on it. When the underlying securities tank because of non-performane the whole thing goes bust.

Then, that collapse usually yields a nice fat bailout from the very people that just got screwed by the banks for the loans in the first place. The banks are made whole, and then buy eveything that isn't nailed down at fire sale prices.

Rinse and repeat and you topple nations. - Lt. Frank Drebin"

SAD

[ramonesfreak]

read along with this article
The looming bank collapse -Thoughts?

the more you read and look into things the worse things look. dark times

[pwd72s]

Paging Tabby...who has ben telling you boyz...

[MRM]

Rational discussion is unlikely to change any minds, but I feel compelled to give it a try anyway.

The article is talking about the returns bondholders are seeing these days when the company goes bankrupt, not the returns on investment grade bonds. It's not exactly shocking that the bond holders lose their investment when the company goes bankrupt. The company wouldn't go bankrupt if it could pay its bondholders. The point of the article is nothing more that when there is cheap credit and investors are chasing yield, some of those willing to take risks on junk bonds end up with little to nothing on their investment.

You have to read Zero Hedge with a critical eye. It is a Russian propaganda organ that publishes just enough real news to stay credible to the credulous while pursuing its real mission of spreading doom and gloom conspiracy theories to weaken the social fabric of America and further the Motherland's interests. The more people read articles like this and post threads the the OP, the less credible America's institutions appear and the better off America's foreign adversaries are. Next time you read an article about an upcoming oil shock or crash in the auto industry, remember that Russia is one of the world's largest oil exporters. When you read articles about how unstable the US Dollar or how close we are to economic collapse, remember how low Russia's foreign currencies are (and that oil is priced in Dollars).

There are plenty of reasons to question the government's free spending policies and fear the adverse consequences of artificially low interest rates, but none of those reasons are found in Zero Hedge's articles and the "solutions" offered are conveniently counterproductive to the US economy and would benefit its adversaries. And as a double whammy, wacky conspiracy theories about the Fed destroy the credibility of serious thinkers who legitimately question Fed policy. The crazier Zero Hedge can convince fiscal conservatives to act, the more they discredit the entire conservative monetary movement.

By the way, if the Fed was so powerful, how come it hasn't been able to manufacture even its stated goal of 2.5% inflation?

[Rtrorkt]

^^
this

[red-beard]

Originally Posted by MRM

You have to read Zero Hedge with a critical eye. It is a Russian propaganda organ that publishes just enough real news to stay credible to the credulous while pursuing its real mission of spreading doom and gloom conspiracy theories to weaken the social fabric of America and further the Motherland's interests.

Completely agree. One needs to understand the underlying bias of any/all news sources.

[cstreit]

Tabs, is that you? You’re saying the market will go to one one-hundreth of its value?

Then money is worthless at that point. I assume you’re building a bunker and stocking up on ammo if you really believed what you just posted.

..and if you really believed that, why would you tip everyone else off? So we can find your bunker faster?

[Por_sha911]

Originally Posted by cstreit

Tabs, is that you?

I wondered the same thing.

[john70t]

ZH has been subtly pushing gold and decrying the USD for a long time. They were definitely not wrong in that regard. But nobody shares their personal secrets for success out of goodness of the heart. The more investors in the pyrimid, the greater the value for those who got in early.

[tabs]

I am not a FED conspiracy nut cake.

I have already posted a Thread debunking the conspiracy nonsense. The Powers that be that already have you by the short hairs are losing control of the system and that is why they are flailing away with reckless abandon.

The Global Economy of Scale no longer has enough consumers to sustain the Demand necessary to keep it from Deflating and collapsing. So the Central Banks facilitate government borrowing to prop up Demand to keep the GEOS from collapse. There is only so much they can print and borrow before those efforts lose efficacy and the slide becomes unstoppable.

This is mathematics Boyz and Gurls.

The Central Banks and governments were or are under the delusion that the right set of policies or personages could return the GEOS to equilibrium. They have all failed to realize that you can not turn the clock back to the heyday of American Prosperity. The conditions that created a fat American Middle Class no longer exist. Now you.have impoverished Americans besotted on Opoids that take the edge off of the melencoly of having no future.

[RWebb]

Originally Posted by MRM

...

By the way, if the Fed was so powerful, how come it hasn't been able to manufacture even its stated goal of 2.5% inflation?

ok, I'll bite on this snippet

fiscal policy or monetary policy alone are not always adequate

I'd expound more but I have to go see if I caught anything in my liquidity trap - might git me sum dinner

[MRM]

Originally Posted by RWebb

ok, I'll bite on this snippet

fiscal policy or monetary policy alone are not always adequate

I'd expound more but I have to go see if I caught anything in my liquidity trap - might git me sum dinner

To ask the question is to answer it. The Fed isn't able to meet its inflation goal because the Fed can't create inflation. Our experience in the 1980s and more recent experience of the financial crisis has taught us that previous orthodoxy about the Fed and inflation is backward. The Fed reacts to the economy, it does not pace the economy. Inflation is caused by the market's lack of faith in the currency, not too many dollars chasing too few goods, as was previously thought. The Weimar Republic didn't experience hyperinflation because their central bank printed infinite money, the central bank printed infinite money because the economy experienced hyperinflation. The hyperinflation was triggered by the market's loss of faith in the political leadership and future of the economy. Overprinting money was a symptom of hyperinflation - a reaction to the demand for more currency - not the cause.

Likewise, in the late 1970s and early 80s, inflation was spinning out of control. Urban legend has it that Paul Volker's tight monetary policy broke inflation's back with higher interest rates. That turns out to be a myth. Inflation was tamed by the market's perception that the Reagan Administration was ending the feckless policies that destabilized the economy and devalued the currency. The increase in interest rates was not a factor. The higher rates followed inflation because rates have to rise to keep real rates more or less constant, but again, that was the Fed responding to the economy, not driving it, even if Volker thought it was the other way around.

The Fed can do certain things. It can manage the money supply, which helps prevent the boom and bust panics that the country saw from the Civil War into the early 1900s. It can act as a lender of last resort to prevent the financial system from hitting a liquidity trap and exploding. But it cannot create full employment or prevent inflation. The market's confidence determines the value of the currency, and investments in capital and labor. The Fed will continue to reflect the underlying economy's strengths and weaknesses, noth the other way around.

[sammyg2]

Originally Posted by MRM

Rational discussion is unlikely to change any minds, but I feel compelled to give it a try anyway.

The article is talking about the returns bondholders are seeing these days when the company goes bankrupt, not the returns on investment grade bonds. It's not exactly shocking that the bond holders lose their investment when the company goes bankrupt. The company wouldn't go bankrupt if it could pay its bondholders. The point of the article is nothing more that when there is cheap credit and investors are chasing yield, some of those willing to take risks on junk bonds end up with little to nothing on their investment.

You have to read Zero Hedge with a critical eye. It is a Russian propaganda organ that publishes just enough real news to stay credible to the credulous while pursuing its real mission of spreading doom and gloom conspiracy theories to weaken the social fabric of America and further the Motherland's interests. The more people read articles like this and post threads the the OP, the less credible America's institutions appear and the better off America's foreign adversaries are. Next time you read an article about an upcoming oil shock or crash in the auto industry, remember that Russia is one of the world's largest oil exporters. When you read articles about how unstable the US Dollar or how close we are to economic collapse, remember how low Russia's foreign currencies are (and that oil is priced in Dollars).

There are plenty of reasons to question the government's free spending policies and fear the adverse consequences of artificially low interest rates, but none of those reasons are found in Zero Hedge's articles and the "solutions" offered are conveniently counterproductive to the US economy and would benefit its adversaries. And as a double whammy, wacky conspiracy theories about the Fed destroy the credibility of serious thinkers who legitimately question Fed policy. The crazier Zero Hedge can convince fiscal conservatives to act, the more they discredit the entire conservative monetary movement.

By the way, if the Fed was so powerful, how come it hasn't been able to manufacture even its stated goal of 2.5% inflation?

Hey, I was gonna say that (but no where near as ela-kwont-ly)

[jyl]

Originally Posted by MRM

To ask the question is to answer it. The Fed isn't able to meet its inflation goal because the Fed can't create inflation. Our experience in the 1980s and more recent experience of the financial crisis has taught us that previous orthodoxy about the Fed and inflation is backward. The Fed reacts to the economy, it does not pace the economy. Inflation is caused by the market's lack of faith in the currency, not too many dollars chasing too few goods, as was previously thought. The Weimar Republic didn't experience hyperinflation because their central bank printed infinite money, the central bank printed infinite money because the economy experienced hyperinflation. The hyperinflation was triggered by the market's loss of faith in the political leadership and future of the economy. Overprinting money was a symptom of hyperinflation - a reaction to the demand for more currency - not the cause.

Likewise, in the late 1970s and early 80s, inflation was spinning out of control. Urban legend has it that Paul Volker's tight monetary policy broke inflation's back with higher interest rates. That turns out to be a myth. Inflation was tamed by the market's perception that the Reagan Administration was ending the feckless policies that destabilized the economy and devalued the currency. The increase in interest rates was not a factor. The higher rates followed inflation because rates have to rise to keep real rates more or less constant, but again, that was the Fed responding to the economy, not driving it, even if Volker thought it was the other way around.

The Fed can do certain things. It can manage the money supply, which helps prevent the boom and bust panics that the country saw from the Civil War into the early 1900s. It can act as a lender of last resort to prevent the financial system from hitting a liquidity trap and exploding. But it cannot create full employment or prevent inflation. The market's confidence determines the value of the currency, and investments in capital and labor. The Fed will continue to reflect the underlying economy's strengths and weaknesses, noth the other way around.

Very thoughtful and detailed.

What do you think about MMT?

[john70t]

I am far from an economist or historian but I took a different read for the downward spiral of the Weimar currency.

It could even be argued that the central banking of the Weimar Republic intentionally overprinted to turn the economy and society into chaos, to undermine it's own country, but that is a separate conversation entirely.

Just as the Zimbabwe and Venezuelan Mexican and Israeli(which was reset how many times?) were not success stories so is our current situation. These example demonstrate the Achillies Heel of spending our way out of a depression without the real backing of industry and a country ready and motivated to produce real goods.

The 'value' of the USD or 'inflation' turned into a vertical plot beginning with the fed and especially after WW2.
(Value should be called deflation actually which is where it becomes confusing. Its pegged to international currency.)
Call it either. I can't purchase a brand new VW camper bus for $800-$2,400 anymore.

I have read the Reichsmark was pegged to the value of one hours work for a worker. And it remained a consistent value. That was probably what turned an economy around from being on the brink of total collapse to becoming the regional powerhouse of industry. Lending and spending were carefully controlled as well. Personal graft was not taken lightly and the system worked for the good of society.

[Sooner or later]

Zero Hedge should be renamed Zero Credibility.

This following is ZH in classic form. Look at the dates

10/21/2019
https://www.zerohedge.com/geopolitical/merkel-admits-german-multiculturalism-has-utterly-failed
Merkel told an audience of young members of her Christian Democrats (CDU) that allowing people of differing cultural backgrounds to live side by side without such integration was a huge mistake, according to Reuters, which notes that approximately four million Muslims live in the country.


"This (multicultural) approach has failed, utterly failed," said Merkel during the meeting in Potsdam, south of Berlin.

The stunning admission comes weeks after the former director of Germany's foreign intelligence service, Dr August Hanning, suggested Merkel had created a "security crisis" in Germany due to her open-border policy. (Summit News)


https://www.zerohedge.com/geopolitical/ex-spy-chief-says-merkels-open-border-policy-created-security-crisis-germany

9/17/2019
The former director of Germany’s foreign intelligence service has accused Angela Merkel of creating a “security crisis” in Germany as a result of her open border refugee policy.

The problem? Her statement that was made "weeks after" was actually made in 2010, not weeks after.
https://www.theguardian.com/world/2010/oct/17/angela-merkel-german-multiculturalism-failed

The German chancellor, Angela Merkel, has courted growing anti-immigrant opinion in Germany by claiming the country's attempts to create a multicultural society have "utterly failed".

Speaking to a meeting of young members of her Christian Democratic Union party, Merkel said the idea of people from different cultural backgrounds living happily "side by side" did not work.

She said the onus was on immigrants to do more to integrate into German society.

"This [multicultural] approach has failed, utterly failed," Merkel told the meeting in Potsdam, west of Berlin, yesterday.

Zero Credibility

[MRM]

And there was a long thread on PARF discussing that article with mostly approving comments. http://forums.pelicanparts.com/off-topic-politics-religion/1043475-merkel-admits-german-multiculturalism-has-utterly-failed.html

As for MMT, my views on that are evolving and I'm not sure they've crystalized enough to articulate them fully. I think that my opinion is that MMT is not as wrong as I originally thought but that it misses the point. Governments can print as much money print as long as they want until they can't. As long as there is confidence in the economy, printing money will not have an effect.

We used to think that big trade deficits and budget deficits starved the economy of capital and depressed business activity. The poster child for that argument was the sclerosis of Europe in the 1970s, and especially Great Britain. Once they got their taxing and spending policies in order, their financial markets stabilized, manufacturing recovered and their Balance of Payments evened out. It seemed at the time that balancing the budget stabilized the currency which lead to economic growth. That correlation was taken as causation and taught as gospel to young undergraduates of the time, including products of the great University of Wisconsin System.

In retrospect, I think we got it backward. When Thatcher privatized government-owned industries, slashed regulations and gutted the trade unions, she restored the economy to functionality, which lead to broad confidence. As a result, the currency appreciated, which helped the BOP, revived manufacturing and boosted exports, which helped the government gets its spending under control and the budget came back in line. Confidence in the government and economy lead to a stronger currency and balanced budget, not the other way around.

Europe followed Britain's lead and slashed regulations, privatized state-owned industries and got the trade unions to back off far enough to end their stranglehold on the industry. As with Britain, their individual currencies strengthened, manufacturing recovered, and eventually they were able to form the Eurozone, which now equals the US, after almost 50 years' post-war in which all of Europe's economy was between 25% and 50% the size of the US.

At the same time, governments are running huge budget deficits, but capital has not been starved, not in the US, not in Europe. Where capital is starved, it is in areas where there is political instability, which often times correlates with poor fiscal policy, but it is now apparent that it is the political instability that causes the poor monetary and fiscal situation, not the bad fiscal and monetary policy that leads to political instability.

So, after all that rambling, I guess I would say that MMT gets the easy part of the equation right (free money!) but it still misses out on understanding the dynamics that allow loose monetary policy and profligate spending, until the dynamics change.
re is confidence in their economy. The amount printed doesn't affect the soundness of the economy, so to that extent I think MMT is on the right track.

[RWebb]

While I cannot find economists who believe the central banks' policies have no affect on unemployment or inflation, I'll move on to chip in this on MMT:

https://www.ft.com/content/bcb523c3-7448-4cd6-a2d2-69b8f13be8f3


Not to get political here in OT, but the US might see an experiment with MMT in the near future...

[MRM]

We’re in a classical Keynesian stimulus cycle, the size of which is so unprecedented that the resulting budget deficits will soon test MMT without a specific intention invoke the theory.

Here is a fun article by an economist who is able to explain these matters much better than me. https://www.realclearmarkets.com/articles/2020/04/30/where_are_all_the_austrian_scholars_yachts_490385. html

[jyl]

Originally Posted by MRM

And there was a long thread on PARF discussing that article with mostly approving comments. http://forums.pelicanparts.com/off-topic-politics-religion/1043475-merkel-admits-german-multiculturalism-has-utterly-failed.html

As for MMT, my views on that are evolving and I'm not sure they've crystalized enough to articulate them fully. I think that my opinion is that MMT is not as wrong as I originally thought but that it misses the point. Governments can print as much money print as long as they want until they can't. As long as there is confidence in the economy, printing money will not have an effect.

We used to think that big trade deficits and budget deficits starved the economy of capital and depressed business activity. The poster child for that argument was the sclerosis of Europe in the 1970s, and especially Great Britain. Once they got their taxing and spending policies in order, their financial markets stabilized, manufacturing recovered and their Balance of Payments evened out. It seemed at the time that balancing the budget stabilized the currency which lead to economic growth. That correlation was taken as causation and taught as gospel to young undergraduates of the time, including products of the great University of Wisconsin System.

In retrospect, I think we got it backward. When Thatcher privatized government-owned industries, slashed regulations and gutted the trade unions, she restored the economy to functionality, which lead to broad confidence. As a result, the currency appreciated, which helped the BOP, revived manufacturing and boosted exports, which helped the government gets its spending under control and the budget came back in line. Confidence in the government and economy lead to a stronger currency and balanced budget, not the other way around.

Europe followed Britain's lead and slashed regulations, privatized state-owned industries and got the trade unions to back off far enough to end their stranglehold on the industry. As with Britain, their individual currencies strengthened, manufacturing recovered, and eventually they were able to form the Eurozone, which now equals the US, after almost 50 years' post-war in which all of Europe's economy was between 25% and 50% the size of the US.

At the same time, governments are running huge budget deficits, but capital has not been starved, not in the US, not in Europe. Where capital is starved, it is in areas where there is political instability, which often times correlates with poor fiscal policy, but it is now apparent that it is the political instability that causes the poor monetary and fiscal situation, not the bad fiscal and monetary policy that leads to political instability.

So, after all that rambling, I guess I would say that MMT gets the easy part of the equation right (free money!) but it still misses out on understanding the dynamics that allow loose monetary policy and profligate spending, until the dynamics change.
re is confidence in their economy. The amount printed doesn't affect the soundness of the economy, so to that extent I think MMT is on the right track.

I am trying to think about MMT with an open mind as well. I even bought Kelton's book, but couldn't read it, it is written as if for a grade schooler.

Part of the difficulty I have in thinking about MMT is what happens when confidence changes and the printing needs to be cut back. The government will be dependent on the then-current level of printing for things that people won't tolerate losing, like healthcare, defense, UBI, low tax rates, etc. Market confidence can flip much more quickly than politicians can persuade voters.