The world has more debt than it has income

Discussion in 'Business & Economics' started by Cyperium, Sep 13, 2008.

  1. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    China wants mainly to have the US dollar less important. I think they may not even want the Yuan to become the replacement. - That would lessen their ability to control its value, but on the positive side give them the profit that the US has enjoyed (get real goods and services for pieces of paper.) but so long as they export more than they import that is not needed - they can just turn part of their trade surplus back into trade buying (pay for their imports with some one else's paper.)

    PS I did not check your percentages, but they will change as I think the SDR has always* $0.60 in it etc. As dollar loses value wrt to the other three, the 44% will drop. I thin that is part of the attraction to China as they, like me, think significant decrease in the dollar is now unavoidable (assuming that FED/Treasury still have funcional printing presses.)

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    *The formulae could be changed but currently I think that is how SDR is defined.
     
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  3. Carcano Valued Senior Member

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    I thought the whole point of China buying dollar assets like treasuries was to raise the value of the dollar RELATIVE to the Yuan?

    How else would they lower the relative value of their currency?

    The Canadian papers are screaming today about a loss of exports to the US with the declining greenback.
     
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  5. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    Yes Americans are finally realizing what they have done to their children (even themselves, if not near retirement or retired and out of dollars in their savings) and starting to save 4 or 5% of their incomes rather than spend >100%. World trade by US is collapsing rapidly. For example China is now Brazil's main trading partner. Last year USA was.

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    *They are getting much more protection by buying real assets under long term contracts and frantically increasing the rate of doing that now. They, like me, think the dollars will collapse relatively soon. Thus, China is now only buying short term Treasury bills and some of the shorter notes - no bonds.

    I predicted about three years ago the collapse would be between Holloweens of 2008 and 2014 and if that is wrong it is only because I did not forsee anyone like Obama coming to be POTUS. I am still strongly of the opinion that GWB and Republican "trickle down" economic thinking have dug the hole so deep that even an inspiring leader, doing all the right Keyensian things, etc. cannot make a miracle and avoid the GWB / Republican made depression. (The modern factories in Asia, especially China, which "trickle down" built**, will be there and continue to close non competitive US factories for at least a decade more no matter what Obama does).

    **W. Buffet's 10% ownership of BYD motors factory is a good example of what the GWB's tax reduction gifts to the already rich did.
     
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  7. GAY! Registered Member

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    That's the point for everyone to be in debt....it already works like that now a days....transfer true wealth to the hands of few, keep them in control and what not. Simple shit that's been going for as long as civilized man existed...yet the civilized man can't understand the simple concept of control.
     
  8. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    With "everyone" you are forgetting (or did not know) that the typical Chinese saves 45 + or -5% of his income and is debt free.
    Hell, they do not even know what a "credit card" is!!!

    There are four times as many Chinese as Americans. When they start to spend more like Americans are now (save only ~5%) their purchases will keep the Chinese factories running over time to met the domestic demand.* Then, to repeat the line I have posted for four years, China will tell the US:

    Go to Hell USA. Your green paper is worthless now.

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    *Even in 2008, total Chinese exports were only 10% of GDP and about half of their exports were RE-export of the imported components they built into their higher value added exports. I.e. ~5% or less of China's jobs were directly linked to export. Tiny compared to what less saving will add to domestic demand to make factory and other jobs. China does not need the US buying as almost all falsely believe. The transition to the "no sales to US and EU" economy will have some unemployment dislocations - perhaps boost their unemployment rate to half that in the US now, for a few years.
     
    Last edited by a moderator: May 30, 2009
  9. Carcano Valued Senior Member

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    There really no difference between how the republicans and democrats deal with the economy. Bush and Obama simply do whatever the Fed chairman and the Treasury secretary tell him to do. Obama is also as much of a military hawk as Bush...no change of direction there either.

    Obama's economic advisor Larry Summers used to be secretary back in the Clinton admin when the Glass-Steagal act was dismantled:

    "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century...This historic legislation will better enable American companies to compete in the new economy." -Larry Summers.
     
  10. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    There are several important differences. For example in tax policy GWB gave relief to the most wealthy, not the 95% less wealthy. This was part of why Joe American's purchasing power declined and he was forced to use his home as and ATM machine to pay his bills or drastically reduce his standard of livinging. 95% chose the first option, so the economy could keep growing. (Joe had more than his salary to spend /saving was "unAmerican"/ so it was spent.) This made growth and job creation until GWB's last year in office, when the home ATM said: "Sorry no more cash by reverse mortgage – you’re at the limit."

    Then the merchant’s sales fell thru the floor and about a month later stock investors understood that retail, the 70% driver of the US economy, was dead in the water or sinking, so in October the market began to crash and job losses accelerated. See nice dynamic display of these historical facts here:

    http://tipstrategies.com/archive/geography-of-jobs/

    Click on the black triangle to start from 2004 to the present. Watch the “job circles” grow and turn green with Greenspan’s low interest rates and homes used as ATMs thru much of GWB’s term but then see how in GWB's last year the green circle are all gone and the red circles rapid grow to leave Obama with IMHO and insoluble unemployment problem. (GM & Chysler bankrupt and many suppliers soon to follow. I bet 750,000 jobs lost in one month soon.)

    Another important difference is the SEC under GWB did not even enforce the laws on the books.* All sorts of new “creative mortgages” of little value were package into new securities and sold all over the world with high (but false) ratings. The story was the subprime was now secure as the packages had geographic distribution, and further were protected from default, by various “credit swaps” issued by the likes of Lehman brothers, etc. (GWB's SEC thought 35 to 1 leverage was just fine on subprime asset packages!) GWB and Republicans in geneneral believed that market could and would regulate itself much better than government could. You see the results of this difference now. – It is called “dozens of billions for bank bailouts” and “trillions in toxic trash.”

    SUMMARY:
    There is a huge change in regulation, transparency, and tax policy with Obama, but it is probably too late to avoid US and EU sinking into the GWB and Republican made depression I foresaw coming early in GWB’s second term.

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    * For two examples:
    Texan Allen Stanford, the big supporter of cricket, was recently the focus of a BBC program. Low lever SEC employees had started an investigation but were ordered from higher ups to archive it. BBC could not determing who issed the order. I think that order came down from fellow Texan, GWB, but cannot prove that. Anyway he is now bankrupt and being processed by Obama’s SEC but still leaving a lot of retired people without assets as the 13 billions he claimed to have in his offshore bank does not exist. Widows etc. he conned are expect to get less than 5 cents on their dollars invested in Stanford’s offshore bank (in Antigua – FDIC does not cover them).

    The same story with Madoff - Well documented mathematical proof that it was a Ponzi scheme was given to the SEC years before it all fell apart. These are just the two biggest cases where GWB's SEC is criminally responsible for huge loses that hurt many little people. Try telling any of them there is no difference!
     
    Last edited by a moderator: May 30, 2009
  11. Carcano Valued Senior Member

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    Huge tax cuts were given to the wealthy LONG before Bush:

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    The reason Joe was able to use his house as a ATM machine is because interest rates were low enough to cause a rapid rise in house prices.

    When rates are too low people stop saving and start borrowing and buying...creating a massive debt bubble.

    Has Obama ordered the Fed to raise rates...nope!

    Has Obama proposed a law prohibiting the sale of mortgages to third parties...nope!

    Has Obama proposed a law requiring a minimum down payment...nope!

    Has Obama resolved to have CDS contracts fall under existing insurance laws...nope!

    Its all NOPE...not HOPE!
     
  12. Carcano Valued Senior Member

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  13. wise acre Registered Senior Member

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    We have stolen from the future.

    Of course banks have been making money out of nothing for a long time.
     
  14. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    I was mainly speaking of the cut in capital gains taxes, not salaries / income taxes. Few get very rich from salary, but things like going public with an IPO etc. or selling stock options you were granted for $10 for $200 a few years later. (Or if the market value of the stock did not rise fast enoght to make you wealthy that way, just get the option back dated to when it was cheaper before exercising it and then selling it. etc.

    That is not the problem. In fact it is essentail that the banks can sell their mortages in a secondary market - Why Fanny and Freddy were set up. If the bank can not convert the mortgage just made into cash, then they need to wait 30 years to lend the money out again. I.e. wait until the mortgage is paid off.

    The problem was caused by re packaging mortgages into "tranches" where the tranche creators had 1 dollar of their money in and borrowed 35 more to buy more mortgages* to assemble the tranch package. I.e. Lehmaqn etc. total equity was wiped out by a 3% default rate! Very high leverage caused the collapse, not changing who owned single mortgages.

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    * Start with one debt, borrow 35 times its value to get 35 more, to put into the package, then sell package to firm who is putting 1 dollar in to buy that package tranche and using 30 time more borrowedto buy it with and then turns a around and makes a tranche of tranches to sell to a syndicate that borrows 32 time leverage to buy that etc. a few times more so when Robert Homeowner defaults on his $50,000 mortgage the whole $30,000,000 house of cards comes crashing down. But do not disturbe the sleeping SEC - orders from GWB as the market will regulate itself.
     
    Last edited by a moderator: May 31, 2009
  15. 2inquisitive The Devil is in the details Registered Senior Member

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    3,181
    Billy T,
    I am not going to take the time to respond to all your distortions and hype, but will take a couple of your examples to illustrate your flawed logic.

    The SEC's board of commissioners must be represented by both political parties. By law, no more than three of the five seats can belong to the political party in power. Allen Stanford made huge political contributions, mostly to the Democratic party of which he was a member, but to both Obama and McCain's presidential campaigns. Stanford was hugged by Nancy Pelosi and publically thanked by Bill Clinton at the Democratic National Convention for his financial support. Maybe the 'order' came down from Nancy Pelosi?

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    Madoff was also a Democrat. There was no mathematical 'proof' of a Ponzi scheme.The competitor that questioned Madoff's performance accused him of insider trading, not running a Ponzi scheme. If he didn't even have an idea of how Madoff was doing so well, he obviously didn't have 'proof' of anything, just a suspicion that 'something' wasn't right.
    I know that American Southwest Financial Corporations issued collateralized mortgage obligations (CMO) in 1987, so they are not something that 'appeared' during the Bush years. There was a stink because Moody's issued an unsolicited rating one notch below Standard & Poors authorized rating, effectively telling the issuers to 'pay us too or we will make you pay in other ways'.
    Lehman Bros did not issue credit default swaps, instead had huge amounts taken out against their debts. AIG was the principal issurer, one of the reasons AIG was bailed out by the government. The 'logic' was that if AIG defaulted on the swaps, many more banks and financial institutions may have been bankrupted by their losses. The taxpayer money that has gone to AIG went to other banks, hedge funds, etc. as payouts on Credit Default Swaps. Credit Default Swaps are unregulated 'over-the-counter' bets that are STILL unregulated by congress even after the turmoil they have caused. BTW, congress (the Legislative Branch) passes the laws that the SEC is supposed to enforce, not the Presidential administration (the Executive Branch).
     
  16. Carcano Valued Senior Member

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    I think what you just described is exactly WHY its essential to prohibit a secondary market. There is no Fannie and Freddie in Canada for example and we have the most stable banking system in the world.
     
  17. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    That is I believe true as far as you go, but there was mathematical 'proof' of a Ponzi scheme: The Boston based competitor did only have "suspicions” as his firm was doing what Madoff claimed to be doing too and could not come close to Madoff's Ponzi scheme's consistent high yield results. So his firm hired some mathematical consultants (from MIT or Harvard, I forget which) to construct mathematical models with parameters they could vary - no set of parameter made Madoff's results possible. They sent the Boston SEC office a detailed list of 23 well documented "impossible achievements" of Madoff.

    Even if this were not true, the number of option trades that Madoff claimed that he make on some days exceeded ALL option trades made that day! - The SEC was blind or told to keep quiet. The head of the SEC admitted later that they had dropped the ball and apologized. Acknowledged to Congress as I recall that the material supplied was more than sufficient to have warranted a detailed investigation. He put the failure down to "poor communication" between the DC and Boston offices.

    I may have incorrectly named Lehman as writer of the credit default swaps - it really does not matter much who set up leverage over 30 to 1 and wrote them. - None of this should have gone un-noticed or been allowed if the SEC and other regulators were not asleep of restrained by the administration. GWB was head of the administration and if sh-- happens due to the ineptitude of it - he, like the captain of any ship, is responsible.
     
    Last edited by a moderator: May 31, 2009
  18. Carcano Valued Senior Member

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    Theres another NOPE I should have added to the list:

    Has Obama proposed limiting leverage ratios for the financial sector...nope!
     
  19. Carcano Valued Senior Member

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    Ideally, capital gains taxation should be reduced to zero and outlawed.

    Who can imagine anything so stupid as taxing investment?

    Theres a million foolish wasteful things we could tax instead.
     
  20. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    I do not know how it works in Canada but am sure there must be some secondary market for mortgages. - If there were none the the total of mortgages granted can not even equal the sum of bank deposits as there are reserve requirements (typically 10 to 15% of demand deposites) that must be sent to the central bank and there must be vault cash to give back to depositor who want to buy new car with his cash, not finance it etc.

    Banks would rapidly fail as the lend out long term and have mainly short term deposits. They must be able to sell these long term assets (the mortgages) to get short term cash as well as to be able to lend again before the existing mortgages are repaid.
     
  21. Billy T Use Sugar Cane Alcohol car Fuel Valued Senior Member

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    I don't know if you are correct or not. I am reasonable sure his SEC would step in to restric the re-sale of these new high leverage "investments" (Yes I will admit there were always some before GWB but never so many that they country could be in the current recession as they fail - banks need dozens of billions of tax payer money to avoid failure.)

    Anyway it is currently not needed as there is a huge amount of "de-leveraging" now taking place. Even Joe American has started to save and pay down debt not multiply them 35 fold!
     
  22. Carcano Valued Senior Member

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    We have something called The Canada Mortgage and Housing Corporation (owned by the government), which provides mortgage insurance...another bad idea that simply encourages lenders to make riskier loans, thus bringing more sub prime buyers into the market and driving up the price of homes for everybody.
     
    Last edited: May 31, 2009
  23. Carcano Valued Senior Member

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    Strangely enough, Obama/Bernanke and company want Joe to keep borrowing and spending...as if it was still 2006!!!

    One of my favourite financial gurus is Howard Davidowitz, who stated recently that the banks are currently leveraged at an average of 25 to 1.

    He speaks here about the de-leveraging of the consumer:

    http://www.youtube.com/watch?v=apLPw_O33YU&feature=related
     

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