Damn good question Greg. A downgrade has not always resulted in increased capital costs, though that’s the conventional wisdom. Brian had some interesting contrarian thoughts last Friday, but I’m not persuaded.
The downgrade itself is simply a reflection of a budgetary truth everyone already knows, and as such shouldn’t come as a surprise; in that sense we might assume the markets have already priced in this development. But again, I don’t think so. I sensed an overall feeling in the markets that a downgrade couldn’t really happen, and that’s how the markets were priced. So, first prognostication: markets open down on Monday, but might rally toward the end of the day on the idea of being oversold. They’ll probably react ugly for a while (days? weeks?), but eventually it will come down to this: do people believe that inflation (see next paragraph) is going to hurt companies’ business enough to sell, or are they more worried about the devaluation of the dollar, which means paying more for each share.
There are only two realistic ways to deal with the US debt: utter collapse (a national BK, so to speak) or devaluation of the currency. I would not bet on (nor want to see) an utter collapse, so expect inflation instead. Mr. Klein and others have correctly, in my opinion, pointed this out in previous posts. The Fed was looking to print more money for QE3, but this puts a big, smelly pile of road kill in their path. A slowing economy combined with governmental teenagers holding a fresh new credit card is a story that won’t end well. Makes it more likely the new debt ceiling won’t even last through this year, never mind sometime after the elections. With S&P validating everyone’s fear: the problem is too big and the government too inadequate, Treasury will have to offer higher interest and the Fed will still have to step in to support that market. Second prognostication: the dollar will be purposefully devalued. Inflation is coming…
All of this leads to rising interest rates in the home loan world. The big question: just how much inventory is really still out there? If there’s not much, housing generally rises due to inflationary pressures. But… if there is still a lot of non (under) performing assets sitting on banks’ books – especially against a falling equities market – they’ll have to unload and we’ll see stagnant or falling housing prices combined with rising rates. I have no prognostication here, only a healthy fear of the latter option.
I’ll lead off by saying my post worked; MBS rallied for 4 straight days, pushing rates to an unseen low, only to crash today. I move markets when I write on BHB.
Observations:
It took this long? The debt deal GUARANTEED a downgrade. The ratings agencies told Congress and the President that unless we cut at least $4 trillion over ten years, the downgrade was coming. Obama, Reid, and Boehner are SO smart though, they decided to f*** with the ratings agencies and “compromise” on a ridiculous cut (see Sean’s post to see how miniscule it was): https://www.bloodhoundrealty.com/BloodhoundBlog/?p=14880
Sean used a chart so you know it’s gotta be correct 🙂
Seriously, that chart shows that the “cuts” really weren’t “cuts’, just a lower rate of growth, moving forward.
It’s a shell game, a three-card monte accounting system and they got caught by a rube who actually had the temerity to point at a naked emperor.
Expectations:
Volatility, Fed intervention, finger-pointing, name calling, and demagoguery. The truth is that nobody knows how to deal with this. S&P just sinned in the eyes of the overlords. I wouldn’t be surprised to see Geithner suggest that they are corrupt and perhaps start an investigation into all three of the ratings houses.
Prognostications:
Gridlock; sweet, necessary, glorious gridlock. The fights for the federal gas tax, appropriations, a continuing budget resolution. etc are going to get louder, more boisterous, and the stakes are going to get higher. A government shut down seems highly likely to me.
Stock market volatility seems very likely. Bond markets should drop and mortgage rates should be in the 5-5.75% range but, as I stated in my “market-moving” post, where else is the world gonna park their money? We are the least-ugly girl at the dance.
The only negative we might see is a dramatic rise in overnight lending rates. If that happens, expect a liquidity suck, followed by MILLIONS of vacant homes, with over 180 DOM. It could lead to another mass exodus from “strategic defaults”.
Then again, we might just be doing business as usual. It’s not like the credit ratings agencies have any credibility
Alright, you suckered me into another rambling comment. I tried to swear them off, you know; I’m glad I didn’t make a promise. On the immediate question of the downgrade, I stand by my words of 7/29, “…there are almost no unknowns. Sharpies have known that a downgrade will lower treasury yields, due to a flight to safety. IMO it’s mostly priced in by now, but it doesn’t really matter. The [only] short-term problems will come from contractual obligations dealing with the ratings of bonds used for collateral type purposes. It could be a huge problem for some, or none for others…”
The Fed controls the timing of everything. If they don’t devalue, we go down the tubes next year owing to an obvious deflationary spiral. If they do devalue, we go down the tubes but nobody knows it for 2-4 years because everyone feels like they won the lottery. So the Fed’s decisions will at least tell us who’s really pulling the strings…socialists or fascists.
We go down the tubes in any event for the reason that’s been plain since at least when Jeff Brown wrote his inflation/deflation post, I think a couple years ago. That part’s a no-brainer, what I call “the other side of the equation,” otherwise known as production. It’s being stifled beyond belief from every comer with a gun, uniform or title, and it’s the only thing that matters, period. Everything else is academic, which is why we’re being inundated with academics.
Things seem obvious for the RE industry, but even that’s likely to fool people IMO. Conventional wisdom says the shadow inventory will come onto the market when rental rates start reaching for the skies, thereby lining bank pocketbooks yet again, but that may not happen as expected. Just for starters, there will be monumental demographic changes like birth and mortality rates, as well as individuals per square foot of living space. Those things alone could wreak havoc with expectations, and there are plenty of other factors.
Maybe the biggest unintended consequence of a Govco default–whether by outright default or its equivalent, devaluation–will be the decision of so many serfs to likewise default, what is currently called “strategic default.” In RE it’s easy to see the numbers and understand the action, but it may not be so easy when it starts spreading to other areas of our lives. Sourness breeds sourness, and there are going to be lots and lots of sour people around, “victims” of Big Mama not giving them the teat any more. There is no telling how wide such an attitude could spread, and the one thing everyone’s been taught is to follow the Leaders. Monkey see, monkey do.
Meanwhile the Leaders may find that they’re no longer hundreds of times better off than their serfs, and this could create a serious problem. Most serfs can at least survive on their own wits and skills, but almost no Leaders can. When they start feeling the pinch, there’s no telling what could happen, anything from debtors prisons to complete societal breakdown.
Industries may suffer losses of 30,000 jobs or more a month, but you can be damn sure Govco ain’t gonna tolerate it for very long. So that’s the immediate problem from their POV, which is why this deal went through in the first place. Of course, being idiots, they too forgot about the other side of the equation. It never occurred to them that perhaps there wouldn’t be sufficient production to loot in order to have endless shrimp cocktails and tax-free mansions. That joke will be on them, but where it leaves those of us who actually can produce, is a very open question.
Welcome to the Endarkenment. Again. Supposedly, it’s been 331 years since a guy named Le Gendre came up with the only possible answer, and still almost nobody gets it: “Laissez-nous faire.”
There is a lot of anger at the moment in the US over the embarrassment of the downgrade, as well as shock. I’m most amused by the shock, to tell the truth. S&P didn’t say anything yesterday that was not common knowledge and common sense. If you had to rate a potential investment that had an income of, say, $22,000 a year but had costs of $37,000 per year, a standing debt of $143,000, and contracted future debt that exceeded $1 million, would you give that investment a gold-plated AAA rating and buy their bonds at the lowest interest rate possible, or at all? Of course not, but that’s exactly the fiscal situation of the US, at a 100,000,000:1 scale.
@ Mr. Klein – Wow! (And I thought my economic outlook was negative…)
Going to continue harping on this “flight to safety” deal. Would you be investing your money in Treasuries, or Mortgage-backs, or any dollar denominated, fixed return, investment right now? I doubt it, and I’m not sure why anyone else will either. I can’t imagine a viable scenario wherein the cost of borrowing does not go up.
More thoughts on what happens then: consumer demand – already weak – sags, leading to a flat-line (or negative) gdp. This will still be discernible from the abysmal actual gdp lately. (Actual means the gdp numbers once they’ve been “revised” each following quarter – funny how the government never needs to revise “up”, you’d think that sampling and rounding errors would go both ways…)
This has very bad implications for housing, for jobs, for gdp, and for Mr. Obama’s reelection bid (sitting Presidents don’t fair well with tanking economies). All of which leads to an obvious conclusion: Big Government is going to SCREAM for more stimulus to save us from a catastrophe that was caused, in large part, by too much… stimulus. 🙂
As for the more extreme possibilities, Brian Brady (the man behind the curtain) and I have talked for two years about Greece-style rioting once the financial drugs are cut off – first, and most devestatingly, to the states. But they should be short-lived (2 weeks?). People are, generally, good; they are philanthropic and generous and industrious and clever and on and on. Could also lead to Lincoln/Roosevelt type suspensions of constitutional protections? But probably most interesting result could be an underground market that grows by leaps and bounds. That’s a good thing, I think…
I agree with everything you wrote. The so-called “flight to safety” will prove to be just a short-term phenomenon. Obviously longer-term rates go through the roof, though keep in mind that lots and lots of games can be played along the way…interest rates are the cost of money, but they’re paid for with money. Don’t bet your life on quick devaluation. It looks likely but suffering can happen through deflation too, and suffering is the name of the game.
As to your first question, I wouldn’t buy treasuries on principle alone, but it’s pretty clear that in the current environment many people would, and strictly as a flight to safety. I’m not saying they’re actually accomplishing that–though for the most part they are, short term–but rather that this is what’s motivating them. That seems pretty clear from the bond markets last week; you can’t possibly disagree. That wasn’t China driving those rates down.
And really it’s true in spades because the Fed hasn’t been participating in the purchases (supposedly), when it accounted for a large part of the action during QE2. Much wealth goes to treasuries right now, since where else is it going to go? GM? Utilities? Microsoft? Coal companies? Munis? RE? Don’t get me wrong—corporate bonds are terrific right now, and a great investment IMO, but a ton of powerful wealth seeks nothing but safety. Gold is the only thing that can touch US treasuries for safety currently, and it returns no interest at all.
It won’t be Greece-style rioting here, since not every Greek owns a rifle. Hopefully this will prove to be a good thing, since generally an armed society is a polite society. Widespread gun ownership has been our saving grace for over 200 years; maybe it’ll carry us all the way.
Tangible evidence that the two party system is broken. S & P (I was watching Fox “news” today) said that the political climate in DC is such that no one could get anything done to put the country on the right track.
PERIOD. End of story.
No need to debate. They told us exactly why the did it. The TOLD the gov’t they wanted to see 4T in cuts. They only gave em 2T. Further NO revenue was in bill.
But the two party system worked perfectly, Kevin, and Sean posted the graph that proves it. Roughly, it looks like the two parties will control about $45 trillion of spending over the next ten years. From the perspective of the two parties, I don’t know how it could be any better.
If there are 100 million households or so, that works out to $450,000 per household over ten years. Never mind all the bullshit that’s hidden; never mind the crises that will happen; never mind LOCAL expenses—will there be an average of $450,000 per household over the next ten years available for the federal budget? How about if 47% of the households pay no taxes at all? This ain’t rocket science.
Philosophy is my thing and I’ve been pointing out the fundamental philosophical principle of our day: “Maybe logic doesn’t hold.” In the end, it will be wicked epistemology that brings us down. But in the meanwhile, the two parties managed to get what they want—complete control over what was once the greatest society on Earth. That’s why they smile so much and live the lives they do. What will you be doing this Monday, and what will they be doing?
Me, I’ll be running a business just like I’ve been doing for decades, and I’ll keep on doing that just as long as they let me, and I can manage to keep feeding myself. But if people actually think that our Leaders can somehow put this country back together, then they might as well kill themselves now and save themselves the agony.
Logic does hold, and nothing can possibly put this country back together except production. Until the government takes it paws off everything and lets people produce, everyone can stop dreaming that maybe something or somebody will come to the rescue.
Last time it was a choice; this time it’s plain necessity…liberty or death.
@Kevin… That is the other part of the debate isn’t it?? Do we focus on creating private sector growth and job creation OR do we continue to increase the tax burden on the people who are already carrying more than they can carry.
IMO opinion the other way to decrease the debt is to grow the economy so that more individuals and companies are making more money and paying more taxes.
>Last time it was a choice; this time it’s plain necessity…liberty or death.
hmmm… Well then thank God for the internet, eh? I don’t think the revolution will be televised. It’ll be people who quietly find ways to go about their business without bluster and permission. People who just roll up their sleeves and keep calm and carry on. It’s not the people in front of the camera, it’s the ones unseen. People are infinitely resourceful, have an infinite number of choices, and many ways to communicate. It’ll be okay. I suggest we let two parties go about the only business they know in the only way they know to do it, and keep them busy while the real work gets done. It’s like keeping babies distracted while you cook dinner. Or am I’m being naive…?
>”Last time it was a choice; this time it’s plain necessity…liberty or death.”
Good….This leaves less room for negotiation at the bargaining table this time around. Maybe the radicals will be able to swallow up more of the market share.
>”I suggest we let two parties go about the only business they know in the only way they know to do it, and keep them busy while the real work gets done. It’s like keeping babies distracted while you cook dinner. Or am I’m being naive…?”
The only difference I see is these babies have really, really big guns. Every now and then a shot rings out and comes screamin’ through the kitchen. Of course, we need to keep cookin’, that’s what good folks do, but for goodness sakes, keep your head down!
I love what you’re saying, Teri, and think it’s precisely the right attitude. 1 > 0 and no individual should let any other individual’s monstrosity be any sort of excuse.
Yes, I think you’re being a bit naive. There is nothing new here and societies have gone down this road for thousands of years. Chris is right about the really big guns and we know what happens time after time after time. There’s no question that information is the game changer now, but that cuts both ways…it allows people to learn the truth, but it also allows propaganda and bullshit philosophy to be just as widely spread. As it stands, at least for the moment, the latter is winning the fight. Like it or not, we’re in a tiny minority.
I’ve been saying for decades that once two generations are fully educated (so to speak) in altruist, collectivist, statist numbskullery, that the story would be told. We’re at that point now, and sadly it looks like logic is going to hold all the way through, just as it always does. The idiocy, not to mention the ruthlessness, is beyond belief and beyond calculation.
This is not writ in stone, and I don’t mean to imply that it is. People can change in a moment and there’s no telling what they’ll do when they get literally hungry. By all appearances and following what they’ve been taught, not to mention historical evidence, they’ll turn into brutes and whoever is the most brutish will get the last of the sustenance.
But that’s only appearances. Even dolts are driven by their minds, and there’s obviously an increase in both the information available and the number of examples, such as people here, who can share the vision of a way out. But it’s asking a lot for people to throw aside everything they’ve been taught–particularly that there are things out there greater than themselves–in order to move forward and serve their own lives and by extension, the lives of their neighbors and communities. Plus, there’s an entire class of nitwits–perhaps even the majority by now–who couldn’t work their way out of a box with four doors. That’s serious trouble when you consider things from their perspective.
It’s going to get ugly for a while; that much is for sure. Hell, it’s already ugly if you think about the militarization of the police and what goes on in every court and governing body in the country. That’s a mighty large group of people with mighty large guns, and they’re more than willing to use those guns to take what you and I have. IMO there is no other problem really, but it’s an awfully big problem.
Hopefully the inherent decency of people will break through, their education notwithstanding, and the dawn will come sooner rather than later. Someone here, like you, should write a book with that vision, and I even know what it could be titled: “2084.” Do it today!
I might be one of the dolts you refer to, Jim. I believe there is something divine/sacred/spiritual greater than myself but also that it resides in each of us. I believe that living the best life I can in the short time I’m here contributes to that greater thing, even if it’s not the primary reason to love my own life… Wildly off topic now.
Anyway. Here’s a real estate observation: People are worried that interest rates are just a politician’s breath away from skyrocketing, thus, buyers are buying and they are doing it creatively- combining households, lease-to-own, cash purchases. People are getting creative. As much as Realtors whine about the market, I think it would be harder to be a lender right now.
“I believe that living the best life I can in the short time I’m here contributes to that greater thing, even if it’s not the primary reason to love my own life… Wildly off topic now.”
I don’t think that’s ever off-topic. Or maybe I should say that every topic reduces to that. Personally, I think it’s less important how one gets there, than that one gets there.
In any event, what’s important is that one person not stop another person from living the best life possible, irrespective of how it’s viewed or how that view developed. This is why the State is antithetical to life as a human, at least the State as it exists today. Based as it is in physical force, let alone idiocy, it automatically negates what a “best life” is to anyone, since that can be created by nothing but volition.
The State is not evil because it’s irrational, though it is. It’s evil because it’s factually against that which it pretends to be for. If a rapist were to declare, “But I was pleasing her and she just didn’t understand,” we would all be aghast. Yet somehow when a philosopher or politician shrieks, “But we’re helping them live and they just don’t understand,” we swallow it whole.
By “greater thing” you were referring to the State. I see it now. I thought you were referring to a spiritual thing. I am naive. I’m typically an empathic person- I can feel your pain, except for this. Total blinders when it comes to govt, I cannot fathom in the least how anyone could believe the State > I. It doesn’t even occur to me. BMV, IRS, I should put myself in a position of dependency to this? My children will tell their children stories of me losing it at the BMV. Why would anyone willingly, let alone eagerly submit themselves to that? It can’t be training. I was raised up in a public school, that little bit of education never stuck. And I’ve done more than my share of self-destructive stuff, but not that. Never that. Perhaps it’s inherent- either we don’t have the herd gene, or the independence portion of our brains got fired up and running in the womb.
“By ‘greater thing’ you were referring to the State. I see it now. I thought you were referring to a spiritual thing. I am naive.”
Technically you were right the first time around, but it deserves clarification. What a person chooses spiritually is no skin off anyone’s back. It’s exclusively the State that uses tools of force to impose a value structure. This is important because a person’s volition can be abridged only with force.
Also, it’s worthy of note that even in spiritual approaches where a “greater thing” is postulated, the attributes of that greater thing generally adhere to the individual himself, at least in Western thinking. God is offered mostly as a causal factor, to explain what otherwise would be unexplainable. Even most religionists conclude that there’s nothing greater /on Earth/ than the individual spirit, being as it is a reflection of God’s work.
Even that doesn’t matter so much. The only thing that really matters is that each individual be free to instantiate his or her beliefs and abilities. Reality will take care of sorting out the rational from the irrational.
Sean Purcell says:
Damn good question Greg. A downgrade has not always resulted in increased capital costs, though that’s the conventional wisdom. Brian had some interesting contrarian thoughts last Friday, but I’m not persuaded.
The downgrade itself is simply a reflection of a budgetary truth everyone already knows, and as such shouldn’t come as a surprise; in that sense we might assume the markets have already priced in this development. But again, I don’t think so. I sensed an overall feeling in the markets that a downgrade couldn’t really happen, and that’s how the markets were priced. So, first prognostication: markets open down on Monday, but might rally toward the end of the day on the idea of being oversold. They’ll probably react ugly for a while (days? weeks?), but eventually it will come down to this: do people believe that inflation (see next paragraph) is going to hurt companies’ business enough to sell, or are they more worried about the devaluation of the dollar, which means paying more for each share.
There are only two realistic ways to deal with the US debt: utter collapse (a national BK, so to speak) or devaluation of the currency. I would not bet on (nor want to see) an utter collapse, so expect inflation instead. Mr. Klein and others have correctly, in my opinion, pointed this out in previous posts. The Fed was looking to print more money for QE3, but this puts a big, smelly pile of road kill in their path. A slowing economy combined with governmental teenagers holding a fresh new credit card is a story that won’t end well. Makes it more likely the new debt ceiling won’t even last through this year, never mind sometime after the elections. With S&P validating everyone’s fear: the problem is too big and the government too inadequate, Treasury will have to offer higher interest and the Fed will still have to step in to support that market. Second prognostication: the dollar will be purposefully devalued. Inflation is coming…
All of this leads to rising interest rates in the home loan world. The big question: just how much inventory is really still out there? If there’s not much, housing generally rises due to inflationary pressures. But… if there is still a lot of non (under) performing assets sitting on banks’ books – especially against a falling equities market – they’ll have to unload and we’ll see stagnant or falling housing prices combined with rising rates. I have no prognostication here, only a healthy fear of the latter option.
August 5, 2011 — 8:11 pm
Brian Brady says:
I’ll lead off by saying my post worked; MBS rallied for 4 straight days, pushing rates to an unseen low, only to crash today. I move markets when I write on BHB.
Observations:
It took this long? The debt deal GUARANTEED a downgrade. The ratings agencies told Congress and the President that unless we cut at least $4 trillion over ten years, the downgrade was coming. Obama, Reid, and Boehner are SO smart though, they decided to f*** with the ratings agencies and “compromise” on a ridiculous cut (see Sean’s post to see how miniscule it was):
https://www.bloodhoundrealty.com/BloodhoundBlog/?p=14880
Sean used a chart so you know it’s gotta be correct 🙂
Seriously, that chart shows that the “cuts” really weren’t “cuts’, just a lower rate of growth, moving forward.
It’s a shell game, a three-card monte accounting system and they got caught by a rube who actually had the temerity to point at a naked emperor.
Expectations:
Volatility, Fed intervention, finger-pointing, name calling, and demagoguery. The truth is that nobody knows how to deal with this. S&P just sinned in the eyes of the overlords. I wouldn’t be surprised to see Geithner suggest that they are corrupt and perhaps start an investigation into all three of the ratings houses.
Prognostications:
Gridlock; sweet, necessary, glorious gridlock. The fights for the federal gas tax, appropriations, a continuing budget resolution. etc are going to get louder, more boisterous, and the stakes are going to get higher. A government shut down seems highly likely to me.
Stock market volatility seems very likely. Bond markets should drop and mortgage rates should be in the 5-5.75% range but, as I stated in my “market-moving” post, where else is the world gonna park their money? We are the least-ugly girl at the dance.
The only negative we might see is a dramatic rise in overnight lending rates. If that happens, expect a liquidity suck, followed by MILLIONS of vacant homes, with over 180 DOM. It could lead to another mass exodus from “strategic defaults”.
Then again, we might just be doing business as usual. It’s not like the credit ratings agencies have any credibility
August 5, 2011 — 9:27 pm
Jim Klein says:
Alright, you suckered me into another rambling comment. I tried to swear them off, you know; I’m glad I didn’t make a promise. On the immediate question of the downgrade, I stand by my words of 7/29, “…there are almost no unknowns. Sharpies have known that a downgrade will lower treasury yields, due to a flight to safety. IMO it’s mostly priced in by now, but it doesn’t really matter. The [only] short-term problems will come from contractual obligations dealing with the ratings of bonds used for collateral type purposes. It could be a huge problem for some, or none for others…”
The Fed controls the timing of everything. If they don’t devalue, we go down the tubes next year owing to an obvious deflationary spiral. If they do devalue, we go down the tubes but nobody knows it for 2-4 years because everyone feels like they won the lottery. So the Fed’s decisions will at least tell us who’s really pulling the strings…socialists or fascists.
We go down the tubes in any event for the reason that’s been plain since at least when Jeff Brown wrote his inflation/deflation post, I think a couple years ago. That part’s a no-brainer, what I call “the other side of the equation,” otherwise known as production. It’s being stifled beyond belief from every comer with a gun, uniform or title, and it’s the only thing that matters, period. Everything else is academic, which is why we’re being inundated with academics.
Things seem obvious for the RE industry, but even that’s likely to fool people IMO. Conventional wisdom says the shadow inventory will come onto the market when rental rates start reaching for the skies, thereby lining bank pocketbooks yet again, but that may not happen as expected. Just for starters, there will be monumental demographic changes like birth and mortality rates, as well as individuals per square foot of living space. Those things alone could wreak havoc with expectations, and there are plenty of other factors.
Maybe the biggest unintended consequence of a Govco default–whether by outright default or its equivalent, devaluation–will be the decision of so many serfs to likewise default, what is currently called “strategic default.” In RE it’s easy to see the numbers and understand the action, but it may not be so easy when it starts spreading to other areas of our lives. Sourness breeds sourness, and there are going to be lots and lots of sour people around, “victims” of Big Mama not giving them the teat any more. There is no telling how wide such an attitude could spread, and the one thing everyone’s been taught is to follow the Leaders. Monkey see, monkey do.
Meanwhile the Leaders may find that they’re no longer hundreds of times better off than their serfs, and this could create a serious problem. Most serfs can at least survive on their own wits and skills, but almost no Leaders can. When they start feeling the pinch, there’s no telling what could happen, anything from debtors prisons to complete societal breakdown.
Industries may suffer losses of 30,000 jobs or more a month, but you can be damn sure Govco ain’t gonna tolerate it for very long. So that’s the immediate problem from their POV, which is why this deal went through in the first place. Of course, being idiots, they too forgot about the other side of the equation. It never occurred to them that perhaps there wouldn’t be sufficient production to loot in order to have endless shrimp cocktails and tax-free mansions. That joke will be on them, but where it leaves those of us who actually can produce, is a very open question.
Welcome to the Endarkenment. Again. Supposedly, it’s been 331 years since a guy named Le Gendre came up with the only possible answer, and still almost nobody gets it: “Laissez-nous faire.”
August 5, 2011 — 10:31 pm
Brian Brady says:
“I wouldn’t be surprised to see Geithner suggest that they are corrupt and perhaps start an investigation into all three of the ratings houses.”
Every time I think I’m sounding too conspiratorial, I just have to do a Google search:
http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8682558/SandPs-and-Moodys-face-Italian-raids.html
The world keeps getting weirder.
August 5, 2011 — 10:39 pm
Greg Swann says:
This is fun, from Ed Morrissey at Hotair.com:
August 6, 2011 — 8:28 am
Sean Purcell says:
@ Mr. Klein – Wow! (And I thought my economic outlook was negative…)
Going to continue harping on this “flight to safety” deal. Would you be investing your money in Treasuries, or Mortgage-backs, or any dollar denominated, fixed return, investment right now? I doubt it, and I’m not sure why anyone else will either. I can’t imagine a viable scenario wherein the cost of borrowing does not go up.
More thoughts on what happens then: consumer demand – already weak – sags, leading to a flat-line (or negative) gdp. This will still be discernible from the abysmal actual gdp lately. (Actual means the gdp numbers once they’ve been “revised” each following quarter – funny how the government never needs to revise “up”, you’d think that sampling and rounding errors would go both ways…)
This has very bad implications for housing, for jobs, for gdp, and for Mr. Obama’s reelection bid (sitting Presidents don’t fair well with tanking economies). All of which leads to an obvious conclusion: Big Government is going to SCREAM for more stimulus to save us from a catastrophe that was caused, in large part, by too much… stimulus. 🙂
As for the more extreme possibilities, Brian Brady (the man behind the curtain) and I have talked for two years about Greece-style rioting once the financial drugs are cut off – first, and most devestatingly, to the states. But they should be short-lived (2 weeks?). People are, generally, good; they are philanthropic and generous and industrious and clever and on and on. Could also lead to Lincoln/Roosevelt type suspensions of constitutional protections? But probably most interesting result could be an underground market that grows by leaps and bounds. That’s a good thing, I think…
August 6, 2011 — 11:27 am
Jim Klein says:
I agree with everything you wrote. The so-called “flight to safety” will prove to be just a short-term phenomenon. Obviously longer-term rates go through the roof, though keep in mind that lots and lots of games can be played along the way…interest rates are the cost of money, but they’re paid for with money. Don’t bet your life on quick devaluation. It looks likely but suffering can happen through deflation too, and suffering is the name of the game.
As to your first question, I wouldn’t buy treasuries on principle alone, but it’s pretty clear that in the current environment many people would, and strictly as a flight to safety. I’m not saying they’re actually accomplishing that–though for the most part they are, short term–but rather that this is what’s motivating them. That seems pretty clear from the bond markets last week; you can’t possibly disagree. That wasn’t China driving those rates down.
And really it’s true in spades because the Fed hasn’t been participating in the purchases (supposedly), when it accounted for a large part of the action during QE2. Much wealth goes to treasuries right now, since where else is it going to go? GM? Utilities? Microsoft? Coal companies? Munis? RE? Don’t get me wrong—corporate bonds are terrific right now, and a great investment IMO, but a ton of powerful wealth seeks nothing but safety. Gold is the only thing that can touch US treasuries for safety currently, and it returns no interest at all.
It won’t be Greece-style rioting here, since not every Greek owns a rifle. Hopefully this will prove to be a good thing, since generally an armed society is a polite society. Widespread gun ownership has been our saving grace for over 200 years; maybe it’ll carry us all the way.
August 6, 2011 — 4:36 pm
Kevin Tomlinson says:
Tangible evidence that the two party system is broken. S & P (I was watching Fox “news” today) said that the political climate in DC is such that no one could get anything done to put the country on the right track.
PERIOD. End of story.
No need to debate. They told us exactly why the did it. The TOLD the gov’t they wanted to see 4T in cuts. They only gave em 2T. Further NO revenue was in bill.
August 6, 2011 — 4:57 pm
Kevin Tomlinson says:
I’d love a backlink for having the best comment, G.
August 6, 2011 — 4:59 pm
Jim Klein says:
But the two party system worked perfectly, Kevin, and Sean posted the graph that proves it. Roughly, it looks like the two parties will control about $45 trillion of spending over the next ten years. From the perspective of the two parties, I don’t know how it could be any better.
If there are 100 million households or so, that works out to $450,000 per household over ten years. Never mind all the bullshit that’s hidden; never mind the crises that will happen; never mind LOCAL expenses—will there be an average of $450,000 per household over the next ten years available for the federal budget? How about if 47% of the households pay no taxes at all? This ain’t rocket science.
Philosophy is my thing and I’ve been pointing out the fundamental philosophical principle of our day: “Maybe logic doesn’t hold.” In the end, it will be wicked epistemology that brings us down. But in the meanwhile, the two parties managed to get what they want—complete control over what was once the greatest society on Earth. That’s why they smile so much and live the lives they do. What will you be doing this Monday, and what will they be doing?
Me, I’ll be running a business just like I’ve been doing for decades, and I’ll keep on doing that just as long as they let me, and I can manage to keep feeding myself. But if people actually think that our Leaders can somehow put this country back together, then they might as well kill themselves now and save themselves the agony.
Logic does hold, and nothing can possibly put this country back together except production. Until the government takes it paws off everything and lets people produce, everyone can stop dreaming that maybe something or somebody will come to the rescue.
Last time it was a choice; this time it’s plain necessity…liberty or death.
August 6, 2011 — 10:06 pm
Sean Purcell says:
Hmmm, every time I think I’m engaged in a discussion on economics, I realize I’m actually discussing liberty…
You’d think I’d have learned by now.
Thanks Jim…
August 6, 2011 — 11:07 pm
Wayne says:
“Further NO revenue was in bill.”
@Kevin… That is the other part of the debate isn’t it?? Do we focus on creating private sector growth and job creation OR do we continue to increase the tax burden on the people who are already carrying more than they can carry.
IMO opinion the other way to decrease the debt is to grow the economy so that more individuals and companies are making more money and paying more taxes.
August 7, 2011 — 4:55 am
Teri Lussier says:
>Last time it was a choice; this time it’s plain necessity…liberty or death.
hmmm… Well then thank God for the internet, eh? I don’t think the revolution will be televised. It’ll be people who quietly find ways to go about their business without bluster and permission. People who just roll up their sleeves and keep calm and carry on. It’s not the people in front of the camera, it’s the ones unseen. People are infinitely resourceful, have an infinite number of choices, and many ways to communicate. It’ll be okay. I suggest we let two parties go about the only business they know in the only way they know to do it, and keep them busy while the real work gets done. It’s like keeping babies distracted while you cook dinner. Or am I’m being naive…?
August 7, 2011 — 3:00 pm
Chris Dates says:
>”Last time it was a choice; this time it’s plain necessity…liberty or death.”
Good….This leaves less room for negotiation at the bargaining table this time around. Maybe the radicals will be able to swallow up more of the market share.
>”I suggest we let two parties go about the only business they know in the only way they know to do it, and keep them busy while the real work gets done. It’s like keeping babies distracted while you cook dinner. Or am I’m being naive…?”
The only difference I see is these babies have really, really big guns. Every now and then a shot rings out and comes screamin’ through the kitchen. Of course, we need to keep cookin’, that’s what good folks do, but for goodness sakes, keep your head down!
BTW, thank God for the Internet!
August 7, 2011 — 4:05 pm
Teri Lussier says:
>The only difference I see is these babies have really, really big guns.
Maybe. But all babies cry loudly and poop themselves. Give ’em a binky, change their diapers, and they can be rocked to sleep.
People are infinitely resourceful. Governments are infinitely limited.
August 7, 2011 — 5:45 pm
Jim Klein says:
I love what you’re saying, Teri, and think it’s precisely the right attitude. 1 > 0 and no individual should let any other individual’s monstrosity be any sort of excuse.
Yes, I think you’re being a bit naive. There is nothing new here and societies have gone down this road for thousands of years. Chris is right about the really big guns and we know what happens time after time after time. There’s no question that information is the game changer now, but that cuts both ways…it allows people to learn the truth, but it also allows propaganda and bullshit philosophy to be just as widely spread. As it stands, at least for the moment, the latter is winning the fight. Like it or not, we’re in a tiny minority.
I’ve been saying for decades that once two generations are fully educated (so to speak) in altruist, collectivist, statist numbskullery, that the story would be told. We’re at that point now, and sadly it looks like logic is going to hold all the way through, just as it always does. The idiocy, not to mention the ruthlessness, is beyond belief and beyond calculation.
This is not writ in stone, and I don’t mean to imply that it is. People can change in a moment and there’s no telling what they’ll do when they get literally hungry. By all appearances and following what they’ve been taught, not to mention historical evidence, they’ll turn into brutes and whoever is the most brutish will get the last of the sustenance.
But that’s only appearances. Even dolts are driven by their minds, and there’s obviously an increase in both the information available and the number of examples, such as people here, who can share the vision of a way out. But it’s asking a lot for people to throw aside everything they’ve been taught–particularly that there are things out there greater than themselves–in order to move forward and serve their own lives and by extension, the lives of their neighbors and communities. Plus, there’s an entire class of nitwits–perhaps even the majority by now–who couldn’t work their way out of a box with four doors. That’s serious trouble when you consider things from their perspective.
It’s going to get ugly for a while; that much is for sure. Hell, it’s already ugly if you think about the militarization of the police and what goes on in every court and governing body in the country. That’s a mighty large group of people with mighty large guns, and they’re more than willing to use those guns to take what you and I have. IMO there is no other problem really, but it’s an awfully big problem.
Hopefully the inherent decency of people will break through, their education notwithstanding, and the dawn will come sooner rather than later. Someone here, like you, should write a book with that vision, and I even know what it could be titled: “2084.” Do it today!
August 8, 2011 — 6:57 am
Teri Lussier says:
Well that’s plain depressing…
I might be one of the dolts you refer to, Jim. I believe there is something divine/sacred/spiritual greater than myself but also that it resides in each of us. I believe that living the best life I can in the short time I’m here contributes to that greater thing, even if it’s not the primary reason to love my own life… Wildly off topic now.
Anyway. Here’s a real estate observation: People are worried that interest rates are just a politician’s breath away from skyrocketing, thus, buyers are buying and they are doing it creatively- combining households, lease-to-own, cash purchases. People are getting creative. As much as Realtors whine about the market, I think it would be harder to be a lender right now.
August 8, 2011 — 10:29 am
Jim Klein says:
“I believe that living the best life I can in the short time I’m here contributes to that greater thing, even if it’s not the primary reason to love my own life… Wildly off topic now.”
I don’t think that’s ever off-topic. Or maybe I should say that every topic reduces to that. Personally, I think it’s less important how one gets there, than that one gets there.
In any event, what’s important is that one person not stop another person from living the best life possible, irrespective of how it’s viewed or how that view developed. This is why the State is antithetical to life as a human, at least the State as it exists today. Based as it is in physical force, let alone idiocy, it automatically negates what a “best life” is to anyone, since that can be created by nothing but volition.
The State is not evil because it’s irrational, though it is. It’s evil because it’s factually against that which it pretends to be for. If a rapist were to declare, “But I was pleasing her and she just didn’t understand,” we would all be aghast. Yet somehow when a philosopher or politician shrieks, “But we’re helping them live and they just don’t understand,” we swallow it whole.
August 9, 2011 — 2:24 pm
Teri Lussier says:
By “greater thing” you were referring to the State. I see it now. I thought you were referring to a spiritual thing. I am naive. I’m typically an empathic person- I can feel your pain, except for this. Total blinders when it comes to govt, I cannot fathom in the least how anyone could believe the State > I. It doesn’t even occur to me. BMV, IRS, I should put myself in a position of dependency to this? My children will tell their children stories of me losing it at the BMV. Why would anyone willingly, let alone eagerly submit themselves to that? It can’t be training. I was raised up in a public school, that little bit of education never stuck. And I’ve done more than my share of self-destructive stuff, but not that. Never that. Perhaps it’s inherent- either we don’t have the herd gene, or the independence portion of our brains got fired up and running in the womb.
August 10, 2011 — 5:49 am
Jim Klein says:
“By ‘greater thing’ you were referring to the State. I see it now. I thought you were referring to a spiritual thing. I am naive.”
Technically you were right the first time around, but it deserves clarification. What a person chooses spiritually is no skin off anyone’s back. It’s exclusively the State that uses tools of force to impose a value structure. This is important because a person’s volition can be abridged only with force.
Also, it’s worthy of note that even in spiritual approaches where a “greater thing” is postulated, the attributes of that greater thing generally adhere to the individual himself, at least in Western thinking. God is offered mostly as a causal factor, to explain what otherwise would be unexplainable. Even most religionists conclude that there’s nothing greater /on Earth/ than the individual spirit, being as it is a reflection of God’s work.
Even that doesn’t matter so much. The only thing that really matters is that each individual be free to instantiate his or her beliefs and abilities. Reality will take care of sorting out the rational from the irrational.
August 10, 2011 — 6:21 am