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Author: RaptorD2 Big gold star, 5000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 449429  
Subject: Big Deal Date: 3/28/2013 11:39 PM
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It can’t be just me.

Recent news stories from anywhere on Earth require a reader to have access to maps of a rotating list of geographic locations in the world. Cyprus. Luxemburg. Portugal. Spain. Pick up any newspaper, if you happen to be one of the minority of remaining subscribers. Otherwise, look at any news website, magazine or investing spam and we find more rehashing of similar crises that are increasingly dire and each “unique”. Unique” in circumstance, unique in geographical terms and unique in the solutions provided by the reigning Powers That Be.

But wait. Are they unique? All the banking crises around the globe … we often tend to think of them as limited, country-specific problems and indeed, some of the unsustainable situations that have arisen since 2008 were indeed exacerbated by actions taken by political leaders of various locals in addition to those taken by management at individual TBTF banks. No doubt about that. However, and I may be wrong, the lens I look through to view the world is telling me an even more hideous story. Thankfully I am not an economist and have no special expertise in economics, so there is a chance that my lens needs tuning or replacement. But for now, it’s the only lens I have to judge what’s really happening on planet Earth.

My first thought is that there are so many interesting questions arising out of these “crisis events” that one would have to be a fool to wonder why solutions, or rules, if you will, were not already in place—and publicized, mind you—long before they were needed. For example: Should the cost of a private and failing bank be born by the depositors, bond holders or should government take the hit and pass on the cost to all taxpayers? Or is a public bank just like any other business and should be allowed to file bankruptcy and go out of business in an orderly fashion like a giant retailer would? I am confident that most of us could make a relatively valid argument for any of these options or a mix of the options as the “correct” or “fair” solution. But that doesn’t answer the question of what will actually be done to alleviate any of the individual problems because our opinions matter squat to those in control of the levers. But even discussing and arguing for any of available choices still don’t come close to covering the scope of the problems I see while viewing them through my wide angle lens (which ironically is the counterpoint to a “macro” lens in optics, unlike economics.)

Another question. Did the housing crisis in the U.S. really cause all of the current worldwide crises? We all know that it started the ball rolling down the hill, but if that particular bubble never happened, would the world economic systems be anything like what any of us here, being of sound mind, would call truly healthy? Would it be resilient and stable? In other words, what if the problems aren’t only bank specific? What if they are not truly country-specific? What if they are systemic and ingrained to a system that is faulty? While we’re asking the questions, let’s ask another. (How dare we?) What if they are all due to a faulty model that is doomed to eventual failure? As mentioned above, I am not an economist but my (limited) knowledge of economic theory tells me a few simple things that have more than once caused me to debate with myself over the physical impossibility of system success due to required assumptions that seem at times, um, less than compatible.

In our current form of fiat currency, used roughly similarly by all countries as far as I know, money is created only by the issuance of debt. And Capitalism, of which we are all Fans, Investors and True Believers, requires long-term growth in order for the system to flourish and from the few details I understand, requires constant growth even to merely survive. Growth of production. Growth of profit. Growth of expenditure. Growth of savings. (Well, but savings aren’t required for all participants, I hear you say, and you are correct but bear with me because capital has to come from somewhere, right?) And let’s not forget constant growth of debt.

But it seems quite possible, doesn’t it, that in some situations, at some times in history, a majority of citizens, banks and countries, all doing their duty to keep capitalism flourishing, have taken on too much debt all at the same time and need to save, save save rather than spend, spend, spend for their own mere survival? Maybe we’re even at that point right now. And if so, these crises are only the first of many. After they’re solved or swept under the rug, what’s next? Bonus question: Have we solved any of our current economic problems yet?

We fight terrorism by invading foreign countries chosen seemingly at random (yes, said with a bit of sarcasm, but not a full dose) but we leave our own borders open so that immigrants feel free to come on up and feed our capitalist monster when legitimate citizens can no longer afford to. That sure sounds like a good long-term plan, right? What could possibly go wrong?

Corporations are richer than ever before in history and sitting on large mountains of cash. How long can that last, I wonder, when consumers, at least the U.S. variety, have not had a raise for 20 years? High unemployment and the permanent loss of entire sectors of labor from obsolescence and out-sourcing don’t seem to be helping either. How is a substantial portion of those mountains of wealth ever going to come back to citizens? And all these discussions are before we even take a peek at the ramifications of printing trillions of dollars on inflation and long-term employment, or the expectations of this debt ever being paid off?

On the positive side (more sarcasm?) maybe the problems aren’t all born strictly of economic parents. Maybe fiat currency is the best idea since the iPhone XVIII. Maybe savings accounts are fungible and it doesn’t really matter. Maybe we’ll discover some new requirement for lots of new jobs. And maybe I’ll win the lottery tomorrow.

So many questions, so few solutions. Actually, that's not fair. I bet each of us here in MacroLand have a few good, strong, sensible and fair solutions mind. But who among us that have any control whatsoever wants to actually hear our ideas?

Ah, I get it. Duh. It's so simple. That is the real question, isn’t it? No one wants to hear it.

My best to you, my Fellow Sheep. Sleep well.

Dan
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Author: warrl Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 419162 of 449429
Subject: Re: Big Deal Date: 3/29/2013 1:54 AM
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My first thought is that there are so many interesting questions arising out of these “crisis events” that one would have to be a fool to wonder why solutions, or rules, if you will, were not already in place—and publicized, mind you—long before they were needed. For example: Should the cost of a private and failing bank be born by the depositors, bond holders or should government take the hit and pass on the cost to all taxpayers? Or is a public bank just like any other business and should be allowed to file bankruptcy and go out of business in an orderly fashion like a giant retailer would?

The thing is, that question WAS answered in advance, in great detail, and reasonably well publicized.

Then when crunch time came, government shoved the answer into the paper shredder and did whatever it wanted - which usually served to enrich large investors at the expense of the taxpayer, except in the case of US auto companies where it served to enrich unions at the expense of both taxpayers and investors.

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Author: tim443 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 419171 of 449429
Subject: Re: Big Deal Date: 3/29/2013 7:46 AM
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The thing is, that question WAS answered in advance, in great detail, and reasonably well publicized.

Then when crunch time came, government shoved the answer into the paper shredder and did whatever it wanted -



warrl

Methinks you started too late in the story.

The government failure was far earlier and consisted of the "omission" of allowing a bunch of arrogant teenagers (the bankers) to operate the car (financial system) without adult supervision.

It "appeared" to be working so well and was so easy for the leaders that others copied the strategy.

When the ship is slipping below the waves is not the time to tell the sailors to stop poking holes in the hull.


Any <http://perezhilton.com/fitperez/2013-03-28-scope-bacon-mouth... mouse

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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 419188 of 449429
Subject: Re: Big Deal Date: 3/29/2013 10:50 AM
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During the euro crisis in 2011, U.S. Treasury Secretary Timothy Geithner went to Europe to instruct the ECB on how the Treasury and Federal Reserve engineered the 2008 crisis rescue.

Like it or not, the troika then followed a similar path (with variations, such as increasing the hit to bondholders).

<But it seems quite possible, doesn’t it, that in some situations, at some times in history, a majority of citizens, banks and countries, all doing their duty to keep capitalism flourishing, have taken on too much debt all at the same time and need to save, save save rather than spend, spend, spend for their own mere survival? Maybe we’re even at that point right now.>

You be the judge. In, 2001, the Cash surplus/deficit (% of GDP) for the World was zero. Some nations had deficits, but the surpluses of other nations balanced them. Now, the Cash surplus/deficit (% of GDP) for the World is -6.6% of World GDP.
http://research.stlouisfed.org/fred2/series/CASHBL1WA188A

Wendy

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Author: SuisseBear Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 419205 of 449429
Subject: Re: Big Deal Date: 3/29/2013 1:06 PM
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Corporations are richer than ever before in history and sitting on large mountains of cash. How long can that last, I wonder, when consumers, at least the U.S. variety, have not had a raise for 20 years? High unemployment and the permanent loss of entire sectors of labor from obsolescence and out-sourcing don’t seem to be helping either. How is a substantial portion of those mountains of wealth ever going to come back to citizens?


Oh it is... that pile of cash, parked largely in appropriate havens after having avoided ordinary taxation, believe it or not, is actually given back to the citizens' governments!

Oh, not as tax, but as a loan (for a small consideration):


MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES
(in billions of dollars)


China, Mainland 1264.5
Japan 1115.2
Oil Exporters 3/ 262.0
Brazil 253.4

<drum roll>

Carib Bnkng Ctrs 4/ 236.9

...

4/ Caribbean Banking Centers include Bahamas, Bermuda, Cayman Islands, Netherlands Antilles and Panama. Beginning with new series for June 2006, also includes British Virgin Islands.


http://www.treasury.gov/resource-center/data-chart-center/ti...


SB
(hat tip to Tim's video)

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Author: jerryab Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 419246 of 449429
Subject: Re: Big Deal Date: 3/29/2013 8:54 PM
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more rehashing of similar crises that are increasingly dire and each “unique”. Unique” in circumstance, unique in geographical terms and unique in the solutions provided by the reigning Powers That Be.

They are not unique because they are essentially the same problem repeated somewhere else.

It happens because the chase for returns is international in scope--and the investors *all* relied on one source to evaluate their level of risk--the ratings agencies. The ratings agencies failed (in more ways than one). So you have that one failure having an impact in many different areas of the world because the information was deemed to be valid--but was not. The insurance purchased to cover those losses *also* vanished because the insurance companies went broke due to the same reason--so the investor group worldwide was left "naked" to the risk they did not want to take.

On top of that mess, there was the collapse of the US govt (in terms of being unable to run the country effectively)--which led to a wide range of perceived and real problems at both the US-national and international levels. Especially with one party making their publicly acknowledged intent to do whatever it took to unseat Obama in the 2012 election.

Corporations are richer than ever before in history and sitting on large mountains of cash.

There is no need to invest the cash because demand is below production capability.

How long can that last, I wonder, when consumers, at least the U.S. variety, have not had a raise for 20 years?

More like 30+ years. They got a little more under Clinton--then it went down under GWB.

That will change in the not-so-distant future. Once the boomer retirements begin to be felt in the labor force, wages and benefits will have to be raised if employers want to get/keep workers. It will be an employee's market for many years--and employers will have no choice but to pay. I figure it will begin between 2015-2020. Employers are already working to automate and re-design their systems and processes so they need fewer workers because there will be fewer workers available.

capital has to come from somewhere

Capital is nothing more than accumulated labor invested in an asset with a long life ("capital equipment" is the most commonly used phrase). Capital is always being accumulated--even if the already-existing capital gets used up or destroyed. If that happens, then you start rebuilding your capital.

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Author: qazulight Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 419249 of 449429
Subject: Re: Big Deal Date: 3/29/2013 9:14 PM
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Hey! You said what I said.


Except when you say it sounds more intelligent.

Cheers
Qazulight

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