patrick.net

Maybe what you're saying is that the demand is so high that changes in new supply have little impact. But then just say that without the big deal about how individuals make investment decisions.

IF that's true, that demand is so high, then investors could also just as easily accept the higher price for the treasuries, as choose another type of bond which is going up in relative price right along with bonds.

Methinks there is a general misunderstanding of the importance of the risk free rate in the pricing of all assets. Insofar as the Fed can manipulate today's risk free rate, then it manipulates all asset prices, including already issued bonds.

Then there is the issue of large and listed businesses borrowing money to purchase their own stock, so that it pushes up the value of the business.

If this is not an issue - please advise.

However from statistically analysis this is a "Quadrature Ponzi".

The value going up is false because it the firms owners pushed to buy the firm/founders/officers stock.

At the same time the borrowing creates more indeptedness.

So if this fails due to a one cause, the losses shall be ensquared upon the linear amounts by which the stocks might adjust downward, hence a "Quadrature Ponzi".

This is 180 degrees against the long term interest of the shareholders, but like the Subprime schemes, everyone will shut up while they are making money and then blame others when it pops.

"
If the fed buys a treasury that someone else wanted, they will simply buy some other form of structured debt. During 2013 the fed was purchasing about $45 billion per month.
The daily trading volume in the United states bond market is over $800 billion."

Maybe, but these other bonds are not risk free. It may be that the buyers want higher yield and would not want Treasuries. If the Fed corners the market on newly issued Treasuries, creating artificial demand at an interest rate below what the market ex-Fed would require to buy the equivalent amount, then it lowers the risk free rate. And the risk free rate determines pricing for all asset classes and so if it is mispriced via Fed intervention, then so are all assets. Hence bubble.

So, does anyone know what % the 45 Billion (per month) represents of the Bond market for the same month ($ value of Bonds, or chickens - not the $ value of the transactions of said Bonds/chickens)?

Dsdf4 says

So, does anyone know what % the 45 Billion (per month) represents of the Bond market for the same month ($ value of Bonds, or chickens - not the $ value of the transactions of said Bonds/chickens)?

Just look at the outstanding debt the government has...$17 trillion. $4trillion or whatever was injected into the system. That is a massive amount that brought interest rates to historical lows.

> Nothing the fed or any other central bank does is going to change what happens to you and me

This is BS. If this were not BS, I would own a reasonably priced house right now. If the financial markets had fallen apart in 2008, the weak would have been flushed. Assets would have been available for pennies on the dollar. The savers and debt avoiders would have had purchasing opportunity. The recession may have been worse, but the system would be clean again. as it is, the Mos Eisley state continues.

>It's really sad that anyone actually believes this. You'll never know what hit you.

What's really sad is that the middle class has had a 20% reduction in real earnings over the past 20 years.

80 Billion per month across 350 million people is $230 per person per month, about $3k per year.

What's really sad is that we are forced to fund the military killing brown people in our name, so that you can feel good about "helping people".

Strategist says

If Wall Street collapses our economy collapses. How does an economic collapse help anyone?

You stand in bread lines for a few months. You get to know your neighbor. You help him if needed. You re-prioritize and realize life is not all about money. You get back to real values of getting money from work rather than speculation. You purge the idiots who created this mess. The economy bounces back over time. You start saving again.

It would all have been very moral, satisfying, cathartic. All very good at a human level.

Heraclitusstudent says

Strategist says

If Wall Street collapses our economy collapses. How does an economic collapse help anyone?

You stand in bread lines for a few months. You get to know your neighbor. You help him if needed. You re-prioritize and realize life is not all about money. You get back to real values of getting money from work rather than speculation. You purge the idiots who created this mess. The economy bounces back over time. You start saving again.

It would all have been very moral, satisfying, cathartic. All very good at a human level.

Are you kidding me? We will have mass poverty...chaos would break out.....people will start rioting.....rapes and murder will be rampant.
No thanks.

Strategist says

Are you kidding me? We will have mass poverty...chaos would break out.....people will start rioting.....rapes and murder will be rampant.

No thanks.

Why would people riot? Or kill people? They didn't riot in 1930.

You organize gov help to sustain people for a while and help some industries bounce back, and that's it.

A financial collapse is a disruption. It doesn't mean most people can't go back to do what they do normally.

Strategist says

Heraclitusstudent says

Strategist says

If Wall Street collapses our economy collapses. How does an economic collapse help anyone?

You stand in bread lines for a few months. You get to know your neighbor. You help him if needed. You re-prioritize and realize life is not all about money. You get back to real values of getting money from work rather than speculation. You purge the idiots who created this mess. The economy bounces back over time. You start saving again.

It would all have been very moral, satisfying, cathartic. All very good at a human level.

Are you kidding me? We will have mass poverty...chaos would break out.....people will start rioting.....rapes and murder will be rampant.

No thanks.

Remember, we are AMERICA....we are not civilized like the Japanese. When they had a Tsunami with mass destruction their civility remained intact. They cooperated and helped each other. When we had Katrina, we ended up with looting murder and rapes. I'm used to living with civilized neighbors where we don't even bother to lock our cars and even homes.

Heraclitusstudent says

Strategist says

Are you kidding me? We will have mass poverty...chaos would break out.....people will start rioting.....rapes and murder will be rampant.


No thanks.

Why would people riot? Or kill people? They didn't riot in 1930.

We are AMERICANS....Americans are not civilized.
Read post # 77 directly above.

Strategist says

When we had Katrina, we ended up with looting murder and rapes.

Katrina removed law enforcement. This is why you had disorder.

I'm sure you neighbors will stay civilized.

Remember there are a lot of happy poor people.

Also remember, we DO have mass poverty TODAY. People living in tent cities wouldn't even see a change in their lives.

Heraclitusstudent says

Strategist says

When we had Katrina, we ended up with looting murder and rapes.

Katrina removed law enforcement. This is why you had disorder.

I'm sure you neighbors will stay civilized.

Remember there are a lot of happy poor people.

Also remember, we DO have mass poverty TODAY. People living in tent cities wouldn't even see a change in their lives.

You are living in a dream land. Los Angeles had riots in South Central some years ago, with law enforcement doing nada. What they should have done is start shooting the looters.
I remember back in 1996 I was in LA in a mini van and somehow got lost trying to get back home. I ended up in South Central. At a traffic light I opened my Thomas Guide to find a freeway - any freeway. a car pulled up next to me, they looked up at me and asked "Are you lost" Holy shit, I was stunned. How the hell did they know I was lost? You think I was gonna tell them I was lost? I said "I'm not" and moved on. I found the 91 fwy and managed to make my way home.

Strategist says

You are living in a dream land. Los Angeles had riots in South Central some years ago, with law enforcement doing nada. What they should have done is start shooting the looters.

People don't riot against economic crisis. They riot when the gov imposes painful measures seen as unfair. Believe me, letting WS eat dog food would be seen as fair and satisfying. That's the opposite: they would probably riot if they bailout WS again.

Plus I think times have changed. These days, they would happily shoot looters on sight.

Heraclitusstudent says

Strategist says

You are living in a dream land. Los Angeles had riots in South Central some years ago, with law enforcement doing nada. What they should have done is start shooting the looters.

People don't riot against economic crisis. They riot when the gov imposes painful measures seen as unfair. Believe me, letting WS eat dog food would be seen as fair and satisfying. That's the opposite: they would probably riot if they bailout WS again.

Plus I think times have changed. These days, they would happily shoot looters on sight.

Are you Japanese by any chance? This aint Japan. People here just need an excuse to riot, loot and rape.
I repeat - WE ARE NOT CIVILIZED.

mell says

I disagree with losing all your savings, you can diversify into multiple bank accounts insured to the max. FDIC amount which is currently backed by money printing if necessary (unlimited borrowing ability), if they reinstate a limit then you'd have to look at how well the FDIC is funded. But you definitely won't lose your savings if you diversify and go for safe vehicles. Also 2008 was not a deflationary depression, it was a needed meaningful correction in overheated sectors.

Most people don't keep their savings in FDIC insured bank accounts, especially if they have enough of it so the max is a problem.

401K accounts are in stocks and bonds, right? Or maybe money market?

A lot of people would see the value of their house slump. i.e. your equity would vanish quickly.

At the same time spending would collapse and cause massive lay-offs. If you don't lose your savings you could still lose your job.

And while a depression would assume the government stands out of the way, there is no question the government could then intervene and confiscate part of your savings, or replace them by a new currency.

Bottom line, I think it is naive that you can plan for any possible events.

If there is a depression, most people will be impacted, including many who think they would profit from it.

Heraclitusstudent says

Most people don't keep their savings in FDIC insured bank accounts, especially if they have enough of it so the max is a problem.

Yes, they need to pay attention and split up accounts that are too big.

Heraclitusstudent says

401K accounts are in stocks and bonds, right? Or maybe money market?

Same here. If you're nearing retirement and are still mostly in stocks you're not paying attention.

Heraclitusstudent says

A lot of people would see the value of their house slump. i.e. your equity would vanish quickly.

A house is a place to live, not to flip or take on large debt for.

Heraclitusstudent says

At the same time spending would collapse and cause massive lay-offs. If you don't lose your savings you could still lose your job.

True, more-so for the private sector. Now take a (esp. tenured) teacher for example, they cannot buy anything at current prices. 2008 they could and they would have kept their job. Usually the top talent is safe as well, as well as industries that are very necessary for survival, but it will also eliminate a lot of jobs where demand has been artificially created for, the purge there is a good thing

Heraclitusstudent says

And while a depression would assume the government stands out of the way, there is no question the government could then intervene and confiscate part of your savings, or replace them by a new currency.

They will do this either way, if they deficit-spend and borrow they either eventually have to confiscate and/or jack up taxes dramatically or inflate their way out, which has the same effect. If you think this is a possibility, then you need to diversify into foreign assets and currencies. Not that hard to do.

Heraclitusstudent says

Bottom line, I think it is naive that you can plan for any possible events.

Maybe not so much for catastrophes, for monetary events you sure can IMO.

Heraclitusstudent says

If there is a depression, most people will be impacted, including many who think they would profit from it.

That may be true, but to change the mindset towards diversification and overcoming addiction to debt and stop believing everything your financial advisor and the FED/government tells you, major corrections are necessary. And they are less severe if not tampered with and without cheap credit bubbles blown everywhere.

>Prices in some California neighborhoods fell by 70%.

yeah, and in my neighborhood, they fell by about 25%. They were still 5x median income. Now we're back to 6x and even 7x median income again. We were almost at that point of 4x median income where things are "normal" but NOOOOO couldn't have that could we? Fed had to step in and bail out banks and prop up the GSE's...

>Sometimes I swear that half of you are clinically insane

WE are insane because people are speculating on houses in places like central valley and Lancaster!?! Really!?! It's terrible to want the loans to imbecilies to stop!?!?

Despite your worst case scenario, end of the world if some bad banks fail chicken little-ing , the economy did take a hit, and 95% of us still had jobs. The companies we were working for did take some hits, did lean up a little bit, and did chill on the raises and bonuses. If the banks "failed" it's not like the branches and ATM's would have suddenly exploded. Their buildings wouldn't have fallen down... They would have simply been sold to stronger banks who would have continued operations with more sustainable practices.

People would have still shopped at vons to get their groceries and gone to the gas station... All those jobs still exist to service the economy. Mechanics still need to fix cars and trucks. The water isn't going to suddenly dry up out of the farmer's well because a bank no longer exists. The sun will keep on shining.

So yes, lower house prices with tighter lending standards is a good thing. It's not crazy to think so. If anything, it is insane to think we should attempt to keep afloat a system that we think will cause chaos if a few banks to fail. It's even more insane to think we should keep taking money out of the pockets of the poor and middle class via taxes and inflation to keep those few rich a$$holes afloat.

>80% sell at the bottom to the richest 20%. 80% buy at the top from the richest 20%. A deflationary depression ONLY works for rich people.

So so so sad and wrong. Deflation only works for debt free people. Rich or poor, the same money buying more and better things is a good thing. This is why computer prices fall and speeds get faster. Trying to argue against that is just stupidity. Productivity making food cheaply available is one of the greatest boons to civilization ever. Excess capacity allows people to spend their money on medicine, health, cleanliness, organization, and productive capability. The same money buying more grows the economy and creates new jobs and new assets.

Its true that some things will have their value decline and people will lose jobs as those things are no longer viable products in the economy. But when exactly was the last time you heard someone complain they could no longer get a buggy whip or a 386 25 Mhz computer? Or an 8mpg car that broke down after 75000 miles? Who is complaining that butter churns are just not available these days?

Nope, what I hear people complaining about is inflation. Healthcare is too expensive. College is too expensive. Houses are too expensive. Cars, gas, food... too expensive...

As I mentioned before, the middle class is down 20% in real wages over 20 years. 20 years is waaaaaaay pre-2008 "crash". It wasn't the "crash" that screwed people, it was wall street finance, job offshoring, and debt driven rat racing.

Now it's time for those who stayed out of debt and refused to participate in the rat race to reap the rewards of responsible living. Winter time is coming grasshopper; you better hope you have a friend who is an ant.

>I see. So you live in a fortress area

Nope. Good old San Diego. Home of working class ship builders, military, working stiffs, and a few qualcomm tech workers thrown in. Here's what's really sad. I put an ad out to get some housekeeping help for my wife, as she has a neck injury and I work a lot of hours. I was getting full resumes from biotech workers with degrees in organic chemistry trying to work some extra hours as a house keeper; ok well only 1 of those, but several other professionals trying for side work.

You guessed it.. many were trying to make a mortgage payment.

>Again..........you will NEVER see those houses hit 2x income. Ever. I don't care if the banks fail or if Jerusalem gets nuked or if aliens invade Texas.

1) Detroit

2) Historically 3-4x median in California is the norm, and that seems probable to me. Might overshoot down to 2.5 for a while during a super melt down, but then back to 3.5 is my guess.

Winter is coming grasshopper.

I'd have to agree with Zak on that. Debt and leverage killed the middle-class, not the singularity of 2008.

Zak says

>I see. So you live in a fortress area

Nope. Good old San Diego. Home of working class ship builders, military, working stiffs, and a few qualcomm tech workers thrown in. Here's what's really sad. I put an ad out to get some housekeeping help for my wife, as she has a neck injury and I work a lot of hours. I was getting full resumes from biotech workers with degrees in organic chemistry trying to work some extra hours as a house keeper; ok well only 1 of those, but several other professionals trying for side work.

You guessed it.. many were trying to make a mortgage payment.

I used to live off Moonlight Beach in Encinitas quite a while ago. Home prices there are insane. I guess LA is what folks compare the area to from a RE perspective now.

>You're a supply side free-market lunatic. You're the poison that got us here.

Yeah right. Hard working guy who just wants to have what little he is saving not be inflated away to nothing is poison. Can you really hear yourself saying these things? Are you working on making my argument for me through sarcasm? Do you really agree with me and are just trying to open people's eyes through your absurd statements?

Detroit . One word to destroy all your arguments.

You are aware of course that in the 19th century Detroit was dubbed "the Paris of the West" for its architecture, and for Washington Boulevard, which was electrified by Thomas Edison.

It is situated on a natural shipping route on the great lakes, and also had major rail line installed there. It basically was a "fortress area" as you call it. How the tide has turned:

http://en.wikipedia.org/wiki/Decline_of_Detroit

I 100% guarantee you, one riot like this starting in Oakland, and the San Francisco Bay area is the next Detroit.

>I have no idea why you people pray for bank failures, but you're praying for your own fiscal extermination. The aristocracy isn't going to suffer.

yeah, well, clearly you don't understand us at all, because we don't "pray for bank failures". We "pray" for common sense to return to allow standard bankruptcy law to apply and liquidate any bank or auto company that fails instead of this garbage bail out nonsense. There are plenty of good banks (and credit unions) to buy up the assets of the bad banks. We also "pray" for an end to personal tax rates of 40-50% while capital gains rates are at 15% and the profits are floated offshore anyway. And we "pray" for an end to $100k police officer jobs and insane public employee compensation that causes our taxes to be so high in the first place.

I have a sneaking suspicion that a lot of the people that "live" in San Diego "reside" elsewhere for tax purposes. Especially those that are retired.

Strategist says

He is right Herac, people get loans to buy homes which ultimately becomes their pot of gold.

I mean no offense but if you think buying a house on debt is a pot of gold, or productive in anyway, you are either crazy or very gullible. Unfortunately many people in California think like you.

Heraclitusstudent says

Strategist says

He is right Herac, people get loans to buy homes which ultimately becomes their pot of gold.

I mean no offense but if you think buying a house on debt is a pot of gold, or productive in anyway, you are either crazy or very gullible. Unfortunately many people in California think like you.

I have lots of friends who bought homes in the 80's and 90's with a mortgage. Every one of them is sitting on a pot of gold. Homes I purchased, and I have never sold one, turned out to be the best investments I ever made. The 2008 collapse was just another opportunity to buy more.

Strategist says

I have lots of friends who bought homes in the 80's and 90's with a mortgage. Every one of them is sitting on a pot of gold. Homes I purchased, and I have never sold one, turned out to be the best investments I ever made. The 2008 collapse was just another opportunity to buy more.

Well... the best you can say is it worked so far....

>You type it but you don't get it. On the one hand, people scream "Too big to fail!!! Let them die!!!". On the other hand, people say "No bailouts!!! Let them get liquidated!!!!".

uhh, those things are not opposites at all. in fact, they are the same thing. AIG was "too big to fail". we should have let it die. it shouldn't have gotten a bailout. It should have been liquidated.

When Lehman when through bankruptcy, it was split up and sold to a variety of other banks. By definition, 1 less means some kind of consolidation. Nothing to fear there. What is to fear is the damage inflicted on the smaller banks by propping up the unprofitable actions of AIG. Multiply this by all the TARP "bailouts".

>Watch what happens to that cash in a deflationary depression when families need that money to buy food because there are no jobs.

During the great depression a LOT of people moved back to the country and farmed food with relatives. You MAY be right that people are no longer able to support themselves and may die, just from a lack of any basic ability to care for themselves outside of a supermarket society. If that happens, the government should just raise my tax rate to 95%, and they can just be in charge of feeding everyone and determining who gets what, because we just can't have people dying from their own stupidity.. it's not fair.

Zak says

we just can't have people dying from their own stupidity.. it's not fair.

the Market can't provide for all. We had 200 million less people here in 1930 than now (not that people "went back to the farm" 1930-40, the actual census numbers don't support that history).

It's not just a supermarket society we live in, we've alienated capital -- the means of production -- itself from the workforce.

More people on the farm isn't going to result in more production. We're kinda tapped out here already.

But we don't have a production problem, we have a distribution problem.

1 out of 20 households are clearing 1 out of 3 of the nation's income dollars now. This is a tremendous money pump OUT of the paycheck economy,

FIRE is killing us, along with our $2T health sector, and our $500B/yr trade deficit.

Things started getting squirrelly here when we lost our trade surplus.

blue is trade surplus / GDP, red is total debt / GDP (right axis)

The word Government shares the greek root of "cyber", to steer or pilot a boat.

Our government hasn't been doing all that great a job of steering things, since 1970 or whenever.

exploding housing and health costs, cheap imports at the cost of 8 million mfg jobs . . . we've really let things get out of control here.

>No, I suggest you don't wax nostalgic about what you missed out on. Be careful what you wish for.

you're right. I should just be grateful that the 40% coming out of my paycheck isn't because of communism! Ugg. how dare i suggest that it might be nice to pay only 15% tax as if my income were capital gains. I am just a stupid peon worker. I should be grateful these kind people want to take care of me so well. They have my best interest at heart .. you swear! They really do need to read my email and listen to my phone calls because TERRORISM! my poor pea brain is incapable of any reason or self direction of my life.. CAPITULATE TO THE STATE! chant it with me!

ja says

We should forbid inheritance

nah, just tax parasitical economic activity directly.

Piketty didn't go anywhere near this remedy for some strange reason.

It's like Henry George and his movement didn't even exist.

I haven't read all of Piketty (who has?) but on page 21:

"they might also take decades, during which landlords and oil well owners might well accumulate claims on the rest of the population so extensive that they could easily come to own everything that can be owned, including rural real estate and bicycles, once and for all.”

the rich can corner real estate, they cannot corner bicycles! One of these the market can make new supply, but for the other, it cannot!

he falls into the same trap of not understanding the difference between land and actual capital:

“Residential real estate can be seen as a capital asset that yields “housing services,” whose value is measured by their rental equivalent.”

yes it can, but that's not all what's going on. Unlike all other forms of capital, housing is bid up by the masses, since we all must have tenancy in it, and such tenancy ( leasehold or fee simple) is sold on the bid.

Zak says

I should just be grateful that the 40% coming out of my paycheck isn't because of communism!

9% of your paycheck is retirement and health insurance prepays for your old age pension and health needs. This is an entirely appropriate service of government, since we don't want people losing their pensions should their insurance company go BK or otherwise abscond with the dough.

5-10% is state taxation. Roads, prisons, education, all the services your state provides.

20%+ goes to the Feds, and 10% of that is simply our defense expense:

CAPITULATE TO THE STATE!

A people get the government they deserve.

Bellingham Bill says

the rich can corner real estate, they cannot corner bicycles! One of these the market can make new supply, but for the other, it cannot!

If making a bycicle depends 9.99% on having the machines and the material, not the labor, what is labor worth?

The value of you labor is a capital you are born with. Regular asset's capital not. It's traded, or inherited. On the long term, prone to concentration if you just considere it stocastic process: