Credit Supernova!


By Patrick   Follow   Sun, 3 Feb 2013, 5:16pm   1,021 views   27 comments
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http://www.pimco.com/EN/Insights/Pages/Credit-Supernova.aspx

There may be a natural evolution to our fractionally reserved credit system which characterizes modern global finance. Much like the universe, which began with a big bang nearly 14 billion years ago, but is expanding so rapidly that scientists predict it will all end in a big freeze trillions of years from now, our current monetary system seems to require perpetual expansion to maintain its existence. And too, the advancing entropy in the physical universe may in fact portend a similar decline of energy and heat within the credit markets. If so, then the legitimate response of creditors, debtors and...

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  1. futuresmc


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    1   5:58pm Sun 3 Feb 2013   Share   Quote   Permalink   Like (4)   Dislike  

    While I would agree with this article if economics was a natural science with laws that were uncontrollable by mere humans stuck on a single planet orbiting a ho hum star, it's not. Humans define economic reality. There is too much invested in modern ideas of money, psychologically speaking. Those who have the most control will tinker with the system, and claim it's been fixed. Contrarians will be silenced by a corporate media and slow inflation will rule for the next 30 or more years. If a sudden shock hits the system, there will be some sort of debt jubilee, at least for the major countries and financial actors. The debt based system is how the powerful stay relevant in a secular world. Even if they've completely screwed up and should take their lumps to save the free market, they have no honor and won't do so. If they go too far in austerity or hyperinflation, there will be mass riots that could be dangerous to the very elites that run the system. They won't risk neo-communism taking over, so life will will go on. It will just be darker for the majority of the population.

  2. Patrick


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    2   6:07pm Sun 3 Feb 2013   Share   Quote   Permalink   Like (5)   Dislike  

    futuresmc says

    The debt based system is how the powerful stay relevant in a secular world.

    Yup. Our debt is their wealth.

    So I think I'd agree: the 1% see that it is necessary for the 99% to take on heavy mortgages so that they obligate themselves to be servants to the 1% for their entire working lives. But when the 99% can't actually pay, instead of throwing them out of their houses, the 1% will reduce their debt to the point where they can pay, and yet also remain servants. No revolution, no freedom, just a loosening of the screws only to the point where the screaming stops...

  3. New Renter


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    3   8:20pm Sun 3 Feb 2013   Share   Quote   Permalink   Like (1)   Dislike  

    Patrick says

    futuresmc says

    The debt based system is how the powerful stay relevant in a secular world.

    Yup. Our debt is their wealth.

    So I think I'd agree: the 1% see that it is necessary for the 99% to take on heavy mortgages so that they obligate themselves to be servants to the 1% for their entire working lives. But when the 99% can't actually pay, instead of throwing them out of their houses, the 1% will reduce their debt to the point where they can pay, and yet also remain servants. No revolution, no freedom, just a loosening of the screws only to the point where the screaming stops...

    Isn't that how capitalism is SUPPOSED to work? "Charge what the market will bear" and all that?

    I used to love hearing the marketing guys at one of my former company telling us how they did pricing using the "giggle test". The scream test doesn't sound all that different.

  4. JodyChunder


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    4   8:24pm Sun 3 Feb 2013   Share   Quote   Permalink   Like (3)   Dislike  

    Patrick says

    No revolution, no freedom, just a loosening of the screws only to the point where the screaming stops...

    Agreed. Only, honestly, I don't know if most people would know what to do with real freedom if it came up and bit them on the knee.

  5. bmwman91


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    5   8:55pm Sun 3 Feb 2013   Share   Quote   Permalink   Like (2)   Dislike (2)  

    JodyChunder says

    I don't know if most people would know what to do with real freedom if it came up and bit them on the knee.

    Two chicks at the same time.

  6. New Renter


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    6   9:04pm Sun 3 Feb 2013   Share   Quote   Permalink   Like (1)   Dislike  

    bmwman91 says

    JodyChunder says

    I don't know if most people would know what to do with real freedom if it came up and bit them on the knee.

    Two chicks at the same time.

    what's stopping you now?

  7. Reality


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    7   9:48pm Sun 3 Feb 2013   Share   Quote   Permalink   Like (2)   Dislike  

    This is not how capitalism supposed to work. What's been happening is socialization of losses, and letting it sap vitality from the rest of the economy.

    The strength of capitalist free market is in the free market's ability to eliminate inefficient ways of resource allocation. Notice, it's about eliminating bad methods and bad arrangements, not eliminating people. In fact, eliminating bad work arrangements would save the person and make the rest of the person's life more productive.

    In contrast, socializing business losses and keeping people in non-productive jobs via those government bailouts, just like those behemoth government owned enterprises in former eastern bloc countries, keep people in non-productive jobs . . . thereby in effect eliminate the productivity of the person. When things get bad enough, as in those former eastern bloc countries, after a while in that non-productive position, the person's life may even be at risk as he is no longer of any value to the party.

    The debt weight of non-productive work arrangement sustained by government forcible bailouts and other wealth transfers is what's sapping the "heat" in the economy.

  8. JodyChunder


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    8   9:50pm Sun 3 Feb 2013   Share   Quote   Permalink   Like (1)   Dislike  

    bmwman91 says

    Two chicks at the same time.

    Make it twins. But nah, that's bucket list stuff -- I meant real no-strings-attached day-to-day freedom.

  9. ELC


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    9   8:30am Tue 5 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    New Renter says

    my former company telling us how they did pricing using the "giggle test"

    Tell us more about this "giggle test." It sounds interesting.

  10. tatupu70


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    10   8:35am Tue 5 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    Reality says

    The debt weight of non-productive work arrangement sustained by government
    forcible bailouts and other wealth transfers is what's sapping the "heat" in the
    economy.

    That is a complete load of bullshit. What's sapping the heat is the income/wealth disparity.

    Please specify to which "non-productive" jobs you do you refer?

  11. mell


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    11   8:49am Tue 5 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    tatupu70 says

    Reality says

    The debt weight of non-productive work arrangement sustained by government

    forcible bailouts and other wealth transfers is what's sapping the "heat" in the

    economy.

    That is a complete load of bullshit. What's sapping the heat is the income/wealth disparity.

    Please specify to which "non-productive" jobs you do you refer?

    No that's exactly right. Non-productive work is not just limited to certain government positions, a lot of the banksta 'work' is not productive and that's why they should have gone into orderly bankruptcy instead of being bailed out at the expense of the taxpayer (AKA socializing losses). The wealth disparity is a consequence of the special interests and wealthy bankstas sitting on top of the money chain, taking their cut first, then lending the rest of the people their free money at a fat interest.

  12. tatupu70


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    12   8:59am Tue 5 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    mell says

    a lot of the banksta 'work' is not productive and that's why they should have
    gone into orderly bankruptcy instead of being bailed out at the expense of the
    taxpayer (AKA socializing losses).

    If that were the case, then why haven't these non-productive positions been shed now? The banks were given loans--they weren't forced to keep paying these "non-productive" positions.

    And the losses were not socialized--some businesses were given loans. The owners of the banks took the HUGE losses, not the government. The bailout program overall probably does have some small losses, but considering the alternative, it was very successful.

    mell says

    The wealth disparity is a consequence of the special interests and wealthy
    bankstas sitting on top of the money chain, taking their cut first, then lending
    the rest of the people their free money at a fat interest.

    Why has it gotten so much worse over the last 20-30 years then? There have always been banks and special interests. Why did things run smoothly for decades until Reagan came along?

  13. SoftShell


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    13   5:31pm Tue 5 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    His face..
    New Renter says

    bmwman91 says

    JodyChunder says

    I don't know if most people would know what to do with real freedom if it came up and bit them on the knee.

    Two chicks at the same time.

    what's stopping you now?

  14. ELC


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    14   5:39pm Tue 5 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    SoftShell says

    His face..

    His man boobs.

  15. JodyChunder


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    15   6:10pm Tue 5 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    ELC says

    His man boobs.

    Talk about conjecture!

  16. New Renter


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    16   6:57pm Tue 5 Feb 2013   Share   Quote   Permalink   Like (1)   Dislike  

    ELC says

    New Renter says

    my former company telling us how they did pricing using the "giggle test"

    Tell us more about this "giggle test." It sounds interesting.

    Tell people a price. If they giggle it's too high. If not it's too low. Repeat until you find the threshold. That's your price.

  17. ELC


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    17   8:07pm Tue 5 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    JodyChunder says

    Talk about conjecture!

    I was judging by your avatar. That dude needs a manzier! :)

  18. Patrick


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    18   8:09pm Tue 5 Feb 2013   Share   Quote   Permalink   Like (1)   Dislike  

    tatupu70 says

    mell says

    The wealth disparity is a consequence of the special interests and wealthy

    bankstas sitting on top of the money chain, taking their cut first, then lending

    the rest of the people their free money at a fat interest.

    Why has it gotten so much worse over the last 20-30 years then? There have always been banks and special interests. Why did things run smoothly for decades until Reagan came along?

    I think the reason is that corruption has been perfected in America. Corporate lobbyists back then were not quite as sophisticated and shameless as they are now.

    Reagan was the beginning of the end. Now you can just buy any law or Congressman you want.

    The solution is public campaign finance and a complete ban on private campaign donations.

    Or perhaps just selecting our Congressmen at random from the population would also fix things.

  19. JodyChunder


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    19   8:17pm Tue 5 Feb 2013   Share   Quote   Permalink   Like (1)   Dislike  

    ELC says

    JodyChunder says

    Talk about conjecture!

    I was judging by your avatar. That dude needs a manzier! :)

    Well, I wasn't the one wanting two girls at once. I've always been a one woman man.

    BTW That's solid fat there, snoopy. Not everyone has hours to devote to the pec-deck. But I'd still pit my pectoral prowess against yours any day!

  20. Reality


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    20   8:39pm Tue 5 Feb 2013   Share   Quote   Permalink   Like (1)   Dislike  

    tatupu70 says

    If that were the case, then why haven't these non-productive positions been shed now? The banks were given loans--they weren't forced to keep paying these "non-productive" positions.

    For the same reason why bureaucracies keep on growing. Once the threat of losing money and going out of business is gone, everyone wants to have more underlings. Besides, once the institution becomes TBTF, having more useless hands onboard is an asset! for future bailouts. Can you imagine GM being bailed out if it had only a few thousand employee instead of hundreds of thousands of employees?

    And the losses were not socialized--some businesses were given loans. The owners of the banks took the HUGE losses, not the government.

    How did the owners of the bailed out banks take "HUGE" losses? Are you talking about the average small-time shareholders who panicked into selling their positions bought at much higher prices or the real owners who have near-zero cost basis to begin with and have not sold and still receiving enormous payouts every year the big banks stay in business?

    The real losses are passed onto the taxpayers, who have to pay taxes to service the alleged loans that the government has taken out to bail out the banks. See, the bailout payment is only a book entry; the government doesn't have money. The big banks simply turned the book entry around to lend back to the government at interest, so the taxpayers will continue to pay the alleged interest (on money that never existed) to the big banks for many years to come.

    The bailout program overall probably does have some small losses, but considering the alternative, it was very successful.

    The alternative would be some new banks emerging taking over the TBTF banks' business, without the bonuses and stock options and fat pentions for those caused the mess to begin with. The bailout program has been very successful at entrenching the existing banking monopoly and pulling a wool over the eyes of those want to believe.

  21. Reality


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    21   8:46pm Tue 5 Feb 2013   Share   Quote   Permalink   Like (1)   Dislike  

    tatupu70 says

    Why has it gotten so much worse over the last 20-30 years then? There have always been banks and special interests. Why did things run smoothly for decades until Reagan came along?

    If things were running smoothly, Reagan would never have been elected. You may have forgotten how bad things were in the 70's. The vice president went to jail for tax evasion. The president was nearly impeached and had to resign. That's less than a decade after another president was assassinated. Politics is messy. Power corrupts. The more people have failth in the politicians, the messier it gets because the more power is given to those thugs.

  22. errc


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    22   8:46pm Tue 5 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    Ok reality, that's enough reality for now

    Best to just go on believing that everything was so friggin dire that we just had to bail out the tbtfs. And that in short order, they turned around and paid it all back with interest! Yes, the taxpayer made out well as we profited from this venture,,,why not have s-more. And now everything is just grand, dontcha know

  23. bg


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    23   12:02am Wed 6 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    JodyChunder says

    I meant real no-strings-attached day-to-day freedom.

    Workout, home school my child, grow a garden, read.

    tatupu70 says

    Why has it gotten so much worse over the last 20-30 years then? There have always been banks and special interests. Why did things run smoothly for decades until Reagan came along?

    I thought is was systematic deregulation that started with Reagan. Also decreased taxes on richest Americans that has just gotten more and more extreme.

  24. tatupu70


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    24   4:18am Wed 6 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    Reality says

    For the same reason why bureaucracies keep on growing. Once the threat of losing
    money and going out of business is gone, everyone wants to have more underlings.

    Again--the threat of losing money is most definitely NOT gone. Banks lost HUGE when housing crashed. All the bailout did was keep some banks from going bankrupt, it certainly didn't prevent banks from losing.

    And your explanation makes no sense. Do the banks want to maximize profit or not? You're saying they don't care about improving profits? Basically, the free market doesn't work?

    Reality says

    How did the owners of the bailed out banks take "HUGE" losses? Are you
    talking about the average small-time shareholders who panicked into selling
    their positions bought at much higher prices or the real owners who have
    near-zero cost basis to begin with and have not sold and still receiving
    enormous payouts every year the big banks stay in business?

    I'm saying look at the bank's earnings over the last 15 years and tell me that the owners didn't lose.

    Reality says

    The big banks simply turned the book entry around to lend back to the government
    at interest, so the taxpayers will continue to pay the alleged interest (on
    money that never existed) to the big banks for many years to come.

    Again--it appears you don't believe in the free market. If the big banks started charging consumers more so they can service the government loans, consumers are free to move their money to small and mid size banks that didn't need bailout assistance and would be at a competitive advantage.

    Reality says

    The alternative would be some new banks emerging taking over the TBTF banks'
    business, without the bonuses and stock options and fat pentions for those
    caused the mess to begin with. The bailout program has been very successful at
    entrenching the existing banking monopoly and pulling a wool over the eyes of
    those want to believe.

    Or the alternative would have been the US economy crashing. 50% unemployment. I don't know how it would have turned out, but neither do you. Personally, I'd rather not take the risk.

  25. tatupu70


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    25   4:20am Wed 6 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    Reality says

    If things were running smoothly, Reagan would never have been elected. You
    may have forgotten how bad things were in the 70's. The vice president went to
    jail for tax evasion. The president was nearly impeached and had to resign.
    That's less than a decade after another president was assassinated. Politics is
    messy. Power corrupts. The more people have failth in the politicians, the
    messier it gets because the more power is given to those thugs.

    I was talking specifically about wealth/income disparity.

  26. lostand confused


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    26   5:03am Wed 6 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    Reality says

    If things were running smoothly, Reagan would never have been elected

    Yeah, from the frying pan , into the fire. Idjit started this whole mess and tripled the deficit. As Cheney said,"reagan proved that deficits don't matter."

  27. bob2356


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    27   8:28am Wed 6 Feb 2013   Share   Quote   Permalink   Like   Dislike  

    bg says

    I thought is was systematic deregulation that started with Reagan. Also decreased taxes on richest Americans that has just gotten more and more extreme.

    That isn't true, deregulation was a big Carter initiative. Airlines, trucking, oil were all deregulated under Carter. Carter also brought on the lawsuit that broke up AT&T. Reagan was endorsed by the teamsters for his promise to delay trucking deregulation.

    Reagan lowered the tax rate on the richest, but eliminated most of the exemptions so the actual taxes paid wasn't much different. What was more important was he changed the brackets to move a lot more people into the highest bracket.

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