Stock Market Crash Incoming

[Chickensguys]

Feds have raised the Interest Rates. Prepare for the next Great Recession. 

 

 

Janet's gift to us. 

 

Edited December 16, 2015 by Chickensguys

[Kyubnyan]

In b4 someone blames Bush again.

[Mike Haggar]

Rate hike is overdue and has already been priced into the market. Not news. The U.S. is close to overheating at the moment, based on the uptick in wages and rental prices. So long as the Fed doesn't do anything unexpected, I don't anticipate a slowdown. You just won't see massive wage growth. The continued drop in oil prices should help the real wages of workers. True, the unemployed as a percent of population is still up, but that's a result of baby boomers retiring.

 

I'm a little more concerned about the rise in rent, especially since U.S. developers seem to be focused on high-end properties that will be bought as "investments" rather than affordable housing that will actually be used. That's pretty much the trap that China fell into. Better to own something that is continually generating value, instead of a toy property bought for cachet that will inevitably crash. Like everything else, land is only worth what it can be used for. Anything else is marketing.

 

Developing countries that are pegged to the dollar or dependent on commodities priced in dollars will hurt from the rate drop, though. No more sweet interest rates subsidizing their growth.

[Dwemyrn]

Feds have raised the Interest Rates. Prepare for the next Great Recession. 

 

-snip-

 

Janet's gift to us. 

 

-snip-

Yeah, better go hide in bomb shelters with 25 years worth of twinkies you paranoid !@#$. 

[Dimitri Valko]

Yeah, better go hide in bomb shelters with 25 years worth of twinkies you paranoid !@#$. 

 

Or even better, 25 years worth of bacon, cake, and pepsi...

[fistofdoom]

Or even better, 25 years worth of bacon, cake, and pepsi...

the three food groups right there

[Doktor Avalanche]

Last increase was, - in 2009?

Not a fan of the increase but also not a fan of controlled markets to begin with.(not trying to start a debate/argument)

[Ogaden]

The last rate increase was in 2006, one year before the debt money bubble popped in 2007.

 

The underlying issue remains unsolved and is 10x worse due to a decade of quantitative easing.

 

To be honest the whole Bretton Woods system might implode, which would be terrible for world trade and commerce.  We'd have to scramble to replace the IMF which !@#$ all you want, provides an irreplaceable service.

[Doktor Avalanche]

 We'd have to scramble to replace the IMF which !@#$ all you want, provides an irreplaceable service.

A safety net is a safety net, albeit a small net if what you say does occur.

[Mike Haggar]

And the markets rally. People are more concerned about the economy than interest rates at this point. The Fed's caution spooked everyone, but the markets should only be seen as an imperfect barometer of the wider economy. There are lots of alternate reasons for market swings besides the economy, and the last thing the Fed should be worried about is the salaries of hedge fund managers going down. 

Last increase was, - in 2009?

Not a fan of the increase but also not a fan of controlled markets to begin with.(not trying to start a debate/argument)

The increase is necessary to keep investments from being used inefficiently. That mansion looks a lot less tempting when you're paying 5% on it, vs 2-4%. You start deciding if you'd rather build an apartment complex that makes you 10% or more, instead. Or hire someone for your company that could make you 50%.

 

The last rate increase was in 2006, one year before the debt money bubble popped in 2007.

 

The underlying issue remains unsolved and is 10x worse due to a decade of quantitative easing.

 

To be honest the whole Bretton Woods system might implode, which would be terrible for world trade and commerce.  We'd have to scramble to replace the IMF which !@#$ all you want, provides an irreplaceable service.

Out of curiosity, what do you see as the underlying issue? I'll admit that the low inflation rate with this much money sloshing around is alarming. Big players have to be stockpiling cash, which will flood out as soon as anyone gets a whiff of inflation. While I'm bearish on the markets in the short term, in the long term this is one of the best times to buy. A lot of money is flowing out of the market because oil sellers (companies and countries) need the money to cover their budgets, which is lowering stock prices. Meanwhile, the good old Fed and Treasury department keep printing money.

 

Many savers mistakenly think that keeping money in a bank account is safe while assets are risky. Currency is only as "safe" as the spending habits of the institutions that make it. Take a look at the deficit. Take a look at the Fed balance sheet and the plan for rate hikes. Ask yourself just how safe your investment in the U.S. dollar really is. Because that's what your dollar-valued bank account really is. An investment.

 

The U.S. government is going to get that stockpiled value back from those big players. Whether it's through taxes or inflation depends on the party in power. Democrats prefer taxation. Republicans prefer inflation.

[Dimitri Valko]

RUN AROUND IN CIRCLES

 

Or even better, run around in squares.

[Jacob Hanson]

Time to go to the gold store

Edited December 17, 2015 by Jacob Hanson

[johnl023]

This has led to our Canadian dollar dropping like a stone

[Ogaden]

And the markets rally. People are more concerned about the economy than interest rates at this point. The Fed's caution spooked everyone, but the markets should only be seen as an imperfect barometer of the wider economy. There are lots of alternate reasons for market swings besides the economy, and the last thing the Fed should be worried about is the salaries of hedge fund managers going down. 

The increase is necessary to keep investments from being used inefficiently. That mansion looks a lot less tempting when you're paying 5% on it, vs 2-4%. You start deciding if you'd rather build an apartment complex that makes you 10% or more, instead. Or hire someone for your company that could make you 50%.

 

Out of curiosity, what do you see as the underlying issue? I'll admit that the low inflation rate with this much money sloshing around is alarming. Big players have to be stockpiling cash, which will flood out as soon as anyone gets a whiff of inflation. While I'm bearish on the markets in the short term, in the long term this is one of the best times to buy. A lot of money is flowing out of the market because oil sellers (companies and countries) need the money to cover their budgets, which is lowering stock prices. Meanwhile, the good old Fed and Treasury department keep printing money.

 

Many savers mistakenly think that keeping money in a bank account is safe while assets are risky. Currency is only as "safe" as the spending habits of the institutions that make it. Take a look at the deficit. Take a look at the Fed balance sheet and the plan for rate hikes. Ask yourself just how safe your investment in the U.S. dollar really is. Because that's what your dollar-valued bank account really is. An investment.

 

The U.S. government is going to get that stockpiled value back from those big players. Whether it's through taxes or inflation depends on the party in power. Democrats prefer taxation. Republicans prefer inflation.

 

The problem is that the world economic system of debt money is basically a gigantic ponzi scheme.  In order to pay the interest in existing debts, new debt has to be created.  There is more debt in existence than money, and that debt needs interest payments.  This was the consequence of moving away from gold money ($15/ounce US dollars, with all other currencies pegged to US dollars) to debt money, where money is solely created through debt creation, but the debt created doesn't cover the interest on the debt, that has to be found from other money (and other debt).

 

This is unsustainable and collapsed in 2007, but due to heroic efforts of worldwide central banks we've managed to keep the game going for another 8 years, but we didn't solve shit.

 

You've never known any different, but 2% inflation every year is not normal.  

Edited December 19, 2015 by Ogaden

[Ogaden]

https://www.youtube.com/watch?v=l_IgcmsqnVM

Edited December 19, 2015 by Ogaden

[Mike Haggar]

So I get from your post and the video, Ogaden, that you're making two fundamental assumptions. First, a bout of mid-level inflation is overdue, and could turn into high-level inflation. I absolutely agree. Those entities and individuals that are sitting on mountains of cash, fixed low-interest bonds, and treasuries will regret it within the next year or so. Second, you're assuming that inflation is always bad. While I agree that high-level inflation can be bad (although the U.S. sustained it through the 70s and is still alive and kicking), inflation is needed to encourage savers to put their money back into the economy rather than hoarding it, as they did in 2007. I'm doing everything I can to put my savings into assets that actually generate money, since those should keep pace with inflation. It just means I won't be buying a brand new car for a while.

 

You call the current system a "Ponzi scheme", when it's just a means to generate inflation. Everyone has known about inflation for a century now. If you are not planning for it, then you might be a "mark" for dishonest politicians (who would rather take your money through inflation than taxes), but the economy does not need savers. It needs investors. Yes, it means you must take on more risk, but better that than have giant black holes that suck up money and don't let go. That strangles demand, which puts people out of work.

 

For an example that relates to the game, let's take two nations in P&W. One buys some cities, but puts tons of money into infra and its commerce rate, as well as keeping a mountain of cash in its back pocket. This is your "saver". Another nation balances its build with military and resource accumulation. This is your "investor". When the ol' pirate inflation comes to call, who's going to better off? Which nation actually participates in the world economy on a regular basis to smooth out demand?

[Mike Haggar]

The other issue with abandoning the Bretton-Woods system is that there is no superior alternative. You've essentially got two at the moment, but both have severe flaws that make them a bad option.

 

First, there's the old system of basing currency on commodities. This places a severe restriction on global demand, since it is dependent on the supply of a single material. That means that mines, work stoppages, and rent increases will smash unrelated parts of the economy to bits. For example, if a farmer wants to sell food and buy medical services, he won't be able to do so if there is a shortage of the currency or the commodity it is based upon. Even worse, this invites deflation when you have to use that commodity in industry. Gold in jewelry meant that you had less gold available to purchase goods and services. This meant that individuals were better off holding onto the gold, since it would be worth more later. Then you had fewer goods and services bought and sold, which put people out of work, and you had even less gold available for jewelry. This will take place for any scarce or finite material. Doesn't matter if it's gold, silver, or unobtanium. 

 

The other option is cryptocurrencies, which are a bigger exercise in trust than government-backed currencies could ever be. You're trusting that the creator did not leave a back door for himself to manufacture more currency on his own. You're trusting that it is utterly impossible for anyone to hack the currency from now until you cash out. And you're trusting that the currency will always have a value. Governments can back up their currency by requiring that taxes always be paid in that currency. This creates a demand for that currency among every single taxpayer. Cryptocurrencies are only worth money because a powerless group says it is. Even a rumor of hacking or governmental restriction will send the cryptocurrency crashing.

 

We can discuss the barter system if you wish to, but I think its problems are well-known enough that I won't bother with it here. It's worth noting that I'm essentially banking on the barter system by moving money into harder assets. AKA investments which are actually backed by property, services, and rents of one form or another. This is instead of keeping it in currency. The next year will be the best time to buy, thanks to commodity producers and baby boomers cashing out. I'm also contemplating educational assets (aka degrees), but I'm researching them first to ensure I end up with an asset rather than consumption dressed up as an asset. The real con men are in higher education.

[durmij]

I guess you could say, he's running around like a chicken(guys) with his head cut off!
 

not a threat of violence just a shitty pun. please no warn point me, moderinos

 

[WISD0MTREE]

Buy ammo. The price goes up after every mass shooting, terrorist attack, at before every election. Plus, if the world goes to shit, people will still need it. 

 

Most secure investment ever. Until railguns or lasers or some shit become mainstream... 

[Ogaden]

Technically speaking US dollars are still backed by gold, and all other currencies are backed by US dollars, since the Bretton Woods system is still the system.  That's what makes the current system so screwed up.  We don't have a real fiat money system because to create money REALLY from nothing (just decree that the printing presses run) you still legally need to back it with gold, so ALL MONEY IN EXISTENCE HAS TO BE CREATED BY DEBT since gold convertability ended in 1971.

 

I am not a gold bug, I don't give a shit, I think some kind of fiat currency isn't a bad idea, maybe a cryptocurrency or better yet the government just pass a law where 10% of every business belongs to the "Dollar Reserve" and that's what backs currency (so dollars are basically shares) and disband the Federal Reserve.  Anything would be better than the current system of debt money.

 

We crossed the Rubicon into "totally screwed" almost 10 years ago, and in order to get out of the last hole we fell into we all borrowed several times GDP and haven't stopped.  Current estimate of global debt (public and private) is $230 trillion dollars.  Global GDP is $73 trillion, so Planet Earth has a debt to GDP ratio of 3:1.  Greece is only 1.7:1 and people consider them completely screwed.

 

 

In case you're wondering all that printing was to keep Great Depression 2 from happening, without it we would all be lining up for soup right now, but that's a magic trick you can only do once, and the underlying issue is now 4 times worse than it was in 2007.

Edited December 20, 2015 by Ogaden

[Mike Haggar]

The key method of dealing with debt is fixed interest rates and inflation. If workers and governments make more money tomorrow than they do today because of inflation, they can easily pay off debt. You also lose debt by having it written off occasionally due to bankruptcy. The biggest tragedy of Greece is that they keep kicking the can down the road, exacerbating the problem every time. The Greek government tried to put a stop to it and just force creditors to share in the losses, but the EU bullied them into an even worse situation because of bad PR. Russia's trying to do the same thing to Ukraine, and I applaud the Ukrainian government for wanting to just solve the problem now, rather than letting Russia whack their kneecaps so their economy is hobbled.

 

Creditors have to accept losses as the cost of doing business. That they can't is a major failure of regulation. I'll agree with you on that.

 

Of course, the way to get around this is for creditors to stay the hell away from fixed-interest bonds or loans until inflation finally catches up to the money supply. Everyone that can get a mortgage now, should get a mortgage. It's a little late, but Fannie and Freddie are gonna be massacred once inflation picks up over 4%. The increase in rent and wages is just the start. While commodities and markets are still limping because of the Chinese slowdown and oversupply, they'll be back in 2017.

 

World markets will stay slow until there's another round of reforms in China, or some other player enters with reforms (India could be a huge engine, but they still shackle themselves with too much regulation of the wrong industries).

 

Money is not, and should never be, a rock-solid value. It's a commodity, like everything else. Too much supply? The money is worth less. Too much demand? The money is worth more. The U.S. dollar is propped up because so many large entities horde it on a vast scale. They're the ones that will lose when they finally realize that the money is not worth the goods they sold to get it.

 

I think our biggest disagreement is whether money should have a static value. This is a terrific idea for anybody who has already made money, whether they be trust fund babies or retirees. It is horrible for anybody that needs to make money through wages, rents, taxes, or businesses. AKA pretty much everybody else in the economy. It stratifies an upper class and bars further entry for anyone else, no matter how hard they work or how smart they are. Debt is how a software guru can expand his personal business into an international conglomerate. Inflation is how you keep everyone, even the upper crust, working to better their fellow man.

Edited December 21, 2015 by Mike Haggar

[Doktor Avalanche]

The key method of dealing with debt is fixed interest rates and inflation. If workers and governments make more money tomorrow than they do today because of inflation, they can easily pay off debt. You also lose debt by having it written off occasionally due to bankruptcy.

Eventually there will be hyperinflation. One cannot simply produce money to always fix the problem. Quantitative Easing is a band-aid on a massive flesh wound. Eventually we are going to have to amputate the limb because we kept ignoring the problem by covering it up.

[Ogaden]

Mike I'm not sure what you're talking about, 40 years of inflation has reduced wages across the board in all industries, everyone from hamburger flippers to IT professionals make less money today than they did 40 years ago.  The only people who benefit from cheap access to capital are banks and financial institutions, the already rich, and irresponsible governments.

 

Your defense of the status quo as a mechanism for class advancement is great and all but the reality is it does the exact opposite.  We haven't had this stark a divide between the super rich and the super poor since the 1920s.

[Spooner]

>Planet earth has a net debt of 3:1

 

Could you explain how "everyone can owe everyone"? It seems like it would all cancel out to a net-zero debt in aggregate.

Edited December 21, 2015 by Syrup

[Ogaden]

>Planet earth has a net debt of 3:1

 

Could you explain how "everyone can owe everyone"? It seems like it would all cancel out to a net-zero debt in aggregate.

 

Well sure, from the point of view of a banker, life is pretty great