AuthorTopic: Getting a conceptual and theoretical handle on bailouts  (Read 928 times)

Offline JRM

  • Sous Chef
  • ****
  • Posts: 4492
    • View Profile
Getting a conceptual and theoretical handle on bailouts
« on: April 21, 2020, 10:20:02 AM »
An enormous proportion of the world's money circulation -- "the economy" -- has stopped circulating in recent months. And we all know the basic concept that when a modern, capitalist industrial financial system has a shrinkage of growth it tends toward systems collapse. Even slower growth is worrisome to economists, much less shrinkage.

And so the masters of finance are "issuing" money out of (to the best of my knowledge) thin blue air.  But can this work? What are the odds that it may backfire, having exactly the opposite of its intended result?

Normally, historically (recently), money is debt. The money supply grows with new debt, generally.  But debts--at least honest, real debts--are not increasing as the financial wizards are printing and digitizing new money into existence. Instead, what appears to me to be happening -- with the implosion of oil futures being one such signal--we're witnessing a shrinkage of legitimate / real new debt at the very moment that the Wizards of finance are printing and otherwise "issuing" money.

To my astonishment, folks here in the Diner tend to argue that this "helicopter money" is likely to have a net benefit to people in general.  But I can't see how that could possibly be the case -- from a mostly intuitive sense of these things. 

All reasonable people I've heard talk about such matters have been saying that the world of finance has been in a debt bubble (public and private) for some time now, and that when that debt bubble bursts, or does whatever debt bubbles do when they are having a really bad day (month, year), the entire machinery of the financial world will tend to come unwound. 

A fundamental question I'm not seeing be discussed in the Diner is, Just how much money can the world's governments simply "issue" into being without it being tied to real / serviceable debt and without crashing the finance and economy in some way?

One way to, perhaps, get a conceptual and theoretical handle on this sort of question would be some variant on "an appeal to extremes". https://en.wikipedia.org/wiki/Reductio_ad_absurdum  Or a related concept, perhaps.

For example, let us consider what would likely occur if everyone and everything got a bailout, without exceptions -- governments print or "issue" money for every need and hand it all out.  Student loans impossible to pay? No problem: bailout. Business failure on any scale, of any type: bailout.  Medical bills to high: bailout.  Insurance companies going under: bailout. Banks falling apart: bailout. Just print and issue as much money as anyone needs.

That would cause massive inflation, would it not?

But the recent collapse of oil prices is part of a complex deflationary process.... Does an expansion of inflation generally--or somehow--counterpoise a simultaneous expansion in deflation?  Oil, after all, is generally held to be right at the heart and core of the economy. That's why folks war over it and why economists pull out their hair when oil prices climb high or fall off a cliff.

I don't understand this stuff, honestly, but I wonder if anyone does. The functioning of money, it seems to me, REQURES money to have a certain level of scarcity. It also depends on the level of debt in the system being reasonably likely to be serviced at some point in the future, and sooner than later.

It feels to me that money is becoming weirdly empty, lacking in meaning or substance. People depend upon it in so many ways, so they go along with its self-proclaimed Wizards. But it is looking more unreal all the time, much to unreal for us to count on it the way we do. 
My "avatar" graphic is Japanese calligraphy (shodō) forming the word shoshin, meaning "beginner's mind". --  http://en.wikipedia.org/wiki/Shoshin -- It is with shoshin that I am now and always "meeting my breath" for the first time. Try it!

Offline Eddie

  • Global Moderator
  • Master Chef
  • *****
  • Posts: 19357
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #1 on: April 21, 2020, 10:37:49 AM »
Normally, historically (recently), money is debt. The money supply grows with new debt, generally.  But debts--at least honest, real debts--are not increasing as the financial wizards are printing and digitizing new money into existence. Instead, what appears to me to be happening -- with the implosion of oil futures being one such signal--we're witnessing a shrinkage of legitimate / real new debt at the very moment that the Wizards of finance are printing and otherwise "issuing" money.

Most of the bailouts ARE loans...not piddling $1200 checks to individuals. So this analysis is not really valid, imho. (And it is no accident that the majority of bailouts are interest bearing loans.....the bankers insisted on that when Con-gress was voting on it.


A fundamental question I'm not seeing be discussed in the Diner is, Just how much money can the world's governments simply "issue" into being without it being tied to real / serviceable debt and without crashing the finance and economy in some way?

In a world like this one, with all sovereign money of all countries being fiat...and the US dollar being the reserve currency, it makes it virtually impossible for the dollar to hyperinflate....Hyperinflation is how currencies used to die...not anymore.

The current bailouts to individuals and small businesses are good, because it prevents bankruptcies......in theory......but it's looking more and more like a typical bankster film-flam where all the money is going to those who need it least and...and nothing is making it's way to the mom and pops. And the banks make interest on more govt guaranteed loans....so profit from the misery of regular people. Just like student loans.

Bailouts to oil companies, airlines, insurance companies, big pharma,  and Wall Street speculators seem to predominate so far...in spite of much bullshit to the contrary. This only leads to more inequality and survival of the richest. The long term result looks to result in a modern form of feudalism.
« Last Edit: April 21, 2020, 10:42:14 AM by Eddie »
What makes the desert beautiful is that somewhere it hides a well.

Offline JRM

  • Sous Chef
  • ****
  • Posts: 4492
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #2 on: April 21, 2020, 10:46:27 AM »
Do we have a figure / percentage for how much of the USA bailout money is loans?
My "avatar" graphic is Japanese calligraphy (shodō) forming the word shoshin, meaning "beginner's mind". --  http://en.wikipedia.org/wiki/Shoshin -- It is with shoshin that I am now and always "meeting my breath" for the first time. Try it!

Offline JRM

  • Sous Chef
  • ****
  • Posts: 4492
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #3 on: April 21, 2020, 10:52:49 AM »
Normally, historically (recently), money is debt. The money supply grows with new debt, generally.  But debts--at least honest, real debts--are not increasing as the financial wizards are printing and digitizing new money into existence. Instead, what appears to me to be happening -- with the implosion of oil futures being one such signal--we're witnessing a shrinkage of legitimate / real new debt at the very moment that the Wizards of finance are printing and otherwise "issuing" money.

Most of the bailouts ARE loans...not piddling $1200 checks to individuals. So this analysis is not really valid, imho. (And it is no accident that the majority of bailouts are interest bearing loans.....the bankers insisted on that when Con-gress was voting on it.


A fundamental question I'm not seeing be discussed in the Diner is, Just how much money can the world's governments simply "issue" into being without it being tied to real / serviceable debt and without crashing the finance and economy in some way?

In a world like this one, with all sovereign money of all countries being fiat...and the US dollar being the reserve currency, it makes it virtually impossible for the dollar to hyperinflate....Hyperinflation is how currencies used to die...not anymore.

The current bailouts to individuals and small businesses are good, because it prevents bankruptcies......in theory......but it's looking more and more like a typical bankster film-flam where all the money is going to those who need it least and...and nothing is making it's way to the mom and pops. And the banks make interest on more govt guaranteed loans....so profit from the misery of regular people. Just like student loans.

Bailouts to oil companies, airlines, insurance companies, big pharma,  and Wall Street speculators seem to predominate so far...in spite of much bullshit to the contrary. This only leads to more inequality and survival of the richest. The long term result looks to result in a modern form of feudalism.

I'm admittedly way out of my element when contemplating things finance. But it may be the case that you're dismissing the validity of my "analysis" prematurely, Eddie.  If the world has an enormous debt bubble already, how valid (to use your own term) is all of this supposed debt creation (new money for bailouts)?  Aren't we all just kicking the can down the road here? And how long can we kick this can before kicking fails as a strategy?
My "avatar" graphic is Japanese calligraphy (shodō) forming the word shoshin, meaning "beginner's mind". --  http://en.wikipedia.org/wiki/Shoshin -- It is with shoshin that I am now and always "meeting my breath" for the first time. Try it!

Offline Eddie

  • Global Moderator
  • Master Chef
  • *****
  • Posts: 19357
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #4 on: April 21, 2020, 10:54:19 AM »
Do we have a figure / percentage for how much of the USA bailout money is loans?

Hard to say, because a lot of the real bailout is not transparent at all right now.

It will be revealed in due time (maybe) in the Fed meetings minutes....long after the fact......and long after most American's attention spans have been exceeded.
What makes the desert beautiful is that somewhere it hides a well.

Offline Eddie

  • Global Moderator
  • Master Chef
  • *****
  • Posts: 19357
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #5 on: April 21, 2020, 10:58:01 AM »
Normally, historically (recently), money is debt. The money supply grows with new debt, generally.  But debts--at least honest, real debts--are not increasing as the financial wizards are printing and digitizing new money into existence. Instead, what appears to me to be happening -- with the implosion of oil futures being one such signal--we're witnessing a shrinkage of legitimate / real new debt at the very moment that the Wizards of finance are printing and otherwise "issuing" money.

Most of the bailouts ARE loans...not piddling $1200 checks to individuals. So this analysis is not really valid, imho. (And it is no accident that the majority of bailouts are interest bearing loans.....the bankers insisted on that when Con-gress was voting on it.


A fundamental question I'm not seeing be discussed in the Diner is, Just how much money can the world's governments simply "issue" into being without it being tied to real / serviceable debt and without crashing the finance and economy in some way?

In a world like this one, with all sovereign money of all countries being fiat...and the US dollar being the reserve currency, it makes it virtually impossible for the dollar to hyperinflate....Hyperinflation is how currencies used to die...not anymore.

The current bailouts to individuals and small businesses are good, because it prevents bankruptcies......in theory......but it's looking more and more like a typical bankster film-flam where all the money is going to those who need it least and...and nothing is making it's way to the mom and pops. And the banks make interest on more govt guaranteed loans....so profit from the misery of regular people. Just like student loans.

Bailouts to oil companies, airlines, insurance companies, big pharma,  and Wall Street speculators seem to predominate so far...in spite of much bullshit to the contrary. This only leads to more inequality and survival of the richest. The long term result looks to result in a modern form of feudalism.

I'm admittedly way out of my element when contemplating things finance. But it may be the case that you're dismissing the validity of my "analysis" prematurely, Eddie.  If the world has an enormous debt bubble already, how valid (to use your own term) is all of this supposed debt creation (new money for bailouts)?  Aren't we all just kicking the can down the road here? And how long can we kick this can before kicking fails as a strategy?

We've managed fine for ten years doing nothing BUT can kicking. I think it can last longer than my working career. I'm not dismissing anything. Just giving my perspective.


What makes the desert beautiful is that somewhere it hides a well.

Offline JRM

  • Sous Chef
  • ****
  • Posts: 4492
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #6 on: April 21, 2020, 11:07:38 AM »
Normally, historically (recently), money is debt. The money supply grows with new debt, generally.  But debts--at least honest, real debts--are not increasing as the financial wizards are printing and digitizing new money into existence. Instead, what appears to me to be happening -- with the implosion of oil futures being one such signal--we're witnessing a shrinkage of legitimate / real new debt at the very moment that the Wizards of finance are printing and otherwise "issuing" money.

Most of the bailouts ARE loans...not piddling $1200 checks to individuals. So this analysis is not really valid, imho. (And it is no accident that the majority of bailouts are interest bearing loans.....the bankers insisted on that when Con-gress was voting on it.


A fundamental question I'm not seeing be discussed in the Diner is, Just how much money can the world's governments simply "issue" into being without it being tied to real / serviceable debt and without crashing the finance and economy in some way?

In a world like this one, with all sovereign money of all countries being fiat...and the US dollar being the reserve currency, it makes it virtually impossible for the dollar to hyperinflate....Hyperinflation is how currencies used to die...not anymore.

The current bailouts to individuals and small businesses are good, because it prevents bankruptcies......in theory......but it's looking more and more like a typical bankster film-flam where all the money is going to those who need it least and...and nothing is making it's way to the mom and pops. And the banks make interest on more govt guaranteed loans....so profit from the misery of regular people. Just like student loans.

Bailouts to oil companies, airlines, insurance companies, big pharma,  and Wall Street speculators seem to predominate so far...in spite of much bullshit to the contrary. This only leads to more inequality and survival of the richest. The long term result looks to result in a modern form of feudalism.

I'm admittedly way out of my element when contemplating things finance. But it may be the case that you're dismissing the validity of my "analysis" prematurely, Eddie.  If the world has an enormous debt bubble already, how valid (to use your own term) is all of this supposed debt creation (new money for bailouts)?  Aren't we all just kicking the can down the road here? And how long can we kick this can before kicking fails as a strategy?

We've managed fine for ten years doing nothing BUT can kicking. I think it can last longer than my working career. I'm not dismissing anything. Just giving my perspective.

Then you retract your previous claim that my "analysis" was invalid?

Can kicking is not a strategy. It is the activity of one caught in the most extreme form of a dilemma.  But ultimately this is not really a dilemma. It only appears to be a dilemma to those who believe there can be no radical Plan B for the economy.

Plan B, of course, would have to be an economy which is regenerative, not merely resilient. It would have to be socially, economically and ecologically regenerative.  It would be a near complete abandonment of Plan A, which has proven itself to be catastrophic for people and the planet -- and other species.

This is a FALSE dilemma in which the illusion of the dilemma is a rock-solid but airy mass in the minds and imaginations of the masters of finance, the bankers, the establishment.

Their world will almost certainly crumble because a hundred million Americans (for example) will not sit idly around waiting for the masters of finance to clean up this mess, which they will not and cannot.

Giving bailout money to the oil industry right now is the apotheosis of criminal madness among the masters of finance.

My "avatar" graphic is Japanese calligraphy (shodō) forming the word shoshin, meaning "beginner's mind". --  http://en.wikipedia.org/wiki/Shoshin -- It is with shoshin that I am now and always "meeting my breath" for the first time. Try it!

Offline monsta666

  • Global Moderator
  • Sous Chef
  • *****
  • Posts: 1535
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #7 on: April 21, 2020, 11:22:52 AM »
For example, let us consider what would likely occur if everyone and everything got a bailout, without exceptions -- governments print or "issue" money for every need and hand it all out.  Student loans impossible to pay? No problem: bailout. Business failure on any scale, of any type: bailout.  Medical bills to high: bailout.  Insurance companies going under: bailout. Banks falling apart: bailout. Just print and issue as much money as anyone needs.

That would cause massive inflation, would it not?

Correct you would get massive inflation. However it is important to note that what you are talking about is a govenment grant. In nearly all scenarios the government does not provide grants it issues loans. But suppose for sake of argument what you said did actually materialise then we would get inflation. Think of inflation like:

Same number of goods/services plus greater money supply = Inflation

Other scenarios is if there are more goods but money supply increases in tandem then there is no inflation. In fact this system of debt based money supply has worked well in a world which has experienced continual economic growth as the increased money supply is accompanied with more goods and services. That dynamic allows inflation to rise at a minimal level despite money supply increasing at an exponential rate. In fact it is the job of the central bank to moderate this increase of money supply to the increase of the growth of the economy. Off course economic growth cannot go on forever so at some point the system will become dysfunctional as the conditions that enabled the economic system to grow will no longer be present. If money is destroyed at a greater pace than money is created then deflation occurs.

More goods/services with similar rise in money supply = No/little inflation
Less goods/services with same money supply = deflation

But the recent collapse of oil prices is part of a complex deflationary process.... Does an expansion of inflation generally--or somehow--counterpoise a simultaneous expansion in deflation?  Oil, after all, is generally held to be right at the heart and core of the economy. That's why folks war over it and why economists pull out their hair when oil prices climb high or fall off a cliff.

Like you suggested here; there can be nuances that apply. In otherwords it is possible for a single economy to experience inflation and deflation. For example if companies use that money to buy stocks then the money doesn't enter the physical economy so whilst there would be inflation in the stock market this would not reflect in the price of general goods you buy in store. The inflation would be limited to that asset class the company bought into. That is why you may get situations where house prices may rise (inflate) while the price of electronics decline (deflates). It all depends on where the money is going and whether the stock of goods/services is increasing. If there is any imbalance you will get inflation/deflation.

Offline Eddie

  • Global Moderator
  • Master Chef
  • *****
  • Posts: 19357
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #8 on: April 21, 2020, 11:23:56 AM »
Normally, historically (recently), money is debt. The money supply grows with new debt, generally.  But debts--at least honest, real debts--are not increasing as the financial wizards are printing and digitizing new money into existence. Instead, what appears to me to be happening -- with the implosion of oil futures being one such signal--we're witnessing a shrinkage of legitimate / real new debt at the very moment that the Wizards of finance are printing and otherwise "issuing" money.

Most of the bailouts ARE loans...not piddling $1200 checks to individuals. So this analysis is not really valid, imho. (And it is no accident that the majority of bailouts are interest bearing loans.....the bankers insisted on that when Con-gress was voting on it.


A fundamental question I'm not seeing be discussed in the Diner is, Just how much money can the world's governments simply "issue" into being without it being tied to real / serviceable debt and without crashing the finance and economy in some way?

In a world like this one, with all sovereign money of all countries being fiat...and the US dollar being the reserve currency, it makes it virtually impossible for the dollar to hyperinflate....Hyperinflation is how currencies used to die...not anymore.

The current bailouts to individuals and small businesses are good, because it prevents bankruptcies......in theory......but it's looking more and more like a typical bankster film-flam where all the money is going to those who need it least and...and nothing is making it's way to the mom and pops. And the banks make interest on more govt guaranteed loans....so profit from the misery of regular people. Just like student loans.

Bailouts to oil companies, airlines, insurance companies, big pharma,  and Wall Street speculators seem to predominate so far...in spite of much bullshit to the contrary. This only leads to more inequality and survival of the richest. The long term result looks to result in a modern form of feudalism.

I'm admittedly way out of my element when contemplating things finance. But it may be the case that you're dismissing the validity of my "analysis" prematurely, Eddie.  If the world has an enormous debt bubble already, how valid (to use your own term) is all of this supposed debt creation (new money for bailouts)?  Aren't we all just kicking the can down the road here? And how long can we kick this can before kicking fails as a strategy?

We've managed fine for ten years doing nothing BUT can kicking. I think it can last longer than my working career. I'm not dismissing anything. Just giving my perspective.

Then you retract your previous claim that my "analysis" was invalid?

Can kicking is not a strategy. It is the activity of one caught in the most extreme form of a dilemma.  But ultimately this is not really a dilemma. It only appears to be a dilemma to those who believe there can be no radical Plan B for the economy.

Plan B, of course, would have to be an economy which is regenerative, not merely resilient. It would have to be socially, economically and ecologically regenerative.  It would be a near complete abandonment of Plan A, which has proven itself to be catastrophic for people and the planet -- and other species.

This is a FALSE dilemma in which the illusion of the dilemma is a rock-solid but airy mass in the minds and imaginations of the masters of finance, the bankers, the establishment.

Their world will almost certainly crumble because a hundred million Americans (for example) will not sit idly around waiting for the masters of finance to clean up this mess, which they will not and cannot.

Giving bailout money to the oil industry right now is the apotheosis of criminal madness among the masters of finance.

Your analysis is simplistic. The situation is very complicated, and your shot-from-the-hip post overlooks a lot of things that matter. I'm not busting your chops. But by your analysis the world we live in would have ended in 2008....and the banks wouldn't still be calling the shots...but they are.

Certainly civil unrest leads to radical changes.....and we might head there. But never assume radical changes necessarily benefit regular people. They seldom do. There are many ways we can go politically, but I don't expect any political solutions to help me...far from it.

I'm working now...I'll get back to this, and hopefully some others will add to this thread.

What makes the desert beautiful is that somewhere it hides a well.

Offline JRM

  • Sous Chef
  • ****
  • Posts: 4492
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #9 on: April 21, 2020, 11:24:35 AM »
Here's what I think is more likely the best prognosis for "the economy".

If "the economy" were in a shape roughly like it is now and there were no coronavirus pandemic simultaneously, the current financial crisis would be the only story being talked about in the news cycle (as it was during the GFC). Instead, news media are speaking of almost nothing other than coronavirus, coronavirus, coronavirus.

And yet many economists are saying what's happening in "the economy" right now either already is or will soon be worse than the financial events of the GFC.

Almost no one really believes when the virus ceases to be a high level global medical crisis that "the economy" will readily "return to normal" -- though that's what the mainstream media seems to be suggesting, insofar as it functions like a singular voice.  The popular narrative right now is that we're not really in a major global economic  / financial crisis also, that we're having a very temporary and mild "blip" of recession, maybe.

It's weird! How can we not see the train coming down the tracks right at us? How can we find ourselves not preparing for the collision? Wile E. Coyote is kicking the can down the road while hovering for a brief moment in thin air, having already gone over a cliff.
My "avatar" graphic is Japanese calligraphy (shodō) forming the word shoshin, meaning "beginner's mind". --  http://en.wikipedia.org/wiki/Shoshin -- It is with shoshin that I am now and always "meeting my breath" for the first time. Try it!

Offline Cam

  • Bussing Staff
  • **
  • Posts: 217
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #10 on: April 21, 2020, 11:33:05 AM »
I am certainly no expert on financial stuff, but I do have a recommendation for you JRM. His name is Mike Maloney and he has a whole Youtube series explaining the basics of how the current fiat financial system operates and it is eye-opening. Granted he is definitely a 'gold-bug' and he thinks hyperinflation will be the result of this mess, which after reading discussions here on the Diner I have come to disagree with. His explanations of how the financial system work are really good though.

The series is called Hidden Secrets of Money. Again keep in mind that he is very biased towards owning precious metals and he is potentially incorrect about hyperinflation. Still a great series though for learning about how our current system works. Here's the first video in the series. Get yourself some tea/coffee/beer and enjoy because they are around 30min on average.

<a href="http://www.youtube.com/v/DyV0OfU3-FU?list=PLK8aHk5TqClBale3rjOeeQ1wdxZgtiJCA" target="_blank" class="new_win">http://www.youtube.com/v/DyV0OfU3-FU?list=PLK8aHk5TqClBale3rjOeeQ1wdxZgtiJCA</a>

Offline JRM

  • Sous Chef
  • ****
  • Posts: 4492
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #11 on: April 21, 2020, 11:43:38 AM »
Thanks Cam.

..

A little while ago, today, I said something very contradictory. I said (to paraphrase myself) "hardly anyone thinks the economy will swiftly return to normal when the virus has passed". And I also said the exact opposite. So I may seem incoherent. And maybe I am! But what I mean is that among the informed people, who are not also likely propagandizing or otherwise cheerleading, etc., hardly anyone believes it will all quickly "bounce back".

So there is a split between economists, and then there is what I'm calling the "mainstream media" bubble, the voices within which have nearly zero clues how any of this finance / economy actually works. 
My "avatar" graphic is Japanese calligraphy (shodō) forming the word shoshin, meaning "beginner's mind". --  http://en.wikipedia.org/wiki/Shoshin -- It is with shoshin that I am now and always "meeting my breath" for the first time. Try it!

Offline monsta666

  • Global Moderator
  • Sous Chef
  • *****
  • Posts: 1535
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #12 on: April 21, 2020, 12:09:47 PM »
There is talk, at least in the UK, that we can't return to the old normal anytime soon. The government here even admit as such believing the main tool that can get us back to normal is a vaccine. But for the outlets that do suggest an imminent return to normalcy I think there could be two things at work. One they are simply hopeful and do not want to be too gloomy (it should be noted in some areas there is a perception the media are getting too hysterical over coronavirus) or they wish to push for an economic opening as soon as possible.

In the end much will depend on the countries profile and the way in which the individual government handled the initial crisis. The ones that handled it better can return to something closer to normal sooner than the places where things were mismanaged. International travel will be a major question mark in the coming years so anyones guess in how that pans out. Overall it is still early days in this pandemic. This is not the beginning of the end; it is the end of the beginning. Like I said in another thread: this escape from full lockdown will send us to the next phase where the horrors of the economic damage start to materialise. These varying degrees of partial lockdowns will create further financial difficulties for people, businesses and governments and this will be a battle of attrition. In my opinion there is a high probablity that some country will mess up the opening up stage and will return to normal too quickly. This will lead to a second peak and further financial/political woes.

Offline Eddie

  • Global Moderator
  • Master Chef
  • *****
  • Posts: 19357
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #13 on: April 21, 2020, 12:15:53 PM »
I am certainly no expert on financial stuff, but I do have a recommendation for you JRM. His name is Mike Maloney and he has a whole Youtube series explaining the basics of how the current fiat financial system operates and it is eye-opening. Granted he is definitely a 'gold-bug' and he thinks hyperinflation will be the result of this mess, which after reading discussions here on the Diner I have come to disagree with. His explanations of how the financial system work are really good though.

The series is called Hidden Secrets of Money. Again keep in mind that he is very biased towards owning precious metals and he is potentially incorrect about hyperinflation. Still a great series though for learning about how our current system works. Here's the first video in the series. Get yourself some tea/coffee/beer and enjoy because they are around 30min on average.

<a href="http://www.youtube.com/v/DyV0OfU3-FU?list=PLK8aHk5TqClBale3rjOeeQ1wdxZgtiJCA" target="_blank" class="new_win">http://www.youtube.com/v/DyV0OfU3-FU?list=PLK8aHk5TqClBale3rjOeeQ1wdxZgtiJCA</a>

Mike Maloney is a salesman who sell precious metals. Like most goldbugs his solutions all involve hedging with metals, which sounds good in theory, but results vary.

The problem is that it is a "fighting the Fed" solution...and until the Fed finally blows up, the strategy is subject to massive market manipulations that generally mean nothing good for regular people. Gold went up after the last crisis for two years...and then TPTB managed to make it crash. This forum is full of old posts that explain how this can happen.

Right now the "hyperinfltionistas" are at it again, telling everyone to buy gold.  I do expect gold to hold its value better than most things....right now....but two years from now that could be really wrong.....for a whole list of reasons.

Sophisticated goldbugs have managed to make a case for gold as a hedge for deflation.....but cash is king in deflation.
What makes the desert beautiful is that somewhere it hides a well.

Offline JRM

  • Sous Chef
  • ****
  • Posts: 4492
    • View Profile
Re: Getting a conceptual and theoretical handle on bailouts
« Reply #14 on: April 21, 2020, 12:34:32 PM »
There is talk, at least in the UK, that we can't return to the old normal anytime soon. The government here even admit as such believing the main tool that can get us back to normal is a vaccine. But for the outlets that do suggest an imminent return to normalcy I think there could be two things at work. One they are simply hopeful and do not want to be too gloomy (it should be noted in some areas there is a perception the media are getting too hysterical over coronavirus) or they wish to push for an economic opening as soon as possible.

In the end much will depend on the countries profile and the way in which the individual government handled the initial crisis. The ones that handled it better can return to something closer to normal sooner than the places where things were mismanaged. International travel will be a major question mark in the coming years so anyones guess in how that pans out. Overall it is still early days in this pandemic. This is not the beginning of the end; it is the end of the beginning. Like I said in another thread: this escape from full lockdown will send us to the next phase where the horrors of the economic damage start to materialise. These varying degrees of partial lockdowns will create further financial difficulties for people, businesses and governments and this will be a battle of attrition. In my opinion there is a high probablity that some country will mess up the opening up stage and will return to normal too quickly. This will lead to a second peak and further financial/political woes.

I agree with those points, and wish to add to these the point that government mandates, whether we call them "lockdowns" or "shelter-in-place" or "stay at home orders" are just one of two basic ways the virus response will likely unfold. There is also the fact of purely voluntary quasi-quarantining, in which people voluntarily avoid places of business -- movie theatres, restaurants, coffee shops, schools, shopping centers, etc.... Some fraction of the population of any local place will make these choices to avoid the public because they can, and because no matter what the governor says (or whomever) they regard such places as vectors of contagion they'd rather voluntarily avoid.

This will impact both the economy and the dynamic of the unfolding pandemic -- very significantly. No matter what. Until we have some breakthrough on the order of reliable proof of immunity (in the form of a card which proves it) or a vaccine which we know to work.  These two things appear to be at least months away, and likely longer.

Avoiding work-related risks of contagion is only partially voluntary -- when one has got to eat and pay rent / mortgage through money access, of course.  But economic activity will be slowed a lot by voluntary semi-quarantine -- and there will therefore be fewer places for work.

This is why I believe we're heading into a global Great Depression II. Toss in a little oil price deflation and away we go!
« Last Edit: April 21, 2020, 12:40:33 PM by JRM »
My "avatar" graphic is Japanese calligraphy (shodō) forming the word shoshin, meaning "beginner's mind". --  http://en.wikipedia.org/wiki/Shoshin -- It is with shoshin that I am now and always "meeting my breath" for the first time. Try it!

 

Related Topics

  Subject / Started by Replies Last post
6 Replies
2053 Views
Last post February 02, 2014, 09:08:42 PM
by Eddie
2 Replies
493 Views
Last post March 17, 2016, 10:20:10 AM
by MKing
63 Replies
10359 Views
Last post February 11, 2017, 03:12:29 PM
by John of Wallan