The We-Fixed-Nothing Chickens Are Coming Home to Roost - News and Current Events | futures io social day trading
futures io futures trading


The We-Fixed-Nothing Chickens Are Coming Home to Roost
Updated: Views / Replies:360 / 0
Created: by kbit Attachments:0

Welcome to futures io.

(If you already have an account, login at the top of the page)

futures io is the largest futures trading community on the planet, with over 100,000 members. At futures io, our goal has always been and always will be to create a friendly, positive, forward-thinking community where members can openly share and discuss everything the world of trading has to offer. The community is one of the friendliest you will find on any subject, with members going out of their way to help others. Some of the primary differences between futures io and other trading sites revolve around the standards of our community. Those standards include a code of conduct for our members, as well as extremely high standards that govern which partners we do business with, and which products or services we recommend to our members.

At futures io, our focus is on quality education. No hype, gimmicks, or secret sauce. The truth is: trading is hard. To succeed, you need to surround yourself with the right support system, educational content, and trading mentors Ė all of which you can find on futures io, utilizing our social trading environment.

With futures io, you can find honest trading reviews on brokers, trading rooms, indicator packages, trading strategies, and much more. Our trading review process is highly moderated to ensure that only genuine users are allowed, so you donít need to worry about fake reviews.

We are fundamentally different than most other trading sites:
  • We are here to help. Just let us know what you need.
  • We work extremely hard to keep things positive in our community.
  • We do not tolerate rude behavior, trolling, or vendors advertising in posts.
  • We firmly believe in and encourage sharing. The holy grail is within you, we can help you find it.
  • We expect our members to participate and become a part of the community. Help yourself by helping others.

You'll need to register in order to view the content of the threads and start contributing to our community.  It's free and simple.

-- Big Mike, Site Administrator

Thread Tools Search this Thread

The We-Fixed-Nothing Chickens Are Coming Home to Roost

  #1 (permalink)
Elite Member
Aurora, Il USA
Futures Experience: Advanced
Platform: TradeStation
Favorite Futures: futures
kbit's Avatar
Posts: 5,893 since Nov 2010
Thanks: 3,307 given, 3,341 received

The We-Fixed-Nothing Chickens Are Coming Home to Roost

When the real problems are masked with fake "solutions," the chickens eventually come home to roost, and we wake up to the reality that the fake "solutions" have only made things much worse.

The reality that the global Status Quo has fixed absolutely nothing in four years is finally coming to roost in the global economy. Though there is an endless array of complexity to snare the unwary, the source of instability is both visible and easily understood: too much debt that will never be paid back. Making matters much worse, much of the money that was borrowed--by sovereign governments, local governments, households and private enterprises--was squandered on consumption or malinvestments, and so there are precious few assets or collateral underlying the debt.

Even when there is an asset--for example, a vacant house in a vacant development in Spain, or a Greek bond--the market value is considerably lower than the purchase price.

The reality is that trillions of dollars, euros, yen and renminbi in phantom wealth will disappear when the losses that have already taken place are finally recognized. Everyone in the world with exposure to the global economy will become poorer in terms of abundant money floating around buying goods and services as credit dries up and deleveraging wipes out trillions of dollars, euros, yen and renminbi of phantom wealth.

Deleveraging is the process of the market discovering the true value of the asset underlying the debt and the difference between the debt and the proceeds of the asset sale being absorbed as a loss. If an entity needs to liquidate liabilities and/or raise cash to pay bills and interest, then assets will have to be sold. If the market value is less than the debt, then a loss must be booked. If a house carrying a $200,000 mortgage is sold for $100,000, the lender has to absorb a $100,000 loss.

Credit will dry up for a number of reasons, but the basic dynamic is that lenders no longer have enough collateral to generate new loans (except for those guaranteed by Central States) and in a world where assets are being sold to raise cash to stay solvent (the mighty engines of deleveraging), then prudent lenders are wary of loaning money to purchase assets that are declining in market value.

The Status Quo has played a very risky game for four years: when private banks go belly-up from issuing risky loans on mal-investments, then the stupendous losses are transferred to taxpayers: the Sovereign State "nationalizes" the bank or "buys" the debt; whatever the mechanism used, the key point is the owners of the debt take no losses when the debt is transferred from private hands to the taxpayers.

The key dynamic is this: instead of the bad debt being written off so the owners of the debt must accept the losses that have already occurred, the owners of the debt (bondholders) suffer no reduction in capital as their losses are transferred to the Central State.

Bonds earn interest because there is a risk associated with any loan. When risk is disconnected from the return or gain, that is moral hazard: people who have no exposure to risk make much different choices than those who are exposed to risk and loss.

The transfer of private losses to the public "solves" the problem when the losses are modest; but the problem is the losses are not modest, they are so gargantuan that they are swamping the State's ability to pay interest (service the debt).

That triggers the "austerity" death spiral: as taxes must be raised to service the new debt, households have less money to spend in the economy or to invest. The State, meanwhile, must cut other expenditures to free up money to service debt, so the government spending that feeds the economy also shrinks. As credit and consumption both dry up, businesses must lay off employees to survive. That places more people on the State dole, which makes even less money available for productive investment.

Without productive investment, productivity declines and wealth generation ceases. As everyone becomes poorer, tax revenues decline and the economy contracts. The State, having promised to pay interest in perpetuity on the phantom assets, must raise taxes on the remaining productive taxpayers. These taxes eventually crush the life out of small enterprises, who lay off what's left of their staff, further shrinking the economy and the pool of taxpayers. The most mobile of the productive leave for less oppressive climes, and many others opt-out: either give up and go on the dole themselves, or shift their productivity to the black market.

Paying interest on debt that wasn't invested in productive assets and that has no collateral to back it is a fiscal black hole. Money that could have been invested in productive assets or at least in public-good consumption is now devoted to paying the bondholders who should have taken the losses but were protected by the Central State. That protection is the beating heart of crony-capitalism and the engine of eventual collapse: profits are private, losses are shifted to the taxpayers.

The zombie banks are now State property, but that doesn't mean credit is abundant: the zombie banks still don't have any collateral, as the assets on their books (the houses that underly all those defaulted mortgages, etc.) keep declining in value.

Who is dumb enough to lend money to uncreditworthy borrowers to buy declining-value assets? Only the Central State is that dumb. Here in the U.S., the Federal government continues to issue 3% down-payment FHA mortgages to risky borrowers, and as a result the default rate on FHA loans is rising so fast the agency will soon need a bailout.

And the losses, of course, are simply transferred to the taxpayers' account.

The machine is now freezing up. Since assets are declining in value, collateral (if there is any at all) is shrinking, and the risk of loaning money to buy assets rises even as the return (the interest rate) is kept below inflation by central banks. Those twin forces dry up prudent credit, leaving only "dumb credit" issued by the Central State.

"Dumb credit" issues loans to uncreditworthy borrowers in the hopes that these marginal buyers will re-inflate asset bubbles (such as housing), as a reinflated bubble will enable the lenders to sell the defaulted homes at full value and thereby avoid staggering losses.

But alas, the debt load already carried by households is so crushing that the number of marginal borrowers is too modest to reinflate the bubbles. The number of people who are anxious to unload their assets far exceeds the few marginal buyers of assets: the number of debt-encumbered households who want to sell their house because it's worth less than their mortgage and the number of "pre-foreclosure" homes rotting in the capacious inventories of lenders can be counted in the millions.

This is a game the lender will lose, even when the lender is the Federal government, the European Central Bank or the Bank of China. Loaning money on assets that are declining in value to marginally qualified lenders can only generate more losses, and when these losses are transferred to the taxpayers, the rising debt service triggers an "austerity" death-spiral.

There is only one real solution: reconnect risk and consequence, and make the owners of the impaired debt absorb the losses that have already occurred.

It would be nice if these monumental losses were limited to the global financial Elites, but the phantom wealth is widely distributed. Trillions of dollars, euros and yen of phantom assets are held by pension funds and insurance companies; the interest collected on phantom assets funds annuities, pensions and insurance claims. When these phantom assets vanish, the public-union pension funds will be unable to pay their beneficiaries, insurance companies will be unable to pay claims, and so on: the 99% will also become much poorer as all the income streams they thought were permanent dry up.

As noted above: Everyone in the world with exposure to the global economy will become poorer in terms of abundant money floating around buying goods and services as credit dries up and deleveraging wipes out trillions of dollars, euros, yen and renminbi of phantom wealth.

A sense of outraged betrayal will become widespread. That will generate volatility and launch dynamics that will distribute nations along a critical spectrum of impoverishment and instability: some will become poorer and unstable, others will be poorer but remain stable. Poorer and stable is one thing, poorer and unstable is another entirely different thing. Becoming poorer is bearable if you retain some measure of social cohesion, predictability and stability; becoming poorer in chaos and instability is a much riskier situation.

Social stability is a complex web of cultural conventions, work-arounds, interactions and ever-changing dynamics; I devoted my latest book Resistance, Revolution, Liberation: A Model for Positive Change to an exploration of social and economic stability. In a nutshell, society is an ecosystem: the more features the society shares with monoculture, the more prone it is to fatal destabilization.

Though we cannot avoid the melting away of phantom assets, we could avoid destabilization by facing the real problem head-on and reconnecting risk to consequence.

charles hugh smith-Weblog and Essays

Reply With Quote


futures io > > > > The We-Fixed-Nothing Chickens Are Coming Home to Roost

Thread Tools Search this Thread
Search this Thread:

Advanced Search

Upcoming Webinars and Events (4:30PM ET unless noted)

Fundraiser: Feeding Families in Need (ends Dec 17)


Battlestations! Show us your trading desks w/GFF Brokers ($750 in Prizes)


An Afternoon With Morad Askar (aka FuturesTrader71)

Elite only

Traders Tax Advice w/Ryan Curran CPA

Elite only

Black Swan Events w/Adam Grimes

Elite only

Similar Threads
Thread Thread Starter Forum Replies Last Post
trailing stop or fixed? mannya Psychology and Money Management 16 July 30th, 2015 03:59 AM
All Fixed In Greece? Not So Fast Quick Summary News and Current Events 0 November 3rd, 2011 03:40 PM
DevStop indicator need to be fixed Pazan NinjaTrader Programming 35 October 28th, 2011 08:45 PM
Spring Home Buying Helps Boost Home Prices in April Quick Summary News and Current Events 0 June 28th, 2011 10:50 AM
Debts Come Home To Roost for Socrates Quick Summary News and Current Events 0 March 24th, 2011 07:00 AM

dow, ecosystem, interest rate, resistance, spectrum, underlying, volatility

All times are GMT -4. The time now is 01:01 PM. (this page content is cached, log in for real-time version)

Copyright © 2018 by futures io, s.a., Av Ricardo J. Alfaro, Century Tower, Panama, +507 833-9432 WhatsApp Business,
All information is for educational use only and is not investment advice.
There is a substantial risk of loss in trading commodity futures, stocks, options and foreign exchange products. Past performance is not indicative of future results.
no new posts
Page generated 2018-12-15 in 0.11 seconds with 14 queries on phoenix