Well I am not seeing anything that will change my thinking about a lot of cash, metals, and energy stocks and a couple commodity and P&C insurance stocks. Yep the ride we are on isn't going to end well.
Really, Jimmy! Scott Bessent says he has it under control. Trump says he is in charge of the Strait of Hormuz and Iran will surrender shortly. Only 23 kills in the Iran situation (certainly can't be a war since Congress is the one that "declares" war). Our president and his cabinet would never lie to us peons, would they? So why cash? why metals? and so on? You can earn over 5% by buying 30-year treasuries - no risk, after all America is the envy of the World. What ever could go wrong?
OH, OH, Oh, you have hurt my sensitive old brain with all those constructive comments. You make me think you don't trust our government? Gee I may have to rethink my "pie in the sky" thinking. Maybe I should just have a glass of wine and take a nap. When I wake up everything will be fine and dandy. Ha!
"This time, the politicians will go whole hog...and turn it into a full-bore debacle.
Once again, we are just guessing."
...but Tom and Dan, at least, are betting heavily on it. Bill also, but he appears to have a substantial, perhaps major, portion of his investments in stocks if I read BPR correctly. I'm betting that he follows the counsel that I received as a teen: avoid debt like the plague. Own your home and land(s) free and clear, with a year supply of food, fuel, other hard assets and, if possible, cash and a garden.
Morgan Housel cites Hyman Minsky's financial instability hypothesis. Basically
~ When an economy is stable, people get optimistic.
~ Optimism fosters debt.
~ When people go into debt, the economy becomes unstable.
(What's the difference? War number 2 or War number 4?) haha, yes, you are right. The old Freudian slip. IRAN! I got 3 out of 4 letters right. At this point, that's a win. Best always. PM
Perhaps 1980–2020 was the exception, not the rule.
For decades, extraordinary forces masked the tension between credit-created demand and scarce real resources. China and the former Eastern Bloc entered the global economy; globalisation added hundreds of millions of workers to the effective labour pool, and computers, the internet and global supply chains generated enormous productivity gains. Without credit expansion, perhaps we would have experienced mild deflation rather than 2% inflation.
This matters from an Austrian perspective. Credit creation can increase monetary claims on resources, but it cannot create the real savings or real resources (labour, energy, commodities and capital goods) necessary to support them. Artificially low interest rates can obscure this mismatch for a time, but they cannot abolish scarcity.
What if the disinflationary forces that allowed this to continue for decades are now fading?
Globalisation is reversing, populations are ageing, and retirees may begin drawing down accumulated savings. Meanwhile, demand for capital is exploding. AI requires enormous investment in chips, data centres, electricity generation and grids. Its huge financing requirements and weak free cash flow show how capital-intensive the buildout is. Energy itself may become a bottleneck, while geopolitical conflicts, including Iran, add further inflationary risk.
So we may simultaneously have less genuine saving and greater competition for real capital.
A recession does not necessarily solve the problem. It lowers private demand, but it can also worsen deficits and debt-to-GDP ratios. If bond investors become increasingly concerned about the fiscal trajectory, they demand higher yields, which raises government interest expense and requires still more borrowing.
This may explain why the interest-rate trend changed around 2022. The central bank can suppress the price of capital for a while, but it cannot indefinitely suppress the underlying competition for scarce real resources.
Eventually the adjustment must appear somewhere: inflation, higher real interest rates, falling asset prices, failed investments, lower consumption, or fiscal retrenchment.
Perhaps the great bond bull market ended because the extraordinary world that made it possible ended with it.
Bill says, "Yes, the debt will be inflated away. But so will a great deal more."
Was it Bill who recently wrote that with gold-backed US Dollars in 1929 one could buy a house in Germany for the price of a US magazine subscription?
Your German mark paycheck and savings account, your mortgage and other debts allowed the government to rob you blind. At least that's the skuttlebutt.
I need to do some real historical research about the common peoples' lives during and after hyperinflation. Also during and after debt repudiation. Homes, jobs, savings, freedoms, safety, violence, wars,...
My parents grew up through the "dirty thirties," and never cried or moaned about it. They smiled and laughed about the good times people had playing, visiting, singing. But II cannot remember ever hearing one word about the "prosperous" roaring twenties.
Where are the books that record the 1930s in terms of the common people, to give us some foggy idea of what to expect in the approaching 21st century "dirty thirties"? Another corner of the great universe of things I know nothing about!
I have some reservations about the seemingly simple option of “inflating the debt away.” The US did reduce its enormous WWII debt burden successfully, but under very different conditions: financial repression and capital controls, restrictions on private gold ownership, high personal saving, rapid labour-force growth, favourable demographics and very strong real GDP growth.
Most of those conditions are absent today, and decades of cheap credit may also have left us with a much less efficient capital structure.
There is also a political problem. Government debt is somebody else’s asset. An ageing population approaching or entering retirement increasingly depends, directly or indirectly, on bonds and other fixed-income assets. Inflating away the government’s liabilities therefore means inflating away part of their retirement wealth.
Retirees are also becoming one of the largest and most cohesive voting blocs.
So far, we are talking only about explicit government debt. The much larger problem of future pension, healthcare and other entitlement commitments is not so easily inflated away, particularly where benefits adjust with wages or inflation.
So yes, inflation can reduce the real value of nominal debt. But whether a modern ageing democracy can “inflate away” its debt burden without provoking higher yields, political resistance and serious damage to retirement wealth is a very different question.
Which brings me back to your question about the coming “Dirty Thirties”: if the old escape route is much harder this time, what does the adjustment actually look like for ordinary people? That is probably the more interesting question.
It was always the plan, during WW2, when they increased debt the old-fashioned way, selling $25.00 denominated 20-year bonds for $18.00; inflate the economy at a compounding 3% per year and pay back $.20 on the $.
It was a crooked plan. There were many crooked plans by “The Best and Brightest,” like cheaper to let people die than pay for a recall and the military industrial state: Korea, Vietnam and on and on.
War was more lucrative.
Thanks for your service. If I were 18, not even American, I could join the military and make $2,500 a month, all expenses paid with an education benefit like JD Vance. If you are a colonel its 140k, a year, with free housing and food allowance, plus comfortable retirement.
They became the best and brightest at Harvard and Yale, super planning with no consequences… until there were.
Various jurisdictions thinking about wealth taxes on unrealized gains, will crush savers and investors if the taxes are applied. Do the taxpayers in these cases get refunds when the assets they paid a wealth tax on, see their assets drop in value? Slim chance, I think. Wealth taxes are truly the worst form of tax. Absolute theft.
Well I am not seeing anything that will change my thinking about a lot of cash, metals, and energy stocks and a couple commodity and P&C insurance stocks. Yep the ride we are on isn't going to end well.
Jim Marshall
Really, Jimmy! Scott Bessent says he has it under control. Trump says he is in charge of the Strait of Hormuz and Iran will surrender shortly. Only 23 kills in the Iran situation (certainly can't be a war since Congress is the one that "declares" war). Our president and his cabinet would never lie to us peons, would they? So why cash? why metals? and so on? You can earn over 5% by buying 30-year treasuries - no risk, after all America is the envy of the World. What ever could go wrong?
OH, OH, Oh, you have hurt my sensitive old brain with all those constructive comments. You make me think you don't trust our government? Gee I may have to rethink my "pie in the sky" thinking. Maybe I should just have a glass of wine and take a nap. When I wake up everything will be fine and dandy. Ha!
Jim
"This time, the politicians will go whole hog...and turn it into a full-bore debacle.
Once again, we are just guessing."
...but Tom and Dan, at least, are betting heavily on it. Bill also, but he appears to have a substantial, perhaps major, portion of his investments in stocks if I read BPR correctly. I'm betting that he follows the counsel that I received as a teen: avoid debt like the plague. Own your home and land(s) free and clear, with a year supply of food, fuel, other hard assets and, if possible, cash and a garden.
Morgan Housel cites Hyman Minsky's financial instability hypothesis. Basically
~ When an economy is stable, people get optimistic.
~ Optimism fosters debt.
~ When people go into debt, the economy becomes unstable.
~~ Same As Ever. ~~
But it's also not going to end right away, especially if the Iraq mess clears up anytime soon. Best always. PM
Iraq or Iran?
(What's the difference? War number 2 or War number 4?) haha, yes, you are right. The old Freudian slip. IRAN! I got 3 out of 4 letters right. At this point, that's a win. Best always. PM
You are sooooo right!
Jim
I got back into Tom's Shipping stocks awhile back; they're still doing well.
Perhaps 1980–2020 was the exception, not the rule.
For decades, extraordinary forces masked the tension between credit-created demand and scarce real resources. China and the former Eastern Bloc entered the global economy; globalisation added hundreds of millions of workers to the effective labour pool, and computers, the internet and global supply chains generated enormous productivity gains. Without credit expansion, perhaps we would have experienced mild deflation rather than 2% inflation.
This matters from an Austrian perspective. Credit creation can increase monetary claims on resources, but it cannot create the real savings or real resources (labour, energy, commodities and capital goods) necessary to support them. Artificially low interest rates can obscure this mismatch for a time, but they cannot abolish scarcity.
What if the disinflationary forces that allowed this to continue for decades are now fading?
Globalisation is reversing, populations are ageing, and retirees may begin drawing down accumulated savings. Meanwhile, demand for capital is exploding. AI requires enormous investment in chips, data centres, electricity generation and grids. Its huge financing requirements and weak free cash flow show how capital-intensive the buildout is. Energy itself may become a bottleneck, while geopolitical conflicts, including Iran, add further inflationary risk.
So we may simultaneously have less genuine saving and greater competition for real capital.
A recession does not necessarily solve the problem. It lowers private demand, but it can also worsen deficits and debt-to-GDP ratios. If bond investors become increasingly concerned about the fiscal trajectory, they demand higher yields, which raises government interest expense and requires still more borrowing.
This may explain why the interest-rate trend changed around 2022. The central bank can suppress the price of capital for a while, but it cannot indefinitely suppress the underlying competition for scarce real resources.
Eventually the adjustment must appear somewhere: inflation, higher real interest rates, falling asset prices, failed investments, lower consumption, or fiscal retrenchment.
Perhaps the great bond bull market ended because the extraordinary world that made it possible ended with it.
I agree with your final two sentences. Now we need to figure out how to stop this
grand old ship from taking on more water. Maybe, it would be a good start if we got the hell out of the "straits of Hormuz".
Bill says, "Yes, the debt will be inflated away. But so will a great deal more."
Was it Bill who recently wrote that with gold-backed US Dollars in 1929 one could buy a house in Germany for the price of a US magazine subscription?
Your German mark paycheck and savings account, your mortgage and other debts allowed the government to rob you blind. At least that's the skuttlebutt.
I need to do some real historical research about the common peoples' lives during and after hyperinflation. Also during and after debt repudiation. Homes, jobs, savings, freedoms, safety, violence, wars,...
My parents grew up through the "dirty thirties," and never cried or moaned about it. They smiled and laughed about the good times people had playing, visiting, singing. But II cannot remember ever hearing one word about the "prosperous" roaring twenties.
Where are the books that record the 1930s in terms of the common people, to give us some foggy idea of what to expect in the approaching 21st century "dirty thirties"? Another corner of the great universe of things I know nothing about!
I have some reservations about the seemingly simple option of “inflating the debt away.” The US did reduce its enormous WWII debt burden successfully, but under very different conditions: financial repression and capital controls, restrictions on private gold ownership, high personal saving, rapid labour-force growth, favourable demographics and very strong real GDP growth.
Most of those conditions are absent today, and decades of cheap credit may also have left us with a much less efficient capital structure.
There is also a political problem. Government debt is somebody else’s asset. An ageing population approaching or entering retirement increasingly depends, directly or indirectly, on bonds and other fixed-income assets. Inflating away the government’s liabilities therefore means inflating away part of their retirement wealth.
Retirees are also becoming one of the largest and most cohesive voting blocs.
So far, we are talking only about explicit government debt. The much larger problem of future pension, healthcare and other entitlement commitments is not so easily inflated away, particularly where benefits adjust with wages or inflation.
So yes, inflation can reduce the real value of nominal debt. But whether a modern ageing democracy can “inflate away” its debt burden without provoking higher yields, political resistance and serious damage to retirement wealth is a very different question.
Which brings me back to your question about the coming “Dirty Thirties”: if the old escape route is much harder this time, what does the adjustment actually look like for ordinary people? That is probably the more interesting question.
It was always the plan, during WW2, when they increased debt the old-fashioned way, selling $25.00 denominated 20-year bonds for $18.00; inflate the economy at a compounding 3% per year and pay back $.20 on the $.
It was a crooked plan. There were many crooked plans by “The Best and Brightest,” like cheaper to let people die than pay for a recall and the military industrial state: Korea, Vietnam and on and on.
War was more lucrative.
Thanks for your service. If I were 18, not even American, I could join the military and make $2,500 a month, all expenses paid with an education benefit like JD Vance. If you are a colonel its 140k, a year, with free housing and food allowance, plus comfortable retirement.
They became the best and brightest at Harvard and Yale, super planning with no consequences… until there were.
It is always the poor slobs that suffer.
Seems we were sold 2 milking machines for one cow.
And the down payment was the cow...
When votes have to be bought, nothing is off the table. Best always. PM
Various jurisdictions thinking about wealth taxes on unrealized gains, will crush savers and investors if the taxes are applied. Do the taxpayers in these cases get refunds when the assets they paid a wealth tax on, see their assets drop in value? Slim chance, I think. Wealth taxes are truly the worst form of tax. Absolute theft.
so you say that people are fed up with the politicians we have but as you know they will vote for people that will make it even worse!