Are we heading into deleveraging?

Discussion in 'Markets & Economies' started by willrocks, May 16, 2020.

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Are we heading into deleveraging?

  1. Yes, there will be deleveraging and deflation

    16 vote(s)
    76.2%
  2. No, there won't be deleveraging

    5 vote(s)
    23.8%
  1. willrocks

    willrocks Well-Known Member Silver Stacker

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    Care to elaborate on how you think this is possible?
     
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  2. sgbuyer

    sgbuyer Well-Known Member Silver Stacker

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    The majority of us here have been calling for a pull back in gold for a couple weeks. But Harry Dent had been bearish on gold (all the time). 2 years ago, he and Jim Rogers said that gold will fall below $1000. If I'd followed them, I won't even be on this forum today.
     
    Last edited: May 18, 2020
  3. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    According to MM theory, there are 2 "actors" in the economy, the private sector and the public sector. We're in a balance sheet recession which means that the private sector is paying down debt and saving instead of spending or borrowing. MMTers argue that it is the function of the public sector to take the place of the consumer in such a scenario, so the government should spend through infrastructure projects and grants, as well as tweaking the tax system and we'll probably some form of UBI/job guarantee. It hasn't worked in the past because governments haven't followed through with proper MMT policy ideas - this time may be different.
     
  4. willrocks

    willrocks Well-Known Member Silver Stacker

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    The basis of your premise requires governments to follow proper MMT policy. Something which you concede hasn't happened in the past.

    Secondly. Infrastructure projects, grants, tax breaks, and a UBI all take time to filter down. Initially (i.e. my two year guesstimate) the bulk of that money, when it reaches consumers, will be used to pay living costs, pay down debt, and save. Only when the psychological "I feel safe" barrier is reached will people spend again.
     
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  5. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Correct.

    I'm not interested in the function consumers have to play. Their role is not required. It is the government's role that is important. So consumer spending is not part of the solution. All that is required is for the government to announce its intention to fund infrastucture projects Australia wide and upgrade public services such as hospitals and lower taxes. The market always moves up on a positive sentiment of the future - buy the rumour sell the the news. :)
     
  6. willrocks

    willrocks Well-Known Member Silver Stacker

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    Consumer confidence and spending are key. Without them there is no economy. No matter how much the government spends on infrastructure projects.

    Even if you're wild assumptions all play out, and it is 'different this time'. It will still take time. Turning the economy around is a slow process. Hence my current two year guesstimate on a contracting economy.
     
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  7. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Both MM theorists and Austrians would disagree with you there. For different reasons of course.

    From the perspective of the MMT school governments must spend first.

    From an Austrian perspective consumer spending makes up only a small proportion of total economic activity.
     
  8. willrocks

    willrocks Well-Known Member Silver Stacker

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    And now I suspect you're making yet another mistake by listening to MMT with regard to what the future holds.
     
  9. willrocks

    willrocks Well-Known Member Silver Stacker

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    How important is consumer spending to the economy?

    "Consumer spending is the single most important driving force of the U.S. economy." - LINK
    "Consumer spending is a key driving force in the economy" - LINK
    "Over the past decade, consumer spending accounted for between 67% and 69% of our total economy" - LINK
    "Consumer spending accounts for 70 percent of American economic growth" - LINK
     
  10. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    You could be right. I think MMT has nailed it, but it will come down to politicians.
     
  11. Holdfast

    Holdfast Well-Known Member Silver Stacker

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    Deleveraging - the process or practice of reducing the level of one's debt by rapidly selling one's assets.

    Peter Schiff has been well known since about 2007.
    He pumped and pumped and pumped for everyone to buy gold and to go back to the gold standard, as he sold gold for US dollars. (Schiff gold)
    Some of Peters arguments were very convincing, logical and seemed like outcomes that were commensurate with his ideals.
    Peter was wrong, stocks continued to rally, the US Federal Reserve kicked the can down the road, again and again and again.
    Quantitative easing he said, could not go on forever.
    Ben Bernanke, Janet Yellen are like dust in the wind as Jerome Powell takes the reins for a fresh new start. :rolleyes::D
    As the printing presses continue to hum, the stock market rallies with those fantastic Price Earnings (PE) ratios.

    But you say, how can we have a rising stock market when things are crook? How can we have awful PE ratios but stocks are up?
    If companies are not making profit, they don't have demand and they have a failing international logistical system, why are stocks rising?

    So, hang-on. Normally, if the stocks go up, gold goes down right? If companies are making money, they give dividends to the stock holder but didn't they say that dividends are being stopped or
    reduced?
    So, if there's poor demand for oil, wouldn't that mean that industry is slowing because demand is down?

    I have a shop, it's full of summer stock but customers are not allowed into my shop at the volumes I've calculated that will produce my financial outcomes; what will happen to my business?

    They want me to go on a holiday, they say, go on a holiday in Australia but I can't travel interstate! Mmm

    They said, food in the shops is not going to disappear, we won't go hungry in Australia, they were right, just that, I'm out of a job, I don't have spare money for food or a holiday.

    So I said to the mechanic who had bugger-all customers, how much would it cost to replace the front Hubs, Rotors and disc pads, if I supply the parts? $140.80. I said, could you check that, he says
    that's the price, it only takes an hour and a half and we don't have much on.

    The car dealer says, we have too much stock, there's cheap prices, want to buy a Hilux mate?
    I ask my self, how can they be cheap if they are closing down car factories; what's going to happen when the car factories close down or reduce production? If they reduce production won't they go broke
    when demand is low. Holdens are dust and that was before COVID 19. Will cars be cheaper or more expensive and will my car brand be taken-over by another car brand?

    So, I hear about the experts, how they know that things will be ok, it's just background noise, the stockmarket is dandy, gold, dandy, silvers dandy and FFS why is platinum so cheap on that chart but I can't buy it cheap?

    And that rally of gold last year, I said to my mate, hey, gold is at $2000 and look now its at $2500 and that was months before a virus. Do you think the 30 year stock market is going to crash? Well, an old mate of
    mine said that prices move about 12 months before hand, the gurus know what is going to happen, because they call the shots!
    I said, what do you mean?
    Well, there's blokes overseas (LBMA) that set the price of gold twice a day, they set the price of silver twice a day, platinum and........... I said really, how come they get to set the price?
    I said, they get to set the price because they are the price setters! But how come the price they set is different to the price of the coin I want to buy? I said, it's markets mate, just markets, all about demand.

    By the way, why are you buying a silver coin? Because they say that silver is a good investment! But aren't you scared of deleveraging?
    WTF is deleveraging? Mate, deleveraging is a new kind of gear box, it's like a slip dif but the dif can go into lower gear, ya ask too many questions, it's just basically the process or practice of reducing the level of one's debt by rapidly selling one's assets.

    So hang-on! You're saying that if I buy a coin now, that other people might sell their coins and then there will be less demand for my coin so I shouldn't buy a coin now and if I did have a coin I should sell it now before everyone else sells so that I don't loose money. Yep!
    So, why don't people sell their stocks? Because! Because why? Becoz stocks always go up, because the Federal Reserve of America buy stocks which makes the prices go up! Why do they do that? Becoz mate, they like to buy things, they have lots of dollars, they can buy what ever they like for the goodness of the American people, (The Shareholders). Are they our friends? Yes!
    Do they like silver? Sometimes! Do they like Gold? You ask too many questions!

    So let me get this straight, coz I thick.
    I buy my silver coin and then the price drops! For how long will the price drop? That depends! FFS, now what? It depends if your currency goes up or down against the USD! If you buy your coin now and the currency in your country drops against the USD your coin will become more valuable! How so? Just shut-the FU! If your currency in your country goes up against the USD your coin will be less valuable! That's crazy man! Ok, it's crazy but that's what happens, now do you understand what deleveraging is? NO, I'm as confused as ever.
    Ok, I'll make it easier.
    Say you live in Australia, say one Australian dollar is equal to one American dollar, now you buy your coin. Right, I get that!
    Say, in Australia, their currency drops against the USD to say 50 cents, your coin would now be worth $1.50 (Your rich) in Australian Dollars but if you wanted to buy another coin in American dollars, you'd have to pay $1.50AUD or the coin.
    That's not fair! How come my Australian currency isn't worth as much as the USD? That's because the people who set the price of the AUD against the USD are friends with the LBMA people and lots of other people that control things.
    Why do they do that?
    Because they like to be our friends!
    So, what has all this got to do with deleveraging?
    Nothing!
    Why did you waste my time with all this BS?
    It's not BS.
    Some bits were true! Did you mean bitcoin?
    FFS, just buy a lump of silver or gold, lets not make things complicated!
     
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  12. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Ooooh I love a good economic fallacy.

    "70 Percent: The Myth of the Consumer Economy" LINK
    "Consumer Spending Drives the Economy?" LINK
    "Three Widely Believed Economic Fallacies" LINK
    "The ‘Consumer Spending’ Myth" LINK

    MMTers take a slightly different stance, from my reading I don't think they care to analyse whether consumer spending contributes more to economic activity or not - all they seem to care about is that spending can be public or private.

    "A nation cannot grow without spending" LINK

    So you've got Austrians debunking the Keynesian myth of consumer spending and you've got MMTers arguing that it is irrelevant who does the spending. So both would agree that consumer spending does not drive the economy.
     
    Last edited: May 18, 2020
    willrocks likes this.
  13. willrocks

    willrocks Well-Known Member Silver Stacker

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    I prefer not to rely on politicians.
     
  14. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    That's why we've got a choice in the poll. ;)
     
  15. willrocks

    willrocks Well-Known Member Silver Stacker

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    You said:
    Yet your rebuttal articles state that consumer spending responsible for somewhere between 30 to 40 percent of the economy.

    "less than half of U.S. economic activity, probably around 40 percent."
    "consumption represents only about 30 percent of the economy, while business investment (including intermediate output) represents over 50 percent."

     
  16. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    The articles were posted to rebut your argument about the value of consumer spending to an economy.

    Now Austrians don’t like governments spending money. We don’t have any Austrians in charge so we need to look to MMT and their position that is doesn’t matter whether the spending is public or private, as long as there is enough spending going on.

    MMT is gaining traction.
     
  17. willrocks

    willrocks Well-Known Member Silver Stacker

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    Is it your position is that consumer spending doesn't drive economic growth?

    I haven't argued against that position. My position is that consumer and investor sentiment will cause short-term deflation / deleveraging.

    MMT may well gain traction. And I can see why it would with "free money for everyone". However, that all takes time, so I stand by my two year outlook.
     
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  18. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    I thought I’d made my position clear. :p

    Consumer spending does not drive the economy.

    Government spending does not have to get into the hands of consumers to have an effect on the economy.

    Sentiment drives outlook.

    Governments making public announcements about public spending programs can lift sentiment before any spending actually takes place.

    Governments need to spend first before consumers can spend.
     
  19. mmm....shiney!

    mmm....shiney! Well-Known Member Silver Stacker

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    Raoul Pal is smarter than me and my view is different to his, if you were a gambling man you'd put your money on the side of intelligence:

    If Pal was a member of SS he'd be vote number 15 rather than vote number 5. :p

    I'd be curious to hear why the other 3 people that voted "no" did so.
     
  20. Markco2

    Markco2 Member Silver Stacker

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    Hi shiney,

    The Lab is soaking out in the sun.

    I agree with you that Consumer Spending doesn't drive the economy.
    Government spending to create jobs is what drives the economy.

    So where does this future funding come from and at what cost to the economy?

    Can't see the point in paying anymore taxes if QE is free money.

    Why not?

    Everyone else is putting their hand up for a free lunch.
    Why not the taxpayer? We are overtaxed as it is.
    May as well get rid of GST as well.
    That would be of benefit to small businesses and consumers.

    The taxpayer appears to be carrying a large part of this future burden.
    Will be interesting to see what happens to Jobkeeper after September.

    Cheers Markco2
     
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