Carney's first week abroad a predictable success

3 responses

  1. Andrew says:

    Yes, a success. A success in convincing people to acquire more debt by keeping interest rates artificially lower than the market would otherwise keep them for a long period of time. It was tried in the late 90’s and we ended up with a bubble. Tried in the early to mid 00’s and we ended up with another, larger, bubble. It is being done again right now to an extent that hasn’t been tried since 1920’s Germany, but this time it will work. Just ask everyones favourite Goldman employee.

    My biggest curiousity is why these Central Planners never mention the word “deleveraging.” Is it because they don’t want it to happen on their watch? Is it because the Central Banking model of capitalism only works when asset prices go up? Is it because the mere suggestion that we are in for a period of difficulty that might last 20 years would be enough to rattle the markets and disturb their hope for a wealth effect miracle?

    Every day we follow this path the world gets deeper and deeper in trouble. When we find ourselves in a hole, we are supposed to stop digging. Instead we’ve gone out and bought a caterpillar on the credit card. You suggest that Southern Europes banks are effectively insolvent, what about Deutsche Bank’s $50 trillion, that is

  2. Andrew says:

    in derivatives. They net out to a mere 770 billion, but what happens when one side can’t pay?

    We can see where all this is headed very easily because Japan was here 20 years ago. They now have a debt/gdp ratio of 240%. A third of their tax revenue is used up by debt interest service, and their average interest rate on that debt is 0.7%. Mr. Abe declares he wants inflation of 2%. Assuming no one is dumb enough to buy 10 year bonds at 0.7% when inflation is at 2%, what happens to their debt service costs when their interest costs triple? Hint: its not good.

    Mr Carney was lucky to have the Canada job when he did. I’m sure he is a very competent manager but one look at the Toronto, Montreal, Vancouver, or Ottawa skylines tell you exactly what he has done here. The amazing thing is that he could have looked anywhere else in the world to see the consequences of a property bubble but either didn’t care or believed inflating the debt bubble was the most prudent course of action at the time.

    Quite simply we live in a world that equates debt growth with GDP growth. In 1980 total credit market debt owed to GDP was about 160% in the US. In 2007 it peaked at 377% and has now pulled back to about 350%. In 1929 it peaked at 260%. The drop of 27% we’ve experienced has left more than 47 million American’s on food stamps, presumably because they don’t have enough money to feed themselves. We need to drop another 90% to get back to a level that in the past was so large it caused the great depression.

    There are only 2 ways out of this. Prolonged inflation or a collapse, similar to what we started in 2008 before the market was taken over by Central Bankers. There are no other options because the path we are on is unsustainable. I’ve been told by very smart people that the Central Bankers understand this but I’m not sure it is going to matter.

    Or maybe I’m just crazy. Either way I will sleep okay at night with my gold.

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