Global Depression 2022 - Time to do the Breadline Boogaloo!

[Henry V]

From a global perspective, inflation is a wonderful tool to lower your debt ledgers relative liability.

Great if you have wonderful assets.
Terrible if you have cash.

And if it brings about a crash, then...

Terrible if you've got assets.
Great of you've got cash.

Stagflation is the likely result and has been on the cards plain as day since Mid-2019. In which case:

Terrible if you've got assets.
Terrible if you've got cash

What makes you think this will just be stagflation and not a crash?

 

[Hippopatumus]

I'm not well informed on the effects of fed tapering. Can someone give a rundown on what will happen immediately and later on?

Fed adds money to the economy by purchasing assets, thus increasing the money supply. They remove money from the economy by selling assets, thus decreasing the money supply.

Theoretically they could sell assets and increase rates and that would cool off the red-hot economy.

Theoretically.

Except their balance sheet is "only" 8 trillion and their liabilities are 9 trillion.

And every 5% they bump the rate is equal to the entire budget of the US Armed Forces in added interest payments.

Short term, by removing liquidity from the economy, they dampen economic activity. Long term, nothing they can do really alters the current trajectory.

 

[contradiction of terns]

I generally avoid CNN because their coverage of most issues is shit, but this was... tolerable.

Archive

New York (CNN Business) — There's no denying it: Inflation is here. Consumer prices surged 7% over the past year. Housing prices have continued to soar, too. But the question on the minds of many economists and Wall Street strategists is whether something even worse could be in the cards: prices rising as the economy slows.

That's the textbook definition of stagflation, and it would be the worst nightmare for consumers, investors and the Federal Reserve. Not to mention President Joe Biden and the rest of the Democratic leadership in Washington. Just ask former president Jimmy Carter, who lost to Ronald Reagan in his 1980 re-election bid as the economy suffered from surging gas prices.

Stagflation is a difficult problem to overcome, especially for central bankers at the Fed and around the rest of the world. There are few tools to combat both inflation and a slowdown at the same time. The strongest fix for an economic slump is to lower interest rates, but those have been at near zero for almost two years.

Raising rates to fight inflation, as the Fed has signaled it may soon do, could slow the economy. That's a major concern right now in the United Kingdom, where central bankers raised rates last month to combat higher prices.

Rate hikes also tend to put more pressure on long term bond yields, which have already risen in anticipation of the Fed's moves. Those tend to be partly inflationary because they make it more expensive to borrow money.

On growth slowdown;
Archive

WASHINGTON — The World Bank said on Tuesday that the pace of global economic growth was expected to slow in 2022, as new waves of the pandemic collide with rising prices and snarled supply chains, blunting the momentum of last year’s recovery.
This projection underscores the stubborn nature of the public health crisis, which is widening inequality around the world. The pandemic is taking an especially brutal toll on developing countries, largely owing to rickety health care infrastructure and low vaccination rates.

“The Covid-19 crisis wiped out years of progress in poverty reduction,” David Malpass, the World Bank president, wrote in an introduction to the report. “As government’s fiscal space has narrowed, many households in developing countries have suffered severe employment and earning losses — with women, the unskilled and informal workers hit the hardest.”

Global growth is expected to slow to 4.1 percent this year, from 5.5 percent in 2021, according to the World Bank. Output is expected to be weaker, and inflation is likely to be hotter than previously thought.

 

[Ancient Pioneer]

I'm not well informed on the effects of fed tapering. Can someone give a rundown on what will happen immediately and later on?

From 2008 until the day Trump was elected the rate was around 0.10-0.25% during his administration Trump really wanted to correct this since as a business major he knew Quantitative Easing like this is disastrous for the working class as it spikes assets like housing and stocks, this is the reason Jerome Powell was selected, get the fucking rates up. But the problem was the economy is absolutely fucking addicted to easy money and debt and once it started getting around 2% the economy started gagging, it needed time to acclimate to the new rates at 2% for a period of time to move on. In 2019 the ramifications of this reckless policy started showing up, it lead to a liquidity crisis that required lowering the rates once again, only for COVID to hit and required massive amounts of printing, more than the past 50 years combined. If the economy was unable to deal with rate hikes during the blazing hot stable Trump economy just imagine how dreadful it will be with this ramshackle affair Biden is running?

To deal with the insane amount of inflation in the 1970s rates had to be pumped above 10% for an excessive period of time. The Fed couldn't get it up above 2% without nearly destroying the economy in ideal conditions, the expectation that the Fed will be able to get it up to 10% to tamp down inflation is utterly insane, effectively everyone with a pulse knows this is not possible. What is going to happen for the 2020s, and I mean the full decade is huge amount of inflation, stagnant economy ie: stagflation and perhaps a total collapse of Imperial fortune as various nations seriously consider abandoning the US Dollar in favor of something else, like the Euro or maybe some kind of global banking cryptocurrency tied to physical assets like gold that it can be converted to. If the Petrodollar collapses the US is fucking toast, all of the inflation exported to the global economy will come rushing back and the dollar will be Weimar tier useless.

I honestly have no idea how the US gets out of this trap, to not raise the rates is capitulation but actually raising rates will lead to a wicked recession. This is long before considering stuff like how the rate will effect the US Debt. This decade is going to be very close to the 1970s in terms of how the economy is going to perform and we already see the huge levels of crime already manifesting. I'm half tempted to make a Crimewave thread just cataloging the smash and grab incidents along with the generalized decay of societal standards.

 

[Kujo Jotaro]

View attachment 2883177
From 2008 until the day Trump was elected the rate was around 0.10-0.25% during his administration Trump really wanted to correct this since as a business major he knew Quantitative Easing like this is disastrous for the working class as it spikes assets like housing and stocks, this is the reason Jerome Powell was selected, get the fucking rates up. But the problem was the economy is absolutely fucking addicted to easy money and debt and once it started getting around 2% the economy started gagging, it needed time to acclimate to the new rates at 2% for a period of time to move on. In 2019 the ramifications of this reckless policy started showing up, it lead to a liquidity crisis that required lowering the rates once again, only for COVID to hit and required massive amounts of printing, more than the past 50 years combined. If the economy was unable to deal with rate hikes during the blazing hot stable Trump economy just imagine how dreadful it will be with this ramshackle affair Biden is running?

To deal with the insane amount of inflation in the 1970s rates had to be pumped above 10% for an excessive period of time. The Fed couldn't get it up above 2% without nearly destroying the economy in ideal conditions, the expectation that the Fed will be able to get it up to 10% to tamp down inflation is utterly insane, effectively everyone with a pulse knows this is not possible. What is going to happen for the 2020s, and I mean the full decade is huge amount of inflation, stagnant economy ie: stagflation and perhaps a total collapse of Imperial fortune as various nations seriously consider abandoning the US Dollar in favor of something else, like the Euro or maybe some kind of global banking cryptocurrency tied to physical assets like gold that it can be converted to. If the Petrodollar collapses the US is fucking toast, all of the inflation exported to the global economy will come rushing back and the dollar will be Weimar tier useless.

View attachment 2883186


I honestly have no idea how the US gets out of this trap, to not raise the rates is capitulation but actually raising rates will lead to a wicked recession. This is long before considering stuff like how the rate will effect the US Debt. This decade is going to be very close to the 1970s in terms of how the economy is going to perform and we already see the huge levels of crime already manifesting. I'm half tempted to make a Crimewave thread just cataloging the smash and grab incidents along with the generalized decay of societal standards.

Your time horizon is too long. Other nations aren't going to play hot potato for a decade hoping they aren't the one's holding USD when it implodes. I give it 4 years max, nations have been buying up gold and silver, as well as signing agreements to trade between local currencies instead of USD(and this is only what they've said publicly). Everyone knows what's coming, only a fool would wait until the last minute to get his.

 

[MadStan]

What makes you think this will just be stagflation and not a crash?

Well there is no reason for a crash. Yet.

Sure, we have over-valued assets - no question - but the economic fundamentals are pretty strong. Now, higher inflation coupled with some stagnation of economic growth is surely going to happen especially with the Fed no longer buying shitty assets - and they do not have buyers for them either. Staff cost too much, etc. etc.

This could then bring about a crash.

But Wall Street has an upper edge right now - they are buying money producing assets (stocks) for reasonable prices with real monetary returns and the underlaying companies have assets - while at the same time the public has been primed to buy risky assets that produce nothing (Crypto). This means Wall Street is essentially being given a green light to buy huge Junk Bond purchases for temporary short term gain and damn the long-term consequences. If risky assets that produce little or nothing outperform real assets, then the public is making a misstep. Wall Street likes this.

It would be a reasonable expectation that with the Interest Rate Hikes that many Junk Bonds will falter and we will see huge losses pegged on IRAs and funds. This will force them into Crypto markets so a surge in crypto will follow (starting now), followed by a massive crash in Crypto as the funds cash out strategically leaving mum and pop's who purchased Crypto to take the losses.

Right now to remove cash from society (which would help balance the equation), the easiest target is Crypto as $500 Billion can be taken rather quickly merely by causing it to crash, but to do that a little more needs to be invested into it. Followed and including at the same time junk bonds (another Trillion). I'd expect individuals running scared of inflation to start throwing money at Crypto which is exactly what the exchanges need and want. The whales will clean their boots with the little guys.

If an economy isn't producing enough companies that can get a good rate of return (due to higher costs, inflation), and people can't keep up with the cost of living under stagnation, then a crash will come, but to be clear a crash will proceed not precede the stagflation and it's causes and mechanisms.

Remember in a crash cash IS king, and you can pick up assets that have been devalued through lower demand for 50% in some cases.

So, is the loss of 5% per annum of your savings really worth temporary risk for an inevitable increased buying power in a year or 2?

We all like to think we can time our exit from the Market and cash up, but statistically speaking, we tend to mostly fail.

I've hedged my bets that by NOT making 7% per annum return on my savings; and given that I would have to time my exit beautifully, that I am better off holding cash even though it is losing 5% per annum. My calculation is that in 12-24 months assets I am interested in will deflate due to cash strapped buyers and I can pick them up cheap.

Whether or not I can hold for another 12 months thereafter to then find buyers remains the largest part of the gamble. I think I can and have done so in the past.

My greatest fear is that Crypto grows so much that when cash is suddenly needed, the exchanges simply go bankrupt, the leveraged positions crash and many people at the bottom are left without sufficient value in their crypto and we see a drain of the little people's money. The exchanges DO NOT hold enough cash or assets to cash everyone out. Someone MUST lose.

I pulled out of Crypto simply because I knew I was highly unlikely to time my exist well - not because I didn't think it could or would go up further. My analysis showed me that the Whales own the Crypto market and literally control everything about it and demand has almost nothing to do with it.

Someone has to lose in the next 12-24 months, I'd rather lose 5% now than 50-100% later. Call me chicken. :-)

 

[Kujo Jotaro]

they are buying money producing assets (stocks) for reasonable prices with real monetary returns

this is a joke right?

 

[Honest Coyote]

If the interest rates rise, will that effect the U.S. debt in existence or only the future debt that'll be issued?

Our current interest payment is 300 billion. If it affects current debt, a 3 percent interest rate (like we had when I was a kid) on our 30 trillion dollar federal debt is 900 billion. At ten percent, that's 3 trillion a year just to keep afloat. At the 1981 max of 16.63 percent, that's almost 5 trillion a year. Our current federal revenue is about 4 trillion dollars. 125 percent of income going to interest payments alone seems like the equivalent of being dragged to the ocean floor by a kraken.

If it doesn't increase in interest rate, could our debt that's already bought be sold to undercut newly issued debt? For example, China or Russia dumps all their bonds, will it flood the market and hurt us, or would our new debt at 1% go first because it's more valuable and their left holding a bunch of IOUs nobody wants to trade for? If you can't trade it in because the low rate, why would anyone buy our debt now and not wait for interest rates to raise?

 

[Meat Target]

What makes you think this will just be stagflation and not a crash?

I generally avoid CNN because their coverage of most issues is shit, but this was... tolerable.

Archive


On growth slowdown;
Archive

I knew stagflation was in the cards the moment Paul Krugman said it wasn't.

 

[Knight of the Rope]

We all like to think we can time our exit from the Market and cash up, but statistically speaking, we tend to mostly fail.

Sure a lot of what you said is good (on the face of it at least), but "don't try to time the market" also applies to trying to pre-time your liquidation so that you've got capital to reinvest after a crash. Y'know, obviously. As you pointed out, cash doesn't actually get you returns (and with inflation the way it is, you're actively burning through it just by having it around).

Ultimately it comes down to your time preference. And since the majority of us in this thread are younger than 40 (safe bet) I have a rare whitepill for everybody: It literally doesn't matter how you time the market, as long as you play you'll make money. The only losing move is abstinence.

https://www.cnbc.com/2015/08/27/the-inspiring-story-of-the-worst-market-timer-ever.html

I knew stagflation was in the cards the moment Paul Krugman said it wasn't.

One of these days Krugman is going to be right about this 'Internet thing' being just a passing fad, and we're all gonna look like fools.

 

[Hippopatumus]

It literally doesn't matter how you time the market, as long as you play you'll make money. The only losing move is abstinence.

I see this kind of sentiment all the time and the mind boggles.

Say it with me: "past returns do not dictate future results"

American equity markets have experienced the biggest bull market in human history over the last hundred years. Everyone looks like a genius in a bull market.

When the bull market ends, and it will, thanks to the shameless and widespread looting that the ruling class has executed upon the American people, the resulting crash is going to make what happened in 1989 in Japan look like a minor correction.

 

[Knight of the Rope]

I see this kind of sentiment all the time and the mind boggles.

Yeah. It's funny how it keeps being correct, huh? Strange.

Say it with me: "past returns do not dictate future results"

Yeah, you're right. Instead of assuming that the world is going to keep turning and that we'll all probably have decent futures over the long-term, pulling all of your investments so that you can try and time an apocalyptic crash and end up as one of the rich warlords in the 'new order' is a much saner plan.

 

[Hippopatumus]

Yeah. It's funny how it keeps being correct, huh? Strange.

Hoboy.

You are going to have a bad time.

 

[Simple Moving Average]

@Knight of the Rope @Hippopatumus

What are the main drivers of equity returns when averaged out globally? As long as these persist, you will continue seeing returns.

 

[Hippopatumus]

@Knight of the Rope @Hippopatumus

What are the main drivers of equity returns when averaged out globally? As long as these persist, you will continue seeing returns.

Oooooooo damn now see this is an interesting point and gives me more think about.

I still disagree with you though.

That could change. Don't think it will, but I'm not the kind of prideful person that won't let it happen either,

 

[Simple Moving Average]

Oooooooo damn now see this is an interesting point and gives me more think about.

I still disagree with you though.

That could change. Don't think it will, but I'm not the kind of prideful person that won't let it happen either,

Answer the question. What are the main drivers?

 

[Dom Cruise]

A second depression will probably also mean a second civil war.

People have already been pumped and primed to hate each other, add in a scenario where suddenly just being able to put food on the table is seriously threatened and it's probably not going to lead to anything good.

 

[Harbinger of Kali Yuga]

A second depression will probably also mean a second civil war.

People have already been pumped and primed to hate each other, add in a scenario where suddenly just being able to put food on the table is seriously threatened and it's probably not going to lead to anything good.

I've been thinking of this very often--daily--and yes, this is the missing ingredient.

 

[Hippopatumus]

Answer the question. What are the main drivers?

I am really struggling with this one.

You have global companies creating creating shareholder value:
- Tech
- Commodities
- "Healthcare"
- Consumer products
- Communications

Indisputable. But then all these companies are blown up to ridiculous P/E ratios by central bank liquidity injections. So to me the question is; is the underlying value creation going on a bigger factor in equity returns than the synthetic value creation.

I guess not. I guess it's central bank liquidity injections driving an artificial amplification of real value.

But it does mean you are implying that playing musical chairs a little longer is the right course of action.

 

[Smug Freiza]

Repo Market Crisis 2022 (Fed Lights Economic Time Bomb)

In George Gammon's latest video he discusses the Federal Reserve's latest rhetoric of tapering (reducing quantitative easing - money printing) and raising interest rates in 2022. The Fed is also talking about quantitative tightening, which is reducing / selling assets on their balance sheet, which will consist of mortgage backed securities and treasuries.

George speculates that as the Fed sells it's assets, banks will lose liquidity buying them up, which in turn will affect the Repo Market.

What is the repo market?

Repurchase Agreement (Repo) - A repurchase agreement (repo) is a form of short-term borrowing for dealers in government securities. In the case of a repo, a dealer sells government securities to investors, usually on an overnight basis, and buys them back the following day at a slightly higher price. That small difference in price is the implicit overnight interest rate. Repos are typically used to raise short-term capital. They are also a common tool of central bank open market operations.

Source: Investopedia

The two key points to remember with the Repo market, is the amount of cash the lender has available and the collateral of the borrower. George then looks at the last Repo Market crisis back in September of 2019, when the Fed had previously tried reducing it's balance sheet from 4.5 trillion dollars which triggered a liquidity crisis combined with soaring overnight lending rates in the Repo market which then forced the Fed to expand it's balance sheet to today's over 9 trillion dollar amount.

Overnight Repo Rate Spike in September 2019​

The two theories of why the rates spiked even higher was due to:

• A lack of liquidity in the banking system; bank reserves.
• A lack of "pristine" collateral, collateral that was without risk.

George finishes the video by reiterating the Fed's rhetoric which could signal the second Repo Crisis: tapering, raising interest rates and quantitative tightening. This scenario all depends on if the Fed actually goes through with the tapering, raising rates and quantitative tightening.