Financial topics

[John]

Dear Fred,

> I believe the main area you and I disagree, John, is that I do not
> think a sudden, huge drop is needed to achieve the objective that
> must be achieved. In fact I think that we are in for year after
> year and then decade after decade of disappointments in the
> market, much like Japan has seen over the past two decades. As you
> said, we'll have to wait and see.

Do you have a historical example of this kind of scenario?

What makes you certain that there won't be a panic?

Sincerely,

John

[MarshAviator]

But for the economy as a whole, the direction is downhill, and going
faster and faster. When was the last time you heard any significant
good news? There'll be upward blips here and there, but I just don't
see any upturn.

As of this typing the Dow is up (S&P,NASDAQ too).
This disconnect between the news in general and business in particular couldn't be greater.
It's almost like the proverbial "a watched pot never boils".
One of the real struggles is dreading what is going to happen, and yet frustration that a lot of people (and especially investors)
are complete unaware of the possibility.

Maybe investors are so optimistic by character that they just can't really believe in a crash.
At their core the 1929 has the same relevancy as the Crimean war.
Historically true but without predictive value.

Sooner or later the reality of lost jobs, credit freezes, lack of earnings are going to become inescapable.
When the OH S**T moment comes it will be too late.


My grandfather always feared (and expected) something like the great depression to reoccur without knowing why.
He was born in 1914 and recalled the experience to me when he was in his 50's and 60's, he would talk about in his 70's curiously,
it really permanently changed him.
He absolutely wouldn't use credit of any kind, he looked upon it like a Faustian deal.
I wonder if we are going to be like that.

[Gordo]

if they are going to create money

I can't believe people are still saying "if"!!
http://www.federalreserve.gov/releases/h6/current/

[Higgenbotham]

if they are going to create money

I can't believe people are still saying "if"!!
http://www.federalreserve.gov/releases/h6/current/

You've said the Fed can print all the money they want. I asked you to show that. A list of numbers doesn't do that. Do you really think I don't know what those numbers are? Money stock measures are mostly influenced by the private sector, not the government or the Fed. I've explained 2 or 3 times on here that the most basic unit of money, currency (one of the measures listed in your link), isn't influenced by the Fed. It is influenced solely by public demand to convert other forms of money to currency. If you'd like to pick any measure of money and show the process by which the Fed or the government increases it, I'd be willing to listen and respond. But just posting a list of numbers is equal to the Peter Schiff, Adam Hamilton, Marc Faber, etc., rallying cry that, "They're printing money!"

[Gordo]

clearly we could not support the present global population if the energy resources were not both relatively abundant and relatively cheap (petroleum as compared the substitute human and animal locomotion).

It is also apparent that many other technologies are equally correlated with energy, especially petroleum. While there are substitutes to oil, most would require either a reduction of the earths population or a reduction of standard of living.

Your argument that GD2 will be worse than GD1 seems to be based mostly on the peak oil theory - although personally I don't see much if any connection between peak oil and anything happening in the economy recently (last 10 years) or in the near future (next 10 years). Longer term, I don't think peak oil is a big deal at all, just another boogie man of doom & gloomers. We have at least a 100 year supply of coal in the US even taking into account population growth. We also have every major auto manufacturer putting out electric cars in the next 2 years. We can easily transition to an "electric" economy in the short term (next 20 years) and have plenty of time for sustainable/renewable electric sources to develop (wind/solar/wave/geothermal/etc). There are big new solar energy advances being announced every 6 months it seems. We are probably going to rebuild our grid to accommodate low loss, high distance transmission (part of the new new deal) which will also make alternatives more viable. The way I see it is that we have UNLIMITED "free" energy, its just a matter of figuring out how to harness it. Where do you think oil and coal came from originally any way? Sun power baby. Where does wind come from? Also sun power. Our planet can ultimately sustain a MUCH higher human population than we have now, perhaps 10 times the current population, although population growth will flatten out and even decline long before then just as it has in nearly every developed country to date.

[Gordo]

You've said the Fed can print all the money they want. I asked you to show that. A list of numbers doesn't do that.

This week the House is expected to pass an $825 billion economic stimulus package. You think they have that cash sitting in a bank account somewhere? Where did they get the $ for TARP? How/why did the FED's balance sheet increase by nearly $2 trillion last year? Total public debt just hit 10.6 TRILLION. President Obama warned of "trillion-dollar deficits for years to come."

I'd say the burden is on YOU to explain why they CAN'T print all the money they want!

[Higgenbotham]

You've said the Fed can print all the money they want. I asked you to show that. A list of numbers doesn't do that.

This week the House is expected to pass an $825 billion economic stimulus package. You think they have that cash sitting in a bank account somewhere? Where did they get the $ for TARP? How/why did the FED's balance sheet increase by nearly $2 trillion last year? Total public debt just hit 10.6 TRILLION. President Obama warned of "trillion-dollar deficits for years to come."

I'd say the burden is on YOU to explain why they CAN'T print all the money they want!

That's an easy one. The government can't borrow an infinite amount of money. You say they can?

[MarshAviator]

Your argument that GD2 will be worse than GD1 seems to be based mostly on the peak oil theory - although personally I don't see much if any connection between peak oil and anything happening in the economy recently (last 10 years) or in the near future (next 10 years). Longer term, I don't think peak oil is a big deal at all, just another boogie man of doom & gloomers. We have at least a 100 year supply of coal in the US even taking into account population growth.

Actually my argument about peak oil only addresses the regeneration phase of Generational Dynamics, not what is presently occurring.

A crash would happen sans "Peak Oil".

Peak Oil becomes an issue when we recover and try to restart our progress and growth model of economics, it may be the rate limiting factor.
Even then I am no claiming we are going back to the dark ages either.
I am not a Doomer, though I may be a Gloomer, it's not the end of the human race, but life may be a lot harder.

As for the alternatives you mention:
1) Coal - the often repeated 100 year supply has two major faults;at our current rate of coal consumption (which supplies about 45-48% of electric power generation) we have an estimated coal supply of 100 years, if we transfer transportation into the mix the number declines to something like 10 to 20 years.
This all depends on estimates of reserves which are estimates.
Strip mining is not popular either.
Lastly high quality (in terms of BTU's / unit volume) are long gone. We have brown coal mostly now.

2) Clean Coal MAY help but as of yet it's an unproven concept not commercially in use anywhere. Coal has a number of pollution related problems, both Nitrous and sulfur based.
BTW I am not a believer in Global Warming theory, the solar "sun spot cycle" magnetic effects on lower atmospheric cloud production is a much better fit
with the data than some super complex atmospheric fluid dynamics model quoted by GW theory.
No doubt we will still use coal because we don't really have much choice.

3) Electrification will no doubt play some role in the future, but has it's limitations. At any rate natural gas and coal presently produce most of the electricity
in the US, renewable's and nuclear about 5%.


4) Solar; the best solar cells have maybe 20% efficiency, that may improve to 40%, still only works in sunshine (and mostly) daytime.

5) Hydrogen is not a source of energy, it is a carrier (here on earth,apart from stars)

6) Many of the solutions being touted in popular literature is poorly thought out wishful thinking.
I have been in various phases of engineering most of my life, and we still have vacuum tube technology in the US, in power switching,
also we have generators made by George Westinghouse in service, made in early last century.
The internal combustion engine dates back over a 100 years, we have only improved it.

7)Tar sands and related projects have been on the books for almost 50 years (a pilot program dates back more) but wouldn't be economical for oil prices bellow $75/bbl. These are still estimated to be more than 25 years away from commercial viability.

8) Transportation fuel is a problem now and will get a lot worse, especially if due to lack of funding we cancel or delay energy projects (I design power and controls systems which produce energy related products) now already on the books.

9) It always takes longer than people expect to convert major parts of the economy, computers are scalable and a poor example of how long it takes.
Cars have been around over 100 years, they have been indispensable for 50 or 60.
We live in a dispersed form of living, transportation is required (except 5% who live in special areas like Manhattan etc.).

10) Wind, unless we find a way to harness our politicians will produce 1%.

[Gordo]

You've said the Fed can print all the money they want. I asked you to show that. A list of numbers doesn't do that.

This week the House is expected to pass an $825 billion economic stimulus package. You think they have that cash sitting in a bank account somewhere? Where did they get the $ for TARP? How/why did the FED's balance sheet increase by nearly $2 trillion last year? Total public debt just hit 10.6 TRILLION. President Obama warned of "trillion-dollar deficits for years to come."

I'd say the burden is on YOU to explain why they CAN'T print all the money they want!

That's an easy one. The government can't borrow an infinite amount of money. You say they can?

Nope. Just what they want.

[Higgenbotham]

This week the House is expected to pass an $825 billion economic stimulus package. You think they have that cash sitting in a bank account somewhere? Where did they get the $ for TARP? How/why did the FED's balance sheet increase by nearly $2 trillion last year? Total public debt just hit 10.6 TRILLION. President Obama warned of "trillion-dollar deficits for years to come."

I'd say the burden is on YOU to explain why they CAN'T print all the money they want!

That's an easy one. The government can't borrow an infinite amount of money. You say they can?

Nope. Just what they want.

Summary of process: US government will appropriate whatever money they want over time above and beyond their revenues, Treasury will sell that much in Treasuries to the Fed, Fed will create whatever money the government wants, and the government will get the money to do whatever they want with it. I understand that process--theoretically it can be done in any amount and, as I understand it, it is legal.

I don't really care to respond to that as a practical solution now that it has been spelled out; people can make their own determination as to whether it is feasible. I understand your argument--Japan doubled their debt to GDP from similar levels and we can do it too. I've argued other places that it is not feasible and there is no need to repeat that.