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pfh 007

Dr Werner talks a lot of sense and his books and doco explaining the role of the central bank in Japan prior to the Plaza Accord are really excellent. He still has some confidence in a private banking system as part of the public monetary system but mainly because he is from Germany where they still have a functioning small scale local banking system that actually lends for productive purposes rather than blowing residential asset bubbles.

I think central banks should be watched like hawks but in a country like Australia they are the only way to drain the bloated carcases of Bank Cartels especially our Big 4 tumours. The method for doing this it to open up access to the deposit accounts at the RBA to non-banks and the general public. But yes I have banged on about that more than enough!

Coming

So really the question is who creates the money and for what purpose

and this is the reality that MMT exposes

government spending crowds out private money creation ( unless you sterilise it with bond purchases)

stagmal

havent watched the video yet, i just got home, but the immediate question on my mind is:

who is the babe

Freddy

At a recent Senate Estimates hearing Guy Debelle was asked about lower interest rates diverting money from productive economy into speculative assets. Debelle let it slip that he likes high house prices because it results in more houses being built which is also productive.

RBA have wedded themselves to Big Australia and increasing housing supply. Now suffering from cognitive dissonance as they realise it is these immigration policies have deprived them from the wage inflation they have been craving.

LSWCHP

Debelle has one of the worst cases of backpfeifengesicht I’ve ever seen

Freddy

Had to look up the meaning. For the uninitiated it is a German (slang?) word that means “has a face that needs to be punched”.

I suggest that the people that have intentionally displaced an entire generation of young Australians via high house prices deserve a bit more than a punch.

I have a friend that used to work at RBA who tells me phd Debelle used to insist on being called “Doctor Debelle”. Not sure how true it is but he does seem like that kind of twat.

robert2013

The w@ffler pointed out that this hadn’t been commented on so thought I’d better add some comment. Viktor Shvets said pretty much the same thing as this, but with more detail, less hope and less left wing hyperbole. His last interview on macrovoices was great. QEinfinity because there is no choice. The only way it will end is if there is a war. All my PC mates bang on about climate change, but the call is that 1.5-2 degrees is baked in. This is predicted to cause widespread crop failures. If that’s correct, war is almost guranteed, and revolutions at the very least. Those who believe in climate change should advocating spending on building up industrial capacity and military capability. There is zero chance of the kind of world wide climate targetting necessary to substantially halt climate change. The only way out I can see is if we get better energy tech in a hurry. Yeah, I’m rambling.

Winning@Failing

Shit bloke, nice work. We need more reading and discussion on this sort of shit

Stewie

This is predicted to cause widespread crop failures. If that’s correct, war is almost guranteed, and revolutions at the very least. 

Yeah – little known fact that the so called ‘Arab Spring’ was largely triggered by the price of Oil climbing towards $200 and making staples like wheat unaffordable.

I’ve often said that the world we live in exists in a narrow hospitable range, like the habitable zone between planets circling a star. To far away and it will freeze, to close to the star and it will be a burnt rock.

The rock and a hard place, or habitable zone in terms of our civilization requires the price of Oil to be nether too low, in which case producers stop bothering to look for it, or too high, in which case it causes political uncertainty.

The problem is that all the easy oil is gone, so the only way that marginal oil can be delivered to the market is through things like fracking and the use of heavy oils. The problem is that the capital required to provide this marginal oil to market is enormous and completely uneconomic if producers were required to pay commercial interest rates.

Higher interest rates bankrupts the marginal oil industry, forcing oil to rise in price to reflect the true economic cost of extracting it, thereby destabilising the rest of the world economically and politically (particularly the developing world), or interest rates stay low making the economic capital tied up in these marginal oil producers marginally profitable…. problem is once you hit 0% interest this game stops working.

This is basically where we are now and have been for the past 10 years as we approach the hubble oil peak. Peak production is now believed to have occurred in 2019, and it is possible it will now never be surpassed.

The reality is imho that we are closer to a cascading economic collapse than anybody actually realises, and the only thing holding it together at the moment is the cognitive dissonance that fiat currencies are still strong and stable and things like QE will work…. once that faith erodes sufficiently things imho will start to change VERY quickly. Whether that be 5 yrs from now or 10yrs is impossible to say, but the likelihood is that our civilization will collapse well before climate change broils us all alive.

Stewie

I will agree that there are other mechanisms that are also used in conjunction with low interest rates – direct subsidies, tax write offs, etc. But the fact is in order to main stability and the the status quo our civilization/societies are caught in a pincer movement, between and upper and lower price of oil.

In many ways low interest rates are a humanitarian UN policy as much as a policy of the US – Low oil prices are needed in order to maintain the status quo – they’re needed in order to prevent the 3rd world and developing nations collapsing into food riots as the true cost of the energy embedded in food prices is passed along.

We are essentially an energy based civilization – every aspect of our lives are governed by it – even the ability to issue fiat currency is or was tied to it.

When the US became the reserve currency of the world it was the worlds largest oil producer and a significant exporter as well right through to the 1970s. In that period it amassed the biggest guns and biggest bombs, and that has arguably helped keep it as the reserve currency.

This article is pretty interesting, and is along my line of thinking that the reason interest rates are so low, is that this actually necessary in order to justify the capital expenditure needed to keep the marginal fuel suppliers, US shale oil, in business.

https://www.zerohedge.com/energy/its-too-late-avoid-major-oil-supply-crisis

Fossil fuel costs are embedded in every facet of modern life, almost as much oil goes into a steak as water – the gas used to produce fertilizer to grow the grains that get transported to the feedlots, that feed the cattle hat are transported to the feedlots, then brought to the slaughter house, then pack on plastic trays and cling wrap refined from oils, before being transported to supermarkets, then driven home and wacked on the BBQ. Embedded oil costs are every where.

US Shale Oil production is the major marginal supplier of oil – take it out of the equation and oil prices rise to levels that cause instability in developing nations and recessions in Western nations. US shale oil can only come onto the market thanks to massive capital outlay, with a much faster run off period to recoup return, basically they’ve grabbed the tiger by the tail and can’t let go, they need to continuously invest in new wells to replace the ones that expire.

The issue is it isn’t fact that oil is going to disappear over night, the issue is that the marginal supplier requires more and more capital in order to meet the market and ensure oil costs remain within a certain range, which allows all the other economic activity to take place to the scale it does within the economy.

When energy costs rise substantially, it is a painful in the west, but deadly in developing nations where high energy prices immediately feed into higher food prices, which creates instability of the likes last seen during the Arab spring.

The BAU crowed want the current economic paradigm to continue for as long as possible, and this is only possible if energy prices remain in a certain range, and to facilitate that now requires interest rates at near zero percent in order to justify the outlays on franking fields, that would be completely uneconomic if interest rates were to properly price the risk that they represent.

Albert Edwards from SocGen’s Bond Ice age thesis is as much tied to the cost required to allow the marginal oil producer to economically deliver oil into the market at a particular price range, as it has to do with demographic change.

Low interest rates are a long term human, financial and ecological disaster in the making – it isn’t just massive asset price declines being pushed off into the future, but population and ecological. By continuing to push these natural forces and limitations off to the future with nothing more than financial engineering it only guarantees that the eventual collapse will be all the greater.

All imho of course.

Last edited 2 months ago by Stewie
Ramjet

A substantial reduction in population is really the only solution to climate change. Effectively that could only really be done through some wars or some plague style pandemic. Other solutions like batteries, veganism, etc. are all very marginal in their impact. Whilst I agree on some aspects about energy, it is mostly lining the pockets of a few and provides limited benefit. Better solution of eaves, deciduous trees, roof colour are all ignored.
Another option to provide some short term relief is outlined in Freakonomics and involves simulating a volcanic eruption ie putting certain types of gases in the upper atmosphere.

Stewie

A substantial reduction in population is really the only solution to climate change.

…or to deal with the problem of declining access to cheap oil.

These two facts coinciding with the arrival of peak oil and Covid, and the resulting Govt crack downs on freedoms is something that keeps an uneasy sense of concern burning within me.

Ramjet

The world population was much smaller for the world wars, so when you look at proportions it is higher.

Ramjet

Really depends on the timeframe. Note, I don’t want wars, pandemics or disasters, but less kids only slowly decreases populations. There is also a growth rate imbalance. For example, EZFKA’s growth rate is slightly above replacement and we import from high growth countries.

It pretty much certain that we will have wars over scarce resources such as drinkable water if we wait 30-40-50 years for the fertility rate to drop.

robert2013

It will be wars and famines, and more and worse pandemics.

Freddy

A war for who? The western world has the capacity to pump desalinated water onto crops, or to create those vertical hydroponic farms the progressives keep banging on about.

It is the poorer nations that don’t have that capacity that would be screwed.

At what point do we stop feeding belief systems that perpetually breed like rabbits?

robert2013

Ok…so tell me which are the female belief systems and which are the male?

LostSocialist

Thanks for the post I finally got around to listening to it. It was a good talk and all professor Werners ideas about getting banks to only create money for productive purposes rather than asset purposes are sound. The only problem I have with the proposals is that it does not seem politically possible to implement them with the current governance structure that nearly all countries in the world have.

robert2013

Nowhere else to post this, so might reply with this again this weekend.

Does anyone understand this:

https://www.zerohedge.com/markets/not-taper-tantrum-nomura-warns-lurking-delta-one-collpase-gamma-unclenches

It’s full of greeks that I don’t understand very well. Can anyone translate?

Stewie

Basically it is saying the market has been getting longer and longer as a result of delta hedging and overall long gamma, and that we are about to flip to the opposite.

Delta is basically the change in price of the option to the change in price of the underlying share. Option writers (Sellers) generally aren’t interested in capital gains from the option, what they want to do is capture the theta, or time value of the option. So to hedge against any loss (or gain) the option writer will buy or sell some of the underlying stock in order to hedge their position.

However, the rate of change in the price of the option <> the rate of change in the price of the underlying stock, so if the price of the underlying stock moves, then the option may move by more or less, triggering a need to rebalance the physical stock hedge position. The rate at which this delta ratio itself changes is referred to as Gamma, which is a second order derivative of price.

As the price of stocks have risen, option writers who were selling puts have been forced to buy more stock in order to hedge their position, which also helps drives the price of the underlying stock further up which causes the need for even more hedging. However we are now at the point where the market has effectively stalled and those Puts are starting to gain value meaning that to maintain their hedge they are going to have to start selling stock to rebalance their hedges.

There are some other strategies that involve being long this gamma position, against short vega (volatility eg VIX), but we are essentially talking about the same phenomenon, just coming at it through a different measurement.

Stewie

This is a long way of saying that there are self-reinforcing dynamics on the way up.

Pretty much. The only other thing of interest in the article was the skew in the market, or the preference for Puts/Calls and how that was also at extremes, along with a range of other indicators.

Basically the article was saying all the tea-leaves are reading for an imminent correction of some substance that is likely to take place, that has little to do with any tapering that may be occurring. Rather the final leg up was a bit of a gamma induced blow off, in part caused by option sellers front running the top by a couple months.

Last edited 2 months ago by Stewie
robert2013

Thanks heaps!