Every country is borrowing money....who from???

[woodPixel]

I think if you believe this you also believe in the easter bunny. I get what they are saying when interest rates are so low but it is not always like that
If it was that simple any third world country with a printer could print enough wealth to sort their problems

One of the financial gurus said that funding this emergency is easier than the last GFC because interest rates are so low

It was a contemporaneous news article that stated the facts without too much spin. It was a decent explanation of what is happening without getting too deep into it.

What is happening right now, in the USA, Europe and here ****IS**** "money printing".

It is a game - inflation, interest rates, central bank trust, bonds - its all a game.

I wouldn't say I'm a guru, but I know how "money" really works and why the system is fundamentally broken. My eyes are wide open. It only works because people want it to work.

Nobody has sound money. Nobody has money backed by assets. It will all eventually come to grief.

I find it interesting how easy it is to distract people with what the real woes of the financial world are. If you want to see the future, do a quick google around for "outstanding derivatives". That will may you spray your tea! (ok, I'll let a cat out of the bag, its $1200 trillion).

The worlds debt levels are about to hit high gear, so will inflation, deflation AND an unholy unstoppable unwinding of every bank.

I'm not sure how it will be stopped.

[Simplicity]

Yes but any borrowing by any person or entity is from/against the future. It's the very definition of borrowing. The opposite is to pay for stuff out of existing money, that is, spending the past.

Around 6-12 months ago I read that Norway is now so rich from oil revenue that it is becoming a problem. They have nowhere to put the money (or something like that). I don't understand how that creates a problem though. Maybe they need to urinate it up the wall on Rollers, Miebachs and private jets like the Middle East did.

I would be happy to help Norway spend money if they need a hand , I’m just a helpful kind of guy.

Cheers Matt

[GraemeCook]

......
The worlds debt levels are about to hit high gear, so will inflation, deflation AND an .........

So, we are going to have inflation and deflation at the same time?

[clear out]

‘Trillion Dollar Baby’ by Aus author Paul Cleary.
How Norway out smarted the oil industry and secured its future.
Read it and weep.
Ditch the witch and all that plus we gave away our natural gas for how many years.
Thank got de livalls are beck in power!
H.

[woodPixel]

So, we are going to have inflation and deflation at the same time?

Correct. Violent. Both. At the same time.

edit: Sorry, I should have added this - Biflation Definition

We studied this at Uni in Economics in 1996. It was something that interested me.

edit 2: this EXCELLENT and reasonably old article describes it perfectly: Are Simultaneous Inflation and Deflation Possible? Ignore the rest of the site. They are nuts.

[GraemeCook]

Originally Posted by GraemeCook

So, we are going to have inflation and deflation at the same time?

Correct. Violent. Both. At the same time.

edit: Sorry, I should have added this - Biflation Definition

We studied this at Uni in Economics in 1996. It was something that interested me.

edit 2: this EXCELLENT and reasonably old article describes it perfectly: Are Simultaneous Inflation and Deflation Possible? Ignore the rest of the site. They are nuts.

Amusing articles. But like most grand conspiracy theories essentially lack credibility.

[Kuffy]

Let's see if I have things correct...

Australia is selling bonds to itself purchased with borrowed money at super low interest rates. Those interest rates are lower than current inflation levels, and therefore the difference between the interest rate and the inflation will be what pays the loans back? And if that is correct, surely it would be a great time to hold no cash and only hold "hopefully" appreciating assets because interest rates will need to remain low for decades while inflation stays high enough without going way too high to cripple us?

In summary, buying just about any asset now is a no brainer?

[Pat]

The analogy comes to mind, if you owe the bank $100, it's your problem. If you owe the bank a Mil, it's the banks problem.

[DomAU]

Let's see if I have things correct...

Australia is selling bonds to itself purchased with borrowed money at super low interest rates. Those interest rates are lower than current inflation levels, and therefore the difference between the interest rate and the inflation will be what pays the loans back? And if that is correct, surely it would be a great time to hold no cash and only hold "hopefully" appreciating assets because interest rates will need to remain low for decades while inflation stays high enough without going way too high to cripple us?

In summary, buying just about any asset now is a no brainer?

You have some of it correct, but unfortunately it's not that simple. Yes, the Australian government is effectively borrowing money at super low rates that are created by the reserve bank through the purchase of bonds (debts) - and those purchases are predominantly Government bonds in Australia (in the USA they have moved to nearly every type of bond - corporate etc). Yes the interest rate is likely below the level of inflation, however there are also significant down-ward pressures on inflation (in consumer prices) such as lack of demand, and ever increasing technology (at an exponential rate) - and the government can use this to their advantage, allowing them to borrow more (create more money) without, hopefully, pushing CPI up too much and creating an inflation problem. Creating a heap of money (debt) does push up prices, although it seems that in most countries (including our own) this is mainly limited to the price of assets like stocks and housing not consumer goods. At the moment, given that we already had a record level of debt (private) in Australia and a lot of corporate debt, and the fact that the economy has been virtually stopped, this is putting a lot of deflationary pressure on assets like stocks and housing. Depending on how much money is injected by the government (through debt issuance) it may push asset prices higher or they may collapse anyway, or we may get high consumer price inflation if supply is depressed due to collapsing industry/business and too much demand.

The Government and Reserve bank are just desperately trying to prevent a complete collapse in the debt market, destruction of asset prices, and a complete liquidity freeze / crisis, as well as prevent a complete stop to the real economy. They would be hoping that this will lead to a better outcome post-COVID and that maybe, we will be able to pay back the debt at some stage in the future via a combination of inflating away the debt and real growth in productivity/the real economy. If they print too much money / create too much debt then we may reach a point where nobody believes that it will ever be able to be repaid, international investors will refuse to buy Australian bonds / securities, and we will have hyper-inflation as the Reserve bank ends up having to buy all of the bonds to stop the market collapsing and the Government will spend ever more money to try and help people / stimulate the economy.

However, in effect, the Government / Reserve bank is effectively trying to dig out of a hole. The best they can succeed is to delay an even bigger collapse in the debt market and asset values (either nominally or in real-terms if we have high levels of inflation). In the process they create all sorts of distortions in the market, unfair outcomes, and a re-distribution of wealth not based on any kind of merit.

At the moment, it's hard to know where to put cash as many assets are already hugely over-valued, and it's still possible that we see deflation even in many consumer items. My personal opinion, however, is that houses will lose a large amount of value, the share market likewise, and any non-technology based consumer goods will increase in price significantly over time - especially basics - and of course woodworking tools . Precious metals may serve as a store of value as they have in the past, and crypto-currencies maybe - although I personally don't think Bitcoin etc have a future. Cash may still be a good option vs stocks and property at the moment - provided that the banks don't collapse given their reliance on property debt (and don't think that the "government guarantee" is a sure thing).

Sorry a bit too much of a rant off-the-cuff.

Cheers,

Dom

[Kuffy]

Awesome! Thanks Dom. It sounds like a game of battle chess, but instead of capturing and killing the king, the aim of the game is to keep the game running as long as possible.

[Chris Parks]

I know nothing about this stuff but I read an article many years ago of how Japan's economy was stalled and they began building huge infrastructure projects to kick start the economy and it failed to do that. Many Japanese were hoarding gold at home because holding money in cash in a bank meant a loss. All this while they had a booming automotive and electronics export business bring in huge amounts of cash.

[doug3030]

Most people on this forum re old enough to remember the craze in the 1990's of investing in ostriches.
Chris Griffith - Alarm bells are ringing in Australia's ostrich industry

Basically a pair of imported breeding ostriches could be bought for $90,000. This was considered a good deal because a female ostrich was able to lay 70 eggs per year for 40 years or 2,800 eggs and eggs were selling for over $1,000 each which meant a return on your $90,000 of $2,800,000 (less expenses) over 40 years.

Trouble is - nobody actually wanted ostriches. They wanted money. The actual worth of an ostrich was negligible as an end-product in its own right. Birds were worth so much because they produced eggs that were worth so much because they produced birds that were worth so much etc etc.

Once people realized that, the whole thing collapsed in on itself.

It's like today with houses. A house is worth say $650,000 because you can rent it out for $2,000 per month and expect it to appreciate by say 10% per year. The only reason you can reliably rent out a house for $2,000 per month is because the government subsidies the rent for low income earners so that they can afford it so that investors can pay $650,000 for houses.

Look at the Share Market. Shares are worth what they are worth because of the net worth of the company and their capacity to increase in value and pay dividends. People investing in shares used to get a prospectus and study the company to determine if they are a god investment or not. Many still do that.

But somewhere around 2000, as I recall, there were businesses selling lessons in share trading. They taught people how to look for trends in trading figures on graphs and manipulate data in spreadsheets. They had no clue of the worth of the company they were investing in or even what they did in many cases. They made decisions based on a share price moving by a Fibonacci ratio or the eight-day moving average crossing over the 15-day moving average.

These buy and sell triggers actually worked because so many people were using them that when one of them occurred, heaps of people responded to them because they had all done the same course and were following the same triggers. With everyone trying to buy, of course the prices went up. But it was not based on any actual improvement in the actual value of the stock, and therefore not sustainable. Yes, people could actually make money out of riding these artificial waves if they bought and sold according to the otherwise meaningless triggers. Every now and then the market has a "correction" when common sense prevails and all the over-inflated prices come tumbling down. Smart people see these coming and are able to exploit them to their advantage but a lot of people get burnt.

Woodpixel has already discussed the value of money, so I won't expand on that, but the upshot of it all is that the value of EVERYTHING exists just because we all agree that it does. We are seeing negative interest rates in some countries and that is just crazy. Imagine your mate asking to borrow $100 today and give you back $95 at the end of the month and you call it square?

Well the Covid-19 situation has a lot of the movers and shakers of the world re-evaluating the worth of EVERYTHING. Lots of things in the world will be getting restructured. Some people will adapt and prosper, others will not do so well. Lots of things will change in the aftermath of this. Nobody can predict the outcome entirely but there are some in this world who will be able to influence it in their favor at the detriment of others as usual. We can probably expect to be paying a lot more for some things than we have in the past as the world will probably decentralize manufacturing and other restructuring takes place.

The fact that closing down parts of he economy for only a few months are now believed to be going to need to be paid for by future generations for decades means that the whole thing is being run too tight with no reserves for too long. The whole world is living from paycheque to paycheque and paying interest on loans like a poorly run household. Decades to repay what is lost in a couple of months is ludicrous.

EDIT: Please note that this post is all oversimplified for the sake of brevity and ease of understanding. The actual forces at play are of course much more complex. Please don't try to score cheap points about the bits I left out or simplified.

[Chris Parks]

People say that our habits will change, they said the same thing after the GFC but after a few years we reverted to exactly the same behaviour of using debt to buy happiness or what we think is happiness. It took a lot of marketing to sell that idea to us but it worked and those who sold it made a lot of money. Whether this event has a permanent change on human behaviour is doubtful and the jury is still out.

[Beardy]

Doug3030 I don’t completely agree with you on the values, I think it works the other way around.

A products value goes on supply V demand be that it is paid for by money ,barter, pigs or whatever, that has been the case long before our current monetary system.
Housing prices are dictated by demand largely by the owner occupiers who are the majority of buyers. Investors just fit into that pricing structure looking at price they need to pay V rent dollars the market will tolerate and will purchase only if it is deemed a good investment. Demand is largely controlled by the banks willingness to lend money.

[woodPixel]

Amusing articles. But like most grand conspiracy theories essentially lack credibility.

When I was at school, it was often observed that I thought a lot. Thinking things through.... I was often roused by the teachers due to my deliberate brevity. When asked a question, for example in maths, I simply wrote the answer.... No workings.

English was the same. I simply wrote the answer, often in five words.

It was explained that my brevity was because I didn't know the answer. Perhaps this is true (I'll never know... Dunning Kruger and all that). Shame though that the answers were always right.

A for answer, E for explanation.....

What I found distressing and still do, is that a simple explanation is often not taken seriously due to its source, or simplicity, rather than its inherent correctness.

It has often crossed my mind that being an economist or weather forecaster is a great job. One can be wrong every single day and still have a job.


Alas, one can only ever lead the horse to water.