Please consider Stock Market Crash Near? Nobel Laureate Sees ‘Bubbles Everywhere’
When Nobel Laureate and “Irrational Exuberance” author Robert Shiller says he sees bubbles in the financial markets — you’d better listen up. He literally wrote the book on stock market crashes and bubbles after all.
“I see bubbles everywhere,” Shiller, economics professor at Yale University and author of just-published “Narrative Economics” told investors gathered in Los Angeles Wednesday. “There’s no place to go. You just have to ride it out. You invest even though you expect the price to decline.” Shiller famously predicted the 2000 stock market crash and the 2007 crash of the housing market.
Shiller says the housing market is in a bubble phase, not unlike 2005. That was the point the housing bubble was inflated, but yet to go parabolic. “It’s like 2005 again,” Shiller said. “San Francisco and L.A. are already slowing down.” That’s a “bad indicator,” he said, as those markets have been going up for years.
No Place to Go?!
I do not care about books or past predictions.
I care about logic of the moment.
For starters, if housing was like “2005 again“, San Francisco and LA would not be “already slowing down.” But that is nitpicking.
Here’s the important issue: On an individual basis, It is absurd to say there is “no place to go“.
Places to Hide
- Gold
- US Dollar
- Foreign Currencies
- US treasuries 5-year or less
It is impossible for all of those to decline at the same time. Heck it is impossible for 2 and 3 to decline at the same time except compared to gold or some other asset, which of course implies somewhere else to hide.
Bubbles B. Goode: Musical Tribute to the Fed
It’s true that someone must hold every stock and every bond. However, Shiller’s statement “You just have to ride it out” is nonsense at the individual “you” level.
Choose wisely where to hide.
Mike “Mish” Shedlock
The two thought experiments provided below—earth hit by a comet or nuked into barren rock—are meaningless. They are arguments by analogy. Arguments by analogy are the weakest of all argumentation and their limited effectiveness is governed by how close the analogy is to reality.
The analogies of Comet Strikes and Nuclear Devastation are not even remotely close to the case of a Financial Bubble Bursting.
In the context of financial crashes, not all asset classes can decline simultaneously—especially FX which is a measure of relative strengths. The truth in Mish’s statement should be pretty frickin obvious, and putting forth ridiculously-stretched strawmen arguments to demonstrate the falsity of the statement looks like petty point-scoring.
Those thought experiments are not meaningless. Societies can break down and collapse, or even just go backwards, without those terrible things happening. We use those examples to show how it is possible that the value of all of those assets can collapse. Once you are open to the possibility of all of those asset prices falling, it is clearer to see how they can all decline in value terms as a result of other events.
A really bad financial collapse is a good example. Imagine 50% unemployment, an economy that only produces 50% of what it once did cannot pay out the same value to the paper assets that are backed by the economy. The real value of all asset classes can fall right across the board as a result.
Can this happen in the west? Yes, seems to me it can. The west is facing a demographic crisis. Fewer young people and more retirees with claims. If the burden on the state brings the state down or into chaos, as it might, then no asset class is likely to help that much.
There really is no reason for these types of interest rates. At some point the Fed should intervene if they want the economy to get better and cap loan rates at something less than 30%.
This reminds me of a line from a movie I recently rewatched; ‘Too Big To Fail’….Where Chris Flowers (played by Michael O’Keefe) is meeting with the NY Fed and utters the line….’They’re not on top of it’….when he brings Paulson the news that AIG is about to go down in flames too.
It’s such a short, insignificant, yet all-telling line. Because that’s what is happening, they’re not capable of doing anything, but to lower rates and give in to the market, lest it takes a nosedive and brings down the whole fucking thing. Because what would be needed this time? A central bank bailout in the trillions?
They gave in to the markets in post-Revolutionary France and they still give in today. Once you begin to print Assignats, there’s no way out. As Admiral Ackbar exclaims… “It’s a trap!” Took a dictator re-introducing gold to get the French out of their Ass-igniting mess.
Exactly. The problem with giving into the needs of the market is the market can always ask for more like a crying baby or terrorist. As time goes to infinity rates go to 0.
Is the stock market another bubble or are investors so desperate for a China deal that they trade on every Trump tweet. Regardless of any factual basis for the tweet.
It is certainly possible for the real value of all of the asset classes to decline. Some might go up nominally against the others, but you can still get an overall decline.
Thought experiment. Say you had a comet hit the earth. The resulting Tsunami wipes out modern civilisation and the survivors have to become hunter gatherers. The value of what you can get for any of your asset classes will be far far less than what it is today.
That is an extreme example perhaps, but I hope that it at least proves that a general decline in value is possible. Comet strikes might not be the only mechanism to cause a general decline in value.
The problem with ‘value’ is that it is difficult if not impossible to define exactly what it is or to measure it. You can weigh gold and price it, but value is ephemeral, but it is nonetheless still there.
Bubbles of increasing frequency yield a straight line.
Impeach DeVos, Not Trump: Focus on Betsy DeVos’ outrageous mismanagement of the student-loan program https://www.condemnedtodebt.org/2019/10/impeach-devos-not-trump-democrats.html
There would be no loans to allegedly mismanage if universities weren’t defrauding their customers in the first place.
Instead of focusing on the financing of the fraud, focus on the underlying fraud itself
The problem is the existence of Sallie Mae. Every time the government gets involved in the loan business, bubbles soon follow. Universities can charge outrageous tuition knowing the students can just borrow whatever they need.
Yes, politically motivated lending definitely enables outrageous tuition hikes (and dorm fees and book fees and… and… and…).
But the hype around a college degree has been oversold as well. Too many people confuse an education (which is valuable) with the piece of paper (which is not). And corrupt socialists (lets stop calling them professors) have abused students by threatening to withhold the pieces of paper.
Very few professors teach more than one class a semester, and even then they have TA’s to correct tests and grade papers. They aren’t teaching anymore.
Offering government loans, almost no questions asked, for a defective product is a recipe for disaster.
Yes, the education product USED TO BE high quality. It isn’t anymore.
Sorry this didnt start with DeVos. Most of the bad in government didnt start under Trump. It was disguised as good but was all unintended consequences.
Imagine being a dim witted “woke” millenial who paid $5,000 to attend the Friar Festival on a Bermuda island, featuring gourmet food that doesn’t exist, music acts that weren’t paid to be there, and super models who appeared in advertising but weren’t going to actually attend.
The Friar festival was rightly labeled a big fraud, but a lot of people had little sympathy for the trust fund wokesters who put the whole thing on daddy’s credit card.
Now imagine being a student who paid $70,000 per year times four years to attend Yale University… erroneously thinking that nationally recognizable faces like Bob Shiller actually teach classes. Imagine being one of the wokesters now buried beneath a trillion dollars in student loans for attending the many many schools with celebrity “professors” who aren’t actually in attendance.
If Bob Shiller was a professor, he should be teaching. If he wants to be a book author, than do that and stop defrauding students. Same for all the other so-called “professors” who spend most of their time writing books, talking on TV, consulting for companies, consulting for government — and generally doing everything EXCEPT teach at the university they supposedly work at.
If Shiller gets a job hawking fries at McDonalds, they will expect him to sell fries. Not hawk his book.
Time to put all the bad student loans back to the fraudulent schools that issued the loans in the first place. The schools owe everyone a full refund. That is how the student loan mess should be solved if the law still matters.
Bermuda –> Bahamas Island. It could have been marketed as either place since it was a fraud.
The point remains that Shiller isn’t actually a professor, he is an author collecting a second paycheck for something he doesn’t actually do.
It isnt the people going to Yale that have trouble with student loans or life.
A group of Yale Law students are suing the school, and I personally know several recent undergrad Yale graduates that can’t get a college level job (they are working in retail until they can get a real job).
Also, you somehow missed the forest from the trees. Even if Yale grads were finding jobs, it doesn’t change the fact that too many college grads — including so-called ivy league schools — are getting jobs that dont’ really need a degree. They are not paying down their loans, and they are not set for life.
PS – most S&P500 CEOs did not go to an ivy league school. its a foolish myth that ivy league guarantees any sort of success. Most of the students getting admitted already have lots of family connections and “networking” opportunities before attending.
Well its a problem…FOR THEM. If they can’t see that globalization and technology are making labor more and not less available, then that’s on them. There are no guarantees in life. Of course a lot of those Yale grads have wealthy parents and will likely be bailed out when their parents die. No one should feel sorry for Yale students or graduates. I sure don’t.
OK, the Yale grads have wealthy parents (some of them do anyway).
I don’t see how that exonerates the fraud being committed by college professors all over the USA, including Bob Shiller (the subject of Mish’s post).
Charging “tuition” for professors who don’t actually teach a full schedule is fraud. Charging tuition for traditional “reading, writing and ‘rithmetic” (job skills), but then politically indoctrinating students is fraud. Requiring students to recite the party line in order to get a decent grade is no different from Mao or Stalin requiring their country’s youth to recite their party lines.
Evading both property and income taxes under the pretense of “education” when the colleges don’t educate is tax fraud. Profiting in the hundreds of millions for quasi-professional sports teams and not paying any taxes on the loot is tax fraud. “Paying” these pro athletes via a “free” tuition, when many senior year athletes can’t even write their own names or do their own laundry, is a violation of minimum wage laws, and its fraud.
Collecting a paycheck for being a professor when one is actually a full time author is also fraud.
Pretending to be a professor while collecting $500,000 in “consulting fees” working for Obama to design an insurance scam (see Jon Gruber at MIT) is fraud.
Many other alleged full time professors spend most if not all of their time doing something other than teaching — yet they are still paid from tuition receipts and they still market themselves as professors.
When a private company does research, it has to pay taxes on the research lab. When a college does research (NOT TEACHING), they don’t pay any taxes. That is fraud.
Ever heard of caveat emptor CB ?
I’ve heard of caveat emptor… what is your point?
I’ve encouraged my kids and nieces/nephews to go to state schools to get the piece of paper (because some employers still insist) — and to use the “savings” to get a real education.
And my kids all got summer jobs, no excuses. Its my job as a parent to provide for them, but I want them to hold down a job — at least for the summers — so they learn how the world works. They won’t learn those lessons from the infants with PhDs who teach (part time) because they cannot do
People have a right to spend their money as they wish or go into debt. Because you and I choose wisely doesnt mean we can force others to. I agree with multiple points you made but we should let the free market decide.
I agree I should have the right to spend my money how I see fit, and I resent the bastards like Obama who think they have a right to tell me to overspend on college or healthcare or any other cost. It is not his money. Its also not Warren or Sanders’ money either, and F*CK them for thinking otherwise
Fraud in public and private institutions isnt new. Agree with you on tax loopholes of these .edu organizations. I’ve actually been throwing around the idea of creating a fund through a religious organization the way the Mormon church does. Parishioners dont pay taxes on investments run by churches.
Agree that municipal fraud isn’t new, but the scope of it is new. US government (fed, state and local combined) has never been as big a percent of the economy as it is now…. trillions of dollars that are poorly watched, poorly accounted for.
Its too big a temptation for the criminally inclined, which is why we get the corrupt politicians and bureaucrats that we do.
But Yale is a private institution. That is my point. We should rightly go after public institutions but Yale isnt the source of our problems.
Yale may be a private institution on paper, but they are also the biggest tax deadbeats in the state of Connecticut. They live off the public trough, which makes their fraud everyone’s business.
Private entities must pay property taxes — Yale is the largest land holder in New Haven by leaps and bounds, but pays ziltch.
Private entities must pay sales tax in CT — Yale pays nothing.
Private entities must pay income tax on their investments — Yale, once again, pays nothing at all.
Despite contributing absolutely nothing to CT tax revenue, the faculty of Yale regularly appear in the media calling for higher taxes. They pay nothing, they contribute nothing… and then they tell everyone else to pay more?!?!?!
Yale is a HUGE problem for CT. And if you check the local CT politics, most of the large private employers have fled the state — Aetna, GE, UPS, Praxair, Pfizer, UBS, RBS, a half dozen firearms manufacturers, Sikorsky Helicopters… and United Technologies is merging with Raytheon to escape CT taxes.
Yale is the largest non government employer in CT, there is no other private entity even close. They are the largest land holder in New Haven.
CT will go bankrupt (possibly leap frogging Illinois?) unless they find more revenue, and Yale is the only entity not paying any share, much less their fair share.
I suspect many other states have similar problems with tax deadbeats like Yale. Before his death, Senator Ted Kennedy coerced the colleges in and around Boston to pay “voluntary tax contributions” because both Boston and Massachusetts would collapse otherwise. Its not just Yale evading taxes, and I’m certain that Ted Kennedy was not a republican.
I suspect other areas where colleges dominate the economy will have to start making the deadbeats of academia pay. No idea if other states want to tax colleges, but most don’t have any choice.
Connecticut is welcome to start taxing non-profit institutions. I agree with you it is just a tax loophole but so are churches. We don’t have two political parties, we have one. Both won’t go near non-profits and religious organizations.
CT has chased all its big employers away. I don’t think they want to tax tax evasion scams, but I doubt they have any other options
I don’t believe these bubbles can burst anymore. The whole thing should have come crashing down way back in Sept 2008 and every day since, but the central bankers have successfully propped it up indefinitely. Unless the Fed, ECB, BoE, BoJ, and others stop colluding, nothing will happen.
Instead of a crash, we have a lengthy backslide in store where wealth continues to concentrate, society slowly disintegrates, and people begin to turn on each other. I’d much rather get this over with and rip off the band-aid, but alas it’s not in the cards. The only silver lining is that we all still have probably at least 5-10 more years to prepare, psychologically and otherwise.
So on that bright note… Happy Monday everybody!
Yeah… I know what you mean. I have been waiting for the crash to finish and the only thing that has crashed was my 2 computers previous to the one I am using right now.
Hence my question above. Do you trust your gold, worthless paper, your neighbors when the SHTF?
Agree, the lengthy backslide is set in motion. The 20th century was a protracted turning away from the ideals of the Enlightenment: reason and individualism. It is looking like the first half of the 21st century is going to be continued payback for our intellectual sins. The primary characterization of this age is already upon us: mass confusion. … Huh, Phil Collins was right.
“It is impossible for all of those to decline at the same time.”
?????????????????????
What???????????????
Try nuking the planet into a barren rock, and tell me it is impossible for all of them to decline, in real terms, at the same time.
Then, when that is done: Ponder what happens if the planet, or at least America, is, productively speaking, already nuked into a barren rock. And the only thing keeping people from experiencing it as such directly, is that enough morons keep telling each other their “homes” and “portfolios” are “going up,” that they are willing to work for absolutely nothing other than promises of getting some of this “going up” at some future date….. Then, one day the morons realize the promises really are entirely empty, yet there is simply nothing else of value being created on this barren rock anymore, with which to pay anyone in aside from such empty promises……..
There’s a 5th place to hide, Mish-san. Oil.
I would say every asset is measured in dollars, so it’s not possible for #2 to go down, or up. A dollar is always a dollar. It is possible for 1,3, and 4 to all go down(versus the dollar) at the same time.
Seriously? It’s not possible for the dollar to go down? I wish you would have told my purchasing power that in 1965.
“It’s true that someone must hold every stock and every bond.”
That is actually the biggest problem with a wealth tax which hardly anybody mentions. If we get Bill Gates to sell shares or bonds and hand the proceeds over to the Treasury, somebody else must buy them. How will they get the money? The only way to squeeze money out of financial assets would mean the prices of all assets go down, which would mean the wealthy are less “wealthy”, but not necessarily that tax revenues would go up proportionately. It is somewhat simplistic to imagine that you can fund anything in aggregate by having assets change hands. Any tax on wealth must, in aggregate, be funded from income, and is better addressed in terms of income tax policy. There are many policy measures by which one can address the distribution and pricing of assets, but as long as people think in terms “enough money”, no policy will meet the ostensible goals.
There won’t be a wealth tax. Even if Warren or Sanders is elected, it would never make it through congress. And it would be impossible to make work. The IRS cannot assess the value of assets every year.
A more realistic tax would be a tiered capital gain tax. Say 20% for amounts under a mil, the next tier is 25% for amounts under 10m, and so on.
Assumes the person sells an asset. The higher the tax rate, the less selling there will be. Most very wealthy people have made their money in private companies or real estate. They are very reluctant to sell because they hate taxes. They are able to hire the smartest advisers to avoid estate taxes as well, so the wealth is passed down to the next generations basically intact.
As long as the economy continues slow growth, there is less likelihood of a crash in asset prices. The Fed is now managing pension funds and everyone’s 401k indirectly. The illusion of control by the citizenry is all that is necessary. If the Fed can somehow get away with managing all this for the next decade, we will be okay. Do you believe they will ?
“As long as the economy continues slow growth, there is less likelihood of a crash in asset prices”
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I’ll take the other side of your trade.
(imo) the longer economy stumbles along greater chance of crash. Asset growth (far) greater than income growth. Assets fueled by ever greater debt burden … of longer duration … and worsening quality. When (not if) debt growth hits brick wall of delinquencies / defaults. Game Over.
The other reason I disagree that there will be a crash is because we’ve never seen slow growth and a crash in asset prices. If there is some shock event (e.g. Lehman), obviously there could be a crash. The real way to look at is the Fed is more in control then ever before. We live in the illusion of capitalism where crashes are normal. In the era of electronic money, there is very little printing of money going on. The real asset is control of the global reserve currency.
“The other reason I disagree that there will be a crash is because we’ve never seen slow growth and a crash in asset prices. If there is some shock event (e.g. Lehman), obviously there could be a crash.”
…
OK, I do buy that … no crash until Lehman Event or Hard Recession. We’ll get the recession for sure. Maybe both.
Slow growth is a sign that the economy is getting healthier from a debt standpoint.As we saw in the 2000s, high growth was all based on debt and the pyramid scheme of housing and associated “assets”. The slow growth of the 2010s has allowed household balance sheets to improve in a healthy way. Slow growth is way more sustainable then people think. It went on in Japan for decades but unlike them we are not as reliant on debt. It may be unpopular to say but people got smarter about financial decision making after the housing bubble burst.
“Slow growth is a sign that the economy is getting healthier from a debt standpoint”
…
I only buy that argument if debt growth less than growth of GDP / income. It’s not.
Which growth did you have in mind: healthy growth, or on the back of increased debts and deficits, which is the story of the past ten years.
You may disagree but households are structurally better off than in the mid 2000s when everything was based on the mortgage ATM. The reason we cant get back to that is credit has been restricted to those who can afford to pay it back. I see a decade of slow growth ahead barring exogenous shocks. This happen in Japan where demographically things were a lot worse than the US. There will be a debt crisis at some point but if Japan can go sideways effectively for 2 or 3 decades so can we. Reversion to the mean can happen in multiple ways.
Household debt might have dipped a bit in the US, and rising again, but government debt is out of control. On top of monetary stimulus. Nothing is sustainable about it.
“households are structurally better off than in the mid 2000s” Is student loan debt not as severe as housing bubble debt? There’s going to be a ton of defaults, one way or another. Honest question, I don’t know.
I agree with you on student loans. They are in the process of defaulting long term the way people strategically defaulted on houses by making some payments. Households without student loans are better off certainly.
MM – Government debt is always out of control. I agree its not sustainable. They’ve been saying that in Japan for 30 years. It can go on a lot longer than people think.
To answer your question so oi w growth can be healthy. Time will tell.
Amazing video. 🙂
“Nothing is permanent in this wicked world, not even our troubles.” Charlie Chaplin
Another panic story. Why write new ones when you can just go back a few years and re-post? The story is always the same. Bubbles are everywhere. A recession is just about to begin. Real Estate is going to collapse.
Then when none of this happens, it’s just wait.
In the interim, the rest of the world has made money and enjoyed life.
“In the interim, the rest of the world has made money and enjoyed life.”
….
Sure sure. Just ignore global protests. Worsening wealth inequality.
Love it when I see a top 20%er make these claims.
I am surprised, strong community is not mentioned as a major asset.
“It is impossible for all of those to decline at the same time. “
…
Correct.
Think Dominoes.
Still a treasury bond bull. Equity / RE / corporate debt / municipal debt / household debt will all fall first … driving $$s into safe haven (treasuries will be one). Treasuries will most likely fall at some point, but will be caboose.
Finally, I know where MIsh’s keeping his gold.
The problem with that is that we haven’t had the same currency or monetary system for the last 5,000 years. Any comparisons to 5,000 years ago are largely meaningless..
There is a general comparison/caution in that transactions 5000 years ago were likely all done in units that had intrinsic value.
Exactly. Comparatively, we’re in a monetary twilight zone today.
“I do not care about books or past predictions.”
Lowest rates in 5,000 years. That makes it unique in history. No one has written a book on negative interest rates and there are no past predictions about their outcome as we have never been here before.
The housing crash in 2008 was triggered, IMO. by a fear of variable rate mortgages resetting to a higher interest rate. No one wanted to be left holding the bag. We don’t have that now.
I think a crash now would have to be triggered the old fashioned way. By a recession. Good luck predicting when that will happen.
2007-8 and 2019-20 are a lot more than a decade apart.
’07-8 was the result of miss-pricing of systemic risk caused by over-reliance on inadequate financial models and ‘slicing and dicing’ the underlying risky assets. Plus greed.
’19-20 will be caused by systemic stupidity of corporations and central banks. Plus greed and government ineptitude.
Housing will contribute but won’t be the straw
The issue in my mind is which of the many potential exogenous event is going to get blamed.
Gone way beyond ridiculous ,fed now printing over a trillion dollars a MONTH in desperate attempt to keep banks from collapsing,and that’s rising at a rate of 100 billion per MONTH!Printing 100 billion a month “officially”to prevent the govt from collapse,trillions more printed DAILY to prop up stocks,gold,silver,oil….name it….a literal money printing frenzy of biblical proportions.
The FED isn’t printing a trillion/month. More like $60 billion/mo currently. And they certainly aren’t trying to prop up gold, silver, oil or any commodities. Those are the enemies of central banks.
Where are you pulling your numbers from?
With China, Japan, the EU and the rest of the world added maybe $300 billion a month. Keep in mind we did not find out about the $15 trillion bailout during the last crisis until several years later so there could be a lot more going on that we do not know about.
Sure, Mish, but if you manage a pension fund or even an endowment, the only one of those five “places to go” that is defensible would be short-term US Treasuries, and even then you will be questioned mercilessly for deviating from fiduciary orthodoxy. These are interesting times indeed.
How do you feel about the 7-10yr treasury range?
I like long-dated treasuries – They are not without risk.
5 Year CDs at 2.5% also seem like a good deal and a safer one
How and where you hold gold is important. For some time I’ve been buying low denomination gold coins. I don’t fancy putting a krugerrand on the counter and getting all sorts of crap for change.
Then why not buy silver coins? Also, there is no worry about silver “confiscation”.
I do buy silver coins, 19th century crowns, half crowns double and single florins etc… Gold confiscation is an American thing. I should have made my point in abetter way.
“No Place to Go?!”
In 1933, Roosevelt confiscated gold. Democrats are currently talking of high income tax rates and even wealth taxes. Talk is of MMT as the next big thing.
We live in a world of economic illusions, as nothing stays the same in perpetuity.
The world changes with every billion people we add to it. The economic phenomena we see are just ripple effects of an ever increasing number of people competing for an ever decreasing pool of resources.
Eventually, we’ll all decide we aren’t getting enough, and set to slaughtering each other for a few years, squandering the resources that are left. This time we might actually be able to lower the population by a couple billion, as the nukes and bio weapons are almost certainly going to be used.
I feel lucky having seen the peak of our civilization for the next few hundred years, but I’m not looking forward to what’s coming.
I think the problem is that we are generating more and more wealth, but have figured out how to give it to fewer and fewer people who want to invest it and can’t find anywhere to put it.
Look at the really big players. They are giving their billions of P.E. firms who are handing it to dollar dumpster fires in N.Cal. that are “going to change the World”. Aramco’s profits are taken by the Saudi royal family, who give them to Softbank, who invest them in nonsense propositions from charlatans and/or insane megalomaniacs. It is like the 1970’s when the insane profits from the Middle East were “invested” by NY Banks in Latin American bonds that were almost instantly defaulted on.
A dose of equality is needed to rebuild the consumer base – and not just in the U.S. – Japan, China, and most egregiously Germany also need to give regular people more buying power, and not thru unplanned deflation.
We are not generating more and more wealth, we are generating more and more claims on that wealth. By giving the speculative chips to the rich, they have increasingly large positions on the claims to income streams and capital, but the income streams themselves appear to be somewhat stagnant.
Thermo, you are confusing money with wealth. Wealth is accumulated productive capital. Money, as in cash and debt instruments, is being created out of control, but actual wealth, as in the ability to produce the things that people need is decreasing. Yes, the top 0.001% are loaded up with debt instruments, but they don’t buy proportionally more stuff. We have given up a big chunk of capital base, as has most of the West. That is the problem. Interest rates are falling, because there is less and less actual productive capacity to support all that debt at higher rates. The huge deficits support consumption without the need for an efficient enough capital base to support that consumption without subsidy. When the day of reckoning comes, all the fluffy debt will disappear in the wind, because the value it is supposed to reflect never existed in the first place.
Agree with WildBull and Webej. The term “growth” gets thrown around a lot, here and everywhere, but WHAT is growing? GDP? 1-U3? IPO valuations? Top 1% portfolios? Cell phone specs? If it’s not CAPITAL that is growing, who cares, it won’t stave off the next financial crisis.
Unfortunately we can’t measure total productive capital directly. I’m no economist, but if capital was increasing in the world, I’d expect risk-free returns minus CPI to be well above zero. If the long-term trend holds, however, Treasuries minus CPI will be negative within a few years.
“In 1933, Roosevelt confiscated gold.”
Back then the Fed held gold to satisfy redemption requests as it was possible to exchange FRNs for gold. Typically they held more than enough to back the currency it issued. The excess was called “free gold.”
Revisionist history has the Fed twiddling their thumbs as things fell apart. That was not the case. The Fed tried to reflate but they had a problem. Both internally and externally FRN’s were being exchanged for gold and folks were draining their deposit accounts in gold. With the Fed attempting to reflate more FRNs / deposits were being created without an accompanying increase in gold reserves and threatened the free reserves. In fact, the banking holiday was declared when the NY Fed could no longer honor its commitment to convert currency to gold.
That is not the case today. While there is gold within the banking system there is no way to force them to give it to you for FRNs or deposits.
If confidence in the dollar is lost I could see them banning cash withdrawals. But banning gold won’t suddenly restore confidence in money, so I think it is a lot less likely to happen. If gold is banned people will just move on to another physical asset. They can’t ban everything. Cryptocurrencies might also be used.
Love the video Mish…gonna be a hit very soon!
Percentage of gold varies. Some genuinely hate it. For those, a small or even no percentage might make sense.
If it is going to make you lose sleep, don’t do it.
For others up to 33% seems reasonable.
Thanks Mish……
P.S. – FYI: there had been some previous back and forth about the ‘edit’ function for comments. I can see the edit function associated with my comments. I can reopen my previously posted comments, but any edits I make don’t saved to the comment…
Love your posts – always thoughtful…
Not sure I understand the problem – Anyone else having comment issues?
Mish – the comment edit function seems to be working. Perhaps, I was doing something wrong.
Apologize….
Mish – want to look at Gold. As a percentage of a portfolio, what are we talking? Can you give a range?
Minimum 10%.
Like a broken clock, Shiller occasionally gets it right.
Shiller has been bullish on bonds for a very long time, and right the entire time.