President Trump: The NEW one and only politics thread

So in a perverse way, by concentrating the monetary inflation you create in the banking system, you financialize your bubble rather than turning yourself into the Weimar Republic. It's good and bad. If the cost of living gets Zimbabwe'd, it's a pretty short game. Social unrest, economic collapse, game over. But when you financialize the stupidity instead, you drag it out longer, and you magnify the effect, which means you can do way more damage before the game ends. It's even more insidious in that regard.

Two years ago, one of the people doing nasty posts at me all the time was on a "Ha ha, my Netflix stock is worth a gazillion dollars. You're full of shit," jag, because I posted some stuff pointing out that Netflix was taking on an insane amount of debt and burning through cash -- losing a lot of money on every subscriber. Yet, the stock price had gotten completely disconnected from that reality and we were seeing euphoria. And I had the temerity to say that it was phony and tried to point out why it was happening and how it would end.

That is how people should think about it. Make more dollars (there is nothing backing the dollar) and stuff wads of cash in people's pockets and the price of a carton of milk is going to shoot through the roof. You may as well be Venezuela .Concentrate that money in the financial system, instead, and you will see yields and interest rates plummet, which has a magnifier effect -- why they do it that way; it's deliberate. In essence you are using the monetary inflation to destroy the price signals in the lending markets and that spurs an exponential amount of credit that wouldn't exist ON TOP OF that monetary inflation. But all of that credit you've spurred then goes out into the kinds of things the rich people you effectively gave it to buy -- that is everything from Apple stock to the art market to vintage cars to really expensive apartments on Central Park West. And you see what were obvious bubbles in hindsight.

Aside from the wealth disparity that creates, which gives rise to Bernie Sanders populism. ... it's a great idea, as long as you can find a way to keep credit growing exponentially forever. Which is obviously impossible. The minute the credit growth slows down, you are doomed to a credit crisis, because you end up with dozens of areas of the economy that are zombies -- they need to be able to borrow more and more to just service the debt they have already taken on. Without artificial credit expansion that grows exponentionally, they can't do it.

 

Yes,of course I understood you were joking.

I was using your post as a jumping off point to talk about the difference between that kind of thing and what they actually do. I find it interesting. Maybe you don't.

 

Of course. Because they can see the negative economic growth in the near term. Joe Sixpack with a brokerage account can see that is coming.

But they can't sell people financial products and keep them shoveling money in, if they project the pain to go beyond that near term. So things are going to be peachy in 4 months.

Look, maybe it does work out that way. Maybe consumers simply defer all these purchases they were going to do now, and all of that pent up demand gets pushed to Q3 after we fall off a cliff in Q2 and economic activity just gets pushed forward a little bit instead of being lost for good.

*IF* that narrative makes any sense, you are talking about $500 billion in lost economic activity. But since the stock market peaked in February, it's probably lost about $12 trillion in value. So clearly, it's the bargain of the century right now, and BUY THE DIP! Everyone is overreacting.

Of course. ... that presumes that the stock market was being valued correctly when it peaked in February. Even if you think I overstate just how distorted valuations were, logically anyone should be asking "When you pump trillions of dollars into financial markets, HOW might it distort prices?" Just in the stock buybacks we saw for 5 to 10 years, which we KNOW were massive and were being funded by mispriced debt, how much did it distort prices?