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What Will Cause the Next Economic Crash?
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With the Dow Jones average at a remarkable 25,800, it might be worth thinking about what might cause the next economic collapse the way that mortgages set off the last one. This is not to say that one is necessarily imminent, just that there tend to be cycles so it’s worth thinking about the next one.

One possibility is a 1929 style stock market crash. Stocks haven’t reached “Dow 36,000″ yet, but they are high.

Another is crypto-currency. Bitcoin is obviously a brilliant innovation, but even the smartest new innovations in currency often cause problems initially. For example, J ohn Law was a genius Scottish economist who got himself in tight with the French monarchy in the early 1700s to promote his paper money scheme backed by shares. Paper money was a pretty good idea (I have some in my wallet), but his Mississippi Bubble of 1720 caused no end of problems.

China is a possibility. It has been growing forever, so a retrenchment will eventually happen.

Enron style corporate scandals are a possibility, especially since Trump is lightening finacial regulations.

Student loans?

Mortgages might come back into speculation. The mortgage industry remains cautious, but we’ve never honestly discussed in public exactly what went wrong last time (such as, too much lending to Hispanics), and what people don’t know can hurt them.

What do you predict?

 
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  1. JosephB says:

    China stops buying US treasuries and the subsequent devaluing of the USD relative to who we buy things from.

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    • Replies: @Anonymous
    China would be slicing its own wrists in that case. Why would they want to devalue their own holdings (well over $1T) in such a manner? Strange that with 225 posts in this thread no one has pointed this out.
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  2. The next economic crash will be triggered by the “crack-up boom” (a la Mises) generated by the massive credit expansion since the 2007-2008 collapse and by Fed attempts to prevent it by halting the credit expansion.

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  3. Student loan debt peonage seems like a safe investment since it’s fully backed by government violence. It would cause a collapse if the government wrote off the debts without compensation to the slaveholders… I mean the loan companies.

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    • Replies: @Jonathan Mason
    Rather than implement the recent tax cuts, it might have better served the economy and the community for a new program by which any student with student loans can have request to have the loans bought out by the government at par value, and then reissued at a low rate of fixed interest, and then repaid through withholding of up to 50% of income tax refunds, or until the loan is paid off, whichever comes first.

    The government could also bundle student loans and issue them as tradeable securities, as is already done with corporate bonds.

    So, for example, if you wanted to invest in student loan repayments of medical school graduates in Delaware, there would be a fund for that purpose that you could buy through your broker.Such securities would probably trade at a value close to par, whereas I daresay securities holding loans from hairdressers in Puerto Rico might trade at a lower value
    , @Harry Baldwin
    I mean the loan companies.

    It's actually the federal government itself that holds the vast majority of student loan debt, not private companies. The government is on the hook for well over a trillion dollars worth.

    , @Neoconned
    I don't think there will be another crisis for a while. I think things will be remarkably stable. The Bank of Japan has managed to control Japan's parachute type slow drop into deflationary hell.

    If anything will it'll be automation. That's if the Fed loses control. But if some of the workforce studies are correct and we lose say 40 odd percentage of all jobs you'll have far more than a great depression.

    You'll have military rule and/or balkanization with generals and governors fighting for control of the nuclear arsenal. Scary shit straight from a Clancy novel.

    You'll have a financial collapse followed by a government collapse and or autocratic rule.

    We need UBI and a reduction in immigration. Either way quite frankly we are doomed and f***Ed.

    And when they do impose UBI expect rents to rise and gold, cash, guns, bullets and xryptocurrencies to surge in value
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  4. Anonymous • Disclaimer says:

    On China

    China’s credit bubble is probably the most obvious topic to explore. But crash predictions have been around for a long time. Jim Chanos (short seller with most renown) told the NYT in January 2010 that China was going to be Dubai x 1000. He’s still predicting this and I think it’s starting to harm his reputation for investment clairvoyance.

    In objective terms there is a lot of debt in the Chinese economy (total borrowing as a percentage of GDP is very high) and despite this problem having been flagged for years the central planners have only gradually slowed down lending in order to keep GDP growth at 6-7%.

    However, growth is not only a result of a credit bubble but productivity growth. For example China’s textile export industry is still holding its own in global market share despite doubling of wages in a short period of time. The industry is very labor intensive so Chinese mills are chugging along based on vast productivity improvements. The trend in textiles reflects the rest of the economy given just how unproductive Chinese industry still is compared to the developed world. That’s a lot of easy catch up growth still available. As this blog well knows there are enough smart people in China to learn the low hanging fruit. The middle income trap that mainstream economists study so much is simply the failure to absorb the low hanging fruit. Mainstream economists just can’t figure the middle income trap out but on this blog we have the insight that it is purely a matter of average national IQ.

    China is at the level of South Korea and Taiwan in approximately 1995. So it is about 15-20 years from becoming a lower half first world country at which point there’s no low hanging fruit. South Korea suffered a sharp crash in 1997 but recovered in 2 years. Taiwan never experienced a sharp crash during its rise.

    Whether the banking implosion is around the corner for China or not, it will likely be a first world country in 2035.

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  5. Anonymous • Disclaimer says:

    too much lending to Hispanics

    Okay, that’s needlessly inflammatory, and I say this having just posted three humorous and slightly inflammatory gifs at your ‘rent is too damn high’ post.

    It’s not just Hispanics, it’s blacks and immigrants of all kinds. But seriously (and–I admit–obviously), it’s that there was too much lending to unqualified borrowers, and worse, the more unqualified they were, the more eagerly the Obama Administration bailed them out.

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    • Replies: @Charles Erwin Wilson II

    Okay, that’s needlessly inflammatory
     
    Lend your money to Hispanics. We don't want to pay for your sentimentality.
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  6. anon • Disclaimer says:

    The cause already happened – the deregulation of the banks by Clinton/Blair back in 1998 – the result of the final, total corruption of western governments by the banking mafia – which led to the banking crash in 2008 .

    Because we’re ruled by the banking mafia the true causes of the banking crash were never even reported let alone fixed and the actual response was simply the central banks transferring trillions of dollars worth of bank debt into public debt. The spillage from that massive wealth transfer has been pushing the stock market up – that’s all it is.

    The bubble will pop when this wealth transfer to the banks is complete (it already is in US and UK but Euro banks less so cos Germany held out for a while against dumping the bank debt on the public – which is what “quantative easing” is a euphemism for).

    The wealth transfer means the resulting crash will leave the banks unscathed but take out all the pension funds.

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  7. Student loans. On paper, there is ~$1.4 trillion in outstanding student loans out there. Most cannot be paid back because the people who’ve taken the loans out lack the earning power to ever make good on them.

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    • Replies: @glosoli
    The Fed will buy the debts if need be.
    It's the dollar that will collapse, not debts. Banks will be kept whole nominally, as will the system, until the dollar is worthless.
    If you owed c. $60 tr (including unfounded liabilities) hyperinflation is the perfect get-out.
    The great irony is that the FedGov will blame the Federal Reserve. Not their fault.
    , @anon
    Student loans are a perfect example of how usury inevitably corrupts everything

    1) the profit from student loans creates an incentive to turn education into an accreditation scam

    2) turning education into an accreditation scam leads to an over supply of degrees lowering their market value below the level needed to repay the loans

    Usury is parasitic which results in the evolution of cultural controls on usury which is why the banking mafia always need to corrupt the political system. When they succeed in fully corrupting the political system the nation/civilization is doomed.
    , @Pat Boyle
    Student debt is not very rational. When I took the GREs I sent my scores with applications to various graduate schools. I had good scores. So I got recruited and offered stuff. The Dean of some school at the University of Massachusetts called me one evening at home in California. He not only wanted me to come to his school at their expense, he said he would get my wife a job. He seemed real eager.

    I eventually went to George Washington in Washington DC but again I was recruited and offered a full academic scholarship in another department. They gave me a TA job (teaching calculus and computer operations). I competed for and won a Mellon fellowship and two internships. I made what was for me then more money than I ever had before.

    I think if you are a good student and have good scores money will flow toward you. But if you are a marginal student you will have to go into debt. A student loan is a kind of assertion that you are a better prospect than you appear to be. You are investing in yourself when the objective evidence is that you are a bad investment. The self deluded always suffer.

    Being black in America is the very definition of self delusion.

    , @Beckow
    Any education system based on 'loaning' money to students is extremely unstable and it eventually collapses. It had been tried before in 19th century Europe and elsewhere and abandoned because it is inherently a mad unworkable scheme.

    But the $1.4 trillion student loan debt is not anywhere big enough to crash the economy. When the next crash comes, it will be likely triggered by uncertainty about paper-fiat money (not necessarily the dollar) and inflation. It will look very different from 2008-9.

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  8. For example, only 4 percent of white graduates who never attended a for-profit defaulted within 12 years of entry, compared to 67 percent of black dropouts who ever attended a for-profit.

    Why would you compare repayment rates of white people who never attended a for-profit school with black people who did sign up to a for-profit. Talk about comparing apples with potatoes!

    A lot of these for-profit schools are scams (like Trump University) that use high pressure sales tactics to sell wildly overpriced vocational programs to naive individuals.

    Last year I visited a local hairdressing salon/school that was offering entry level hairdresser courses (for some reason they call this cosmetologist in Florida) for about $20, 000 dollars paid for by loans. The percentage of people who would be able to complete this course and then make enough money to pay back the loan plus interest in our local economy must be very low, seeing that hairdressers who do not own their own salons have to rent chair space and may have a lot of down time and have a hard time even being able to pay for Obamacare, let alone pay back loans.

    So if these for-profit scam schools use high-pressure sales to get black students to take out unrepayable loans at high rates of interest, the finance companies should expect a very high default rate.

    Of course there may be ethical and value for money for-profit vocational programs in some fields, but they don’t seem to exist in my local area, and while there might be some good stuff available online, it takes a very motivated student to succeed, and even if successful, it may not be as easy to get a good job as the course promoters tend to claim.

    White students, being on average from better-educated families are much less likely to fall for the for-profit-school scam and to attend state and community colleges that are not for profit.

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    • Replies: @Jack D
    "Cosmetology" and many other "professional" licensing schemes are just scams set up to artificially restrict supply. Do you really need a 1,000 hour course in order to learn to shampoo someone's hair?

    (BTW, black people, especially women, require a LOT of hair care - did you see Oprah's hair the other day at her speech?

    https://cdn.newsday.com/polopoly_fs/1.16153881.1515883324!/httpImage/image.jpeg_gen/derivatives/landscape_768/image.jpeg

    It didn't resemble African hair in the slightest and in order to get African hair to resemble European/Asian hair you need to do a LOT of work and use lots of chemicals).

    As you say, the "rents" from this artificial restriction don't end up in the pockets of the individual hairdressers (just as the rent from the NY Taxi medallion scheme did not end up in the pockets of the cab drivers) but adhere to the salon owners and the people who operate the required schools.

    , @JosephB
    "Why would you compare repayment rates of white people who never attended a for-profit school with black people who did sign up to a for-profit. Talk about comparing apples with potatoes!"

    I took Steve's statement as showing the variability in the default rates. Presumably white a non-profits are near the bottom, and blacks at for profit are near the top. It was a useful illustration that even basic background info results in wide variability in outcomes.
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  9. Flip says:

    Rising interest rates and a weak dollar caused by the Fedgov’s creditors becoming alarmed about the soaring budget deficit. It will be a 1970s rerun.

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  10. Logan says:

    Could the “never” in your quote be a typo and should read “ever?”

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  11. 1661er says:

    I was surprised that it’s actually hard to find investment vehicle for the potential upsides of global climate change. There are some hedge play like Taittinger Champagne house bought vineyards in UK as a hedge.

    http://www.telegraph.co.uk/food-and-drink/wine/french-champagne-house-taittinger-to-make-english-sparkling-wine/

    I was expecting there should already be a boom and bust of REIT or ETF to invest in for individual investors by now. But haven’t happen yet.

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  12. Jack D says:

    In addition to a new mortgage bubble and a student loan bubble, we have a big auto loan bubble. There’s a whole industry built around selling cars to people with bad credit. Rapid advances in electric and self-driving technology will make the existing vehicle fleet less valuable than the estimates on which the loans/leases were based putting even more auto loans under water, especially since one of the tricks they have been using is to make car loans for longer and longer periods.

    Auto manufacturers have already been building too many new car factories and at the next downturn these will sit idle and all the workers laid off. The auto industry underpins a large share of the economy (half the ads on TV seem to be auto dealer ads – the other half are ads for totally non-productive sectors – drugs, hospitals and malpractice/auto accident lawyers) so an auto industry crash has widespread effects.

    Fiat/Chrysler, the sick man of the US auto industry since the ’70s, won’t survive the next downturn and probably will get sold to the Chinese. They don’t have the capital to make the transition to new technology.

    Millions of truck/bus/cab drivers will lose their jobs. The current model, where you buy a car and it sits in your driveway or the parking lot of your workplace 23 hours/day, is going to go by the wayside and there is going to be a permanent reduction in the # of vehicles needed.

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    • Replies: @Jonathan Mason
    Fiat does not have the technology?

    https://www.forbes.com/sites/kbrauer/2017/05/26/fiat-500e-can-you-really-drive-a-brand-new-car-for-a-total-cost-of-120-a-month-yes-you-can/

    If the current bull market lasts until electric vehicle technology makes an impact on employment, that will be a pretty good result.

    The question everyone would like to know is--if you could invest in one company now that will benefit from new vehicle technologies and hold it for 20 years, what would it be?

    Of course nobody knows. Tesla may well crash and burn and could trigger a stock market correction within the next year or two. I might stake a small amount on Nio.

    https://www.nio.io/
    , @Lot
    Uber Pool, where you share an Uber with 1-2 other riders, is already putting drivers out of work.

    However, AI generally shows no sign of actually causing mass unemployment. The two signals of this happening would be higher unemployment and faster productivity growth. Neither is happening.

    The jobs most vulnerable to automation are low end manufacturing in Asia. In many cases the tech to replace these workers already exists, and Chinese wage growth of 10-15% a year in urban areas will force its adoption.
    , @prosa123
    A disturbing fact about car loans, as Jalopnik recently reported, is that more than 30% of new car sales involve trade-ins in which the buyers are underwater. These loan balances get rolled over into the new loans, making the buyers even more deeply underwater.

    That being said, the total amount of car loan debt is far, far less than mortgage debt at the start of the financial crisis.
    , @SteveO
    I keep hearing this type of prediction, but one question that doesn't seem to come up: Doesn't anyone enjoy driving? I mean either (1) the act of driving itself - a complex task many of us are quite good at and others at least passably so - or (2) the freedom that comes from possessing a machine that will take you anywhere there are roads anytime you want for however long you want? The fact that you can't actually go is irrelevant. It's the dream and the possibility that matter.

    For generations, driving and owning a car have been symbols of freedom for Americans. Furthermore, people in every country around the world have taken to driving as soon as they could afford it, even when their roads are clearly not suited to automobiles. Why else would the traffic in London and Paris be so awful? Why would anyone in New York own a car - and millions do - if they didn't find the freedom worth the price and inconvenience?

    And yet I hear that soon, at best we won't be driving ourselves but rather letting our car do it for us; at worst we won't even own a car but share one "when we need it". The preplanning and commitment required by the latter essentially kills the Route 66 dream that used to be precious to Americans. And it won't be optional. The insurance companies and LE will see to that - as soon as feasible, self-driving cars will be mandatory because they are safer. But safety isn't everything!

    What has happened to our society to kill off such a wonderful dream, and why did we let it/are we letting it happen? At a personal level, it annoys me that yet another thing I'm fairly good at is going to become an obsolete skill. First, being a good navigator became useless as GPS took over from map-reading; next, driving will go the way of blacksmithing. Then what?

    Sorry. Long rant ... but it makes me sad to see so much of what made America America in the 20th century die off.
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  13. dearieme says:

    I don’t know what will cause it but I do know whom it will be blamed on: Literally Hitler.

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  14. Mike1 says:

    The specific thing blamed for a crash is typically more of an excuse rather than the actual reason. The reason is ALWAYS debt that people cannot pay.

    There are so many potential black swans this time no sane person can know what will be blamed.

    Bitcoin is not brilliant. It is a thought experiment that has taken on a life of its own. Each coin being progressively harder to mine can only create a stunning bubble as it has done. Blockchain itself is comically simple but people breathe the word like it has mystical significance.

    To answer the question: at this point a political crisis in the US which causes a 1987 style crash which doesn’t bounce back is my current guess. There are dozens of equally plausible things that could, and likely will, cause a meltdown.

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  15. Student loans can’t cause a crash because there is no collateral backing them up and they generally can’t be discharged in bankruptcy. They will eventually get their money.

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    • Replies: @TWS
    They won't get the money because the people that owe it can't pay it. Many will die with it unpaid. Or they could make it discharge in bankruptcy again.
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  16. Art Deco says:

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008. They’re not that frequent and we’ll all likely be dead before the next one.

    One thing that makes me anxious is the escalating tendency toward holding sovereign and household debt.

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    • Replies: @Jonathan Mason

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008
     
    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    https://www.youtube.com/watch?v=NMq7A17kLgs

    , @Erik L
    Does 2001 tech bubble crash not count ?
    , @notanon

    You’ll see a recession derived from the usual forces which generate recessions.
     
    yes - usury
    , @Lot
    Good point about the rarity of 2008 style financial crash recessions. We had a long run of 1929-2008 without one.

    But they happened a lot more often before 1929. And now in the current era, where the wealthy dominate a financialized economy and impose hard currency and debt peonage on the rest, looks much more like 1910 than 1970.
    , @Jack Highlands
    The 1999/2000 tech crash was about the same magnitude as the 2007/2008 banking/mortgage crash in terms of stock market effect. The modern Keynesian situation in which the government is responsible for ~50% of economic activity in all advanced countries is very different from any previous era of capitalism, when that percentage was far lower. It acts as an enormous governor to slow what would otherwise be a rapid feedback cycle of the out-of-control diesel of finance self-destructing.

    In effect, we have been in an ultra-slow 'crash', with interim ups and downs, since 1999. White middle-class income shows it, among many other indicators.

    Of course in the long run, such governance can only distort market forces. Therefore the major crash, when it comes (and it is ultimately related to crashing White demographics), will be epochal. After that, we may see a Golden Age like after the Peace of Westphalia. Magnificent composers with 16 kids. May my son live to see it, and wife up in it.

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  17. glosoli says:

    Hello Steve.

    Briefly, there is a planned move away from the USD as a global reserve currency.
    The new system is ready.
    The next step in the plan is for oil trading to be switched to yuan and euros, and possibly rubles too.
    Only the US will use dollars.
    As a result, global demand for dollars will dry up eventually.
    Meanwhile, lots of things will happen in Europe, notably bank failures.
    Also, we are approaching the Minsky moment, where leveraged debt speculation the world over will reach its limits.
    So I don’t look for any one reason, rather many.
    It’ll take til 2031-2 for the USD to hyperinflate.
    The interest rate cycle will turn up in 2019-2020, and that’ll kill most sovereigns and their currencies.
    So, just like in the 70s, the best protection for your wealth is physical gold.
    The financially stable days of the post-war period are about to end for ever, and the middle classes wealth will simply evaporate, as debt defaults or is inflated away to zero real value.

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  18. @Simon in London
    Student loan debt peonage seems like a safe investment since it's fully backed by government violence. It would cause a collapse if the government wrote off the debts without compensation to the slaveholders... I mean the loan companies.

    Rather than implement the recent tax cuts, it might have better served the economy and the community for a new program by which any student with student loans can have request to have the loans bought out by the government at par value, and then reissued at a low rate of fixed interest, and then repaid through withholding of up to 50% of income tax refunds, or until the loan is paid off, whichever comes first.

    The government could also bundle student loans and issue them as tradeable securities, as is already done with corporate bonds.

    So, for example, if you wanted to invest in student loan repayments of medical school graduates in Delaware, there would be a fund for that purpose that you could buy through your broker.Such securities would probably trade at a value close to par, whereas I daresay securities holding loans from hairdressers in Puerto Rico might trade at a lower value

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    • Replies: @Johan Schmidt
    Good thinking. While we're at it, we could bundle good loans with bad, and give the whole ensemble a AAA credit rating, on the grounds that while some students may default, the idea of them ALL defaulting is unthinkable!
    , @Lot
    All these programs already exist.

    Grads with good jobs and objective repayment factors can have their 6-7% federal student loans refinanced by private "social" lenders like SoFi at 3-4%.

    The other thing you propose exists as "income based repayment." The program requires you to make partial payments based on income for 25 years. Then the federal gov just forgives the rest.

    If a corporation made "partial" payments less than its loan contract such loan would be in default and partly written down as impaired. But the feds do not do this, even though they are 100.00% sure the loan will not be repaid in full.

    All quoted "Default rates" in student loan programs are BS for this reason. Someone in "default" just means they are too stupid or disorganized to sign up for the income based program, which has annual paperwork requirements but often cuts student loan payments from $600/mo to $40 or even 0.

    It is mostly higher IQ whites with worthless degrees doing these soft defaults not being counted as defaults in the government's cooked books.

    To put it another way, there are two separate ed loan scams going on. First the for profit scams that suck up billions of tax dollars for scam degrees and no show students. The people who run them donate heavily to both parties, though Obama started to crack down on them his last 2 years, shutting down some of the biggest chains of scam schools. Trump and DeVos reversed these policies. (Trump DoE also hides default data by school like Obama's DoJ hid race/crime data)

    The second scam involves more respectable 2nd tier colleges like George Washington and NYU admitting 115-125IQ types, letting them party on Ungle Sugar for years, investing in lavish facilities and $350,000 professor salaries.

    Then when grads emerge with their NYU gender studies degrees, NYU carefully makes sure the grad signs up for federal loan forgiveness. Thus NYU might get $150,000 in fed money for the student, the student himself only repays maybe $20,000 of it. But this student who never repays his loan is not counted as ever defaulting.
    , @Autochthon

    ...then repaid through withholding of up to 50% of income tax refunds, or until the loan is paid off, whichever comes first.
     
    Do you have any idea how sky-high the typical student-loan debt is, just for an undergraduate degree? And graduate school? Look, I completed a doctorate in 2004 with no undergraduate debt and significant scholarships for graduate degrees, yet I paid off my student loans of $250,000.00 at just before I turned forty via a combination of living like a church mouse (I mean it, enormous personal austerity and sacrifice – foregoing furniture, clothes, etc.); lucrative employment (far more so than the overwhelming majority of my colleagues with similar educations); and help from a kind benefector (Miss Havesham style, an affluent friend literally paid off the last several thousand out of sheet pity for my miserable life story).

    TAL;DR: Under your plan, every one who signs up for it drops dead long before the government recoups even ten per cent of the debt. (I mean, c'mon; fifty per cent of a typical tax refund!? What is that, a thousand dollars a year? Five hundred? Maybe?). Might as well cut the bullshit and paperwork and just say "the gubmint will eat your loan" – because that's the result: A Get Out of Debt Free Card from the community chest.
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  19. Jack D says:
    @Jonathan Mason

    For example, only 4 percent of white graduates who never attended a for-profit defaulted within 12 years of entry, compared to 67 percent of black dropouts who ever attended a for-profit.
     
    Why would you compare repayment rates of white people who never attended a for-profit school with black people who did sign up to a for-profit. Talk about comparing apples with potatoes!

    A lot of these for-profit schools are scams (like Trump University) that use high pressure sales tactics to sell wildly overpriced vocational programs to naive individuals.

    Last year I visited a local hairdressing salon/school that was offering entry level hairdresser courses (for some reason they call this cosmetologist in Florida) for about $20, 000 dollars paid for by loans. The percentage of people who would be able to complete this course and then make enough money to pay back the loan plus interest in our local economy must be very low, seeing that hairdressers who do not own their own salons have to rent chair space and may have a lot of down time and have a hard time even being able to pay for Obamacare, let alone pay back loans.

    So if these for-profit scam schools use high-pressure sales to get black students to take out unrepayable loans at high rates of interest, the finance companies should expect a very high default rate.

    Of course there may be ethical and value for money for-profit vocational programs in some fields, but they don't seem to exist in my local area, and while there might be some good stuff available online, it takes a very motivated student to succeed, and even if successful, it may not be as easy to get a good job as the course promoters tend to claim.

    White students, being on average from better-educated families are much less likely to fall for the for-profit-school scam and to attend state and community colleges that are not for profit.

    “Cosmetology” and many other “professional” licensing schemes are just scams set up to artificially restrict supply. Do you really need a 1,000 hour course in order to learn to shampoo someone’s hair?

    (BTW, black people, especially women, require a LOT of hair care – did you see Oprah’s hair the other day at her speech?

    It didn’t resemble African hair in the slightest and in order to get African hair to resemble European/Asian hair you need to do a LOT of work and use lots of chemicals).

    As you say, the “rents” from this artificial restriction don’t end up in the pockets of the individual hairdressers (just as the rent from the NY Taxi medallion scheme did not end up in the pockets of the cab drivers) but adhere to the salon owners and the people who operate the required schools.

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    • Replies: @Jonathan Mason
    It would not require much hairdressing skill to put that wig on Oprah's head,

    There certainly are things that hairdressers need to know about, like recognizing infections conditions, parasite infestations, etc. Also managing chemicals, and stuff like doing hot Brazilian wax treatments on the pubic area, which could be a pain in the ass if they went wrong.

    However, it should be possible to do the training on the job, like employees in food service or preschools have to do, and specialist areas like mixing dyes and color treatments could be covered by add-on course in continuing education if needed.

    Straightening black women's hair does indeed require use of chemicals, but on the other hand millions of women are able to do this themselves at home, with variable result, so the theoretical part cannot be that onerous. It is not as if hair straightening chemicals are available on prescription only.
    , @AndrewR
    What does non-African, non-Asian, non-European hair look like?
    , @Pat Boyle
    I don't know much about barber college but I am familiar with "school' in the Army.

    I went to Truck Driving School. I also went to Coal Shoveling School. The Sergeant said that they had abolished another school just recently. That was the class in the use of the Straight Broom.

    Truck Driving, as I remember, was a week long school whereas Coal Shoveling was only a single day.

    There was a good and legitimate reason for the Coal Shoveling school. The barracks were heated by old boilers fueled by coal. All Army barracks seemed to have been built on the same day - the day after Pearl Harbor. So they were all pretty old.

    The one item in the curricula that was sensible was checking the safety pressure gauge. It seems that if the safety valve gets stuck the boiler blows up and kills everyone inside. So as it happened when I was in the National Guard summer camp I checked the safety valve in one of the barracks and it was indeed frozen - it would have let the boiler blow up. I told the relevant officer and he said "We are only here for two weeks, let's just ignore it." I didn't sleep in that particular barracks - so I obeyed the order.

    , @Jack Hanson
    I see this in paramedicine/EMS.

    "Waaah there's a national shortage of paramedics!"
    "Yeah but you pay them $14 an hour for a year of school."
    "Well yeah."

    My paramedic cert through the local CC cost me about 3g, paid for by the GI Bill. This is one of the top paramedic programs in the country (100% NREMT exam pass, five years in a row).

    However there's a lot of scam schools here that will charge double and triple that for the exact same cert. The real gouge is the whole time theyre claiming that the local CC will accept their medic course as "college credits" if you talk to admissions. Pima Medical Institute goes so far as to structure its syllabus with "credits earned" next to each block of instruction.

    The reality is that unless you have an "in" with admissions, the community colleges (to say nothing of the unis) will not even look at the hokey transcript you give them, cause all these "academies" and "institutes" aren't credentialed.

    There's an argument to be made of "do trades need a two year AAS to just do the job? Does there need to be a FIRE SCIENCE pathway to make some 22 year old more competitive with the local FD?" Probably not. But then again, all the ENG101/102 work I did was underlining the 10th and 11th grade English classes I took over a decade ago. Maybe kids nowadays do need a two year to prove they can write a report or know how to cite and think critically.

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  20. anon • Disclaimer says:

    Yeah, the crypto-thing is probably going to be the proximate cause, especially with all the breathless headlines about “legendary hedge fund manager so-and-so has 50% of his billion dollar portfolio in cryptocurrencies!!!1″

    if true, and when bitcoin barfs, who knows what the knock-on effects will be. long term capital management anyone?

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  21. Kirt says:

    The great recession following the banking/real estate crisis of 2008 was the worst economic downturn since the great depression of the 1930′s, although not quite as bad as the latter. So we are talking about events separated by almost two biblical generations. While there may be occasional short term crises, I do not expect to see another sustained downturn in my lifetime.

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  22. Yay the site is back.

    Cryptocurrencies don’t seem a likely candidate. Their total market cap is around $700 billion USD (and I personally expect it to be considerably less in a year’s time). In contrast, the total housing value lost during the housing crisis in just the US was around $7 trillion.

    I will worry when they increase by another order of magnitude and banks start packaging them into derivatives.

    Student loans seem to be the most credible danger point, though at a total value of $1 trillion, I am again unsure if there is a sufficient quantity there to trigger large collapses.

    Venezuela will probably finally default this year but I think pretty much everyone has written them off by now anyway.

    The PIGS problems have gone nowhere, but have just been shoved under the carpet. Growth remains weak, debt has been stabilized but is very high.

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    • Replies: @Erik L
    A speculative frenzy, even an incremental one like $700 billion could set things off if there is other instability waiting to be triggered. But I agree cryptocurrency seems a little too stupid and new. I don't see the entire economy panicking; I more imagine most bankers chuckling.

    Maybe the next dip is an old fashioned one where inflation goes up and the central banks raise rates and we end up with a recession and a bear market? Kind of boring
    , @Yak-15
    Cryptocurrencies will replace the dollar system. Bet against me if you believe I am wrong.
    , @jackmcg
    Yes, cryptocurrencies are in an isolated compartment. Nothing else fails downstream if they crash.

    Case in point, they are currently crashing about 20% over the past day, and everything else is humming along without a ripple.
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  23. glosoli says:
    @Audacious Epigone
    Student loans. On paper, there is ~$1.4 trillion in outstanding student loans out there. Most cannot be paid back because the people who've taken the loans out lack the earning power to ever make good on them.

    The Fed will buy the debts if need be.
    It’s the dollar that will collapse, not debts. Banks will be kept whole nominally, as will the system, until the dollar is worthless.
    If you owed c. $60 tr (including unfounded liabilities) hyperinflation is the perfect get-out.
    The great irony is that the FedGov will blame the Federal Reserve. Not their fault.

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  24. Well the bull market in bonds has gone on since 1981 with only minor interruptions, so that.

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  25. So long as the central banks are buying equities there would seem to be little likelihood of any major plunge in stocks, regardless of valuations.

    For example, the Swiss National Bank now holds $87 Billion of US equities, purchased in exchange for the dollars and euros it acquires by creating Swiss francs and purchasing those currencies to hold down the exchange rate and prevent the depressing effects of a skyrocketing franc.

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    • Replies: @Miro23

    For example, the Swiss National Bank now holds $87 Billion of US equities, purchased in exchange for the dollars and euros it acquires by creating Swiss francs and purchasing those currencies to hold down the exchange rate and prevent the depressing effects of a skyrocketing franc.
     
    The point here is that we now live in a globalized world (as late as 1950 most products were bought and produced in the same country).

    The global rule is that every vendor has their product priced in US Dollars (the global reserve currency ) = They get paid in $ US, and THEY CAN'T EXCHANGE THEM FOR YUAN, YEN OR SWISS FRANCS. If they did, their rising currencies would price their products out of the game.

    Result, that they're OBLIGED to buy $ US in some form or other - Bonds, stocks etc.

    This keeps the $ up and allows the FED to run the printing press to pay for $ Trillion ME wars and inflate Wall St bubbles without risking inflation, and they also carefully keep interest rates more or less at zero so that the Chinese get no return on their obligatory $ "investments".

    How will it end?

    With the end of the immense global flow of goods and capital i.e. with a World War.

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  26. “…what might cause the next economic collapse the way that mortgages set off the last one.”

    Did they really? I’m genuinely economically illiterate. I know in the last economic crash, lots of bad mortgages were made for political (rather than economic) reasons. But is it accurate to say ‘mortgages set off the last one”? Is the cause/effect really bad mortgages/economic crash?

    My common sense (i.e. economically illiterate) observation would be: bad mortgages were made. At some point, something happened, and lots of people with bad mortgages couldn’t make their payments any more, so they defaulted, and an economic collapse occurred.

    But in this description, the cause/effect is ‘something happened’/’mortgage payments weren’t made and economic collapse occurred’. In other words, the failure to make mortgage payments was not the cause of the collapse: it was the initial effect of the collapse. The cause was ‘something happened’ (what was that ‘something’?). If that ‘something’ hadn’t occurred, would the bad mortgages continue to be paid?

    joe

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    • Replies: @Muse
    The 2008 recession was triggered by a price shock in the crude oil markets in 2007. People could no longer pay their transportation costs AND their mortgage. This created a vast aggregate debt that could no longer be paid. All the other dominoes then fell.

    http://www.macrotrends.net/1369/crude-oil-price-history-chart

    I remember driving on the newly rebuilt Dan Ryan in Chicago and the road was busy immediately after work, then it emptied out. People were running errands on the way home to save from having to make extra trips.

    The next shock will be from a large state government going belly up. Illinois is a good candidate. Somebody will file against a state government in US bankruptcy court. The court will initially reject this claim in the name of state sovereignty. The state will raise taxes so high it collapses and destroys its economy overnight, or the US Supreme Court will rule the state can go through bankruptcy, and then all the wealth of the bond holders will be destroyed and the public pension holders will lose their income like in Detroit. This will cause a huge drop in demand and real estate values, and down goes the heavily leveraged economy, which lacks resilience due to high debt ratios. This crash might be avoided if the government, the Fed and the banksters get together a la Lehman/AIG and bail out the state’s debt.

    , @Neil Templeton
    Think of the economy as a structure, say, a pyramid, built on transactions, each representing a bit of added value. The added value is the value that participants obtain from entering transactions. But then someone discovers that a significant portion of the added value is fictional, that promises underlying some of the transactions are "wood" (i.e. no good - from wooden nickels of yore). The consequence is that the foundation of the structure is corrupted, and scads of participants or "traders" are leery of entering into current transactions because they can't trust the value of the offers presented. Fundamentally it's a recognition problem and erosion of trust plays hell with it. It takes a while to unwind and get things going again, more so if society is a recreation of Babel, Sodom and Gomorrah rolled into one, with exciting new features added for the customer's convenience.
    , @notanon

    The cause was ‘something happened’ (what was that ‘something’?).
     
    The key element that has never been properly explained to people is the banks weren't making money off the mortgages. The banks were using mortgages as collateral for loans to gamble with on the various exchanges - a 100K mortgage used as collateral and hypothecated through London could be turned into up to 10 million in gambling money.

    So the banks went into one of their cyclical greed frenzies and over leveraged themselves.

    You don't need a "something happened" to cause a collapse in an over leveraging greed frenzy as risk increases in proportion to the leveraging and eventually it reaches a point where *any* event *might* cause a collapse so people start to head for the exits to make sure they don't get burned - so the something that happened was the *risk* of something happening got too high.

    https://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers
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  27. Technological advances have meant we have a rising productive capacity, but the distribution system is completely screwed up, and as a result, wealth is accumulating at the top at a faster and faster rate. To maintain consumption, this wealth at the top is translated in to debt for the middle and lower classes.

    As the debt mountain rises, the system becomes more fragile. Every time the system attempts to correct the debt (the 2008 crisis the biggest recent example) it is met with massive central bank intervention. Result: even more concentration of wealth and even bigger debt.

    Concentration of wealth at major urban centers world-wide is also indirectly causing extensive migration, as economic decision making gets more and more concentrated. If you are born in a small town, you are out of luck because all the capital allocating decisions are made far from you, and to get a job that pays you decently, you have to be where the action is. Result: migration, both within countries and between countries, away from smaller towns towards bigger metro areas. The migrants find jobs, but they realize they cannot get ahead because cost of living (particularly housing) is eating up most of their income. Cost of living also affects the natives. Result: widespread sense of malaise.

    People realize the system isn’t working for them, but they cannot quite put a finger on the pulse.

    There is a delusion within the elite that we can keep this up indefinitely, but the elephant in the room is that rising social conflict world-wide. That is manifesting itself in the political realm.

    The next crash will arise from political developments. Immigration related legislation, leading to trade frictions and may be a trade war is a possibility.

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  28. Anon • Disclaimer says:

    As a long time doom and gloomer, Ron Paul, James Grant, Peter Schiff, this one is the ‘everything bubble’ based on the Feds manipulation of interest rates. Either they reset to proper market levels of the cost of money and a deflationary collapse occurs or, more likely, we go to QE infinity and the dollar depreciates.

    In short, buy gold/ silver in a 2/3, 1/3 ratio…just not over the last 6 years…

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    • Replies: @ben tillman

    In short, buy gold/ silver in a 2/3, 1/3 ratio…just not over the last 6 years…
     
    Do you mean a 2:1 ratio?
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  29. What pin will pop the bubble? The 64 trillion dollar question. It seems (to me…) to be a sort of virtual bubble, so it follows that the pin (pins?) will be virtual as well. Even manufactured and propelled, so to speak.

    Comment on the mortgage fraud which was a large component of the beginning of the mess we noticed 10 years ago: In several states with expensive homes and long, tedious foreclosure processes and lots of upper middle class professionals, the “mortgage crisis” has never really been dealt with. Somehow (see New York, New Jersey, Massachusetts, Maryland) a frighteningly large number of home loans are in default, and have been for a long, long time. No real effort to foreclose is evident. It is as if the lenders (or the people who own the paper issued by the lenders) are allowing defaults to go on for years and years with no real attempt to foreclose. They carry the losses hoping that cheap Fed fiat, friendly courts, and cooperative borrowers will unite to avoid the inevitable trillins in official write-offs. Thus a truly huge number of people (upper middle class people…) are living essentially rent free hoping to make a deal when the market ‘value” of the home crawls back to a point where they can get out from under debt in an effective short sale.

    Others with more knowledge make the case more convincingly than I can, but the bottom line is a residential (and maybe commercial as well) real estate market that essentially died some time ago, and has been n life support ever since. It never “recovered” at all, it has just been kept moving around as a made-up, nicely preserved corpse. Not every one of the many real estate markets in this nation, but a large number of expensive markets.

    If this is true (and I am pretty sure it is), then there will be Hell to pay sooner or later. Some kind of storm is coming. The longer it builds, the harder and longer it will blow when it finally comes ashore.

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  30. anon • Disclaimer says:
    @Audacious Epigone
    Student loans. On paper, there is ~$1.4 trillion in outstanding student loans out there. Most cannot be paid back because the people who've taken the loans out lack the earning power to ever make good on them.

    Student loans are a perfect example of how usury inevitably corrupts everything

    1) the profit from student loans creates an incentive to turn education into an accreditation scam

    2) turning education into an accreditation scam leads to an over supply of degrees lowering their market value below the level needed to repay the loans

    Usury is parasitic which results in the evolution of cultural controls on usury which is why the banking mafia always need to corrupt the political system. When they succeed in fully corrupting the political system the nation/civilization is doomed.

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    • Replies: @TomSchmidt
    Um, wow. There's a reason usurers are way down low in Dante's Inferno. Well stated.
    , @Neuday
    During much of the history of Christendom, usury was considered a sin. If you needed to borrow money to, say, finance a war, a seigneur would borrow from (((people not Christian))), who would charge interest. Often, over time, (((those people))) would become rather wealthy and had power over those indebted to them, and (((those people))) would then grow unpopular and dangerous, leading to (((them))) being kicked out of the country. If only there was a way to corrupt Christendom and short-circuit this cycle . . .
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  31. @Art Deco
    You'll see a recession derived from the usual forces which generate recessions. If you're looking for a crash, we had one in 1840, 1873, 1929, and 2008. They're not that frequent and we'll all likely be dead before the next one.


    One thing that makes me anxious is the escalating tendency toward holding sovereign and household debt.

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008

    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

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    • Replies: @AndrewR
    Lol. The Supreme Court could be replaced in a few months tops. Replacing congress would be a bit harder but they take plenty of time off as it is so a few month pause in legislation wouldn't be too disruptive. Hell, how many new laws do we even need?
    , @reiner Tor

    Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?
     
    But would it not cause improvements..?
    , @Alden
    Wipe out the Supreme Court? Hmmmmm
    , @guest
    "Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court"

    We'd get new ones. Six of one, half a dozen of the other.
    , @another fred
    A crash, or financial panic, as was historically understood, was preceded by malinvestment and would wipe clear balance sheets through a process of bankruptcies. By this definition the "crash" of 2008 was not a crash as the government(s) stepped in and kept the cascade of bankruptcies from occurring. Malinvestments still abound, kept afloat by liquidity flowing from Central Banks.

    We are not in Kansas anymore, Toto, but in a new world where sovereign governments have taken on the burden of preventing a normal process of bankruptcies clearing malinvestment. The only thing that can trigger a true crash is loss of confidence that the government can continue in this role. Right now the major Central Banks are all cooperating to keep this from happening.

    Supposedly the Fed is trying to "take the training wheels off" and remove its support of the "market" (actually maintaining malinvestment). If the Central Banks persist we will see a pretty good perturbation in the market fairly soon that some may call a crash (probably within a year or so), but as long as "investors" believe the government can, and will, step in we will not have a true crash that wipes bad debts off the books.

    In the past spontaneous crashes preceded wars in a somewhat orderly fashion (as per Kondratieff). This time, I predict the crash will be preceded by a breakdown in international cooperation, after which the crash and wars will be unavoidable.

    China has trouble in its future as does the EU. Oil is a wild card. When the troubles get so bad that cooperation breaks down is anybody's guess, but I think this guy has the best guess (2030 to 2060).

    https://www.ted.com/talks/didier_sornette_how_we_can_predict_the_next_financial_crisis
    , @another fred
    My previous comment started out as a reply to you, but I got sidetracked and made it more general, forgetting it had a reply to you in the tag.

    The "Toto" was not meant as a demeaning remark towards you, but as a general use for humor (probably failed).

    My apologies.
    , @Alden
    California earthquakes always create a construction boom that benefits all other sectors

    The 1994 earthquake plus whatever Clinton did caused a boom that lasted right up to 2008. Construction people pray for earth quakes.

    But our government betrayed us with the Oakland Bridge. It was made in China and put together here. It’s beautiful though.

    The Napa and Thomas fires have already set off a construction boom.
    , @The Man From K Street

     A major earthquake in California
     
    Bingo. California is of course a one party-state at this point, but the whispers have been that the huge meztiso underclass is patiently waiting for the Big One to go on the Mother of All Looting Rampages.

    Once even Beverly Hills and Malibu become Hobbesian free-for-alls, California's upper (and remaining) middle class will pendulum swing back to law-and-order so fast you'd think it was Germany in the early 30s.
    , @BB753
    "Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?"

    That would be great right now with Trump in the White House. No downsides.
    , @27 year old

    Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?
     
    Why would that have been worse?
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  32. TG says:

    My prediction is that the next economic collapse will come because of forced too-rapid population growth. Demographics is the queen of economics, but it gets almost no press – precisely because it is so important! The rich want uncontested control of population growth rates, so they discourage any such talk.

    The thing about demographics, is that it is powerful but slow and stealthy. In any given day or week or year, there are any number of other factors that are more important. But as the years turn into decades, the pressure grows, and sooner or later, fast or slow, things decay.

    It’s kind of like old age – nobody dies of old age. But as a person ages, they become more susceptible to other problems. You can never say in advance when someone will die as they age, but it is inevitable. So with too-rapid population growth. It puts the economy on a treadmill that keeps getting steeper and faster, where we have to work harder and harder, with more and more technological fixes, and stripping more and more out of the environment, until some day we just can’t keep up. But instead of a collapse, it is at least as likely that we will have a slow decline.

    http://globuspallidusxi.blogspot.com/2014/03/finance-is-not-omnipotennt.html

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  33. Erik L says:
    @Art Deco
    You'll see a recession derived from the usual forces which generate recessions. If you're looking for a crash, we had one in 1840, 1873, 1929, and 2008. They're not that frequent and we'll all likely be dead before the next one.


    One thing that makes me anxious is the escalating tendency toward holding sovereign and household debt.

    Does 2001 tech bubble crash not count ?

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  34. Erik L says:
    @Anatoly Karlin
    Yay the site is back.

    Cryptocurrencies don't seem a likely candidate. Their total market cap is around $700 billion USD (and I personally expect it to be considerably less in a year's time). In contrast, the total housing value lost during the housing crisis in just the US was around $7 trillion.

    I will worry when they increase by another order of magnitude and banks start packaging them into derivatives.

    Student loans seem to be the most credible danger point, though at a total value of $1 trillion, I am again unsure if there is a sufficient quantity there to trigger large collapses.

    Venezuela will probably finally default this year but I think pretty much everyone has written them off by now anyway.

    The PIGS problems have gone nowhere, but have just been shoved under the carpet. Growth remains weak, debt has been stabilized but is very high.

    A speculative frenzy, even an incremental one like $700 billion could set things off if there is other instability waiting to be triggered. But I agree cryptocurrency seems a little too stupid and new. I don’t see the entire economy panicking; I more imagine most bankers chuckling.

    Maybe the next dip is an old fashioned one where inflation goes up and the central banks raise rates and we end up with a recession and a bear market? Kind of boring

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  35. AndrewR says:

    Christ, Sailer. With allies like you, who needs enemies?

    Saying “there was too much lending to Hispanics” is highly ignorant and certain to needlessly alienate many people.

    The more accurate, and more diplomatic, way to phrase it would be “lenders lent too much money to high-risk borrowers, a disproportionately high number of whom were Hispanic.”

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    • Replies: @Pericles
    I believe the acceptable term is 'Borrowers of Color'.
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  36. notanon says:
    @Art Deco
    You'll see a recession derived from the usual forces which generate recessions. If you're looking for a crash, we had one in 1840, 1873, 1929, and 2008. They're not that frequent and we'll all likely be dead before the next one.


    One thing that makes me anxious is the escalating tendency toward holding sovereign and household debt.

    You’ll see a recession derived from the usual forces which generate recessions.

    yes – usury

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  37. @Jack D
    "Cosmetology" and many other "professional" licensing schemes are just scams set up to artificially restrict supply. Do you really need a 1,000 hour course in order to learn to shampoo someone's hair?

    (BTW, black people, especially women, require a LOT of hair care - did you see Oprah's hair the other day at her speech?

    https://cdn.newsday.com/polopoly_fs/1.16153881.1515883324!/httpImage/image.jpeg_gen/derivatives/landscape_768/image.jpeg

    It didn't resemble African hair in the slightest and in order to get African hair to resemble European/Asian hair you need to do a LOT of work and use lots of chemicals).

    As you say, the "rents" from this artificial restriction don't end up in the pockets of the individual hairdressers (just as the rent from the NY Taxi medallion scheme did not end up in the pockets of the cab drivers) but adhere to the salon owners and the people who operate the required schools.

    It would not require much hairdressing skill to put that wig on Oprah’s head,

    There certainly are things that hairdressers need to know about, like recognizing infections conditions, parasite infestations, etc. Also managing chemicals, and stuff like doing hot Brazilian wax treatments on the pubic area, which could be a pain in the ass if they went wrong.

    However, it should be possible to do the training on the job, like employees in food service or preschools have to do, and specialist areas like mixing dyes and color treatments could be covered by add-on course in continuing education if needed.

    Straightening black women’s hair does indeed require use of chemicals, but on the other hand millions of women are able to do this themselves at home, with variable result, so the theoretical part cannot be that onerous. It is not as if hair straightening chemicals are available on prescription only.

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    • Replies: @Anonymous
    In the trade, the 'male equivalent' of the 'Brazilian wax', as often sported by gays, is known as 'Brazil nuts'.
    , @Gutenberg

    it should be possible to do the training on the job
     
    That's the key right there, a new form of the apprentice system. At-Will Employment is absurd and a new relationship between employers and workers would allow training to happen where it makes the most sense - on the job next to masters of the craft.
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  38. sabril says:

    Seems to me that to get a real bubble going, you need something that captures the popular imagination (a “tale”) combined with the ability to invest like a pig. I can see cryptocurrencies getting popular in some subcultures, but it’s hard to see most ordinary people or investment managers getting too excited about them.

    Education loans are of course very popular, but there’s no way to attend 3 or 4 schools simultaneously. During the last real estate bubble, it was common for people to own multiple houses at the same time.

    So the obvious possibilities are real estate and tech. I would give the edge to tech — with tech it’s easier to believe that This Time It’s Different.

    So I’ll predict a big tech bubble will develop in the next 10 years. The most likely Tale I can think of is AI. If you are fortunate enough to invest in the first company to develop strong AI, you will get filthy rich. So the obvious strategy is to invest in every company you can that’s working on AI. Which could easily lead to a lot of ridiculous things.

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  39. I few guesses:

    1. A war. The neocons have never cared about a collapsing economy as a side effect of their war aims. On the contrary, higher unemployment produces more cannon fodder, especially among the deplorables (i.e. the “poverty draft”).

    2. The aging baby boomers. The first wave of them is already hitting mandatory withdrawal on 401ks, although the reason we aren’t yet seeing an impact is that a lot of the older boomers still get pensions. As those born in the 50’s start to hit full social security reitinent age in the next few years, we’re going to see a lot of shifting out of the stock market and into money markets, especially if interest rates keep rising. There’s no way the Xers and Millenials alone will be able to sustain the stock market at its current levels.

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    • Replies: @Anon
    The only thing I can think of that might stop a market fall is that as baby boomers die off, their children will inherit their stocks. Younger folk will have a lot of debt to discharge, but by the time their parents die, they'll need to start saving and investing for their own retirement and accumulating money to pay for the college of their own kids. Hopefully, a lot of millenials will wise up about their massive student debt and insist on their kids attending cheaper schools.
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  40. AndrewR says:
    @Jack D
    "Cosmetology" and many other "professional" licensing schemes are just scams set up to artificially restrict supply. Do you really need a 1,000 hour course in order to learn to shampoo someone's hair?

    (BTW, black people, especially women, require a LOT of hair care - did you see Oprah's hair the other day at her speech?

    https://cdn.newsday.com/polopoly_fs/1.16153881.1515883324!/httpImage/image.jpeg_gen/derivatives/landscape_768/image.jpeg

    It didn't resemble African hair in the slightest and in order to get African hair to resemble European/Asian hair you need to do a LOT of work and use lots of chemicals).

    As you say, the "rents" from this artificial restriction don't end up in the pockets of the individual hairdressers (just as the rent from the NY Taxi medallion scheme did not end up in the pockets of the cab drivers) but adhere to the salon owners and the people who operate the required schools.

    What does non-African, non-Asian, non-European hair look like?

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    • Replies: @Autochthon
    That of Australian aboriginals, Amerindians, and the troglodytes living beneath the icy sheets of Antarctica, of course.

    Yes, the use of continents is a bit muddled, but it's obvious he uses them to stand in for the three major races of men and their the corresponding circular, oval, and flat follicles of their hair. Amerindians of course have essentially the same hair as Orientals and Australians the same as African Negroes).

    Don't be an obstreperous jackass pretending never to have learned the stuff taught in an elementary school's health or biology classes.
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  41. AndrewR says:
    @Jonathan Mason

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008
     
    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    https://www.youtube.com/watch?v=NMq7A17kLgs

    Lol. The Supreme Court could be replaced in a few months tops. Replacing congress would be a bit harder but they take plenty of time off as it is so a few month pause in legislation wouldn’t be too disruptive. Hell, how many new laws do we even need?

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  42. @Jack D
    In addition to a new mortgage bubble and a student loan bubble, we have a big auto loan bubble. There's a whole industry built around selling cars to people with bad credit. Rapid advances in electric and self-driving technology will make the existing vehicle fleet less valuable than the estimates on which the loans/leases were based putting even more auto loans under water, especially since one of the tricks they have been using is to make car loans for longer and longer periods.

    Auto manufacturers have already been building too many new car factories and at the next downturn these will sit idle and all the workers laid off. The auto industry underpins a large share of the economy (half the ads on TV seem to be auto dealer ads - the other half are ads for totally non-productive sectors - drugs, hospitals and malpractice/auto accident lawyers) so an auto industry crash has widespread effects.

    Fiat/Chrysler, the sick man of the US auto industry since the '70s, won't survive the next downturn and probably will get sold to the Chinese. They don't have the capital to make the transition to new technology.

    Millions of truck/bus/cab drivers will lose their jobs. The current model, where you buy a car and it sits in your driveway or the parking lot of your workplace 23 hours/day, is going to go by the wayside and there is going to be a permanent reduction in the # of vehicles needed.

    Fiat does not have the technology?

    https://www.forbes.com/sites/kbrauer/2017/05/26/fiat-500e-can-you-really-drive-a-brand-new-car-for-a-total-cost-of-120-a-month-yes-you-can/

    If the current bull market lasts until electric vehicle technology makes an impact on employment, that will be a pretty good result.

    The question everyone would like to know is–if you could invest in one company now that will benefit from new vehicle technologies and hold it for 20 years, what would it be?

    Of course nobody knows. Tesla may well crash and burn and could trigger a stock market correction within the next year or two. I might stake a small amount on Nio.

    https://www.nio.io/

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    • Replies: @Jack D
    How does Fiat sell you an electric car for only $120/month? By losing $14,000 on each one (and then having the taxpayers chip in even more). Doesn't sound like a great business model to me.
    , @Anonymous

    The question everyone would like to know is–if you could invest in one company now that will benefit from new vehicle technologies and hold it for 20 years, what would it be?
     
    Just invest in a broad portfolio of Li mining and battery manufacturing and you don't need to know the answer to this question. As it stands, nothing can replace Li within 20 years.
    , @Anonymous
    From that Forbes article:

    Remember, there's essentially no maintenance required on an electric car
     
    No engine and transmission fluids, and no sparks to change. The rest of the maintenance is the same. There is even a coolant (except that instead of cooling engine it cools the battery).
    , @Scott Locklin

    The question everyone would like to know is–if you could invest in one company now that will benefit from new vehicle technologies and hold it for 20 years, what would it be?
     
    Caterpillar tractor. Most of the "new vehicle technologies" are illusory.
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  43. LondonBob says:

    Corporate debt, too many junk bonds out there. Not any time soon, the global economy is on an upswing after the damage of the last crash has finally been patched up, but the rise in interest rates will eventually trigger a popping.

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  44. Luke Lea says:

    Bitcoin is technologically esoteric to all but the nerdiest, but once you get a guided tour by somebody who knows it doesn’t look so brilliant after all: https://goo.gl/Szkz74

    As Lubos Motl argues, bitcoin is guaranteed to crash and the only questions are how big will it get — as big as the Mississippi Bubble on a global scale? — before it happens?

    Personally I think China is the weakest link in the global economy: it is impossible to have an efficient allocation of capital in a large, complex society like China when all the major financial institutions are owned by the State, the State is owned by the Party, the Party is owned by the Central Committee, and the Central Committee is owned by Mao II (Xi). I expect a tragedy along the lines of the Great Leap Forward which will be triggered when the Chinese people wake up to discover that their life savings have been squandered on State-sponsored boondoggles, leaving them with little or nothing to depend on in old age. There will be a run on the banks, inflation, unemployment, and the Chinese government will be forced to start drawing down its foreign currency reserves; which, in turn, will cause world interest rates to suddenly increase—with predictable consequences for the US economy, including the ability of the federal government to continue financing its $20 trillion deficit. At least the problem of the zero lower bound will go away.

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    • Replies: @Anonymous
    For the past 20 years, at the very least, I have heard no end of 'experts' excitedly and expectantly predicting the Chinese economy's imminent 'crash'.

    It never happened, although the USA, the EU and the UK *did* crash in the meantime, which strangely none of the 'experts' did predict.
    , @Jim Don Bob
    Well said. One of the reasons the Fed has been keeping interest rates so low -is- the $20 trillion federal debt, which was just $600 billion under Nixon. We will be paying $1 trillion a year in interest on this debt if rates go to 5%.

    One of the most damaging long term effects of 8 years of Obama was a doubling of the federal debt. Of course, the Rs did little to rein him in.
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  45. eah says:

    Feds Collect Record Income Taxes Through December; Still Run $225 Billion Deficit

    EUR back up to $1.22 — only US military hegemony holds the Ponzi together.

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  46. I think the premise of the post is somewhat in error. The question is which of these large amounts of debt being accumlated or mal-investments are going to cause some next recession or just business downturn? Is that it?

    Let me tell you all, the whole premise that things will keep going on normally economically, with an occasionaly 5-year speed bump, is just wrong. The economy is NOT good now. I don’t care what the DJI is, that is just where the money has to go to keep old ladies’ savings and peoples pension funds looking OK. There’s no fundamental worth anyore that the DOW index and other represent. People and institutions are putting money there, as the FED has kept interest rate down to unnatural* levels for about a full decade now! The idea is that it will keep going up, so they can sell higher and the fund can make it’s 8% goal or whatever.

    The FED is in a pickle now with the rates for 2 reasons:

    1) Letting interest rates rise to natural levels will crash the DOW, as people will be able to invest money in other way or other places.

    2) The amount of interest paid yearly on the 20 Trillion of US Feral gov’t debt is already significant, 6% or so or the 4 Trillion budget Imagine it going up 4 or 5 times, an new Treasury bond (the way the gov’t borrows) rates go to 5, 8, 10 %. 10% of the 20 (sorry, maybe 22 now) Trillion bucks gives 2 Trillion, which is 1/2 of the entire yearly budget.

    It’s not one of these small bubbles speculated by Mr. Sailer that will just set us back a while, like the S&L deal in the 1980′s when the economy was a whole lot stronger. It’s one big bubble, people, and the end of it is will be the ruination of the US dollar, whether via default or hyperinflation.

    Start prepping, bitchez! (sorry, the ZeroHedge in me comes out sometimes)
    .

    * The natural level is NOT supposed to be equal to the inflation rate, as some would have people think. Interest rates will NATURALLY represent the time value of money – say, how much it is worth to me to have $100,000 now and be able to give it back in 1 year. $5,000, you say? Then the price of money for me is 5% yearly. Then the inflation rate should be taken into account, added in, as otherwise the lender will not get his true price for his money. There is not earthy reason for the Federal Reserve Bank, except for the big banksters who wnat to get filthy rich.

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  47. eD says:

    On the hairdresser courses, Jack D beat me to it, but my understanding is that many if not all states make being a hairdresser illegal (no license) unless you pay to take one of these courses.

    So if you want to be a hairdresser, one option to pay money for one of these courses, get the license, and hope to get a job with a hairdresser, though in all likelihood your income from any hairdresser job you manage to get will wind up being less than the costs, stated and unstated, of attending the course. The other option is to not be a hairdresser at all. The third is to be a hairdresser, but illegally, and risk jail and fines.

    The whole system is set up so that the cost of the course at the median just about equals anything you make at the median from being a hairdresser. Anyway, taking one of these courses in itself doesn’t mean you are an idiot, since the other options are either to abandon the field or go the black market route.

    We don’t see a big black market in unlicensed hair dressers because there isn’t enough demand, increased surveillance means you only get black markets in areas where the government wants to have a black market ,and the huge black market in labor based around illegal immigration.

    These comments apply to secondary education in general. Its right now set up that for the median person, the costs of going to college and the costs of being frozen out of the labor force entirely are close to even. The bubble will collapse sometimes after a point where sitting at home, watching TV, and risking starvation is a better option than the student loan- college -make work job thing. But TPTB will work hard to keep things from getting to that point.

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  48. Anonymous • Disclaimer says:

    If I knew the answer to that question, then I would be living in some tropical island paradise or the other, rather than braving a rather uninspiring grey/dull endless winter.

    But seriously, if you want an economic crisis, just look at the eurozone, in particular Italy. The Italian economy hasn’t grown *at all* in the past 20 years, in fact out of the world’s 200-odd nations it is the *very worst* or perhaps second worse performer over the past twenty years. Worse than North Korea, Venezuela, Upper Volta etc – in terms of lack of growth – the only metric, that in the final analysis, actually matters.
    Incidentally, 20 years ago was precisely when all that euro currency nonsense started.

    - And the remain crew in the UK, and The Economist whinge, belly-ache, plot, scheme and scam daily to keep the UK in the EU, and lie, lie and lie about how ‘great’ the EU is ‘for the economy’.

    Why the long suffering Italian people put up with this shit, I do not know. Perhaps it’s a vestige of the national inferiority complex, the idea being that foreigners can run Italy better than the Italians. Anyhow, even the Italians are starting to realise that the EU is a great big steaming pile of poo.

    Surely, Italy will ‘blow-up’ at some future time. But I doubt that the virus will travel to the USA.

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  49. @Simon in London
    Student loan debt peonage seems like a safe investment since it's fully backed by government violence. It would cause a collapse if the government wrote off the debts without compensation to the slaveholders... I mean the loan companies.

    I mean the loan companies.

    It’s actually the federal government itself that holds the vast majority of student loan debt, not private companies. The government is on the hook for well over a trillion dollars worth.

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    • Replies: @Flip
    Right. The Fedgov switched from being a guarantor to a direct lender in 2010.
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  50. Anon • Disclaimer says:

    The next big crash may not be one in the US. Crytocurrencies are attractive to foreigners who live in countries with weak economies and who have few ways to accumulate wealth, but who would love to live the way we do in the US.

    There are plenty of idiots putting their life savings and retirement in cryptos who can lose them whenever cryptos plunge, which happens from time to time. This isn’t a problem if you bought cryptos at 10 cents, but if you buy them at 20K and they plunge, you have a big problem. A lot of third worlders have poor investing skills and a short time horizon, and they can easily get caught up in Ponzi-type investing schemes. The problem with our modern investing environment with its long reach is that is gives the world’s poor new ways to become even more poor, especially now that every buffalo herder with a cell phone wants to keep up with the Joneses.

    Countries with strong economies that are made up of people with good investing skills stay that way. Countries with weak economies made up of people with poor investing skills will stay that way. My predictions are that investments which US minorities favor will be where the next big crash comes.

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  51. Anonymous • Disclaimer says:
    @Jonathan Mason
    It would not require much hairdressing skill to put that wig on Oprah's head,

    There certainly are things that hairdressers need to know about, like recognizing infections conditions, parasite infestations, etc. Also managing chemicals, and stuff like doing hot Brazilian wax treatments on the pubic area, which could be a pain in the ass if they went wrong.

    However, it should be possible to do the training on the job, like employees in food service or preschools have to do, and specialist areas like mixing dyes and color treatments could be covered by add-on course in continuing education if needed.

    Straightening black women's hair does indeed require use of chemicals, but on the other hand millions of women are able to do this themselves at home, with variable result, so the theoretical part cannot be that onerous. It is not as if hair straightening chemicals are available on prescription only.

    In the trade, the ‘male equivalent’ of the ‘Brazilian wax’, as often sported by gays, is known as ‘Brazil nuts’.

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    • Replies: @Jim Don Bob

    In the trade, the ‘male equivalent’ of the ‘Brazilian wax’, as often sported by gays, is known as ‘Brazil nuts’.
     
    I will refrain from asking you how you know this ...
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  52. Pat Boyle says:
    @Audacious Epigone
    Student loans. On paper, there is ~$1.4 trillion in outstanding student loans out there. Most cannot be paid back because the people who've taken the loans out lack the earning power to ever make good on them.

    Student debt is not very rational. When I took the GREs I sent my scores with applications to various graduate schools. I had good scores. So I got recruited and offered stuff. The Dean of some school at the University of Massachusetts called me one evening at home in California. He not only wanted me to come to his school at their expense, he said he would get my wife a job. He seemed real eager.

    I eventually went to George Washington in Washington DC but again I was recruited and offered a full academic scholarship in another department. They gave me a TA job (teaching calculus and computer operations). I competed for and won a Mellon fellowship and two internships. I made what was for me then more money than I ever had before.

    I think if you are a good student and have good scores money will flow toward you. But if you are a marginal student you will have to go into debt. A student loan is a kind of assertion that you are a better prospect than you appear to be. You are investing in yourself when the objective evidence is that you are a bad investment. The self deluded always suffer.

    Being black in America is the very definition of self delusion.

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    • Replies: @Jack D
    This may be true at the grad school level (and even then it depends on the field) but undergraduates don't get fellowships. Even for grad students with fellowships, universities get away with paying people far less than they would be making in private industry (in exchange for "free" tuition) while meanwhile treating them like dirt. Maybe you were happy with your setup but a lot of grad students are miserable.
    , @L Woods
    Another first rate boomerpost. Gee, things sure were easy for me half a century ago before my generation broke the country -- what's wrong with kids these days! Get off my lawn!
    , @Anonymous
    There's a lot more money in some fields than in others. This is just as true in various divisions of the educational enterprise.

    Therefore good prospects in some fields are showered with aid and benefits while equally good prospects in others are self-financing by one method or another.

    While it may be true that this provides evidence about future earning potential in a given field, many people forget that money is not the principal purpose in life for everyone. Moreover you in particular tend to extrapolate from your own personal situation a bit too readily.
    , @Charles Erwin Wilson II

    Being black in America is the very definition of self delusion.
     
    Hmm. Are you black?
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  53. eD says:

    On Steve’s wider question, the big issue is that the world economy is still dealing with a huge population bubble and the resource crunch that always results from that. But the baby boomers in charge are working hard and quite good at making everything seem to be pretty much OK, with some hiccups like 2008. No this won’t go on for ever, but I expect that things will continue to seem pretty much OK until these people start passing from the scene, so probably the 2020s to as late as the 2040s.

    Large parts of Puerto Rico have been in a dommerish, post-crash situation (no electricity, difficulty to get clean water) for months and while people can come up with a gazillion reasons to explain that away, one prospect is that we start getting a situation like this happening in different parts of the country every couple of years. Each time it will be ignored or explained away until it just becomes normal in most of the country to not have electricity, except for maybe a couple of hours a day. But there is always a chance of some miscalculation being made and everything going wrong at once in some spectacular way.

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    • Replies: @Art Deco
    On Steve’s wider question, the big issue is that the world economy is still dealing with a huge population bubble and the resource crunch that always results from that.

    We're not suffering from a population bubble or from a resource crunch.
    , @advancedatheist
    >it just becomes normal in most of the country to not have electricity, except for maybe a couple of hours a day.

    Which sounds like the Olduvai Thesis about the permanent collapse of industrial civilization:

    https://en.wikipedia.org/wiki/Olduvai_theory
    , @Anon
    Modern society and technology have spread about as far as they possibly can at this point. If Africa becomes more modern, it will be because the Chinese brought it in with them. But look at a country like India, and you're seeing the limit. The Indian elite know they cannot improve the lot of 400 million poor Indians. The number and the needs are simply so overwhelming that the Indian middle and upper classes cannot dig them out.

    However, if another massive plague hits the planet, it may do the work for us.
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  54. Student loans are the likely first domino here, not just because of how much of financial footprint they’ve carved out but how important higher ed is as a cash funnel around the country. That loan money isn’t highly concentrated – that stuff is the lifeblood of communities around the country.

    The next one that no one has mentioned yet is the the healthcare bubble. Another long-term boom that, like higher ed, is highly dependent on consumers being partially insulated from the rising costs. That’s another sector that is bringing cash to communities around the country.

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    • Replies: @Art Deco
    Student loans are the likely first domino here, not just because of how much of financial footprint they’ve carved out but how important higher ed is as a cash funnel around the country. That loan money isn’t highly concentrated – that stuff is the lifeblood of communities around the country.

    Consumer debt (of which student debt is a component) is dwarfed in size by mortgages. That aside, higher education expenditures sun to about 2% of gross output.
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  55. Flip says:
    @Harry Baldwin
    I mean the loan companies.

    It's actually the federal government itself that holds the vast majority of student loan debt, not private companies. The government is on the hook for well over a trillion dollars worth.

    Right. The Fedgov switched from being a guarantor to a direct lender in 2010.

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  56. Anonymous • Disclaimer says:
    @Luke Lea
    Bitcoin is technologically esoteric to all but the nerdiest, but once you get a guided tour by somebody who knows it doesn't look so brilliant after all: https://goo.gl/Szkz74

    As Lubos Motl argues, bitcoin is guaranteed to crash and the only questions are how big will it get — as big as the Mississippi Bubble on a global scale? — before it happens?

    Personally I think China is the weakest link in the global economy: it is impossible to have an efficient allocation of capital in a large, complex society like China when all the major financial institutions are owned by the State, the State is owned by the Party, the Party is owned by the Central Committee, and the Central Committee is owned by Mao II (Xi). I expect a tragedy along the lines of the Great Leap Forward which will be triggered when the Chinese people wake up to discover that their life savings have been squandered on State-sponsored boondoggles, leaving them with little or nothing to depend on in old age. There will be a run on the banks, inflation, unemployment, and the Chinese government will be forced to start drawing down its foreign currency reserves; which, in turn, will cause world interest rates to suddenly increase—with predictable consequences for the US economy, including the ability of the federal government to continue financing its $20 trillion deficit. At least the problem of the zero lower bound will go away.

    For the past 20 years, at the very least, I have heard no end of ‘experts’ excitedly and expectantly predicting the Chinese economy’s imminent ‘crash’.

    It never happened, although the USA, the EU and the UK *did* crash in the meantime, which strangely none of the ‘experts’ did predict.

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  57. Brabantian says: • Website

    There is more than US 200 trillion debt in the world, it really cannot be paid, mathematically speaking, and it is going to blow up in the not-far future (within the next 30 months my guess, possibly later this year, but 2019 a good estimate)

    There has been lots of money-printing, central bank bond-buying etc to paper over the bad debt, but there is an intrinsic limit to how long that can run, due to the ‘social mathematics of credit’, the fact that trust will fail at a certain point as the stresses on the math become too great … But predicting the time of the blow-up is not easy, however

    Just like the USA in 1929 before its final ascent to global hegemony, China will be hit hard by the crash of its 40 trillion in dodgy unpayable internal debt – along with the USA and most of the world, but China will be hit super-hard. That will limit China’s dominance in the medium term, the next 15 years or so.

    The US will also suffer rather badly because of its half-trillion a year trade deficit that it finances by printing ‘dollars’ which are in their final run … when the US is forced to pay gold or whatever for imports, the US will be hit quite hard as well

    Europe is actually much better off as it has essentially zero trade deficit, it exports as much as it imports. Within Europe, the euro currency will likely break up, European banks will collapse etc … but things will not be too bad due to the trade balance, home industry and agriculture etc … plus Europe is used to changing money-forms every few decades

    The economics writer who really knows what is going on is Jeffrey Snider of Alhambra Partners, but his stuff is not easy to grok. Essentially, for decades global credit and thus ‘money’ has been a pyramid on what is often called the ‘eurodollar’, i.e., major currencies functioning outside of their home countries.

    That system actually peaked in August 2007 and the credit system has never been restored because it cannot be fixed – it reached its math-plus-trust maximum – tho the central banks have succeeded in helping the old system limp along on the semi-stagnation basis we see all around us, now in the 11th year adrift

    The big system ‘reset’ will involve many tens of trillions of debt being written off, lots of banks etc collapsing, and a new form of international trade ‘money’ will need to be implemented … which could be a system of IMF SDRs (Special Drawing Rights’ or, maybe even more soundly, gold certificates for international trade whilst individual countries keep fiat money internally

    Read More
    • Replies: @Anon
    The Big Reset has been done a great many times, from kill (((the moneylenders))) in medieval societies to the French Revolution. The problem is, those times are not much fun to live in.
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  58. Jack D says:
    @Jonathan Mason
    Fiat does not have the technology?

    https://www.forbes.com/sites/kbrauer/2017/05/26/fiat-500e-can-you-really-drive-a-brand-new-car-for-a-total-cost-of-120-a-month-yes-you-can/

    If the current bull market lasts until electric vehicle technology makes an impact on employment, that will be a pretty good result.

    The question everyone would like to know is--if you could invest in one company now that will benefit from new vehicle technologies and hold it for 20 years, what would it be?

    Of course nobody knows. Tesla may well crash and burn and could trigger a stock market correction within the next year or two. I might stake a small amount on Nio.

    https://www.nio.io/

    How does Fiat sell you an electric car for only $120/month? By losing $14,000 on each one (and then having the taxpayers chip in even more). Doesn’t sound like a great business model to me.

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    • Replies: @Jonathan Mason
    You have also put your finger on what is wrong with the Tesla business model. They have been in business for 14 years and never turned a profit.

    But then compare to drug companies. They say the reason for the incredibly high cost of drugs in the US is to subsidize the multibillion dollar cost of developing new drugs for the rest of the world.

    At this stage of the game Fiat is not making a profit on electric cars. No one is. But they are developing the technologies so as not to be locked out of the game which presumably will be more profitable in the future when governments start to forbid the use of ICE (Internal Combustion Engine) vehicles. Britain and France have already pledged to end the sale of new ICE vehicles in 2040.
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  59. JosephB says:
    @Jonathan Mason

    For example, only 4 percent of white graduates who never attended a for-profit defaulted within 12 years of entry, compared to 67 percent of black dropouts who ever attended a for-profit.
     
    Why would you compare repayment rates of white people who never attended a for-profit school with black people who did sign up to a for-profit. Talk about comparing apples with potatoes!

    A lot of these for-profit schools are scams (like Trump University) that use high pressure sales tactics to sell wildly overpriced vocational programs to naive individuals.

    Last year I visited a local hairdressing salon/school that was offering entry level hairdresser courses (for some reason they call this cosmetologist in Florida) for about $20, 000 dollars paid for by loans. The percentage of people who would be able to complete this course and then make enough money to pay back the loan plus interest in our local economy must be very low, seeing that hairdressers who do not own their own salons have to rent chair space and may have a lot of down time and have a hard time even being able to pay for Obamacare, let alone pay back loans.

    So if these for-profit scam schools use high-pressure sales to get black students to take out unrepayable loans at high rates of interest, the finance companies should expect a very high default rate.

    Of course there may be ethical and value for money for-profit vocational programs in some fields, but they don't seem to exist in my local area, and while there might be some good stuff available online, it takes a very motivated student to succeed, and even if successful, it may not be as easy to get a good job as the course promoters tend to claim.

    White students, being on average from better-educated families are much less likely to fall for the for-profit-school scam and to attend state and community colleges that are not for profit.

    “Why would you compare repayment rates of white people who never attended a for-profit school with black people who did sign up to a for-profit. Talk about comparing apples with potatoes!”

    I took Steve’s statement as showing the variability in the default rates. Presumably white a non-profits are near the bottom, and blacks at for profit are near the top. It was a useful illustration that even basic background info results in wide variability in outcomes.

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  60. The bubble will collapse sometimes after a point where sitting at home, watching TV, and risking starvation is a better option than the student loan- college -make work job thing. But TPTB will work hard to keep things from getting to that point.

    That could be, but I also think that if large sectors of the economy continues to slowly approach third world status, then we are going to see a lot more off-the-books working, and people doing whatever they can to get by, which is not good for the overall economy.

    For example I know a woman who works for a small business that cleans expensive new homes from top to bottom after construction is finished. She gets $11 or $12 per hour, but without benefits or paid holidays, and no guaranteed minimum number of hours. No houses today, no work! This is legal employment and social security is deducted and earning reported to IRS for tax purposes.

    However, she also has private luxury-home cleaning clients and can make as much as $200 for a 5-hour job by working twice as hard as a normal person and telling the homeowner that she had a helper! This is paid in cash and is not subject to deductions or declared for taxes. She has health insurance through her husband’s job as a government employee.

    Lots of workers are in these kind of hybrid employment situations, part-legal, part under-the-table, health insurance from someone else’s job, no paid vacations, always looking for a hustle.

    Regarding hairdressing, you need a license to charge people money for hairdressing, but more than half the population get their hair done by a family member or neighbor.

    On the other hand, you can charge to prepare people’s income taxes without a license!

    Perhaps that is what the American way really is.

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    • Replies: @Expletive Deleted
    One of the most popular "careers" (I won't call them scams, as the gov. knows or knew all about it) arranged around the horrible Working Tax Credits scheme got up by Brown, the genius and Salvator Mundi, was women, whether single mothers or not, doing the requisite 16hrs babysitting their friends', relations' and neighbours' children in their own homes (wiv the telly, a few cans of Brew and some Lambert&Butlers on) and having their own children minded reciprocally by those women.

    The "self-employed hairdresser/dogwalker/nail technologist" trades all worked (or even still work? IDK) similarly.
    Therefore I predict that in the future we shall all live by taking in one another's washing.

    , @Alden
    Charging for non existent workers. That’s a typical contractor scam. Or charging for a certified union journey man when it’s his 14 year old son or someone he found in the Hone Depot parking lot
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  61. Jack D says:
    @Pat Boyle
    Student debt is not very rational. When I took the GREs I sent my scores with applications to various graduate schools. I had good scores. So I got recruited and offered stuff. The Dean of some school at the University of Massachusetts called me one evening at home in California. He not only wanted me to come to his school at their expense, he said he would get my wife a job. He seemed real eager.

    I eventually went to George Washington in Washington DC but again I was recruited and offered a full academic scholarship in another department. They gave me a TA job (teaching calculus and computer operations). I competed for and won a Mellon fellowship and two internships. I made what was for me then more money than I ever had before.

    I think if you are a good student and have good scores money will flow toward you. But if you are a marginal student you will have to go into debt. A student loan is a kind of assertion that you are a better prospect than you appear to be. You are investing in yourself when the objective evidence is that you are a bad investment. The self deluded always suffer.

    Being black in America is the very definition of self delusion.

    This may be true at the grad school level (and even then it depends on the field) but undergraduates don’t get fellowships. Even for grad students with fellowships, universities get away with paying people far less than they would be making in private industry (in exchange for “free” tuition) while meanwhile treating them like dirt. Maybe you were happy with your setup but a lot of grad students are miserable.

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    • Replies: @AnonAcademic
    Lots of the "good risk" undergrads get scholarships (full rides or thereabouts to normal white kids seem less common/to require higher "show off" value than in "my day" but I have no data). White kids from decent families mostly take some early inheritance from parents and escape with little debt, unless they do something sort of stupid.

    Grad school always has a split: outside STEM, you are probably the sucker ina big con game, even if very good. In STEM, you are taking a pay cut (for a while, and won't earn it back totally) but getting a shot at a more interesting set of jobs, if you like that kind of R&D work. In CS, for example, you trade money for a shot at more "fun" later on, or, if you are lucky, becoming a tenured academic at a decent school. Which, in STEM, is a pretty great gig for now because pay is decent, you can consult on the side, and the job (for the right kind of person) is hard to beat.
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  62. @Jonathan Mason
    Rather than implement the recent tax cuts, it might have better served the economy and the community for a new program by which any student with student loans can have request to have the loans bought out by the government at par value, and then reissued at a low rate of fixed interest, and then repaid through withholding of up to 50% of income tax refunds, or until the loan is paid off, whichever comes first.

    The government could also bundle student loans and issue them as tradeable securities, as is already done with corporate bonds.

    So, for example, if you wanted to invest in student loan repayments of medical school graduates in Delaware, there would be a fund for that purpose that you could buy through your broker.Such securities would probably trade at a value close to par, whereas I daresay securities holding loans from hairdressers in Puerto Rico might trade at a lower value

    Good thinking. While we’re at it, we could bundle good loans with bad, and give the whole ensemble a AAA credit rating, on the grounds that while some students may default, the idea of them ALL defaulting is unthinkable!

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    • LOL: Harry Baldwin
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  63. @Jack D
    How does Fiat sell you an electric car for only $120/month? By losing $14,000 on each one (and then having the taxpayers chip in even more). Doesn't sound like a great business model to me.

    You have also put your finger on what is wrong with the Tesla business model. They have been in business for 14 years and never turned a profit.

    But then compare to drug companies. They say the reason for the incredibly high cost of drugs in the US is to subsidize the multibillion dollar cost of developing new drugs for the rest of the world.

    At this stage of the game Fiat is not making a profit on electric cars. No one is. But they are developing the technologies so as not to be locked out of the game which presumably will be more profitable in the future when governments start to forbid the use of ICE (Internal Combustion Engine) vehicles. Britain and France have already pledged to end the sale of new ICE vehicles in 2040.

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    • Replies: @Realist
    Chasing rainbows and unicorns.
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  64. Read More
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  65. Art Deco says:
    @The Millennial Falcon
    Student loans are the likely first domino here, not just because of how much of financial footprint they've carved out but how important higher ed is as a cash funnel around the country. That loan money isn't highly concentrated - that stuff is the lifeblood of communities around the country.

    The next one that no one has mentioned yet is the the healthcare bubble. Another long-term boom that, like higher ed, is highly dependent on consumers being partially insulated from the rising costs. That's another sector that is bringing cash to communities around the country.

    Student loans are the likely first domino here, not just because of how much of financial footprint they’ve carved out but how important higher ed is as a cash funnel around the country. That loan money isn’t highly concentrated – that stuff is the lifeblood of communities around the country.

    Consumer debt (of which student debt is a component) is dwarfed in size by mortgages. That aside, higher education expenditures sun to about 2% of gross output.

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  66. Art Deco says:
    @eD
    On Steve's wider question, the big issue is that the world economy is still dealing with a huge population bubble and the resource crunch that always results from that. But the baby boomers in charge are working hard and quite good at making everything seem to be pretty much OK, with some hiccups like 2008. No this won't go on for ever, but I expect that things will continue to seem pretty much OK until these people start passing from the scene, so probably the 2020s to as late as the 2040s.

    Large parts of Puerto Rico have been in a dommerish, post-crash situation (no electricity, difficulty to get clean water) for months and while people can come up with a gazillion reasons to explain that away, one prospect is that we start getting a situation like this happening in different parts of the country every couple of years. Each time it will be ignored or explained away until it just becomes normal in most of the country to not have electricity, except for maybe a couple of hours a day. But there is always a chance of some miscalculation being made and everything going wrong at once in some spectacular way.

    On Steve’s wider question, the big issue is that the world economy is still dealing with a huge population bubble and the resource crunch that always results from that.

    We’re not suffering from a population bubble or from a resource crunch.

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    • Replies: @Not Raul
    I’m not sure that I agree. For most of the last 15 years, the price of oil has been much higher than the historical average. There is also a shortage of housing in decent neighborhoods a reasonable distance from jobs.
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  67. Pat Boyle says:
    @Jack D
    "Cosmetology" and many other "professional" licensing schemes are just scams set up to artificially restrict supply. Do you really need a 1,000 hour course in order to learn to shampoo someone's hair?

    (BTW, black people, especially women, require a LOT of hair care - did you see Oprah's hair the other day at her speech?

    https://cdn.newsday.com/polopoly_fs/1.16153881.1515883324!/httpImage/image.jpeg_gen/derivatives/landscape_768/image.jpeg

    It didn't resemble African hair in the slightest and in order to get African hair to resemble European/Asian hair you need to do a LOT of work and use lots of chemicals).

    As you say, the "rents" from this artificial restriction don't end up in the pockets of the individual hairdressers (just as the rent from the NY Taxi medallion scheme did not end up in the pockets of the cab drivers) but adhere to the salon owners and the people who operate the required schools.

    I don’t know much about barber college but I am familiar with “school’ in the Army.

    I went to Truck Driving School. I also went to Coal Shoveling School. The Sergeant said that they had abolished another school just recently. That was the class in the use of the Straight Broom.

    Truck Driving, as I remember, was a week long school whereas Coal Shoveling was only a single day.

    There was a good and legitimate reason for the Coal Shoveling school. The barracks were heated by old boilers fueled by coal. All Army barracks seemed to have been built on the same day – the day after Pearl Harbor. So they were all pretty old.

    The one item in the curricula that was sensible was checking the safety pressure gauge. It seems that if the safety valve gets stuck the boiler blows up and kills everyone inside. So as it happened when I was in the National Guard summer camp I checked the safety valve in one of the barracks and it was indeed frozen – it would have let the boiler blow up. I told the relevant officer and he said “We are only here for two weeks, let’s just ignore it.” I didn’t sleep in that particular barracks – so I obeyed the order.

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    • Replies: @Anonymous
    Militaries are notoriously safety and cost inefficient because they regard what any private company would regard as intrinsically unsafe as a way to enforce procedure and discipline. A civilian boiler would have had not only a safety valve but safety plugs that melt out and release the pressure at a certain level.

    Navy ships well into the seventies often had a gyro that if power were temporarily lost, would start to wobble and eventually if not manually caged, would bust loose with such force they would go through bulkheads, piping, wiring, sailors....whatever. There were fatalities. it would have been easy to make them self caging, but the navy said no, we have a rule for that and it damn well better be obeyed.

    And the military has FOD incidents with jet aircraft at a rate that would kill a civilian airline. They rely on manual FOD walkdowns to give the airmen or sailors something to do. Civilian airports have machines that work a lot better.
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  68. brendan says:

    I bet on an unlucky confluence of minor shocks. Fed worries about stock bubble, tightness policy, while at same time China slows, and/or commodity price spike scares Fed away from properly leaning against the headwinds.

    I see little evidence of any single time bomb capable of crashing things solo.

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  69. Realist says:

    “What Will Cause the Next Economic Crash?”

    Hubris and greed.

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  70. anon • Disclaimer says:

    Nothing predictable.

    Nothing that has happened within memory.

    Public pensions?

    Something exogenous. Natural or man made disaster most likely.

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  71. @Jonathan Mason

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008
     
    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    https://www.youtube.com/watch?v=NMq7A17kLgs

    Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    But would it not cause improvements..?

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    • Replies: @Samuel Skinner
    There are downsides. It would cause people to seriously consider the possibility that Sunni Islam is true. The car dealership opposite the hall of medal of honor recipients would never be relocated. The security precautions would reduce the case load of the court causing withdrawl in legal junkies.
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  72. Realist says:
    @Jonathan Mason
    You have also put your finger on what is wrong with the Tesla business model. They have been in business for 14 years and never turned a profit.

    But then compare to drug companies. They say the reason for the incredibly high cost of drugs in the US is to subsidize the multibillion dollar cost of developing new drugs for the rest of the world.

    At this stage of the game Fiat is not making a profit on electric cars. No one is. But they are developing the technologies so as not to be locked out of the game which presumably will be more profitable in the future when governments start to forbid the use of ICE (Internal Combustion Engine) vehicles. Britain and France have already pledged to end the sale of new ICE vehicles in 2040.

    Chasing rainbows and unicorns.

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    • Replies: @TWS
    And we pay for it.
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  73. Lot says:
    @Jonathan Mason
    Rather than implement the recent tax cuts, it might have better served the economy and the community for a new program by which any student with student loans can have request to have the loans bought out by the government at par value, and then reissued at a low rate of fixed interest, and then repaid through withholding of up to 50% of income tax refunds, or until the loan is paid off, whichever comes first.

    The government could also bundle student loans and issue them as tradeable securities, as is already done with corporate bonds.

    So, for example, if you wanted to invest in student loan repayments of medical school graduates in Delaware, there would be a fund for that purpose that you could buy through your broker.Such securities would probably trade at a value close to par, whereas I daresay securities holding loans from hairdressers in Puerto Rico might trade at a lower value

    All these programs already exist.

    Grads with good jobs and objective repayment factors can have their 6-7% federal student loans refinanced by private “social” lenders like SoFi at 3-4%.

    The other thing you propose exists as “income based repayment.” The program requires you to make partial payments based on income for 25 years. Then the federal gov just forgives the rest.

    If a corporation made “partial” payments less than its loan contract such loan would be in default and partly written down as impaired. But the feds do not do this, even though they are 100.00% sure the loan will not be repaid in full.

    All quoted “Default rates” in student loan programs are BS for this reason. Someone in “default” just means they are too stupid or disorganized to sign up for the income based program, which has annual paperwork requirements but often cuts student loan payments from $600/mo to $40 or even 0.

    It is mostly higher IQ whites with worthless degrees doing these soft defaults not being counted as defaults in the government’s cooked books.

    To put it another way, there are two separate ed loan scams going on. First the for profit scams that suck up billions of tax dollars for scam degrees and no show students. The people who run them donate heavily to both parties, though Obama started to crack down on them his last 2 years, shutting down some of the biggest chains of scam schools. Trump and DeVos reversed these policies. (Trump DoE also hides default data by school like Obama’s DoJ hid race/crime data)

    The second scam involves more respectable 2nd tier colleges like George Washington and NYU admitting 115-125IQ types, letting them party on Ungle Sugar for years, investing in lavish facilities and $350,000 professor salaries.

    Then when grads emerge with their NYU gender studies degrees, NYU carefully makes sure the grad signs up for federal loan forgiveness. Thus NYU might get $150,000 in fed money for the student, the student himself only repays maybe $20,000 of it. But this student who never repays his loan is not counted as ever defaulting.

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    • Replies: @ScarletNumber
    IBR is only an option for federal student loans, not private.
    , @JosephB
    "letting them party on Ungle Sugar for years, investing in lavish facilities and $350,000 professor salaries"

    What profs get $350k? Medicine and law, maybe. STEM fields? Unless you're one of the rock stars, no way.

    Even for STEM, take 1/3 of that for associates and 1/2 for full.
    , @TomSchmidt
    The second scam involves more respectable 2nd tier colleges like George Washington and NYU admitting 115-125IQ types, letting them party on Ungle Sugar for years, investing in lavish facilities and $350,000 professor salaries.

    Actually, those are the administrator salaries. Fashion in academics is to pay the managerial class a lot and have most of the teaching done by the Doctoral Reserve army of the unemployed, the adjuncts. NYU isn't bad at that; they pay $134 per classroom hour (and 150 minutes counts as three hours) to their adjunct wage slaves. I have friends who've worked there.

    You missed a scam. If you qualify for the new GI bill, and attend college "full time", the Feds will pay 22k a year towards tuition, give you $1000 a year towards books, and also give you a monthly stipend to offset your housing costs. This stipend varies with local housing costs; my understanding is that anyone attending a college based in NYC will get $4100 a month tax free to offset housing costs, so long as the military grad is in school. That's about 50k a year after taxes, which a single man would have to earn 90k in NYC to get. You could get 200k cold cash from the Feds if you lived at home with your parents in NYC and attended a local school paying no more than 22k in tuition.
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  74. Alden says:
    @Jonathan Mason

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008
     
    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    https://www.youtube.com/watch?v=NMq7A17kLgs

    Wipe out the Supreme Court? Hmmmmm

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  75. I don’t think student debt is likely to cause an economic crisis. First, there simply isn’t enough of it. There’s currently $1.4 trillion in student debt liabilities, an order of magnitude less than the $10.7 trillion in home mortgages at their peak in 2008. Second, most of that money is owed to the federal government – $1.1 trillion out of the $1.4 trillion.

    Over the past 10 years, the amount of privately held student loan debt has actually decreased even while government-held student loan debt has exploded.

    As boring as it would be for it to happen again, housing debt looks like a much more plausible culprit for the next crash.

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  76. @eD
    On Steve's wider question, the big issue is that the world economy is still dealing with a huge population bubble and the resource crunch that always results from that. But the baby boomers in charge are working hard and quite good at making everything seem to be pretty much OK, with some hiccups like 2008. No this won't go on for ever, but I expect that things will continue to seem pretty much OK until these people start passing from the scene, so probably the 2020s to as late as the 2040s.

    Large parts of Puerto Rico have been in a dommerish, post-crash situation (no electricity, difficulty to get clean water) for months and while people can come up with a gazillion reasons to explain that away, one prospect is that we start getting a situation like this happening in different parts of the country every couple of years. Each time it will be ignored or explained away until it just becomes normal in most of the country to not have electricity, except for maybe a couple of hours a day. But there is always a chance of some miscalculation being made and everything going wrong at once in some spectacular way.

    >it just becomes normal in most of the country to not have electricity, except for maybe a couple of hours a day.

    Which sounds like the Olduvai Thesis about the permanent collapse of industrial civilization:

    https://en.wikipedia.org/wiki/Olduvai_theory

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  77. We never really recovered from the last crash. The only growth industry is printing currency. You have a bunch of companies like Apple, Amazon and Google that are offering essentially the same products they offered ten years ago, but their stock prices are way up because there’s nowhere else to put the money. And you have the same pieces of land in SF, LA, DC and NYC, with the same houses on them, but they cost more and more because, again, there is nowhere else to put the money.

    Companies borrow money, or effectively borrow from their pension funds by not contributing to them, but instead of using the money to build new factories and develop new products, they spend the money on stock buybacks and executive bonuses. There is no real wealth being created, just numbers in bank accounts going higher and higher.

    The only exception to this that I can think of, and it is an important one, is in oil production. Real investments were made in fracking and other production technologies, and now oil is cheaper. But most other stuff is inflating, unless it can be imported from low-wage economies. Food and especially medical care are getting out of reach for people. You have to be practically upper-middle-class to afford a decent steak anymore. Everyone else is eating textured soy protein formed into foodlike shapes in a factory.

    The cheap money solution will work as long as the dollar is the reserve currency. When the labor participation rate gets back above its 1978 value, and interest rates are over 5%, then I’ll start worrying about a crash.

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  78. Thurson says:

    Grossly underfunded government employee pension and OPERB [Other post-employment benefits] plans, along with other state and local government improvidence, leads to municipal bankruptcies and state de facto bankruptcies (nb. New Jersey, Illinois, California)[1]. Effected states and municipalities can’t pay for basic services. Housing & property prices crash in effected jurisdictions. Human sacrifice with dogs and cats living together ensues.

    [1] https://www.mercatus.org/statefiscalrankings

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  79. Lot says:
    @Jack D
    In addition to a new mortgage bubble and a student loan bubble, we have a big auto loan bubble. There's a whole industry built around selling cars to people with bad credit. Rapid advances in electric and self-driving technology will make the existing vehicle fleet less valuable than the estimates on which the loans/leases were based putting even more auto loans under water, especially since one of the tricks they have been using is to make car loans for longer and longer periods.

    Auto manufacturers have already been building too many new car factories and at the next downturn these will sit idle and all the workers laid off. The auto industry underpins a large share of the economy (half the ads on TV seem to be auto dealer ads - the other half are ads for totally non-productive sectors - drugs, hospitals and malpractice/auto accident lawyers) so an auto industry crash has widespread effects.

    Fiat/Chrysler, the sick man of the US auto industry since the '70s, won't survive the next downturn and probably will get sold to the Chinese. They don't have the capital to make the transition to new technology.

    Millions of truck/bus/cab drivers will lose their jobs. The current model, where you buy a car and it sits in your driveway or the parking lot of your workplace 23 hours/day, is going to go by the wayside and there is going to be a permanent reduction in the # of vehicles needed.

    Uber Pool, where you share an Uber with 1-2 other riders, is already putting drivers out of work.

    However, AI generally shows no sign of actually causing mass unemployment. The two signals of this happening would be higher unemployment and faster productivity growth. Neither is happening.

    The jobs most vulnerable to automation are low end manufacturing in Asia. In many cases the tech to replace these workers already exists, and Chinese wage growth of 10-15% a year in urban areas will force its adoption.

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    • Replies: @L Woods
    The textile industry has largely already relocated to Southeast Asia for this reason. How long even they will be safe from automation is anyone's guess.
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  80. I vote for oil price shock. The dimwits in charge of Saudi Barbaria are playing with proverbial fire, which doesn’t mix well with petroleum.

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  81. Lot says:
    @Art Deco
    You'll see a recession derived from the usual forces which generate recessions. If you're looking for a crash, we had one in 1840, 1873, 1929, and 2008. They're not that frequent and we'll all likely be dead before the next one.


    One thing that makes me anxious is the escalating tendency toward holding sovereign and household debt.

    Good point about the rarity of 2008 style financial crash recessions. We had a long run of 1929-2008 without one.

    But they happened a lot more often before 1929. And now in the current era, where the wealthy dominate a financialized economy and impose hard currency and debt peonage on the rest, looks much more like 1910 than 1970.

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    • Replies: @Dmitry

    To answer the main question, I think it is most likely we don’t have a recession in the next few years, or at worse a mild one.
     
    Yes this where I would put my money (although I am not an economist in any way). The expansion period in the business cycle usually lasts at least several years.
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  82. Bugg says:

    China owns roughly $3.1 trillion of US federal debt. Some indications earlier this week they would slow their purchases of US federal debt offerings. Problem is if and when China (or Japan or Saudi Arabia) stop buying US debt, the Fed then has to raise rates to attract investment. And the artificially-low interest rates for everyone then go away. Rising interest rates would drop the amrket, to say nothing of
    slowing economic activity across the board.

    Reason it may not happen is China has pretty much tied their economy to selling consumer goods to the US market. That’s also the reason why the crazed military guys making China out to be our Dr. Evil type military enemy are in fact loony and mistaken. Even with a huge army, easier for the Chinese loansharks to bleed the US economy than shed real blood.

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    • Replies: @Mitleser

    Reason it may not happen is China has pretty much tied their economy to selling consumer goods to the US market.
     
    We are not in the 2000s.
    Chinese export-dependency is decreasing.
    Not to mention that they are trading more with EUrope than the USA.
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  83. Lot says:

    To answer the main question, I think it is most likely we don’t have a recession in the next few years, or at worse a mild one. Karlin correctly describes some reasons for this.

    The mostly Chinese/Japanese/German dumb money that fueled the speculative bubbles of the W Era still shows all signs of being shell shocked and parking most of their money in government bonds yielding -1 to 1%.

    Another reason is there is no signals that the economy generally is overheating in the form of general inflation, and the fairly slow growth since 2011 provides some slack.

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    • Replies: @Vinteuil
    Glad to see you back.
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  84. 罗臻 says: • Website

    Student and auto loans aren’t nearly big enough. Subprime was small, but it was the tip of a $14 trillion mortgage market and a lot of loans that weren’t marked subprime, were indeed subprime.

    The U.S. already had its financial crisis, as did Japan, Ireland, UK. U.S. banks have deleveraged since the crisis. The odds of the US being the source of the next crisis are very low, unless it is a dollar crisis, but the U.S. doesn’t look like it will lose reserve currency status in the next 5 to 10 years at least.

    A good bet for a big blow up is Australia and Canada. Bubbly Housing in the Lands of Oz and Leafs Their housing bubbles have exceeded the U.S. bubble. They barely corrected in 2008 and then resumed inflating the bubble for another decade.

    Australia and Canada are too small to blow up the world. But those bubbles were partially inflated by the influx of Chinese money. And in the case of Australia, a lot of growth is predicated on Chinese demand for natural resources. It stands to reason that Australian real estate is the edge of the Chinese bubble.

    There are four countries that inflated money supply faster than China post-2008: Argentina, Russia, Brazil and Turkey. 3 of 4 have seen their currency tumble.

    The global financial system is a giant credit system. There’s only a little over $1 trillion in physical U.S. dollars, several dozen trillion in U.S. marketable debt, and then trillions upon trillions more in eurodollars that only exist on bank balance sheets. Some unknown portion is synthetic dollars created with derivatives. Since 2008, first American banks, then in 2011 European banks, exited these markets. China was forced to devalue the yuan in 2015 because it was spending billions per month propping it up. It is inflating like crazy as dollar supply dwindles. Another round of deflation would cause a much bigger devaluation than August 2015. Based on money supply growth, the Chinese currency could decline as much as 20-25%. The devaluation in August 2015 was 2% and it almost caused a global recession, oil plunged to $26 and credit markets almost blew up again with shale producers at risk of default.

    The other risk is a dollar debt crisis. Goldman forecasts a $1 trillion U.S. fiscal deficit in 2019 and it doesn’t go back below $1 trillion because Medicare and Social Security costs kick in. That’s about 5% of GDP and its not including a drop in tax receipts if there’s a recession. Currently, the Treasury pays 2.3% on debt and has interest expenses above $400 billion. Double rates and that’s an extra $400 billion in deficit spending.

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  85. I shouldn’t worry over or include China in your list of potential crashers as they fine tune their economy
    almost daily. This includes the slammer for money abusers and being a billionaire doesn’t keep you out of the lockup. Almost one million inside at present but unlike our one million theirs are not in for street crime or drugging; mainly financial wrongdoings. Good idea?

    https://robertmagill.wordpress.com/2017/05/02/the-art-of-the-deal/

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  86. @Jonathan Mason

    The bubble will collapse sometimes after a point where sitting at home, watching TV, and risking starvation is a better option than the student loan- college -make work job thing. But TPTB will work hard to keep things from getting to that point.
     
    That could be, but I also think that if large sectors of the economy continues to slowly approach third world status, then we are going to see a lot more off-the-books working, and people doing whatever they can to get by, which is not good for the overall economy.

    For example I know a woman who works for a small business that cleans expensive new homes from top to bottom after construction is finished. She gets $11 or $12 per hour, but without benefits or paid holidays, and no guaranteed minimum number of hours. No houses today, no work! This is legal employment and social security is deducted and earning reported to IRS for tax purposes.

    However, she also has private luxury-home cleaning clients and can make as much as $200 for a 5-hour job by working twice as hard as a normal person and telling the homeowner that she had a helper! This is paid in cash and is not subject to deductions or declared for taxes. She has health insurance through her husband's job as a government employee.

    Lots of workers are in these kind of hybrid employment situations, part-legal, part under-the-table, health insurance from someone else's job, no paid vacations, always looking for a hustle.

    Regarding hairdressing, you need a license to charge people money for hairdressing, but more than half the population get their hair done by a family member or neighbor.

    On the other hand, you can charge to prepare people's income taxes without a license!

    Perhaps that is what the American way really is.

    One of the most popular “careers” (I won’t call them scams, as the gov. knows or knew all about it) arranged around the horrible Working Tax Credits scheme got up by Brown, the genius and Salvator Mundi, was women, whether single mothers or not, doing the requisite 16hrs babysitting their friends’, relations’ and neighbours’ children in their own homes (wiv the telly, a few cans of Brew and some Lambert&Butlers on) and having their own children minded reciprocally by those women.

    The “self-employed hairdresser/dogwalker/nail technologist” trades all worked (or even still work? IDK) similarly.
    Therefore I predict that in the future we shall all live by taking in one another’s washing.

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  87. Beckow says:
    @Audacious Epigone
    Student loans. On paper, there is ~$1.4 trillion in outstanding student loans out there. Most cannot be paid back because the people who've taken the loans out lack the earning power to ever make good on them.

    Any education system based on ‘loaning‘ money to students is extremely unstable and it eventually collapses. It had been tried before in 19th century Europe and elsewhere and abandoned because it is inherently a mad unworkable scheme.

    But the $1.4 trillion student loan debt is not anywhere big enough to crash the economy. When the next crash comes, it will be likely triggered by uncertainty about paper-fiat money (not necessarily the dollar) and inflation. It will look very different from 2008-9.

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  88. IHTG says:

    The Most Dangerous Man In America, Part 3:

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  89. I’ll put my money on the long-shot, especially since I can’t remember another time it happened. Gray swan?

    State liability default sparked by under-funded pension liabilities.

    Seems like that would cause a serious contagion.

    Thoughts?

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  90. The creation of the FED in 1913.

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  91. Romanian says: • Website

    Tried posting this before, when I would have been the second commenter, but hit a database error screen.

    Problems stemming from the US are:
    - student loans guaranteed by the government and non-dischargeable through personal bankruptcy, a combination of factors which enabled bloated academic bureaucracies and tuition costs. I remember that the USG guarantees as many student loans (volume) as it does mortgages.
    - auto loans are another area of significant growth, which contributed to the supposed economic recovery of recent years.
    - the US has a more general problem in that 70% of its GDP comes from consumption, but that consumption is increasingly being financed through debt and fiscal transfers (from 8% to 47% for individuals). I am not talking about the government, though that is an issue (Obama added more trillions to the debt than he had years in office). Municipal debt is also an issue, and the obvious appeal to government to save the states and municipalities (also see Puerto Rico, Illinois). But personal debt, buoyed by low historic interest rates, is at a very high level. A rise in those interest rates would automatically curb consumption, sending shockwaves in the economy.

    [MORE]

    - also, the expected rise in healthcare costs, unfunded liabilities in general reaching 130 trillion dollars (6-7 times US GDP as a midway estimate) will put further pressure on the fiscal issue.
    - the economic issue may be triggered by political crises, whether it is secession, reconquista, internal conflict, mass race riots and so on
    - the effects of infrastructure decay and cascading disruptions in the infrastructure system-of-systems (like dominoes) once the first major component fails (Oroville could have been one). An example is the infrequent blackouts or brownouts in certain cities during the summer, which affects food security (because of refridgeration), water treatment and distribution, public underground transport, health infrastructure, financial infrastructure (markets etc), public services infrastructure, and eventually leads to a breakdown in what the EU also terms as critical infrastructure, which is public order and defense (because of undocumented shopping, rioting, crime waves).

    If I may shamelessly add this, where you may find some graphs:

    http://www.themarketforideas.com/the-genesis-of-a-president-and-the-four-horsemen-of-the-establishment039s-trumpocalypse-poverty-alienation-conflict-and-decay-combined-to-set-off-a-popular-revolt-a73/

    http://www.themarketforideas.com/trumponomics-a-new-new-deal-for-the-american-people-a91/

    Outside the US
    - a natural ebb in China’s economic growth;
    - a crisis in China stemming from their opaque banking system which is chock full of non-performing loans given to state owned enterprises;
    - a shock from the shadow banking system, where thrifty Chinese place money because the interest rates that banks pay are too low, specifically to subsidize the national export machine (S. Korea and Japan had and have the same issues);
    - a crash in in the overheated Chinese housing market, stemming from that same search for return on savings;
    - war in the South China Sea, through which 50% of the container trade passes;
    - the still unresolved governmental debt and inflated bank balance sheets at global levels, especially in Europe, which necessitated draconic punishment and impoverishment of Greece (not an innocent here) to keep the ball rolling;
    - the general effects of increasing interdependencies at global levels, compounded by transcontinental infrastructures, trade ties and just-in-time supply chains, whose effects can be triggered by a terrorist attack, natural disaster, war. An example is the Kobe earthquake, which temporarily put out of commission the only factory in the world for a sort of epoxy resin which was a cheap, but vital, component for making microchips or something like that. Quite a few of these industrial chokepoints can be found if you look closely, because the search for economic efficiency leads to aggregation and monopolies, which are anti-resilience.
    - Eamonn Fingleton, who is an Asia (Japan) expert with Forbes, has written a lot about these issues, indirectly, by criticizing the supposed US “free trade” (managed trade, really) stance with countries using mercantilism to eat its lunch.

    Examples:

    http://www.fingleton.net/boeing-goes-to-pieces/

    http://www.fingleton.net/the-japanese-electronics-industry-a-rebuttal/

    Bitcoin is not systemically important yet. If it goes tits up, no one will suffer except speculators in crypto currencies (of which I am one, at an amateur level). I can foresee an issue when crypto futures are the next big thing for big banks to chase, or when Americans are pouring their 401(k) money into crypto because it has been allowed, but not now (the recently launched bitcoin futures have very low volumes). I can also foresee troubles if blockchain tech gets adopted to decentralize markets, administer supply chains, electricity grids etc. The added complexity makes knowing reality even more difficult, and such a system would likely be a lot more prone to panics and hysteria than a simpler one, more vulnerable in other ways, whose topography is more readily understood (imagine the crises that appear from having a power plant supplying a city versus the crises that appear with 1000 small producers of electricity with intermittent production trying to feed a grid that has to stay balanced).

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  92. Gutenberg says:
    @Jonathan Mason
    It would not require much hairdressing skill to put that wig on Oprah's head,

    There certainly are things that hairdressers need to know about, like recognizing infections conditions, parasite infestations, etc. Also managing chemicals, and stuff like doing hot Brazilian wax treatments on the pubic area, which could be a pain in the ass if they went wrong.

    However, it should be possible to do the training on the job, like employees in food service or preschools have to do, and specialist areas like mixing dyes and color treatments could be covered by add-on course in continuing education if needed.

    Straightening black women's hair does indeed require use of chemicals, but on the other hand millions of women are able to do this themselves at home, with variable result, so the theoretical part cannot be that onerous. It is not as if hair straightening chemicals are available on prescription only.

    it should be possible to do the training on the job

    That’s the key right there, a new form of the apprentice system. At-Will Employment is absurd and a new relationship between employers and workers would allow training to happen where it makes the most sense – on the job next to masters of the craft.

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  93. The first rule of capitalism is: what is the capital.

    There is no possibility of having capitalism if the capital is a debt-based fiat currency system. We have central banker shysterism, and the whole world is using monetary extremism to keep the scam going.

    When the young people all over the globe realize that the Federal Reserve Bank, ECB, Bank of England, Bank of Japan, Bank of China and all the other central banks are scamming them they will begin repudiating government debt and private debt. That will cause the next global financial implosion.

    DEBT AND DEMOGRAPHY

    MONETARY EXTREMISM AND MASS IMMIGRATION

    GLOBALIZATION IS GREED

    GLOBALIZATION IS ANTI-WHITE GENOCIDE

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  94. FozzieT says:

    A Democrat takeover of Congress followed by Trump impeachment proceedings might not be all that healthy for the economy.

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    • Replies: @Jack Hanson
    I'm thinking when the "Blue Wave" fails to pan out the Deep State is going to go even more insane and try to overthrow President Trump.

    That might knock a few points off the DJI.
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  95. Dmitry says:

    Not sure going to cause a crash is the right way to describe it. These particular spots crashing are more like early symptoms of a downturn in the business cycle, than the underlying cause of it.

    But a couple of little gambling type situations a layman might notice at the moment. Tesla’s current situation – where investor confidence has to be constantly maintained, and new investors regularly drawn in, at least until they begin mass production (at least 1-2 years away).

    For various different reasons, the oil shale industry has a lot of different risks in the medium term (over the next ten years).

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  96. Surge says:

    Whatever it is, the next recession can be classified into two broad categories:

    1. An inherently unstable mismatch between value and incentives, usually in decisions of consumption or investment in one particular area of the economy. The classic example is the last housing bubble. In such situations, overconsumption or overinvestment in one particular area of the economy ends abruptly and this leads to a pervasive feeling of uncertainty, which spreads out into non-affected sectors and further damages the economy.

    2. Prolonged good times in the economy lead to loss of discipline. Business and practices which are not viable when subject to even the smallest economic shocks, or even a small drop in consumer confidence, accumulate. This decay is not necessarily restricted to a specific area of the economy. Usually, some meaningless event leads to a sense of economic uncertainty, which is magnified by the runaway failure of the said marginal businessses.

    Any honest economist will admit that it is really hard to say anything specific. One needs to know many sides of the economy in detail to venture a reasonable guess. My best guess right now is that the recession will be in category 2 above. The confidence I have in this prediction is low.

    Arguments against ideas menioned above:

    a. The crash of Bitcoin is expected by everyone. It can reduce disposable income for a large chunk of idiots invested in it, but the market cap of Bitcoin is not very high and it is spread around the world. Most of it is fake value created recently anyway. The actual money circulating through Bitcoin is a couple of orders of magnitude smaller than the market cap. One caveat: most mining happens in China, and China is already dealing with a lot of bad investment. Hopefully, this won’t tip them over.

    b. Student loans are backed by the US government. Only a change in policy by the US government will lead to sudden changes in the behavior of loan takers and loan companies. This will happen, but likely not during a recession, and likely not anytime soon. Usually, people are more likely to go to school when the job market is weak, so a recession will only increase demand for such loans.

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  97. Yak-15 says:
    @Anatoly Karlin
    Yay the site is back.

    Cryptocurrencies don't seem a likely candidate. Their total market cap is around $700 billion USD (and I personally expect it to be considerably less in a year's time). In contrast, the total housing value lost during the housing crisis in just the US was around $7 trillion.

    I will worry when they increase by another order of magnitude and banks start packaging them into derivatives.

    Student loans seem to be the most credible danger point, though at a total value of $1 trillion, I am again unsure if there is a sufficient quantity there to trigger large collapses.

    Venezuela will probably finally default this year but I think pretty much everyone has written them off by now anyway.

    The PIGS problems have gone nowhere, but have just been shoved under the carpet. Growth remains weak, debt has been stabilized but is very high.

    Cryptocurrencies will replace the dollar system. Bet against me if you believe I am wrong.

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  98. The collapse of the social media giants when consumer habits change.

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  99. Maj. Kong says:

    O/T

    “San Antonio man”

    https://www.ksat.com/news/sa-man-threatened-mass-shooting-at-nfl-playoff-game-affidavit-says-1

    Obviously a Drumpf supporter mad about uppity Kapernick demanding equal rights.

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  100. Yak-15 says:

    The next crisis will emerge from the replacement of the dollar international system. Probably by cryptocurrencies.

    When the US government can no longer provide bread and circuses for the low classes, a serious crisis will emerge. Actually, that crisis may happen in Europe first or simultaneously as everyone loses faith in the euro and usd as reserve currencies, but that is the next crisis – sovereign debt crisis.

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  101. Dmitry says:
    @Lot
    Good point about the rarity of 2008 style financial crash recessions. We had a long run of 1929-2008 without one.

    But they happened a lot more often before 1929. And now in the current era, where the wealthy dominate a financialized economy and impose hard currency and debt peonage on the rest, looks much more like 1910 than 1970.

    To answer the main question, I think it is most likely we don’t have a recession in the next few years, or at worse a mild one.

    Yes this where I would put my money (although I am not an economist in any way). The expansion period in the business cycle usually lasts at least several years.

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  102. chucho says:

    I’m not sure what the next crash will be, but whatever it is, the Fed/USG will paper it over. If crypto begins to affect bank balance sheets and risk (via providing clearing/derivatives for counterparties), the Fed could still come in and paper over it even at a price of $500k/bitcoin. Similarly, the Fed could just absorb the country’s student loan debt if needed.

    The age of real economics in the West is over. The wizards will furiously pull their levers until the bitter end. There are only two options now–more bread and circuses, or facing the Gods of the Copybook headings.

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  103. guest says:
    @Jonathan Mason

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008
     
    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    https://www.youtube.com/watch?v=NMq7A17kLgs

    “Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court”

    We’d get new ones. Six of one, half a dozen of the other.

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  104. There are a number of contenders challenging the US dollar as World Reserve Currency Champion. If The Champ loses his title to one of these challengers, it will be very ugly. In 2006, upon returning from a trip to Russia where I was, half way through the trip, forced — by the Russian central bank — to stop paying with US dollars and go through exchanges to obtain Rubles, I questioned whether something like this might happen during 2007 triggering hyperinflation in the US:

    https://majorityrights.com/weblog/comments/hyperinflation_within_a_year/

    What happened in 2007 was, instead, something so outlandish that it exceeded my cynicism:

    Rather than bailing out Main Street the Feds bailed out Wall Street which then confiscated huge inventories of residential real estate from working class families that lost their jobs. The story of “minority home ownership” was a red-herring drawing attention from this direct attack on fertility rates among working class whites to protect the elites from the consequences of their gambling habits.

    Wow… just WOW.

    Of course, now the economic decision makers are so clueless that even with negative interest rates they can’t decide what investments to make — and working class whites are either dying off from depression or looking for blood.

    If “it” happens now it will be far worse than it would have been in 2007.

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  105. L Woods says:
    @Pat Boyle
    Student debt is not very rational. When I took the GREs I sent my scores with applications to various graduate schools. I had good scores. So I got recruited and offered stuff. The Dean of some school at the University of Massachusetts called me one evening at home in California. He not only wanted me to come to his school at their expense, he said he would get my wife a job. He seemed real eager.

    I eventually went to George Washington in Washington DC but again I was recruited and offered a full academic scholarship in another department. They gave me a TA job (teaching calculus and computer operations). I competed for and won a Mellon fellowship and two internships. I made what was for me then more money than I ever had before.

    I think if you are a good student and have good scores money will flow toward you. But if you are a marginal student you will have to go into debt. A student loan is a kind of assertion that you are a better prospect than you appear to be. You are investing in yourself when the objective evidence is that you are a bad investment. The self deluded always suffer.

    Being black in America is the very definition of self delusion.

    Another first rate boomerpost. Gee, things sure were easy for me half a century ago before my generation broke the country — what’s wrong with kids these days! Get off my lawn!

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  106. Rod1963 says:

    All bubbles eventually burst, it’s just a matter of when, The last time the RE and Stock market bubble burst was when everybody thought the housing market was going to the Moon and I saw illegal aliens moving into $300k homes with zero down. I remember discussing with one very successful RE agent about home prices and said there is a limit. She said “no there isn’t, all you need is the right kind of loan to afford a home even if it costs a million”. Around the same time, a friend quit his job at HR Textron to dabble in RE full time, flipping houses. A few months later the market imploded, he was stuck holding 8 homes and he looked like a corpse.

    The point is to watch the public, once everyone and their monkey’s uncle goes all in – that’s the peak and watch out. Because this time the tumble is going to be much worse considering the insane height of the stock market. What’s worse we have no idea what the condition of the banks are in. None. Yeah they were “stress tested” doesn’t mean nothing in today’s environment. My money is on several big ones collapsing and causing all sorts of mayhem when they do.

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  107. Alden says:
    @Jonathan Mason

    The bubble will collapse sometimes after a point where sitting at home, watching TV, and risking starvation is a better option than the student loan- college -make work job thing. But TPTB will work hard to keep things from getting to that point.
     
    That could be, but I also think that if large sectors of the economy continues to slowly approach third world status, then we are going to see a lot more off-the-books working, and people doing whatever they can to get by, which is not good for the overall economy.

    For example I know a woman who works for a small business that cleans expensive new homes from top to bottom after construction is finished. She gets $11 or $12 per hour, but without benefits or paid holidays, and no guaranteed minimum number of hours. No houses today, no work! This is legal employment and social security is deducted and earning reported to IRS for tax purposes.

    However, she also has private luxury-home cleaning clients and can make as much as $200 for a 5-hour job by working twice as hard as a normal person and telling the homeowner that she had a helper! This is paid in cash and is not subject to deductions or declared for taxes. She has health insurance through her husband's job as a government employee.

    Lots of workers are in these kind of hybrid employment situations, part-legal, part under-the-table, health insurance from someone else's job, no paid vacations, always looking for a hustle.

    Regarding hairdressing, you need a license to charge people money for hairdressing, but more than half the population get their hair done by a family member or neighbor.

    On the other hand, you can charge to prepare people's income taxes without a license!

    Perhaps that is what the American way really is.

    Charging for non existent workers. That’s a typical contractor scam. Or charging for a certified union journey man when it’s his 14 year old son or someone he found in the Hone Depot parking lot

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  108. Anonymous • Disclaimer says:

    Here’s an interesting comment by Ron Unz on Karlin’s blog post a couple of weeks ago, 10 Ways Life in America Is Better Than in Russia

    Ron Unz says:
    January 3, 2018

    Although Russian prices are 2x cheaper than America’s, the blunt fact is that wages are also 4x-5x lower.

    Consequently, the standard of living in the US relative to Russia is at least twice higher.

    Well, I’ll admit I’ve only glanced through this 20,000 word comment-thread, but at risk of merely repeating someone else’s arguments, I wonder if this analysis ignores what I think is the tremendous *fragility* of American society these days, both economically and ideologically.

    For at least the last 100 years, America has been a shining world success story, with nothing like the repeated total disasters that inflicted Russia, China, Japan, and most of Europe. America has never been *stressed* in the way that e.g. Russia certainly has been on numerous occasions. Therefore, it’s difficult to predict how it would react under some sort of calamity.

    Consider the vaunted American standard of living, compared with e.g. that of Russia. Aren’t nearly all the consumer products that constitute that relative prosperity made overseas, especially in China, and imported in exchange for pieces of paper (or electronic ones and zeros) called “dollars?” Now consider that America has long had an absolutely *gigantic* trade deficit and an equally gigantic budget deficit. I claim zero knowledge of economics, but don’t such huge deficits suggest a massive looming drop in the dollar? Isn’t the constant threat of America’s global military force one of the main things propping up the dollar? So if America suffered some sort of not unlikely military setback somewhere, might not the dollar just suddenly collapse? And given all the endless fights America has been picking everywhere in the world against everyone else, isn’t that a fairly plausible eventuality?

    The MSM has widely reported that nearly half of all Americans have less than $400 in savings to cope with an unexpected expense, and a huge portion of the public is desperately deep in debt. Furthermore, most of our accumulated pension funds are effectively bankrupt. The current economic situation is not good for most people.

    Now suppose that the dollar dropped by something like 1/2, leading the prices of consumer goods to roughly double. Wouldn’t this probably lead to massive impoverishment and riots in the streets? Wouldn’t the stock market quickly collapse, along with housing prices and other goods currently in the “bubble zone”? Wouldn’t that lead to the total impoverishment of many previously paper-wealthy individuals?

    Under such a dire scenario, totally without precedent in American history, wouldn’t one of the most likely growth industries be in the manufacturing (or more likely, the importation) of guillotines? Wouldn’t America’s ruling elites be about as popular throughout the entire country as their French aristocratic counterparts had been to the Paris mob of 1789? And doesn’t America have something like 300 million guns in private hands?

    Perhaps I’m just missing something, and obviously the triggering events I suggest are stochastic, but isn’t this a reasonably plausible trajectory that might occur some time in the next few years?

    Compared to this looming possibility, a current factor-of-two in dollar-based standard of living relative to ordinary Russians hardly seems a sufficiently large offset…

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  109. L Woods says:
    @Lot
    Uber Pool, where you share an Uber with 1-2 other riders, is already putting drivers out of work.

    However, AI generally shows no sign of actually causing mass unemployment. The two signals of this happening would be higher unemployment and faster productivity growth. Neither is happening.

    The jobs most vulnerable to automation are low end manufacturing in Asia. In many cases the tech to replace these workers already exists, and Chinese wage growth of 10-15% a year in urban areas will force its adoption.

    The textile industry has largely already relocated to Southeast Asia for this reason. How long even they will be safe from automation is anyone’s guess.

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  110. @Lot
    All these programs already exist.

    Grads with good jobs and objective repayment factors can have their 6-7% federal student loans refinanced by private "social" lenders like SoFi at 3-4%.

    The other thing you propose exists as "income based repayment." The program requires you to make partial payments based on income for 25 years. Then the federal gov just forgives the rest.

    If a corporation made "partial" payments less than its loan contract such loan would be in default and partly written down as impaired. But the feds do not do this, even though they are 100.00% sure the loan will not be repaid in full.

    All quoted "Default rates" in student loan programs are BS for this reason. Someone in "default" just means they are too stupid or disorganized to sign up for the income based program, which has annual paperwork requirements but often cuts student loan payments from $600/mo to $40 or even 0.

    It is mostly higher IQ whites with worthless degrees doing these soft defaults not being counted as defaults in the government's cooked books.

    To put it another way, there are two separate ed loan scams going on. First the for profit scams that suck up billions of tax dollars for scam degrees and no show students. The people who run them donate heavily to both parties, though Obama started to crack down on them his last 2 years, shutting down some of the biggest chains of scam schools. Trump and DeVos reversed these policies. (Trump DoE also hides default data by school like Obama's DoJ hid race/crime data)

    The second scam involves more respectable 2nd tier colleges like George Washington and NYU admitting 115-125IQ types, letting them party on Ungle Sugar for years, investing in lavish facilities and $350,000 professor salaries.

    Then when grads emerge with their NYU gender studies degrees, NYU carefully makes sure the grad signs up for federal loan forgiveness. Thus NYU might get $150,000 in fed money for the student, the student himself only repays maybe $20,000 of it. But this student who never repays his loan is not counted as ever defaulting.

    IBR is only an option for federal student loans, not private.

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  111. Cortes says:

    If immigration law is enforced and people repatriated or just plain deported current real estate prices will collapse. Lax or zero enforcement has been necessary to provide tenants for speculative development to protect the emergent rentier class. Absent the demand from incoming dreamers, rents should fall by, my guess, 60%, with knockons for the whole bubble.

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  112. Not Raul says:
    @Art Deco
    On Steve’s wider question, the big issue is that the world economy is still dealing with a huge population bubble and the resource crunch that always results from that.

    We're not suffering from a population bubble or from a resource crunch.

    I’m not sure that I agree. For most of the last 15 years, the price of oil has been much higher than the historical average. There is also a shortage of housing in decent neighborhoods a reasonable distance from jobs.

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  113. Thomm says:

    It is obvious what will cause the next crash : the unwinding of QE and equivalent programs in Europe.

    The Federal Reserve openly says they don’t know what is going on, and have no clue as to why their QE did not cause inflation (the reason is technological deflation).

    Now that the Fed is unwinding QE and Europe is doing the same, things will crash.

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  114. @Art Deco
    You'll see a recession derived from the usual forces which generate recessions. If you're looking for a crash, we had one in 1840, 1873, 1929, and 2008. They're not that frequent and we'll all likely be dead before the next one.


    One thing that makes me anxious is the escalating tendency toward holding sovereign and household debt.

    The 1999/2000 tech crash was about the same magnitude as the 2007/2008 banking/mortgage crash in terms of stock market effect. The modern Keynesian situation in which the government is responsible for ~50% of economic activity in all advanced countries is very different from any previous era of capitalism, when that percentage was far lower. It acts as an enormous governor to slow what would otherwise be a rapid feedback cycle of the out-of-control diesel of finance self-destructing.

    In effect, we have been in an ultra-slow ‘crash’, with interim ups and downs, since 1999. White middle-class income shows it, among many other indicators.

    Of course in the long run, such governance can only distort market forces. Therefore the major crash, when it comes (and it is ultimately related to crashing White demographics), will be epochal. After that, we may see a Golden Age like after the Peace of Westphalia. Magnificent composers with 16 kids. May my son live to see it, and wife up in it.

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  115. densa says:

    The last economic crash will cause the next one. The model has been simple: blow a bubble and then pop it. Every time through the cycle the funny money grows and the old economy shrinks. If you control the cycle, you benefit both ways.

    The last crash was fixed with an unprecedented financial bubble. The next ordinary recession cannot be fixed by blowing another bubble as this one is not deflated. The Fed needs a new bubble, and cryptocurrency is a con-artist’s dream. Many possibilities.

    For one, cryptocurrency might just be getting started. It could become big enough to then be collapsed and all that money vaporized. It’s not connected to pensions or anything else that would require bailout.

    Cryptocurrency could also be the next stage in getting rid of real currency, which is another innovation desired by finance. Once everything is digitalized and bits are bits, we can have a new reserve and new parameters of central bank management of all markets. As we have already seen, central banks can endlessly manipulate markets with an adequate supply of zeroes.

    I’m an older person who worked and saved and now see the value of my life being inflated away by the Fed making our currency worthless. There is a rip-roaring inflation in housing, healthcare, food and energy, government ‘services’, insurance, and anything and everything manufactured abroad, all categories finance improved as profit for some but increased costs for others. There is an ongoing depression for the flyover minions who have been hanging on by their fingernails while diverse, vibrant folk tap-dance on them.

    Financialization has made everything that people need more expensive while simultaneously devaluing our labor and savings. TPTB show no sign of trying to fix this, so I assume they are happy to stay the course.

    The dollar can’t be rehabilitated, so it will be replaced. This will be our ailing economy’s final crisis. The non-financizalized economy will continue toward 3rd or 4th world status. It’s not an event to look for so much as an ongoing process. The stock market isn’t a sign of health but a symptom of too much money. Crypto might just be the roach motel the Fed is looking for to check that excess into.

    In case I sound too optimistic, I don’t think the next recession will be anything like any of the others we have experienced.

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  116. Sean says:

    Trump still has his massive infrastructure program to fend off the troubles in the near term. Maybe no crash, but unemployment on a unimaginable scale, because an Artificial Intelligence Singularity (then Apocalypse) will make all historical economic trends obsolete. The smart and big money is going into AI, an artificial intelligence winter (ie unforeseen tech problems with AI advances) will cause the next crash, if there is one.

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  117. Ivy says:

    One consideration in economic risk is balance sheet health. That shows up both for companies and for individuals. In some prior downturns, the Fed policy actions have helped banks restore that health with lower short term rates that facilitated the carry trade. Generate income to build equity and reduce the size and impact of bad assets, and healthier companies, employees and consumers mean more borrowing potential, however facilitated.

    Individuals, at least some, have a similar opportunity when there are low rates, via asset inflation to build more personal home equity. That also helps banks by lowering default rates and reducing loan reserve charges, boosting their equity. Think of those as structural elements a focus on building equity and financial and social capital cushions to be tapped when the next rainy day downturn happens.

    One less-publicized structural element is the low unemployment rate (setting aside the ‘discouraged, out of the job market’ piece for now). Of particular note is the black rate, lowest in a generation, with some potential spin-off benefits. When more people are working, households however defined are more stable, and welfare usage drops. Social pressures are relieved, debts are more likely to be repaid.

    Someone at the Fed is likely monitoring social health along with immigration and repatriation trends to watch the decline in unrest as people are more productive. Not too much of a stretch to look at happier consumers as less prone to SJW excess and delusion when they get psychic benefits from actually contributing something to life and learning something about themselves.

    Of course, leverage cuts both ways and the fall can be brutal. Watch and immunize the downside risk.

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  118. Dignan says:

    The end of the bond bull market (which has started to happen) will eventually force money out of the stock market and into the bond market as yields get back to more traditional returns. It will also put additional pressure on states and municipalities which have been issuing tons of low interest debt – the weak ones will have real problems when their debt costs double or triple. This likely will have an effect on the housing market as well since mortgage rates will double – we haven’t seen average mortgage rates above 7% since 2000.

    I think this is probably one of those things that happens slowly over the next few years, then suddenly in conjunction with some external world crisis.

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  119. @Jonathan Mason

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008
     
    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    https://www.youtube.com/watch?v=NMq7A17kLgs

    A crash, or financial panic, as was historically understood, was preceded by malinvestment and would wipe clear balance sheets through a process of bankruptcies. By this definition the “crash” of 2008 was not a crash as the government(s) stepped in and kept the cascade of bankruptcies from occurring. Malinvestments still abound, kept afloat by liquidity flowing from Central Banks.

    We are not in Kansas anymore, Toto, but in a new world where sovereign governments have taken on the burden of preventing a normal process of bankruptcies clearing malinvestment. The only thing that can trigger a true crash is loss of confidence that the government can continue in this role. Right now the major Central Banks are all cooperating to keep this from happening.

    Supposedly the Fed is trying to “take the training wheels off” and remove its support of the “market” (actually maintaining malinvestment). If the Central Banks persist we will see a pretty good perturbation in the market fairly soon that some may call a crash (probably within a year or so), but as long as “investors” believe the government can, and will, step in we will not have a true crash that wipes bad debts off the books.

    In the past spontaneous crashes preceded wars in a somewhat orderly fashion (as per Kondratieff). This time, I predict the crash will be preceded by a breakdown in international cooperation, after which the crash and wars will be unavoidable.

    China has trouble in its future as does the EU. Oil is a wild card. When the troubles get so bad that cooperation breaks down is anybody’s guess, but I think this guy has the best guess (2030 to 2060).

    https://www.ted.com/talks/didier_sornette_how_we_can_predict_the_next_financial_crisis

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    BTW, the threat of a breakdown in cooperation is why Trump has so many people "in the know" scared shitless.
    , @Anon
    One thing that tends to prevent wars is a newly emerged middle class that has every intention of wanting to enjoy its new wealth instead of being sent off to die in some idiotic foreign war. This is why Vietnam was so unpopular to young men in the 1960s and 70s. Do you think the new middle class in China and Russia wants to be yanked away from their iphones to be maimed and killed? No way. They didn't used to have much to lose. Now they do.

    A lot of people here think war is inevitable and easy to start. I don't think war will happen so easily anymore, except between 2 third world countries.
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  120. Continuing demand destruction due to the wages of the lower 90% to keep pace with inflation, which to date has been concealed by things like shrinkflation and lower standards of service, but is inexorably showing up in product pricing.

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  121. @Jonathan Mason

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008
     
    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    https://www.youtube.com/watch?v=NMq7A17kLgs

    My previous comment started out as a reply to you, but I got sidetracked and made it more general, forgetting it had a reply to you in the tag.

    The “Toto” was not meant as a demeaning remark towards you, but as a general use for humor (probably failed).

    My apologies.

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    The “Toto” was not meant as a demeaning remark towards you, but as a general use for humor (probably failed).
     
    No problem, sir, it happens to the best of us.

    Throughout Latin America the word 'toto' is slang for vagina, so it behooves the careful writer to be careful whom you are calling a cunt in case they take offense!
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  122. @Jack D
    This may be true at the grad school level (and even then it depends on the field) but undergraduates don't get fellowships. Even for grad students with fellowships, universities get away with paying people far less than they would be making in private industry (in exchange for "free" tuition) while meanwhile treating them like dirt. Maybe you were happy with your setup but a lot of grad students are miserable.

    Lots of the “good risk” undergrads get scholarships (full rides or thereabouts to normal white kids seem less common/to require higher “show off” value than in “my day” but I have no data). White kids from decent families mostly take some early inheritance from parents and escape with little debt, unless they do something sort of stupid.

    Grad school always has a split: outside STEM, you are probably the sucker ina big con game, even if very good. In STEM, you are taking a pay cut (for a while, and won’t earn it back totally) but getting a shot at a more interesting set of jobs, if you like that kind of R&D work. In CS, for example, you trade money for a shot at more “fun” later on, or, if you are lucky, becoming a tenured academic at a decent school. Which, in STEM, is a pretty great gig for now because pay is decent, you can consult on the side, and the job (for the right kind of person) is hard to beat.

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  123. Energy resource depletion leading to reduction in economies.
    Seneca’s Cliff.
    Catabolic Collapse.

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  124. @another fred
    A crash, or financial panic, as was historically understood, was preceded by malinvestment and would wipe clear balance sheets through a process of bankruptcies. By this definition the "crash" of 2008 was not a crash as the government(s) stepped in and kept the cascade of bankruptcies from occurring. Malinvestments still abound, kept afloat by liquidity flowing from Central Banks.

    We are not in Kansas anymore, Toto, but in a new world where sovereign governments have taken on the burden of preventing a normal process of bankruptcies clearing malinvestment. The only thing that can trigger a true crash is loss of confidence that the government can continue in this role. Right now the major Central Banks are all cooperating to keep this from happening.

    Supposedly the Fed is trying to "take the training wheels off" and remove its support of the "market" (actually maintaining malinvestment). If the Central Banks persist we will see a pretty good perturbation in the market fairly soon that some may call a crash (probably within a year or so), but as long as "investors" believe the government can, and will, step in we will not have a true crash that wipes bad debts off the books.

    In the past spontaneous crashes preceded wars in a somewhat orderly fashion (as per Kondratieff). This time, I predict the crash will be preceded by a breakdown in international cooperation, after which the crash and wars will be unavoidable.

    China has trouble in its future as does the EU. Oil is a wild card. When the troubles get so bad that cooperation breaks down is anybody's guess, but I think this guy has the best guess (2030 to 2060).

    https://www.ted.com/talks/didier_sornette_how_we_can_predict_the_next_financial_crisis

    BTW, the threat of a breakdown in cooperation is why Trump has so many people “in the know” scared shitless.

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  125. Dutch Boy says:

    Major economic crashes are inevitably caused by unrepayable debt caused by usury. The tragedy is that the system of usury is entirely unnecessary. Governments are sovereign and could create a system whereby money is loaned without interest (charging only a fee for processing/insurance). This would greatly decrease the debt commitment of the average borrower while still maintaining a money supply for consumption. Of course, the reason the system persists is that it channels resources from the poorer to the richer and the richer call the tune.

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    Don't underestimate the inability of people to pay back loans even without usury. People are greedy and dumb, and even loans without interest will not magically make them ungreedy and undumb.
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  126. ziggurat says:

    https://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

    On Mar 1991, a recession ended, which led to a 10 year expansion that ended with a recession starting in Mar 2001.
    On Nov 2001, a recession ended, which led to a 6 year expansion that ended with a recession starting in Dec 2007.
    On Jun 2009, a recession ended, which led to a 8+ (plus) year expansion that ended with a recession starting in ??? ????.

    The longest expansion in U.S. history was the 1990′s expansion (10 years, 0 months).
    Prior to that, the longest expansion was the 1960s expansion (8 years, 10 months).
    As of Jan 2018, the expansion has lasted 8 years and 7 months.

    The 1990′s dot.com bubble was followed by the 2000′s housing bubble, which was followed by the ??? bubble. I’m not sure what people will call it, but think it’s a “financialization” bubble. Stock buy-backs are a huge supporter of the market, while pension funds depend on 8% annual returns. The GMO investment company estimates -4% annualized, real returns in U.S. large stocks over the next 7 years. All that is needed is one grain of sand to topple an unstable structure.

    Still, I think the next recession will not be before Jan 2020, which would put the expansion at 10 and 7 months, the longest ever in U.S. history. It seems that the trend is longer periods without a recession followed by slower recoveries, with big market declines.

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  127. A wave of municipal, and even state, bankruptcies. A lot of them are already beyond any hope, but they’ve been delaying by issuing new debt to roll over old debt. It’ll be a good crisis to drop into Trump’s lap, if Russiagate fizzles out and he seems to have gained his footing. The affected cities and states are controlled by Dems, so they’ll optimize the timing for maximum damage.

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    IIRC, 3 states and about 800 municipalities defaulted on their bonds during the Depression, at a time when the contraction in real income was on the order of 30%. Governments were better at setting priorities back then. Still, absent a catastrophe, I'd tend to doubt municipal bond defaults will be of much consequence beyond the injuries to the parties in question.
    , @Jack D
    Even bigger than bond debt is their unfunded pension liability. Lots of government workers get unbelievably generous pensions (whereas defined benefit pensions are almost extinct in private industry). And a lot of state constitutions say things like "pension liabilities are a sacred obligation that can never be broken" so even bankruptcy doesn't help.
    , @Anon
    Trump has no intention of letting the states' pension crisis drop into his lap. He's going to tell them that it's their own problem to solve, like he told Puerto Rico that their current problems are their own to solve. There's no way in heck he's going to help states like Illinois or California. If he did, they'd just snatch the money out of his hand and rant and continue to blame him for everything and call him evil.

    Trump is not going to lend a dime's worth assistance to Democratic states that have dug their own graves, because he wants all the Democratic voters in those states to learn the hard way why you shouldn't vote for Democrats. Democrats will never wise up until they suffer the consequences of their own policies, and Trump knows that. The best way to turn Democrats into Republicans is to stop protecting them from their own ideology.

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  128. Anonymous • Disclaimer says:
    @Jonathan Mason
    Fiat does not have the technology?

    https://www.forbes.com/sites/kbrauer/2017/05/26/fiat-500e-can-you-really-drive-a-brand-new-car-for-a-total-cost-of-120-a-month-yes-you-can/

    If the current bull market lasts until electric vehicle technology makes an impact on employment, that will be a pretty good result.

    The question everyone would like to know is--if you could invest in one company now that will benefit from new vehicle technologies and hold it for 20 years, what would it be?

    Of course nobody knows. Tesla may well crash and burn and could trigger a stock market correction within the next year or two. I might stake a small amount on Nio.

    https://www.nio.io/

    The question everyone would like to know is–if you could invest in one company now that will benefit from new vehicle technologies and hold it for 20 years, what would it be?

    Just invest in a broad portfolio of Li mining and battery manufacturing and you don’t need to know the answer to this question. As it stands, nothing can replace Li within 20 years.

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  129. EriK says:
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  130. Art Deco says:
    @International Jew
    A wave of municipal, and even state, bankruptcies. A lot of them are already beyond any hope, but they've been delaying by issuing new debt to roll over old debt. It'll be a good crisis to drop into Trump's lap, if Russiagate fizzles out and he seems to have gained his footing. The affected cities and states are controlled by Dems, so they'll optimize the timing for maximum damage.

    IIRC, 3 states and about 800 municipalities defaulted on their bonds during the Depression, at a time when the contraction in real income was on the order of 30%. Governments were better at setting priorities back then. Still, absent a catastrophe, I’d tend to doubt municipal bond defaults will be of much consequence beyond the injuries to the parties in question.

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  131. Anonymous • Disclaimer says:
    @Jonathan Mason
    Fiat does not have the technology?

    https://www.forbes.com/sites/kbrauer/2017/05/26/fiat-500e-can-you-really-drive-a-brand-new-car-for-a-total-cost-of-120-a-month-yes-you-can/

    If the current bull market lasts until electric vehicle technology makes an impact on employment, that will be a pretty good result.

    The question everyone would like to know is--if you could invest in one company now that will benefit from new vehicle technologies and hold it for 20 years, what would it be?

    Of course nobody knows. Tesla may well crash and burn and could trigger a stock market correction within the next year or two. I might stake a small amount on Nio.

    https://www.nio.io/

    From that Forbes article:

    Remember, there’s essentially no maintenance required on an electric car

    No engine and transmission fluids, and no sparks to change. The rest of the maintenance is the same. There is even a coolant (except that instead of cooling engine it cools the battery).

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  132. Anonymous • Disclaimer says:
    @Pat Boyle
    Student debt is not very rational. When I took the GREs I sent my scores with applications to various graduate schools. I had good scores. So I got recruited and offered stuff. The Dean of some school at the University of Massachusetts called me one evening at home in California. He not only wanted me to come to his school at their expense, he said he would get my wife a job. He seemed real eager.

    I eventually went to George Washington in Washington DC but again I was recruited and offered a full academic scholarship in another department. They gave me a TA job (teaching calculus and computer operations). I competed for and won a Mellon fellowship and two internships. I made what was for me then more money than I ever had before.

    I think if you are a good student and have good scores money will flow toward you. But if you are a marginal student you will have to go into debt. A student loan is a kind of assertion that you are a better prospect than you appear to be. You are investing in yourself when the objective evidence is that you are a bad investment. The self deluded always suffer.

    Being black in America is the very definition of self delusion.

    There’s a lot more money in some fields than in others. This is just as true in various divisions of the educational enterprise.

    Therefore good prospects in some fields are showered with aid and benefits while equally good prospects in others are self-financing by one method or another.

    While it may be true that this provides evidence about future earning potential in a given field, many people forget that money is not the principal purpose in life for everyone. Moreover you in particular tend to extrapolate from your own personal situation a bit too readily.

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  133. Dave Pinsen says: • Website

    My guess was government environmental zealotry.

    But the good news, from an investor’s perspective, is you don’t know what the crisis will be to protect yourself. The hedged portfolio method I’ve written about is a way of doing that. https://seekingalpha.com/article/4134763-offer-value-clients-2018

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    • Replies: @G Pinfold
    I think you put this quite well - excessive environmental zealotry.

    An early manifestation is likely to be a spike in the oil price, an old-fashioned energy crisis, with prices north of 150 usd/barrel. Brent crude has already crept back above $70 with barely a mention. Why? Because no one is interested in oil these days. I mean, what are you? Some kind of redneck?
    Every day another preening fund manager declares that the fund is exiting the fossil fuel sector. Meanwhile raw demand is still growing and its a ferocious monster (almost 100m barrels per day and growing most rapidly in the non-automobile segments.) These 'gluts' we have heard so much about equate to a week or two of global demand. And last year saw the lowest levels of new oil resource discoveries in recent history.

    So I see the world sleepwalking, without the benefit of adult supervision, into real scarcity of its most critical resource. As another fred also noted, we are gambling on alternative energy with a lot of blind faith and wishful thinking.
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  134. @Jack D
    "Cosmetology" and many other "professional" licensing schemes are just scams set up to artificially restrict supply. Do you really need a 1,000 hour course in order to learn to shampoo someone's hair?

    (BTW, black people, especially women, require a LOT of hair care - did you see Oprah's hair the other day at her speech?

    https://cdn.newsday.com/polopoly_fs/1.16153881.1515883324!/httpImage/image.jpeg_gen/derivatives/landscape_768/image.jpeg

    It didn't resemble African hair in the slightest and in order to get African hair to resemble European/Asian hair you need to do a LOT of work and use lots of chemicals).

    As you say, the "rents" from this artificial restriction don't end up in the pockets of the individual hairdressers (just as the rent from the NY Taxi medallion scheme did not end up in the pockets of the cab drivers) but adhere to the salon owners and the people who operate the required schools.

    I see this in paramedicine/EMS.

    “Waaah there’s a national shortage of paramedics!”
    “Yeah but you pay them $14 an hour for a year of school.”
    “Well yeah.”

    My paramedic cert through the local CC cost me about 3g, paid for by the GI Bill. This is one of the top paramedic programs in the country (100% NREMT exam pass, five years in a row).

    However there’s a lot of scam schools here that will charge double and triple that for the exact same cert. The real gouge is the whole time theyre claiming that the local CC will accept their medic course as “college credits” if you talk to admissions. Pima Medical Institute goes so far as to structure its syllabus with “credits earned” next to each block of instruction.

    The reality is that unless you have an “in” with admissions, the community colleges (to say nothing of the unis) will not even look at the hokey transcript you give them, cause all these “academies” and “institutes” aren’t credentialed.

    There’s an argument to be made of “do trades need a two year AAS to just do the job? Does there need to be a FIRE SCIENCE pathway to make some 22 year old more competitive with the local FD?” Probably not. But then again, all the ENG101/102 work I did was underlining the 10th and 11th grade English classes I took over a decade ago. Maybe kids nowadays do need a two year to prove they can write a report or know how to cite and think critically.

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    • Replies: @Thea
    Vocational technical schools really get overlooked. You can get an EMT certificate for free before you graduate high school in under 10 months. No degree required. If post secondary it's less than $2000
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  135. whorefinder says: • Website

    Soros, et al. will likely try to keep the economy afloat until a few months before the 2020 election at this point.

    Remember how the Bush 43 economy was humming along until the election heated up in 2008, and then all of a sudden the bottom fell out right before the election, pushing Obama ahead. A good economy and McCain would have squeaked out a victory, despite the wars.

    McCain also badly misplayed his “I’m stopping my campaign to go vote on emergency measures” ploy versus Obama. When Obama refused to do the same, McCain should have played that up as “Obama cares more about winning than doing his job /saving the economy,” but never did; it turns out that that was exactly who Obama was: a guy more interested in himself and his own accolades than doing the job required of him.

    Anyway, tanking the economy at the midterms won’t be enough, as Trump’s economy could recover by 2020, and, in any event, the D’s right now are still in shambles as the Hate Whitey wing is too busy trying to purge the Old Guard/Clinton whites and Jews for the party to find viable candidates who can push through an agenda or take enough seats for impeachment, and, in any event, Trump’s executive orders can’t be stopped outside of massive court backlogging.

    No, the Deep State and the Bankrollers will wait until the closing months of 2020 to drop the economy like a rock off a cliff, if they can.

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  136. Vinteuil says:
    @Lot
    To answer the main question, I think it is most likely we don't have a recession in the next few years, or at worse a mild one. Karlin correctly describes some reasons for this.

    The mostly Chinese/Japanese/German dumb money that fueled the speculative bubbles of the W Era still shows all signs of being shell shocked and parking most of their money in government bonds yielding -1 to 1%.

    Another reason is there is no signals that the economy generally is overheating in the form of general inflation, and the fairly slow growth since 2011 provides some slack.

    Glad to see you back.

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    • Replies: @Lot
    Thanks, turned out 4 months was all I could flounce.
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  137. @Luke Lea
    Bitcoin is technologically esoteric to all but the nerdiest, but once you get a guided tour by somebody who knows it doesn't look so brilliant after all: https://goo.gl/Szkz74

    As Lubos Motl argues, bitcoin is guaranteed to crash and the only questions are how big will it get — as big as the Mississippi Bubble on a global scale? — before it happens?

    Personally I think China is the weakest link in the global economy: it is impossible to have an efficient allocation of capital in a large, complex society like China when all the major financial institutions are owned by the State, the State is owned by the Party, the Party is owned by the Central Committee, and the Central Committee is owned by Mao II (Xi). I expect a tragedy along the lines of the Great Leap Forward which will be triggered when the Chinese people wake up to discover that their life savings have been squandered on State-sponsored boondoggles, leaving them with little or nothing to depend on in old age. There will be a run on the banks, inflation, unemployment, and the Chinese government will be forced to start drawing down its foreign currency reserves; which, in turn, will cause world interest rates to suddenly increase—with predictable consequences for the US economy, including the ability of the federal government to continue financing its $20 trillion deficit. At least the problem of the zero lower bound will go away.

    Well said. One of the reasons the Fed has been keeping interest rates so low -is- the $20 trillion federal debt, which was just $600 billion under Nixon. We will be paying $1 trillion a year in interest on this debt if rates go to 5%.

    One of the most damaging long term effects of 8 years of Obama was a doubling of the federal debt. Of course, the Rs did little to rein him in.

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    • Replies: @Harry Baldwin
    One of the most damaging long term effects of 8 years of Obama was a doubling of the federal debt.

    The debt also doubled under George W. Bush. A doubling of the debt every eight years may be inevitable from now on, until we collapse under the weight of it.

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  138. Nick Diaz says:

    The next economic crash will be a run on the Dollar, and it will start in the Treasury Bond market. The public debt of the federal government is close to $21 trillion, which is roughly the size of the entire GDP. Creditors will realize that America can never repay the debt. But the situation is approaching the point where America cannot even service the interest of the debt. Most likely, the trigger will be China announcing that it will no longer buy U.S Treasury bonds, or OPEC nations declaring that they will no longer trade their commodity in U.S Dollars.

    Ideally, interest rates should go up to stimulate savings and investment. But the U.S government cannot do that because, if it raises interest rates, the government will not be able to pay even the interest of the national debt, which would make the government default. It can only stimulate economic growth via consumption, by keeping interest rates as low as possible. Less savings, less investment, more debt and an artificially strong economy based on cheap credit and consumption.

    The crash will come when all the creditors realize that the U.S’ actual economic might is much, much, much inferior to the unfathomable amount of money the World has landed the U.S government and American consumers: America’s current GDP and share of the World’s industrial production is, respectively, 18% and 7%, compared to 40% and 45% in 1960. The U.S in 2018 is a paper tiger propped up by cheap credit(from foreigners) and a hugely inflated financial services sector.

    It is important to point out that this crash will be much worse than the 1929 crash, and much, much, much worse than the 2008 crash. A currency crisis is the *the* worst of all economic meltdowns, as it erodes purchasing power as well as capital value and investment, from hyperinflation.

    [MORE]

    In the case of the U.S, this is going to be even more brutal than when this happens to other countries, because the U.S Dollar has been, since the end of WW2, the World’s fiat currency. This makes Americans much richer than they otherwise would, as all commerce is done in U.S Dollars, making goods much cheaper for Americans, making America’s PPP per capita about twice higher than it otherwise would. D’Estaigny talked about America’s “exorbitant privilege” as the country that has the international reserve currency. Well, this privilege is about to come to an end. What the next crisis will be about will be prolonged depression with hyperinflation, and the end of the U.S Dollar as the World’s fiat currency and the U.S as the central link in the World’s financial system. America’s standard of living will decline instantly to the level of the poorest countries in western Europe, like Spain and Italy.

    Scenario: disheartened by the fact that they have been buying U.S Treasury bonds for over 30 years and are never allowed to cash in, the Chinese government announces that they will no longer buy U.S Treasuries. The NYSE immediately tanks to levels as bad as those from 1987′s “Black Monday”. The U.S government responds by lowering interest rates to zero. The market doesen’t rally. Immediately, all those who hold U.S bonds try to sell, but there are no buyers. Those same sellers default on their other payments and investments, as a large part of their assets are tied in U.S bonds. Mass bankruptcies follow, and America experiences a drop in economic activity of -4% for two quarters in a row. The U.S federal government finally announces a massive QE(quantitative easing), printing and injecting $5.5 trillion in the economy. The market finally rallies with a growth in the next quarter of 1%. As the Dollar crashes in value, the value of assets crashes as well, sinking the economy in a deep depression with a decrease of -6% in GDP the first year. All holders of U.S dollars throughout the World try to sell their Dollars, further crashing the Dollar and the American economy. The coup de grace comes when OPEC announces that it will no longer trade it’s oil in U.S Dollars, but rather in Chinese Yuans and Euros.

    Since the end of WW2, America has been conducting it’s business with colossal arrogance and entitlement. It is all coming to an end. The next crisis will not be something that America will recover easily from: look for 4-5 years of profound economic shrinkage and dramatically increased prices for goods and services, followed by another decade of stagnation. We are talking here 15-25 years of slump. It will essentially be the end of the “American system” that has dominated the World since 1945.

    A sovereign debt crisis and the currency crisis that follows is the kind of stuff that “makes or breaks” World Powers. As recently as the early 1970′s, a lot of the World still prefered the British Sterling over the U.S dollar as a reserve currency. It all came crashing when the socialist government in England decided to artificially boost the standard of living of the population by devaluing the Sterling(populist economic). The result was predictable: a massive run on the Pound, and the brutal erosion of the PPP per capita of Britain.

    In fact, even though China needs America now, China and the U.S are geopolitical enemies. It is in China’s long-term interest to eventually crash America anyway. And Americans are really helping them with it.

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    • Replies: @Daniel H
    I agree that all it will take is for China to cease bidding on US Treasuries and the whole damned edifice will come crashing down.

    China will take a hit too, of course, but maybe they think that it will be worth it to see us descend into unimagined chaos and strife.
    , @Art Deco
    But the situation is approaching the point where America cannot even service the interest of the debt.

    Federal debt service is currently $458 bn. We can service it with a 5% general sales tax.
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  139. r3518439 says:

    Tech bubble. First there are the big players that may go bust like Twitter and Uber. Second there is the whole online advertising market which is built on a lie. Then there are all the little players that you, I, and everyone else don’t even know the name of. They only exist because they have venture capital coming in. No plan or hope to ever make money.

    We will look back on it like we do the 90s tech bubble where it was obvious that companies were overvalued and peddling bs.

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  140. Big deal. Won’t the next crash lead to the next boom? Nobody here can look on the bright side of things.

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    • Replies: @another fred

    Won’t the next crash lead to the next boom?
     
    There are a lot of books and articles about that and I am not going to summarize them here, but if it is a serious question then consider these hypotheses:

    Booms come from growth and growth comes from need. If the earth is overcrowded and population stabilizes then where will you get the need to create the growth?

    The industrial revolution has been characterized by greater and greater use of energy to create wealth. We are well into a cycle on fossil fuels where that energy returned on energy invested (EROEI) is shrinking from over 40 to around 10 for deepwater wells and horizontal wells with fracking. We need around 10 just to maintain civilization, let alone grow.

    If these are true, to get another boom you must postulate that the population can continue to grow without negative feedbacks and new sources of energy will be found. Lots of people are happy to wave their hands and say it will happen. Whether or not, you should at least consider that that is probably what you are betting on.

    , @Alden
    Read my post # 40 about California earthquakes, forest fires and the construction industry.
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  141. Thea says:

    Does it matter the cause? The result will be white Gentile taxpayers bailing out our elite again as they sip champagne on a yacht

    Again

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  142. Jack D says:
    @International Jew
    A wave of municipal, and even state, bankruptcies. A lot of them are already beyond any hope, but they've been delaying by issuing new debt to roll over old debt. It'll be a good crisis to drop into Trump's lap, if Russiagate fizzles out and he seems to have gained his footing. The affected cities and states are controlled by Dems, so they'll optimize the timing for maximum damage.

    Even bigger than bond debt is their unfunded pension liability. Lots of government workers get unbelievably generous pensions (whereas defined benefit pensions are almost extinct in private industry). And a lot of state constitutions say things like “pension liabilities are a sacred obligation that can never be broken” so even bankruptcy doesn’t help.

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    • Replies: @J.Ross
    I witnessed a bizarre illustration of this mindset. A major, long-running story in Outer Detroit (safely beyond the dindulands) is the failure of government pensions, especially for public-sympathetic people like firemen and ambulance drivers. The verdict always comes back, we're sorry, but the money's just not there. So a coworker was discussing that -- data beats logic, phronesis owns theory, the presense or absense of actual money overrules sacred obligations burning in your heart -- and up behind him crept a customer, a nice old man who just happened to be the retired vice president of a labor union. Oh no, he insisted, they'll pay. They have to. Maybe we'll go to court and there'll be a wait but they'll absolutely pay. They have to. Because it says so. Being that he was a customer we could hardly tell him to swallow large unlubricated auto parts and gasp in rain until dead.
    , @International Jew
    Quite right, I should have said, default on municipal bonds and pensions.
    , @George
    Internet ranter and amateur market pundit here!!!

    For those interested in the coming pension crisis see:
    http://www.pensiontsunami.com/
    http://stump.marypat.org/
    https://burypensions.wordpress.com/

    The state pension death watch is looking to IL, NJ, or KY for the first statewide crisis, but who knows. NJ in particular has expensive tastes. State government employees and wealthier state taxpayers both are claiming the same future income during their retirements. They both cannot have it.

    At the same time private pension plans are also collapsing for example the Central States Teamsters pension.

    Who Will Bail Out Insolvent Union Pension Funds?
    https://www.forbes.com/sites/georgeleef/2016/08/05/who-will-bail-out-insolvent-union-pension-funds/#2dfd052c4354

    Federal gov pensions are not funded in advance, so they are not considered in the discussion but probably should.

    Supposedly the Fed is going to do something called quantitative tightening, which is they are going to try and sell all the bonds they purchased during the 09 financial crisis while raising the federal funds rate. Higher interest rates are generally not helpful for stocks.

    California: Bill Gross of Janus: 'Bonds, like men, are in a bear markCet'
    https://www.reuters.com/article/us-funds-jns-hndsn-glb-uncon-bd-gross/bill-gross-of-janus-bonds-like-men-are-in-a-bear-market-idUSKBN1F01LO

    Texas: Hoisington Investment still a bond bull
    https://seekingalpha.com/news/3322426-hoisington-investment-still-bond-bull

    Unrelated to Mr Gross bond analysis, in retail men are not in a bear market: Analysis Shows Women Lost Jobs In Retail Last Year, Though Men Gained
    https://www.npr.org/2017/12/24/573275495/analysis-shows-women-lost-jobs-in-retail-last-year-though-men-gained

    General Electric cut its dividend in half. The worry in my mind is if low interest rates (30 yr Treasury is 3%) somehow make sustaining dividends above 1% impossible for all the large dividend paying stocks. The GE dividend cut is going to take $4 billion out of the returns of investors, mostly wealthy retirees, so this is real not funny money. Just imagine if GE is just the first to cut dividends in the coming downturn? GE is also a problem for New York state, now GE may have joined Kodak, Xerox, IBM, Unisys(Sperry Univac Burroughs) as a fallen Upstate NY industrial giant.

    Economic cycle experts ECRI claim 2018 will bring a slowdown.
    Jobs Report and 2018 Slowdown
    https://www.businesscycle.com/ecri-news-events/news-details/economic-cycle-research-ecri-lakshman-achuthan-business-cycle-jobs-report-and-2018-slowdown

    Elsewhere Tunisia, which is just 40 mi from the nearest Italian island, could collapse. At the same time the end game of the war in Syria could flood Turkey and then Europe with another flood of refugees. At some point Europe will be unable to stop it and unable to pay for it. One outlier type possibility is that the Koreas agree to make nice in perpetuity if the US military leaves S Korea. If the US is out of Korea Japan is next then Asia. That will be bad for Lockhead Martin among others for sure.
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  143. MikeJa says:

    Bernie Sanders (or someone of his ilk) wins in 2020. He raises taxes substantially to pay for an increase in welfare and starts taking anti-trust seriously. This leads to a stock market collapse which exposes all sorts of funny business we don’t know about at present

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  144. @anony-mouse
    Big deal. Won't the next crash lead to the next boom? Nobody here can look on the bright side of things.

    Won’t the next crash lead to the next boom?

    There are a lot of books and articles about that and I am not going to summarize them here, but if it is a serious question then consider these hypotheses:

    Booms come from growth and growth comes from need. If the earth is overcrowded and population stabilizes then where will you get the need to create the growth?

    The industrial revolution has been characterized by greater and greater use of energy to create wealth. We are well into a cycle on fossil fuels where that energy returned on energy invested (EROEI) is shrinking from over 40 to around 10 for deepwater wells and horizontal wells with fracking. We need around 10 just to maintain civilization, let alone grow.

    If these are true, to get another boom you must postulate that the population can continue to grow without negative feedbacks and new sources of energy will be found. Lots of people are happy to wave their hands and say it will happen. Whether or not, you should at least consider that that is probably what you are betting on.

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    • Replies: @Almost Missouri
    I've been hearing about this energy returned on energy invested ("EROEI") shrinking for over three decades, such that supposedly by the year 2000 it would no longer pay to drill new wells. The millennium came and went and petroleum is still king of energy. There was a Peak Oil hysteria in the 2000s, but even I could see through that.

    EROEI may indeed be dropping, but might that be not because oil wells are getting less efficient, but because human beings are getting less efficient (at least human beings in the industrial (petroleum) economy)? In other words, like so many matters of public moment, the undiscussed HBD aspect turns out to be the one to rule them all. As the first world nips its own descendants in the bud, subsidizes underclass breeding, and imports useless and destructive third worlders hand over fist, of course the returns on every kind of large investment (including energy invested) are dropping and will continue to drop. You can't make the shining city-on-a-hill future when you are staffed with primitives from a dark age past.
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  145. The Guardian – Are we heading for another developing world debt crisis? (They actually mean sub-saharan Africa, but they can’t say it like that)

    https://www.theguardian.com/world/2018/jan/14/are-we-heading-for-another-developing-world-debt-crisis

    Deals were done in which western banks lent money for projects in African countries, with the debt to be paid off by the proceeds of rising commodity prices.

    That was the theory. In practice, some ropey deals were done,

    at the end of 2017, 28 [african] countries were rated as in debt distress or at high risk of debt distress, up from 22 at the end of 2016, and 15 in 2013. The number of [african] countries classified as low risk has more than halved – from 24 in 2013 to 11 currently.

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  146. Neoconned says:
    @Simon in London
    Student loan debt peonage seems like a safe investment since it's fully backed by government violence. It would cause a collapse if the government wrote off the debts without compensation to the slaveholders... I mean the loan companies.

    I don’t think there will be another crisis for a while. I think things will be remarkably stable. The Bank of Japan has managed to control Japan’s parachute type slow drop into deflationary hell.

    If anything will it’ll be automation. That’s if the Fed loses control. But if some of the workforce studies are correct and we lose say 40 odd percentage of all jobs you’ll have far more than a great depression.

    You’ll have military rule and/or balkanization with generals and governors fighting for control of the nuclear arsenal. Scary shit straight from a Clancy novel.

    You’ll have a financial collapse followed by a government collapse and or autocratic rule.

    We need UBI and a reduction in immigration. Either way quite frankly we are doomed and f***Ed.

    And when they do impose UBI expect rents to rise and gold, cash, guns, bullets and xryptocurrencies to surge in value

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  147. prosa123 says: • Website
    @Jack D
    In addition to a new mortgage bubble and a student loan bubble, we have a big auto loan bubble. There's a whole industry built around selling cars to people with bad credit. Rapid advances in electric and self-driving technology will make the existing vehicle fleet less valuable than the estimates on which the loans/leases were based putting even more auto loans under water, especially since one of the tricks they have been using is to make car loans for longer and longer periods.

    Auto manufacturers have already been building too many new car factories and at the next downturn these will sit idle and all the workers laid off. The auto industry underpins a large share of the economy (half the ads on TV seem to be auto dealer ads - the other half are ads for totally non-productive sectors - drugs, hospitals and malpractice/auto accident lawyers) so an auto industry crash has widespread effects.

    Fiat/Chrysler, the sick man of the US auto industry since the '70s, won't survive the next downturn and probably will get sold to the Chinese. They don't have the capital to make the transition to new technology.

    Millions of truck/bus/cab drivers will lose their jobs. The current model, where you buy a car and it sits in your driveway or the parking lot of your workplace 23 hours/day, is going to go by the wayside and there is going to be a permanent reduction in the # of vehicles needed.

    A disturbing fact about car loans, as Jalopnik recently reported, is that more than 30% of new car sales involve trade-ins in which the buyers are underwater. These loan balances get rolled over into the new loans, making the buyers even more deeply underwater.

    That being said, the total amount of car loan debt is far, far less than mortgage debt at the start of the financial crisis.

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  148. J.Ross says: • Website

    OT Economist: Public Distrust In News Media Means — wait for it — trouble for Donald Trump! Yeah! That’s the ticket. My wife, Morgan Fairchild, was just telling me so.

    https://www.economist.com/blogs/graphicdetail/2018/01/daily-chart-7

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    • Replies: @Anonymous
    If you believe us, the sky is falling because Trump.
    If you don't believe us, the sky is falling because Trump.
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  149. @reiner Tor

    Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?
     
    But would it not cause improvements..?

    There are downsides. It would cause people to seriously consider the possibility that Sunni Islam is true. The car dealership opposite the hall of medal of honor recipients would never be relocated. The security precautions would reduce the case load of the court causing withdrawl in legal junkies.

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  150. Before beginning in earnest on this timely and thankfully introduced topic, I wish to say a few words about Bitcoin.

    I have read the Bitcoin whitepaper and, frankly, it comes across to me as a hoax. Having written and read a fair amount of academic papers in my time, I have a pretty good sense of when somebody is shining my shoes; and, not only does the thin and rudimentary material presented in the whitepaper fail to rise to academic standards, but there is a je ne sais quoi of tinniness and phoniness in the prose that distinguishes it from the ordinary hyperbole of the typical sales pitch. The development of the blockchain (a running, open-sourced, cryptographic ledger) did not require any quantum leaps of insight. It is in fact simply a computational version of the same thing that was accomplished millennia ago with the rudest of analog methods—e.g. the broken sticks and torn contracts of ancient Roman custom, in which each party received one piece. Bitcoin obviously originated as some sort of libertarian and techno-fantasist “proof of concept” that was never even intended to be practical. Bitcoin mining now consumes as much electricity as the entire nation of Ireland; and the run-up in Bitcoin market cap is part and parcel of the same Everything Bubble that has been engendered by massive waves of quantitative easing and loose credit. Crypto-currencies have no application outside of these highly dissipative and artificial liquidity conditions. I have erstwhile described them as akin to amusement park tokens—negotiable withing a limited sphere but of very little use outside it. The real economy will never operate on the blockchain. Cryptos are a speculative frenzy that nobody will even remember in 5 years.

    And now back to the main point. Perhaps the headline to this post ought to more accurately read as, What will cause the next financial crash,” since that is what we generally mean when making reference to stock market reversals. It is critically important, especially in this day and age, to keep ever in mind the distinction between the financial system and the real, physical economy. The latter is, of course, the ultimate arbiter of all things and is, to me, much the more interesting. But the former also has its place and, for schematic simplicity’s sake, might be beneficial to discuss first.

    [MORE]

    The next financial crash can be explained in just two words: interest rates, i.e. the balance point between liquidity time preferences and the risk of default as reflected in the price of borrowed money. For the last decade, interest rates of been the victim of a relentless campaign of financial repression of staggering proportions. Right now there is something like $10 trillion of sovereign debt trading at a negative rate of return, meaning that bond buyers actually have to pay a premium for the privilege of loaning money to various governments. The European Central Bank has purchased so many corporate bonds on the open market that the spread between investment grade and junk has narrowed to the lowest value in recorded history. The Bank of Japan, for its part, has bought virtually the entire Japanese bond float and owns roughly a 10% stake in all Japanese listed ETFs. You may want to pause for a moment and just think through the implications of this. The Bank of Japan is now very close to being an actual “board member” of Japanese corporations, with all the fiduciary responsibilities and conflicts of interest that that implies. It cannot sell its position without tanking the market, but it cannot increase its holdings without actually assuming command of the companies’ day-to-day operations (which it is very ill-equipped to do). This is called painting yourself into a Keynesian corner.

    If the Central Banks of the world started to sell off their bond holdings, interest rates would climb back towards their historic norms and the cost to service the hundreds of trillions of dollars of global debt would be instantly repriced. At that point it would be revealed that everybody, everywhere is insolvent and the global financial system would undergo a nuclear meltdown. Obviously that isn’t going to happen. No central banker who wants to keep his head is going to persist in a policy of quantitative tightening once the market begins to crash, the pension funds are wiped out, and the bank runs kick in. But all the same, logic and common sense tells us that you cannot “really” stimulate an economy simply by printing money, for that is tantamount to getting something for nothing. We therefore must conclude that the decade-long experiment in turbo-Keynesianism has been an elaborate parlor trick designed not to cure our economic ails but to obscure them. Interest rates will not rise by ordinary means but something equivalent has to happen somewhere in the system to absorb the pressure that interest rates are not being allowed to feel.

    It was the genius of modern monetary policy that the strain was kept confined to a region of the financial universe that few people have heard of and even fewer understand—the Eurodollar funding system. Eurodollars are time-deposits denominated in dollars held in banks outside of the United States, and are a critical part of the infrastructure of international settlements. Eurodollars arose out of the dollar’s status as a reserve currency and the need for foreign governments and corporations to have access to dollar funding. But these dollars are somewhat different inasmuch as they are not under the jurisdiction of the US Federal Reserve and can command higher interest rates.

    For reasons discussed in detail by Jeffrey P. Snider of Alhambra Partners, the Eurodollar system has been breaking down. He describes the world as being in the early stages of a “run on the dollar.” This is indeed a side effect or corollary of Triffin’s Paradox. Any country, such as the United States, which wishes its currency to be used as a global reserve currency, must be willing to supply the world with large amounts of it by running a current account deficit. The primary creditors of the United States, especially China, have found themselves in a sort of inverse of Triffin’s Paradox such that the amount of dollars they must hold to provide for their international settlement needs is so great that they risk having their own currencies appreciate unacceptably relative to the dollar, to the detriment of their export-based economy. This risk the Chinese have tried to ameliorate first by pegging the yuan to the dollar, then by devaluing it, and finally by outright manipulation of the interbank SHIBOR rate. But the ultimate effect of the dilemma is to force nations like China to search for alternatives to dollar funding.

    Since this could be construed as a weakening of the demand for dollars, ordinary economic thinking would postulate that the dollar’s value would then decline; but this simple analysis does not take into consideration the vast amount of dollar-denominated debt already on the books that will have to be paid back in kind. The withdrawal of a country like China from the dollar system would result in an immediate evaporation of a large pool of dollar liquidity. The remaining dollars in the system would then be extensively bid by dollar-debtors scrambling for funds with which to square their outstanding loans. There are no longer enough dollars in the world to pay back all the loans, so the dollar strengthens as its value as a reserve currency steadily erodes. Now we have gotten, by a somewhat counterintuitive process, to that “equivalent” of rising interest rates that we were searching for earlier. A strengthening dollar is topologically equivalent to a rising interest rate inasmuch as it tends to favor creditors over debtors and results in a deflationary preference for dollar hoarding as cash, once again, becomes king.

    ~~~

    Now, as regards the physical economy, it is clear from an appraisal of the underlying fundamentals that it is in a state of slow and inexorable deterioration. When you look at graphs of hardcore econometric indicators such as year-over-year changes in employment and productivity, and you mentally pencil in a smoothed polynomial curve to even out instantaneous swings in the data, there is no hiding the gently sloping downward trend. This is exactly what we would expect from a global economy in which there is no actual growth, which has already reached the Keynesian coffin corner of Peak Debt, and which is already experiencing the adumbrations of an impending demographic inversion reminiscent of late Roman times.

    When people ask me when I think the crash will take place, I answer that it already has, that it is ongoing, and it will continue for the next 30 or 40 years. The system has a great deal of inertia in it and the primary frequency of the underlying drivers is generational in scale, so the “crash” appears to happen very slowly withing the context of a single human lifetime; but in the more objective retrospect of history it will stand out clearly as an obvious inflection point, as the period when the developed world passed from organic growth and development in the economic sphere to the mere maintenance of a tottering system under increasingly desperate conditions.

    As I have already discussed this dynamic from numerous angles and have no desire to repeat myself here (although this topic could easily furnish enough material for a book), I will confine my present comments to statements about the immediate future which may be of some interest.

    The next big thing, the one development that will signify definitively that a new and sparer season has taken hold, will be the collapse of tech. I am not saying that the internet is going to disappear overnight or that the cities will go dark; but I am saying that, beginning around 2020 or so, the whole concept of technology as an investment category, as a culturally significant going concern, and as a mysterious incantation in corporate-speak portending vast future productivity gains, is going to take a serious hit from which it will not recover. In a world that is no longer actively opening up new avenues of real and tangible wealth, the diminishing returns from any further intensification of the technological process are going to prove too a costly a burden to bear. The future will contain no such thing as a “tech industry” per se, but only currently existing technologies built into other industries and correspondingly retreating to a smaller scope and lower level of implementation. The degree of technological sophistication that we have right now is very near the maximum that we will ever have. Even the highest existing current applications will withdraw into a realm that is less widespread, more boutique, and more mysterious to the masses as it becomes a recondite priestcraft and the personal possession of an aristocratic elite.

    I would be very suspicious of the FAANGS right now. As de-dollarization (see above) continues to make globalism a much less favorable proposition for the American consumer, these mammoth tech companies will be revealed ever more poignantly for the cash-burning leeches they always have been. Sporting P/E ratios up to five times the historical average for publicly traded corporations, they are already due for a correction on technical grounds and their underlying fundamentals are terrible. The fault line is probably weakest at Amazon. When that space starts to move, the global correction will have begun.

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    • Replies: @International Jew
    Agreed, that Bitcoin is a scam. But as for the rest, tl;dr.
    , @Almost Missouri
    Pace IJ, I did not find the fate of the world to be a "too long; didn't read" subject.

    Thanks for introducing me to Triffin and his paradox.

    Agree about financial vs. real. Also about tech, mostly.

    Still puzzling as to how excess dollar printing can lead to dollar strengthening... The only understanding I can come to so far is that all that money printing was in fact not really money printing but defacto debt issuing, which when it finally gets counted up against the actual money needed to repay it, it turns out that the latter commodity is lacking. If so, would you say this process is already underway? I tend to think "yes", based on your fourth to last paragraph. If so, would you say this is the reason that all the incontinent "Quantitative Easing" has not already resulted in inflation? If yes, I have to say that the central bankers--or whoever is managing the process--have been remarkably adept at keeping these huge financial forces in equipoise. That's better performance than I usually expect from these people.
    , @another fred

    The withdrawal of a country like China from the dollar system would result in an immediate evaporation of a large pool of dollar liquidity.
     
    Don't they have to dump a bunch of them first? Aren't most of their foreign exchange holdings in US$?
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  151. J.Ross says: • Website
    @Jack D
    Even bigger than bond debt is their unfunded pension liability. Lots of government workers get unbelievably generous pensions (whereas defined benefit pensions are almost extinct in private industry). And a lot of state constitutions say things like "pension liabilities are a sacred obligation that can never be broken" so even bankruptcy doesn't help.

    I witnessed a bizarre illustration of this mindset. A major, long-running story in Outer Detroit (safely beyond the dindulands) is the failure of government pensions, especially for public-sympathetic people like firemen and ambulance drivers. The verdict always comes back, we’re sorry, but the money’s just not there. So a coworker was discussing that — data beats logic, phronesis owns theory, the presense or absense of actual money overrules sacred obligations burning in your heart — and up behind him crept a customer, a nice old man who just happened to be the retired vice president of a labor union. Oh no, he insisted, they’ll pay. They have to. Maybe we’ll go to court and there’ll be a wait but they’ll absolutely pay. They have to. Because it says so. Being that he was a customer we could hardly tell him to swallow large unlubricated auto parts and gasp in rain until dead.

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    • Replies: @ScarletNumber
    You could tell your customer to swallow whatever you want, but he is 100 percent correct. NJ froze pensions, but didn't reduce them. They aren't allowed.
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  152. Alden says:
    @Jonathan Mason

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008
     
    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    https://www.youtube.com/watch?v=NMq7A17kLgs

    California earthquakes always create a construction boom that benefits all other sectors

    The 1994 earthquake plus whatever Clinton did caused a boom that lasted right up to 2008. Construction people pray for earth quakes.

    But our government betrayed us with the Oakland Bridge. It was made in China and put together here. It’s beautiful though.

    The Napa and Thomas fires have already set off a construction boom.

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  153. Alden says:
    @anony-mouse
    Big deal. Won't the next crash lead to the next boom? Nobody here can look on the bright side of things.

    Read my post # 40 about California earthquakes, forest fires and the construction industry.

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  154. unit472 says:

    I’m going to guess it will start with the PIGS. When the ECB ends its ‘whatever it takes’ QE program (as soon as September but no later than October 2019 when Draghi goes) so the PIGS are just not going to be able to finance their debt as yields rise and that is going to restart the banking crisis if not the break up of the EU.

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  155. JosephB says:
    @Lot
    All these programs already exist.

    Grads with good jobs and objective repayment factors can have their 6-7% federal student loans refinanced by private "social" lenders like SoFi at 3-4%.

    The other thing you propose exists as "income based repayment." The program requires you to make partial payments based on income for 25 years. Then the federal gov just forgives the rest.

    If a corporation made "partial" payments less than its loan contract such loan would be in default and partly written down as impaired. But the feds do not do this, even though they are 100.00% sure the loan will not be repaid in full.

    All quoted "Default rates" in student loan programs are BS for this reason. Someone in "default" just means they are too stupid or disorganized to sign up for the income based program, which has annual paperwork requirements but often cuts student loan payments from $600/mo to $40 or even 0.

    It is mostly higher IQ whites with worthless degrees doing these soft defaults not being counted as defaults in the government's cooked books.

    To put it another way, there are two separate ed loan scams going on. First the for profit scams that suck up billions of tax dollars for scam degrees and no show students. The people who run them donate heavily to both parties, though Obama started to crack down on them his last 2 years, shutting down some of the biggest chains of scam schools. Trump and DeVos reversed these policies. (Trump DoE also hides default data by school like Obama's DoJ hid race/crime data)

    The second scam involves more respectable 2nd tier colleges like George Washington and NYU admitting 115-125IQ types, letting them party on Ungle Sugar for years, investing in lavish facilities and $350,000 professor salaries.

    Then when grads emerge with their NYU gender studies degrees, NYU carefully makes sure the grad signs up for federal loan forgiveness. Thus NYU might get $150,000 in fed money for the student, the student himself only repays maybe $20,000 of it. But this student who never repays his loan is not counted as ever defaulting.

    “letting them party on Ungle Sugar for years, investing in lavish facilities and $350,000 professor salaries”

    What profs get $350k? Medicine and law, maybe. STEM fields? Unless you’re one of the rock stars, no way.

    Even for STEM, take 1/3 of that for associates and 1/2 for full.

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    • Replies: @Autochthon
    Medicine maybe. Not even law except celebrities such as Dershowitz and some administrators. I've noticed otherwise reasonable denizens of iSteve love to just pull nonsense out of their asses when it comes to academia.

    Yes, academia is a poop-show, but not in the ways or for the reasons many of you think.
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  156. I don’t know about the next economic crash, but I’d be more worried about something that we can somewhat predict: long-term future real rates of returns on stocks and bonds.

    Short-term predictions – less than 7 to 10 years – is a crapshoot but over 10 to 15 years, current valuations give you a decent guide. No GPS, but they do point you in the right direction.

    According to various valuation metrics, the U.S. stock market is somewhere between pretty expensive to extremely expensive – only surpassed by the tech bubble. What’s more, this stock market is uniformly expensive whereas the tech bubble was insanely expensive in certain parts while other parts of the market – particularly value stocks – were actually fairly cheap. Not really anywhere to hide this time around.

    Investors will be lucky to get 2% to 4% real annualized returns for U.S. stocks over the next 10 to 15 years.

    Int’l developed and emerging market stocks aren’t too bad relative to history. Let’s say 4% to 5% real annualized here.

    Bonds around the world are crazy expensive, so ~0.5% real annualized for 10-year treasury and 1.0% for corporate.

    You can ballpark that a typical American 60/40 portfolio, i.e. 50% large U.S. blend/growth, 10% int’l blend/growtha and 40% mix of treasuries and corporate bonds will be lucky to get 2% annualized real. And that’s before fees and the usual bad investor behavior take their cuts.

    Now, how that comes about – scary ’08-’09 crashes or just grinding low return year after year – no one can say, but we’d all be wise to figure out how we’re going to reach our finanical goals with those low returns. Save more, spend less.

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  157. yowzaaa says:

    All the money printed by the Obama administration to buy baskets of stocks to float the stock market are STILL ON THE BOOKS!

    I expected Obama to stealthily unwind significant positions as he went along, but that absolutely didn’t happen, so taxpayers own an unprecedented amount of stocks, and Trump hasn’t even begun unwinding the positions, as far as I’ve heard.

    The only strategy I can fathom is Trump is allowing time for major companies to buy back their stocks to reduce the float, mitigating government selloffs. That’s never been tried, I dunno if it will mitigate pullbacks from turning into mass exits, but that’s one negative variable none of the major media has investigated, because they’re more concerned about saying “shithole” on the air as many times as possible, while ignoring the ironic position they enjoy as “centers of journalism,” otherwise accurately described as “shitholes.”

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  158. @Jonathan Mason

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008
     
    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    https://www.youtube.com/watch?v=NMq7A17kLgs

     A major earthquake in California

    Bingo. California is of course a one party-state at this point, but the whispers have been that the huge meztiso underclass is patiently waiting for the Big One to go on the Mother of All Looting Rampages.

    Once even Beverly Hills and Malibu become Hobbesian free-for-alls, California’s upper (and remaining) middle class will pendulum swing back to law-and-order so fast you’d think it was Germany in the early 30s.

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  159. @Jim Don Bob
    Well said. One of the reasons the Fed has been keeping interest rates so low -is- the $20 trillion federal debt, which was just $600 billion under Nixon. We will be paying $1 trillion a year in interest on this debt if rates go to 5%.

    One of the most damaging long term effects of 8 years of Obama was a doubling of the federal debt. Of course, the Rs did little to rein him in.

    One of the most damaging long term effects of 8 years of Obama was a doubling of the federal debt.

    The debt also doubled under George W. Bush. A doubling of the debt every eight years may be inevitable from now on, until we collapse under the weight of it.

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  160. Daniel H says:
    @Nick Diaz
    The next economic crash will be a run on the Dollar, and it will start in the Treasury Bond market. The public debt of the federal government is close to $21 trillion, which is roughly the size of the entire GDP. Creditors will realize that America can never repay the debt. But the situation is approaching the point where America cannot even service the interest of the debt. Most likely, the trigger will be China announcing that it will no longer buy U.S Treasury bonds, or OPEC nations declaring that they will no longer trade their commodity in U.S Dollars.

    Ideally, interest rates should go up to stimulate savings and investment. But the U.S government cannot do that because, if it raises interest rates, the government will not be able to pay even the interest of the national debt, which would make the government default. It can only stimulate economic growth via consumption, by keeping interest rates as low as possible. Less savings, less investment, more debt and an artificially strong economy based on cheap credit and consumption.

    The crash will come when all the creditors realize that the U.S' actual economic might is much, much, much inferior to the unfathomable amount of money the World has landed the U.S government and American consumers: America's current GDP and share of the World's industrial production is, respectively, 18% and 7%, compared to 40% and 45% in 1960. The U.S in 2018 is a paper tiger propped up by cheap credit(from foreigners) and a hugely inflated financial services sector.

    It is important to point out that this crash will be much worse than the 1929 crash, and much, much, much worse than the 2008 crash. A currency crisis is the *the* worst of all economic meltdowns, as it erodes purchasing power as well as capital value and investment, from hyperinflation.



    In the case of the U.S, this is going to be even more brutal than when this happens to other countries, because the U.S Dollar has been, since the end of WW2, the World's fiat currency. This makes Americans much richer than they otherwise would, as all commerce is done in U.S Dollars, making goods much cheaper for Americans, making America's PPP per capita about twice higher than it otherwise would. D'Estaigny talked about America's "exorbitant privilege" as the country that has the international reserve currency. Well, this privilege is about to come to an end. What the next crisis will be about will be prolonged depression with hyperinflation, and the end of the U.S Dollar as the World's fiat currency and the U.S as the central link in the World's financial system. America's standard of living will decline instantly to the level of the poorest countries in western Europe, like Spain and Italy.

    Scenario: disheartened by the fact that they have been buying U.S Treasury bonds for over 30 years and are never allowed to cash in, the Chinese government announces that they will no longer buy U.S Treasuries. The NYSE immediately tanks to levels as bad as those from 1987's "Black Monday". The U.S government responds by lowering interest rates to zero. The market doesen't rally. Immediately, all those who hold U.S bonds try to sell, but there are no buyers. Those same sellers default on their other payments and investments, as a large part of their assets are tied in U.S bonds. Mass bankruptcies follow, and America experiences a drop in economic activity of -4% for two quarters in a row. The U.S federal government finally announces a massive QE(quantitative easing), printing and injecting $5.5 trillion in the economy. The market finally rallies with a growth in the next quarter of 1%. As the Dollar crashes in value, the value of assets crashes as well, sinking the economy in a deep depression with a decrease of -6% in GDP the first year. All holders of U.S dollars throughout the World try to sell their Dollars, further crashing the Dollar and the American economy. The coup de grace comes when OPEC announces that it will no longer trade it's oil in U.S Dollars, but rather in Chinese Yuans and Euros.

    Since the end of WW2, America has been conducting it's business with colossal arrogance and entitlement. It is all coming to an end. The next crisis will not be something that America will recover easily from: look for 4-5 years of profound economic shrinkage and dramatically increased prices for goods and services, followed by another decade of stagnation. We are talking here 15-25 years of slump. It will essentially be the end of the "American system" that has dominated the World since 1945.

    A sovereign debt crisis and the currency crisis that follows is the kind of stuff that "makes or breaks" World Powers. As recently as the early 1970's, a lot of the World still prefered the British Sterling over the U.S dollar as a reserve currency. It all came crashing when the socialist government in England decided to artificially boost the standard of living of the population by devaluing the Sterling(populist economic). The result was predictable: a massive run on the Pound, and the brutal erosion of the PPP per capita of Britain.

    In fact, even though China needs America now, China and the U.S are geopolitical enemies. It is in China's long-term interest to eventually crash America anyway. And Americans are really helping them with it.

    I agree that all it will take is for China to cease bidding on US Treasuries and the whole damned edifice will come crashing down.

    China will take a hit too, of course, but maybe they think that it will be worth it to see us descend into unimagined chaos and strife.

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    • Replies: @Art Deco
    About 5% of outstanding Treasury issues are held by China.
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  161. @Jack D
    Even bigger than bond debt is their unfunded pension liability. Lots of government workers get unbelievably generous pensions (whereas defined benefit pensions are almost extinct in private industry). And a lot of state constitutions say things like "pension liabilities are a sacred obligation that can never be broken" so even bankruptcy doesn't help.

    Quite right, I should have said, default on municipal bonds and pensions.

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  162. Art Deco says:
    @Nick Diaz
    The next economic crash will be a run on the Dollar, and it will start in the Treasury Bond market. The public debt of the federal government is close to $21 trillion, which is roughly the size of the entire GDP. Creditors will realize that America can never repay the debt. But the situation is approaching the point where America cannot even service the interest of the debt. Most likely, the trigger will be China announcing that it will no longer buy U.S Treasury bonds, or OPEC nations declaring that they will no longer trade their commodity in U.S Dollars.

    Ideally, interest rates should go up to stimulate savings and investment. But the U.S government cannot do that because, if it raises interest rates, the government will not be able to pay even the interest of the national debt, which would make the government default. It can only stimulate economic growth via consumption, by keeping interest rates as low as possible. Less savings, less investment, more debt and an artificially strong economy based on cheap credit and consumption.

    The crash will come when all the creditors realize that the U.S' actual economic might is much, much, much inferior to the unfathomable amount of money the World has landed the U.S government and American consumers: America's current GDP and share of the World's industrial production is, respectively, 18% and 7%, compared to 40% and 45% in 1960. The U.S in 2018 is a paper tiger propped up by cheap credit(from foreigners) and a hugely inflated financial services sector.

    It is important to point out that this crash will be much worse than the 1929 crash, and much, much, much worse than the 2008 crash. A currency crisis is the *the* worst of all economic meltdowns, as it erodes purchasing power as well as capital value and investment, from hyperinflation.



    In the case of the U.S, this is going to be even more brutal than when this happens to other countries, because the U.S Dollar has been, since the end of WW2, the World's fiat currency. This makes Americans much richer than they otherwise would, as all commerce is done in U.S Dollars, making goods much cheaper for Americans, making America's PPP per capita about twice higher than it otherwise would. D'Estaigny talked about America's "exorbitant privilege" as the country that has the international reserve currency. Well, this privilege is about to come to an end. What the next crisis will be about will be prolonged depression with hyperinflation, and the end of the U.S Dollar as the World's fiat currency and the U.S as the central link in the World's financial system. America's standard of living will decline instantly to the level of the poorest countries in western Europe, like Spain and Italy.

    Scenario: disheartened by the fact that they have been buying U.S Treasury bonds for over 30 years and are never allowed to cash in, the Chinese government announces that they will no longer buy U.S Treasuries. The NYSE immediately tanks to levels as bad as those from 1987's "Black Monday". The U.S government responds by lowering interest rates to zero. The market doesen't rally. Immediately, all those who hold U.S bonds try to sell, but there are no buyers. Those same sellers default on their other payments and investments, as a large part of their assets are tied in U.S bonds. Mass bankruptcies follow, and America experiences a drop in economic activity of -4% for two quarters in a row. The U.S federal government finally announces a massive QE(quantitative easing), printing and injecting $5.5 trillion in the economy. The market finally rallies with a growth in the next quarter of 1%. As the Dollar crashes in value, the value of assets crashes as well, sinking the economy in a deep depression with a decrease of -6% in GDP the first year. All holders of U.S dollars throughout the World try to sell their Dollars, further crashing the Dollar and the American economy. The coup de grace comes when OPEC announces that it will no longer trade it's oil in U.S Dollars, but rather in Chinese Yuans and Euros.

    Since the end of WW2, America has been conducting it's business with colossal arrogance and entitlement. It is all coming to an end. The next crisis will not be something that America will recover easily from: look for 4-5 years of profound economic shrinkage and dramatically increased prices for goods and services, followed by another decade of stagnation. We are talking here 15-25 years of slump. It will essentially be the end of the "American system" that has dominated the World since 1945.

    A sovereign debt crisis and the currency crisis that follows is the kind of stuff that "makes or breaks" World Powers. As recently as the early 1970's, a lot of the World still prefered the British Sterling over the U.S dollar as a reserve currency. It all came crashing when the socialist government in England decided to artificially boost the standard of living of the population by devaluing the Sterling(populist economic). The result was predictable: a massive run on the Pound, and the brutal erosion of the PPP per capita of Britain.

    In fact, even though China needs America now, China and the U.S are geopolitical enemies. It is in China's long-term interest to eventually crash America anyway. And Americans are really helping them with it.

    But the situation is approaching the point where America cannot even service the interest of the debt.

    Federal debt service is currently $458 bn. We can service it with a 5% general sales tax.

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    • Replies: @Nick Diaz
    *Only* because interest rates are close to zero. If interest rates are even 3%, then America defaults.

    And this is the tragedy of the American situation: in order to experience true economic recovery and increased productivity, America needs to increase interest rates to increase savings and investment. But America cannot increase interest rates, because the government would default. So the only way America can stimulate economic growth is with cheap credit and consumerism, creating even more debt and making the problem worse. This is the catch America is in.

    Eventually, the debt will become unserviceable no matter how low interest rates are. Foreign credit will disappear, and there will be a massive run on the U.S Dollar. The FED will have no choice but to print money and generate inflation, as it will be the only way to give any credit to the economy. This will lead to a currency crisis, the worst of all kinds of economic crisis. Prices will skyrocket, credit will disappear and there will be no money to invest in anything, as the value of all assets will erode. It will be several years of economic contraction with massive hyperinflation,

    Since the end of WW2 and especially since the Bretton Woods treaty, Americans have enjoyed an obscene privileged status in the World, namely, that the American Dollar is the international fiat currency. What this means is that Americans can pay for any foreign goods with their own currency, which they control. Furthermore, a large chunk of the money of all international transactions ends up in America , as pretty much all corporations and banks needs a large chunk of their assets in U.S Dollar. For instance, Americans can pay for Arab oil with their own currency. Conversely, the poor French, Germans and Japanese have to first get U.S Dollars, and only then can they purchase the Arab oil. In order to get U.S Dollars, they have to first export something to America that Americans want. See how this works? The whole World has to work to get the stuff they want, while Americans get it for free by just printing their money and using it to pay for whatever they want. This system is morally obscene, and the World is finally rebelling against it.

    What will happen in the next crisis, which will be a sovereign debt crisis and currency crisis, that will make it so much worse than anything before, even worse than the 1929 crash, is that it will be the end of the U.S Dollar as the fiat currency, and Wall Street as the "hub" where a large chunk of all the capital circulating in the World ends up at. With en eroded currency and no longer having access to easy credit abroad, the American PPP per capita will instantly drop to 40% of what it is today. Americans will still be better off than Africans and Hondurans, but they will be no more affluent than Calabrians and Spaniards.

    In fact, I suspect that the American public will simply no accept that. America might actually become a rogue state and start invading Arab countries for oil even more than it does today. I also think America will play very hard ball with China, and freeze all assets of Chinese nationals in America if China does not continue buying bonds. The next crisis will be *so* bad, so vastly worse than even the 1929 crash, that methinks America will literally go to war over it. No way, no how, will Americans accept becoming as poor as the Portuguese and Greeks after 75 years being fed and carried by the rest of the World.

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  163. @Intelligent Dasein
    Before beginning in earnest on this timely and thankfully introduced topic, I wish to say a few words about Bitcoin.

    I have read the Bitcoin whitepaper and, frankly, it comes across to me as a hoax. Having written and read a fair amount of academic papers in my time, I have a pretty good sense of when somebody is shining my shoes; and, not only does the thin and rudimentary material presented in the whitepaper fail to rise to academic standards, but there is a je ne sais quoi of tinniness and phoniness in the prose that distinguishes it from the ordinary hyperbole of the typical sales pitch. The development of the blockchain (a running, open-sourced, cryptographic ledger) did not require any quantum leaps of insight. It is in fact simply a computational version of the same thing that was accomplished millennia ago with the rudest of analog methods---e.g. the broken sticks and torn contracts of ancient Roman custom, in which each party received one piece. Bitcoin obviously originated as some sort of libertarian and techno-fantasist "proof of concept" that was never even intended to be practical. Bitcoin mining now consumes as much electricity as the entire nation of Ireland; and the run-up in Bitcoin market cap is part and parcel of the same Everything Bubble that has been engendered by massive waves of quantitative easing and loose credit. Crypto-currencies have no application outside of these highly dissipative and artificial liquidity conditions. I have erstwhile described them as akin to amusement park tokens---negotiable withing a limited sphere but of very little use outside it. The real economy will never operate on the blockchain. Cryptos are a speculative frenzy that nobody will even remember in 5 years.

    And now back to the main point. Perhaps the headline to this post ought to more accurately read as, What will cause the next financial crash," since that is what we generally mean when making reference to stock market reversals. It is critically important, especially in this day and age, to keep ever in mind the distinction between the financial system and the real, physical economy. The latter is, of course, the ultimate arbiter of all things and is, to me, much the more interesting. But the former also has its place and, for schematic simplicity's sake, might be beneficial to discuss first.



    The next financial crash can be explained in just two words: interest rates, i.e. the balance point between liquidity time preferences and the risk of default as reflected in the price of borrowed money. For the last decade, interest rates of been the victim of a relentless campaign of financial repression of staggering proportions. Right now there is something like $10 trillion of sovereign debt trading at a negative rate of return, meaning that bond buyers actually have to pay a premium for the privilege of loaning money to various governments. The European Central Bank has purchased so many corporate bonds on the open market that the spread between investment grade and junk has narrowed to the lowest value in recorded history. The Bank of Japan, for its part, has bought virtually the entire Japanese bond float and owns roughly a 10% stake in all Japanese listed ETFs. You may want to pause for a moment and just think through the implications of this. The Bank of Japan is now very close to being an actual "board member" of Japanese corporations, with all the fiduciary responsibilities and conflicts of interest that that implies. It cannot sell its position without tanking the market, but it cannot increase its holdings without actually assuming command of the companies' day-to-day operations (which it is very ill-equipped to do). This is called painting yourself into a Keynesian corner.

    If the Central Banks of the world started to sell off their bond holdings, interest rates would climb back towards their historic norms and the cost to service the hundreds of trillions of dollars of global debt would be instantly repriced. At that point it would be revealed that everybody, everywhere is insolvent and the global financial system would undergo a nuclear meltdown. Obviously that isn't going to happen. No central banker who wants to keep his head is going to persist in a policy of quantitative tightening once the market begins to crash, the pension funds are wiped out, and the bank runs kick in. But all the same, logic and common sense tells us that you cannot "really" stimulate an economy simply by printing money, for that is tantamount to getting something for nothing. We therefore must conclude that the decade-long experiment in turbo-Keynesianism has been an elaborate parlor trick designed not to cure our economic ails but to obscure them. Interest rates will not rise by ordinary means but something equivalent has to happen somewhere in the system to absorb the pressure that interest rates are not being allowed to feel.

    It was the genius of modern monetary policy that the strain was kept confined to a region of the financial universe that few people have heard of and even fewer understand---the Eurodollar funding system. Eurodollars are time-deposits denominated in dollars held in banks outside of the United States, and are a critical part of the infrastructure of international settlements. Eurodollars arose out of the dollar's status as a reserve currency and the need for foreign governments and corporations to have access to dollar funding. But these dollars are somewhat different inasmuch as they are not under the jurisdiction of the US Federal Reserve and can command higher interest rates.

    For reasons discussed in detail by Jeffrey P. Snider of Alhambra Partners, the Eurodollar system has been breaking down. He describes the world as being in the early stages of a "run on the dollar." This is indeed a side effect or corollary of Triffin's Paradox. Any country, such as the United States, which wishes its currency to be used as a global reserve currency, must be willing to supply the world with large amounts of it by running a current account deficit. The primary creditors of the United States, especially China, have found themselves in a sort of inverse of Triffin's Paradox such that the amount of dollars they must hold to provide for their international settlement needs is so great that they risk having their own currencies appreciate unacceptably relative to the dollar, to the detriment of their export-based economy. This risk the Chinese have tried to ameliorate first by pegging the yuan to the dollar, then by devaluing it, and finally by outright manipulation of the interbank SHIBOR rate. But the ultimate effect of the dilemma is to force nations like China to search for alternatives to dollar funding.

    Since this could be construed as a weakening of the demand for dollars, ordinary economic thinking would postulate that the dollar's value would then decline; but this simple analysis does not take into consideration the vast amount of dollar-denominated debt already on the books that will have to be paid back in kind. The withdrawal of a country like China from the dollar system would result in an immediate evaporation of a large pool of dollar liquidity. The remaining dollars in the system would then be extensively bid by dollar-debtors scrambling for funds with which to square their outstanding loans. There are no longer enough dollars in the world to pay back all the loans, so the dollar strengthens as its value as a reserve currency steadily erodes. Now we have gotten, by a somewhat counterintuitive process, to that "equivalent" of rising interest rates that we were searching for earlier. A strengthening dollar is topologically equivalent to a rising interest rate inasmuch as it tends to favor creditors over debtors and results in a deflationary preference for dollar hoarding as cash, once again, becomes king.

    ~~~

    Now, as regards the physical economy, it is clear from an appraisal of the underlying fundamentals that it is in a state of slow and inexorable deterioration. When you look at graphs of hardcore econometric indicators such as year-over-year changes in employment and productivity, and you mentally pencil in a smoothed polynomial curve to even out instantaneous swings in the data, there is no hiding the gently sloping downward trend. This is exactly what we would expect from a global economy in which there is no actual growth, which has already reached the Keynesian coffin corner of Peak Debt, and which is already experiencing the adumbrations of an impending demographic inversion reminiscent of late Roman times.

    When people ask me when I think the crash will take place, I answer that it already has, that it is ongoing, and it will continue for the next 30 or 40 years. The system has a great deal of inertia in it and the primary frequency of the underlying drivers is generational in scale, so the "crash" appears to happen very slowly withing the context of a single human lifetime; but in the more objective retrospect of history it will stand out clearly as an obvious inflection point, as the period when the developed world passed from organic growth and development in the economic sphere to the mere maintenance of a tottering system under increasingly desperate conditions.

    As I have already discussed this dynamic from numerous angles and have no desire to repeat myself here (although this topic could easily furnish enough material for a book), I will confine my present comments to statements about the immediate future which may be of some interest.

    The next big thing, the one development that will signify definitively that a new and sparer season has taken hold, will be the collapse of tech. I am not saying that the internet is going to disappear overnight or that the cities will go dark; but I am saying that, beginning around 2020 or so, the whole concept of technology as an investment category, as a culturally significant going concern, and as a mysterious incantation in corporate-speak portending vast future productivity gains, is going to take a serious hit from which it will not recover. In a world that is no longer actively opening up new avenues of real and tangible wealth, the diminishing returns from any further intensification of the technological process are going to prove too a costly a burden to bear. The future will contain no such thing as a "tech industry" per se, but only currently existing technologies built into other industries and correspondingly retreating to a smaller scope and lower level of implementation. The degree of technological sophistication that we have right now is very near the maximum that we will ever have. Even the highest existing current applications will withdraw into a realm that is less widespread, more boutique, and more mysterious to the masses as it becomes a recondite priestcraft and the personal possession of an aristocratic elite.

    I would be very suspicious of the FAANGS right now. As de-dollarization (see above) continues to make globalism a much less favorable proposition for the American consumer, these mammoth tech companies will be revealed ever more poignantly for the cash-burning leeches they always have been. Sporting P/E ratios up to five times the historical average for publicly traded corporations, they are already due for a correction on technical grounds and their underlying fundamentals are terrible. The fault line is probably weakest at Amazon. When that space starts to move, the global correction will have begun.

    Agreed, that Bitcoin is a scam. But as for the rest, tl;dr.

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  164. Thea says:
    @Jack Hanson
    I see this in paramedicine/EMS.

    "Waaah there's a national shortage of paramedics!"
    "Yeah but you pay them $14 an hour for a year of school."
    "Well yeah."

    My paramedic cert through the local CC cost me about 3g, paid for by the GI Bill. This is one of the top paramedic programs in the country (100% NREMT exam pass, five years in a row).

    However there's a lot of scam schools here that will charge double and triple that for the exact same cert. The real gouge is the whole time theyre claiming that the local CC will accept their medic course as "college credits" if you talk to admissions. Pima Medical Institute goes so far as to structure its syllabus with "credits earned" next to each block of instruction.

    The reality is that unless you have an "in" with admissions, the community colleges (to say nothing of the unis) will not even look at the hokey transcript you give them, cause all these "academies" and "institutes" aren't credentialed.

    There's an argument to be made of "do trades need a two year AAS to just do the job? Does there need to be a FIRE SCIENCE pathway to make some 22 year old more competitive with the local FD?" Probably not. But then again, all the ENG101/102 work I did was underlining the 10th and 11th grade English classes I took over a decade ago. Maybe kids nowadays do need a two year to prove they can write a report or know how to cite and think critically.

    Vocational technical schools really get overlooked. You can get an EMT certificate for free before you graduate high school in under 10 months. No degree required. If post secondary it’s less than $2000

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    • Replies: @Jack Hanson
    It should be $800 for a 6-8 week EMT course. An EMT-B has a much, much smaller scope of practice vs. a paramedic.

    Paramedics have really advanced from the days of "Emergency!" and have become extremely autonomous in some states. You're starting to see blood product in the drug box ffs for trauma versus gauging if you're in "permissive hypotension" or if your patient is circling the drain with NS/LR.

    That being said, regular ambo medics are hard to find, because the pay is garbage! The real money comes from getting with an FD ($$) or landing a TacMed spot as a trainer stateside ($$) overseas ($$$) or landing a slot with a PMC doing work overseas ($$$$$$).
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  165. George says:
    @Jack D
    Even bigger than bond debt is their unfunded pension liability. Lots of government workers get unbelievably generous pensions (whereas defined benefit pensions are almost extinct in private industry). And a lot of state constitutions say things like "pension liabilities are a sacred obligation that can never be broken" so even bankruptcy doesn't help.

    Internet ranter and amateur market pundit here!!!

    For those interested in the coming pension crisis see:

    http://www.pensiontsunami.com/

    http://stump.marypat.org/

    https://burypensions.wordpress.com/

    The state pension death watch is looking to IL, NJ, or KY for the first statewide crisis, but who knows. NJ in particular has expensive tastes. State government employees and wealthier state taxpayers both are claiming the same future income during their retirements. They both cannot have it.

    At the same time private pension plans are also collapsing for example the Central States Teamsters pension.

    Who Will Bail Out Insolvent Union Pension Funds?

    https://www.forbes.com/sites/georgeleef/2016/08/05/who-will-bail-out-insolvent-union-pension-funds/#2dfd052c4354

    Federal gov pensions are not funded in advance, so they are not considered in the discussion but probably should.

    Supposedly the Fed is going to do something called quantitative tightening, which is they are going to try and sell all the bonds they purchased during the 09 financial crisis while raising the federal funds rate. Higher interest rates are generally not helpful for stocks.

    California: Bill Gross of Janus: ‘Bonds, like men, are in a bear markCet’

    https://www.reuters.com/article/us-funds-jns-hndsn-glb-uncon-bd-gross/bill-gross-of-janus-bonds-like-men-are-in-a-bear-market-idUSKBN1F01LO

    Texas: Hoisington Investment still a bond bull

    https://seekingalpha.com/news/3322426-hoisington-investment-still-bond-bull

    Unrelated to Mr Gross bond analysis, in retail men are not in a bear market: Analysis Shows Women Lost Jobs In Retail Last Year, Though Men Gained

    https://www.npr.org/2017/12/24/573275495/analysis-shows-women-lost-jobs-in-retail-last-year-though-men-gained

    General Electric cut its dividend in half. The worry in my mind is if low interest rates (30 yr Treasury is 3%) somehow make sustaining dividends above 1% impossible for all the large dividend paying stocks. The GE dividend cut is going to take $4 billion out of the returns of investors, mostly wealthy retirees, so this is real not funny money. Just imagine if GE is just the first to cut dividends in the coming downturn? GE is also a problem for New York state, now GE may have joined Kodak, Xerox, IBM, Unisys(Sperry Univac Burroughs) as a fallen Upstate NY industrial giant.

    Economic cycle experts ECRI claim 2018 will bring a slowdown.
    Jobs Report and 2018 Slowdown

    https://www.businesscycle.com/ecri-news-events/news-details/economic-cycle-research-ecri-lakshman-achuthan-business-cycle-jobs-report-and-2018-slowdown

    Elsewhere Tunisia, which is just 40 mi from the nearest Italian island, could collapse. At the same time the end game of the war in Syria could flood Turkey and then Europe with another flood of refugees. At some point Europe will be unable to stop it and unable to pay for it. One outlier type possibility is that the Koreas agree to make nice in perpetuity if the US military leaves S Korea. If the US is out of Korea Japan is next then Asia. That will be bad for Lockhead Martin among others for sure.

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  166. @another fred

    Won’t the next crash lead to the next boom?
     
    There are a lot of books and articles about that and I am not going to summarize them here, but if it is a serious question then consider these hypotheses:

    Booms come from growth and growth comes from need. If the earth is overcrowded and population stabilizes then where will you get the need to create the growth?

    The industrial revolution has been characterized by greater and greater use of energy to create wealth. We are well into a cycle on fossil fuels where that energy returned on energy invested (EROEI) is shrinking from over 40 to around 10 for deepwater wells and horizontal wells with fracking. We need around 10 just to maintain civilization, let alone grow.

    If these are true, to get another boom you must postulate that the population can continue to grow without negative feedbacks and new sources of energy will be found. Lots of people are happy to wave their hands and say it will happen. Whether or not, you should at least consider that that is probably what you are betting on.

    I’ve been hearing about this energy returned on energy invested (“EROEI”) shrinking for over three decades, such that supposedly by the year 2000 it would no longer pay to drill new wells. The millennium came and went and petroleum is still king of energy. There was a Peak Oil hysteria in the 2000s, but even I could see through that.

    EROEI may indeed be dropping, but might that be not because oil wells are getting less efficient, but because human beings are getting less efficient (at least human beings in the industrial (petroleum) economy)? In other words, like so many matters of public moment, the undiscussed HBD aspect turns out to be the one to rule them all. As the first world nips its own descendants in the bud, subsidizes underclass breeding, and imports useless and destructive third worlders hand over fist, of course the returns on every kind of large investment (including energy invested) are dropping and will continue to drop. You can’t make the shining city-on-a-hill future when you are staffed with primitives from a dark age past.

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    • Replies: @another fred

    EROEI may indeed be dropping, but might that be not because oil wells are getting less efficient, but because human beings are getting less efficient (at least human beings in the industrial (petroleum) economy)?
     
    No. EROEI is dropping because the big easy fields where a little drilling brought a lot of oil were drilled first and the wells being drilled now take more and more work for less and less oil.
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  167. BB753 says:
    @Jonathan Mason

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008
     
    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    https://www.youtube.com/watch?v=NMq7A17kLgs

    “Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?”

    That would be great right now with Trump in the White House. No downsides.

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    • Replies: @Achmed E. Newman
    Dang it, there's still no AMEN button!
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  168. SteveO says:
    @Jack D
    In addition to a new mortgage bubble and a student loan bubble, we have a big auto loan bubble. There's a whole industry built around selling cars to people with bad credit. Rapid advances in electric and self-driving technology will make the existing vehicle fleet less valuable than the estimates on which the loans/leases were based putting even more auto loans under water, especially since one of the tricks they have been using is to make car loans for longer and longer periods.

    Auto manufacturers have already been building too many new car factories and at the next downturn these will sit idle and all the workers laid off. The auto industry underpins a large share of the economy (half the ads on TV seem to be auto dealer ads - the other half are ads for totally non-productive sectors - drugs, hospitals and malpractice/auto accident lawyers) so an auto industry crash has widespread effects.

    Fiat/Chrysler, the sick man of the US auto industry since the '70s, won't survive the next downturn and probably will get sold to the Chinese. They don't have the capital to make the transition to new technology.

    Millions of truck/bus/cab drivers will lose their jobs. The current model, where you buy a car and it sits in your driveway or the parking lot of your workplace 23 hours/day, is going to go by the wayside and there is going to be a permanent reduction in the # of vehicles needed.

    I keep hearing this type of prediction, but one question that doesn’t seem to come up: Doesn’t anyone enjoy driving? I mean either (1) the act of driving itself – a complex task many of us are quite good at and others at least passably so – or (2) the freedom that comes from possessing a machine that will take you anywhere there are roads anytime you want for however long you want? The fact that you can’t actually go is irrelevant. It’s the dream and the possibility that matter.

    For generations, driving and owning a car have been symbols of freedom for Americans. Furthermore, people in every country around the world have taken to driving as soon as they could afford it, even when their roads are clearly not suited to automobiles. Why else would the traffic in London and Paris be so awful? Why would anyone in New York own a car – and millions do – if they didn’t find the freedom worth the price and inconvenience?

    And yet I hear that soon, at best we won’t be driving ourselves but rather letting our car do it for us; at worst we won’t even own a car but share one “when we need it”. The preplanning and commitment required by the latter essentially kills the Route 66 dream that used to be precious to Americans. And it won’t be optional. The insurance companies and LE will see to that – as soon as feasible, self-driving cars will be mandatory because they are safer. But safety isn’t everything!

    What has happened to our society to kill off such a wonderful dream, and why did we let it/are we letting it happen? At a personal level, it annoys me that yet another thing I’m fairly good at is going to become an obsolete skill. First, being a good navigator became useless as GPS took over from map-reading; next, driving will go the way of blacksmithing. Then what?

    Sorry. Long rant … but it makes me sad to see so much of what made America America in the 20th century die off.

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    • Replies: @Steve Sailer
    In the future, Silicon Valley minion workers will live in the Central Valley and take 75 mile commutes in self-driving cars while doing work. Silicon Valley founders and venture capitalists, will live in Silicon Valley and drive themselves to work.
    , @Jack D
    It's partly a generational and partly a gender thing. Many kids today, especially but not only girls and the genderqueer, don't really enjoy driving and are not "into" cars. Driving is not as much fun as it used to be, with crowded roads and Mesicans and giant SUVs who no longer dip their high beams. CARS are not as fun as they used to be. They are little boxes on wheels with CVTs that don't even shift and electric power steering - they are about as exciting as your refrigerator. It's like stereos - a lot of guys used to be into hifi and had expensive amps and big speakers, etc. Now everyone listens to their iPhone on earbuds where the fidelity is nil and no one cares. Instead of worrying about getting arrested for drunk or impaired (pot smoking) driving, you call an Uber and have no worries.

    There is going to be a small old white man group who will resist self driving. Eventually they will ban them the way they banned tobacco smoking in bars. Maybe tracks will open up or they will designate certain roads where people will be actually allowed to take the wheel of their antiques during daylight hours on sunny summer weekends.
    , @Whoever
    I take your point, but I think all this means is that those who don't want to drive, won't have to; those who don't want to have to spend money to own and maintain a car won't have to. But those who do will still be able to.
    After all, there still motorcycles. Why haven't they been banned or made prohibitively expensive to insure? Why haven't people just decided they are too impractical and dangerous to ride?
    NHTSA was talking about making them illegal to ride on public streets during the Carter administration. But here we are 40 years later with the most marvelous motorcycles. And lots of people riding them. Even -- *gasp!* -- girls. I know one who enjoys taking her Suzuki Hayabusa for 190 mph jaunts for a bit of fresh air before starting her day. Lots of folks do that sort of thing.
    https://youtu.be/XI_SUHp6W0o
    , @Brutusale
    I want a nickel for every Golden Age science fiction story I've read that has driving an automobile powered by an internal combustion engine being a hobby for wealthy enthusiasts who themselves pay to maintain sections of old roads no longer in use.
    , @EdwardM

    . . . (2) the freedom that comes from possessing a machine that will take you anywhere there are roads anytime you want for however long you want? The fact that you can’t actually go is irrelevant. It’s the dream and the possibility that matter.

    For generations, driving and owning a car have been symbols of freedom for Americans. .
    . .
     
    This is one of the reasons why the left hates American driving culture so much. Your car as an expression of yourself, a channel for your personal space and autonomy to live and go where you want, when you want, by yourself or with companions of your choosing. It's all antithetical to their worldview.
    , @inertial
    People used to enjoy riding horses. Didn't prevent the rise of the automobile.
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  169. Read More
    • Replies: @Steve Sailer
    The auto business could take a major dive since cars last a long time these days, so one smart way to cut back on expenses is to just drive an older car.

    On the other hand, the promise of self-driving cars might attract a lot of investment into the auto industry?

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  170. @Intelligent Dasein
    Before beginning in earnest on this timely and thankfully introduced topic, I wish to say a few words about Bitcoin.

    I have read the Bitcoin whitepaper and, frankly, it comes across to me as a hoax. Having written and read a fair amount of academic papers in my time, I have a pretty good sense of when somebody is shining my shoes; and, not only does the thin and rudimentary material presented in the whitepaper fail to rise to academic standards, but there is a je ne sais quoi of tinniness and phoniness in the prose that distinguishes it from the ordinary hyperbole of the typical sales pitch. The development of the blockchain (a running, open-sourced, cryptographic ledger) did not require any quantum leaps of insight. It is in fact simply a computational version of the same thing that was accomplished millennia ago with the rudest of analog methods---e.g. the broken sticks and torn contracts of ancient Roman custom, in which each party received one piece. Bitcoin obviously originated as some sort of libertarian and techno-fantasist "proof of concept" that was never even intended to be practical. Bitcoin mining now consumes as much electricity as the entire nation of Ireland; and the run-up in Bitcoin market cap is part and parcel of the same Everything Bubble that has been engendered by massive waves of quantitative easing and loose credit. Crypto-currencies have no application outside of these highly dissipative and artificial liquidity conditions. I have erstwhile described them as akin to amusement park tokens---negotiable withing a limited sphere but of very little use outside it. The real economy will never operate on the blockchain. Cryptos are a speculative frenzy that nobody will even remember in 5 years.

    And now back to the main point. Perhaps the headline to this post ought to more accurately read as, What will cause the next financial crash," since that is what we generally mean when making reference to stock market reversals. It is critically important, especially in this day and age, to keep ever in mind the distinction between the financial system and the real, physical economy. The latter is, of course, the ultimate arbiter of all things and is, to me, much the more interesting. But the former also has its place and, for schematic simplicity's sake, might be beneficial to discuss first.



    The next financial crash can be explained in just two words: interest rates, i.e. the balance point between liquidity time preferences and the risk of default as reflected in the price of borrowed money. For the last decade, interest rates of been the victim of a relentless campaign of financial repression of staggering proportions. Right now there is something like $10 trillion of sovereign debt trading at a negative rate of return, meaning that bond buyers actually have to pay a premium for the privilege of loaning money to various governments. The European Central Bank has purchased so many corporate bonds on the open market that the spread between investment grade and junk has narrowed to the lowest value in recorded history. The Bank of Japan, for its part, has bought virtually the entire Japanese bond float and owns roughly a 10% stake in all Japanese listed ETFs. You may want to pause for a moment and just think through the implications of this. The Bank of Japan is now very close to being an actual "board member" of Japanese corporations, with all the fiduciary responsibilities and conflicts of interest that that implies. It cannot sell its position without tanking the market, but it cannot increase its holdings without actually assuming command of the companies' day-to-day operations (which it is very ill-equipped to do). This is called painting yourself into a Keynesian corner.

    If the Central Banks of the world started to sell off their bond holdings, interest rates would climb back towards their historic norms and the cost to service the hundreds of trillions of dollars of global debt would be instantly repriced. At that point it would be revealed that everybody, everywhere is insolvent and the global financial system would undergo a nuclear meltdown. Obviously that isn't going to happen. No central banker who wants to keep his head is going to persist in a policy of quantitative tightening once the market begins to crash, the pension funds are wiped out, and the bank runs kick in. But all the same, logic and common sense tells us that you cannot "really" stimulate an economy simply by printing money, for that is tantamount to getting something for nothing. We therefore must conclude that the decade-long experiment in turbo-Keynesianism has been an elaborate parlor trick designed not to cure our economic ails but to obscure them. Interest rates will not rise by ordinary means but something equivalent has to happen somewhere in the system to absorb the pressure that interest rates are not being allowed to feel.

    It was the genius of modern monetary policy that the strain was kept confined to a region of the financial universe that few people have heard of and even fewer understand---the Eurodollar funding system. Eurodollars are time-deposits denominated in dollars held in banks outside of the United States, and are a critical part of the infrastructure of international settlements. Eurodollars arose out of the dollar's status as a reserve currency and the need for foreign governments and corporations to have access to dollar funding. But these dollars are somewhat different inasmuch as they are not under the jurisdiction of the US Federal Reserve and can command higher interest rates.

    For reasons discussed in detail by Jeffrey P. Snider of Alhambra Partners, the Eurodollar system has been breaking down. He describes the world as being in the early stages of a "run on the dollar." This is indeed a side effect or corollary of Triffin's Paradox. Any country, such as the United States, which wishes its currency to be used as a global reserve currency, must be willing to supply the world with large amounts of it by running a current account deficit. The primary creditors of the United States, especially China, have found themselves in a sort of inverse of Triffin's Paradox such that the amount of dollars they must hold to provide for their international settlement needs is so great that they risk having their own currencies appreciate unacceptably relative to the dollar, to the detriment of their export-based economy. This risk the Chinese have tried to ameliorate first by pegging the yuan to the dollar, then by devaluing it, and finally by outright manipulation of the interbank SHIBOR rate. But the ultimate effect of the dilemma is to force nations like China to search for alternatives to dollar funding.

    Since this could be construed as a weakening of the demand for dollars, ordinary economic thinking would postulate that the dollar's value would then decline; but this simple analysis does not take into consideration the vast amount of dollar-denominated debt already on the books that will have to be paid back in kind. The withdrawal of a country like China from the dollar system would result in an immediate evaporation of a large pool of dollar liquidity. The remaining dollars in the system would then be extensively bid by dollar-debtors scrambling for funds with which to square their outstanding loans. There are no longer enough dollars in the world to pay back all the loans, so the dollar strengthens as its value as a reserve currency steadily erodes. Now we have gotten, by a somewhat counterintuitive process, to that "equivalent" of rising interest rates that we were searching for earlier. A strengthening dollar is topologically equivalent to a rising interest rate inasmuch as it tends to favor creditors over debtors and results in a deflationary preference for dollar hoarding as cash, once again, becomes king.

    ~~~

    Now, as regards the physical economy, it is clear from an appraisal of the underlying fundamentals that it is in a state of slow and inexorable deterioration. When you look at graphs of hardcore econometric indicators such as year-over-year changes in employment and productivity, and you mentally pencil in a smoothed polynomial curve to even out instantaneous swings in the data, there is no hiding the gently sloping downward trend. This is exactly what we would expect from a global economy in which there is no actual growth, which has already reached the Keynesian coffin corner of Peak Debt, and which is already experiencing the adumbrations of an impending demographic inversion reminiscent of late Roman times.

    When people ask me when I think the crash will take place, I answer that it already has, that it is ongoing, and it will continue for the next 30 or 40 years. The system has a great deal of inertia in it and the primary frequency of the underlying drivers is generational in scale, so the "crash" appears to happen very slowly withing the context of a single human lifetime; but in the more objective retrospect of history it will stand out clearly as an obvious inflection point, as the period when the developed world passed from organic growth and development in the economic sphere to the mere maintenance of a tottering system under increasingly desperate conditions.

    As I have already discussed this dynamic from numerous angles and have no desire to repeat myself here (although this topic could easily furnish enough material for a book), I will confine my present comments to statements about the immediate future which may be of some interest.

    The next big thing, the one development that will signify definitively that a new and sparer season has taken hold, will be the collapse of tech. I am not saying that the internet is going to disappear overnight or that the cities will go dark; but I am saying that, beginning around 2020 or so, the whole concept of technology as an investment category, as a culturally significant going concern, and as a mysterious incantation in corporate-speak portending vast future productivity gains, is going to take a serious hit from which it will not recover. In a world that is no longer actively opening up new avenues of real and tangible wealth, the diminishing returns from any further intensification of the technological process are going to prove too a costly a burden to bear. The future will contain no such thing as a "tech industry" per se, but only currently existing technologies built into other industries and correspondingly retreating to a smaller scope and lower level of implementation. The degree of technological sophistication that we have right now is very near the maximum that we will ever have. Even the highest existing current applications will withdraw into a realm that is less widespread, more boutique, and more mysterious to the masses as it becomes a recondite priestcraft and the personal possession of an aristocratic elite.

    I would be very suspicious of the FAANGS right now. As de-dollarization (see above) continues to make globalism a much less favorable proposition for the American consumer, these mammoth tech companies will be revealed ever more poignantly for the cash-burning leeches they always have been. Sporting P/E ratios up to five times the historical average for publicly traded corporations, they are already due for a correction on technical grounds and their underlying fundamentals are terrible. The fault line is probably weakest at Amazon. When that space starts to move, the global correction will have begun.

    Pace IJ, I did not find the fate of the world to be a “too long; didn’t read” subject.

    Thanks for introducing me to Triffin and his paradox.

    Agree about financial vs. real. Also about tech, mostly.

    Still puzzling as to how excess dollar printing can lead to dollar strengthening… The only understanding I can come to so far is that all that money printing was in fact not really money printing but defacto debt issuing, which when it finally gets counted up against the actual money needed to repay it, it turns out that the latter commodity is lacking. If so, would you say this process is already underway? I tend to think “yes”, based on your fourth to last paragraph. If so, would you say this is the reason that all the incontinent “Quantitative Easing” has not already resulted in inflation? If yes, I have to say that the central bankers–or whoever is managing the process–have been remarkably adept at keeping these huge financial forces in equipoise. That’s better performance than I usually expect from these people.

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    • Replies: @Intelligent Dasein

    Still puzzling as to how excess dollar printing can lead to dollar strengthening
     
    From the precis you wrote, it seems like you understand things quite well. Only it's not the printing that leads to strengthening, but rather the disappearance of dollar liquidity.

    QE is basically de facto credit issuance, as you said. The governor of the People's Bank of China, Zhou Xiaochuan, specifically categorized the global financial crisis of 2008 as a "credit problem" with the international reserve currency.
    , @notanon

    is that all that money printing was in fact not really money printing but defacto debt issuing
     
    you need to think in terms of negative money

    the banks massively over-leveraged - they do it every 80 years or so as that's how long it takes the banking mafia to forget what happened the last time - and the resulting crash left them holding assets that were nominally valued at 10x but if sold on the open market were only actually worth x.

    this is what i mean by negative money - on paper the banks held assets worth 10x but in reality they were only worth x so *effectively* minus 8x.

    (1x - 9x = -8x)

    so the banks were totally bankrupt and if it hadn't been covered up they would all have gone under and the negative money would have been cleared from the system with deflation (and the banks would have been re-regulated again till the next time).

    however because our political system has been completely corrupted by the banking mafia what actually happened is the central banks have been gradually creating another 10x money out of thin air and have been using it to buy the banks' toxic assets at their *nominal* value.

    (this is what QE is - the centrals banks printing money to buy their member banks' gambling debts and dumping it on the public.)

    so although on the surface total money has gone from 10x to 20x in reality it's gone from minus 8x to 2x.

    (-8x +10x = 2x)

    this is partly why there hasn't been hyperinflation - the money printing wasn't inflationary it was *countering a massive deflation*.

    (the second reason is the money created by the central banks has mostly not been spent into the economy - it's just been a transfer of assets from banks' balance sheet to the public and the public don't get to make loans so those 10x of transferred toxic assets have effectively been neutered.)

    (there has been some spillage however hence the stock market bubble)

    the collapse comes at the end of this process when the banks have been made fully solvent again and the negative value of all the trillions of dollars of toxic assets now held by the public have to be cleared - deflation not inflation. we're near that point now.

    the most likely sequence of the ending of QE is
    - a stock market crash (as the current inflated value is a product of QE)
    - this won't effect the banks much as they have been made fully solvent by the Fed and will be prepared for it
    - the pension funds will be allowed to take the hit instead
    - people who lose their pensions will be forced to sell their assets at fire sale prices...
    - to the banks, who even though they caused the whole thing will at the point of collapse be the only people solvent
    - possible hyperinflation *after* the deflationary crash as the govt is forced to print money to feed people who have lost everything to the banks

    (this is more or less what happened in Germany in the 1930s - the banking mafia crashed the economy and then profited from it by buying everything at fire sale prices afterwards)

    the total destruction of the economy by the banking mafia - yet again - would lead to an inevitable 1930s style backlash against them.

    mass immigration and inciting internal inter-ethnic conflict e.g. BLM and instigating external conflict e.g. with Russia is how they are preparing to redirect that inevitable backlash.

    #

    some people say the banking mafia do this deliberately - create boom and bust cycles to get assets cheap during the busts - and that is certainly possible.

    however personally i think it's just the nature of usury: more leverage = more profit (until the bubble inevitably bursts) so the banking mafia are constantly tempted to over leverage and the only things that stop them doing it are a) their memory of what happened last time and b) govt regulation.

    and that memory disappears on a roughly 80 year cycle as the people who were around last time pass away hence economic disaster every 80 years or so.

    usury and the banking mafia are the answer to the Fermi paradox.

    #

    TL;DR

    the central banks are organised crime.

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  171. @Anonymous

    too much lending to Hispanics
     
    Okay, that's needlessly inflammatory, and I say this having just posted three humorous and slightly inflammatory gifs at your 'rent is too damn high' post.

    It's not just Hispanics, it's blacks and immigrants of all kinds. But seriously (and--I admit--obviously), it's that there was too much lending to unqualified borrowers, and worse, the more unqualified they were, the more eagerly the Obama Administration bailed them out.

    Okay, that’s needlessly inflammatory

    Lend your money to Hispanics. We don’t want to pay for your sentimentality.

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  172. map says:

    The Federal Reserve.

    It caused the last crash.

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  173. @Pat Boyle
    Student debt is not very rational. When I took the GREs I sent my scores with applications to various graduate schools. I had good scores. So I got recruited and offered stuff. The Dean of some school at the University of Massachusetts called me one evening at home in California. He not only wanted me to come to his school at their expense, he said he would get my wife a job. He seemed real eager.

    I eventually went to George Washington in Washington DC but again I was recruited and offered a full academic scholarship in another department. They gave me a TA job (teaching calculus and computer operations). I competed for and won a Mellon fellowship and two internships. I made what was for me then more money than I ever had before.

    I think if you are a good student and have good scores money will flow toward you. But if you are a marginal student you will have to go into debt. A student loan is a kind of assertion that you are a better prospect than you appear to be. You are investing in yourself when the objective evidence is that you are a bad investment. The self deluded always suffer.

    Being black in America is the very definition of self delusion.

    Being black in America is the very definition of self delusion.

    Hmm. Are you black?

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  174. @Mike Zwick
    https://www.forbes.com/sites/zackfriedman/2017/11/14/debt-auto-loans/#6c7b86bffbf2

    The auto business could take a major dive since cars last a long time these days, so one smart way to cut back on expenses is to just drive an older car.

    On the other hand, the promise of self-driving cars might attract a lot of investment into the auto industry?

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  175. @SteveO
    I keep hearing this type of prediction, but one question that doesn't seem to come up: Doesn't anyone enjoy driving? I mean either (1) the act of driving itself - a complex task many of us are quite good at and others at least passably so - or (2) the freedom that comes from possessing a machine that will take you anywhere there are roads anytime you want for however long you want? The fact that you can't actually go is irrelevant. It's the dream and the possibility that matter.

    For generations, driving and owning a car have been symbols of freedom for Americans. Furthermore, people in every country around the world have taken to driving as soon as they could afford it, even when their roads are clearly not suited to automobiles. Why else would the traffic in London and Paris be so awful? Why would anyone in New York own a car - and millions do - if they didn't find the freedom worth the price and inconvenience?

    And yet I hear that soon, at best we won't be driving ourselves but rather letting our car do it for us; at worst we won't even own a car but share one "when we need it". The preplanning and commitment required by the latter essentially kills the Route 66 dream that used to be precious to Americans. And it won't be optional. The insurance companies and LE will see to that - as soon as feasible, self-driving cars will be mandatory because they are safer. But safety isn't everything!

    What has happened to our society to kill off such a wonderful dream, and why did we let it/are we letting it happen? At a personal level, it annoys me that yet another thing I'm fairly good at is going to become an obsolete skill. First, being a good navigator became useless as GPS took over from map-reading; next, driving will go the way of blacksmithing. Then what?

    Sorry. Long rant ... but it makes me sad to see so much of what made America America in the 20th century die off.

    In the future, Silicon Valley minion workers will live in the Central Valley and take 75 mile commutes in self-driving cars while doing work. Silicon Valley founders and venture capitalists, will live in Silicon Valley and drive themselves to work.

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    • Replies: @Escher
    The Valley is quite big, so I would add upper management to the list of residents.
    The minions who did not arrive before 2012 are screwed. Many are already live the future you are describing, commuting to work in company-owned buses with wifi.
    , @Autochthon, @LondonBob
    Sorry Steve that does just sound like you think a commuter rail line, or additional bus routes, need to put in. Google investing in self driving cars does sound like a classic bubble behaviour with easy money being malinvested and misallocated. How many miles of rail line could have been put in for the all the money invested in self driving cars?
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  176. Muse says:
    @joeyjoejoe
    "...what might cause the next economic collapse the way that mortgages set off the last one."

    Did they really? I'm genuinely economically illiterate. I know in the last economic crash, lots of bad mortgages were made for political (rather than economic) reasons. But is it accurate to say 'mortgages set off the last one"? Is the cause/effect really bad mortgages/economic crash?

    My common sense (i.e. economically illiterate) observation would be: bad mortgages were made. At some point, something happened, and lots of people with bad mortgages couldn't make their payments any more, so they defaulted, and an economic collapse occurred.

    But in this description, the cause/effect is 'something happened'/'mortgage payments weren't made and economic collapse occurred'. In other words, the failure to make mortgage payments was not the cause of the collapse: it was the initial effect of the collapse. The cause was 'something happened' (what was that 'something'?). If that 'something' hadn't occurred, would the bad mortgages continue to be paid?

    joe

    The 2008 recession was triggered by a price shock in the crude oil markets in 2007. People could no longer pay their transportation costs AND their mortgage. This created a vast aggregate debt that could no longer be paid. All the other dominoes then fell.

    http://www.macrotrends.net/1369/crude-oil-price-history-chart

    I remember driving on the newly rebuilt Dan Ryan in Chicago and the road was busy immediately after work, then it emptied out. People were running errands on the way home to save from having to make extra trips.

    The next shock will be from a large state government going belly up. Illinois is a good candidate. Somebody will file against a state government in US bankruptcy court. The court will initially reject this claim in the name of state sovereignty. The state will raise taxes so high it collapses and destroys its economy overnight, or the US Supreme Court will rule the state can go through bankruptcy, and then all the wealth of the bond holders will be destroyed and the public pension holders will lose their income like in Detroit. This will cause a huge drop in demand and real estate values, and down goes the heavily leveraged economy, which lacks resilience due to high debt ratios. This crash might be avoided if the government, the Fed and the banksters get together a la Lehman/AIG and bail out the state’s debt.

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    • Replies: @Steve Sailer
    Gasoline prices peaked around mid-June 2008. One theory is that the Chinese were stockpiling petroleum products to run power plants during the August 2008 Olympics so they could cut back on smog-producing coal-fired plants to make Beijing look nicer on TV.

    But, yeah, the spike in gas prices demoralized potential buyers of all the new exurban housing requiring long commutes.

    , @ben tillman

    The next shock will be from a large state government going belly up. Illinois is a good candidate. Somebody will file against a state government in US bankruptcy court.
     
    Creditors can't put a municipality into bankruptcy. There's no such thing as an involuntary chapter 9 case.
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  177. Anon • Disclaimer says:
    @Hapalong Cassidy
    I few guesses:

    1. A war. The neocons have never cared about a collapsing economy as a side effect of their war aims. On the contrary, higher unemployment produces more cannon fodder, especially among the deplorables (i.e. the “poverty draft”).

    2. The aging baby boomers. The first wave of them is already hitting mandatory withdrawal on 401ks, although the reason we aren’t yet seeing an impact is that a lot of the older boomers still get pensions. As those born in the 50’s start to hit full social security reitinent age in the next few years, we’re going to see a lot of shifting out of the stock market and into money markets, especially if interest rates keep rising. There’s no way the Xers and Millenials alone will be able to sustain the stock market at its current levels.

    The only thing I can think of that might stop a market fall is that as baby boomers die off, their children will inherit their stocks. Younger folk will have a lot of debt to discharge, but by the time their parents die, they’ll need to start saving and investing for their own retirement and accumulating money to pay for the college of their own kids. Hopefully, a lot of millenials will wise up about their massive student debt and insist on their kids attending cheaper schools.

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  178. @Muse
    The 2008 recession was triggered by a price shock in the crude oil markets in 2007. People could no longer pay their transportation costs AND their mortgage. This created a vast aggregate debt that could no longer be paid. All the other dominoes then fell.

    http://www.macrotrends.net/1369/crude-oil-price-history-chart

    I remember driving on the newly rebuilt Dan Ryan in Chicago and the road was busy immediately after work, then it emptied out. People were running errands on the way home to save from having to make extra trips.

    The next shock will be from a large state government going belly up. Illinois is a good candidate. Somebody will file against a state government in US bankruptcy court. The court will initially reject this claim in the name of state sovereignty. The state will raise taxes so high it collapses and destroys its economy overnight, or the US Supreme Court will rule the state can go through bankruptcy, and then all the wealth of the bond holders will be destroyed and the public pension holders will lose their income like in Detroit. This will cause a huge drop in demand and real estate values, and down goes the heavily leveraged economy, which lacks resilience due to high debt ratios. This crash might be avoided if the government, the Fed and the banksters get together a la Lehman/AIG and bail out the state’s debt.

    Gasoline prices peaked around mid-June 2008. One theory is that the Chinese were stockpiling petroleum products to run power plants during the August 2008 Olympics so they could cut back on smog-producing coal-fired plants to make Beijing look nicer on TV.

    But, yeah, the spike in gas prices demoralized potential buyers of all the new exurban housing requiring long commutes.

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    • Replies: @Muse
    The default rates really took off in mid 2008. But your subprime loan borrowers were living on the margin and were the most vulnerable to a gasoline price shock. I believe they were already under great stress in 2006-2007 and could no longer afford homes at the given price. Existing home sales began to tank in 2006 when gas prices adjusted for inflation became volatile and went way up. Supply was becoming too tight pre-fracking and demand was inelastic. The pricing in the housing market and the default rates did not catch up with reality until mid 2008.. Once massive layoffs became a reality, demand for gas to drive to work tanked.

    2008 and later, I knew employed attorneys that were walking away from their house that could pay their note, but chose to default. The working stiffs were screwed by 2006-2007.

    Mortgage default rates
    https://fred.stlouisfed.org/series/DRSFRMACBS

    Gas prices adjusted for inflation.
    http://www.randomuseless.info/gasprice/gasprice.html

    Existing Home Sales
    https://www.statista.com/statistics/226144/us-existing-home-sales/
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  179. Anon • Disclaimer says:
    @eD
    On Steve's wider question, the big issue is that the world economy is still dealing with a huge population bubble and the resource crunch that always results from that. But the baby boomers in charge are working hard and quite good at making everything seem to be pretty much OK, with some hiccups like 2008. No this won't go on for ever, but I expect that things will continue to seem pretty much OK until these people start passing from the scene, so probably the 2020s to as late as the 2040s.

    Large parts of Puerto Rico have been in a dommerish, post-crash situation (no electricity, difficulty to get clean water) for months and while people can come up with a gazillion reasons to explain that away, one prospect is that we start getting a situation like this happening in different parts of the country every couple of years. Each time it will be ignored or explained away until it just becomes normal in most of the country to not have electricity, except for maybe a couple of hours a day. But there is always a chance of some miscalculation being made and everything going wrong at once in some spectacular way.

    Modern society and technology have spread about as far as they possibly can at this point. If Africa becomes more modern, it will be because the Chinese brought it in with them. But look at a country like India, and you’re seeing the limit. The Indian elite know they cannot improve the lot of 400 million poor Indians. The number and the needs are simply so overwhelming that the Indian middle and upper classes cannot dig them out.

    However, if another massive plague hits the planet, it may do the work for us.

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  180. SteveO — man, plus one to that. I get nauseous when Tyler Cowen and others start fantasizing. Y’all ain’t taking my car, people.

    Steve–California has a lot of farm land in the Central Valley, and while it isn’t much of CA’s economy it’s quite a bit of the nation’s food. Plus, not sure how the teachers and police and government workers will live.

    Predictions for crash:

    Totally not my field, but the comments were interesting so I thought I’d agree with those saying China. Three possibilities:

    1) China has tons of empty cities, where they built things up and there’s just no takers. Those bills come due eventually. Plus, the populace is not happy and China cares more about than people think. Also, it’s a corrupt nation with a bunch of gambling addicts. If at some point it stops buying US $, I don’t know what we’d do.

    2) China also funds an enormous number of college students. If they stop sending their students here, a lot of colleges go under, which would probably be a good thing but I don’t know how that all plays out.

    3) Chinese oligarchs are buying the hell out of western US real estate, as well as metropolitan areas all through the country. If they all decide to sell–well, glory be, but it might have consequences I can’t foresee.

    The pension issue is a big deal that I don’t know how it gets resolved, but I don’t see it being a crash per se. Maybe I’m missing something.

    I don’t mean this in a bad way, but I can see little long-term badness coming out of a major CA quake. But I also don’t see a major CA quake coming. Then, who does?

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    • Replies: @Art Deco
    2) China also funds an enormous number of college students. If they stop sending their students here, a lot of colleges go under, which would probably be a good thing but I don’t know how that all plays out.

    IIRC, foreign students account for about 3.5% of total enrollment.
    , @Anonymous

    1) China has tons of empty cities, where they built things up and there’s just no takers. Those bills come due eventually.
     
    The two most well known Chinese "ghost cities" are Ordos in Inner Mongolia and Yujiapu financial center in Tianjin. I have visited both in the last 6 months and the characterization of both as "ghost cities" needs some qualification/update.

    After great effort by the government, Ordos has people living there. Keep in mind it had always been intended as a ceremonial mall to complement the urban areas around it rather than as a busy city downtown. For the middle of nowhere to have a grand ceremonial mall the scale of the national mall in say Delhi is ridiculous and wasteful but that particular municipality was so coal rich that it had money to waste. So no debt bomb, just ludicrous but isolated monumental waste.

    Yujiapu is envisioned as an enormous financial district on the coast of Tianjin with 5 or so supertall skyscrapers and a whole bunch of other highrises. It was announced around 2010 and called out for being a folly as there would be no demand for so much office space. Plans were suspended for several years. Now construction has fully resumed and it looks like the full might of original plans will be implemented. Was waiting 5 or so years enough to make this a prudent investment? I don't know but there is some responsiveness among planners to calls of hubris.
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  181. @J.Ross
    I witnessed a bizarre illustration of this mindset. A major, long-running story in Outer Detroit (safely beyond the dindulands) is the failure of government pensions, especially for public-sympathetic people like firemen and ambulance drivers. The verdict always comes back, we're sorry, but the money's just not there. So a coworker was discussing that -- data beats logic, phronesis owns theory, the presense or absense of actual money overrules sacred obligations burning in your heart -- and up behind him crept a customer, a nice old man who just happened to be the retired vice president of a labor union. Oh no, he insisted, they'll pay. They have to. Maybe we'll go to court and there'll be a wait but they'll absolutely pay. They have to. Because it says so. Being that he was a customer we could hardly tell him to swallow large unlubricated auto parts and gasp in rain until dead.

    You could tell your customer to swallow whatever you want, but he is 100 percent correct. NJ froze pensions, but didn’t reduce them. They aren’t allowed.

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    • Replies: @Achmed E. Newman
    You are missing Mr. Ross's point. The money isn't there! You can pass whatever legislation you want, but when they money is not there, people will not get it of course.

    BTW, let me add one caveat - it IS possible retirees will get the NOMINAL amount of money per whatever contracts, plans, SS program, says. It's just that that the dollar will have been inflated away to where, yes, "you will get your $1800 montly SS check, as we promised", but a meal at McDonalds is $128 and change, and the rent is $3,700 monthly for your apartment in the hood.

    You can't get blood from a stone, even if you ARE a big-time New Jersey lawmaker.
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  182. Anon • Disclaimer says:
    @Brabantian
    There is more than US 200 trillion debt in the world, it really cannot be paid, mathematically speaking, and it is going to blow up in the not-far future (within the next 30 months my guess, possibly later this year, but 2019 a good estimate)

    There has been lots of money-printing, central bank bond-buying etc to paper over the bad debt, but there is an intrinsic limit to how long that can run, due to the 'social mathematics of credit', the fact that trust will fail at a certain point as the stresses on the math become too great ... But predicting the time of the blow-up is not easy, however

    Just like the USA in 1929 before its final ascent to global hegemony, China will be hit hard by the crash of its 40 trillion in dodgy unpayable internal debt - along with the USA and most of the world, but China will be hit super-hard. That will limit China's dominance in the medium term, the next 15 years or so.

    The US will also suffer rather badly because of its half-trillion a year trade deficit that it finances by printing 'dollars' which are in their final run ... when the US is forced to pay gold or whatever for imports, the US will be hit quite hard as well

    Europe is actually much better off as it has essentially zero trade deficit, it exports as much as it imports. Within Europe, the euro currency will likely break up, European banks will collapse etc ... but things will not be too bad due to the trade balance, home industry and agriculture etc ... plus Europe is used to changing money-forms every few decades

    The economics writer who really knows what is going on is Jeffrey Snider of Alhambra Partners, but his stuff is not easy to grok. Essentially, for decades global credit and thus 'money' has been a pyramid on what is often called the 'eurodollar', i.e., major currencies functioning outside of their home countries.

    That system actually peaked in August 2007 and the credit system has never been restored because it cannot be fixed - it reached its math-plus-trust maximum - tho the central banks have succeeded in helping the old system limp along on the semi-stagnation basis we see all around us, now in the 11th year adrift

    The big system 'reset' will involve many tens of trillions of debt being written off, lots of banks etc collapsing, and a new form of international trade 'money' will need to be implemented ... which could be a system of IMF SDRs (Special Drawing Rights' or, maybe even more soundly, gold certificates for international trade whilst individual countries keep fiat money internally

    The Big Reset has been done a great many times, from kill (((the moneylenders))) in medieval societies to the French Revolution. The problem is, those times are not much fun to live in.

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  183. G Pinfold says:
    @Dave Pinsen
    My guess was government environmental zealotry.

    https://twitter.com/dpinsen/status/940883976989929473

    But the good news, from an investor's perspective, is you don't know what the crisis will be to protect yourself. The hedged portfolio method I've written about is a way of doing that. https://seekingalpha.com/article/4134763-offer-value-clients-2018

    I think you put this quite well – excessive environmental zealotry.

    An early manifestation is likely to be a spike in the oil price, an old-fashioned energy crisis, with prices north of 150 usd/barrel. Brent crude has already crept back above $70 with barely a mention. Why? Because no one is interested in oil these days. I mean, what are you? Some kind of redneck?
    Every day another preening fund manager declares that the fund is exiting the fossil fuel sector. Meanwhile raw demand is still growing and its a ferocious monster (almost 100m barrels per day and growing most rapidly in the non-automobile segments.) These ‘gluts’ we have heard so much about equate to a week or two of global demand. And last year saw the lowest levels of new oil resource discoveries in recent history.

    So I see the world sleepwalking, without the benefit of adult supervision, into real scarcity of its most critical resource. As another fred also noted, we are gambling on alternative energy with a lot of blind faith and wishful thinking.

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    • Replies: @Steve Sailer
    Human beings want air conditioning and automobiles. Those burn a lot of energy.

    What percentage of people living between, say, 40 degrees north and 40 degrees south have air conditioning at present?

    , @Dave Pinsen
    What I was thinking of in particular when I wrote that is the pressure toward adoption of electric cars and trucks in lieu of internal combustion powered ones, particularly in Western Europe. The automakers seem to be making them mainly because of government demands, despite the energy density of diesel and gasoline being >40x that of electric batteries.

    Globally, the auto industry is something like $2 trillion in annual revenues. It takes a lot of government intervention to get it to move to such a poor power source. What happens when, having transformed the industry to its preference, governments saddled with other obligations (pension liabilities, sovereign debt, etc.) decide to yank their incentives? The hangover from that could be huge.

    That said, I don't see it blowing up anytime soon. I own an app that helps investors hedge ( http://itunes.apple.com/us/app/portfolio-armor/id394951144?mt=8 ), so it would be in my interest to hype an imminent risk, but I don't see one with this or with any of the others mentioned in this thread.

    For a positive take on oil and energy security, see this speech by Jim Bowen of First Trust (he starts at about 5 min).

    https://youtu.be/F9kxMLOdtnA
    , @Alden
    Phillips 76 is the most expensive gas. The one near me just jacked the price up to $3.97 a gallon.
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  184. @joeyjoejoe
    "...what might cause the next economic collapse the way that mortgages set off the last one."

    Did they really? I'm genuinely economically illiterate. I know in the last economic crash, lots of bad mortgages were made for political (rather than economic) reasons. But is it accurate to say 'mortgages set off the last one"? Is the cause/effect really bad mortgages/economic crash?

    My common sense (i.e. economically illiterate) observation would be: bad mortgages were made. At some point, something happened, and lots of people with bad mortgages couldn't make their payments any more, so they defaulted, and an economic collapse occurred.

    But in this description, the cause/effect is 'something happened'/'mortgage payments weren't made and economic collapse occurred'. In other words, the failure to make mortgage payments was not the cause of the collapse: it was the initial effect of the collapse. The cause was 'something happened' (what was that 'something'?). If that 'something' hadn't occurred, would the bad mortgages continue to be paid?

    joe

    Think of the economy as a structure, say, a pyramid, built on transactions, each representing a bit of added value. The added value is the value that participants obtain from entering transactions. But then someone discovers that a significant portion of the added value is fictional, that promises underlying some of the transactions are “wood” (i.e. no good – from wooden nickels of yore). The consequence is that the foundation of the structure is corrupted, and scads of participants or “traders” are leery of entering into current transactions because they can’t trust the value of the offers presented. Fundamentally it’s a recognition problem and erosion of trust plays hell with it. It takes a while to unwind and get things going again, more so if society is a recreation of Babel, Sodom and Gomorrah rolled into one, with exciting new features added for the customer’s convenience.

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  185. @Jonathan Mason

    You’ll see a recession derived from the usual forces which generate recessions. If you’re looking for a crash, we had one in 1840, 1873, 1929, and 2008
     
    But is there really a common cause in the ones you have cited. 2008 was caused by the credit default swap on bundled housing loans fiasco.

    In 1837 the triggering factors seem to have been banks overlending, coupled with an increase in the price of slaves and a fall in the price of cotton.

    1929 followed a speculative boom and excessive purchase of stocks on margin, in other words buying stocks with borrowed money in the expectation of making a profit and paying back the money.

    My best bets for the next crash are:

    1. A major earthquake in California

    2. A student loan bust

    3. A major terrorist event. Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    https://www.youtube.com/watch?v=NMq7A17kLgs

    Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?

    Why would that have been worse?

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    • Replies: @another fred
    Out of the mouths of babes.
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  186. Anon • Disclaimer says:
    @another fred
    A crash, or financial panic, as was historically understood, was preceded by malinvestment and would wipe clear balance sheets through a process of bankruptcies. By this definition the "crash" of 2008 was not a crash as the government(s) stepped in and kept the cascade of bankruptcies from occurring. Malinvestments still abound, kept afloat by liquidity flowing from Central Banks.

    We are not in Kansas anymore, Toto, but in a new world where sovereign governments have taken on the burden of preventing a normal process of bankruptcies clearing malinvestment. The only thing that can trigger a true crash is loss of confidence that the government can continue in this role. Right now the major Central Banks are all cooperating to keep this from happening.

    Supposedly the Fed is trying to "take the training wheels off" and remove its support of the "market" (actually maintaining malinvestment). If the Central Banks persist we will see a pretty good perturbation in the market fairly soon that some may call a crash (probably within a year or so), but as long as "investors" believe the government can, and will, step in we will not have a true crash that wipes bad debts off the books.

    In the past spontaneous crashes preceded wars in a somewhat orderly fashion (as per Kondratieff). This time, I predict the crash will be preceded by a breakdown in international cooperation, after which the crash and wars will be unavoidable.

    China has trouble in its future as does the EU. Oil is a wild card. When the troubles get so bad that cooperation breaks down is anybody's guess, but I think this guy has the best guess (2030 to 2060).

    https://www.ted.com/talks/didier_sornette_how_we_can_predict_the_next_financial_crisis

    One thing that tends to prevent wars is a newly emerged middle class that has every intention of wanting to enjoy its new wealth instead of being sent off to die in some idiotic foreign war. This is why Vietnam was so unpopular to young men in the 1960s and 70s. Do you think the new middle class in China and Russia wants to be yanked away from their iphones to be maimed and killed? No way. They didn’t used to have much to lose. Now they do.

    A lot of people here think war is inevitable and easy to start. I don’t think war will happen so easily anymore, except between 2 third world countries.

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    • Replies: @another fred

    A lot of people here think war is inevitable and easy to start. I don’t think war will happen so easily anymore, except between 2 third world countries.
     
    I agree with your general premise as far as the populations of developed countries are concerned, but third world countries wars can spill over, to say nothing of a war between some sort of Muslim bloc and the Israelis/India.

    The US has been playing cop on the beat, preventing wars from evolving when incidents occur and enforcing its will on smaller nations. All of that has been financed by cheap credit and cheap oil. International cooperation, such as it is, has been maintained by the fact that we are all in the same boat, needing to keep trade going to keep our economies expanding. But so much of the trade is in non-essentials and luxuries and that will dry up quickly in hard times.

    I would be surprised, if I lived so long, to see another European war with massive armies crossing boundaries under any circumstances, but I think the future will see a loss of the first world's willingness and financial ability to keep a lid on others' activities. The use of WMD will spill over, especially biological weapons used on crops and populations. Most of the dying will be done outside the first world, barring a major nuclear exchange, which would require some sort of blunder or miscalculation.
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  187. Lot says:
    @Vinteuil
    Glad to see you back.

    Thanks, turned out 4 months was all I could flounce.

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    • Replies: @Vinteuil
    Hey, we need all the high-value-added commenters we can get, around here.
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  188. Tyrion 2 says:

    No idea, but were this a script, this is how I’d write it.

    Act 1. Trump gets assassinated.

    Act 2. Whatever mechanisms are being used to temporarily pump up the global economy are stopped. Huge bust and chaos.

    Act 3. Crazies in the outer party are crushed during subsequent house clearing.

    Epilogue. Fresh start. Sanity. Old dogma discredited forever. Trump, bizarrely, features strongly as Girardian sacrificial lamb.

    To take advantage of this at least not impossible scenario, you need only be ready to short sell, ideally with leverage, at a moment’s notice and then go long and hold whenever it all sorts itself out.

    The more generalised lesson being that those who get rich often do so by only betting but betting huge when they are guaranteed to win. Of course they need to be ready whenever the time comes. Just after a surprisingly successful set of mid-terms?

    I learnt this from my father, a true gentleman, who repeatedly told me the story about Rosthchild and the Battle of Waterloo when I was a child. I assume as it contains exactly this lesson.

    Looking it up, for the first time, I now see this story of smart dealing and foresight is considered a libel. How sad!

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  189. Anon • Disclaimer says:
    @Dutch Boy
    Major economic crashes are inevitably caused by unrepayable debt caused by usury. The tragedy is that the system of usury is entirely unnecessary. Governments are sovereign and could create a system whereby money is loaned without interest (charging only a fee for processing/insurance). This would greatly decrease the debt commitment of the average borrower while still maintaining a money supply for consumption. Of course, the reason the system persists is that it channels resources from the poorer to the richer and the richer call the tune.

    Don’t underestimate the inability of people to pay back loans even without usury. People are greedy and dumb, and even loans without interest will not magically make them ungreedy and undumb.

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  190. Something also to remember about recessions and crashes: they don’t hit everyone equally.

    I understand there was a severe recession in 1981-82. It had no impact on me at all. I was in college, sure, but I worked through college at corporate temp jobs, and was gainfully employed throughout, making around $22k/year when I graduated from college.

    The stockmarket crash of 89 didn’t make a blip in my horizon, even though I worked at a brokerage firm.

    The recession of 1990-91 also had next to no impact on me. My income climbed throughout, I had no trouble finding jobs, pay was fine, and so on. I didn’t even really understand there was a serious recession until later.

    The 2008-9 crash hit my IRA, although I don’t think as badly as the 2001 crash did, percentage wise. And it was pretty tough finding teaching jobs that summer (notoriously so. There are graphs on it).

    In my lifetime, nothing has affected me more directly than the dot-com crash of 2001, in ways both bad and good. I saw it coming, fortunately, or I’d have been bankrupt.

    I’m sure everyone has similar stories. So when I think of crashes, it’s quite possible I simply hope that it’s China, because it would have a positive overall effect on education, not because I’m thinking about my own finances.

    I keep asking my financial planner if I should take some of my IRA earnings and take them out of the market, but he says I’m still 15 years from using them and that’d be dumb. He’s probably right. I just get nervous.

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  191. Anon • Disclaimer says:
    @International Jew
    A wave of municipal, and even state, bankruptcies. A lot of them are already beyond any hope, but they've been delaying by issuing new debt to roll over old debt. It'll be a good crisis to drop into Trump's lap, if Russiagate fizzles out and he seems to have gained his footing. The affected cities and states are controlled by Dems, so they'll optimize the timing for maximum damage.

    Trump has no intention of letting the states’ pension crisis drop into his lap. He’s going to tell them that it’s their own problem to solve, like he told Puerto Rico that their current problems are their own to solve. There’s no way in heck he’s going to help states like Illinois or California. If he did, they’d just snatch the money out of his hand and rant and continue to blame him for everything and call him evil.

    Trump is not going to lend a dime’s worth assistance to Democratic states that have dug their own graves, because he wants all the Democratic voters in those states to learn the hard way why you shouldn’t vote for Democrats. Democrats will never wise up until they suffer the consequences of their own policies, and Trump knows that. The best way to turn Democrats into Republicans is to stop protecting them from their own ideology.

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  192. JoeFour says:

    Here’s an interesting take that starts with bit coin and then adds several other potential catalysts for the next recession….

    http://livingstingy.blogspot.com/2018/01/the-bitcoin-recession.html

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  193. @Anonymous
    In the trade, the 'male equivalent' of the 'Brazilian wax', as often sported by gays, is known as 'Brazil nuts'.

    In the trade, the ‘male equivalent’ of the ‘Brazilian wax’, as often sported by gays, is known as ‘Brazil nuts’.

    I will refrain from asking you how you know this …

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  194. @Intelligent Dasein
    Before beginning in earnest on this timely and thankfully introduced topic, I wish to say a few words about Bitcoin.

    I have read the Bitcoin whitepaper and, frankly, it comes across to me as a hoax. Having written and read a fair amount of academic papers in my time, I have a pretty good sense of when somebody is shining my shoes; and, not only does the thin and rudimentary material presented in the whitepaper fail to rise to academic standards, but there is a je ne sais quoi of tinniness and phoniness in the prose that distinguishes it from the ordinary hyperbole of the typical sales pitch. The development of the blockchain (a running, open-sourced, cryptographic ledger) did not require any quantum leaps of insight. It is in fact simply a computational version of the same thing that was accomplished millennia ago with the rudest of analog methods---e.g. the broken sticks and torn contracts of ancient Roman custom, in which each party received one piece. Bitcoin obviously originated as some sort of libertarian and techno-fantasist "proof of concept" that was never even intended to be practical. Bitcoin mining now consumes as much electricity as the entire nation of Ireland; and the run-up in Bitcoin market cap is part and parcel of the same Everything Bubble that has been engendered by massive waves of quantitative easing and loose credit. Crypto-currencies have no application outside of these highly dissipative and artificial liquidity conditions. I have erstwhile described them as akin to amusement park tokens---negotiable withing a limited sphere but of very little use outside it. The real economy will never operate on the blockchain. Cryptos are a speculative frenzy that nobody will even remember in 5 years.

    And now back to the main point. Perhaps the headline to this post ought to more accurately read as, What will cause the next financial crash," since that is what we generally mean when making reference to stock market reversals. It is critically important, especially in this day and age, to keep ever in mind the distinction between the financial system and the real, physical economy. The latter is, of course, the ultimate arbiter of all things and is, to me, much the more interesting. But the former also has its place and, for schematic simplicity's sake, might be beneficial to discuss first.



    The next financial crash can be explained in just two words: interest rates, i.e. the balance point between liquidity time preferences and the risk of default as reflected in the price of borrowed money. For the last decade, interest rates of been the victim of a relentless campaign of financial repression of staggering proportions. Right now there is something like $10 trillion of sovereign debt trading at a negative rate of return, meaning that bond buyers actually have to pay a premium for the privilege of loaning money to various governments. The European Central Bank has purchased so many corporate bonds on the open market that the spread between investment grade and junk has narrowed to the lowest value in recorded history. The Bank of Japan, for its part, has bought virtually the entire Japanese bond float and owns roughly a 10% stake in all Japanese listed ETFs. You may want to pause for a moment and just think through the implications of this. The Bank of Japan is now very close to being an actual "board member" of Japanese corporations, with all the fiduciary responsibilities and conflicts of interest that that implies. It cannot sell its position without tanking the market, but it cannot increase its holdings without actually assuming command of the companies' day-to-day operations (which it is very ill-equipped to do). This is called painting yourself into a Keynesian corner.

    If the Central Banks of the world started to sell off their bond holdings, interest rates would climb back towards their historic norms and the cost to service the hundreds of trillions of dollars of global debt would be instantly repriced. At that point it would be revealed that everybody, everywhere is insolvent and the global financial system would undergo a nuclear meltdown. Obviously that isn't going to happen. No central banker who wants to keep his head is going to persist in a policy of quantitative tightening once the market begins to crash, the pension funds are wiped out, and the bank runs kick in. But all the same, logic and common sense tells us that you cannot "really" stimulate an economy simply by printing money, for that is tantamount to getting something for nothing. We therefore must conclude that the decade-long experiment in turbo-Keynesianism has been an elaborate parlor trick designed not to cure our economic ails but to obscure them. Interest rates will not rise by ordinary means but something equivalent has to happen somewhere in the system to absorb the pressure that interest rates are not being allowed to feel.

    It was the genius of modern monetary policy that the strain was kept confined to a region of the financial universe that few people have heard of and even fewer understand---the Eurodollar funding system. Eurodollars are time-deposits denominated in dollars held in banks outside of the United States, and are a critical part of the infrastructure of international settlements. Eurodollars arose out of the dollar's status as a reserve currency and the need for foreign governments and corporations to have access to dollar funding. But these dollars are somewhat different inasmuch as they are not under the jurisdiction of the US Federal Reserve and can command higher interest rates.

    For reasons discussed in detail by Jeffrey P. Snider of Alhambra Partners, the Eurodollar system has been breaking down. He describes the world as being in the early stages of a "run on the dollar." This is indeed a side effect or corollary of Triffin's Paradox. Any country, such as the United States, which wishes its currency to be used as a global reserve currency, must be willing to supply the world with large amounts of it by running a current account deficit. The primary creditors of the United States, especially China, have found themselves in a sort of inverse of Triffin's Paradox such that the amount of dollars they must hold to provide for their international settlement needs is so great that they risk having their own currencies appreciate unacceptably relative to the dollar, to the detriment of their export-based economy. This risk the Chinese have tried to ameliorate first by pegging the yuan to the dollar, then by devaluing it, and finally by outright manipulation of the interbank SHIBOR rate. But the ultimate effect of the dilemma is to force nations like China to search for alternatives to dollar funding.

    Since this could be construed as a weakening of the demand for dollars, ordinary economic thinking would postulate that the dollar's value would then decline; but this simple analysis does not take into consideration the vast amount of dollar-denominated debt already on the books that will have to be paid back in kind. The withdrawal of a country like China from the dollar system would result in an immediate evaporation of a large pool of dollar liquidity. The remaining dollars in the system would then be extensively bid by dollar-debtors scrambling for funds with which to square their outstanding loans. There are no longer enough dollars in the world to pay back all the loans, so the dollar strengthens as its value as a reserve currency steadily erodes. Now we have gotten, by a somewhat counterintuitive process, to that "equivalent" of rising interest rates that we were searching for earlier. A strengthening dollar is topologically equivalent to a rising interest rate inasmuch as it tends to favor creditors over debtors and results in a deflationary preference for dollar hoarding as cash, once again, becomes king.

    ~~~

    Now, as regards the physical economy, it is clear from an appraisal of the underlying fundamentals that it is in a state of slow and inexorable deterioration. When you look at graphs of hardcore econometric indicators such as year-over-year changes in employment and productivity, and you mentally pencil in a smoothed polynomial curve to even out instantaneous swings in the data, there is no hiding the gently sloping downward trend. This is exactly what we would expect from a global economy in which there is no actual growth, which has already reached the Keynesian coffin corner of Peak Debt, and which is already experiencing the adumbrations of an impending demographic inversion reminiscent of late Roman times.

    When people ask me when I think the crash will take place, I answer that it already has, that it is ongoing, and it will continue for the next 30 or 40 years. The system has a great deal of inertia in it and the primary frequency of the underlying drivers is generational in scale, so the "crash" appears to happen very slowly withing the context of a single human lifetime; but in the more objective retrospect of history it will stand out clearly as an obvious inflection point, as the period when the developed world passed from organic growth and development in the economic sphere to the mere maintenance of a tottering system under increasingly desperate conditions.

    As I have already discussed this dynamic from numerous angles and have no desire to repeat myself here (although this topic could easily furnish enough material for a book), I will confine my present comments to statements about the immediate future which may be of some interest.

    The next big thing, the one development that will signify definitively that a new and sparer season has taken hold, will be the collapse of tech. I am not saying that the internet is going to disappear overnight or that the cities will go dark; but I am saying that, beginning around 2020 or so, the whole concept of technology as an investment category, as a culturally significant going concern, and as a mysterious incantation in corporate-speak portending vast future productivity gains, is going to take a serious hit from which it will not recover. In a world that is no longer actively opening up new avenues of real and tangible wealth, the diminishing returns from any further intensification of the technological process are going to prove too a costly a burden to bear. The future will contain no such thing as a "tech industry" per se, but only currently existing technologies built into other industries and correspondingly retreating to a smaller scope and lower level of implementation. The degree of technological sophistication that we have right now is very near the maximum that we will ever have. Even the highest existing current applications will withdraw into a realm that is less widespread, more boutique, and more mysterious to the masses as it becomes a recondite priestcraft and the personal possession of an aristocratic elite.

    I would be very suspicious of the FAANGS right now. As de-dollarization (see above) continues to make globalism a much less favorable proposition for the American consumer, these mammoth tech companies will be revealed ever more poignantly for the cash-burning leeches they always have been. Sporting P/E ratios up to five times the historical average for publicly traded corporations, they are already due for a correction on technical grounds and their underlying fundamentals are terrible. The fault line is probably weakest at Amazon. When that space starts to move, the global correction will have begun.

    The withdrawal of a country like China from the dollar system would result in an immediate evaporation of a large pool of dollar liquidity.

    Don’t they have to dump a bunch of them first? Aren’t most of their foreign exchange holdings in US$?

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  195. @Lot
    All these programs already exist.

    Grads with good jobs and objective repayment factors can have their 6-7% federal student loans refinanced by private "social" lenders like SoFi at 3-4%.

    The other thing you propose exists as "income based repayment." The program requires you to make partial payments based on income for 25 years. Then the federal gov just forgives the rest.

    If a corporation made "partial" payments less than its loan contract such loan would be in default and partly written down as impaired. But the feds do not do this, even though they are 100.00% sure the loan will not be repaid in full.

    All quoted "Default rates" in student loan programs are BS for this reason. Someone in "default" just means they are too stupid or disorganized to sign up for the income based program, which has annual paperwork requirements but often cuts student loan payments from $600/mo to $40 or even 0.

    It is mostly higher IQ whites with worthless degrees doing these soft defaults not being counted as defaults in the government's cooked books.

    To put it another way, there are two separate ed loan scams going on. First the for profit scams that suck up billions of tax dollars for scam degrees and no show students. The people who run them donate heavily to both parties, though Obama started to crack down on them his last 2 years, shutting down some of the biggest chains of scam schools. Trump and DeVos reversed these policies. (Trump DoE also hides default data by school like Obama's DoJ hid race/crime data)

    The second scam involves more respectable 2nd tier colleges like George Washington and NYU admitting 115-125IQ types, letting them party on Ungle Sugar for years, investing in lavish facilities and $350,000 professor salaries.

    Then when grads emerge with their NYU gender studies degrees, NYU carefully makes sure the grad signs up for federal loan forgiveness. Thus NYU might get $150,000 in fed money for the student, the student himself only repays maybe $20,000 of it. But this student who never repays his loan is not counted as ever defaulting.

    The second scam involves more respectable 2nd tier colleges like George Washington and NYU admitting 115-125IQ types, letting them party on Ungle Sugar for years, investing in lavish facilities and $350,000 professor salaries.

    Actually, those are the administrator salaries. Fashion in academics is to pay the managerial class a lot and have most of the teaching done by the Doctoral Reserve army of the unemployed, the adjuncts. NYU isn’t bad at that; they pay $134 per classroom hour (and 150 minutes counts as three hours) to their adjunct wage slaves. I have friends who’ve worked there.

    You missed a scam. If you qualify for the new GI bill, and attend college “full time”, the Feds will pay 22k a year towards tuition, give you $1000 a year towards books, and also give you a monthly stipend to offset your housing costs. This stipend varies with local housing costs; my understanding is that anyone attending a college based in NYC will get $4100 a month tax free to offset housing costs, so long as the military grad is in school. That’s about 50k a year after taxes, which a single man would have to earn 90k in NYC to get. You could get 200k cold cash from the Feds if you lived at home with your parents in NYC and attended a local school paying no more than 22k in tuition.

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    • Replies: @Steve Sailer
    NYU figured out awhile ago that there are a lot of high IQ people in NYC who aren't fully employed (they are between jobs on Wall Street or they are waiting for their play to be mounted off-Broadway or whatever or their children have started school but their husbands are making so much money they don't need a full-time job). So you could hire bright people as adjunct professors for a semester at a time for peanuts.
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  196. @Almost Missouri
    I've been hearing about this energy returned on energy invested ("EROEI") shrinking for over three decades, such that supposedly by the year 2000 it would no longer pay to drill new wells. The millennium came and went and petroleum is still king of energy. There was a Peak Oil hysteria in the 2000s, but even I could see through that.

    EROEI may indeed be dropping, but might that be not because oil wells are getting less efficient, but because human beings are getting less efficient (at least human beings in the industrial (petroleum) economy)? In other words, like so many matters of public moment, the undiscussed HBD aspect turns out to be the one to rule them all. As the first world nips its own descendants in the bud, subsidizes underclass breeding, and imports useless and destructive third worlders hand over fist, of course the returns on every kind of large investment (including energy invested) are dropping and will continue to drop. You can't make the shining city-on-a-hill future when you are staffed with primitives from a dark age past.

    EROEI may indeed be dropping, but might that be not because oil wells are getting less efficient, but because human beings are getting less efficient (at least human beings in the industrial (petroleum) economy)?

    No. EROEI is dropping because the big easy fields where a little drilling brought a lot of oil were drilled first and the wells being drilled now take more and more work for less and less oil.

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    • Replies: @Almost Missouri
    Yes, I agree that easy fields were drilled first, but advancing technology and efficiency should have made formerly difficult fields easy now. That hasn't happened as fast as it might have, perhaps because we petroleum-dependent humans haven't been advancing as fast as we might have.
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  197. @27 year old

    Although 9/11 was rather successful in terrorist terms, it could have been worse. Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?
     
    Why would that have been worse?

    Out of the mouths of babes.

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  198. Jack D says:
    @SteveO
    I keep hearing this type of prediction, but one question that doesn't seem to come up: Doesn't anyone enjoy driving? I mean either (1) the act of driving itself - a complex task many of us are quite good at and others at least passably so - or (2) the freedom that comes from possessing a machine that will take you anywhere there are roads anytime you want for however long you want? The fact that you can't actually go is irrelevant. It's the dream and the possibility that matter.

    For generations, driving and owning a car have been symbols of freedom for Americans. Furthermore, people in every country around the world have taken to driving as soon as they could afford it, even when their roads are clearly not suited to automobiles. Why else would the traffic in London and Paris be so awful? Why would anyone in New York own a car - and millions do - if they didn't find the freedom worth the price and inconvenience?

    And yet I hear that soon, at best we won't be driving ourselves but rather letting our car do it for us; at worst we won't even own a car but share one "when we need it". The preplanning and commitment required by the latter essentially kills the Route 66 dream that used to be precious to Americans. And it won't be optional. The insurance companies and LE will see to that - as soon as feasible, self-driving cars will be mandatory because they are safer. But safety isn't everything!

    What has happened to our society to kill off such a wonderful dream, and why did we let it/are we letting it happen? At a personal level, it annoys me that yet another thing I'm fairly good at is going to become an obsolete skill. First, being a good navigator became useless as GPS took over from map-reading; next, driving will go the way of blacksmithing. Then what?

    Sorry. Long rant ... but it makes me sad to see so much of what made America America in the 20th century die off.

    It’s partly a generational and partly a gender thing. Many kids today, especially but not only girls and the genderqueer, don’t really enjoy driving and are not “into” cars. Driving is not as much fun as it used to be, with crowded roads and Mesicans and giant SUVs who no longer dip their high beams. CARS are not as fun as they used to be. They are little boxes on wheels with CVTs that don’t even shift and electric power steering – they are about as exciting as your refrigerator. It’s like stereos – a lot of guys used to be into hifi and had expensive amps and big speakers, etc. Now everyone listens to their iPhone on earbuds where the fidelity is nil and no one cares. Instead of worrying about getting arrested for drunk or impaired (pot smoking) driving, you call an Uber and have no worries.

    There is going to be a small old white man group who will resist self driving. Eventually they will ban them the way they banned tobacco smoking in bars. Maybe tracks will open up or they will designate certain roads where people will be actually allowed to take the wheel of their antiques during daylight hours on sunny summer weekends.

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    • Replies: @Mis(ter)Anthrope
    I guess I'm in that group of old men. I have owned around ten cars and trucks in my life and have never owned a vehicle with an automatic transmission.

    New trucks with manual transmissions trucks are almost impossible to find. So I'll just hang on to my 2002 Dodge Ram 3500 diesel and just keep repairing it when something breaks.
    , @Jonathan Mason

    It’s like stereos – a lot of guys used to be into hifi and had expensive amps and big speakers, etc. Now everyone listens to their iPhone on earbuds where the fidelity is nil and no one cares.
     
    Dang, I am always saying that. In fact hardly anyone (except me) seems to ever listen to music for pleasure at all. Sure, if you go somewhere like Harbor Freight Tools, they have construction guy music with crude guitar thrashing playing all day, but it is just for the sake of noise, no one listens to music for pleasure any more.

    Another decade and jazz, the greatest cultural product of the US, will be dead and future archeologists will speculate as to whether the saxophone was a prototype of the cell phone. Goodbye music, it was good while it lasted.

    https://www.youtube.com/watch?v=XpZHUVjQydI
    , @James B. Shearer
    "... Driving is not as much fun as it used to be, ..."

    It's not that driving is less fun, it's that there are now a lot of alternative (and cheap) ways of entertaining yourself. The internet, video games, netflix, youtube and so on.
    , @Achmed E. Newman
    Yes, well, I'll just head up to my Uncle's country place, for a drive in his Red Barchetta.

    https://www.youtube.com/watch?v=FAvQSkK8Z8U
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  199. Nick Diaz says:
    @Art Deco
    But the situation is approaching the point where America cannot even service the interest of the debt.

    Federal debt service is currently $458 bn. We can service it with a 5% general sales tax.

    *Only* because interest rates are close to zero. If interest rates are even 3%, then America defaults.

    And this is the tragedy of the American situation: in order to experience true economic recovery and increased productivity, America needs to increase interest rates to increase savings and investment. But America cannot increase interest rates, because the government would default. So the only way America can stimulate economic growth is with cheap credit and consumerism, creating even more debt and making the problem worse. This is the catch America is in.

    Eventually, the debt will become unserviceable no matter how low interest rates are. Foreign credit will disappear, and there will be a massive run on the U.S Dollar. The FED will have no choice but to print money and generate inflation, as it will be the only way to give any credit to the economy. This will lead to a currency crisis, the worst of all kinds of economic crisis. Prices will skyrocket, credit will disappear and there will be no money to invest in anything, as the value of all assets will erode. It will be several years of economic contraction with massive hyperinflation,

    Since the end of WW2 and especially since the Bretton Woods treaty, Americans have enjoyed an obscene privileged status in the World, namely, that the American Dollar is the international fiat currency. What this means is that Americans can pay for any foreign goods with their own currency, which they control. Furthermore, a large chunk of the money of all international transactions ends up in America , as pretty much all corporations and banks needs a large chunk of their assets in U.S Dollar. For instance, Americans can pay for Arab oil with their own currency. Conversely, the poor French, Germans and Japanese have to first get U.S Dollars, and only then can they purchase the Arab oil. In order to get U.S Dollars, they have to first export something to America that Americans want. See how this works? The whole World has to work to get the stuff they want, while Americans get it for free by just printing their money and using it to pay for whatever they want. This system is morally obscene, and the World is finally rebelling against it.

    What will happen in the next crisis, which will be a sovereign debt crisis and currency crisis, that will make it so much worse than anything before, even worse than the 1929 crash, is that it will be the end of the U.S Dollar as the fiat currency, and Wall Street as the “hub” where a large chunk of all the capital circulating in the World ends up at. With en eroded currency and no longer having access to easy credit abroad, the American PPP per capita will instantly drop to 40% of what it is today. Americans will still be better off than Africans and Hondurans, but they will be no more affluent than Calabrians and Spaniards.

    In fact, I suspect that the American public will simply no accept that. America might actually become a rogue state and start invading Arab countries for oil even more than it does today. I also think America will play very hard ball with China, and freeze all assets of Chinese nationals in America if China does not continue buying bonds. The next crisis will be *so* bad, so vastly worse than even the 1929 crash, that methinks America will literally go to war over it. No way, no how, will Americans accept becoming as poor as the Portuguese and Greeks after 75 years being fed and carried by the rest of the World.

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    • Replies: @James B. Shearer
    And this is the tragedy of the American situation: in order to experience true economic recovery and increased productivity, America needs to increase interest rates to increase savings and investment
    ...


    America has plenty of savings, what it lacks are worthwhile investment opportunities. That's why the stock market is so high, lots of people have money they want to invest but there aren't many attractive new investments to be made. So existing investment assets get bid up and up and up.
    , @Achmed E. Newman
    Finally, a Nick Diaz post that I can actually like!

    You seem pretty savvy with the financial stuff, so how can you be so clueless about the immigration invasion? Or, is it a vested interest? (I "noticed" your last name ends with a "Z".)
    , @Sunbeam
    "Wall Street as the “hub” where a large chunk of all the capital circulating in the World ends up at. "

    I think this is a very significant thing that ought to be discussed in depth as to the mechanics and eventual ramifications are.

    The City in London is still an important financial center (though a good part of that might be the "special relationship," and the fact that for a variety of reasons the current shotcallers find it convenient and desirable to conduct some business there.

    But what happens if Shanghai or Beijing evolved into NYC's current role in the international financial system?

    Where does that leave NYC? (And Washington too honestly)

    As a musing of sorts, NYC will effectively be about as far away from the "action" as you could get. Probably the antipode of Beijing is in the South Atlantic, but you get the gist.

    Not much in NYC any more other than financial and media interests. Once upon a time there was industry of various sorts. No more.

    Seems plain as day to me, but no one seems to talk about what the new order's side effects are going to be.

    Personally I doubt the Chinese are going to step into (or even want) the US' role as the world's busybody, let alone conquer the world with yellow hordes.

    But given the talents of their population, and their seemingly never ending economic boom (well it ends one day, but I could see a couple more decades in high growth), it's a matter of when, not if, they become the center of the world financial system.

    My two cents.
    , @Anonymous
    Did I miss the part where you explained why American politicians can't simply print more money? Yes of course the PPP factor will weigh, but it's that frog in the pot thing. One of many additional reasons Americans will accept (near-) third-world living standards is because more and more of them are third-worlders anyway.
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  200. @anon
    Student loans are a perfect example of how usury inevitably corrupts everything

    1) the profit from student loans creates an incentive to turn education into an accreditation scam

    2) turning education into an accreditation scam leads to an over supply of degrees lowering their market value below the level needed to repay the loans

    Usury is parasitic which results in the evolution of cultural controls on usury which is why the banking mafia always need to corrupt the political system. When they succeed in fully corrupting the political system the nation/civilization is doomed.

    Um, wow. There’s a reason usurers are way down low in Dante’s Inferno. Well stated.

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  201. Art Deco says:
    @education realist
    SteveO -- man, plus one to that. I get nauseous when Tyler Cowen and others start fantasizing. Y'all ain't taking my car, people.

    Steve--California has a lot of farm land in the Central Valley, and while it isn't much of CA's economy it's quite a bit of the nation's food. Plus, not sure how the teachers and police and government workers will live.

    Predictions for crash:

    Totally not my field, but the comments were interesting so I thought I'd agree with those saying China. Three possibilities:

    1) China has tons of empty cities, where they built things up and there's just no takers. Those bills come due eventually. Plus, the populace is not happy and China cares more about than people think. Also, it's a corrupt nation with a bunch of gambling addicts. If at some point it stops buying US $, I don't know what we'd do.

    2) China also funds an enormous number of college students. If they stop sending their students here, a lot of colleges go under, which would probably be a good thing but I don't know how that all plays out.

    3) Chinese oligarchs are buying the hell out of western US real estate, as well as metropolitan areas all through the country. If they all decide to sell--well, glory be, but it might have consequences I can't foresee.

    The pension issue is a big deal that I don't know how it gets resolved, but I don't see it being a crash per se. Maybe I'm missing something.

    I don't mean this in a bad way, but I can see little long-term badness coming out of a major CA quake. But I also don't see a major CA quake coming. Then, who does?

    2) China also funds an enormous number of college students. If they stop sending their students here, a lot of colleges go under, which would probably be a good thing but I don’t know how that all plays out.

    IIRC, foreign students account for about 3.5% of total enrollment.

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    • Replies: @Achmed E. Newman
    Yes, but what percentage of the tuition payed?

    When you look up stats on the internet, Mr. Deco, you should put on your thinking cap too, and think, what is the point I'm trying to argue.

    , @John Shade
    Illinois's cash-strapped flagship school, University of Illinois at Urbana-Champaign, gets a fifth of its students from China.

    33624 undergrads enrolled for the fall 2017 semester. Of them, 4812 were Chinese nationals, or 14.3% of the total.

    Total enrollment--grads and undergrads--stood at 47826 in fall 2017. Of the total, 9405 were Chinese nationals, so nearly a fifth of the students at UIUC hail from China.

    http://isss.illinois.edu/download_forms/stats/fa17_stats.pdf (Chinese enrollment)

    http://www.dmi.illinois.edu/stuenr/abstracts/FA17_ten.htm (total enrollment)

    Will Illinois, the state with the worst credit rating in the nation, get its $100b plus public pension deficit in hand before China stops supplying a fifth of the school's students?

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  202. Art Deco says:
    @Daniel H
    I agree that all it will take is for China to cease bidding on US Treasuries and the whole damned edifice will come crashing down.

    China will take a hit too, of course, but maybe they think that it will be worth it to see us descend into unimagined chaos and strife.

    About 5% of outstanding Treasury issues are held by China.

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  203. @Jack D
    It's partly a generational and partly a gender thing. Many kids today, especially but not only girls and the genderqueer, don't really enjoy driving and are not "into" cars. Driving is not as much fun as it used to be, with crowded roads and Mesicans and giant SUVs who no longer dip their high beams. CARS are not as fun as they used to be. They are little boxes on wheels with CVTs that don't even shift and electric power steering - they are about as exciting as your refrigerator. It's like stereos - a lot of guys used to be into hifi and had expensive amps and big speakers, etc. Now everyone listens to their iPhone on earbuds where the fidelity is nil and no one cares. Instead of worrying about getting arrested for drunk or impaired (pot smoking) driving, you call an Uber and have no worries.

    There is going to be a small old white man group who will resist self driving. Eventually they will ban them the way they banned tobacco smoking in bars. Maybe tracks will open up or they will designate certain roads where people will be actually allowed to take the wheel of their antiques during daylight hours on sunny summer weekends.

    I guess I’m in that group of old men. I have owned around ten cars and trucks in my life and have never owned a vehicle with an automatic transmission.

    New trucks with manual transmissions trucks are almost impossible to find. So I’ll just hang on to my 2002 Dodge Ram 3500 diesel and just keep repairing it when something breaks.

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    • Replies: @Anonymous
    The demise of the manual transmission is because Millennials can tear up a clutch in the warranty period and modern vehicles take too many man hours to change one out.

    And also because of the EPA and CAFE requirements, Auto shift transmissions and electronically controlled locking torque converter slushboxes actually get better mileage in the EPA test.
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  204. TWS says:
    @ScarletNumber
    Student loans can't cause a crash because there is no collateral backing them up and they generally can't be discharged in bankruptcy. They will eventually get their money.

    They won’t get the money because the people that owe it can’t pay it. Many will die with it unpaid. Or they could make it discharge in bankruptcy again.

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    • Replies: @ScarletNumber
    Student loans are federally guaranteed and generally not dischargeable in bankruptcy.
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  205. Miro23 says:
    @Thucydides
    So long as the central banks are buying equities there would seem to be little likelihood of any major plunge in stocks, regardless of valuations.

    For example, the Swiss National Bank now holds $87 Billion of US equities, purchased in exchange for the dollars and euros it acquires by creating Swiss francs and purchasing those currencies to hold down the exchange rate and prevent the depressing effects of a skyrocketing franc.

    For example, the Swiss National Bank now holds $87 Billion of US equities, purchased in exchange for the dollars and euros it acquires by creating Swiss francs and purchasing those currencies to hold down the exchange rate and prevent the depressing effects of a skyrocketing franc.

    The point here is that we now live in a globalized world (as late as 1950 most products were bought and produced in the same country).

    The global rule is that every vendor has their product priced in US Dollars (the global reserve currency ) = They get paid in $ US, and THEY CAN’T EXCHANGE THEM FOR YUAN, YEN OR SWISS FRANCS. If they did, their rising currencies would price their products out of the game.

    Result, that they’re OBLIGED to buy $ US in some form or other – Bonds, stocks etc.

    This keeps the $ up and allows the FED to run the printing press to pay for $ Trillion ME wars and inflate Wall St bubbles without risking inflation, and they also carefully keep interest rates more or less at zero so that the Chinese get no return on their obligatory $ “investments”.

    How will it end?

    With the end of the immense global flow of goods and capital i.e. with a World War.

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    • Replies: @Anonymous

    The point here is that we now live in a globalized world (as late as 1950 most products were bought and produced in the same country).

    The global rule is that every vendor has their product priced in US Dollars (the global reserve currency ) = They get paid in $ US, and THEY CAN’T EXCHANGE THEM FOR YUAN, YEN OR SWISS FRANCS. If they did, their rising currencies would price their products out of the game.

    Result, that they’re OBLIGED to buy $ US in some form or other – Bonds, stocks etc.

    This keeps the $ up and allows the FED to run the printing press to pay for $ Trillion ME wars and inflate Wall St bubbles without risking inflation, and they also carefully keep interest rates more or less at zero so that the Chinese get no return on their obligatory $ “investments”.
     
    They spend a lot of it on high priced junk. Modern art, collectibles (some American like Western Electric amplifiers, some Euro like vintage Ferraris and Old Cremona violins), you name it.
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  206. @TomSchmidt
    The second scam involves more respectable 2nd tier colleges like George Washington and NYU admitting 115-125IQ types, letting them party on Ungle Sugar for years, investing in lavish facilities and $350,000 professor salaries.

    Actually, those are the administrator salaries. Fashion in academics is to pay the managerial class a lot and have most of the teaching done by the Doctoral Reserve army of the unemployed, the adjuncts. NYU isn't bad at that; they pay $134 per classroom hour (and 150 minutes counts as three hours) to their adjunct wage slaves. I have friends who've worked there.

    You missed a scam. If you qualify for the new GI bill, and attend college "full time", the Feds will pay 22k a year towards tuition, give you $1000 a year towards books, and also give you a monthly stipend to offset your housing costs. This stipend varies with local housing costs; my understanding is that anyone attending a college based in NYC will get $4100 a month tax free to offset housing costs, so long as the military grad is in school. That's about 50k a year after taxes, which a single man would have to earn 90k in NYC to get. You could get 200k cold cash from the Feds if you lived at home with your parents in NYC and attended a local school paying no more than 22k in tuition.

    NYU figured out awhile ago that there are a lot of high IQ people in NYC who aren’t fully employed (they are between jobs on Wall Street or they are waiting for their play to be mounted off-Broadway or whatever or their children have started school but their husbands are making so much money they don’t need a full-time job). So you could hire bright people as adjunct professors for a semester at a time for peanuts.

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  207. Muse says:
    @Steve Sailer
    Gasoline prices peaked around mid-June 2008. One theory is that the Chinese were stockpiling petroleum products to run power plants during the August 2008 Olympics so they could cut back on smog-producing coal-fired plants to make Beijing look nicer on TV.

    But, yeah, the spike in gas prices demoralized potential buyers of all the new exurban housing requiring long commutes.

    The default rates really took off in mid 2008. But your subprime loan borrowers were living on the margin and were the most vulnerable to a gasoline price shock. I believe they were already under great stress in 2006-2007 and could no longer afford homes at the given price. Existing home sales began to tank in 2006 when gas prices adjusted for inflation became volatile and went way up. Supply was becoming too tight pre-fracking and demand was inelastic. The pricing in the housing market and the default rates did not catch up with reality until mid 2008.. Once massive layoffs became a reality, demand for gas to drive to work tanked.

    2008 and later, I knew employed attorneys that were walking away from their house that could pay their note, but chose to default. The working stiffs were screwed by 2006-2007.

    Mortgage default rates

    https://fred.stlouisfed.org/series/DRSFRMACBS

    Gas prices adjusted for inflation.

    http://www.randomuseless.info/gasprice/gasprice.html

    Existing Home Sales

    https://www.statista.com/statistics/226144/us-existing-home-sales/

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    • Replies: @Steve Sailer
    Right. One offshoot of the Housing Bubble was the Poker Bubble.

    Nate Silver was making a living in Las Vegas as a professional poker player, fleecing fishes. But, he says, in December 2006 all the fishes disappeared, leaving only other professional sharks like himself. He started losing money and went into election prognostication a few months later. The funny thing is, he's never figured out that he could have gotten into the Big Short and made a fortune.

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  208. @G Pinfold
    I think you put this quite well - excessive environmental zealotry.

    An early manifestation is likely to be a spike in the oil price, an old-fashioned energy crisis, with prices north of 150 usd/barrel. Brent crude has already crept back above $70 with barely a mention. Why? Because no one is interested in oil these days. I mean, what are you? Some kind of redneck?
    Every day another preening fund manager declares that the fund is exiting the fossil fuel sector. Meanwhile raw demand is still growing and its a ferocious monster (almost 100m barrels per day and growing most rapidly in the non-automobile segments.) These 'gluts' we have heard so much about equate to a week or two of global demand. And last year saw the lowest levels of new oil resource discoveries in recent history.

    So I see the world sleepwalking, without the benefit of adult supervision, into real scarcity of its most critical resource. As another fred also noted, we are gambling on alternative energy with a lot of blind faith and wishful thinking.

    Human beings want air conditioning and automobiles. Those burn a lot of energy.

    What percentage of people living between, say, 40 degrees north and 40 degrees south have air conditioning at present?

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    • Replies: @G Pinfold
    Exactly right. And where is future population growth? Well we know that; and Africa currently has one car per sixteen people... so not even enough cars for the current modest :) population. Africans favour the Toyota v6 internal combustion engine and the v8 for military applications. I can’t see them going hybrid any time soon.
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  209. @Anon
    As a long time doom and gloomer, Ron Paul, James Grant, Peter Schiff, this one is the 'everything bubble' based on the Feds manipulation of interest rates. Either they reset to proper market levels of the cost of money and a deflationary collapse occurs or, more likely, we go to QE infinity and the dollar depreciates.

    In short, buy gold/ silver in a 2/3, 1/3 ratio...just not over the last 6 years...

    In short, buy gold/ silver in a 2/3, 1/3 ratio…just not over the last 6 years…

    Do you mean a 2:1 ratio?

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    • Replies: @Anon
    Whoops...
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  210. Their total market cap is around $700 billion USD (and I personally expect it to be considerably less in a year’s time).

    Anatoly, please explain your reasoning. So far, betting against it has been a loser. Why do you think it will collapse?

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  211. @Muse
    The default rates really took off in mid 2008. But your subprime loan borrowers were living on the margin and were the most vulnerable to a gasoline price shock. I believe they were already under great stress in 2006-2007 and could no longer afford homes at the given price. Existing home sales began to tank in 2006 when gas prices adjusted for inflation became volatile and went way up. Supply was becoming too tight pre-fracking and demand was inelastic. The pricing in the housing market and the default rates did not catch up with reality until mid 2008.. Once massive layoffs became a reality, demand for gas to drive to work tanked.

    2008 and later, I knew employed attorneys that were walking away from their house that could pay their note, but chose to default. The working stiffs were screwed by 2006-2007.

    Mortgage default rates
    https://fred.stlouisfed.org/series/DRSFRMACBS

    Gas prices adjusted for inflation.
    http://www.randomuseless.info/gasprice/gasprice.html

    Existing Home Sales
    https://www.statista.com/statistics/226144/us-existing-home-sales/

    Right. One offshoot of the Housing Bubble was the Poker Bubble.

    Nate Silver was making a living in Las Vegas as a professional poker player, fleecing fishes. But, he says, in December 2006 all the fishes disappeared, leaving only other professional sharks like himself. He started losing money and went into election prognostication a few months later. The funny thing is, he’s never figured out that he could have gotten into the Big Short and made a fortune.

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  212. @Muse
    The 2008 recession was triggered by a price shock in the crude oil markets in 2007. People could no longer pay their transportation costs AND their mortgage. This created a vast aggregate debt that could no longer be paid. All the other dominoes then fell.

    http://www.macrotrends.net/1369/crude-oil-price-history-chart

    I remember driving on the newly rebuilt Dan Ryan in Chicago and the road was busy immediately after work, then it emptied out. People were running errands on the way home to save from having to make extra trips.

    The next shock will be from a large state government going belly up. Illinois is a good candidate. Somebody will file against a state government in US bankruptcy court. The court will initially reject this claim in the name of state sovereignty. The state will raise taxes so high it collapses and destroys its economy overnight, or the US Supreme Court will rule the state can go through bankruptcy, and then all the wealth of the bond holders will be destroyed and the public pension holders will lose their income like in Detroit. This will cause a huge drop in demand and real estate values, and down goes the heavily leveraged economy, which lacks resilience due to high debt ratios. This crash might be avoided if the government, the Fed and the banksters get together a la Lehman/AIG and bail out the state’s debt.

    The next shock will be from a large state government going belly up. Illinois is a good candidate. Somebody will file against a state government in US bankruptcy court.

    Creditors can’t put a municipality into bankruptcy. There’s no such thing as an involuntary chapter 9 case.

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    • Replies: @Muse

    Creditors can’t put a municipality into bankruptcy. There’s no such thing as an involuntary chapter 9 case .
     
    You are completely correct, however, Illinois and many other states are broke, and this is the best of times. Whether there is a provision for States or municipalities in the federal bankruptcy code, they will default, just like Puerto Rico. Congress will either pass a law to allow a bankruptcy, or we will see a chaotic dissolution of these states.

    Imagine the economic impact of three or four states failing to pay pension payments, Medicaid bills and food stamps, and defaulting on trillions in tax free municipal bonds held in private retirement accounts nationwide.

    See wirepoints.com
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  213. And states can’t be a debtor under any chapter of the Bankruptcy Code.

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  214. TWS says:
    @Realist
    Chasing rainbows and unicorns.

    And we pay for it.

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    • Replies: @Realist
    Yes, subsidies are wrong.
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  215. Whoever says: • Website
    @SteveO
    I keep hearing this type of prediction, but one question that doesn't seem to come up: Doesn't anyone enjoy driving? I mean either (1) the act of driving itself - a complex task many of us are quite good at and others at least passably so - or (2) the freedom that comes from possessing a machine that will take you anywhere there are roads anytime you want for however long you want? The fact that you can't actually go is irrelevant. It's the dream and the possibility that matter.

    For generations, driving and owning a car have been symbols of freedom for Americans. Furthermore, people in every country around the world have taken to driving as soon as they could afford it, even when their roads are clearly not suited to automobiles. Why else would the traffic in London and Paris be so awful? Why would anyone in New York own a car - and millions do - if they didn't find the freedom worth the price and inconvenience?

    And yet I hear that soon, at best we won't be driving ourselves but rather letting our car do it for us; at worst we won't even own a car but share one "when we need it". The preplanning and commitment required by the latter essentially kills the Route 66 dream that used to be precious to Americans. And it won't be optional. The insurance companies and LE will see to that - as soon as feasible, self-driving cars will be mandatory because they are safer. But safety isn't everything!

    What has happened to our society to kill off such a wonderful dream, and why did we let it/are we letting it happen? At a personal level, it annoys me that yet another thing I'm fairly good at is going to become an obsolete skill. First, being a good navigator became useless as GPS took over from map-reading; next, driving will go the way of blacksmithing. Then what?

    Sorry. Long rant ... but it makes me sad to see so much of what made America America in the 20th century die off.

    I take your point, but I think all this means is that those who don’t want to drive, won’t have to; those who don’t want to have to spend money to own and maintain a car won’t have to. But those who do will still be able to.
    After all, there still motorcycles. Why haven’t they been banned or made prohibitively expensive to insure? Why haven’t people just decided they are too impractical and dangerous to ride?
    NHTSA was talking about making them illegal to ride on public streets during the Carter administration. But here we are 40 years later with the most marvelous motorcycles. And lots of people riding them. Even — *gasp!* — girls. I know one who enjoys taking her Suzuki Hayabusa for 190 mph jaunts for a bit of fresh air before starting her day. Lots of folks do that sort of thing.

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    • Replies: @OilcanFloyd
    You really have to trust the road maintenance crews and other drivers to do that. What happens if you hit a discarded paint bucket at 190 on a motorcycle? A sofa slid out of the bed of a pickup in front of me on the freeway once. My car smashed right through it, but I don't think a motorcycle would.

    I have this fear that I will be caught by surprise by someone doing 180 mph on a motorcycle, and change into the wrong lane, killing us both. I hate it when those things come up behind me at over twice the speed limit. It's not always easy to judge where they are or where they are going.
    , @oddsbodkins
    None of those vehicles she passes can see her coming because of her fast approach speed. One lane change away from death.

    She should spend a year in jail for reckless endangerment.

    This is as stupid as people who celebrate by emptying clips from an automatic weapon into the air in cities.
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  216. @another fred
    My previous comment started out as a reply to you, but I got sidetracked and made it more general, forgetting it had a reply to you in the tag.

    The "Toto" was not meant as a demeaning remark towards you, but as a general use for humor (probably failed).

    My apologies.

    The “Toto” was not meant as a demeaning remark towards you, but as a general use for humor (probably failed).

    No problem, sir, it happens to the best of us.

    Throughout Latin America the word ‘toto’ is slang for vagina, so it behooves the careful writer to be careful whom you are calling a cunt in case they take offense!

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  217. Coemgen says:

    The next economic crash will occur, as with the last economic crash, when it’s politically advantageous to the entrenched-left-wing-elite.

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  218. @Jack D
    It's partly a generational and partly a gender thing. Many kids today, especially but not only girls and the genderqueer, don't really enjoy driving and are not "into" cars. Driving is not as much fun as it used to be, with crowded roads and Mesicans and giant SUVs who no longer dip their high beams. CARS are not as fun as they used to be. They are little boxes on wheels with CVTs that don't even shift and electric power steering - they are about as exciting as your refrigerator. It's like stereos - a lot of guys used to be into hifi and had expensive amps and big speakers, etc. Now everyone listens to their iPhone on earbuds where the fidelity is nil and no one cares. Instead of worrying about getting arrested for drunk or impaired (pot smoking) driving, you call an Uber and have no worries.

    There is going to be a small old white man group who will resist self driving. Eventually they will ban them the way they banned tobacco smoking in bars. Maybe tracks will open up or they will designate certain roads where people will be actually allowed to take the wheel of their antiques during daylight hours on sunny summer weekends.

    It’s like stereos – a lot of guys used to be into hifi and had expensive amps and big speakers, etc. Now everyone listens to their iPhone on earbuds where the fidelity is nil and no one cares.

    Dang, I am always saying that. In fact hardly anyone (except me) seems to ever listen to music for pleasure at all. Sure, if you go somewhere like Harbor Freight Tools, they have construction guy music with crude guitar thrashing playing all day, but it is just for the sake of noise, no one listens to music for pleasure any more.

    Another decade and jazz, the greatest cultural product of the US, will be dead and future archeologists will speculate as to whether the saxophone was a prototype of the cell phone. Goodbye music, it was good while it lasted.

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    • Replies: @Anonymous
    I was heavily into hi-fi in the big 90s tube and vinyl revival but finally got tired of it. It was a haven for neurotic SJWs, Jews and gays anyway.
    , @Pat Boyle
    I was pretty deep into Hi-Fi/Stereo. I built my first amp. I also built a pair of Bose 901's. But last week I started to throw it all away.

    I like opera. I began tossing my old LPs of operas. Many of these can never be replaced. I discarded a record of Schubert's Die Verschworenen. But I no longer have a record player and my puppy ate one of the Bose speakers.

    I listen (and watch) probably more opera now than ever before. There are many complete performances of most standard operas and hundreds of recordings of various singers. It's all free and instantly available.
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  219. Anonymous • Disclaimer says:
    @Mis(ter)Anthrope
    I guess I'm in that group of old men. I have owned around ten cars and trucks in my life and have never owned a vehicle with an automatic transmission.

    New trucks with manual transmissions trucks are almost impossible to find. So I'll just hang on to my 2002 Dodge Ram 3500 diesel and just keep repairing it when something breaks.

    The demise of the manual transmission is because Millennials can tear up a clutch in the warranty period and modern vehicles take too many man hours to change one out.

    And also because of the EPA and CAFE requirements, Auto shift transmissions and electronically controlled locking torque converter slushboxes actually get better mileage in the EPA test.

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    • Replies: @Steve Sailer
    It used to be that manual transmission cars had better EPA mileage ratings than automatic transmission cars, but now the automatics get better mileage.
    , @Jack D
    The manual transmission is a relic of an earlier time. Some people associate it with "fun" but back in the day most cars had 3 on the column and there was nothing particularly fun about that.

    Many decades ago, functions like starting the engine, choke and spark advance were automated (often with clever analog solutions because digital technology didn't exist - systems driven off of bimetal coils that changed shape with temperature, centrifugal weights, engine vacuum, etc.) and no one said "driving is no fun anymore now that I no longer get to manually crank the engine" (or maybe some old geezers did).

    So it was only a matter of time until the car figured out its own optimal gear ratios and didn't depend on you to constantly change them. Automated systems usually start out as somewhat worse than a highly skilled human but they keep getting better while human skill remains about the same, so it's always only a matter of time before the lines cross and the automated system is better than humans.
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  220. Anonymous • Disclaimer says:
    @Jonathan Mason

    It’s like stereos – a lot of guys used to be into hifi and had expensive amps and big speakers, etc. Now everyone listens to their iPhone on earbuds where the fidelity is nil and no one cares.
     
    Dang, I am always saying that. In fact hardly anyone (except me) seems to ever listen to music for pleasure at all. Sure, if you go somewhere like Harbor Freight Tools, they have construction guy music with crude guitar thrashing playing all day, but it is just for the sake of noise, no one listens to music for pleasure any more.

    Another decade and jazz, the greatest cultural product of the US, will be dead and future archeologists will speculate as to whether the saxophone was a prototype of the cell phone. Goodbye music, it was good while it lasted.

    https://www.youtube.com/watch?v=XpZHUVjQydI

    I was heavily into hi-fi in the big 90s tube and vinyl revival but finally got tired of it. It was a haven for neurotic SJWs, Jews and gays anyway.

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  221. @Anonymous
    The demise of the manual transmission is because Millennials can tear up a clutch in the warranty period and modern vehicles take too many man hours to change one out.

    And also because of the EPA and CAFE requirements, Auto shift transmissions and electronically controlled locking torque converter slushboxes actually get better mileage in the EPA test.

    It used to be that manual transmission cars had better EPA mileage ratings than automatic transmission cars, but now the automatics get better mileage.

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    • Replies: @Mis(ter)Anthrope
    That is true. But I still hate automatic transmissions. I know it's not logical, but but I'm too old to change my preference.
    , @Pat Boyle
    That's been true (better mileage with an automatic) for a long time, but even more impactful for me when I went looking for a sporty car was the realization that automatics also accelerated faster. I got an automatic. The only down side to this choice is that I endure the scorn of teenage boys.
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  222. Anonymous • Disclaimer says:
    @Pat Boyle
    I don't know much about barber college but I am familiar with "school' in the Army.

    I went to Truck Driving School. I also went to Coal Shoveling School. The Sergeant said that they had abolished another school just recently. That was the class in the use of the Straight Broom.

    Truck Driving, as I remember, was a week long school whereas Coal Shoveling was only a single day.

    There was a good and legitimate reason for the Coal Shoveling school. The barracks were heated by old boilers fueled by coal. All Army barracks seemed to have been built on the same day - the day after Pearl Harbor. So they were all pretty old.

    The one item in the curricula that was sensible was checking the safety pressure gauge. It seems that if the safety valve gets stuck the boiler blows up and kills everyone inside. So as it happened when I was in the National Guard summer camp I checked the safety valve in one of the barracks and it was indeed frozen - it would have let the boiler blow up. I told the relevant officer and he said "We are only here for two weeks, let's just ignore it." I didn't sleep in that particular barracks - so I obeyed the order.

    Militaries are notoriously safety and cost inefficient because they regard what any private company would regard as intrinsically unsafe as a way to enforce procedure and discipline. A civilian boiler would have had not only a safety valve but safety plugs that melt out and release the pressure at a certain level.

    Navy ships well into the seventies often had a gyro that if power were temporarily lost, would start to wobble and eventually if not manually caged, would bust loose with such force they would go through bulkheads, piping, wiring, sailors….whatever. There were fatalities. it would have been easy to make them self caging, but the navy said no, we have a rule for that and it damn well better be obeyed.

    And the military has FOD incidents with jet aircraft at a rate that would kill a civilian airline. They rely on manual FOD walkdowns to give the airmen or sailors something to do. Civilian airports have machines that work a lot better.

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    • Replies: @Whoever

    And the military has FOD incidents with jet aircraft
     
    Testify!
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  223. Escher says:
    @Steve Sailer
    In the future, Silicon Valley minion workers will live in the Central Valley and take 75 mile commutes in self-driving cars while doing work. Silicon Valley founders and venture capitalists, will live in Silicon Valley and drive themselves to work.

    The Valley is quite big, so I would add upper management to the list of residents.
    The minions who did not arrive before 2012 are screwed. Many are already live the future you are describing, commuting to work in company-owned buses with wifi.

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  224. Steve–I had a similar problem in 2008, when I was making my living primarily as a tutor and test prep instructor, emphasis on tutor ($80/hour). Turns out I was a luxury item.

    “Many kids today, especially but not only girls and the genderqueer, don’t really enjoy driving and are not “into” cars. ”

    Yeah, I don’t see that. States have made it much harder for teens to get a license, putting restrictions on their licenses until they are 18. Then most kids aren’t really on their own until their 20s. But eventually, a job and kids means all but the richest most trendy urbanites are going to get cars. Toss in illegal immigrants (licenses still illegal in most states, I think), and the rise of Muslim and other immigrant populations that don’t necessarily encourage females driving.

    In 1983, 92% of 2o-24 year olds had licenses. Today, it’s 76%. The percentage of nonlicenses *decreases* from there. So I’d put most of it as immigrant population and a trend among rich urbanites. Your average white, black, and Hispanic American kids want a car just as much as always.

    And it has next to nothing to do with automatic vs. manual transmissions, which seems to be more about men not wanting them anymore.

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    • Replies: @Brutusale
    And in states like Massachusetts, an under-25 driver can cost you upwards of $2,500/year for auto insurance.
    , @Jack D

    In 1983, 92% of 2o-24 year olds had licenses. Today, it’s 76%.
     
    Regardless of the causes, that's a real and significant decline. If I were an auto exec, those numbers would not give me a warm and fuzzy feeling.
    , @Anon
    The gear shift decline appears to have a lot to do with having to steer with one hand while drinking, eating, messing around with your advanced music system, or holding onto a cell phone with the other. The hand that used to be available to shift is no longer free.
    , @another fred
    I sold my last manual shift pickup 2 years ago. I'm 71 years old and holding the clutch down at a red light got rough on my arthritic hips and knees.

    Gather ye rosebuds while you may.

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  225. @Jack D
    It's partly a generational and partly a gender thing. Many kids today, especially but not only girls and the genderqueer, don't really enjoy driving and are not "into" cars. Driving is not as much fun as it used to be, with crowded roads and Mesicans and giant SUVs who no longer dip their high beams. CARS are not as fun as they used to be. They are little boxes on wheels with CVTs that don't even shift and electric power steering - they are about as exciting as your refrigerator. It's like stereos - a lot of guys used to be into hifi and had expensive amps and big speakers, etc. Now everyone listens to their iPhone on earbuds where the fidelity is nil and no one cares. Instead of worrying about getting arrested for drunk or impaired (pot smoking) driving, you call an Uber and have no worries.

    There is going to be a small old white man group who will resist self driving. Eventually they will ban them the way they banned tobacco smoking in bars. Maybe tracks will open up or they will designate certain roads where people will be actually allowed to take the wheel of their antiques during daylight hours on sunny summer weekends.

    “… Driving is not as much fun as it used to be, …”

    It’s not that driving is less fun, it’s that there are now a lot of alternative (and cheap) ways of entertaining yourself. The internet, video games, netflix, youtube and so on.

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  226. @Nick Diaz
    *Only* because interest rates are close to zero. If interest rates are even 3%, then America defaults.

    And this is the tragedy of the American situation: in order to experience true economic recovery and increased productivity, America needs to increase interest rates to increase savings and investment. But America cannot increase interest rates, because the government would default. So the only way America can stimulate economic growth is with cheap credit and consumerism, creating even more debt and making the problem worse. This is the catch America is in.

    Eventually, the debt will become unserviceable no matter how low interest rates are. Foreign credit will disappear, and there will be a massive run on the U.S Dollar. The FED will have no choice but to print money and generate inflation, as it will be the only way to give any credit to the economy. This will lead to a currency crisis, the worst of all kinds of economic crisis. Prices will skyrocket, credit will disappear and there will be no money to invest in anything, as the value of all assets will erode. It will be several years of economic contraction with massive hyperinflation,

    Since the end of WW2 and especially since the Bretton Woods treaty, Americans have enjoyed an obscene privileged status in the World, namely, that the American Dollar is the international fiat currency. What this means is that Americans can pay for any foreign goods with their own currency, which they control. Furthermore, a large chunk of the money of all international transactions ends up in America , as pretty much all corporations and banks needs a large chunk of their assets in U.S Dollar. For instance, Americans can pay for Arab oil with their own currency. Conversely, the poor French, Germans and Japanese have to first get U.S Dollars, and only then can they purchase the Arab oil. In order to get U.S Dollars, they have to first export something to America that Americans want. See how this works? The whole World has to work to get the stuff they want, while Americans get it for free by just printing their money and using it to pay for whatever they want. This system is morally obscene, and the World is finally rebelling against it.

    What will happen in the next crisis, which will be a sovereign debt crisis and currency crisis, that will make it so much worse than anything before, even worse than the 1929 crash, is that it will be the end of the U.S Dollar as the fiat currency, and Wall Street as the "hub" where a large chunk of all the capital circulating in the World ends up at. With en eroded currency and no longer having access to easy credit abroad, the American PPP per capita will instantly drop to 40% of what it is today. Americans will still be better off than Africans and Hondurans, but they will be no more affluent than Calabrians and Spaniards.

    In fact, I suspect that the American public will simply no accept that. America might actually become a rogue state and start invading Arab countries for oil even more than it does today. I also think America will play very hard ball with China, and freeze all assets of Chinese nationals in America if China does not continue buying bonds. The next crisis will be *so* bad, so vastly worse than even the 1929 crash, that methinks America will literally go to war over it. No way, no how, will Americans accept becoming as poor as the Portuguese and Greeks after 75 years being fed and carried by the rest of the World.

    And this is the tragedy of the American situation: in order to experience true economic recovery and increased productivity, America needs to increase interest rates to increase savings and investment

    America has plenty of savings, what it lacks are worthwhile investment opportunities. That’s why the stock market is so high, lots of people have money they want to invest but there aren’t many attractive new investments to be made. So existing investment assets get bid up and up and up.

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  227. Anonymous • Disclaimer says:
    @JosephB
    China stops buying US treasuries and the subsequent devaluing of the USD relative to who we buy things from.

    China would be slicing its own wrists in that case. Why would they want to devalue their own holdings (well over $1T) in such a manner? Strange that with 225 posts in this thread no one has pointed this out.

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    • Replies: @Mitleser
    Because they want to supplant America as number one and for that they have to weaken American currency power.

    In April [2015], Qiao Liang, a People’s Liberation Army (PLA) Major-General, gave a speech at a book study forum of the Chinese Communist Party’s (CCP’s) Central Committee and government office. Qiao is the PLA strategist who co-authored the book, “Unrestricted War.”
    In his speech, Qiao explained that he has been studying finance theories and concluded that the U.S. enforces the dollar as the global currency to preserve its hegemony over the world. The U.S. will try everything, including war, to maintain the dollar’s dominance in global trading. He also discussed China’s strategy, to rise as a super power, amid the U.S.’s containment.
     

    All Alibaba’s sales were done via Alipay (an electronic payment system). What does Alipay mean? It means that currency is out of the trade platform. The U.S. hegemony is based on its dollar. What is the dollar? It is a currency. In the future, when we stop using currency to complete sales, the traditional currency will be useless. Will the empire that is established on currency still exist? That is the question that the Americans should think about.
     
    http://chinascope.org/archives/6458/76
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  228. Anonymous • Disclaimer says:
    @Miro23

    For example, the Swiss National Bank now holds $87 Billion of US equities, purchased in exchange for the dollars and euros it acquires by creating Swiss francs and purchasing those currencies to hold down the exchange rate and prevent the depressing effects of a skyrocketing franc.
     
    The point here is that we now live in a globalized world (as late as 1950 most products were bought and produced in the same country).

    The global rule is that every vendor has their product priced in US Dollars (the global reserve currency ) = They get paid in $ US, and THEY CAN'T EXCHANGE THEM FOR YUAN, YEN OR SWISS FRANCS. If they did, their rising currencies would price their products out of the game.

    Result, that they're OBLIGED to buy $ US in some form or other - Bonds, stocks etc.

    This keeps the $ up and allows the FED to run the printing press to pay for $ Trillion ME wars and inflate Wall St bubbles without risking inflation, and they also carefully keep interest rates more or less at zero so that the Chinese get no return on their obligatory $ "investments".

    How will it end?

    With the end of the immense global flow of goods and capital i.e. with a World War.

    The point here is that we now live in a globalized world (as late as 1950 most products were bought and produced in the same country).

    The global rule is that every vendor has their product priced in US Dollars (the global reserve currency ) = They get paid in $ US, and THEY CAN’T EXCHANGE THEM FOR YUAN, YEN OR SWISS FRANCS. If they did, their rising currencies would price their products out of the game.

    Result, that they’re OBLIGED to buy $ US in some form or other – Bonds, stocks etc.

    This keeps the $ up and allows the FED to run the printing press to pay for $ Trillion ME wars and inflate Wall St bubbles without risking inflation, and they also carefully keep interest rates more or less at zero so that the Chinese get no return on their obligatory $ “investments”.

    They spend a lot of it on high priced junk. Modern art, collectibles (some American like Western Electric amplifiers, some Euro like vintage Ferraris and Old Cremona violins), you name it.

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  229. Realist says:
    @TWS
    And we pay for it.

    Yes, subsidies are wrong.

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  230. Stock market valuation has almost caught up with real inflation. This is not a bubble. Invest with confidence.

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  231. notanon says:
    @joeyjoejoe
    "...what might cause the next economic collapse the way that mortgages set off the last one."

    Did they really? I'm genuinely economically illiterate. I know in the last economic crash, lots of bad mortgages were made for political (rather than economic) reasons. But is it accurate to say 'mortgages set off the last one"? Is the cause/effect really bad mortgages/economic crash?

    My common sense (i.e. economically illiterate) observation would be: bad mortgages were made. At some point, something happened, and lots of people with bad mortgages couldn't make their payments any more, so they defaulted, and an economic collapse occurred.

    But in this description, the cause/effect is 'something happened'/'mortgage payments weren't made and economic collapse occurred'. In other words, the failure to make mortgage payments was not the cause of the collapse: it was the initial effect of the collapse. The cause was 'something happened' (what was that 'something'?). If that 'something' hadn't occurred, would the bad mortgages continue to be paid?

    joe

    The cause was ‘something happened’ (what was that ‘something’?).

    The key element that has never been properly explained to people is the banks weren’t making money off the mortgages. The banks were using mortgages as collateral for loans to gamble with on the various exchanges – a 100K mortgage used as collateral and hypothecated through London could be turned into up to 10 million in gambling money.

    So the banks went into one of their cyclical greed frenzies and over leveraged themselves.

    You don’t need a “something happened” to cause a collapse in an over leveraging greed frenzy as risk increases in proportion to the leveraging and eventually it reaches a point where *any* event *might* cause a collapse so people start to head for the exits to make sure they don’t get burned – so the something that happened was the *risk* of something happening got too high.

    https://en.wikipedia.org/wiki/Bankruptcy_of_Lehman_Brothers

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  232. G Pinfold says:
    @Steve Sailer
    Human beings want air conditioning and automobiles. Those burn a lot of energy.

    What percentage of people living between, say, 40 degrees north and 40 degrees south have air conditioning at present?

    Exactly right. And where is future population growth? Well we know that; and Africa currently has one car per sixteen people… so not even enough cars for the current modest :) population. Africans favour the Toyota v6 internal combustion engine and the v8 for military applications. I can’t see them going hybrid any time soon.

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    • Replies: @Steve Sailer
    Toyota finally started selling Priuses in Mexico recently.
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  233. @G Pinfold
    Exactly right. And where is future population growth? Well we know that; and Africa currently has one car per sixteen people... so not even enough cars for the current modest :) population. Africans favour the Toyota v6 internal combustion engine and the v8 for military applications. I can’t see them going hybrid any time soon.

    Toyota finally started selling Priuses in Mexico recently.

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  234. @Jonathan Mason
    Rather than implement the recent tax cuts, it might have better served the economy and the community for a new program by which any student with student loans can have request to have the loans bought out by the government at par value, and then reissued at a low rate of fixed interest, and then repaid through withholding of up to 50% of income tax refunds, or until the loan is paid off, whichever comes first.

    The government could also bundle student loans and issue them as tradeable securities, as is already done with corporate bonds.

    So, for example, if you wanted to invest in student loan repayments of medical school graduates in Delaware, there would be a fund for that purpose that you could buy through your broker.Such securities would probably trade at a value close to par, whereas I daresay securities holding loans from hairdressers in Puerto Rico might trade at a lower value

    …then repaid through withholding of up to 50% of income tax refunds, or until the loan is paid off, whichever comes first.

    Do you have any idea how sky-high the typical student-loan debt is, just for an undergraduate degree? And graduate school? Look, I completed a doctorate in 2004 with no undergraduate debt and significant scholarships for graduate degrees, yet I paid off my student loans of $250,000.00 at just before I turned forty via a combination of living like a church mouse (I mean it, enormous personal austerity and sacrifice – foregoing furniture, clothes, etc.); lucrative employment (far more so than the overwhelming majority of my colleagues with similar educations); and help from a kind benefector (Miss Havesham style, an affluent friend literally paid off the last several thousand out of sheet pity for my miserable life story).

    TAL;DR: Under your plan, every one who signs up for it drops dead long before the government recoups even ten per cent of the debt. (I mean, c’mon; fifty per cent of a typical tax refund!? What is that, a thousand dollars a year? Five hundred? Maybe?). Might as well cut the bullshit and paperwork and just say “the gubmint will eat your loan” – because that’s the result: A Get Out of Debt Free Card from the community chest.

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  235. G Pinfold says:

    There are plenty Prius and a few Tesla in Cape Town and the posh suburbs of Johannesburg, but that ain’t Africa.

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  236. @Almost Missouri
    Pace IJ, I did not find the fate of the world to be a "too long; didn't read" subject.

    Thanks for introducing me to Triffin and his paradox.

    Agree about financial vs. real. Also about tech, mostly.

    Still puzzling as to how excess dollar printing can lead to dollar strengthening... The only understanding I can come to so far is that all that money printing was in fact not really money printing but defacto debt issuing, which when it finally gets counted up against the actual money needed to repay it, it turns out that the latter commodity is lacking. If so, would you say this process is already underway? I tend to think "yes", based on your fourth to last paragraph. If so, would you say this is the reason that all the incontinent "Quantitative Easing" has not already resulted in inflation? If yes, I have to say that the central bankers--or whoever is managing the process--have been remarkably adept at keeping these huge financial forces in equipoise. That's better performance than I usually expect from these people.

    Still puzzling as to how excess dollar printing can lead to dollar strengthening

    From the precis you wrote, it seems like you understand things quite well. Only it’s not the printing that leads to strengthening, but rather the disappearance of dollar liquidity.

    QE is basically de facto credit issuance, as you said. The governor of the People’s Bank of China, Zhou Xiaochuan, specifically categorized the global financial crisis of 2008 as a “credit problem” with the international reserve currency.

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  237. Dave Pinsen says: • Website
    @G Pinfold
    I think you put this quite well - excessive environmental zealotry.

    An early manifestation is likely to be a spike in the oil price, an old-fashioned energy crisis, with prices north of 150 usd/barrel. Brent crude has already crept back above $70 with barely a mention. Why? Because no one is interested in oil these days. I mean, what are you? Some kind of redneck?
    Every day another preening fund manager declares that the fund is exiting the fossil fuel sector. Meanwhile raw demand is still growing and its a ferocious monster (almost 100m barrels per day and growing most rapidly in the non-automobile segments.) These 'gluts' we have heard so much about equate to a week or two of global demand. And last year saw the lowest levels of new oil resource discoveries in recent history.

    So I see the world sleepwalking, without the benefit of adult supervision, into real scarcity of its most critical resource. As another fred also noted, we are gambling on alternative energy with a lot of blind faith and wishful thinking.

    What I was thinking of in particular when I wrote that is the pressure toward adoption of electric cars and trucks in lieu of internal combustion powered ones, particularly in Western Europe. The automakers seem to be making them mainly because of government demands, despite the energy density of diesel and gasoline being >40x that of electric batteries.

    Globally, the auto industry is something like $2 trillion in annual revenues. It takes a lot of government intervention to get it to move to such a poor power source. What happens when, having transformed the industry to its preference, governments saddled with other obligations (pension liabilities, sovereign debt, etc.) decide to yank their incentives? The hangover from that could be huge.

    That said, I don’t see it blowing up anytime soon. I own an app that helps investors hedge ( http://itunes.apple.com/us/app/portfolio-armor/id394951144?mt=8 ), so it would be in my interest to hype an imminent risk, but I don’t see one with this or with any of the others mentioned in this thread.

    For a positive take on oil and energy security, see this speech by Jim Bowen of First Trust (he starts at about 5 min).

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  238. Dave Pinsen says: • Website

    Related to this thread, I think some of you will find this to be of interest.

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  239. Pericles says:
    @AndrewR
    Christ, Sailer. With allies like you, who needs enemies?

    Saying "there was too much lending to Hispanics" is highly ignorant and certain to needlessly alienate many people.

    The more accurate, and more diplomatic, way to phrase it would be "lenders lent too much money to high-risk borrowers, a disproportionately high number of whom were Hispanic."

    I believe the acceptable term is ‘Borrowers of Color’.

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  240. G Pinfold says:

    Dave, I get all that. That’s what I meant by ‘sleepwalking’. Government these days can make stupid policy, in fact, government these days is often elected on the stupidity of their policies. And there really is no adult supervision. The Chief City Engineer (who would have kept the idiots away from the infrastructure in times gone by) is now likely to be a lesbian committed to social justice.
    We are going to see some perverse outcomes, such as the energy squeeze we have both alluded to.

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  241. @JosephB
    "letting them party on Ungle Sugar for years, investing in lavish facilities and $350,000 professor salaries"

    What profs get $350k? Medicine and law, maybe. STEM fields? Unless you're one of the rock stars, no way.

    Even for STEM, take 1/3 of that for associates and 1/2 for full.

    Medicine maybe. Not even law except celebrities such as Dershowitz and some administrators. I’ve noticed otherwise reasonable denizens of iSteve love to just pull nonsense out of their asses when it comes to academia.

    Yes, academia is a poop-show, but not in the ways or for the reasons many of you think.

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    • Replies: @Brutusale
    In 2011, Fauxcahontas Warren was paid more than $425K for teaching one course at Harvard Law School.

    http://www.bostonmagazine.com/news/2012/01/13/elizabeth-warren-salary-harvard/
    , @Lot
    California makes all UC professor salaries public record. Then tack on extreme pension/medical/travel benefits. Does your job regularly pay for $10,000 all-expense paid trips to "conferences" in Europe?

    NYU's housing subsidies are often more than $100,000 a year.
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  242. @AndrewR
    What does non-African, non-Asian, non-European hair look like?

    That of Australian aboriginals, Amerindians, and the troglodytes living beneath the icy sheets of Antarctica, of course.

    Yes, the use of continents is a bit muddled, but it’s obvious he uses them to stand in for the three major races of men and their the corresponding circular, oval, and flat follicles of their hair. Amerindians of course have essentially the same hair as Orientals and Australians the same as African Negroes).

    Don’t be an obstreperous jackass pretending never to have learned the stuff taught in an elementary school’s health or biology classes.

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    • Replies: @AndrewR
    You mad, bruh? I was simply mocking his ignorant and crude way of writing "the hair of people not descended from negroids."
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  243. Anonymous • Disclaimer says:
    @J.Ross
    OT Economist: Public Distrust In News Media Means -- wait for it -- trouble for Donald Trump! Yeah! That's the ticket. My wife, Morgan Fairchild, was just telling me so.
    https://www.economist.com/blogs/graphicdetail/2018/01/daily-chart-7

    If you believe us, the sky is falling because Trump.
    If you don’t believe us, the sky is falling because Trump.

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  244. @Steve Sailer
    In the future, Silicon Valley minion workers will live in the Central Valley and take 75 mile commutes in self-driving cars while doing work. Silicon Valley founders and venture capitalists, will live in Silicon Valley and drive themselves to work.

    Steve, Steve, Steve, my friend! I know you’re away in the Land of Nudity & Unicorns south of the transverse range, but do pay attention: the future is now!.

    Keep up, old bean!

    We use buses and trains just now, though, and will in the future too, because automated cars are way more expensive and less efficient. Come to that, it is fodder for another matter: I submit that, for commuting anyway, the automated car is puffery and horseshit; public transit is superiour in every way; there’s simply no point execept wrong-headed status-signalling – which I confess must never be underestimated! – to wasting fuel and wear (whilst increasing problems with traffic and parking) on one’s own vehicle for this purpose. Get on the damned bus with the rest of us.

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    • Replies: @Pat Boyle
    I used to go to planning school many years ago. All my classmates also thought the future was in everyone taking the bus. But here we are forty years later in another century and bus ridership is down.

    Of course my bus loving classmates never actually took the local buses themselves, but they wanted the common people to get out of their cars.

    Riding a bus except in desperation will continue to be an unpopular choice for many reasons. The simplest to understand is that it rains (some places it even snows). People who have cars get in, get dry, get warm, and listen to the radio station of their choice. Those who take the bus stand outside in the wind and rain waiting.

    A car goes where you go and waits for you.

    But the biggest death knell for urban public transportation are the other passengers. A passenger car is a personal steel box that keeps others out. A bus is a communal steel box that locks you in with people whom you would otherwise try to avoid.
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  245. Mitleser says:
    @Anonymous
    China would be slicing its own wrists in that case. Why would they want to devalue their own holdings (well over $1T) in such a manner? Strange that with 225 posts in this thread no one has pointed this out.

    Because they want to supplant America as number one and for that they have to weaken American currency power.

    In April [2015], Qiao Liang, a People’s Liberation Army (PLA) Major-General, gave a speech at a book study forum of the Chinese Communist Party’s (CCP’s) Central Committee and government office. Qiao is the PLA strategist who co-authored the book, “Unrestricted War.”
    In his speech, Qiao explained that he has been studying finance theories and concluded that the U.S. enforces the dollar as the global currency to preserve its hegemony over the world. The U.S. will try everything, including war, to maintain the dollar’s dominance in global trading. He also discussed China’s strategy, to rise as a super power, amid the U.S.’s containment.

    All Alibaba’s sales were done via Alipay (an electronic payment system). What does Alipay mean? It means that currency is out of the trade platform. The U.S. hegemony is based on its dollar. What is the dollar? It is a currency. In the future, when we stop using currency to complete sales, the traditional currency will be useless. Will the empire that is established on currency still exist? That is the question that the Americans should think about.

    http://chinascope.org/archives/6458/76

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  246. Mitleser says:
    @Bugg
    China owns roughly $3.1 trillion of US federal debt. Some indications earlier this week they would slow their purchases of US federal debt offerings. Problem is if and when China (or Japan or Saudi Arabia) stop buying US debt, the Fed then has to raise rates to attract investment. And the artificially-low interest rates for everyone then go away. Rising interest rates would drop the amrket, to say nothing of
    slowing economic activity across the board.

    Reason it may not happen is China has pretty much tied their economy to selling consumer goods to the US market. That's also the reason why the crazed military guys making China out to be our Dr. Evil type military enemy are in fact loony and mistaken. Even with a huge army, easier for the Chinese loansharks to bleed the US economy than shed real blood.

    Reason it may not happen is China has pretty much tied their economy to selling consumer goods to the US market.

    We are not in the 2000s.
    Chinese export-dependency is decreasing.
    Not to mention that they are trading more with EUrope than the USA.

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  247. LondonBob says:

    Pension funds go bankrupt all the time, the simply remedy is to lower payouts, and increase contributions by increasing pay in years and/or amount paid.

    In general though I agree with the rising interest rates will eventually prick the bond bubble thesis. As ever the fall out from this will impact the solvency of any overstretched institutions, companies or people. I don’t see it happening soon, or the downturn being as severe as 2008 was.

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  248. @Anon
    One thing that tends to prevent wars is a newly emerged middle class that has every intention of wanting to enjoy its new wealth instead of being sent off to die in some idiotic foreign war. This is why Vietnam was so unpopular to young men in the 1960s and 70s. Do you think the new middle class in China and Russia wants to be yanked away from their iphones to be maimed and killed? No way. They didn't used to have much to lose. Now they do.

    A lot of people here think war is inevitable and easy to start. I don't think war will happen so easily anymore, except between 2 third world countries.

    A lot of people here think war is inevitable and easy to start. I don’t think war will happen so easily anymore, except between 2 third world countries.

    I agree with your general premise as far as the populations of developed countries are concerned, but third world countries wars can spill over, to say nothing of a war between some sort of Muslim bloc and the Israelis/India.

    The US has been playing cop on the beat, preventing wars from evolving when incidents occur and enforcing its will on smaller nations. All of that has been financed by cheap credit and cheap oil. International cooperation, such as it is, has been maintained by the fact that we are all in the same boat, needing to keep trade going to keep our economies expanding. But so much of the trade is in non-essentials and luxuries and that will dry up quickly in hard times.

    I would be surprised, if I lived so long, to see another European war with massive armies crossing boundaries under any circumstances, but I think the future will see a loss of the first world’s willingness and financial ability to keep a lid on others’ activities. The use of WMD will spill over, especially biological weapons used on crops and populations. Most of the dying will be done outside the first world, barring a major nuclear exchange, which would require some sort of blunder or miscalculation.

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    • Replies: @Anonymous
    You won't see another wide scale European war - because of the simple fact that there are now very very few European males of fighting age.
    Of course, the so called 'new Europeans' which the EU and Economist are speedily importing won't fight whitey's wars.
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  249. LondonBob says:
    @Steve Sailer
    In the future, Silicon Valley minion workers will live in the Central Valley and take 75 mile commutes in self-driving cars while doing work. Silicon Valley founders and venture capitalists, will live in Silicon Valley and drive themselves to work.

    Sorry Steve that does just sound like you think a commuter rail line, or additional bus routes, need to put in. Google investing in self driving cars does sound like a classic bubble behaviour with easy money being malinvested and misallocated. How many miles of rail line could have been put in for the all the money invested in self driving cars?

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    • Replies: @Anonymous

    How many miles of rail line could have been put in for the all the money invested in self driving cars?
     
    The cars go wherever and whenever they're needed. Technology advances.
    , @Autochthon
    There already is a commuter rail line from Stockton (and on to Sacramento) to San Jose: the ACE line. Buses serve Ripon, Manteca, Tracy, Patterson, Turlock, Modesto, and so on. The services and infrastructure you posit exist (and have done for years). Commuting from the Central Valley to the Santa Clara Valley for those of us not super-rich (or not wishing to live in an overcrowded, polyglot Hellhole even more than e already must) has been going on for some time.
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  250. @FozzieT
    A Democrat takeover of Congress followed by Trump impeachment proceedings might not be all that healthy for the economy.

    I’m thinking when the “Blue Wave” fails to pan out the Deep State is going to go even more insane and try to overthrow President Trump.

    That might knock a few points off the DJI.

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  251. Anon • Disclaimer says:
    @ben tillman

    In short, buy gold/ silver in a 2/3, 1/3 ratio…just not over the last 6 years…
     
    Do you mean a 2:1 ratio?

    Whoops…

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  252. Anonymous • Disclaimer says:
    @education realist
    SteveO -- man, plus one to that. I get nauseous when Tyler Cowen and others start fantasizing. Y'all ain't taking my car, people.

    Steve--California has a lot of farm land in the Central Valley, and while it isn't much of CA's economy it's quite a bit of the nation's food. Plus, not sure how the teachers and police and government workers will live.

    Predictions for crash:

    Totally not my field, but the comments were interesting so I thought I'd agree with those saying China. Three possibilities:

    1) China has tons of empty cities, where they built things up and there's just no takers. Those bills come due eventually. Plus, the populace is not happy and China cares more about than people think. Also, it's a corrupt nation with a bunch of gambling addicts. If at some point it stops buying US $, I don't know what we'd do.

    2) China also funds an enormous number of college students. If they stop sending their students here, a lot of colleges go under, which would probably be a good thing but I don't know how that all plays out.

    3) Chinese oligarchs are buying the hell out of western US real estate, as well as metropolitan areas all through the country. If they all decide to sell--well, glory be, but it might have consequences I can't foresee.

    The pension issue is a big deal that I don't know how it gets resolved, but I don't see it being a crash per se. Maybe I'm missing something.

    I don't mean this in a bad way, but I can see little long-term badness coming out of a major CA quake. But I also don't see a major CA quake coming. Then, who does?

    1) China has tons of empty cities, where they built things up and there’s just no takers. Those bills come due eventually.

    The two most well known Chinese “ghost cities” are Ordos in Inner Mongolia and Yujiapu financial center in Tianjin. I have visited both in the last 6 months and the characterization of both as “ghost cities” needs some qualification/update.

    After great effort by the government, Ordos has people living there. Keep in mind it had always been intended as a ceremonial mall to complement the urban areas around it rather than as a busy city downtown. For the middle of nowhere to have a grand ceremonial mall the scale of the national mall in say Delhi is ridiculous and wasteful but that particular municipality was so coal rich that it had money to waste. So no debt bomb, just ludicrous but isolated monumental waste.

    Yujiapu is envisioned as an enormous financial district on the coast of Tianjin with 5 or so supertall skyscrapers and a whole bunch of other highrises. It was announced around 2010 and called out for being a folly as there would be no demand for so much office space. Plans were suspended for several years. Now construction has fully resumed and it looks like the full might of original plans will be implemented. Was waiting 5 or so years enough to make this a prudent investment? I don’t know but there is some responsiveness among planners to calls of hubris.

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  253. @ScarletNumber
    You could tell your customer to swallow whatever you want, but he is 100 percent correct. NJ froze pensions, but didn't reduce them. They aren't allowed.

    You are missing Mr. Ross’s point. The money isn’t there! You can pass whatever legislation you want, but when they money is not there, people will not get it of course.

    BTW, let me add one caveat – it IS possible retirees will get the NOMINAL amount of money per whatever contracts, plans, SS program, says. It’s just that that the dollar will have been inflated away to where, yes, “you will get your $1800 montly SS check, as we promised”, but a meal at McDonalds is $128 and change, and the rent is $3,700 monthly for your apartment in the hood.

    You can’t get blood from a stone, even if you ARE a big-time New Jersey lawmaker.

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    • Replies: @ScarletNumber
    The state of New Jersey has unlimited power of taxation, so they have the money.
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  254. @BB753
    "Supposing the plane that hit the Pentagon had hit Congress and killed almost all the legislature or wiped out the Supreme Court?"

    That would be great right now with Trump in the White House. No downsides.

    Dang it, there’s still no AMEN button!

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    • Troll: ScarletNumber
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  255. AndrewR says:
    @Autochthon
    That of Australian aboriginals, Amerindians, and the troglodytes living beneath the icy sheets of Antarctica, of course.

    Yes, the use of continents is a bit muddled, but it's obvious he uses them to stand in for the three major races of men and their the corresponding circular, oval, and flat follicles of their hair. Amerindians of course have essentially the same hair as Orientals and Australians the same as African Negroes).

    Don't be an obstreperous jackass pretending never to have learned the stuff taught in an elementary school's health or biology classes.

    You mad, bruh? I was simply mocking his ignorant and crude way of writing “the hair of people not descended from negroids.”

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    • Replies: @Autochthon
    Yes, you've found me out: I seethe with barely contained rage and fury at the remarks of anonymous persons in public fora.
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  256. @Jack D
    It's partly a generational and partly a gender thing. Many kids today, especially but not only girls and the genderqueer, don't really enjoy driving and are not "into" cars. Driving is not as much fun as it used to be, with crowded roads and Mesicans and giant SUVs who no longer dip their high beams. CARS are not as fun as they used to be. They are little boxes on wheels with CVTs that don't even shift and electric power steering - they are about as exciting as your refrigerator. It's like stereos - a lot of guys used to be into hifi and had expensive amps and big speakers, etc. Now everyone listens to their iPhone on earbuds where the fidelity is nil and no one cares. Instead of worrying about getting arrested for drunk or impaired (pot smoking) driving, you call an Uber and have no worries.

    There is going to be a small old white man group who will resist self driving. Eventually they will ban them the way they banned tobacco smoking in bars. Maybe tracks will open up or they will designate certain roads where people will be actually allowed to take the wheel of their antiques during daylight hours on sunny summer weekends.

    Yes, well, I’ll just head up to my Uncle’s country place, for a drive in his Red Barchetta.

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    • Agree: Autochthon
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  257. @Nick Diaz
    *Only* because interest rates are close to zero. If interest rates are even 3%, then America defaults.

    And this is the tragedy of the American situation: in order to experience true economic recovery and increased productivity, America needs to increase interest rates to increase savings and investment. But America cannot increase interest rates, because the government would default. So the only way America can stimulate economic growth is with cheap credit and consumerism, creating even more debt and making the problem worse. This is the catch America is in.

    Eventually, the debt will become unserviceable no matter how low interest rates are. Foreign credit will disappear, and there will be a massive run on the U.S Dollar. The FED will have no choice but to print money and generate inflation, as it will be the only way to give any credit to the economy. This will lead to a currency crisis, the worst of all kinds of economic crisis. Prices will skyrocket, credit will disappear and there will be no money to invest in anything, as the value of all assets will erode. It will be several years of economic contraction with massive hyperinflation,

    Since the end of WW2 and especially since the Bretton Woods treaty, Americans have enjoyed an obscene privileged status in the World, namely, that the American Dollar is the international fiat currency. What this means is that Americans can pay for any foreign goods with their own currency, which they control. Furthermore, a large chunk of the money of all international transactions ends up in America , as pretty much all corporations and banks needs a large chunk of their assets in U.S Dollar. For instance, Americans can pay for Arab oil with their own currency. Conversely, the poor French, Germans and Japanese have to first get U.S Dollars, and only then can they purchase the Arab oil. In order to get U.S Dollars, they have to first export something to America that Americans want. See how this works? The whole World has to work to get the stuff they want, while Americans get it for free by just printing their money and using it to pay for whatever they want. This system is morally obscene, and the World is finally rebelling against it.

    What will happen in the next crisis, which will be a sovereign debt crisis and currency crisis, that will make it so much worse than anything before, even worse than the 1929 crash, is that it will be the end of the U.S Dollar as the fiat currency, and Wall Street as the "hub" where a large chunk of all the capital circulating in the World ends up at. With en eroded currency and no longer having access to easy credit abroad, the American PPP per capita will instantly drop to 40% of what it is today. Americans will still be better off than Africans and Hondurans, but they will be no more affluent than Calabrians and Spaniards.

    In fact, I suspect that the American public will simply no accept that. America might actually become a rogue state and start invading Arab countries for oil even more than it does today. I also think America will play very hard ball with China, and freeze all assets of Chinese nationals in America if China does not continue buying bonds. The next crisis will be *so* bad, so vastly worse than even the 1929 crash, that methinks America will literally go to war over it. No way, no how, will Americans accept becoming as poor as the Portuguese and Greeks after 75 years being fed and carried by the rest of the World.

    Finally, a Nick Diaz post that I can actually like!

    You seem pretty savvy with the financial stuff, so how can you be so clueless about the immigration invasion? Or, is it a vested interest? (I “noticed” your last name ends with a “Z”.)

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  258. @Art Deco
    2) China also funds an enormous number of college students. If they stop sending their students here, a lot of colleges go under, which would probably be a good thing but I don’t know how that all plays out.

    IIRC, foreign students account for about 3.5% of total enrollment.

    Yes, but what percentage of the tuition payed?

    When you look up stats on the internet, Mr. Deco, you should put on your thinking cap too, and think, what is the point I’m trying to argue.

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  259. testing.

    (4 comments got wiped)

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  260. @TWS
    They won't get the money because the people that owe it can't pay it. Many will die with it unpaid. Or they could make it discharge in bankruptcy again.

    Student loans are federally guaranteed and generally not dischargeable in bankruptcy.

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  261. Rollory says:

    Cost of health care has been increasing at about 8% per year for the past 20 years. That consistent a growth means it has a doubling time, which in turn means it must inevitably reach a point where every single cent available in the entire USA is being spent on health care, and next day it can’t be afforded anymore. Either the health cost increases stop, or everything blows up.

    As much as Karl Denninger annoys me, and as bad as he is at actually persuading anybody of anything, he does have the right underlying analysis here.

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    • Replies: @Anonymous
    Perhaps the answer is 'competition' and a new, parallel AMA medical/industrial complex needs to be established.
    Just a thought, but here's an opportunity for foreign competition - I mean the more competent post Soviet nations, and yes possibly the Chinese to take.
    Cartel is cartel is cartel - whatever the justification.
    , @Sandmich
    Exactly. After browsing the comments some items that were missed:
    1) What is most bubbly in the U.S.? Healthcare. Just as everyone was going to school to do tech in '99 and everyone was doing RE in 2006, it seems everyone looking for some kind of employment is doing some sort of niche medical job. A huge portion (all?) of their bubble valuation relies on government gravy, which will dry up in the coming years due to pension shortfalls, and graft, which may continue for the foreseeable future, but even then people can only afford so much.

    2)While College loan debt itself is rather inconsequential, perhaps, it is the leverage used to drive the higher-ed bubble; reformation of student loans could lead to upheaval in the sector which suffers from horrific bloat (I'm not sure about other areas of the country, but where I'm at, if there's a crane, it's either over a college or a healthcare facility).

    International contenders:
    1)China will buy treasuries as long as they have to, but the hot rumor is that they've logged sufficient trade deficits with the rest of the world that they need their treasuries to resolve the imbalance. It will be interesting, and not in a good way, to see how so indebted a nation deals with running trade deficits.

    2)The Euro. How could this many comments go by without noting this pretend currency? I'm not sure of the eventual fate of this experiment, but whatever nasty things people might think about the dollar, that goes at least double for the Euro.

    ---
    As another commentator pointed out, it's not these things specifically that might cause the issue, but the promises tied to them. it's almost impossible to know the magnitude (or lack thereof) of some of these items until someone goes to try an unwind them.
    , @The preferred nomenclature is...
    Yeah, I believe Denniger and Cochran graduated from the same Miss Mannners school.
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  262. @Art Deco
    2) China also funds an enormous number of college students. If they stop sending their students here, a lot of colleges go under, which would probably be a good thing but I don’t know how that all plays out.

    IIRC, foreign students account for about 3.5% of total enrollment.

    Illinois’s cash-strapped flagship school, University of Illinois at Urbana-Champaign, gets a fifth of its students from China.

    33624 undergrads enrolled for the fall 2017 semester. Of them, 4812 were Chinese nationals, or 14.3% of the total.

    Total enrollment–grads and undergrads–stood at 47826 in fall 2017. Of the total, 9405 were Chinese nationals, so nearly a fifth of the students at UIUC hail from China.

    http://isss.illinois.edu/download_forms/stats/fa17_stats.pdf (Chinese enrollment)

    http://www.dmi.illinois.edu/stuenr/abstracts/FA17_ten.htm (total enrollment)

    Will Illinois, the state with the worst credit rating in the nation, get its $100b plus public pension deficit in hand before China stops supplying a fifth of the school’s students?

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    • Replies: @Art Deco
    Total enrollment–grads and undergrads–stood at 47826 in fall 2017. Of the total, 9405 were Chinese nationals, so nearly a fifth of the students at UIUC hail from China.

    See pg. 9. (http://isss.illinois.edu/download_forms/stats/fa17_stats.pdf) Their fall 2017 enrollment included 5,800 students from China in graduate and undergraduate programs. That's about 12% of the total.

    The Digest of Education Statistics for 2015-16 puts the fall enrollment for 4 year institutions in this country at 9.8 million f/t students and 3.7 million p/t students, or roughly 11.6 million FTE. They also report 1.043 million foreigners are enrolled, or 9% of the total. That's higher than I remember it being. They report the number of students from China at 328,000, or 2.8% of the total.

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  263. Brutusale says:
    @Autochthon
    Medicine maybe. Not even law except celebrities such as Dershowitz and some administrators. I've noticed otherwise reasonable denizens of iSteve love to just pull nonsense out of their asses when it comes to academia.

    Yes, academia is a poop-show, but not in the ways or for the reasons many of you think.

    In 2011, Fauxcahontas Warren was paid more than $425K for teaching one course at Harvard Law School.

    http://www.bostonmagazine.com/news/2012/01/13/elizabeth-warren-salary-harvard/

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    • Replies: @Autochthon
    That's a sinecure to a celebrity, just as I mentioned. Elizabeth Warren is (or was) as representative of the vast majority of professors in law schools the way Tom Cruise is representative of the vast majority of actors (who mostly do odd jobs between hustling for gigs in summer stock, children's repertory theatre, and the like paying peanuts).

    Lawyers enter academia to escape (or avoid in the first instance; cf. Yale University's esteemed Akhil "No Bar" Amar; can you even fathom a man teaching in a medical college who'd never even been licensed to practice medicine!? – yep, the law is a ass...). The pay hovers around $100,000.00 to $200,000.00 annually, depending upon experience, credentials, specialty, employer, region.... Not peanuts, but not $350,000.00. Law schools increasingly exploit the overproduction of lawyers and underemployment there of with the same scam of adjuncts one sees elsewhere in academia. Many of those folks make what amounts to a modest honorarium if they are already successful in private practice, and what amounts to gas money if they are scrounging to actually make a living from teaching. This leaves the tenured professors time to write articles two other people will read bickering about hypothetical scenarios which have little to no bearing on the actual practice of law.


    (Yes, I was on track for tenure in a "real" professorship; yes, I ran away screaming so I could make real money to service my crippling debts. No, I'm not bitter; I may actually return to academia soon now that I can finally prioritise time over money again....)

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  264. Pat Boyle says:
    @Autochthon

    I used to go to planning school many years ago. All my classmates also thought the future was in everyone taking the bus. But here we are forty years later in another century and bus ridership is down.

    Of course my bus loving classmates never actually took the local buses themselves, but they wanted the common people to get out of their cars.

    Riding a bus except in desperation will continue to be an unpopular choice for many reasons. The simplest to understand is that it rains (some places it even snows). People who have cars get in, get dry, get warm, and listen to the radio station of their choice. Those who take the bus stand outside in the wind and rain waiting.

    A car goes where you go and waits for you.

    But the biggest death knell for urban public transportation are the other passengers. A passenger car is a personal steel box that keeps others out. A bus is a communal steel box that locks you in with people whom you would otherwise try to avoid.

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    • Replies: @Alden
    Very true.
    , @Anonymous

    A passenger car is a personal steel box that keeps others out. A bus is a communal steel box that locks you in with people whom you would otherwise try to avoid.
     
    QFT. I used to live in NY and DC and tried the public transport thing on principle--for years. It was hellish, entirely due to violent negroes and third-world immigrants.

    The Washington Metro was actually relatively civilized and dependable for the first couple decades of its existence. No more.

    Never going back. Never never going back.

    , @Autochthon

    The simplest to understand is that it rains (some places it even snows).
     
    No foolin'? Rain and snow? I never thought of that. Probably because, savage as it otherwise is, her in Mexinchifornia we board commuting buses at designated stations. Come to that, we had these stations in every other place I have ever lived, too (a Hell of a lot of places). Maybe your experiences are in North Dakota...? (Although I bet there are even bus stations in North Dakota, with all that petroleum....)

    People who have cars get in, get dry, get warm, and listen to the radio station of their choice. Those who take the bus stand outside in the wind and rain waiting.
     
    The buses I ride are warm and dry. (Do the buses in your town have colanders for roofs and no heaters?) Everyone, everywhere listens to whatever he likes whilst riding in a bus. Many watch movies, play games, read, or sleep – things one cannot do whist driving. And I don't wait because commuting buses leave each city at exactly the same time morning and evening. They are queued (cued?) up like clockwork because they aren't driving a municipal route with all the variables that entails.

    The business about other passengers I concede...to a point. Mostly, the trouble is