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Crude oil for May delivery plunged into negative territory today, the first time such a thing has ever happened. We have negative interest rates so why not negative rates for other prices? After all, an interest rate is fundamentally the price of money.

I’m being facetious–mostly. The indications are everywhere. The global credit system is coming apart. We’re in uncharted territory so it’s hard to know exactly what the unwinding is going to look like, but there’s no way we’re going to be able to sustain one historical battering after another without big fissures in the underlying foundation.

In late 2018, the Fed tried to begin chipping away gently at its balance sheet a full decade after ‘temporarily’ exploding it. In response, the market crashed, so the Fed promptly reversed course.

That didn’t stop the repurchase markets from inexplicably locking up in the middle of last year, something that ostensibly makes no sense when money is so cheap and cash reserves so large. The Fed has been goosing the repo markets ever since, and it looks like if it ever stops, they’ll seize up again.

When coronavirus pricked the asset bubble, the Fed and the Treasury threw out all pretense of being separate, independent entities and collectively promised to buy and underwrite everything–junk bonds, treasuries, equities, mortgages, business loans, everything–to resolve the crisis.

And now the story is that even these open-ended, infinite promises aren’t enough. After all, there’s so much excess oil sloshing around that people are literally going to have to be paid to take physical delivery of it.

This means price deflation is coming, right? Hell, it means it’s already here–oil costs nothing!

Well yes, oil has become a lot cheaper over the last several weeks. That’s nice enough when you’re filling up your tank at the gas station. But a lot of things require oil in their production process. In fact, almost everything does in one form or another. That oil is so cheap it literally can’t be given away is an indication global production is cratering and the worldwide contraction in output is even worse than the pessimists think. Meanwhile, central banks across the world are flooding the planet with cash.

More currency, less stuff for that currency to chase. Consumer price inflation is coming.

If I’m incorrect, we’ll have managed to have discovered the Midas touch in the midst of a global pandemic. Extend unemployment benefits above wages at the time of termination, institute a UBI, keep every business afloat and every pension plan solvent, throw money out of helicopters to the people below–and still see prices fall! Everybody works less and buys more. We’re set!

 
• Category: Economics, Ideology • Tags: Coronavirus, Economics 
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  1. Thomm says:

    I think this song needs to have a modernized version for the Covid-19 crisis.

    I’ll think of something….

  2. Tusk says:

    Consoomers are about to get what they deserve.

    • Replies: @songbird
  3. Tusk says:
    @LoutishAngloQuebecker

    It would be great for this to work but it’s too little too late. Plus as some of the comments in response to his tweet say, why not 6 weeks ago? In fact, I wrote about 5 weeks ago that he should have done this. Now with the pandemic (presumably) not going much above 50-60k deaths it looks a little weak, a little slow, and too partisan.

    • Replies: @Daniel H
  4. anon[157] • Disclaimer says:

    Not that oil isn’t cratering.

    But all oil wasn’t selling for negative prices. A single futures contract that required physical delivery failed.

    Meanwhile, physical demand is less than the reduced supply. After all, it is a commodity. Meanwhile, the cure for low oil prices is low oil prices. This is the current strip: https://www.cmegroup.com/trading/energy/crude-oil/light-sweet-crude.html

    • Replies: @The Alarmist
  5. songbird says:
    @Tusk

    It will show up in food too.

    • Replies: @Dr. Krieger
    , @Dr. Krieger
  6. More currency, less stuff for that currency to chase. Consumer price inflation is coming.

    The total quantity of money is only half the equation. We also have to take into account the rate at which money is spent, or the “velocity” of money. MV = PQ; P is the price level and M is quantity of money in existence. So velocity has just as much impact as the nominal quantity of money.

    You can intuitively think of it this way: If everyone’s was written a check doubling their available cash, but only spent half as much of their available cash as they did before, the total amount of money spent per year would remain unchanged.

    The massive slackening of demand for various products means that velocity is lower than usual, which should offset the increased quantity of money. When the economy picks back up we may see more inflation but it’s a ways off and at that point the Fed can adopt a more aggressive stance.

    As for the prediction that supply will decrease (“Q” in the equation) I think this is true in the short term but I also think factories will re-open long before consumer confidence is totally restored. We’ll probably have suppliers competing for the scant dollars being spent.

    So I don’t expect inflation to be a major issue.

  7. Daniel H says:
    @Tusk

    It’s a damn good start.

  8. songbird says:

    How will the economic turn into the political? That’s the million dollar question, and I don’t mean how people will vote.

  9. @Elmer's Washable School Glue

    I’ll also add that a weak dollar is probably a good thing; it’s basically a universal tariff on all other countries in the world. Inflation causes some short-term distortion (just as tariffs do, but more widespread) but in the long run may be beneficial.

  10. I agree, A.E. I can’t say I’m completely ready for the financial pain coming, but probably more than 95% of Americans. If people had just retrenched after 2008, cutting their spending and controlling their appetites for the Bread & Circuses, they may have been more ready. Nope, they had to go deeply in hoc to try to keep the same quality of life, or should I say quantity of life, as in the past, when the US had a real economy.

  11. Crude oil for May delivery plunged into negative territory today, the first time such a thing has ever happened. We have negative interest rates so why not negative rates for other prices? After all, an interest rate is fundamentally the price of money.

    I’m being facetious–mostly.

    Actually you’re not being facetious. There is a direct line of causation between negative interest rates and the petroleum carnage we saw today.

    The global economy has wanted to contract and liquidate non-performing debt for some time. The governments of the Western world would not allow that to happen. They responded with a terrific tidal wave of asset purchasing which dropped the yield on $12 trillion of sovereign debt into negative territory. This free money prevented the much needed liquidation and resulted in a huge buildup of artificial demand for goods and services. This artificial demand called forth an equivalent amount of excess supply. Once the demand was taken away by the corona overreaction, all that excess supply was left hanging without a bid.

    The world not only had negative interest rates, it also had (as a direct result of this) excess petroleum, excess steel, excess cheap Chinese crap, zombie companies, disruptors that are utterly dependent on the systems they’re destroying, and millions of phony McJobs that don’t pay a living wage. Now all of that is gone; and there is no need, AE, to worry about who is right and who is wrong in the inflation/deflation debate. Everybody will end up right, after a fashion.

    This econoclysm—a brilliant term, by the way—was like a huge boulder thrown into a pond. The distortion waves emanating from that event are going to involve both peaks and troughs. The first thing to hit us is going to be a huge initial blast of deflation as demand is destroyed. Immediately after that, the prices of many items will rise in absolute terms because of scarcity resulting from supply disruptions. But price increases in response to shortages are not really inflation propery speaking, which is more of a monetary phenomenon. Whether we have real inflation or not will depend on our policy response, and if the recent past is any indication we’re going to get a ton of it.

    But after that it gets too complicated to predict. As the ripples of distortion start reverberating around the irregular edges of the pond, they’re going to interact and combine in complicated interference patterns. It’s important to remember that credit, savings, currency, jobs, supply, and demand are all being destroyed at once, at different rates in different sectors, with lots of non-obvious feedback mechanisms, so no one can predict anything save that even the boats clear on the other side of the water are going to get pitched up and down in the fray.

    We’ve leared so much lately. We’ve confirmed that the media and the Deep State really are the enemies of the people. We’ve seen that doctors and epidemiologists and the directors of public health agencies are often incompetent if not evil. We know that the governing elites are so pathetically out of touch with reality that they think they can put the global economy into cryogenic storage and thaw it out again with no complications. How anybody in charge could have let these lockdowns proceed just boggles my mind. To not foresee that this would be totally catastrophic is to demonstrate that you never really understood anything, that you were nothing but an empty suit. Anybody with real prudence and common sense and leadership ability never would have done that.

    The whole upper class has, in the words of John McLaughlin, “metaphysical egg” on its face. It is not comfortable to call for an accounting, but there needs to be one and there will be. If not in courts and tribunals and prison cells, then certainly in the verdict of history, which will soundly judge this age as having been ruled by the biggest douchebags God ever let through the door.

  12. @songbird

    They’ve got to learn to like it.

    • LOL: songbird
  13. @songbird

    They’ve got to learn to like it.

  14. unit472 says:
    @Elmer's Washable School Glue

    Money is also being destroyed. This is the battle Central Banks are fighting to avoid debt deflation. If asset prices crater loans don’t get repaid ( or made) so that is why Central Bankers are doing all they can to prop up asset prices.

    The problem is the scale of money destruction. If US GDP falls 10% that is the equivalent of $2.2 trillion so the Fed expanding its balance sheet by $2.2 trillion is no net change. My guess is that at the end of the day most of the unpayable debt will end up on the Fed’s balance sheet. A balance sheet that consists of decomposing bonds, mortgages and uncollectable debt offset by freshly created dollars is still a pile of crap. The real US economy will be smaller and so will our real wealth be.

    • Replies: @Lowe
  15. @LoutishAngloQuebecker

    When Trump started babbling about “the attack from the Invisible Enemy,” I almost thought for a moment that he was going to come right out and actually name the real Invisible Enemy.

    But no, he just means the flu. I forgot that as regards the Invisible Enemy, his daughter is married to it.

    • Disagree: Dissident
  16. only ayn rand can save us now….forget helicopters…..what we need are B-52s….in the land of milk and honey bread and circuses must be our bread and butter….capitalism promised us streets paved with gold….what we got was potholes and bomb craters…..free markets are self regulated by the invisible hands….this must be neoliberaltarian paradise….the second coming of sodom and gomorrah

    • Replies: @anon
  17. lhtness says:

    Coronavirus has seized the means of production and ushered in a new workers paradise!

    • Agree: Hail
    • LOL: Achmed E. Newman
  18. Anonymous[345] • Disclaimer says:

    If I’m incorrect, we’ll have managed to have discovered the Midas touch in the midst of a global pandemic. Extend unemployment benefits above wages at the time of termination, institute a UBI, keep every business afloat and every pension plan solvent, throw money out of helicopters to the people below–and still see prices fall! Everybody works less and buys more. We’re set!

    Ok, I don’t know nuttin’ about economics or finance but I’m thinking I need to get in the long line outside of my local grocery store here in Boston to buy some leaf bags for when the helicopters start dropping the money.

    Frankly, I’m so glad I never wasted the time to learn about personal finance and “wealth creation”. Nor fret about retirement savings or call up those weekend money talk radio shows. Che sarà sarà. While I never put my money into stocks or bonds I will be putting my money into 55-gallon leaf bags.

    But all those rich people should rejoice. The eye of the needle is getting bigger and the camel smaller as the dollar hyperinflates into nothingness.

  19. iffen says:

    Although the party is over, we don’t have to turn out the lights yet, but you might want to go ahead and locate the light switch.

    Public health officials protecting favored groups rather than the public, politicians grabbing bucks for supporters (aka “community banks” and “critical” businesses), SJWs pushing for open borders because of the pandemic, a constant pushing of favored political ideas as cure and prevention (end logging, end energy exploration, fight global warming, reparations now!, etc.– take your choice) and last, but not least, the exposure of the incompetence of a health care industry that is not very good at preventing the spread of infectious diseases in normal times, much less now. Does anyone believe we can do contact tracing of thousands when we can’t even do a few dozen?

    If this crisis does not completely destroy any remaining confidence in American institutions and leaders, nothing ever will, and I don’t believe it will, so you have to work from there.

  20. A123 says:

    As bad as people say the U.S. is…. Remember everyone else is much worse off.

    The EU and the € are facing an insurrection over Germany’s abuse of other members including (but not limited to) Italy, Greece, Hungary, Poland, and Cyprus.

    China and the RMB are so bad that Wuhan residents are physically attacking police officers: (1)

    Angry crowds rioted near the Chinese city of Wuhan after the region’s two-month coronavirus lockdown was lifted but residents were told they could not travel elsewhere in China.

    Shocking footage showed a mob overturning a police van on a bridge linking Wuhan, which is the capital of Hubei Province, and neighbouring Jiangxi.

    If the “Econclysm” happens, odds are good that the U.S. will be the last major power standing.

    PEACE 😷
    _______

    (1) https://www.dailymail.co.uk/news/article-8162773/Chinas-coronavirus-epicentre-Wuhan-lifts-lockdown-travel-restrictions-time-two-months.html

    • Replies: @animalogic
  21. @Intelligent Dasein

    The whole upper class has, in the words of John McLaughlin, “metaphysical egg” on its face. It is not comfortable to call for an accounting, but there needs to be one and there will be. If not in courts and tribunals and prison cells, then certainly in the verdict of history, which will soundly judge this age as having been ruled by the biggest douchebags God ever let through the door.

    That, plus the whole upper class is surrounded, apparently, by pedophile rape rings.

  22. Lowe says:
    @unit472

    This is a great point, that money is destroyed by a contraction of the private credit market. It is why Fed actions did not lead to high inflation in the last crisis, and will not lead to it now.

    Before we see high inflation we must at least see some supply issues, which we have not. Just insisting that there will be inflation is bizarre. Any day now, any day now… this gets old fast.

    At what point do you accept the evidence you are wrong? It is not a matter of believing the central bankers have Midas touch. Deflation is not us getting richer.

  23. Mark G. says:
    @Lowe

    It is why Fed actions did not lead to high inflation in the last crisis, and will not lead to it now.

    After 2008 inflation was mostly in stock prices. After 2000 the inflation went primarily into house prices. In both periods you also had inflation in medical and higher education prices. You didn’t have much inflation in consumer goods because consumers could substitute cheap foreign goods for more expensive domestic goods. You also had some government manipulation of the statistics. The government has an interest in showing that inflation is low and that their policies aren’t increasing it even when they are.

    • Agree: animalogic
    • Replies: @Lowe
  24. TG says:

    Indeed we do seem to been LaLa land. How can the government be printing money and there not be hyperinflation?

    But remember: the government is not giving any of this money to the average person (at least, not more than crumbs). Trillions and trillions of dollars are flowing out to big finance: but they are not using it to buy anything. It’s just cycling around in the cloud. The average person is saddled with debt, has lost a job or had their hours slashed: their spending is not going up.

    I mean, if the government printed a trillion dollars, and then buried it in the front Lawn of the White House, would it cause inflation? How?

    Note also that increasingly we don’t have a functioning market. Much of the economy consists of de-facto monopolies, or ‘private-public partnerships’. Price competition doesn’t apply to them, and we shouldn’t be surprised if things don’t quite to seem to move in the expected direction…

    • Replies: @anon
  25. When coronavirus pricked the asset bubble, the Fed and the Treasury threw out all pretense of being separate, independent entities and collectively promised to buy and underwrite everything–junk bonds, treasuries, equities, mortgages, business loans, everything–to resolve the crisis.

    Everything except the one single thing you should do, if you are going to take the radical step of creating money to spend your way out of an apocalyptic demand shock:

    Give it directly to consumers

    • Replies: @dfordoom
  26. SIMP simp says:

    The only oil prices that went briefly negative are at a landlocked Oklahoma location where there is not enough storage left and getting the oil out of there is more expensive than the oil itself now. Brent oil futures, which are a far better signal, are at a historical low but still positive.

  27. dfordoom says: • Website
    @SimplePseudonymicHandle

    Give it directly to consumers

    That’s what the Australian government has done. Giving money to people who will actually spend it. They’re even giving money to poor people, because if poor people are given money they spend it. Which, amazingly, boosts demand for goods and services.

  28. @anon

    Oil is going negative because everyone keeps producing it while demand craters and storage capacity fills to the brim. The cure for low oil prices is less supply. The problem is, who goes first?

  29. @The Alarmist

    Now that I think about it, negative commodities and negative interest rates means I can cancel my membership in the CFA Institute and save myself a few hundred bucks a year, because the economic world is FUBAR.

  30. @Intelligent Dasein

    “But after that it gets too complicated to predict. As the ripples of distortion start reverberating around the irregular edges of the pond, they’re going to interact and combine in complicated interference patterns. It’s important to remember that credit, savings, currency, jobs, supply, and demand are all being destroyed at once, at different rates in different sectors, with lots of non-obvious feedback mechanisms”

    Completely agree with this. The current situation makes the 2008 GFC look eminently predictable in comparison. I believe the government should have done some modeling to provide cost/benefit analyses of a lockdown, but the long term consequences have complex behaviour that would be impossible to incorporate into a simple model. Even validating the simple model would be highly questionable, since the current bungling doesn’t map onto many historical episodes on which we have data. They could have picked out a few second order consequences, though, rather than none.

    “We know that the governing elites are so pathetically out of touch with reality that they think they can put the global economy into cryogenic storage and thaw it out again with no complications. ”

    My interpretation is that they did know that there would be consequences, but that they saw a better chance to further their aims by letting it go ahead. One would have to be a completely witless fool to think that there would be no consequences for countries in which the average middle class person has less than 2000 in liquid assets (etc). I don’t think the elite are dumb; evil, perhaps, selfish, greedy, myopic, but not that dumb.

    • Replies: @animalogic
  31. anon[515] • Disclaimer says:
    @Marty Brokenhearted

    Dude. Dude? Dude! 4/20 was yesterday. Yesterday. Put the bong down for a while, ok?

  32. SFG says:

    So what would you do financially?

    • Replies: @Audacious Epigone
  33. Hopefully, what will come out of this is a 32 or 28 hour work week. This quiet time has shown us that we Americans neither need to consume so much nor run around so frantically doing what amounts to nothing.

    Zen therapy is putting you in a room by yourself and letting you stew in your own juices for a day or three. We saw what effect this had when many people shouted that the world was coming to an end, when what they should have said was that their world was coming to and end. Well, good. Your world was crazy anyway. The best thing for the environment and you is for you to stop.

    Burning less oil? Isn’t that a good thing? Driving less? Isn’t that less stressful? People are saying that skies are clearer than they can recall in their lifetimes. Hopefully we’ve stopped adding to the plastic whorl in the middle of the oceans. Taking walks and working at home on long-neglected hobbies? Sounds therapeutic to me.

    We all know that most of our desires are manufactured by the opinion molders anyway. Why is it such a tragedy if we just disengage?

    Admit it. Most of you hate your work. It’s meaningless and you know it. You’d love to just get up and walk outside. Go ahead. No one will miss you. What this virus has shown us is that a meat processor and a trucker are more essential than most white collar personnel. The deplorables keep things rolling and get things done. They knew that all along. It took the lockdown to get you to realize it.

    Let’s hope we never return to “normal”.

  34. According to the U.S. Bureau of Labor Statistics the $US lost 95% of it’s buying power between 1913 and 2013. Is this true? Is this attributable to “inflation”? If not how do we explain it?

    Does anybody expect this trend to reverse?

    If we are down to the last five cents how long will it take to get to zero? When will the dollar stop being worth less and become worthless? How can dollars continue to pretend to be money when a billion of them is worth nothing?

    I am not an educated man. So these are probably dumb questions easily answered. So somebody help me.

    https://visual.ly/community/Infographics/economy/purchasing-power-us-dollar-1913-2013

  35. anon[491] • Disclaimer says:
    @ThreeCranes

    Zen therapy is putting you in a room by yourself and letting you stew in your own juices for a day or three.

    Like the original Pennsylvania penitentiary. Locked in a small room with clean air, light from a high window, no bugs. Food once or twice a day. All alone wth yourself. With good behavior, a literate man would in time earn the privilege of getting something to read, and it would be the King James Bible. Nothing else.

    Extroverts might not have done too well. Even worse for those with poor impulse control – which would be the majority of penitents.

  36. anon[503] • Disclaimer says:
    @TG

    But surprisingly, the major real investment made post 2008 was none other than US shale oil and gas. Post 2000, the only thing in retrospect that kept deflation at bay was commodity price inflation driven by China’s massive development. Which led to $100+ oil price spikes. People were looking at commodities as the tangible store of value that would track the feared inflation. And oil is the principle commodity of our time.

    The 2000-2008 housing bubble was created in an attempt to find a physical store of value. US single family housing was overproduced until there were no real buyers left. After the housing bubble, trillions were poured into the US shale project. Its value may be dubious, but it is real enough. Since 1970 and the first oil price spike, oil has been a constant source of inflation and a real constraint on growth. The US conjured 13,000,000 bbls/day of shale oil out of used up basins and ungodly quantities of natural gas and liquids (eg propane). Not to mention pipelines, processing plants, refining capacity, chemical plants, etc. Oil and energy is no longer a primary growth constraint. Which is not simply financial engineering. It’s so real that financial markets were shocked that there is no place to put the damn stuff. On a more serious note, excess rail cars can store a few more weeks of the excess.

    As an aside, another massive investment was made in the area of education beginning in about 2000. It’s not that it was a bad idea. It was a failure for all the reasons that we know too well.

    The problem is that there simply aren’t that many high return opportunities. Far too much of the US’s debt simply funded lost wars and what amounts to consumption rather than anything that looks like an investment. US infrastructure is a bit worn and shabby, but it is mostly good enough. Social programs? So far, money has produced section 8 housing and rap music. No one seriously believes that pouring money into education or social programs will improve anything. And how can we decrease inequality when elites insist that we leave the gate open for uncontrolled immigration? Green new deal? Exactly what?

    So think of the pandemic as a pseudo war that we can “invest in” because we can’t not invest in it. As wars go, this is as wasteful but not nearly as destructive. People “sacrifice” with a mandatory staycation. An incredible advance over WW I, no?

    • Agree: Lowe
  37. @ThreeCranes

    Let’s hope we never return to “normal”.

    Since I have no more “Agrees” to give ATM, let me say that our previous lifestyle was insane and this crisis and bubble-collapse may return us to something resembling reality.

    Personally, I can’t wait.

  38. 4891 says:
    @WorkingClass

    Yes, this is all, by definition, inflation. Money becoming less valuable is by definition inflation. The trend correlated with the moving from a gold standard towards fiat currency, i.e. money backed solely by the government declaring that it is valuable, rather then the money being worth a certain amount of gold or silver or whatever precious metal or item you wish. No one expects this trend to reverse, both because this is part of the bargain of a fiat currency, and because modern economists fear deflation, or money becoming more valuable. The rationale is that if deflation happened then people would simply hoard their money and wait for it to become more valuable, rather then buying things.

    Personally, I’ve always found this argument rather absurd. People still buy computers and cars that will be worth much less in 5 years. People still spend money rather then letting it accumulate and collect interest in the bank. No one can put off purchases forever.

    As for the Dollar going to zero, you’re thinking in terms of subtraction, when you should be thinking of division. Dividing a number by two over and over again will get you closer to zero, but you will never reach zero. Similarly, the dollar will become less valuable over any time period, but it will never be worth entirely nothing.

    Now, if most people keep their money in banks that have interest rates equal to inflation rates, the loss of value of the dollar theoretically doesn’t matter. One’s savings and the actual prices stay equal relative to one another. A $1 cup of coffee increasing to $5 doesn’t sting so much if your $1 in the bank grew to $5, or even $6 or $7. However, since inflation rates today are higher then interest rates, people who keep their money in the banks are seeing their savings not grow fast enough to match inflation. Their dollars truly are becoming less and less valuable each day, even if they use a bank. Unless you invest in stocks or some other investment with a higher rate of return then the inflation rate, you are losing money every single day.

  39. @WorkingClass

    Send me everything you have from your checking account
    and maybe I’ll have helped create an understanding.
    Guns don’t kill people and money isn’t bad.If your attempting
    satire,and you think a billion isn’t worth anything,what’s with
    all these financial institutions? You’re welcome in advance.

  40. @WorkingClass

    According to the U.S. Bureau of Labor Statistics the $US lost 95% of it’s buying power between 1913 and 2013. Is this true?

    In my lifetime, the candybar I bought for ten cents when I was a kid now costs a dollar. The biggest decline of USD purchasing power has occurred since 1971, when the Dollar was decoupled from gold.

  41. anon[503] • Disclaimer says:

    Money still has plenty of value as far as certain types of consumption goes. Wheat was over $2 bushel in 1920 and sells for $5 in 2020. No wonder they largely abandon the farm over the last 100 years. Investment in farming has had modest returns over that period despite a revolution in mechanization, in seed, in fertilizer, and irrigation. It took all that to simply survive.

    Investment in 20th century industry has had decreasing returns. Despite being enormously profitable through 1950, the US domestic auto industry has been a disaster since. The largest manufacturer, GM went bankrupt in 2009. Ford stock is under $5 share, roughly the same price it sold for 50 years earlier.

    Investment capital earns a “safe” return close to zero after inflation. Debt is not that risky if it only takes a very low interest cost to support it. There is a decreasing marginal value of capital.

    2000 calories/day is very valuable. 4000/day not so much. We have yet to come to grips with the notion of scarcity when we have the fattest poor people in the history of the world.

  42. @ThreeCranes

    You could say “white collar” but it’s a euphemism for “women”.

    Almost all women are in jobs causing them to stay home from work, and it seems that nothing is changing.

    The one exception is nurse/doctor. But yeah, Karen from HR is sitting around drinking box wine and the company is actually running more efficiently now LOL.

    Even among white collar jobs, the men do everything and women are corporate drones. Although maybe some of the numales are changing the dynamics.

  43. @4891

    The trend correlated with the moving from a gold standard towards fiat currency, i.e. money backed solely by the government declaring that it is valuable, rather then the money being worth a certain amount of gold or silver or whatever precious metal or item you wish.

    Gold is also a fiat currency. The industrial demand for gold does nothing to justify even a fraction of its price. The only reason it is valuable is becuase everyone has agreed that it should be considered valuable. Not any different than the dollar except that it is harder to create more gold than dollars.

    What goldbugs don’t seem to understand is that currency should be valueless, precisely so that it can serve as an independent means of exchange. Fiat currency has only one value: that which has been agreed on. “Backed” currency has two values: the value of the underlying asset, plus a premium based on its value of exchange.

    If you’re whining about currency volatility now, imagine how much worse it would be if tied to something with variable “useful” demand like grain or (lol) oil? Gold serves as a decent currency specifically becuase it is mostly useless, but it does have some minor uses so truly valueless currency is still better.

  44. Lowe says:
    @Mark G.

    The thesis AE has is that Fed actions to increase liquidity with bond buying will cause high inflation. This did not happen after 2008, and it is unlikely to happen now.

    Equity went up in that time because attractive interest rates were not available to institutional investors, and they had to go somewhere. That was not because of an abundance of money compared with stocks, or a high velocity of money in the stock market. If anything there was a lack of money velocity in the stock market, with volatility being low.

    So no, that is not high inflation, at least not in the sense that anyone uses that term. Likewise, when it comes to tuition costs and medical costs, this is not an issue of money supply or velocity. Those prices were going up before 2008. There is a social cost disease with those goods.

    Empirically the idea that Fed policy in 2008 and the years following caused high inflation, or higher than there might have been with no mortgage crisis, is false. It also doesn’t make sense. Like another poster said, if the Fed printed a bunch of dollars and buried them in the yard, would there be inflation? No.

    Other posters keep talking about how there has been sustained consumer price inflation for 100 years. A candy bar used to cost 10 cents in my day, etc. This is irrelevant to what is being discussed. The thesis is Fed actions now will cause high inflation. There is currently no reason to think that will happen.

    Also these mealy-mouthed posts about how it’s complicated, nobody knows, complex ripple effects in a pond, etc, are stupid. We know. It already happened.

    • Replies: @Mark G.
    , @EldnahYm
    , @anon
  45. Mark G. says:
    @Lowe

    Likewise, when it comes to tuition costs and medical costs, this is not an issue of money supply or velocity. Those prices were going up before 2008.

    If you say that these price increases were not influenced by inflation because they were going up before 2008 your underlying premise here is that there was no inflation before 2008 but there was after 2008. I don’t think that is true.

    I also think people who are saying all the money printing going on is not going to lead to inflation are engaged in wishful thinking . When they try to prove that with complicated models using a lot of arcane verbiage instead of using plain language they may be attempting to obfuscate rather than enlighten.

    You need to look at the underlying incentives here. To simplify a bit, who benefits from inflation? The answer is anyone who wants to borrow with low interest rates. Who is the biggest borrower? The answer is the federal government. So if the entity which benefits from high inflation is also the entity in charge of deciding whether there will be inflation you will most likely end up with high inflation.

  46. Corvinus says:
    @ThreeCranes

    “Hopefully, what will come out of this is a 32 or 28 hour work week.”

    Absolutely.

    “This quiet time has shown us that we Americans neither need to consume so much nor run around so frantically doing what amounts to nothing.”

    For some people, their priorities to consume will change. In other cases, not so much. Rather than go to a store to buy something, people are ordering it online.

    “Burning less oil? Isn’t that a good thing? Driving less? Isn’t that less stressful? People are saying that skies are clearer than they can recall in their lifetimes. Hopefully we’ve stopped adding to the plastic whorl in the middle of the oceans. Taking walks and working at home on long-neglected hobbies? Sounds therapeutic to me.”

    Absolutely.

    “We all know that most of our desires are manufactured by the opinion molders anyway.”

    It’s more like citizens want certain things in their life, and they seek to obtain and promote them. So we are all “opinion molders” who “manufacture” desires.

    “Admit it. Most of you hate your work. It’s meaningless and you know it.”

    Now you’re just being silly here.

    “What this virus has shown us is that a meat processor and a trucker are more essential than most white collar personnel.”

    I would say BOTH are equally essential, especially in a capitalist system–one to harness the financial might to create the meat processing plant and market their wares, and one to make and transport that product for mass consumption.

  47. “Gold is also a fiat currency. The industrial demand for gold does nothing to justify even a fraction of its price.”

    Gold is the opposite of fiat money. Fiat money is money that has value based on the backing of a government. From wiki: ‘The world consumption of new gold produced is about 50% in jewelry, 40% in investments, and 10% in industry.’ As jewelry, gold has high value. India and China and all of southeast Asia are obsessed with gold jewelry. If China makes all the things, and China is obsessed with gold, then that makes for some decent money.

    “The only reason it is valuable is becuase everyone has agreed that it should be considered valuable. ”

    Outstanding! It has had high value continuously for many thousands of years as many civilizations rose and fell around it. That’s some pretty good agreement.

    It is much better to find legitimately good investments, than to buy gold. If you can send your kid to medical school or buy the next Amazon, that is far better. But for most people most of the time, it is very hard to find good investments. I have no idea what I could buy for a guaranteed positive return. Ideas anyone? Without good ideas, Gold is a safe store when governments go mad.

  48. @DanHessinMD

    Also, gold is used by governments everywhere to help undergird their financial systems. This has been true for at least 2600 years, a hundred generations.

    • Replies: @Jedi Night
  49. @DanHessinMD

    Anyone whose brain has been infected with this libertarian gold-as-money ideology has been profoundly brainwashed. It is much easier to educate someone who knows nothing about money than trying to correct someone who has been miseducated by a noxious propaganda.

    Let me cut to the chase: nothing does more to enhance the power of the moneyed elite than the practice of restricting money to gold. The idea that sovereign money should be restricted to a gold supply is reactionary and is antithetical to the interests of the common citizen no matter what his profession.

    • Replies: @DanHessinMD
  50. @Jedi Night

    “brain has been infected”
    “profoundly brainwashed”
    “miseducated by a noxious propaganda”

    None of these are arguments. Also, I am not a libertarian. If you think gold will not hold its value, please explain why.

    “It is much easier to educate someone who knows nothing about money”

    Sincerely, educate me, if your level is such that you are capable of that.

    “nothing does more to enhance the power of the moneyed elite”

    It seems to me that the opposite is true. I would say that fiat money that the elite can make more of after every policy failure is power enhancing.

    I am genuinely eager to hear your argument. Do you have one?

    • Replies: @Jedi Night
  51. @DanHessinMD

    I wrote,

    “But for most people most of the time, it is very hard to find good investments. ”

    One of my “seemingly” successful investments of the past was oil. I say “seemly” because in today’s world it seems like it was a mirage. It looked very good by many metrics and I can’t be too hard on myself for getting it wrong. The oil industry has done an amazing job of turning capital into oil, but now that oil has no value in the market.

    So many investments across the economy that sucked in so much capital right now are looking like zeros. Folks do not comprehend the economic cataclysm that has occurred. China at least has been making things.

    One industry that looks to me right now is insurance. Auto insurers in particular are collecting premiums from people who aren’t driving. That’s about all I can think of.

    Even companies like Google and Facebook are about to get hammered I think since they make their money on ads and their advertisers aren’t doing well.

    Amazon and Microsoft look better to me, but the current catastrophe looks pretty extreme from my vantage point.

    Bitcoin? It seems to be a pain to transact, nobody likes to wear it, maybe the market doesn’t need another version of gold and people seem prone to losing it. With gold, if I die, my kin can easily collect my gold. With bitcoin, if I die there is a good chance my Bitcoin would die with me. It has only been a few years and already significant chunks of Bitcoin are apparently lost.

  52. Amid the coming wreckage, there are surely positive returns to be earned in picking up the right assets of financially collapsed others. That is a game that is coming in the future, but it certainly is not here yet. Years of terrible pain first. Meanwhile capital preservation is the thing.

  53. @DanHessinMD

    I have nothing against gold as an investment, just as I have nothing against buying stocks, artwork, bitcoin, frozen pork bellies or any other valuable thing. What I’m against is tying a currency’s value to an arbitrary traded commidity with external uses. I admit that calling gold a “fiat currency” was a hyperbole to prove a point. But the fact that so much gold goes into jewelry rather than investing actually makes it less suitable for currency, for the reason outlined above: it blurs the distinction between the value of the commodity itself and the premium added by its use as a means of exchange.

    Goldbugs should consider gold’s extreme volatility compared to the dollar. Dirty and inked paper, having a perfectly stable instrinsic value of zero, is very nearly the ideal money.

  54. Mark G. says:
    @DanHessinMD

    I have no idea what I could buy for a guaranteed positive return. Ideas anyone? Without good ideas, Gold is a safe store when governments go mad.

    When governments go mad nothing is safe. I own Gold but it could be confiscated in the future by the government. There would be widespread political support for that from everyone who didn’t buy it before the price went up.

    If things get really bad owning some land and knowing how to grow food might be a good idea. After the Russian revolution wealthy women would trade their jewelry to farmers for potatoes. Even here you might not be safe. Later on the Russian government under Stalin confiscated the crops of the Ukrainian farmers and caused mass starvation.

  55. EldnahYm says:
    @Lowe

    Like another poster said, if the Fed printed a bunch of dollars and buried them in the yard, would there be inflation? No.

    Pithy. I’m going to use this one.

  56. @DanHessinMD

    First of all thanks for your reasoned reply.

    The wealth of a country is the products and services of its people. Money has nothing to do with that. Money is the mental trick that gets us to be productive and share our goods and services.

    Money doesn’t have to be a commodity. The advantage of making sovereign money a commodity is its effectiveness as a method of fighting counterfeiting.

    However, the major disadvantage of commodity money is that its limited supply prevents economic activity. When money is in short supply, economic activity is choked off. The holders of money have a death grip on the nation’s economy. They knew it and used it all the time.

    The interest rate they charged to loan out their precious commodity was a giant parasitic surcharge on the productive activity of the real economy. The history of gold money is also the history of alternative currencies, as people struggle to invent methods of allowing commerce when money was in short supply (as it always was).

    Sovereign money doesn’t have to be in short supply, nor does it have to be loaned out at high (or any) interest. There is no reason that public banks don’t lend out money to the people for socially advantageous purposes like mortgages or higher education at 1%. Their is no reason that we have unemployment at all, when the feds can create the money for jobs programs at no cost. This is simple political will rather than some laws of money.

    Gold doesn’t prevent fractional reserve banking, btw. In fact, it started it and encouraged it, as bankers would issue paper and credit loans on non existent gold reserves. They realized the trick worked and worked fine, right up until a panic.

    • Replies: @animalogic
    , @DanHessinMD
  57. anon[634] • Disclaimer says:

    WTI crude June delivery is sitting at $16.50 to $16.80 per barrel. That means a 40% rally in two days.
    The “crisis” earlier in the week was an artifact of the futures market in combo with world wide shutdown.

    In other words, a blip. A nothingburger that some low information people hyperventilated over.
    But at least we all know a bit more about who knows things and who does not.

  58. anon[152] • Disclaimer says:
    @Lowe

    Like another poster said, if the Fed printed a bunch of dollars and buried them in the yard, would there be inflation?

    Depends on whose yard it is.

  59. @Elmer's Washable School Glue

    at that point the Fed can adopt a more aggressive stance

    The interests that control the Fed will never allow that to happen. The Fed couldn’t even go to real positive interest rates when its balance sheet was $5 trillion. It sure as hell won’t be able to when it’s $25 trillion.

  60. @Intelligent Dasein

    But price increases in response to shortages are not really inflation propery speaking, which is more of a monetary phenomenon.

    Indeed, I’ve tried to consciously use “an increase in consumer prices” since that is more precise. Using “inflation” colloquially–properly defined, it’s simply an increase in the money supply–is suboptimal.

  61. @Lowe

    Deflation is us getting richer if the number of dollars we have stays the same. Or in the case of perpetual helicopter money, the number of dollars we have increases.

    Are you poorer buying an iPhone 10 today than you were buying a 486 thirty years ago for four times the price? No, that’s an indication that you have become materially richer.

    Parenthetically, I realize it is impossible for deflation to occur when the number of dollars in circulation increases, since that is monetary inflation by definition. My point is actually made more obvious when stated more precisely–Lower prices for things is us getting richer if the number of dollars we have stays the same (or increases!).

  62. @The Alarmist

    US producers, that’s who.

    • Replies: @The Alarmist
  63. @SFG

    Taking heroin away from an addict in the middle of a severe craving is risking a lot of collateral damage, but the best thing for the US long term would be for the Fed to let interest rates float. That’s politically unthinkable, though.

    The drug addict could also tell all the dealers to fuck off for feeding his habits for so long when it was obvious he could never make good on his debts. As long as the addict is bigger and stronger than the dealers, this remains an option. It’d look something like rendering all treasuries void and reimbursing all American citizens who could prove to have purchased and not sold said treasuries at the time they became voided the value of said treasuries plus some patriotic premium. Essentially default on all debt held by foreigners while keeping American citizens whole.

    Or the addict could keep shooting up until his heart explodes (ie until the dollar breaks).

    • Replies: @animalogic
    , @nebulafox
  64. @WorkingClass

    Yes, it’s true, though it’s arguably lost more than 95% of its purchasing power–closer to 98%, I’d estimate.

    It will never lose all of its purchasing power as long as it is required for income tax payments.

  65. @A123

    “If the “Econclysm” happens, odds are good that the U.S. will be the last major power standing.”
    Maybe.
    The Devil looks after his own.

  66. @jbwilson24

    “My interpretation is that they did know that there would be consequences, but that they saw a better chance to further their aims by letting it go ahead. ”
    People like Trump & Boris, were too dull witted to see the likely ramifications in Feb, early March of the virus. They tried the usual Cheney(TM) “reality will conform to my bullshit” line… which, surprise, failed.
    Then — confronted with the political consequences of projected death rates they caved in. (Trump could give a shit, personally, for deaths in the 100’s of thousands ).

  67. @4891

    “A $1 cup of coffee increasing to $5 doesn’t sting so much if your $1 in the bank grew to $5,”
    Replace “bank” with “wages” & you get a similar result.

  68. Mark G. says:

    “A $1 cup of coffee increasing to $5 doesn’t sting so much if your $1 in the bank grew to $5,”
    Replace “bank” with “wages” & you get a similar result.

    Also, if wages are decreasing it doesn’t hurt as long as prices are decreasing. The problem with U.S. rising wages happens when you have a factory job with rising wages and someone else in another country is willing to work for less and can therefore sell the product they are producing for less. This leads to trade deficits and job losses here. If you look at a graph of U.S. inflation and then look at a graph of U.S. trade deficits you can see they both started increasing around 1970. The working class, many of whom worked factory jobs, was impacted the hardest by this. In this case, deflation which lowered domestic wages might have worked out better for them.

    • Agree: Mr. Rational
  69. @DanHessinMD

    “The only reason it is valuable is becuase everyone has agreed that it should be considered valuable. ”
    Quite right to question this assertion.
    Gold has value due to its relative scarcity. It’s the near opposite of fiat: only so much exists. Assuming it is dug up up at a stable rate it will retain value. Increasing demand (as a hedge etc) will maintain – increase that value.

  70. @Jedi Night

    “Gold doesn’t prevent fractional reserve banking, btw. In fact, it started it and encouraged it, as bankers would issue paper and credit loans on non existent gold reserves. ”
    They STILL do it. Never buy “paper” gold. It usually never gives you a right to “this” or “that” gold. Likely, it’s been rehypothicated 100 times. Come a crunch there will NOT be sufficient gold for all the “legal” claims upon “it”.

  71. @Audacious Epigone

    While the US D remains the reserve currency it shouldn’t “break”…?

  72. @Audacious Epigone

    In a sane world with rational actors. We are now in Bizzaro World.

  73. @Jedi Night

    Jedi Night wrote:

    “However, the major disadvantage of commodity money is that its limited supply prevents economic activity. When money is in short supply, economic activity is choked off. The holders of money have a death grip on the nation’s economy. They knew it and used it all the time.

    The interest rate they charged to loan out their precious commodity was a giant parasitic surcharge on the productive activity of the real economy. The history of gold money is also the history of alternative currencies, as people struggle to invent methods of allowing commerce when money was in short supply (as it always was).”

    The United States was on a gold standard for most of its history until 1971. American history to 1971 was defined by extremely high growth, decade after decade after decade after decade, going from a standing start to total world domination, going from mule-drawn buggies to space exploration, gaining a deep and prosperous middle class, world export leadership in all product categories and technological leadership in every technology, most technologies having been invented by us in the first place. I think I just creamed my pants recounting the history.

    Since going off the gold standard, our middle class has been gutted, everything has been financialized, we make little ourselves and we seem to be deep in debt. Middle America is doing poorly; the wealthiest are the ones closest to government. Our elites are not worthy elites like Andrew Carnegie and J.P. Morgan, but screetching social justice warriors and those (ahem) who can best operate in a world where financialization replaces substance. Worse, our culture seems really unhealthy and that may relate to the gutting of manufacturing and the attendant diminishment of men.

    How is stable and fair money a bad thing?

    • Agree: Mark G.
    • Replies: @EldnahYm
  74. EldnahYm says:
    @DanHessinMD

    The United States was on a gold standard for most of its history until 1971.

    All that changed in 1971 was that the U.S. no longer allowed foreign governments, who fixed the value of their currency to the U.S. dollar, to exchange their dollar holdings for gold at a set price. Domestically the U.S. was not on any kind of gold standard under the Bretton Woods system.

    I’m amused by your idea that the U.S. never had depressions or inequality prior to 1971. Also, the U.S. as a leader in technology is mostly a 20th century development. As for debt, it is because the U.S. was no longer a creditor(which it became as a result of WW1) internationally that it suspended convertibility to gold, not the other way around. You’re not very good at details.

    • Replies: @DanHessinMD
  75. nebulafox says:
    @Audacious Epigone

    I sadly speak from experience as someone who struggled with addictions for much of his 20s: the junkie himself has to be genuinely ready to change, otherwise there will be no long term impact. A classic hallmark of addict-thought is constantly, daily thinking you have hit this stage, but then… ah life just happens to you, or no, you cannot do X because Y. The analogy can be easily extended here.

    (Often, the problem for an addict who truly does hit this stage is that they lack the means to set up the right conditions for cleaning up after years of pissing away or not earning money. He also usually is isolated or surrounded by the wrong people. What you need is a “proper” social network-people who genuinely want to see the addict turn his life around and will invest time into supporting him face to face, but will not indulge him and insist the addict himself do the bitter work of change-to weather the storm and prevent relapses. Your normal adult regulatory impulses, if developed at all, are damaged and will take time to recover, no matter how sincere you are. Also, you never, ever take a person off their substance at a random time and place, without warning or consent. You have no idea how their mind or body will react. The addict could become psychotic and violent. Their body might revolt and they grow sick. They might become suicidal. Etc, etc. There is a reason treatment centers exist.)

  76. @EldnahYm

    “I’m amused by your idea that the U.S. never had depressions or inequality prior to 1971. ”

    You are amused by something I never said, which you made up? You know I never said that, and you seem fundamentally dishonest to say that I said things which I never did.

    “As for debt, it is because the U.S. was no longer a creditor(which it became as a result of WW1) internationally that it suspended convertibility to gold, not the other way around.”

    Again, more dishonesty on your part. Here is the balance of trade over time:

    https://research.stlouisfed.org/publications/economic-synopses/2019/05/17/historical-u-s-trade-deficits

    Here is the balance of payments over time.
    https://www.newcoldwar.org/the-us-trade-deficit-is-made-in-the-usa-not-made-in-china/

    We got off of the gold standard in 1971 because it was obviously very enticing to do so, but that enabled our incredibly irresponsible behavior that followed. Our balance of payments didn’t go negative until the 1980s and has remained deeply negative ever since.

    We are massively net international debtors now, basically alone in the world.
    https://en.wikipedia.org/wiki/Net_international_investment_position

    You help move me closer to AE’s position. If most Americans are as detached from reality as this, we will have a money crisis sooner than I imagined.

    • Replies: @Jedi Night
    , @EldnahYm
  77. @DanHessinMD

    Dan, I’m sorry but you seem to be engaged in magical thinking. If I understand you correctly, you are blaming the decline of the USA since 1971 on the lack of responsibility due a persistent balance of trade deficit.

    I’m not quite sure how to address this particular brand of magical thinking but I shall make an attempt at it. I might question your premises. Have we really been in decline since 1971? We did win the Cold War didn’t we? Isn’t crime at an all time low now?

    I might also question your analysis of the cause of our supposed decline. There are, I’m sure you would grant, hundreds of other things that happened around the early 1970s. Might not some of then be more impactful and causative of our decline? How about mass immigration, legalized abortion, the birth control pill, no fault divorce, pornography, end of segregation, the computer era, color tvs, Moon landings, the dawn of the Age of Aquarius?

    Perhaps you could address a factual matter. Our national wealth increases because of our negative balance of trade. We get real things to circulate in our economy, foreigners get dollar bills. This is factually true. If foreigners want to take our inflating/devaluing dollars in exchange for actual goods, isn’t that their stupidity? Why would you want to stop them?

    Also, because their labor rate is so low, we can pay foreigners to do things that no one would do domestically. Processing of recycling for example, or the manufacture of textiles. You would repeal this effect of economics? You would have Americans picking through trash for value, or polluting our air with factories for cheap goods that pay low wages?

    You do realize that every dollar we save on a cheaper import will be spent domestically on something else, right? If we suddenly have to make all our own clothes, all our clothes would be that much more expensive? Then we’d have less money to spend elsewhere in the economy, ie we’d be poorer.

    Perhaps we have actually found the foundation of your thesis, have we not? You advocate keeping the nation poorer because that would lessen the ills of the nation? This land of degenerates disgusts you, and you would rather us be poor than have wealth enable this degeneracy? If that mischaracterizes your opinion please let me know.

  78. EldnahYm says:
    @DanHessinMD

    You are amused by something I never said, which you made up? You know I never said that, and you seem fundamentally dishonest to say that I said things which I never did.

    It’s implied in your masturbatory summary of U.S. history:

    The United States was on a gold standard for most of its history until 1971. American history to 1971 was defined by extremely high growth, decade after decade after decade after decade, going from a standing start to total world domination, going from mule-drawn buggies to space exploration, gaining a deep and prosperous middle class, world export leadership in all product categories and technological leadership in every technology, most technologies having been invented by us in the first place. I think I just creamed my pants recounting the history.

    If you’re going to write such simplistic garbage, don’t be surprised when you get mocked.

    Your graphs are consistent with what I said. They show the U.S being a trade deficit for much of the 19th century, with a move into surplus in the late 19th century, peaking in the years between 1910-1920, with another small trade boom around WW2. This was followed by a sharp decline, with about 20 years of stability where the U.S. has a tiny surplus(tiny relative to the war years), and then a consistent decline afterwards. This decline tends to increase as the decades go on from 1970 to today, though on that graph the actual lowest point is still in the 19th century in the years between 1810-1820. If I want to understand what’s going on in that graph, focus on the gold standard will be insufficient to say the least.

    We got off of the gold standard in 1971 because it was obviously very enticing to do so, but that enabled our incredibly irresponsible behavior that followed. Our balance of payments didn’t go negative until the 1980s and has remained deeply negative ever since.

    The U.S. suspended gold convertibility in 1971 because it was running out of gold to exchange with foreign governments.

    The U.S. balance of payments had been in decline since the late 1960s, and it was negative some years in the 1970s(1971, 1972, 1977, 1978, 1979). There was a very small recovery in the mid 1970s, partly because some of the effects of the oil shock ended, but this quickly reversed.

  79. @Jedi Night

    If foreigners want to take our inflating/devaluing dollars in exchange for actual goods, isn’t that their stupidity? Why would you want to stop them?

    Because they get the manufacturing plants, the wages and, as we’ve seen with China, power over us.

    Also, because their labor rate is so low, we can pay foreigners to do things that no one would do domestically. Processing of recycling for example, or the manufacture of textiles.

    We used to wash and re-use glass soft drink bottles.  Now we send plastic off to “recycling” where it often gets shoved into a container, shipped off to the third world and eventually finds its way into the ocean as “microplastics”.  I fail to see how this is an improvement.

    You would have Americans picking through trash for value, or polluting our air with factories for cheap goods that pay low wages?

    That’s what American Waste does today, though I suspect that a lot of their workforce is “refugees” and illegals.

    You do realize that every dollar we save on a cheaper import will be spent domestically on something else, right? If we suddenly have to make all our own clothes, all our clothes would be that much more expensive?

    Every dollar we spend on foreign goods is a dollar that generates no American wages.  If it costs too much to hand-sew clothes here, the solution is to automate the process and give ourselves a new industry making sewing robots.  There’s already progress in this direction, using some kind of washable stiffener to make the fabric lie flat.  There’s a robot which will custom-knit clothing to spec.  It’s on the way; all we need is “faster, please”.

  80. @Jedi Night

    Perhaps you could address a factual matter. Our national wealth increases because of our negative balance of trade. We get real things to circulate in our economy, foreigners get dollar bills. This is factually true. If foreigners want to take our inflating/devaluing dollars in exchange for actual goods, isn’t that their stupidity?

    As long as all I have to do is swipe my credit card and I get physical goods and have services provided, isn’t it stupid for me to care about my card debt going to the moon? I could spend less, save more, and learn a valuable trade or start a business but why would I do that as long as the credit card doesn’t decline each time I swipe it?

    • Replies: @Jedi Night
    , @EldnahYm
  81. @Audacious Epigone

    I think your mistake here is to equate personal finance with sovereign finance. They aren’t the same. Sovereign nations don’t face the issue of limitations of a credit card that individuals do.

    It is in fact the sovereign’s job to create the money that allows is citizens to trade. It’s like you as a dad creating family coupons for your kids to use. Heck, kids themselves create coupons and give them to their parents. No one ever runs out of coupons, they don’t have to ask third party permission or borrow coupons on interest.

    • Replies: @Audacious Epigone
  82. EldnahYm says:
    @Audacious Epigone

    As long as all I have to do is swipe my credit card and I get physical goods and have services provided, isn’t it stupid for me to care about my card debt going to the moon? I could spend less, save more, and learn a valuable trade or start a business but why would I do that as long as the credit card doesn’t decline each time I swipe it?

    For this analogy to work we have to assume some entity is going to shut down the federal government because its debt is too high. Presumably this also means the White House, federal lands, etc. will be sold off. So what mechanism exists for this to occur? Otherwise you have to admit the federal government does not operate on the same logic as a citizen, and your analogy is useless.

  83. anon[110] • Disclaimer says:

    Well, it’s been about a week since the world-shattering crisis of the negative price for WTI crude. Where are we now, are we all living in dugouts eating bugs yet?

    WTI futes for June delivery are right around $12 / bbl, not too far from last week. Look for yourself:
    https://finviz.com/futures_charts.ashx?t=ENERGY&p=d1

    The negative price for WTI was an artifact, a blip in the system. Pretty sure the futures traders learned from getting burned last week and doubtful we’ll see a negative price for that commodity again any time soon. It’s not my market and I could be wrong, but I do have a basic grasp of futures contracts and the traders who are playing with their own money, for keeps either get a real good understanding of their market or they get busted. In Taleb terms they have skin in the came.

    Once again, I will point out that this crisis has flushed a lot of armchair experts out, displaying who is numerate and who is not, who can learn “on the fly” and who cannot – for everyone to see. Skin in the game makes a difference.

    Several people in the current “what is money?” subthread should read Kindleberger’s great book, Manias, Panics and Crashes still in print and available at places other than Amazon.

    • Replies: @Audacious Epigone
  84. @Jedi Night

    The US hasn’t faced that limit, but other countries have. Sure, once the credit card is maxed out and on one will extend dad credit anymore, he can still create an in-house coupon system. But the family will still starve (or at least realize a severe decrease in their material standard of living) if the family has no wealth and no way of creating it.

  85. @anon

    Please show us where on the internet you predicted the late 2018 downturn, the repo freeze up, the early 2020 market drop, or oil going negative.

    Just because a blown gasket can be fixed doesn’t mean an increasing series of various things going wrong isn’t indicating that the vehicle is close to breaking down.

    • Replies: @anon
  86. anon[173] • Disclaimer says:
    @Audacious Epigone

    Please show us where on the internet you predicted the late 2018 downturn, the repo freeze up, the early 2020 market drop, or oil going negative.

    I made no such prediction. Nor have I claimed to be able to do so, either. On the other hand, I did not have a Chicken Little “sky is falling!” meltdown over a problem in the futures market resulting from greed followed by fear, either.

    Storage at Cushing is a matter of public record, you know. A tiny bit of research would have shown what was happening. Even a few minutes of CNBC would clarify. Oh, yeah, plenty of equity traders freaked out as well, so it’s not as if anyone was alone. But when people brag about how they are Intelligent they need to be prepared to show rather than just talk.

    Confirmation bias is not data. I learned that the hard way. Being data driven means relegating emotion to after hours, when it can be indulged.

  87. Who said the oil dip was a cause of the sky falling? Your editorial hyperbole aside, it was merely one of many symptoms.

    Re: CNBC, was there any network that more badly missed 2007/08 than it did? That’s a low bar and yet I still don’t think CNBC cleared it.

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