Vocal Voices

.... all their fake money is disappearing down the Chinese fake money pit.

Do they not know that the value of shares can go down as well as up, or have they bought in to their own hype that shares can only go up and up?

It would be funny if it was not for the fact that their panic selling could create a global recession, or even worse, a depression.

The categories of those who get hurt are always the same.

Those who borrowed to invest
Those who invested what they could not afford
Those who based their pensions on the better yields (often through a firm which did this) and cannot wait to the few years it will take to sort the mess out.

I only have sympathy for the last bracket. The others should have known better. Most pensioners are not really aware of where the higher yields come from. They should be but often they are not.

Things have changed in investing and shareholding.

At one time people, with a bit of spare cash, bought shares in companies in the hope that they would thrive and that the dividends on those shares would be higher than bank interest rates. The banks, of course, were also dealing in shares, but their overheads were more than the small broker and so interest rates were lower.

Nowadays shares are seen as quick money making schemes where pots of shares can be bought and sold and bought again in milliseconds. Through this process the values of companies are not based on any real worth, but on the value of their shares - there is a disconnect.

The original Google, with Facebook and Twitter, produce absolutely nothing, but they have billions of users and this creates a 'market' for advertisers - and makes them very rich. Those advertisers also produce nothing, but they try very hard to get their customers' product to the 'market' and are well paid fopr doing so. The more and bigger customers they have the more 'valuable' their shares are.

By comparison the producers, all down the line from raw materials to finished product, are worth a pittance unless, like Apple, they can convince mugs to part with hard earned cash for overpriced products made in cheap economies.

This latest crash had to happen sometime or another because continual growth cannot continue.

I think I mentioned the insanity people were spouting in 2008 just before the crash. About how 28% to 30% growth was sustainable in an environment of 1%-2% inflation.

Like all such other fairy stories, they crashed and burned at the first hurdle....

It's always the pensioners who get burned.

Pensioners get burned because pension managers use the same algorithms as the spivs.

Everything is now short term: make as much as possible in a day and sod the consequences.

Nobody invests any more, they gamble.

Is Facebook, a company that does not produce a single thing, not even a widget, really worth $223bn? No, of course not, its 'value' is fictional and based on digital money.

Well when you look at what the central banks are doing, can you blame them?

If you look at the information contained in that one article, it makes the whole thing clear. Central Banks simply funding the government debt, instead of the government having to repay what is borrowed from the banks. Switzerland holding 100% of GDP in debt in the central bank. Japan doubling their entire currency base. American QE matching government spending $ for $.

In short, governments simply "printed" or put another way, added a few 0's to the database, money to cover what had already been thrown away.

If in doubt, this article says it very simply.

Now let's have a look at that in detail. This article discusses in detail the LTD% (Loan to Deposit Ratio) and the MM (Money Multiplier) it results in.

In short, it is the ratio of money that can be lent, redeposited and lent again by banks. Here is the most telling part of the article.

If a LTD is above (or equal) 100% then we have to calculate MM based on the number of deposit – loan cycles. For example if LTD is 100% and initial deposit is £1, after 20 deposit – loan cycles, this £1 has to cover £20 on the banks balance sheets and after 220 deposit – loan cycles, this £1 has to cover £220 on the banks balance sheets and so on. This is a staggering but still linear growth. If LTD is above 100%, then the financial system becomes a classic example of a pyramid scheme. For example if LTD is 117% and initial deposit £1, after 20 deposit – loan cycles, this £1 has to cover over £130 on the banks balance sheets and after 220 deposit – loan cycles, this £1 has to cover over £5.89 quadrillion on the banks balance sheets and so on. This is a runaway exponential growth.

Of course the maximum LTD allowable in the UK today is 94% (last I heard). But this is bad enough. It means that if a bank lends you money for a house, that it does not actually have, then when the owner of that house banks the money you paid, then the bank in which it was deposited can then lend out up to 94% of that "created" money again to a new borrower.

OK so LTD of 100% or over is crazy right? Who would do that?

In 2008, the FDIC reported that statewide LTD ratios in the United States ranged from a low of 56% in Utah to a high of 170% in North Dakota.

Or, in short, some banks in the US decided they "were" the US federal reserve. Now I know the government is supposed to stop this kind of insanity, but clearly they were not doing their job. Not in the UK either.

So when we talk about people gambling with money, what are they actually gambling with? It's pretty much all made up and fudged anyway, a bunch of 0's in a computer.

I did a rough back of a fag packet calculation, from the press at the time, that the financial crisis was a result of the world debt running at around world GDP. Or $60tn. All of that made up debt lent by banks who did not have the funds to cover it.

How much did governments "create" in QE to recover this? Well the US did $4.5tn.

Is it any wonder that people treat the financial system with total contempt? Or the products (stock market), which rely on them? We have been told one giant lie after another for nearly a decade now. These lies will continue because the only thing holding the whole edifice up is the perceived fact that this money is actually worth something.

Were the bare truth told to the masses and clearly articulated to them, it could collapse overnight. Fortunately the masses neither know, care to know or even want to know. So we're safe for now.

But it is interesting to note that when we talk about social inequality, it is the masses who have no interest in knowing how the system works who are the least benefitted. They don't really want to know the truth and if you told it to them in simple terms most would refuse to believe you as they can still earn and spend money so you must be wrong....

You get what you are willing to put up with and if a FIAT currency is what you put up with, then expect those who know how to play the game to win.

I have seen a few interviews during the day and it strikes me that economists are alll singing from similar hymn sheets.

I can only assume that in their studies they were subject to the same sort of teaching, the same economists of the past, the same methodologies (ideologies) and processes. Not one of them had anything original to say, yet they came to three distinct outcomes: A crash soon; a crash in the future; a recovery.

Well if you think about it, the situation is such that they are not wrong. So much stimulus has been pushed into the environment to cause growth without inflation that when the music stops (no stimulus and raised interest rates to fight inflation which is sure to follow), more than one seat is going to be missing.

Of course there will be idiots still standing when the music stops. That will be the crash. The longer it takes the bigger the crash will be.

Central banks mandate, today, is to protect the status quo. So, of course, they will enact a recovery.

it's not hard to predict. Except for those chasing around the chairs so fast that they can't hear the music...