RT @saifedean: -What job is possible for an "economist" whose PhD is from a university named after the semi-literate criminal retard Karl Marx, the most discredited & despicable economist ever?
-IMF Managing Director, in charge of designing a new global monetary system
RT @AlexSaundersAU: *IMF WANTS NEW BRETTON WOODS MOMENT*
This video sent shivers down my spine. The war for control of money is on our doorstep.
They were blaming climate change in 2019.
Now it's CoVid. Something BIG is coming.
You better be prepared. 🏦👁️🔐 #IMF #Bitcoin
Bretton woods was basically everyone in developed world deciding to go on a gold standard. It last officially something like 25 years. But realistically it lasted much less because banks had started to circumvent it in the 60s.
The reason it was important was because they didn't use one countries currency as the reserve.
One issue with a reserve currency is that when it becomes the dominant form of credit currency because of trade you end up needing that country to provide liquidity assistance to the whole world.
I'm not sure how it would work because a lot of the current issue is the central banks as a whole are run by neoclassical people. They dont really model for credit and that's the dominant form of monetary creation.
Are you being serious right now? Dude, seriously... Bernankes work was literally based on credit markets and their impact of financial crisis, this was why he extended credit to other central banks too.
The dsge modelling commonly used by banks doesn't involve credit as an input. Hell the idea of indebted demand etc in a neoclassical model is something that only started to be talked post financial crisis.
Bernanke never really worried about the accumulation of private debt at all. He worried about seizing up of credit markets.
> The reason it was important was because they didn’t use one countries currency as the reserve.
In practice it was a way to make the US dollar the reserve currency with an extra step since the US held most of the gold in the world.
> During Brenton Woods, the dollar was pegged to gold
I am not an expert at all, but I'm pretty sure the peg of USD to gold was far before that. Bretton Woods pegged other countries' currencies to USD though, from what I understand, as a way to ensure USD's status as a world reserve currency.
There were gold standards before Bretton Woods. The US (and others) had gone off it. I can't remember if US was back on it before Bretton Woods, but I'm thinking no - the cost of the war was likely too high. As such, I'm thinking Bretton Woods was an attempt to get main world economies back on gold standard, but there was a problem.
There wasn't enough gold for all countries to be on the gold standard, but there was enough gold for USD to be backed by gold.
So, USD was backed by gold and all other nations in the agreement pegged their currency to USD. That allowed all countries to be "pegged to gold", even if indirectly. That fell apart when USD could also not be backed by gold anymore.
Too early for that. Not until all governments already have stockpiles of Bitcoin (And the price would easily be above $10m per BTC then) would they ever consider it. Otherwise the limits on the money supply are way too constrictive.
Gold's supply is too constrictive too for that matter. There's only $12 trillion or so worth of Gold in existence. There really isn't anything to back all of today's debt and currencies with.
nothing like a little fear mongering by the media to force 100mm new people into poverty, debt, and decreased value of their savings and only let them out when they agree to a new financial system based on carbon credits, continued expansion of fed balance sheets, and more debt.
I am encouraged by G20 discussions on a Common framework for Sovereign Debt Resolution as well as on our call for improving the architecture for sovereign debt resolution, including private sector participation.
In looking at that paragraph in full, I suspect the author is referencing Europe's recent experience with rising debt-servicing costs as a result of a sudden increase in public sector deficits. Unlike the US Treasury or the BOJ, whose debt servicing burden doesn't really increase in line with its outstanding obligations, European governments are vulnerable to perceptions of their repayment ability when they run deficits for some extended period of time. Good examples of this are cases like Ireland, where the government attempted to assume the debts of its heavily indebted financial sector only to default on its own external obligations. Really since 2010 European governments have struggled with the interaction between having a multi-national banking system where governments create debts a la carte, and financial markets assessing their credit risk on a case by case basis.
What's being said there is that not everyone can simply issue new debts to support economic activity and that its good to see some discussion on how to better handle resolving heavily indebted sovereigns who end up caught between rising debt servicing costs and lackluster economic performance that doesn't generate the revenues to allow for repayment or borrowing on more agreeable terms.
Not completely knowledgeable about this, but didn't Draghi make the problem of sovereign debt go away permanently with his guarantee that the ECB will do whatever it takes to keep nations solvent? Italy is borrowing at essentially zero percent these days; the market no longer matters.
The ECB's broad commitment more pushed embattled sovereigns like Italy and Spain back from the precipice, but the overarching concerns about how those Governments (*and really anyone not France or Germany*) will handle their debt servicing problems has persisted into the present financial crises developing in the wake of COVID.
I may be way off base, but here is my thinking...
First, necessary background...
The data looks to me like much of the world is near the end of the long-term debt cycle. It's not the first time, but it happens infrequently enough that you have to study history instead of relying on experience from your own lifetime.
When the end of the long-term debt cycle arrives, the debt level (whether public debt - which means sovereign/govt debt, or whether private debt - which means debt held/owed by individuals, businesses and non-govt institutions) becomes literally unsustainable. There are only 2 known ways to deal with such unsustainable debt levels. Default on the debt, or high enough inflation that the debt can become affordable to pay back with cheaper inflated dollars. A combination of the 2 can also be used. There can also be partial defaults, commonly called "debt restructuring", where things happen such as partial forgiveness of debt, lowering the interest rate, lengthening payback terms, etc. Restructuring tends to happen when the alternative would be nothing gets payed back and there is no asset to foreclose to cover the loan, so the lender would otherwise lose everything they had lended. There is also some ability to transfer private debt to public debt (the fed buys corporate bonds, mortgaged-backed securities, etc - the govt forgives student loans, etc). Defaulting on the debt causes economic destruction, lowering net worth, and also making it even harder for anyone to pay off remaining debt as the economy collapses. Inflating it away causes inflation, loss of buying power for those with meaningful networth, but makes it easier for remaining debt to payed off. Done "wrong" it is a very hard landing. Done perfectly it is a comparably "softer" landing, but nothing near pain-free. Done perfectly, it minimizes the pain to the working class that doesn't have much net-worth to inflate away, and results in inflation that hopefully causes an increase in working class wages that roughly matches increases in prices.
Now for the translation.
The IMF is acknowledging that the situation discussed in the "background" section above is now the reality. The acknowledgement includes:
the problem exists at the sovereign (govt debt) level, that "resolution" is unavoidable (that means accepting their will be defaults if nothing is done, so let's start discussing sovereign "debt restructuring" and debt defaults and coordinated money-printing early while we still have a bit of time to think it through rather than only being able to react), and it implicitly acknowledges that a coordinated effort from many developed countries (the G20) has a profoundly higher chance of delivering a "softer" landing than an uncoordinated approach.
In addition, it acknowledges that it might provide more national and world stability if "private sector" can participate in any "debt resolution".
2nd level translation: it might be a more dangerous time to lend any money or take any loan, unless you know what you are doing.
The issues with debt resolution won't appear tomorrow. It will take longer. But if I needed to get a loan right now (e.g.,.a mortgage), I would definitely want the govt to be the lender, so that the opportunity to "restructure" it would be higher if economic destruction happens. And, if I had govt backed student loans and other loans, and was making extra payments, I would direct the extra payments to the non-govt loans, where the opportunity for debt restructuring or debt-forgiveness is lower.
I would be leary of making any unsecured loans (buying govt bonds), or any loans not 100% collateralized (corporate bonds). If making a loan, I would want the collateral to be MORE than sufficient (e.g., owner-financing on sale of house), in case asset values drop, which is what would likely be happening if I had to foreclose due to default on the loan due to a global end-of-debt cycle issue.
Jubilee is back in style! No but seriously, this had better be acted out with laser precision or we're going to see a french revolution like reaction. There is already so much inequality and worse its completely laid bare. Add in all the various global efforts at dis and mis information and you have a recipe for serious social trust damage.
Agreed that it's a real possibility, and agree with your view about how difficult the current situation is. The rise of "nationalist platforms" across multiple countries is one of the key "canaries in the mine", that the level of debt and level of inequality is at a level it won't be tolerated. Our society is now showing key signs of that danger point. Statistics show that a change to form of govt often happens. The end of the long term debt level produces the maximum inequality. Opposition gets polarized because the problem is real and there is a lot at stake for both the haves and have-nots. Both polarized sides refuse to compromise, no action is taken, the problem gets worse, then upheaval happens (someone claims emergency powers, etc, and democracy is lost - worse, some changed regimes then use war to try to obtain resources to get out of the economic problem).
There is much more research available, and what I wrote is oversimplified, but the historical data is not encouraging. The fact that the IMF is trying to get significant global cooperation now, though, I hope reduces that type of disruption. It's why the reference to Bretton Woods is relevant. Instead of a "call to arms", she's making a similar "call to cooperation" that helped provide more global economic stability since WW2 than existed before it, that presumably reduced war since WW2.
I get that the standard way to fix the problem without regime change is to fix the problem with the same type of thinking that created the problem, and thus continue the cycle anew, but I still think that's better than becoming an authoritarian country. History shows that authoritarian regime is worse than economic destruction (such as a depression) followed by inflation. The authoritarian regime doesn't stop the economic problems, but it adds the loss of freedom problems.
Not making any predictions, just being honest about what history shows. A lot depends on what type of person gets elected into positions of leadership, and whether those leaders can cooperate with leaders in other nations and within their own nation to more "softly" crash the plane. I don't want the plane crashed directly into democracy.
Wonderful breakdown of the situation. I would only contend that I believe things are going to happen at a much quicker pace than many would think. I am very interesting in seeing what the announcement will be on Monday morning
Although that is an option for a single debt in general, once the amount of debt becomes unsustainable, that option won't work. If only the payback period is extended without a partial default on the principal or an implicit partial default by lowering the interest rate, then extending the payback period only works if the borrower has enough income to still actually afford the interest payment plus some reduced piece of the principal each payment (reduced because the payback term was extended). Once the total (even reduced) payment by itself exceeds the total ability to pay out of current cash flow, the situation reduces to just the other 2 situations.
At a macro level, if my understanding of the current analysis is correct, the US will be at that point of no return no later than 2023, if not there already.
And, the issue is not limited to the US.
From my memory, the statistics are that only 1 time out of 50 has the above 2 options not happened once a nation's debt reached a certain "unsustainable" level, and we are already at that unsustainable level or forecasted to be there within 2 years tops. We were headed there without covid, but covid accelerated it. So, based on the past (and based on my memory to have not mixed up pieces of research), there is a 98% chance that we are facing those other 2 outcomes, and the IMF is acknowledging it is a global problem.
Correct me if Im wrong, is this not the reason the gold bugs and the bitcoiners want to "Store value" in something that is not a national currency? I mean you could technically buy art or fine wine over sticking with currencies, that need to unwind a bunch of debt
Most wealth in the west is stored in housing and stocks, so if the actual currencies lose value through inflationary measures AND you have no bank wanting to lend on homes that could decline in value during this period, you've got a real pickle there.
I believe you are correct. That does seem to be the significant driver for current accumulation of gold and bitcoin. Gold as a "proven" store of value, and bitcoin as an "aspirational" store of value.
From what I can gather, the unwinding of long term debt cycles has tended to have economic destruction first, then inflation second. My interpretation is that the Fed is committed to do whatever it takes to avoid the economic destruction phase this time through its monetary policy, but has basically said recently that it cannot achieve that goal without the government implementing coordinated fiscal policy. Nor is it clear that coordinated monetary and fiscal policy will actually be achieved (there are substantial "political will"/divisiveness issues in this country right now - the end of the long term debt cycle is also correlated to changes in form of govt (e.g., democracy becomes authoritarian) when the conflicting parties can't cooperate to solve a problem that by definition will have many losers - that's how several 1930s authoritarian leaders came to power - there is traditionally more political divisiveness near the end of the long term debt cycle). If cooperation IS achieved, it is not clear that the GOAL of that cooperation would actually be achieved.
Because current monetary policy has already driven interest rates to basically zero and will stay there for quite a while, the entire 60/40 portfolio idea is out of the window for quite a while. People are all individually trying to figure out what to do in the face of possibly negative real rate of return for the next decade on interest bearing instruments - interest rate received actually below inflation. Because of that (the There Is No Alternative scenario), equities are currently already over inflating significantly to 2023/2025 levels, because there's not a good alternative place to put the money that people currently have.
Real estate will presumably go up during the inflationary period if it happens.
Presumably both real estate and most equities will go down during an economic destruction period, especially some rental real estate, and especially commercial real estate. Some equities would do well. The issue with lending is even worse than you mention. Banks don't want to lend on property that might go down in value (unless they believe the govt will bail them out), but as of this week, banks are tightening lending due to the risk of the borrower (rather than the risk of the securing asset). During an economic downturn, lots of people lose the ability to pay back loans.
Yes, it is already a real pickle for anyone taking a forward looking view at portfolio asset allocation.
More and more people are looking at alternative assets. Most people have neither the capital nor knowledge for fine art or wine investing. And those would do well in the inflationary period but my assumption is they would lose tremendous value during economic destruction period.
Good luck and wisdom to everyone trying to navigate the next several years financially.
I'm not claiming the sky is falling, just elaborating on all the backdrop of why someone at the IMF would be "encouraged" about 20 globally leading economies talking about "sovereign debt resolution, with opportunity for private participation." They are encouraged because they recognize the problem will not go away. The best they can do is have some influence on a controlled crash landing. Like you see in the movies when the landing gear won't come down from the airplane with 300 passengers on board. The plane is not going to survive the landing, but you try to save as many lives as possible.
P.S. I am definitely NOT claiming to have it figured out. It is just something that I have been doing a deep dive on because it is clear to me that it is unsafe for me to presume previous asset allocations or sources of income would still be safe going forward. I am voraciously trying to figure out good decisions for myself in light of what appears to be the emerging macroeconomic situation. The best thinking out there seems to be that the closest corollary to our current situation is the US in the early/mid 1940s, on the heals of the 1930s. There seem to now be very thoughtful people sharing that perspective rather than it just being "sky is falling" folks like it was for the previous 30 years. Rather than feeling helpless, I decided I could deepen my education and try to reach better decisions based on that deeper education. Any thoughts I shared in this thread should be seen as a reflection of my current incomplete journey in getting that education. That's led me through a lot of history including long-term debt cycles, statistical analysis of them, what are the points of no return, rise of both left-wing and right-wing populous movements when the economy no longer works for substantial chunks of citizens near the end of the long term debt cycle, how those populous movements tend to end, Bretton Woods agreement to try to build a stable economic structure after world war II, all the alternative asset classes that often only make sense except near the end of the long-term debt cycle. And don't forget that history will never repeat, it only rhymes.
It's a pickle.
I spend sometime thinking this, since most large wealth holders are aware of the inflationary play governments around the world is doing, then they would leverage themselves or do something to get ahead further in the game. the longer the period to land the aircraft, the risky it is that aircraft will crash harder. still thinking if inflation is a zero sum gain and if game theory applies here.
I won't argue, and it is now the Fed's stated goal. To have higher than normal inflation for as long as it takes. They phrased it as being as long as it takes for the average inflation to get back to the target, which is a hand waving way of telling the public "don't be alarmed at this uncomfortable level of inflation, it's just to get the average back to a comfortable 2%!". They have also said that despite the economic costs of the money printing and inflation, now is absolutely not the time to worry about that because of the problem that will happen if it's not done. Their view seems to be that they would rather take that than the economic destruction of tons of people being out of work. They explicitly said they are willing for the stock market to inflate crazily if that's what it takes to protect from that economic destruction. The best metaphor I can come up with at this point, is that there may be no way to land this plane with the plane surviving, but they are trying to keep the passengers alive during the "softer" landing. Yes, if the plane survives that's a bonus.
There are a few jobs I am glad I do not have right now, and they are being a school teacher, principal or superintendent, and being responsible for monetary or fiscal policy. Right now, if they do their job right, they piss off a lot of people and are misnderstood by almost everyone. There is no way I could land the plane without crashing it.
This is a just a marketing release with buzz words to make the general public think this is good for them.
“ Our unprecedented action was only possible thanks to our members’ generous support. The doubling of the New Arrangements to Borrow and a new round of bilateral borrowing arrangements preserves this financial firepower. Members have also stepped up with essential contributions to our Catastrophe Containment – and Relief and Poverty Reduction and Growth—Trusts.
This has allowed us to support our low-income members with debt relief and to triple our concessional lending. We are engaging with members to further boost our concessional lending capacity adapt our lending toolkit and increase support for capacity development.”
What a load of bull shit. What low income group are they helping?