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Global financial system implosion begins

Divisive Cotton said:
There's also another factor in that the demand isn't there from businesses like it was pre-2008. In 2008 the banks drew up the drawbridge and there was a fundamental breach in trust between the banks and the businesses that were dependent on a continuous streams of credit. Now businesses have learned to live without the ready supply of bank cash and a reversal back to the pre-2008 relationship will take years and years not months.
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It's not so much a case of 'learning to live without' as not being willing to take it. With different calculations about future prospects, the private sector taken as a whole is busy paying down its debts. It's a myth that there is a private sector out there that would be creating jobs if only the banks would lend to them. Taking the private sector as a whole, there isn't - more private businesses and households want to reduce their debts than increase them. And given the enormous size of private sector debt, that's hardly surprising.

One thing QE does do is reduce the cost of government borrowing. It reduces both nominal interest rates and real rates (rates after inflation has been taken into account). This paper talks about how this works. There is still a big market for secure government bonds, despite what the government would sometimes have us believe.
 
littlebabyjesus said:
It's not so much a case of 'learning to live without' as not being willing to take it. With different calculations about future prospects, the private sector taken as a whole is busy paying down its debts. It's a myth that there is a private sector out there that would be creating jobs if only the banks would lend to them. Taking the private sector as a whole, there isn't - more private businesses and households want to reduce their debts than increase them. And given the enormous size of private sector debt, that's hardly surprising.
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Although there is also a view of reality that says loads of businesses are sitting on great big wads of cash and aren't doing anything with it either because of a lack of opportunities to get a nice rate of return, or aversion to risk because low-risk stuff is in short supply.
 
elbows said:
Although there is also a view of reality that says loads of businesses are sitting on great big wads of cash and aren't doing anything with it either because of a lack of opportunities to get a nice rate of return, or aversion to risk because low-risk stuff is in short supply.
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I've heard this, but never seen concrete evidence for it. I'd be interested to see some.
 
I have a feeling it applies to some great big corporations in certain sectors. I'll try to find something.
 
littlebabyjesus said:
I've heard this, but never seen concrete evidence for it. I'd be interested to see some.
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it's pretty much self evident

at the global level, annual public sector deficits added to annual private sector surpluses (households + businesses) has to equal zero

with nearly every major country running annual public sector deficits the flip side of this is an excess of annual income over expenditure in the private sector, with the bulk of this coming from businesses
 
That's private sector money being put into low-risk government bonds, though, isn't it? It's not quite money sitting there doing nothing, as it is sometimes characterised.

In this case, we're essentially talking about profit, aren't we? Private sector businesses make profits, and these profits have to go somewhere.
 
well yes, but it's a bit of banality to say something happens to them/they have to go somewhere - everything has to go somewhere

it's the nature of what happens to them/where they go that is at discussion here. At the moment those profits either end up sitting on deposit in banks (which in turn are not lent on due to a combination of banks not wanting to lend and businesses not wanting to borrow, so ultimately end up just sloshing around within the banking system or back at the central bank on deposit), paying down debts, or ultimately chasing lower and lower yielding 'risk free' government debt. All three of these things mean profits being made in the private sector are not being invested back into/spent within the private sector - which gives us the position that elbows paints above, i.e. an aversion to do anything with them other than use them for non 'productive' means and chase safe havens for them

I don't think elbows was meaning to suggest that businesses were taking the money and stuffing it under the mattress - it's the nature of what they are doing with it (i.e. not investing it in private sector business) which is what is being discussed here
 
couple of articles here and here that get at what i'm saying

If the government is running a huge financial deficit – that is, spending vastly more than its revenue – then other sectors must be spending much less than their income. And so, indeed, they are.

In the second quarter of 2011, the government ran a financial deficit of 9.3 per cent of gross domestic product. Counterpart surpluses were 1.6 per cent of GDP for foreigners (the inverse of the current account deficit), 1.7 per cent of GDP for households and as much as 6.4 per cent of GDP for corporations. The US picture is similar: in the third quarter of 2011, the deficit of government was 9.1 per cent of GDP. Offsetting surpluses were 3.3 per cent of GDP for foreigners, 2.2 per cent of GDP for households, and 3.7 per cent of GDP for business.

In order to reduce huge government deficits, surpluses must fall elsewhere. But one should want that adjustment to occur via higher spending rather than via a collapse of the economy into a deeper slump.
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In 2010, according to the International Monetary Fund’s latest forecasts, the private sectors of every large high-income country will run a huge excess of income over spending.This is forecast at 7.8 per cent of gross domestic product for these countries as a group, at 12.6 per cent for Japan, at 9.7 per cent for the UK, at 7.7 per cent for the US and at 6.8 per cent for the eurozone.
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The big question, then, is whether [public sector] deficits can be financed. My answer is: yes. Remember that so long as the private sector runs financial surpluses it must buy claims on the public sector
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Screen shot 2012-07-08 at 11.20.48.png
 
I've just spotted Watching the Financial System, which gives a view of GFSI from a systems science perspective.
Debt and speculation-base financing is betting on a future that will not arrive. There will be no future of such substantial production of assets that it will more than compensate for the decades of reliance on drawing down our surpluses and then pretending there were more surpluses that could keep us going until this economic climate catastrophe came to an end.

One of the things I find interesting in all of this, and something that shows up from a systems perspective, is that the bankers and brokers and traders were never trying to maintain an illusion in any conscious sense. They were and still are just plain greedy. What they are doing is trying to get everything they can get out of the system as quickly as they can. Perhaps subconsciously they realize that this is all too good to be true, from their perspective. So they hustle, lie, and cheat to book huge rewards. But what they are doing is really just a consequence of the nature of the financial system. They are not the causes of our woes. Their behaviors are just more symptoms of what is really wrong. Ironically, for them, their monetary wealth, accumulated at the expense of everyone outside of Wall Street (and London, etc.) will evaporate into the thin air out of which it came in the first place. Ashes to ashes, dust to dust, and air to air. They will end up sitting in their mansions in their exclusive communities staring at bare cupboards just like everybody else.
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Dr Jon said:
I've just spotted Watching the Financial System, which gives a view of GFSI from a systems science perspective.
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Good article that. Though I have to stick it in the Doomer bracket.

Energy production is a function of technology, in absolute terms energy remains superabundant. Our ability to access it however is limited by our tecknowhow and infrastructure. The financial system however is definitely fucked.

Also although I agree iDevices are useless junk, human societies have always spent vast amounts of surplus (and even not-surplus) on what can be termed 'cultural production', from pyramids and cathedrals to iPads and amusement parks. That is simply what we do, splurge on status pieces and artistic objects and acts of faith and entertainment. We are not Vulcan.
 
But development and deployment of technology is a function of available energy. :)

While there may be an abundance of energy (assuming you mean incoming solar) it is too diffuse to be really useful.
If, as I've said elsewhere, we had solar-cell factories actually powered by solar cells, that would be just great. As it is, the mining, refining and transport of raw materials are extremely energy intensive, even before we consider the manufacture of solar cells. PV is unable to support itself without inputs of concentrated (fossil) energy.

It's not a technology problem, it's a problem of limits.
As you say our financial system, based on assumptions of limitless growth, is definitely fucked.
 
Dr Jon said:
But development and deployment of technology is a function of available energy. :)

While there may be an abundance of energy (assuming you mean incoming solar) it is too diffuse to be really useful.
If, as I've said elsewhere, we had solar-cell factories actually powered by solar cells, that would be just great. As it is, the mining, refining and transport of raw materials are extremely energy intensive, even before we consider the manufacture of solar cells. PV is unable to support itself without inputs of concentrated (fossil) energy.

It's not a technology problem, it's a problem of limits.
As you say our financial system, based on assumptions of limitless growth, is definitely fucked.
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There is a threshold where we wouldn't have the energy to build the infrastructure to do things a different way, that's certainly true. In terms of energy being superabundant the sun is definitely the most obvious example, ho-hum- if only we could access zero-point energy, or fusion power, or or used a lot more kinetic-energy devices... the universe is basically made of energy but most of it is in the realms of science fiction as far as we are concerned, even stuff that should be realistic for where we are now.:(
 
camouflage said:
...
most of it is in the realms of science fiction as far as we are concerned, even stuff that should be realistic for where we are now.:(
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I'm still waiting for my android housemaid and nuclear-powered flying car, both of which were supposed to be delivered by 2001.
I may be in for a very long wait...
:(
 
yield said:
You want the moon on a stick.
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No, only what I was promised by grown-ups when I was a kid.
:mad:

Like the promise of a world where computers and robots did all the work, giving us a life of leisure.
<mutters>...would have happened too, if it wasn't for those pesky crapitalists...</mutters>
:)
 
Tx. The link def DID work but I noticed it had stopped earlier. Would be great tweeted to all economics/business and politics hacks local and national. So many have been asleep at the wheel. MK has been saying this stuff for years.
 
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