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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (65499)	7/7/2006 6:18:28 PM
From: shades	Read Replies (1) \| Respond to of 110194

The savings rate will rise. Mish did you take social studies courses in college? When I tell you my parents could be given 10 billion and will be miserly and my sisters could be bankrupted 5 times living on a park bench and will never learn to save do you think this is sillyness? I believe people can be socialized to certain habits that follow them a lifetime and breaking those habits can be VERY HARD. Yet you make it sound like princess shopping machine can wake up tomorrow and say NOPE - no more shopping fun for me - I am gonna put down the starbucks and double my hours at work. I don't agree Mish. What was it ken lay just said before he died - its HARD to spin down the spending and lavish lifestyle. Economists go tell formerly dirt poor people to SPEND, and go tell overindebted PRINCESS to save - but social systems like that don't turn on and off at the flick of a switch eh? I have seen professional business managers and consultants come to south ga and try to make changes that would require adjusting basic social norms - it was very slow going and non productive from what I saw - like teaching a pig to fly - it doesn't accomplish anything and just annoys the pig.

To: mishedlo who wrote (65499)	7/7/2006 11:45:10 PM
From: bond_bubble	Read Replies (2) \| Respond to of 110194

I agree that savings will rise but that is so far far away. And ofcourse, when savings start rising then recovery will start. Here is my pet theory on why it takes so much time for savings to return (and hence the recovery from the bust): Today's maladjustment is in financial sphere, economy sphere AND in bloated govt sphere (dont they provide more than 1/3rd employment?). Suppose I short all stocks in the credit deflation and hold the profits in $ - then that $ is also part of uncleansed maladjustments! i.e after the credit deflation, maladjustments will continue to exist in govt sphere (most likely unchanged salary!) and with people holding gold, shorted stocks etc. There will be net savings only after the savings raise above these non-cleansed maladjusted money. In other words, the current bubble has consumed even FUTURE savings (that is the insidious nature of credit bubble)!! So future savings has to first replenish the "future consumed savings" and only after that it can feed into recovery. I'll illustrate based on the example that shades posted few months ago. In shades post, it said egg prices rose even during the depression (with a minor correction in the worst of depression). Shades also posted a biography of an italian immigrant who was feeding chickens and selling the eggs. As per her biography, it costed her more to buy the "chicken feed" than the selling price of the egg!! i.e For the company that makes "Chicken Feed", they probably have to pay lot in regulation, taxes (i.e supporting the maladjusted govt sphere) and hence he does not make any profit in selling chicken feed. i.e industries run into losses by selling stuff [the only reason, that chicken feed company exists is because they HOPE that they will survive in the end and they consume their savings meanwhile, especially if they are public company]. The immigrant lost money in feeding chicken and the only reason the immigrant fed the chicken was that - if she consumes the chicken she might run even (i.e consumption of the savings/investment). Probably, the restaurant that bought those eggs couldnt make profit because customers did not pay enough for the restaurant owner to make any profit (this could have happened because electricity, rental cost to store food intermediaries could be high and less than "critical mass" of customers go to restaurants - hence the restaurant owner makes loss). Why does everyone in the business chain make loss? Because, they will have to first pay for past consumption of future savings!! i.e today's regulation cost (that keeps govt [non-productive] services employees on consumption binge), today's raw material cost (that will continue to stay high UNTIL ALL the credit is bust i.e all the consumed future savings are replenished) is what makes everyone to make less money/loss in the credit deflation. i.e today's raw material prices are high because of more consumption than savings. If commodities continues to stay high (maybe because USD falls 20% against gold and commodities fall 20% against gold), that implies, one is paying even in the future for the past consumption binge!! Eventually, commodities have to fall to whatever people can pay for (this is something even hyperinflationists agree i.e after all the hyperinflation, deflation will set and commodities will be affordable after that). This condition is when one would say "future consumed savings" are replenished!! Inspite of everyone working hard, nobody in the chain makes any money!! This demoralization can be overcome only after huge investments are made in US. This investment itself will be highly inflationary (i.e there is no need for helicopter Ben to show up during the credit bust). Ofcourse, this investment is what unearths more energy and rawmaterials to replenish the "future savings consumed". How did we come out of 1931 depression? Only because there were quite a lot of hard working souls that made productive machineries. Today, who is going into Graduate program let alone PHDs!! Today, professors make less money than undergrad students in wall street and IT!! The profs have been thoroughly demoralised! Today nobody gives research funding to universities. It is all going to China, India and most of the research in US are in finance!! I think recovery will be difficult and longer this time as the maladjustment and demoralization has gone for too long. The "critical mass" to rebuild the nation might not be there.