I have listened to this End Game Podcast maybe 5 times. If @MetreSteven is the Bond King, Lacy Hunt is the God Emperor of Bonds.
1/
I have started doing the homework that Lacy Hunt mentions in this conversation. I found (I think) the 1934 Irving Fisher paper on highly indebted nations. Just thought i would drop this little paragraph. ITS SCARY HOW THIS APPLIES RIGHT NOW.
phare.univ-paris1.fr/fileadmin/PHAR…
2/
This quote rocked my world.
"23. The chief interrelations between the nine chief factors may be derived deductively, assuming, to start with, that general economic equilibrium is disturbed by only the one factor of over-indebtedness, and, in particular...
3/
...assuming that there is no other influence, (sic) the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links: (1) Debt liquidation leads to distress selling and to (2) Contraction of deposit currency...
4/
...as bank loans are paid off, and to a slowing down of velocity of circulation. This contradiction of deposits and of their velocity, precipitated by distress selling, causes (3) A fall in the level of prices, in other words, a swelling of the dollar...
5/14
...Assuming as above stated. that this fall of prices is not interfered with by reflation or otherwise, there must be (4) A still greater fall in the net worths of business, precipitating bankruptcies and (5) A like fall in profits, which in a "capitalistic,...
6/14
...that is, a private-profit society leads the concerns which are running at a loss to make (6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies, and unemployment, lead to (7) Pessimism and loss of confidence, which in turn lead to...
7/14
... (8) Hoarding and slowing down still more the velocity of circulation.
The above eight changes cause (9) complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest...
8/14
Evidently debt and deflation go far toward explaining a great mass of phenomena in a very simple logical way."
END QUOTE
So that is what has happened people.
9/14
In March, the heavily indebted World economy had a distress moment. That lead to the March selloff and (1) the debt liquidation. @RaoulGMI called that early and correctly. March started the "liquidation" phase as described by Irving above.
10/14
We then got into (2) Contraction of deposit currency, as bank loans are paid off. During the crazy March selloff, assets all over the Planet were sold to pay off debt. Major entities STOPPED NEW BORROWING. Financial conditions tightened immediately.
11/14
The contraction of deposits AND OF THEIR VELOCITY. Q2 currency velocity fell AGAIN. It had already been falling for some time, but velocity halted. There was a clear step (3) at the time, a FALL IN THE LEVEL OF PRICES, or as Irving said it, A SWELLING OF THE DOLLAR.
12/14
As predicted by @SantiagoAuFund the Dollar shot up. THEN Central Banks and Fiscal authorities interfered between steps 3 and 4. The "reflation or otherwise" described by Irving is the "heroic action" taken by the central planners that Lacy Hunt describes in the podcast.
13/14
Now, we are all wondering when the new "reflection or otherwise" can HOLD or if we will hit a tipping point into step (4) AND DOWN THE DEFLATION LADDER OF DEATH until we hit (9) Complicated disturbances in the rates of interest.
Whats old is new. #IrvingFisher
14/Fin
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