14
donuts
57d

Stocks are up, bitcoins is up, gold is up, bond rates are down... Which means prices are up...

COVID cases are up...

Nothing makes sense anymore... Maybe I should just give up...

Comments
  • 3
    Yeah, you should go UP
  • 12
    The financial system is gravitating towards not needing actual human input, and instead just being a bunch of corporate super people trading ever larger numbers between each other and passing their losses onto the cost of living, benefitting few actual humans.
  • 5
    That's no wonder. Governments are pouring out money to compensate the lockdown impacts, but what is paper money even backed up with?

    Right, economic production. Which means the additional money isn't backed up. Real values aren't actually going up, money is going down, and bond rates as well because you don't want to buy bonds which are nominated in exactly this printed money.

    Printing additional money is usually done if the economy actually grows, or else deflation would kill that growth immediately.
  • 6
    @Fast-Nop
    Even before coronavirus, the us bond rate was close to zero, yet somehow mortgage rates float at 4.5% while prime sits at 3.25, utterly defying a fed funds rate of .25. S&P downgraded the US from AAA credit status, which is patently absurd given how the world economy functions. The currency markets are flatly stable, despite all this.

    There's no reality in monetary economics anymore. It's all made up and has been for our entire lifetime. The game now is for governments to continue colluding on the fiction that money is actually worth anything to keep people fed and the economies flowing.
  • 2
    @SortOfTested Of course the banks don't follow the FED rate for loans. Not in a country where the house owner can hand over the keys to the bank and is free from the contract, and where it's common for people to put additional loan on a house if it rises in value and spend the money for consumption.

    The banks have to buffer the risk, and if they have more money, they don't lower the rates - instead, they put it into the stock market, which is why stocks are going up.

    And even then, this buffering works only if it's the normal risk. Not if, like in 2008, lots of toxic credits blow up because a lot of people got credits who shouldn't have gotten them in the first place.

    But Obama had enforced that via laws so that non-affluent people could buy houses. The banks in turn had tried to hide that for as long as possible, trying to shift the risk to someone else until nobody knew where it was hidden.
  • 2
    @SortOfTested And of course paper money is worth something because and as long people believe it is. That's the same as with gold, with the only difference that people have been believing that for millennia with gold, and it has enough blood on it to justify trusting that this won't change anytime soon.
  • 2
    @Fast-Nop
    The banks don't follow any standards other than their own. The banks only risk 10% of the stake from assets held at most in the transaction. Similarly, most of the growth in the stock market is obtained via leveraged trading, it has very little to do with actual investor accounts. It's a broken system where banks get to print money, and it's been broken since greenspan took over.

    If you're suggesting the collapse was obama's fault, that's a bit off the mark. Obama's term began in 2009, the sub-prime fiasco was a result of rampant deregulation. It was a problem for at least 10 years prior to that.
  • 2
    @Fast-Nop what about bitcoins? Will there be more believers? Or just speculators.

    I'm starting to see articles of "analysts" saying it hitting $50k, 500k...
  • 0
    @SortOfTested how does leveraged trading work? You still need to buy/borrow the shares from somewhere?
  • 0
    @donuts Bitcoin is even more of a bubble than credit based economy
  • 2
    @donuts
    There's different types of leverage, but it boils down to some entity that has money or can print it grants authorization for borrowing based on capital assets. When you and I borrow money, it's an arduous process. When banks borrow money, it's very nearly a blank check.

    It's far too complicated to explain fully in 2000 letters, but in the case of (US) banks, it boils down to the Federal Reserve bank allows them to borrow money that the reserve itself makes real with only a portion of the capital they're using. The end result many times is that investment banks and money market banks are allowed to gamble with your money, and in some cases in excess of 100:1, so long as they meet their supplementary leverage ratio of reserve liquid capital, which is generally 5%. The amount a bank is leveraged is represented by their debt ratio. In the case of companies like lehman bros, it's ~31:1 after consolidation.
  • 4
    @donuts Bitcoin has no millennia of history with people trusting it (unlike gold), and no men with arms to enforce it (unlike currencies).

    Leveraged trading means basically that you trade with money that you don't even have. For a private operator, it's taking loans to do stock share business. Relative to your own capital, the wins can be spectacular (the losses also).

    But for banks, the "fractional reserve banking" issue is that they can lend out the same money several times. It's like I have $100 and lend that out not to one, but to ten people. Of course, I don't have the dollar notes to do that, but I can get around this via not handing out actual dollar notes, but assurance papers on $100 and show everyone "look, I have $100" (the same note for all!). That amounts to printing money.

    The problem comes when I get into trouble and need money. Then I call back the loans - but where would 10 people find $100 each if there is only one actual $100 note? Yeah, BOOM.
  • 1
    @donuts That's why Brecht said, what's robbing a bank - compared to founding a bank?
  • 0
    @SortOfTested ah ok.. was thinking u meant trading on margin specifically. But yes that's true with QE, government printing $ and just giving it to banks who promises that they'll give it back... Unless they can't.
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