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Thread: Black Monday

  1. #5581
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    Quote Originally Posted by BlackPeter View Post
    No doubt - the silence will then be deafening ...

    If interest rates go substantially up, neither the US, nor China, nor any of the larger European countries (and many other countries) would be able to continue to service their debts.

    The only viable options I'd see at that stage would be
    - basically all world economies defaulting in sync with huge "haircuts" on public and private debt ... or
    - inflation rising still faster than interest rates (with inflation basicly repaying the debts).

    None of these options would be pretty for holders of bonds or savings / cash accounts.
    In such scenarios, which assets do you think would fare best?

  2. #5582
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    Quote Originally Posted by Bjauck View Post
    In such scenarios, which assets do you think would fare best?
    Property with no debt that you can live on: grow animals and plants! Forget about asset values.

  3. #5583
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    Quote Originally Posted by BeeBop View Post
    Property with no debt that you can live on: grow animals and plants! Forget about asset values.
    A self sufficient property with a cache of gold?

  4. #5584
    always learning ... BlackPeter's Avatar
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    Quote Originally Posted by Bjauck View Post
    In such scenarios, which assets do you think would fare best?
    That's the trillion dollar question - isn't it?

    If history is any guidance - Germany went last century through 2 phases of hyperinflation and in both cases the owners of properties and productive capital assets (like shares of industrial companies) came out as clear winner. Anybody with money in the bank (or cash in the safe) lost. Some gold was useful for some in the short term.

    No idea whether history repeats, but I suppose a diversified share portfolio of companies producing stuff and supplying services people need and some property (again if it is property, ie. buildings and land people need, not speculation property in Queenstown) thrown in might be a winning strategy again ...

    I suppose that I am not the only one who sees it that way - there must be a good reason that many good, solid companies (think Infrastructure like parts and airports, gentailers but as well companies like MFT and FPH) and property are these days that expensive ...
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  5. #5585
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    If quantitative easing ends, that is essentialy the same as raising interest rates: it reduces economic activity and reduces inflation. Where do you get hyperinflation from?

  6. #5586
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    Quote Originally Posted by Biscuit View Post
    If quantitative easing ends, that is essentialy the same as raising interest rates: it reduces economic activity and reduces inflation. Where do you get hyperinflation from?
    from all the quantitative easing!
    For clarity, nothing I say is advice....

  7. #5587
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    Quote Originally Posted by Biscuit View Post
    If quantitative easing ends, that is essentially the same as raising interest rates: it reduces economic activity and reduces inflation. Where do you get hyperinflation from?
    I didn't connect these two, you did. And I was referring in my post to Germany, which went in the last century two times through periods of hyperinflation caused by the fact that after the wars there was more money around than products or services one could buy with that money.

    Our current period of low to zero interest rates coupled with QE might create similar scenarios ... more and more money without increase of products. Actually - it did - this might be another reason why property went through such a steep inflation curve ;

    But I think you need to look anyway at the bigger picture. The problem which will cause the next mega crash is the global debt burden which countries as well as many individuals won't be able to service anymore as soon as interest rates rise. That's not an if, that's a when.

    To "resolve" this problem (using the widest possible interpretation of the word "resolve") do I see two possible options:

    1) countries and organisations declare themselves bankrupt (they might find a more PC expression for this situation) and remove their debts by "declaration", which obviously will bring the debtors in trouble who lose this money on their balance sheets - a large number of banks and pension schemas will crash; This scenario does not need inflation - however - your money in the bank might be afterwards NIL or significantly less (ask the folks in Malta how this feels).

    A precursor to this situation is in my view e.g. Greece, which took on crippling debts it would not be able to service at any material interest rate, but it does not need to service them (yet) - 0% interest and no repayments for 40 years. However - what do you think is going to happen when repayment is due?

    2) Central banks and governments might realise that the only alternative to bankruptcy is to move
    inflation above interest rates: this would reduce the real value of the debt bubble until it is bearable for debtors again.

    This method does work, but is difficult to manage ... as soon as people see that the value of their money drops (inflation) they tend to drive the price of products (which keep value) up. Ask the people of Zimbabwe (or Argentina). Can easy slide into hyperinflation.

    I did not speculate on the mechanisms how this inflation would start, I just said that this would be an alternative for central banks and governments to resolve their debt crisis.

    It is up to them which of the options they pick.

    I guess a weak option number 3 would be to give every bad debtor unlimited access to zero interest loans without the requirement to ever repay them. I suspect however that at some stage we might run out of willing lenders ...

    Do you see other options to resolve the debt crisis?
    Last edited by BlackPeter; 17-06-2019 at 01:39 PM.
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  8. #5588
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    Yes Central Banker have been the buyers of last resort .. how they can unwind the trillions in Debt they have taken-on is anyones guess

    The global tally of bonds trading with sub-zero yields has lurched towards the $12tn mark, doubling since a recent trough last autumn, Barclays data show.

    The increase underscores how expectations for monetary policy have shifted, amid mounting concern about global trade and the world economy. “Market [interest] rates have almost fallen off a cliff in recent months.

    Last week Germany sold 10-year Bunds at a record-low yield of minus 0.24 per cent. Investors who bought the bonds and hold them to maturity are guaranteed to lose money
    "With a good perspective on history, we can have a better understanding of the past and present, and thus a clear vision of the future." — Carlos Slim Helu

  9. #5589
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    Quote Originally Posted by BlackPeter View Post
    The problem which will cause the next mega crash is the global debt burden which countries as well as many individuals won't be able to service anymore as soon as interest rates rise. That's not an if, that's a when.
    I doubt that statement, but who knows. The current trend in interest rates is down as central banks try to kick inflation up. There does not seem to be any foreseeable change in that trend since consumer inflation is pretty flat globally. For what reason do you see central banks pushing interest rates up? They tried that recently and had to quickly scurry back the other way. I think there is zero chance of increased interest rates for the next several years, and well past the next recession.

  10. #5590
    always learning ... BlackPeter's Avatar
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    Quote Originally Posted by Biscuit View Post
    I doubt that statement, but who knows. The current trend in interest rates is down as central banks try to kick inflation up. There does not seem to be any foreseeable change in that trend since consumer inflation is pretty flat globally. For what reason do you see central banks pushing interest rates up? They tried that recently and had to quickly scurry back the other way. I think there is zero chance of increased interest rates for the next several years, and well past the next recession.
    You seem to assume that inflation follows interest rates ... but maybe it is the other way around?

    We just went in NZ through a period of rapid (well two digit numbers) property price inflation (aka "property market bubble") ...

    But hey, I never said that rising interest rates is the only option for the debt bubble to burst ... this is just one of the possible options ...

    Anyway - nough said ...
    ----
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