re: OT - DNC Imploding

Crazy how?

I'm talking about our economy.

Tell me, did Obama have any experience as a military commander in chief?

Did he have any experience in foreign diplomacy?

He was a community organizer.

Presidents don't make every decision for this country without advisors and intelligence services briefing them daily.

No President goes into office adept in every duty that a President is responsible for.

And right now we are in economic dire straights. The one thing we absolutely do need at this moment is a President who knows economics. And not just economic theory they learned in a few college courses. We need someone adept on global economics that understands and has hands on experience in how the whole system works.

How you don't get that is mind boggling.

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That's called an inflation bubble. Our currency volume doubled but we didn't de-value the dollar respectively. Not even close.

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For me, this is learning time.

You say our currency volume has doubled but we didn't devalue the dollar respectively.

Here is how I have always thought it worked. Correct me where I am wrong.

I always thought when there was more money available, people bought more goods causing a shortage of those goods (Or a demand) and that made prices (Inflation) go up, thus devaluing the dollar. The way you said it makes it sound as if the government should have devalued the dollar. Am I understanding you correctly? My thought was that after 2008, with job losses and home foreclosures, etc. that people began putting their money in banks and saving because they were afraid of losing their jobs/homes, etc...and that is what caused the continuing money shortage.

As I said....I don't know enough to argue the point, so I am wanting to learn from someone that knows. (Which would be you)

I think I understand all your other points and agree that we are in a mess. Thanks in advance if you can help me understand above.

Beef I'm sure can answer the question better than I, but the basic dumbed down version how I understand it is money is finite and therefore has value. When the government prints money it becomes less valuable, unless banks hold that money on their balance sheets and don't lend it out. With restrictions on lending, and the downturn in the economy encouraging businesses to hold on to their cash and not invest, and the super low interest rates that don't encourage banks to put that money back out in the economy because of low returns, inflation has stayed low. As soon they they " release" that money back in to the economy, the dollars we have will be worth less. I'm not sure what the tactics are to avoid this, but certainly avoiding printing more money and curbing govt spending is needed. Rates will go back up eventually and that's when it starts.

That's how I think of it anyway.

Not just banks, businesses in general.

I'm no expert on monetary policy. I work in healthcare finance, so this is not my expertise at all. The basic version is the extent of my knowledge and don't quote me on any of it. Lol

It's more complex than what PDX explained, but he addressed a portion of the problem.

Our GDP growth has been stagnant. Thus our currency value growth has been stagnant. So you can't just print new dollars and keep the same currency value. If the dollar to Yen exchange rate is 1:1 when we have $6 trillion in circulation, and you print $6 trillion more, China isn't going to just keep giving you 1:1 exchange rates. They'll give you 2:1. And this goes for every country we trade with.

Plus, the global trade currency for oil is the dollar (the Petro-Dollar). So not only does this effect our import trading for oil, but it effects everyone who imports oil.

Now on top of the global trade issue, the $6 trillion that was borrowed for QE didn't just go to the banks (sold as Treasuries), they were used in dozens and dozens of corporate bailouts, bank bailouts, Fannie and Freddie bailouts, doled out in assistance grants and welfare programs, military defense contracts, intelligence services contracts, medicare and social security, as well as bailouts of hedge funds, institutional investment companies, and a slew of corporate bonds and dozens of state municipalities.

The whole system crumbled in 08-09. People think it was just banks as a result of the housing bubble bursting, but the stock market dropping 9,000 points demolished thousands of other things that are dependent on or leveraged in our traded markets.

This money isn't just sitting in the banks dormant. It's in circulation. And it's been grossly exploited and abused. The rich are getting richer while the middle class is shrinking because they aren't seeing any of this money, because it's been used to pay off prior leverage and increase volume trading in the investment markets. Hence why the stock market has mostly gone up since 09 with only a couple hiccups, but massive volatility.

As well as tons of dollars having left the country to cover notes owed to foreign entities. China, for instance, owns $3 trillion of our private debt. They use to own nearly $5 trillion. How did that happen? And China manipulates the value of the Yen to arbitrage our dollars. It's bullshite. It's also why Trump wants to reform foreign trade deals to fix that problem.

So all that said, here's an easier way to illustrate how this can/will come back to bite us.

As I said earlier, interest rates and inflation are 100% correlated. When interest rates go up 1%, the government raises the CPI Index 1%. If the Fed releases interest rates 3%, the CPI Index goes up 3%. Meaning we physically see that much of an increase in virtually everything we buy. That's how inflation is supposed to work. But that's not what's been happening. They've artificially held these things down to avoid interest rates and inflation negating the influx of monies from the QE disbursements.

Now here's the crux of the issue. The bond market. Bonds are based on interest rates vs duration. You're basically loaning money to a company offering a bond for a certain amount of time and they promise to pay you interest on that loan over the course of that time period.

So right now, you buy a bond for $1,000, and the bond carrier promises to you 2% per year for 5 years. Well that's a crappy bond. How can you get a higher rate or return? Well the bond carrier says give us more money and for longer and they'll increase the dividend. So you go okay, I'll give you $100,000 for a 20 year duration, and they promise to pay you 6% a year for 20 years.

That's today, with interest rates at rock bottom. But what happens in 2 years when the Fed has released interest rates and now they're at 7%? This means the CPI index is at 7%. Well guess what then, your 6% bonds that you're stuck with for 18 more years are now losing money against inflation. They're paying 6% but inflation is 7%. Not to mention you're also paying income tax on that 6% dividend.

So how do you sell these bonds? Who in their right mind would buy your bonds paying 6% for the next 18 years for $100,000 when they can buy brand new 5 year duration bonds paying 9%? The only way for you to sell your bonds is to reduce the $100,000 down by a proportionate percentage to its counterpart today. A 20 year bond with 7% base interest rates is probably paying a 12% dividend. That means for someone to get a better deal on your bonds, you have to lower the sale price down to about $50,000.

This means you just lost about 38% on your investment. You paid $100,000 two years ago and made $12,000 from dividends, then sold it for $50,000. $100,000 outlay, only $62,000 returned. OUCH!

Now picture the entire bond market suffering from this because of a 3-4% hike in interest rates?

Now picture us going into hyper-inflation mode and rates going up 10-12%. Bond investors would lose 70% of their bond values or more. This would cause widespread market panic and equities would take a dump as panic sets in. Half of these bond companies are also A. Invested in their own bonds, and B. are also publicly traded on the equity side too. In addition, preferred stock equities and yield-based derivatives are going to cause companies to lose tons because they have higher cap rates and dividends to pay. PE ratios and profit margins across the equity market will plummet.

Not to mention the fact that Municipalities are only in the bond market and many of them are already struggling. They can't afford to pay out 8% dividends, much less 15% if we go into hyper-inflation.

Needless to say, this is why it's a huge bubble. Holding interest rates and inflation down to fake out the economy is really freaking bad economic policy. Obama has screwed us. He will take credit for the market going back up and getting us out of the recession, but he exploited every trick in the book to do it and left the next President holding the bag.

Trump has the plan for saving us from collapsing under this bubble. Go read his website. He lays it all out for the most part. Reform trade. Stop letting foreign currencies screw us with currency manipulation to undercut our dollar and our manufacturing industries. Bring us closer to energy independence. Allow repatriation of foreign dollars.

And most of all, cutting the corporate tax rate to 15%. Right now, our corporate tax rate is the worst in the world (~38%). This is why companies leave the US and build their home offices in foreign countries like Ireland that only has a 15.5% corporate tax rate.

With a 15% corporate tax rate, we will not only stop losing corporate inversions, but we will gain thousands of new companies moving [back] to the US. This means jobs, jobs, jobs, and huge revenue and GDP increases.

Most Liberals heads explode at the mere mentioning of lowering the corporate tax rate. Excellent explanation.

You can trace a shitload of our problems to the Fed's manipulation of interest rates and th money supply. Wealth gap, exploding debt, death of middle class, never ending wars, ridiculous explosion in the costs of housing, college (and anything else you can borrow for), massacre of savers, M&A activity swallowing smaller companies and hyper distorted market valuations - damn near everything everything. Financial graphs pre 1971 vs post 1971 (Nixon blowing off the tie to gold) are totally different.

A restrained supply of money and credit keeps everything between the rails and restrains the govt and bankers from doing irresponsible shite that puts us all at risk.

Debt is basically deferring the cost of today's consumption to the future. The whole world has been doing this since the late 70's and there was a lot of money to be made. Moving forward though we're all going to have to foot the bill and it's gonna be brutal.

Yep. The Federal Reserve Act was the worst piece of legislation in our history.

Thank Liberalism for puting us under the thumb of the Collectivists.

I like your way of thinking - especially for a financial consultant.

We're roughly the same age and I've been struggling with my next 15 years strategy. I don't want to fight the Fed but also don't thing the standard mutual fund allocation strategy is going to work over this next period.

What are you telling your clients? Stay the course? Allocate some portion to commodities/PMs? Dividend blue chips?