Calgarypuck Forums - The Unofficial Calgary Flames Fan Community - View Single Post - The ongoing financial turmoil and financial discussion thread

Claeren · 11-20-2008, 12:49 PM

It looks like Citi Group is on the brink:
http://finance.yahoo.com/news/Citigr...-13634423.html

That $5+/share rule for major pension funds is an interesting tidbit I never knew about. GE only needs to fall $8/share to face the same bleak outlook! lol

As for the high interest rate debate, it seems to me one of two things happen (or both!). They lower interest rates to zero (or close to zero as they are now) and watch as the economy STILL slowly contracts year after year in a deadly but slow deflationary cycle. From what I have read, $37 Trillion USD(?) in debt is being supported by <4% in assets and equity (combined, mostly illiquid assets not liquid equity) by the largest 8 or so financial institutions and needs to be destroyed, and debt destruction on that scale is deflationary.

People get caught up in how much new government money is being pumped into the system to create inflation but (as a great article at Minyanville pointed out) people have to accept debt that is being offered for it to be inflationary. Right now banks and such are soaking up that captial but they are not then extending it to customers as cheap debt - or inversely, people do not want any more debt than they already have. Until all of this newly minted money by the US government starts getting taken up interest rates will remain low.

The hyperinflaiton scenario, in my mind, occurs if/when that deflationary cycle has run its course and people start using all of that money to do things other than cover potential losses. Then interest rates have to spike to slow things down and bring balance back to the money supply/market stimulus. It is a lot easier to create new money than it is to destroy it and generally the natural way to do so is to reduce the value of all money (inflation, potentially hyperinflation when you are talking about balancing trillions and trillions of dollars) which results eventually in high interest rates.

But what do I know!?

Claeren.

11-20-2008, 12:49 PM	#540
Claeren Franchise Player Join Date: Jul 2003 Location: Section 218 Exp:	It looks like Citi Group is on the brink: http://finance.yahoo.com/news/Citigr...-13634423.html That $5+/share rule for major pension funds is an interesting tidbit I never knew about. GE only needs to fall $8/share to face the same bleak outlook! lol As for the high interest rate debate, it seems to me one of two things happen (or both!). They lower interest rates to zero (or close to zero as they are now) and watch as the economy STILL slowly contracts year after year in a deadly but slow deflationary cycle. From what I have read, $37 Trillion USD(?) in debt is being supported by <4% in assets and equity (combined, mostly illiquid assets not liquid equity) by the largest 8 or so financial institutions and needs to be destroyed, and debt destruction on that scale is deflationary. People get caught up in how much new government money is being pumped into the system to create inflation but (as a great article at Minyanville pointed out) people have to accept debt that is being offered for it to be inflationary. Right now banks and such are soaking up that captial but they are not then extending it to customers as cheap debt - or inversely, people do not want any more debt than they already have. Until all of this newly minted money by the US government starts getting taken up interest rates will remain low. The hyperinflaiton scenario, in my mind, occurs if/when that deflationary cycle has run its course and people start using all of that money to do things other than cover potential losses. Then interest rates have to spike to slow things down and bring balance back to the money supply/market stimulus. It is a lot easier to create new money than it is to destroy it and generally the natural way to do so is to reduce the value of all money (inflation, potentially hyperinflation when you are talking about balancing trillions and trillions of dollars) which results eventually in high interest rates. But what do I know!? Claeren. Last edited by Claeren; 11-20-2008 at 12:56 PM.