Wednesday, February 19, 2014

Dalio's view

Moral: Wherein we see that the FED had a fractious meeting. Did Yellen have to yell to get people back into line?

Do any of those care about savers being slapped silly?


From those people, let's go over and listen to Ray Dalio. He was interviewed for Business Week (need I put in the Bloomberg?) by Charlie Rose. In that interview's write up, there is a link to a video.

   How the Economic Machine Works

It was only 30 minutes, so I watched (and cut out a few snaps). The topic deals with an economy that recognizes markets (see basis, this blog). Starting from transactions, Dalio lays out how things get to where credit comes about, then we have the multiplying effects, and more. Of course, the nature of the beast is cyclic.

So, we have the ups and downs. Into the mix, Dalio adds central agents: government and bank. Now, the former we can think of from several angles; but, let's just leave it for later. We see that Dalio defines the work of the central bank (Yellen's bailiwick) as two things: interest changing and printing money. Of course, it also buys bonds from the central government so that they have money to spend beyond that taken in by taxes.

It's a nice little video. Let's look at a few things; see the video for the remainder. What we're commenting on relates to the theme of the blog.

 This snap comes 05:43 of the video. If an economy only uses money, things can be dire. Why? For one, restraints (something that Ben never applied).

Dalio equates spending and income; that is, what you spend is someone else's income. Now, see the borrower in the image. If one can borrow, and that is determined by ability to pay, then one can spend more than one could if only the money was spent. It's that simple. So, there is a multiplying effect since everyone can contribute by borrowing and spending. How far does it go?

Well, then, if you put on your thinking hat, you would hope that the spending was not wasteful, as in, for something that might make money later. Unfortunately, much borrowing is not wise. Too, ought borrowing be done without collateral.

You see, before this last downturn, we had people claiming collateral that was bogus. Ah, how many ways was this done. For one, people borrowed to buy stock which is risky (it's still happening, folks). For another, with creatively defined financial instruments (fictitious capital, ala Marx) we had things that were only chimeric come to fore.

Oh, what did we learn?

This snap comes at 08:41. You see people standing on credit on the upside. Then, you see people burdened on the downside (that is a wave, if it wasn't apparent - as in, what goes up must come down - unless, of course, it's propped up by Ben and Janet). For any credit situation, at some point, the debt needs to be settled.

Well, we had people walking from houses and mortgages. And, much worse (even if we ignore Made-off).

If credit was founded upon collateral, the many problems could be contained. Yet, the FED has this thing about bubbles (quoting Alan, can't see it before the bust - no, clean up - much like diapers).

So, that brings us to this. The image, at 09:53, shows how money (based upon something - perhaps, gold, if we were lucky) is far outweighed by credit (due to the multiplying effect). And, what do we know of the credit?

Let's ask Janet if she has looked at Ben's books yet. And, that booming size of the credit realm, in many cases, is not based upon any type of collateral.

Rather, we have serious leveraging.

And, lots of spending can be used to buy financial assets (called such, but they might very well be toxic and of no value). We see the markets soaring. What is behind that other than mania pushed by Ben's (and now Janet's) coddling of the addicts who need to deal daily in such manipulative schemes.

We'll have to go on about this, again and again.
Finally (18:53), we get to some point where the debt load outweighs money. Wait! Didn't we say earlier that credit outweighed money? Yes, we did say that. When things are rosy, no one seems to care. It's when the risk of non-payment becomes visible, banks close their doors.

Remember in 2008? They all took their money home and wouldn't play. Why? Well, they knew that the underpinnings were crap. Ben didn't really clean things up.

In fact, what does he have in his possession (er, Janet's) that is toxic?

As Dalio says, it's a brief little thing that touches lightly. Yet, it's not a bad overview. This use of snaps was meant to show how there are things to discuss all along the video.

Perhaps, we'll get back to it with more comments.

Remarks:  Modified: 01/02/2016

03/06/2014 -- Watched this, again, with another viewer who thought that it was a nice little video. A couple of things stood out for me. One was his use of "thin air" (or, in other words, highly-ephemeral collateral) several times. The whole multiplier thing is based upon faith in getting repaid. A recent article pointed to where things were grim for future retirees. Many face the retraction of a promise sometime in the future; some are already facing the reality of a withdrawal. How do we ensure promised payments? One of the toxic types, supposedly, dealt with that (the CDO). ... Around the 19:40 frame, he talked about four ways to de-leverage. We have go on in length about leveraging. Many seem to have forgotten as we hear of people borrowing to buy stock, again; it was a no-no from way back. One of the four was was printing money. Ben made good use of that.

06/09/2014 -- Further on Ray's take.

01/02/2016 -- Dalio used in Quora.

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