Wednesday, February 16, 2011

Kyle Bass: Zero Lower Bound=ZIRP

Absolutely brilliant stuff here from hedge fund guru Kyle Bass.   Very few people on Wall St tell the truth so you need to pay attention when CNBC gives these folks an opportunity to speak.

My Take:

Kyle uses simple math to explain how we are artificially financing this Ponzi scheme using zero interest rates.  None of this is sustainable but the robots on Wall St don't seem to care.

And why would they?  They only hold stocks for 11 seconds at a time.  They could care less what happens next year, next month, or even tomorrow.   They are laughing all the way to the bank by the following day.   

I am amazed this charade has lasted this long.  So far, Ben Bernanke has been able to hide our ridiculous balance sheet by purchasing his own treasuries in order to finance the nations expenditures.

The absurdity of such thinking is really beyond belief when you think about it logically.  

Think about it:  How can a nation finance itself?  Can you finance yourself when you are 30k in credit card debt?  For a time the answer surprisingly is Yes!  How?  By getting another credit card and taking on more debt.

Eventually we all know how this plays out for us when we borrow Peter to pay Paul:  BANKRUPTCY anyone?

Why is it any different for our government?  The answer is it's not.  They can however delay the day of reckoning for a much longer period of time.   This is what we are witnessing today. 

Don't kid yourself though folks.  Our day of reckoning is coming.  It's not "different this time".  They tried to tell us that during the tech and housing booms and how did that all work out?

We were much smarter before we started blowing bubbles in the mid nineties:

Ben would have been laughed out of the room 20 years ago if he had tried to offer up this proposal as a solution to the nation's fiscal crisis.  We laughed and criticized Japan for attempting the same thing back then.

Ben's lucky he wasn't a central banker back then because he could have every well ended up in prison.  We threw bankers in jail back then following the housing bubble in the late '80's/Early 1990's.

Today we bail them out instead of prosecuting them.  When the economy turned around following our massive bailouts, we then allowed the same group of crooks to pay themselves billions of dollars in bonuses instead of forcing them to pay back the losses that caused the crisis in the first place.  

Why we ever allowed any of this to happen is beyond me.  I never thought this nation would ever become so blinded by greed and money.  Boy was I wrong.  Money talks in America. 

Today we say "fuck off" to capitalism instead of embracing it.  The rich are allowed to lie, cheat, and steal themselves into prosperity at the expense of the taxpayers.

All I can say is one day the bankers will get theirs.  Karma is a bitch and it ALWAYS comes back and bites you in the behind.


getyourselfconnected said...

Hey Jeff!

Nice find again. I dunno, maybe I gave up a while ago but I am so jaded on the magnitude of the insanity I laugh more than anything now. I must be cracking up no doubt.

Jeff said...


Me too man!

Sometimes I need to take little breaks before turning up the heat once again.

I am determined to march onward until this onsense stops!

Roven said...

"Think about it: How can a nation finance itself?"

Actually, its not that uncommon, especially during wars. During WWII for example, US debt (to be paid by taxpayers) was completely outta control. Not only that, other countries would not touch our debt - for starters, allies had their own problems to finance. Plus neutral parties did NOT want to finance a side that could lose.

So what did we do? BUY WAR BONDS! was the call, and we did buy them - in droves.

Later, as the debt grew larger and larger, we then raised taxes to astronomical levels. Thus "we" the taxpayers endured high taxes to service the debts that "we" the taxpayers collected from the govt!!! It was the ultimate of ponzi schemes.

Roven said...

It often seems to me that we’re all crippled by logic when discussing something that can often be quite illogical. I believe your point rests on the (very logical) assertion that when the overwhelming weight of total debt is forced onto the market, the market will be forced to endure its day of reconing.

Your argument (if I understand it correctly) is essentially, chickens will and must come home to roost. Debts must be realized. And when debts are realized the negative nature of our balance sheet will lead to a an economic implosion.

And that’s certainly logical.

But “extend and pretend” is inherently illogical. It is, after all the accounting equivalent of covering one’s ears, and screaming, “I can’t hear you!”. It isn’t a policy intended to balance our books. It’s a policy intended to buy time. And it has proven surprisingly successful thus far.

The world it seems, faces two options:

The first of which is to implode spectacularly.

The second is to endure an extended period of bizarre and completely illogical accounting and to suffer all the myriad financial and political injustices that accompany managed economies.

Given the devastation of option #1, I’m not sure I understand why we can’t wander through the sickening fog of option #2 for say, three more decades?

It’s not something I advocate out of principle. Who wouldn’t prefer to live in a world where accounting is a question of right vs. wrong — rather than right vs.”please do not evaluate”? But the Soviet Union pulled it off for a few decades. What’s to say we won’t?

Skeletons can be buried for a long, long time. The question of “when will all of this collapse?” isn’t some minor second detail. “When?” may ultimately be the crux of entire question. “The future” is apparently a wonderful hiding place for our bad apples. If monetary policy centered on “staving off the day of reckoning” can provide stability, no matter how irrational that may be (or infuriating, for those of us cursed with logic) — “extend and pretend” may ultimately prove to be the correct answer. And we may be sitting on the sidelines and waiting for this collapse for decades.

Jeff said...


Well done!

Anything is possible at this point.

Market forces will likely not allow this to go on for too long.

Japan tried the same crap and their market eventually dropped 75% or so.

"Extend and pretend" has worked to date but historically it hasn't worked out so well.

What's scary following WWII was the tax rates for the higher income brackets went up to 90%.

The market would implode if that were to happen today.

Anonymous said...

"Extend and pretend" has worked to date but historically it hasn't worked out so well.

Huh? Extend and pretend has been official policy since 1816 when our national debt exploded and we (quite literally) had no way to pay it off other than to inflate. That was almost 200 years ago - and we are still here!