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Post by Handy on Aug 21, 2020 10:35:33 GMT -5
Mirrororchid posted
Understand four things, and the world flips upside down and it makes a whole lot more sense:
National "debt"
Quantitative easing
Money velocity
Inflation
Mirrororchid, you forgot to include derivatives in your above items.
A quick concept is just print the value of what some people assume is money/check on some computers and promise to pay a very low interest rate for the I.O.U's that were just created. The kicker is the IOU originator most likely has no plan to pay off the IOU but will continually pay the interest because the interest rate is lower than the inflation rate.
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Post by mirrororchid on Aug 21, 2020 18:38:47 GMT -5
Mirrororchid posted Understand four things, and the world flips upside down and it makes a whole lot more sense: National "debt" Quantitative easing Money velocity Inflation Mirrororchid, you forgot to include derivatives in your above items. A quick concept is just print the value of what some people assume is money/check on some computers and promise to pay a very low interest rate for the I.O.U's that were just created. The kicker is the IOU originator most likely has no plan to pay off the IOU but will continually pay the interest because the interest rate is lower than the inflation rate. This doesn't sound like a derivative. It sounds like a bond. Paid for with more bonds. That would be included in understanding National "Debt". If that is what you are referring to, I would put it to you hat the interest rate not be lower than inflation to continue the cycle. To be honest, I do not fully understand derivatives. an arrangement or instrument (such as a future, option, or warrant) whose value derives from and is dependent on the value of an underlying asset But they seem to magnify the ups and downs of more common investment vehicles. These don't strike me as related to macroeconomics unless it's a matter of policy towards them (e.g. purchase of them by a central bank) I'll stop there to see if you'd like to elaborate/clarify. There is no way anyone interested in macroeconomics is seeing this thread except by accident. |
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Post by Handy on Aug 21, 2020 20:55:08 GMT -5
My problem with derivatives are the speculation positions some companies and people trade. Some derivatives act similar to insurance policies but the money to cover any difference in what the contract covers, does not have to exist. The coverage is based on promises and not actual money in reserve. I was under the impression the no back-up money contributed greatly to the financial problems back in 2008-2009 in the real-estate market packaging risky home loans and then buying a derivative to cover any losses. The companies that said they would cover any losses didn't have the money to pay all of the losses without government help. If my business loses money, no government agency will bail me out. My issue is: The derivatives market is, in a word, gigantic—often estimated at over $1 quadrillion on the high end. Where is the money to back-up some drastic event where poor smucks get paid it the crap hits the fan? www.investopedia.com/ask/answers/052715/how-big-derivatives-market.aspI think our national debt is bad and other countries are worse. Most people I talk with have no or little knowledge of how large the derivatives market is. Futures Hedging vs Speculating (especially from 2:30 to 4:11 and 7:12 to 10:18
Me? I save the money to buy things so my money dealings are different than many other people's.
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Post by mirrororchid on Aug 24, 2020 5:46:34 GMT -5
My problem with derivatives are the speculation positions some companies and people trade. Some derivatives act similar to insurance policies but the money to cover any difference in what the contract covers, does not have to exist. The coverage is based on promises and not actual money in reserve. I was under the impression the no back-up money contributed greatly to the financial problems back in 2008-2009 in the real-estate market packaging risky home loans and then buying a derivative to cover any losses. The companies that said they would cover any losses didn't have the money to pay all of the losses without government help. If my business loses money, no government agency will bail me out. My issue is: The derivatives market is, in a word, gigantic—often estimated at over $1 quadrillion on the high end. Where is the money to back-up some drastic event where poor smucks get paid it the crap hits the fan? www.investopedia.com/ask/answers/052715/how-big-derivatives-market.aspI think our national debt is bad and other countries are worse. Most people I talk with have no or little knowledge of how large the derivatives market is. Futures Hedging vs Speculating (especially from 2:30 to 4:11 and 7:12 to 10:18
Me? I save the money to buy things so my money dealings are different than many other people's.
From reading The Big Short, I'm under the impression your grasp derivatives well. Your question about where a quadrillion dollars comes from is encompassed from the "debt" and quantitative easing items form my list, along with a nod to inflation. The federal government can bail out the firms that promise money they don't have. I'm happy to say they don't have to though. Not completely anyway. www.forbes.com/2008/09/16/lehman-derivatives-swaps-pf-guru-in_rl_0916croesus_inl.html#22bd93611101According to the International Swaps and Derivatives Association, the notional value of CDS totaled $62.2 trillion at the end of last year.
The US Debt is up about 10 trillion since this happened, so clearly a fifth of the bogus promises made weren't honored. The firms themselves sure didn't have the other 50 trillion. A lot of those derivatives just went up in smoke. As they should, considering the promises were made of air. If a lot of that quadrillion were to pay off (they aren't all based on any one investment vehicle), a great deal of it will just vanish. Anyone still investing in derivatives after 2008 deserves to be swindled. Fool me once.... Senator Bernie Sanders is often proposing bills to break up big banks and they go nowhere. Two guesses as to why most Senators don't even give such bills a hearing. While Sanders wants to break up EVERY bank, it was shocking how few big banks were allowed to collapse or at least get substantially punished. I'd be far less offended by federal bailouts if it meant any bank needing a bailout would get split into as many pieces as necessary for each piece to be the tenth largest bank, ineligible for mergers with any other bank that came from a bailed out bank and no mergers at all for a decade either acquiring or acquired. They are an island and if they take absurd risks, they better be smart about it. Every piece would then be small enough that it could go bankrupt without severe economic impact to the country. Any bank can screw up. ONCE. |
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grower
Junior Member
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Post by grower on Aug 24, 2020 7:49:52 GMT -5
No political Party will stop spending, kick that can.
It's expensive to to Party, but hell it's other people
money. Government Bankruptcy?
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Post by worksforme2 on Aug 24, 2020 9:15:17 GMT -5
No political Party will stop spending, kick that can. It's expensive to to Party, but hell it's other people money. Government Bankruptcy? Government Bankruptcy? Not a chance. If such a scenario was even postulated every major financial institution and government ( except NK, Iran. a few others) would immediately rush to buy our debt. The idea of the US going belly up would be a cataclysm for the world economy. Too big to fail played out on a global scale. |
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Post by saarinista on Aug 24, 2020 10:56:44 GMT -5
Get a nice conservative mutual fund. Case closed.
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Post by Handy on Aug 24, 2020 11:25:12 GMT -5
It is difficult to separate politics from money but I am trying to focus on the money part.
My thoughts behind derivatives is I suppose someone gets a commission for selling and backing up the promises a derivative makes. One easy to understand derivative maker made, was open to anyone interested in purchasing it. The derivative stated, if the temperature range exceeded some range of numbers, the derivative company would pay the derivative buyer nn$.
Just to show you good folks my thinking process, If I was the dictator of this investment market, I would end short selling and margin trades. Yea, kind of drastic but if everyone owned what they bought or sold, maybe the financial markets would be more stable. Owning what is bought or sold would reduce the volatility in financial markets. Owning what is bought and sold would also reduce the commissions paid out. My thinking is, this derivative and non owned buying and selling was all thought up by insiders that just wanted to earn more money.
Politicians,law makers and lobbyists giving up their money positions isn't going to happen. I read once the money involved in what I mentioned is a BIG chunk of money and way more than a certain segment of the federal payroll.
Walmart (China-mart) alread changed how People live. If I dug up my coffee cans of money from my back yard (figure of speech) and bought Amazon, it would take 126 years of Amazon profits to equal what I spent for the company. That concept is referred to an "Owners" way to invest. A speculators mind would see Amazon's stock price increasing and think if the stock price doubles every 2 years, but it @$3,311 a share now because it might go to $6,622 a share in 2 years so forget about what a company actually earns per share.
I am thinking commissions drive financial markets so maybe my financial oriented books that endorse Benjamin Graham's concept of "value investing" is no longer valid.
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Post by Handy on Aug 24, 2020 11:28:02 GMT -5
Saarinista
Get a nice conservative mutual fund. Case closed. I somewhat disagree. Some mutual funds have annual fees that are sometimes sort of hidden and sort of high. Not all but some.
I do own ETFs with low annual fees. VOO is an example. The dividends are not high enough to live on but the pay out ratio is better than the current bank interest paid to savings holders.
I almost got a mutual fund sales license 30 years ago until I found out where most of the profits went, not in the mutual fund owner's-buyer's pocket. This was a long time ago and some things changed. I did get a license to sell life insurance but that was a big disappointment too when I discovered the policy holders only got 39% of the money that was paid in to the insurance company.
I was the treasurer of a small investment club for 10 years. Our members were happy to make a small gain and 5 to 10 more unhappy when one of the club's investments went down in value. I am a member of a similar club (national organization) with younger members and it is a little different. The club is less risk averse and takes risks in hopes of a larger gain.
EDITED
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Post by mirrororchid on Aug 25, 2020 6:40:47 GMT -5
...The derivative stated, if the temperature range exceeded some range of numbers, the derivative company would pay the derivative buyer nn$. ...I would end short selling and margin trades. ...derivative and non owned buying and selling was all thought up by insiders that just wanted to earn more money. ...I am thinking commissions drive financial markets so maybe my financial oriented books that endorse Benjamin Graham's concept of "value investing" is no longer valid. If the investing firm has the money or assets to pay off all the "bets" of those weather derivatives, it may not be a problem. The 2008 kerfuffle came from these firms promising money they didn't have. If such practices aren't fraud, they should be. I was under the impression short selling may actually reduce volatility. You may be right, can you explain. My own thoughts tell me your'e right, but I'd like to hear you elucidate. Well, sure. The difference with derivatives is such trades are backed by the investors assets. They can be (and are!) seized by the investing house when the bets go too far south. Thus the phenomenon of the "short squeeze". OMG has Tesla made me temporarily happy thanks to those. Is there a way to know where the palm grease is being applied? If not, value investing is all I got and I tend to think even the people with their thumb forearm on the scales engage in some value investing too. As a hedge perhaps. |
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Post by Handy on Aug 25, 2020 12:12:34 GMT -5
I never considered the idea of short selling was going to reduce volatility in a market. I just lumped in with things like buying or selling on margins, which I have read was part of the reason the 1929 stock market crash. If the investing firm has the money or assets to pay off all the "bets"....I doubt the backers have more than a very small percentage of money in reserve to pay off any claim and they rely on current income. It might be the backers of derivatives are similar to how casinos operate. Out of hundreds of plays, the house wins in the long run. Although Tesla stock goes up like a rocket, the company still does not make more profit than many of the larger car manufactures combined. China (the world leader in EV production), Ford, GM, VW and other large manufactures have EV (electric vehicles) in the works. I don't think Tesla can compete with Ford's F150 EV when the factory goes into full production in a little over a year. Then what happens to Tesla's share price? Yesterday I was reading about a few formerly important British people (about 200 years ago) and I discovered derivatives were bought a thing in their time. Just now I Googled History derivatives and found this article. www.managementstudyguide.com/history-of-derivatives.htmSome derivatives act similar to insurance without the money to back-up and pay off catastrophic claims. Problem solved for me, I won't buy or sell the products.
In the investment club, new members had some unusual ideas, that is until they put a substancial amount of moiney in the club. Then they got serious and stuck to more conservative investments.
Selling derivatives and having little money to pay potential claims is similar to not having much "skin in the game," with skin representing something a person could potentially lose it things go bad. Having "skin in the game" often leads to more conservative investments and money management styles.
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Post by DryCreek on Aug 25, 2020 23:29:07 GMT -5
I don’t claim to know the space well, but if you google “bank derivatives”, you’ll find that it’s something the large retail banks are deeply into, with Chase leading the pack at well over $1T. Playing high-risk games with your deposits.
If you contrast against classically “blue chip” institutions like American Express Bank and Charles Schwab, you’ll find they have virtually zero. Which says something about the practice.
Considering that your deposit at the bank is no longer your money, but just an IOU, it seems to make sense to spread your risk around and avoid banks that play on the edge. Yes, there is FDIC, but they aren’t bottomless unless printing money becomes the new trend. (Neither possibility is comforting there.)
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Post by Handy on Aug 26, 2020 1:05:17 GMT -5
DryCreek, this Chase stuff is why I dislike the idea of derivatives. I liked to old local "Savings & Loan" institutions that loaned money to individuals, where your mortgage payments were sent and there was more research done on borrowers ability to repay loans. This speculation stuff isn't my cup of tea. It reeks of getting a commission is more important tha what is fiscally sound. I asked a bank big why why they loaned 3 or 4 times the money now days than they did back when I was first married. He told me if his bank didn't loan the excessive money, the bank down the street would and they wanted the business so their numbers "looked good." He also said the bank covered defaults by raising everyone's interest rates to cover loan defaults. Well thank Reagan, Clinton, and Bush for making the banks more powerful and "too big to fail." unless printing money becomes the new trend. I think creating money on several computer accounts is and has been the trend for many years. Fractional banking has made it possible. I have read banks create ~97% of all new fiat money and only ~3% is actually printed. What I see happening is "create new fiat money, pay or charge .25% interest for the new money, and have inflation at 3%, sort of means a 2.75% profit for the banks and government. Pay commissions for this new wealth and some people are very happy, namely the money creators. Savers like me get hit with the inflation and lose purchasing power over time. In case some people do not know "The Federal Reserve" is a group of private (non government) banks and has 24 Federal Reserve branches through out the USA. www.thebalance.com/who-owns-the-federal-reserve-3305974At one times (actually several times) the central bank was a part of the government but the politician messed up the central bank big time. I suppose there is a place for derivatives if they could be backed up and the money to pay claims was held in reserve similar to what real insurance companies do. But for me to have a derivative for rainfall or temperature fluctuations when I have no crops, that is gambling. |
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Post by mirrororchid on Aug 26, 2020 5:15:01 GMT -5
I liked to old local "Savings & Loan" institutions that loaned money to individuals, where your mortgage payments were sent and there was more research done on borrowers ability to repay loans. I'd been hearing credit unions are the closest thing we have to that old timey simple accounting type of place. (FDIC insured though) I have some money at one, but much more at three larger more conventional banks. unless printing money becomes the new trend.
I think creating money on several computer accounts is and has been the trend for many years. Fractional banking has made it possible. I have read banks create ~97% of all new fiat money and only ~3% is actually printed. What I see happening is "create new fiat money, pay or charge .25% interest for the new money, and have inflation at 3%, sort of means a 2.75% profit for the banks and government. Pay commissions for this new wealth and some people are very happy, namely the money creators. Savers like me get hit with the inflation and lose purchasing power over time. Printing money has been, is, always will be, and should be the trend. It explains why even fever pitch support for balanced budget amendments fail. The politicians look at the numbers that a balanced budget would involve and they stare death right in the eyes. A third of the federal budget is created (fiat) money. Cutting a third of the budget would utterly destroy support for critical voting blocs be it seniors, the military, or the poor. The poor don't vote much but do away with food stamps and food riots make this group suddenly very important. You think poor people riot when one guy gets killed by police. Guess what happens when thousands of children are starving? There's a reason not a single nation on the planet is gold backed any more. I'd not thought of inflation as the profit margin of bank loans, but it makes sense. As more money is loaned, demand for goods and services goes up and supply goes down, raising prices. Those higher prices are paid for with the loans and paid back to the bank. Someone else raised the prices we pay so we're all paying into the interest rates of those loans. Surely there are dozens more forms of input, but it's difficult to see a way around that relationship. The prime interest rate lowering with inflation makes sense. Lower demand drops prices (and inflation) and interest rates get lowered to encourage more consumption so jobs aren't lost in making/growing stuff. As banks runs out of money (reserve actually), quantitative easing replaces T-bill bonds with cash to plump the reserves up and allow banks to assume more risk as well as threaten them with the risk of inflation eating away the value of that cash transformed from the bond. Where consumers themselves fit in, dovetails nicely into the entire dance. |
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Post by Handy on Aug 26, 2020 11:12:36 GMT -5
...Where consumers themselves fit in,.....
That brings up another concern of mine. As a result of large $$ donations by corporations, some individuals and lobbyists, how exactly does the individual fit in?
There's a reason not a single nation on the planet is gold backed any more.
If the banks could "PRINT GOLD" we would be on the gold standard. If a government went on the gold, silver or other valuable metal standard, there would not be enough of what ever was considered a standard, to support all of the current outstanding debt.
Some countries did have a silver back currency. I don't know what is happening now with those governments.
Anyway my idea of "romance takes finance" still holds, even if it is just bringing home some small dead animals and a few root crop items.
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