The Bernanke

[r3020]

It wasn't the WW2 generation dig a ditch that caused the problem. They WERE very productive and knew there wasn't anything they couldn't accomplish. They has grew up during the depression and TRUELY knew hardship. What they did wrong was give their kids too much. They didn't want them to suffer the economic hardships top off by a terrible war, soo horrible most of them never spoke of it. They spoiled the boom generation completely. They have gone through their whole lives taking anything they want because their parents instilled in them they have a RIGHT to it. They have run up this debt, enabled by their parents generation, and now think it is our obligation to not only pay it back, but to keep giving to them now because they are old.

[verbatime]

It wasn't the WW2 generation dig a ditch that caused the problem. They WERE very productive and knew there wasn't anything they couldn't accomplish. They has grew up during the depression and TRUELY knew hardship. What they did wrong was give their kids too much. They didn't want them to suffer the economic hardships top off by a terrible war, soo horrible most of them never spoke of it. They spoiled the boom generation completely. They have gone through their whole lives taking anything they want because their parents instilled in them they have a RIGHT to it. They have run up this debt, enabled by their parents generation, and now think it is our obligation to not only pay it back, but to keep giving to them now because they are old.

What a load of horse crap, my mom and dad are both in there 80's and both still porduce enough food to feed a very large city... and they are still giving.

[r3020]

That's what I said Very, it wasn't the WW2 generation, it is the boomers. The hippies have cut their hair but for the most part never grew up.

[verbatime]

sorry,

[Faust100F]

What role do you think 0% interest rates and purchase of off kilter paper in huge volumes has had on the price of (a) farmground and (b) corn? Answer - plenty. Without it, 90 CSR dirt would be $4000 an acre and corn way cheaper than $7. Call him names or whatever but he has made you rich. Certainly he has made us all question the value of money but there is little denying that he has made those of us with real assets real money.

I kinda think he priced almost everyone out of the land market if they are farmers, with ICF's $1,000 an acre free cashflow, it will only take him 15 years if inputs and land costs remain static, to save enough money to buy one acre at todays prices, and that does not take into consideration the taxes that have to be paid on ICF's free cashflow minus depreciation.

I think what they have done is lock out any new entries into agriculture, and the government has now almost assured that there will be fewer and fewer farmers and more and more large land owners.

As for being made rich by these policies, the way I see it, you are only rich when you sell, right now farmers are presenting balance sheets to bankers, which are more or less being ignored, because even the bankers know these prices are "not real" unless their farmer borrowers sell, and I do not know any farmers in my area dumping their land. i think before anyone puts $15,000 an acre value on land they own on a balance sheet, that amount has to be reduced by the income taxes that will be paid when sold or estate taxes to be paid if it passes to an heir, and the reduction to "net value" really gets worse come January 1st. So remember the old adage "figures don't lie, but . . . liars do figure."

I have seen this movie before, when I started buying a farm a year in 1973 until I reached 1988 and went broke. All along the way the balance sheet section covering land values per "duffy's report" were increasing in value as was the "faux equity" section of the balance sheet, then land prices started down and did not stop until reaching the lows in 1986 at $1000 an acre North of I-80 and $500 an acre South of I-80. Sooooooo the funny numbers related to land values being put on balance sheets are so embarrassing they are not taken into consideration in making loans, because no banker in Iowa is going to lend you 80% of a $15,000 an acre loan.

So the four letter word you enjoy pushing in our face (rich) is like other four letter words not to be uttered in polite company. Because most of the farmers who own the land understand that we have more bad years than good years and that what we have been experiencing in land values and grain prices are not going to be with us for the long run. Like they say at Zero Hedge, "given a long enough time line the survival rate for all of us is Zero".

Adios Amigo. John

[Droughtman]

I kinda think he priced almost everyone out of the land market if they are farmers, with ICF's $1,000 an acre free cashflow, it will only take him 15 years if inputs and land costs remain static, to save enough money to buy one acre at todays prices, and that does not take into consideration the taxes that have ....

I think what they have done is lock out any new entries into agriculture, and the government has now almost assured that there will be fewer and fewer farmers and more and more large land owners.

As for being made rich by these policies, the way I see it, you are only rich when you sell, right now farmers are presenting balance sheets to bankers, which are more or less being ignored, because even the bankers know these prices are "not real" unless their farmer borrowers sell, and I do not know any farmers in my area dumping their land. i think before anyone puts $15,000 an acre value on land they own on a balance sheet, that amount has to be reduced by the income taxes that will be paid when sold or estate taxes to be paid if it passes to an heir, and the reduction to "net value" really gets worse come January 1st. So remember the old adage "figures don't lie, but . . . liars do figure."

I have seen this movie before, when I started buying a farm a year in 1973 until I reached 1988 and went broke. All along the way the balance sheet section covering land values per "duffy's report" were increasing in value as was the "faux equity" section of the balance sheet, then land prices started down and did not stop until reaching the lows in 1986 at $1000 an acre North of I-80 and $500 an acre South of I-80. Sooooooo the funny numbers related to land values being put on balance sheets are so embarrassing they are not taken into consideration in making loans, because no banker in Iowa is going to lend you 80% of a $15,000 an acre loan.

So the four letter word you enjoy pushing in our face (rich) is like other four letter words not to be uttered in polite company. Because most of the farmers who own the land understand that we have more bad years than good years and that what we have been experiencing in land values and grain prices are not going to be with us for the long run. Like they say at Zero Hedge, "given a long enough time line the survival rate for all of us is Zero".

Adios Amigo. John

John - You always have something useful and perceptive to say and I apologize if I offended you. As to bankers and their views on valuation - I understand what you are saying but it's too bad it means something because as I recall, those guys are often, despite seeing themselves as the "best and brightest," some of the dullest knives in the drawer. Remember the S American debt crisis - through the Fed, the US taxpayers had to bail them out then, and more recently and on a scale magnitudes larger, they were the ones thinking - up to the last minute - that residential real estate was golden forever. Some of them probably really believe that they are doing us a favor when in reality, many of their institutions should have been nationalized instead of being saved by the Fed and you and me and our neighbors. I think they may be amongst the last ones to understand the value of an asset. I wonder what some of the hangers on in that business would do for living if they didn't have the probably necessary but certainly unfortunate socialized risk policy protecting them. I think we'd all be better off if they had to suffer a little Puritan punishment (and maybe even loss of capital!) when they made stupid decisions instead of enjoying the riches beyond counting that some of seem to think are their due "entitlement" from the nation.

[IA CORN FARMER]

What role do you think 0% interest rates and purchase of off kilter paper in huge volumes has had on the price of (a) farmground and (b) corn? Answer - plenty. Without it, 90 CSR dirt would be $4000 an acre and corn way cheaper than $7. Call him names or whatever but he has made you rich. Certainly he has made us all question the value of money but there is little denying that he has made those of us with real assets real money.

Yes, you are 100% correct. He has made some of us very wealthy and I count my blessings everyday. And every night I say a prayer that the FED will increase the Money Supply.

[NE sandhiller]

That is excellent.

The people in charge fear change. I'm not a huge fan of sports movies (or even sports period) but this scene from the movie Moneyball says a lot. When models change then the people with their fingers on the switch and hands on the reins go bat**** crazy:



The model must change. The numbers about the declining (or even negative) marginal utility of debt are inescapable. A little debt back in the day was helpful in terms of GDP. Now huge amounts of debt hardly makes GDP twitch and may even be taking it negative.

Somebody who is smarter than me has written extensively about it:

But economists have developed elaborate theories and mathematical proofs that allow them to believe what everyone knows is not so. The government may be deeply in debt already, but it can go further into debt during the lean years, say the ‘neo-Keynesian’ economists, in order to offset the contraction in the private sector. And central banks can make it easier for consumers to borrow, too. The fiscal and the monetary stimuli provide much needed ‘demand’ for an economy in a downturn.

It almost sounds plausible. And the trick worked well enough, from the close of WWII until 2007. Each downturn in the economy was met with more and easier credit, leading people to borrow more and more money. The point of declining marginal utility of debt had been reached many years before. In the late ’40s and ’50s, it only took an addition of about $1.40 in extra credit to produce an extra dollar in GDP. By the mid-’90s, it took $3 of credit for every dollar of additional output. Ten years later, the amount of additional credit to produce a dollar’s worth of extra output reached over $5, and then it went off the charts. By 2007, the downside had come. Output was beginning to fall off so that additional inputs of credit — no matter how great — actually produced zero additional output.

The downside of the credit cycle is so obvious it hardly seems worth describing it. It works pretty much as you would expect. I wouldn’t bother discussing it, except that modern economists have persuaded many of the world’s smartest people — and themselves — that it isn’t so.

Debt has become a major burden in the economies of the US, Europe and Japan. It blocks them from saving, spending, investing and creating new wealth. Why? Because the resources that might have been put to work building the future have already been claimed by the past. Debt was contracted. Now, it must be paid. It is as if Pharaoh had already borrowed the needed grain…as if the grain needed to plant for next year had already been eaten. Once consumed, it cannot be borrowed. It is gone.

When you owe money on your credit card, it is often for things that no longer even exist. Hamburgers eaten a month ago. Clothes that went out of style last summer. Ski vacations in last winter’s snow. With this burden of the past on your shoulders, you find it harder to move into the future. Your footsteps drag; your life shrinks. You are forced to use your time tomorrow to make up the time you borrowed yesterday.

If you owe an amount equal to your annual revenue, for example, at an interest rate of 5%, you will have to devote more than one working day in 20 just to pay the interest on the debt. I say “more than” because you have to pay the interest with post-tax money. At a tax rate of 25% (just to keep the math easy) you have to work about one day every two weeks to stay even.

Readers may consider the magnitude of the current problem by realizing that, according to the US Federal Reserve, total debt in the US is now about 353% of GDP. At 5% interest, forgetting taxes, the debtor must work nearly 1 day per week just to pay for past consumption.

“Too much” comes readily to the lips when we describe someone who has consumed too many hamburgers or taken too many vacations, on credit. He may even be able to borrow more…and eat more hamburgers. But it is rarely a good idea. At a certain point, the borrowing does more harm than good. That’s when he’s reached the downside.

The marginal utility of debt is fairly high when you are using it to build a business or a bridge. But it declines sharply as soon as you begin to use it for everyday spending. An investment brings forth a revenue stream — a result that justifies and pays for the investment. With a little luck, the investor recovers enough money to pay back the loan — with interest — and ends up with a little bit extra. That little bit extra is real ‘growth’ — new wealth that didn’t exist before.

But there is no revenue stream coming from Social Security payments…fighter jets…the latest fashions…or other consumer items. The money is spent. Used up. Consumed. It is no more. Though all of these things may be enjoyed…perhaps even for a long time…no stream of revenue bubbles up from this spring. The ground around it remains dry and barren.

Keep up this borrowing and spending at some point you will be unable to continue. The weight of the past will be too heavy. Your legs will buckle and your back will break.

“Too much” has a meaning that the engineers can’t duck or dodge. The machine can’t be adjusted or recalibrated to make it go away. “Too much” must be admitted and suffered. The suffering that comes to a market is known as a ‘correction.’ Sharp, dramatic corrections are called ‘crashes.’ In an economy, it is called a ‘slump’ or a ‘recession.’ Severe cases are called ‘depressions.’

They can be denied. They can be delayed. But they can’t be disappeared. “Too much” has consequences; the downside must have its day.

Regards,

Bill Bonner
for The Daily Reckoning



Read more: What the Road to Hell is Paved With... http://dailyreckoning.com/what-the-r...#ixzz2ExBi8wOY

What has worked in the past will not always work in the future - that is a law that is almost as consistent as gravity.