The concept I have a difficult time wrapping my head around is the effect of leverage, especially on the scale some of our bankers use it.

Dick Cheney famously said "deficits don't matter." Could he be right?

Lets say a guy takes 1 million from his savings and retirement and invests it in a business. He still shows $1 million, the business shows a million and with interest rates where they are at, might as well borrow a million (and the bank's deposits are just another guy's savings) ... so now my business has $2 million and I've got my million on paper too, for a total show of $3 million in assets. Magic, as long as you can make the payments. Now, we buy a couple million in houses from Courthouse foreclosure sales for around 50 cents on the dollar. If we can appraise them right 3 million becomes 6, and we can borrow against that equity. So, in this example the money supply has not increased, but by investing, there is a lot of cash floating around this little business.

That's leverage of 1 to 1, then 2 to one and finally 3 to 1. The average for banks is 9 to 1 and I think the investment banks got up to 34 to 1 in 2008.

When the liquidity ponzi schemes came cashing down, nearly all investors lost a lot of money. Where did that money go? It was in the money supply, but now it is gone. My business partner lost somewhere around 1.6 million total in 2008 and since his investments went to zero (Fannie, Freddie, GM Preferred stock, etc ...) he did not recover with the market. That cash is out of circulation.

My question is, do losses like his offset the increase in the money supply created by deficit spending?

Another question, what about when all this money is created ... can't we create much more money through leverage than the government ever dreamed of creating?

And, when our economy grows, don't we need more money? If you have a monopoly game with 1,000,000,000 players ... you are going to need more money than the game comes with .....

Follow up to above to make it easier to grasp.

Government payments increase the money supply.

Taxes decrease the money supply.

If the government ran a budget surplus, it would steadily be destroying the money supply.

The reality is our government is infinitely solvent in dollars. They make all they want. Taxes, and Treasury Bonds pull money out of the economy to control it's running amok. By punishing the build up of money in some places (taxes) and rewarding lazy investors (Treasury Bonds) we pull money back out of supply.

Arguably, as long as we have unemployment, we have more productive capacity to employ. We measure inflation, mostly, by the increase in wages. Unemployment holds wage increases in balance.

My simple minded conclusion is, as long as inflation and unemployment are in balance, Dick Cheney was an irresponsible warmongering, battery powered bastard, but probably correct.

so push out pension obligations as far as you can:D

Sailing, personally I love your posts, they never fail to pump me up, but here is a few numbers.


According to the ALPA’s bid monitor released on 4jan13:
Jan 2012 – Jan 2013:
10 guys came back from furlough
119 came back from the mil leaves
30 came back from sick leave

It is wonderful to see guys coming back, but with this “effective hiring”:
Number of Instructors (SLI) shrunk by 27.
Pilots required number shrunk by 138.
Total number of pilots has shrunk by 257.

Bar;

I dont want to overquote your posts. IMO, the govt can print all they want it just eventually speeds the lower buying power of each marginal dollar. In that regard Cheney was correct. IOW printing itself out of debt is something the govt could try to conspire to do.

The only REAL loser in the scheme is the workaday diligent saver / investor. The rug is progressively pulled out from under him as he gets older. There is no real way to protect oneself from the semi-invisible march of inflation aka the invisible tax (on responsibility).

What really really really torques me is the rewarding of irresponsibility.

I agree, remember that the company is running every WB fleet through interior mod lines and that resulted in a reduced staffing amount for the larger fleets, once the 7ER fleet and then the 330's are finished with the mods there will be a serious uptick in staffing requirements for the WB fleets. I do not know what the mod lines mean in regards to reduced staffing but it probably runs about 15 crews per plane, and there are 3-5 mod lines running, so that could mean 90-150 pilots less in the staffing needs for the length of time needed for the mods to be completed.

Gotta vote'm all out!

Yep!

Good post.

NYC Visit
 

Anyone have a recommendation for a place to stay near Times Square. Wife and I are going to "do NY" in Feb. Also...is the New York Pass worth it if planning to do the tourist things?

Good point, thank you.