John Taylor: "Cash Is Now King, Worthless Or Not, So Buy Dollars."

In his latest must read letter, John Taylor picks up where Goldman left off a few days ago, and follows up on the implications of Keynes' savings paradox, which as explained by Goldman, and now by Taylor, has to do with the fact that with the entire world entering an austerity phase and thus cutting off public sources of capital to offset private sector contraction and deleveraging (as per the Current Account equality), the slowdown in economic growth is virtually assured.

It also explains why companies are hording cash.

The result is a massive schism in perceptions between micro and macro analysts: "the result is that the vast majority of the analysts that examine individual companies are bullish and almost all of the macro analysts are bearish, many like us, and dramatically so."

Further adding to the dire macro picture, "because nominal GDP is growing more slowly than the outstanding national debt is compounding, it is becoming a more oppressive weight on the “non-S&P” economy, tightening the financial position of small businesses and the consumer." Which leads Taylor to this simplistic and spot on conclusion: "if consumers build up their savings, we know what happens to retail sales and the GDP.

On top of this the money multiplier comes into play.

With the global banking system suffering under an extremely high load of worthless assets – whether recognized or not – and being forced to improve their capital allocation for risk by the Basel II and Basel III rules, banks must cut back the amount of credit that they make available to the economy.

The multiplier will force global economies to shrink in the years ahead. Cash is now king, worthless or not, so buy dollars." Brief, succinct and 100% spot on analysis.
Link -
http://www.zerohedge.com/article/john-taylor-cash-now-king-worthless-or-not-so-b...
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We are now enetring a new Paradigm, where the old rules will have to be adjusted or even completely re-written!

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For that to be true you would have to show that slaveholding societies were more idle. Good luck. Also, you missed a subtle yet crucial aspect of my argument. It was not about societies, but about times.

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The decrease in population came first. There is copious historical evidence to prove this. Boom after boom came as a result of a decimation of the population that had nothing to do with economics. It may have become a full cycle lately with wealth contributing a decrease in birth rate. All of this is the exact opposite of your core argument - that population growth drives the economy. You seem to have taken a few headline quotes out of context and constructed an elaborate economic theory around them that flies in the face of reality and historical evidence.

Lets look at a modern example - China vs India. Both in very bad situations a while back. China took drastic moves to curb population. India keept breeding. The disparity we see today is all down to population - in the opposite way to how you claim it works. If China had kept breeding like in the past, they would be back to scavenging for locusts by now.

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There is no 'maximum long term sustainable'. It is a bit more subtle than that.

http://www.ozpolitic.com/articles/population-sustainability.html#IPAT

How did we get here

There are seldom "Single Reasons or Silver Bullets" for events, such as these and this event is no different!

Going back in time, the last 200 years has seen 3 primary growth drivers -
1) Population Growth
2) Cheap & Abundant Energy (Oil)
3) Innovation

The Global Population attained 1 Billion around 1800, 2 Billion around 1930 and we have now reached over 6.5 Billion, having added 4.5 Billion in just 80 years.

Previous energy supplies Peaked out, as the Global Population expanded, with Wood & Whale Oil giving way to the Cheaper & more Abundant Crude Oil, as it started to come on stream, just on 150 years ago.

Man's Innovation has also expanded incredibly, over the last 200 years, as the Industrial & Information revolutions, increased Production persistently, via means such as the , Steam train, Aeroplane, Television, Medical technology, Nuclear fission, Computer & the Internet.

So, the scene was set and it culminated in the greatest economic boom in history, between 1995 and 2005! This was the "Perfect storm", for making money.

Finally, one of the oldest and most regular players came back into the game, when GREED joined the party, assuming the party would never end. Leveraging, via the Banking/Financial sector, went thru the roof, NINJA Loans came into being and the completely unregulated "Derivates Market", went into the Stratosphere, at over 100 times the Annual Global GDP!

However, there is a dilemma in the current economic/banking system; it REQUIRES exponential growth, within a finite environment!

The inevitable happened around 2005, two of the three major growth drivers (Population & Oil) Peaked and their combined effects had a profound influence in events. Population growth had already started to slow and the Baby Boomer generation had just started a 20 year transition, from their Peak Earning & Spending years, to being thrifty Retirees, before leaving us forever.

The slowing Population growth had already influenced the New US housing market, with construction in long term decline. However, the slowing Growth, combined with the Retiring Boomers, spilled over into Existing housing and that Bubble burst, as Demand slowed, forcing a vicious cycle, of falling housing values and rising Foreclosures, re-enforcing each other, in a race to oblivion.

Around the same time, Global Peak Oil, which had been long talked about, as a theory, became a reality. As Production effectively Peaked around 2005 and then started to fall, the Oil Price raced to $147 a barrel, and then, as the costs ballooned and economic reality set in, together with the perception of a faltering global economy, Oil Prices fell, as Demand also reduced.

The rest of the World joined the Party!

Many countries spent up, mainly by vastly increasing Debt and mortgaging the future, on a bet that the status Quo would return.
With Debt to GDP ratio's approaching 100% and in some cases more, the status quo will not return!

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You may make it as subtle as you like, but there are limits and if we transgress them, we will find out that there are costs involved.

Btw, I suspect we are already transgressing some of those limits, now!

Interesting point FREEDIVER, regarding why it is that Wealthiest nations have the lesser population.

Of course if you follow the rule of thumb that having less children means a higher quality of living (wealth). Such good examples are Scandinavia, Switzerland and Australia.
Australia would have to be the best - John Howard putting all the women to work to reach an all-time 'Unemployment Rate' low. So Australian women were working more for little Johnny's fabulous Liberal Profit, rather than having sex ...and if they were having sex, it was just the peice of plastic sex that resulted in multiple relationships and no children.
Now these women are seeking various methods to catch up with having children in their latter years - like the 80% normal IVF or Cougaring young ignorant 'young' males who's higher sex drive leaves little for common sense.
Then you had Rudd with his "We are fairing far better than other Western Nations during these tough economic times".
Yeah well, we only have a population of 21-22 million (if you count those Ferals in the Forest too) so 'compared' to other nations, we have less mouths to feed. If we had the population of the UK or USA, our current Political System would crumble in day and we would be looking to  something else to lead the way for Australian Culture. We would be an absolute shambles in comparison to UK/USA.

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1) Point taken!
In my opinion, the main trust of my article is still correct!
2) Try, "behind, pushing along everything else.
3) Ask most Politicians & Economists and they will go on about the benefits of Increased growth.
However, that MUST change, as a declining population, which will inevitably arrive, will mean a declining demand for all sorts of products.
We will have to start anew with our "Economic theory", because Exponential Growth of Population &/or the Economy, just is not possible.
There are many reasons that affect a countries birth rate, wealth is one, but not the only one.
4) There is plenty, to show that Population Growth, in concert with cheap & abundant Energy & Technology Innovations have done exactly that, but I wouldn't want to spoil your chance of doing a little reading, for yourself.

I trust you are having a nive weekend!

freediver wrote on Jul 18^th, 2010 at 12:08pm:


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That is just a load of -
Credible
Reliable
Abundant
Parardoxes

You simply got it out of context!

I have been talking about the Population explosion, Energy and the last 200 years, particularly the last 80!

YOU said Over-Population was our greatest problem and it is, but it is not our only problem, there are a number of things inputing into a once in history drama.

Whether you agree or disagree, with what I am saying, is up to you!

Have a nice day.

freediver wrote on Jul 18^th, 2010 at 1:10pm:

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FD,
I think the following says it all! A Population decrease, in the last 80-200 years???

If you want to go on about it, that is you choice!

Personally, I have better things to do!

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