Inflation

[Value Collector]

now currently that debt is often NOT being repaid , the debt ( interest ) is being serviced and the original capital is being refinanced ( more likely at a higher interest rate in the current trend )

cheers

Some Debt isn’t meant to be ever paid back, in a lot of cases Debt can be a permanent part of the capital structure of certain organisations like shares, in these cases shares holders and bond holders are equally permanent investors in the institution they just have accepted different risk vs reward profiles, but both made semi permanent allocations of capital to the business.

Think about the Rail Roads or other infrastructure utility businesses that sold 30 - 100 year bonds, these bonds do have a maturity date when the capital is to be paid back, but they are so long dated they are for all intents and purposes similar to shares just with fixed “dividends” and a fixed “share buy back date and price”.

Some bonds are perpetual meaning they don’t ever have to be paid back as long as the interest is paid, these are even more like a share.

One of the oldest active bonds in the world is a perpetual bond is Dutch that I believe is about 400 years old, it was issued to pay for a dam wall to be built, and pays about $1000 interest per year, the water utility that inherited the debt still pays the estate that owns the bond.

 

[divs4ever]

Pay particular attention from 1:25

now first off .. one ( officially ) unemployed person for every job vacancy .. looks simple BUT is that person ( or any unemployed person ) qualified and certified for that vacancy , if so why are we searching the globe for people who MIGHT be qualified ( subject to certification ) to fill that vacancy

now one might ask why somebody would operate an energy extraction company in Norway and not close it down and shift resources and staff to say 'low-tax' Australia ( maybe it is something to do with the Norwegian government having financial stakes in some of those companies either directly over via Norges share-holdings )

welcome to the Winter of Discontent

enjoy

 

[divs4ever]

Some Debt isn’t meant to be ever paid back, in a lot of cases Debt can be a permanent part of the capital structure of certain organisations like shares, in these cases shares holders and bond holders are equally permanent investors in the institution they just have accepted different risk vs reward profiles, but both made semi permanent allocations of capital to the business.

Think about the Rail Roads or other infrastructure utility businesses that sold 30 - 100 year bonds, these bonds do have a maturity date when the capital is to be paid back, but they are so long dated they are for all intents and purposes similar to shares just with fixed “dividends” and a fixed “share buy back date and price”.

Some bonds are perpetual meaning they don’t ever have to be paid back as long as the interest is paid, these are even more like a share.

One of the oldest active bonds in the world is a perpetual bond is Dutch that I believe is about 400 years old, it was issued to pay for a dam wall to be built, and pays about $1000 interest per year, the water utility that inherited the debt still pays the estate that owns the bond.

and that is why i am very careful to whom i lend money to ( and resist bond ETFs where you have no control over your investment decisions )

ALSO there is the risk the borrower ( especially if a state actor ) will change the terms of such a loan , OR adjust inflation rates in their favour ( think Bank of England and GILTS )

 

[Value Collector]

and that is why i am very careful to whom i lend money to ( and resist bond ETFs where you have no control over your investment decisions )

ALSO there is the risk the borrower ( especially if a state actor ) will change the terms of such a loan , OR adjust inflation rates in their favour ( think Bank of England and GILTS )

The investors in those long dated semi permanent or perpetual bonds know (or should know) what they are signing up for.

Yep, there is risk with bonds just like there is with shares and all the other instruments and securities you might choose to deploy your hard won capital into. It’s up to each investor to decide exactly what parts of the capital markets he wants to participate in.

Everything has risk, even cash at bank or gold bars in a safe have risks and costs.

Whether you decide to put your cash in a CBA cash account, a CBA bond or debt security or shares in CBA each option has its own risks and rewards, it’s up to you as an investor to decide which options appeal to you based on their range of possible outcomes under different circumstances.

 

[InsvestoBoy]

I wouldn't even say that it has to grow the economy to be repaid, the economy can stay exactly the same size as debt does is transfer some of the purchasing power from the borrower to the lender.

For example, if Tom and Ben spend $100 a week each, we have a $200 economy. If Tom borrows $100 from Ben and spends $200 and Ben spends nothing that week will still have $200 spending/economy. Next week when the loan payments start Tom will only have $90 to spend because he has to pay Ben $10/week, but Ben has $110 to spend, the unproductive loan can still be paid off, even though the $200 economy has remained they same.

Are we really going to pick this nit?

If you reduce it to an absurd example of two people with magical spending based on ?‍ income and no priors then sure you can make anything work.

Generally speaking, in the aggregate of an economy, especially a globally interconnected credit economy, debts that fuel productive activity are easier to pay off than debts that don't. Like I said, in aggregate. Not two people.

 

[InsvestoBoy]

yes , you are correct , sadly the other option is more popular in many places ( both at local and national level )

and equally sadly .. popularity wins elections ( so those fiscal tightwads normally go unelected , and unheeded when they are consultants )

Like I said, this is largely not the case. Most debt in capitalist economic systems, in aggregate is productive, even today, when the marginal GDP produced by each dollar of debt is lower than it has ever been.

 

[divs4ever]

The investors in those long dated semi permanent or perpetual bonds know (or should know) what they are signing up for.

Yep, there is risk with bonds just like there is with shares and all the other instruments and securities you might choose to deploy your hard won capital into. It’s up to each investor to decide exactly what parts of the capital markets he wants to participate in.

Everything has risk, even cash at bank or gold bars in a safe have risks and costs.

Whether you decide to put your cash in a CBA cash account, a CBA bond or debt security or shares in CBA each option has its own risks and rewards, it’s up to you as an investor to decide which options appeal to you based on their range of possible outcomes under different circumstances.

'should ' i agree but many put their faith in fund managers ( i hold CAM and IBC which gives me a small indirect exposure to interest-rate bearing securities )

and previously ( mostly before 2017 ) gleefully , and with overall success parked money in that sector ( including two perpetual instruments both redeemed after refinancing moves ) , so yes i understand the difference between 'yields' and ' coupon-rate ' and the importance of BBSW on your returns ( and the current capital value of your investment )

AND i see many of examples of sovereign bonds and bills described as 'risk-free' and NOT by uninformed retail investors , either (much to my annoyance )

risks yes , even cash ( of no collector value ) stored in the drawer/under the mattress runs the risk of incremental loss by inflation

however cautions such as yours , are often hidden in the fine print , or quickly skipped over to accomplish sales or commissions more easily

i remember my first ( and only ) financial adviser carefully ( without disclosure ) steered me towards a company product , which was probably a lucky break for me , i decided to make all those decisions myself , saving myself some fees , commissions , at the diminution of innocence and naivety

 

[waterbottle]

Xi Jinping in for a 3rd term

 

[divs4ever]

Are we really going to pick this nit?

If you reduce it to an absurd example of two people with magical spending based on ?‍ income and no priors then sure you can make anything work.

Generally speaking, in the aggregate of an economy, especially a globally interconnected credit economy, debts that fuel productive activity are easier to pay off than debts that don't. Like I said, in aggregate. Not two people.

won't be globally interconnected for long

regarding ' no priors ' my first property investment was pushed into 'sub-prime ' mortgage ( and second mortgage ) because i had 'no credit history ' as time went by i proved to be a better credit risk than both finance companies and the property vendor ( all of which are no longer in business )

two people as a a beginning example is excellent , given many people were flashed past basic maths onto 'computer programming ' and web design , bypassing sophisticated concepts like the Austrian School of Economics .

even now at professional levels Keynesian and MMT are embraced with enthusiasm ( while deriding the consequences of the wanton application of those theories )

 

[divs4ever]

Xi Jinping in for a 3rd term

did you really expect a different result , next time , yes he will be theoretically too old ( so a rule change would be needed for him to continue , so maybe there will be uncertainty in five years time )

watch for the next leader to be groomed and eased up the ladder to the top job ( or not ) , given the CCP hopes each leader will reign for at least 10 years

now of course the CCP regime could fall ( maybe copying the the rise of the Russian Federation ) completely out of sync to the West who are marching lock-step to a totalitarian world

 

[Value Collector]

Are we really going to pick this nit?

If you reduce it to an absurd example of two people with magical spending based on ?‍ income and no priors then sure you can make anything work.

Generally speaking, in the aggregate of an economy, especially a globally interconnected credit economy, debts that fuel productive activity are easier to pay off than debts that don't. Like I said, in aggregate. Not two people.

I am just pointing out that the economy doesn’t rely on growth to pay down debt, it just relies on activity, it can be the same level of activity of more activity or less activity.

But, also related to my other posts, total debt doesn’t have to go down for an economy to be healthy, healthy economies can persist with perpetual debt, debt isn’t bad, even non productive debt isn’t bad.

Debt is only bad at an economy level when large amounts of it can’t be serviced, and must be defaulted.

 

[Value Collector]

'should ' i agree but many put their faith in fund managers ( i hold CAM and IBC which gives me a small indirect exposure to interest-rate bearing securities )

and previously ( mostly before 2017 ) gleefully , and with overall success parked money in that sector ( including two perpetual instruments both redeemed after refinancing moves ) , so yes i understand the difference between 'yields' and ' coupon-rate ' and the importance of BBSW on your returns ( and the current capital value of your investment )

AND i see many of examples of sovereign bonds and bills described as 'risk-free' and NOT by uninformed retail investors , either (much to my annoyance )

risks yes , even cash ( of no collector value ) stored in the drawer/under the mattress runs the risk of incremental loss by inflation

however cautions such as yours , are often hidden in the fine print , or quickly skipped over to accomplish sales or commissions more easily

i remember my first ( and only ) financial adviser carefully ( without disclosure ) steered me towards a company product , which was probably a lucky break for me , i decided to make all those decisions myself , saving myself some fees , commissions , at the diminution of innocence and naivety

A government bond from a country such as the USA, has got to be the closet thing to “risk free” as can exist, as I said n thing is risk free, but I can’t think of anything with less risk than a USA treasury bond.

I mean cash at bank up to certain levels is basically risk free because of the government guarantee, but if you trust the government to guarantee your bank account you have to trust their bonds.

I mean if your goal was to preserve $1 Billion dollars (ignoring inflation), I can’t think of a safer place to put it than government bonds of a country like the USA where they control the printing presses.

 

[waterbottle]

did you really expect a different result , next time , yes he will be theoretically too old ( so a rule change would be needed for him to continue , so maybe there will be uncertainty in five years time )

watch for the next leader to be groomed and eased up the ladder to the top job ( or not ) , given the CCP hopes each leader will reign for at least 10 years

now of course the CCP regime could fall ( maybe copying the the rise of the Russian Federation ) completely out of sync to the West who are marching lock-step to a totalitarian world

No not really, but it doesn't give him free reign to do whatever he wants... Maybe this is the end of the covid lockdowns

 

[qldfrog]

Like I said, this is largely not the case. Most debt in capitalist economic systems, in aggregate is productive, even today, when the marginal GDP produced by each dollar of debt is lower than it has ever been.

If the GDP grow by 50 billions after a stimulus of 100 billions, do you consider this a productive use of debt..to fund the stimulus?
Genuinely interested in your view.
While the figures are chosen for simplicity, the case is actually real and relates to a gdp increase seen as growth a couple of months ago while the $ increase to the economy was lower than the stimulus amount
The newspapers at the time were rejoicing about the Australian economy growth....

 

[bluekelah]

did you really expect a different result , next time , yes he will be theoretically too old ( so a rule change would be needed for him to continue , so maybe there will be uncertainty in five years time )

watch for the next leader to be groomed and eased up the ladder to the top job ( or not ) , given the CCP hopes each leader will reign for at least 10 years

now of course the CCP regime could fall ( maybe copying the the rise of the Russian Federation ) completely out of sync to the West who are marching lock-step to a totalitarian world

Xi has an only son who is now 30yrs old. I am pretty sure he will pave the way for his son to take over, or at least he will try. Same as Putin who thinks of himself as a new age Tsar, Xi is probably having the same mindset of being a new age emporer

I dont think CCP will fall per se (it would take another revolution, very hard to do in today's world where information is easily monitored and censored) but i think economically China is getting much closer to a similar situation to Japan just based on a very quickly ageing demographic and population decrease. So economically falling is more of a certainty than regime change.

West side it will be very interesting to watch what happens in Europe with the war / "energy crisis" / "financial crisis" /inflation all happening at the same time, something looks like about to break anyday.

Yanks are still dandy till election time as it seems somehow 3Q GDP to be reported next week will be very positive. Which will mean more rate rises, higher oil prices and higher USD killling the rest of the world.

 

[Value Collector]

If the GDP grow by 50 billions after a stimulus of 100 billions, do you consider this a productive use of debt..to fund the stimulus?
Genuinely interested in your view.

Yes, if the alternative was a drop by $250 Billion, for example if the economy was on track to going to lose $250 Billion and instead grew by $50 Billion then that $100 Billion investment was great value.

Also, if it only took a $100 Billion investment it create growth of $50 Billion growth in GDP that stuck around for a few years then yes that would probably also be a good investment.

 

[divs4ever]

Xi has an only son who is now 30yrs old. I am pretty sure he will pave the way for his son to take over, or at least he will try. Same as Putin who thinks of himself as a new age Tsar, Xi is probably having the same mindset of being a new age emporer

I dont think CCP will fall per se (it would take another revolution, very hard to do in today's world where information is easily monitored and censored) but i think economically China is getting much closer to a similar situation to Japan just based on a very quickly ageing demographic and population decrease. So economically falling is more of a certainty than regime change.

West side it will be very interesting to watch what happens in Europe with the war / "energy crisis" / "financial crisis" /inflation all happening at the same time, something looks like about to break anyday.

Yanks are still dandy till election time as it seems somehow 3Q GDP to be reported next week will be very positive. Which will mean more rate rises, higher oil prices and higher USD killling the rest of the world.

Xi's father was only a high-ranking general in the Mao army , all those other CCP top level will have some children as well , so whoever rises to the top will need more than just bloodlines , i believe there is an age limit ( unless it is changed within the coming 5 years ) so Xi might be expected to stand down to a less stressful post ( maybe very senior adviser to the new president )

China has the opportunity to reverse the aging demographic issue , but whether it chooses to , or can do so successfully remains to be seen . ( China can always lure ethnic Chinese back to the mainland , hundreds might be enough to reverse the trend , over time )
China MIGHT be happy to see India leap-frog it to become top economy , taking the pressure of expectations off of China ( for another 100 years or so ) giving it time to sort out it's own internal problems first ( and focus on exploring space )

the West ?? i guess time will tell , i think the Taiwanese ( intelligence services ) got it right laughing at the greedy kleptocrats , that fell into all sorts of traps and honey-pots

 

[divs4ever]

If the GDP grow by 50 billions after a stimulus of 100 billions, do you consider this a productive use of debt..to fund the stimulus?
Genuinely interested in your view.
While the figures are chosen for simplicity, the case is actually real and relates to a gdp increase seen as growth a couple of months ago while the $ increase to the economy was lower than the stimulus amount
The newspapers at the time were rejoicing about the Australian economy growth....

depends on how they count GDP , now

maybe GDPs ain't all the same ( data calculation method )

 

[Smurf1976]

Nope, thats a fallacy.

The fallacy suggests that if you loan $100 into existence and charge $5 interest, the total amount of $105 which is repayable is impossible to repay because only $100 exists, this ignores the fact that the debt and interest doesn't have to be paid all at once, and the interest charges can be spent back into the economy allowing debts much larger than the actual original principle amounts to be paid off.

I won't claim to be an expert on this but I'm not convinced. At least not yet.....

Now I'm not a central banker but let's suppose I am. I'm the CB and you owe the money.

To be clear, the task is to repay the debt in full. That means you can't take out a new debt in order to repay the existing one. You need to hand me the $105 and clear the debt completely. That's the task - to actually repay all the debt.

I can follow where you get the $100 from. I as the central banker created it. Assuming you haven't lost or set fire to it, it must be around somewhere.

Where does the $5 come from? I haven't created this and I don't allow anyone else to print money.

What am I missing here?

 

[mullokintyre]

What am I missing here?

A creative accountant.
Mick