Markets Party Like the 1920's with an Economy of the 1930's

[Austrian Economics]

Aren't governments and central banks keeping the equities stable/rising to protect the avg Joe&Jane 6-pack's IRA and RSP and their corporate pension???
The ultra rich are benefitting from government actions to avoid a crash, that would wipe out 70% of the citizens.

Since most pensions either invest or are required to invest in fixed income, how does zero percent interest protect a pension plan?

[bucket]

Since most pensions either invest or are required to invest in fixed income, how does zero percent interest protect a pension plan?

CPPIB bought what ....125000 acres of land...until they got their hands slapped.....the rent will be far more than current interest rates...

[Austrian Economics]

Soaring asset values have given rise to what we commonly call the "wealth effect". But what's the actual nature of this effect when interest rates go to zero in a fiat currency system?

Today's wealth effect is actually a corrosive process in which one person's capital is converted into income that is then consumed.

This is not the same process that occurs when capital is invested and the dividend provides income which is then consumed.

With dividend yields collapsing along with interest rates, this sustainable cycle is not happening any more. Capital itself is being cashed out and consumed as if it were income as people retire or simply give up trying to run a business with next to negative returns. When the capital is consumed, it's gone forever.

[farming101]

3 things come to mind based on biglentil's attached graphic:

Why will Canada default?
Why will those who hold Canadian denominated debt suddenly lose faith that they can redeem it and what will they exchange that debt for?
Just why is the CAD rising against the USD?

[Austrian Economics]

CPPIB bought what ....125000 acres of land...until they got their hands slapped.....the rent will be far more than current interest rates...

Look at the mandates for pension funds, mainly pensions for government workers. It's common for them to have a legal requirement for significant portions of their portfolios to be invested in government debt. The interest on that is effectively zero now.

Rent is following interest rates as a proportion of land value. In other words, land values are appreciating at a far faster rate than rent, as is generally the case. These pension funds typically have to flip the land after a few years for a capital gain which the pension fund then doles out to retirees to be consumed. None of this is sustainable.

[beaverdam]

Since most pensions either invest or are required to invest in fixed income, how does zero percent interest protect a pension plan?

I was speaking of equities held in pensions.

So some are forecasting neg interest rates, at some point that should trigger an economic collapse,,, then what?

Back to some historical normal like 3-6%

or continued low interest or some level of neg, to spur industry?

sky high interest like the 80's, to encourage saving?

the Great Reset will give 75% of the population a Basic Income, no need to save or invest???

[burnt]

Aren't governments and central banks keeping the equities stable/rising to protect the avg Joe&Jane 6-pack's IRA and RSP and their corporate pension???
The ultra rich are benefitting from government actions to avoid a crash, that would wipe out 70% of the citizens.

DING!! "What is fascism?"

[errolanderson]

The MSM narrative of the deflationary boogeyman is equivalent of the Covid 19 boogeyman. Neither have any teeth. What we have is the 'crack up boom' facilitated by monetary expansion. It's equivalent to the ancient alchemaic pursuit to turn lead into gold, in modern day its the goal of turning freshly printed paper into prosperity. All attempts of the fiat monetary experiment fail miserably. The modern monetary theory that countries are embarking upon IS inflation on steroids, price inflation lags but always follows.

biglentil . . . always enjoy your comments . . . my two-bits . . . .

Covid and the deflationary boogeyman both have a serious bite. This will be a changed world. There are serious deflationary pressures coming down-the-pipe in some sectors despite bloated money-printing . . . along with serious inflation in some sectors. In other words . . . winners and losers in the business world.

Economics at-its-most bizarre. Nothing hangs together . . . .

[errolanderson]

Here's a market comparison of price changes from December 30, 2019 to December 30, 2020.

The Winners . . . .

Bitcoin . . . . . . . . . . . . . up 400%
Soybeans . . . . . . . . . . . up 37%
Kansas City Wheat . . . . up 36%
Canola . . . . . . . . . . . . . up 32%
Minneapolis spring wheat up 24%
Gold . . . . . . . . . . . . . . up 24%
Corn . . . . . . . . . . . . . . up 21%
CME Oats . . . . . . . . . . . up 19%
Soyoil . . . . . . . . . . . . . up 17%
Natural Gas . . . . . . . . . up 10%
Dow Jones . . . . . . . . . . up 7%
Toronto TSX Index . . . . . up 3%
Spot Cdn Dollar . . . . . . . up 2%


The Losers . . . .

Crude Oil . . . . . . . . . . . down 33%
Live Cattle . . . . . . . . . . down 9%
U.S. Dollar . . . . . . . . . . down 7%
Lean Hogs . . . . . . . . . . down 6%
Feeder Cattle . . . . . . . . down 3%

[jazz]

Cant really read your chart BL. I am pretty interested in the content. Maybe you cna piece it up or something.

Just a reminder back in the 90s, if anyone remembers when our debt to gdp was 66%, Canada was a few quarters away from a default. The only difference then is we actually had some responsible grown ups in the govt who jumped into action immediately and got it under control pretty quick.

back then they did some pretty draconian things to rescue the economy. GST raised and raided the EI fund and drastic spending cutbacks.

But at the same time the chretian govt did a big infrastructure program that wasnt sustainable bike paths in Ottawa. They gave funds to municipalities to upgrade water and waste water infrastructure and major highways work. Thats how you bring an economy out.

I see none of that on the horizon now. EI fund will be empty. And with consumer inflation stalking the land a rise in GST will have the opposite outcome. Spending cutbacks?