Thursday, August 6, 2015

Debt Denominated Debt

Went through a few mainstream pieces today about Puerto Rico, mainly to ascertain what's up with their plan to become the next Singapore. That debt thing may put a wrinkle in their plans, but then again, how they respond to it may make all the difference. Frankly, I think people who lend money to foolish governments are part of the problem, whereas foolish people are part of the scenery. The people will always be amenable to voting themselves more stuff- that's why they shouldn't vote. The people with high enough IQs to be in a position to loan money to a misbehaving government- well, they've got a clear moral problem, and probably ought to lose every now and then.

Anyway, while I was exposing myself to the misery that is mainstream stuff, some alleged experts were talking about how Yellen really needs to raise rates. Do they understand the necessity of debt to this economy? They don't just print the stuff anymore- dollars are created via debt. An increase in the interest rate means fewer people willing to go into debt. There will be some defaults, and most certainly deflation as people try to get out of debt. It also means a lot of big money will likely move into the bond market.

Meanwhile these apparently rich guys are saying on television that raising rates will lead to a huge bull market in stocks.

Relative to stocks, the dollar and bonds will be more attractive, so if these guys really are rich, they are talking nonsense on TV while positioning themselves to take massive profits.

I am surprised how few of the things I heard I actually agreed with, right down to the idea that Puerto Rico would necessarily be better off if it had some official way to go bankrupt. That is not clear at all. Their creditors might be better off under those conditions, but I don't know if the island would be. There are way to many variables too simply accept such a notion so readily.

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