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    Quote Originally Posted by Mcgyver View Post
    yet that is one of the key reasons its is simple not workable or taken seriously. You're trying to turn that RH tap counterclockwise
    Well thats one way of looking at, in reality a GS doesnt stay at 1 to 1 for long does it. The Austrian school of thought take it seriously, difficult ime to have a conv with them about any of the shortcomings.

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    Quote Originally Posted by Demon73 View Post
    Well thats one way of looking at, in reality a GS doesnt stay at 1 to 1 for long does it. The Austrian school of thought take it seriously, difficult ime to have a conv with them about any of the shortcomings.
    I don't know of any credible school of thought that thinks a deflationary currency could work, If you think it through how could it be otherwise? As you point out, the GS would be deflationary. If you agree with that, and agree it can't stay 1:1, whats the point?

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    Quote Originally Posted by PeteM View Post
    While we're musing about fractional reserve and the money supply, riddle me this -- does it accelerate resource collapse? We already saw (in 2008) how debt from a relatively few players accelerated a global economic near-collapse.

    A somewhat serious question. Regardless of whether we think it's the banks or borrowers that create new money in a fractional reserve system -- when someone goes into debt to buy a car, build a home, or start a business they're also usually placing an unrecorded debt with "mother nature." A new car requires us to find a ton of steel, lots of rare earth materials, and maybe 200 barrels of oil over its lifetime. At 70 million new cars a year, that adds up. A house will similarly use resources, not all of them renewable. With 7+billion wanting houses, that adds up. Depends on the business what resources are consumed, some sustainably and some not. Just computing (servers, cloud, devices, communications, bitcoin "mining") uses near 20% of our power. Right now we value these resources at just the cost (+profit) of dragging them out of the earth and oceans.

    If we "create money" at something like a 5x ratio, we're also creating a 5x call (on average) on resources. Hard to know if this makes any difference in the short run. Probably not as long as we have clean air, clean water, plenty of rare earth metals, oil and coal still cheap, deep topsoil, huge stands of timber, friendly climate, and various pests, bacteria, and viruses our bodies mostly know how to handle. But in the long run, lots of the energy and resources we "borrow" aren't easily replaced.

    So, in a sense, when we go into deeper economic debt (and then highly leveraged) to pump up lending, we're also going deeper into environmental debt. Both kinds just might be subject to sudden collapse here and there. We don't do a very good job of figuring out the ROI and future impacts of monetary debt. Worse still, I suspect, of environmental debt.

    My own back of the envelope calculation is that over the past 3 years (before the latest orgy of debt) we were borrowing a bit over $1 trillion a year to stimulate the economy. Seems between air pollution ($600B), water pollution ($300B) and damage to infrastructure from increased storms,fires,drought,flood (maybe $400B?) we've been borrowing as much from the environment. Meanwhile we're set to further roll back regulations requiring fuel efficiency, not so much mercury released into the air and water, etc. . . . as another sort of monetary stimulus to the Dow. It's also yet another debt to eventually be paid.
    Id encourage you to put the environmental to one side for a moment and simple things up as much as you can. At a glance I agree that theres a seemingly finite amount of resource which doesnt fit with exponential growth, and we sure have plundered it over time.

    Fractional reserve banking:- When I was fresh with Positive Money its how I thought things worked, the standard 10x money multiplier detailed in modern money mechanics. It implies commercial banks have limited capacity to create new money through loans, (broad - wide money). Through this lens banks are essentially intermediaries plus a bit.
    According to some very credible sources it doesnt work quite like that. A closer description might be that banks have an equity base, money provided by investors of the bank. You can think of this as a cushion for when loans/investments go bad. Theres no physical limit per say other than the banks confidence to 'lend' and folks appetite for loans. The standard figure put about is 10% equity. In the 2008 downturn it wasnt uncommon to see banks at just 3% and in some cases less. The Big Short if youve not already seen is a great watch.
    Commercial banks put simply create our money (broad money). Theres no limit provided by central bank money, sometimes called high power or narrow money.

    Debt in monetary terms:-
    Is a natural part of 'loaning' money into existence. Its worth thinking about carefully because we the public generally see it as bad. Again id suggest try and keep things simple and small.
    Imagine 3 loan situations:- In each the guy making you the loan snaps his fingers and the cash appears.
    1) You have to pay the money back at a set time along with 10% interest.
    2) You can keep the loan rolling for as long as you like but you still need to pay the interest.
    3) As in '2' but any interest the guy makes out of you he gives you back.

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    Quote Originally Posted by Mcgyver View Post
    I don't know of any credible school of thought that thinks a deflationary currency could work, If you think it through how could it be otherwise? As you point out, the GS would be deflationary. If you agree with that, and agree it can't stay 1:1, whats the point?
    Ive no real views on any of the systems per say mac, they can all work to a fashion in different scenarios and they can all be abused so ill swerve that debate across the board. Talking about how the GS can be used/abused in simple terms might be useful.

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    Quote Originally Posted by Mcgyver View Post
    I don't know of any credible school of thought that thinks a deflationary currency could work, ...

    PLEASE PLEASE PLEASE do not say this in front of trump. That's *all* we need right now, what with injecting bleach and anti-malarial drugs and all
    the other fantasy-land ideas.

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    “Oil's Collapse Is a Geopolitical Reset In Disguise“

    “ Prepare for more fragile, or even failed, states and the risks that can accompany them.

    For dozens of oil producers, the plunge in oil prices is devastating. No major oil producer can balance its budget at prices below $40; according to the International Monetary Fund, with the exception of Qatar, every country in the Middle East requires at least $60, with Algeria at $157 and Iran at a whopping $390. The average Brent price of oil over the past month has been a hair above $20.”

    https://www.google.com/amp/s/www.blo...et-in-disguise

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    Quote Originally Posted by Mcgyver View Post
    There is no question who increases the money supply, the Central Bank. Same everywhere afaik. To say otherwise is to believe the world is flat. The banks are the distribution channel, its the Fed that determines what they get via how much they buy/deposit in OMO.

    As to your question, I think you are confusing wealth and consumption with money supply. Increasing the money supply doesn't increase the supply of goods and services or give anyone more to spend - relative to price. i.e. money supply does NOT expand the economy.

    Increased consumption comes from expansion of an economy which basically comes from more productivity and/or more people. . .
    Loans made possible from money created out of thin air require three parties. First, a Federally sanctioned fractional reserve system. Second, a bank taking advantage of it (and as the previously cited video notes, acting on their own once that system is in place). Third, someone taking out that loan. Without all three, no loan. Sort of like asking which comes first, the chicken, the egg, or the omelette. There are plenty of credible economic sources that will say it's the banks or the debtors, as well as the Fed. Probably videos on all three as well. In reality, it takes all three.

    As soon as that loan is taken it (usually) sets in motion some expansion of the economy. Indeed, that's the whole purpose of the stimulus. True enough that pumping money in without anyone wanting a loan causes inflation. But the context here was how we create 5x or so the money to loan and those loans end up also committing environmental debts. A car bought and an auto supply chain reaching back to that ton of steel. A home built and timber cut. Maybe an Internet business spawned and new demand for electricity. By and large (except for the looming environmental impacts) we welcome that. My point is that we're approaching a time when we can't blithely ignore the environmental debts in an attempt to pump up, say, the stock prices of the 30 DJIA companies.

    About the only exception -- and it's just an even more highly leveraged bet on the production of housing -- might be cases like a Goldman Sachs creating something like mortgage-backed derivatives, which had the effect of artificially pumping up housing prices (and thus artifiicially pumping up GDP) and also enriching the the GS execs who ran this unregulated scam.

    If we look at finance as a black box, with inputs and outputs, a few things seem apparent about its operation:

    1) Debt as an increasing input to the financial "black box", without a corresponding increase in output. In addition to the normal highlly leveraged fractional banking system (where money is created inside the box) we've been borrowing a trillion extra per year in terms of government debt and pumping it into the economy. Roughly 5% ($1 trillion of a $20 trillion economy) as input. On the output side, we've only been seeing about a 3% growth rate in GDP. We're soon about to pump in something like 10-20% of former GDP (all debt) in an attempt to have GDP lose "only" a percent or two. Surely we should be questioning how long this can continue. Far as I can tell if we borrow 5-15% of GDP to end up with 3% GDP growth (or less, much less, now) on the output side, we're in decline. Even fake perpetual motion machines do WAY better.

    2) Money disappearing inside the black box?
    Those "inside" the black box (various banks, investment banks, hedge funds, private equity firms, finance arms of large companies, etc.) seem to be getting wealthier and wealthier, as inequality rises and the making-money-on-money fraction of our population (some of the .1%) ends up owning more and more of the country . We're back to the Gilded Age. Classical economics treats this black box as a mere facilitator, with so little gone to operating it we needn't pay attention. In addition, while there's plenty of money for risky high profile ventures (say, Enron, or Goldman Sachs gaming the aluminum market), it's a whole lot harder for a small business to get a loan. Surely we should start paying attention when so many of our Forbes "richest" are now inside that black box and arguably not adding much real value - sometimes actually destroying value.

    3) Environmental "debt" willfully ignored. Roughly equal to the capital inputs (both actual savings and debt pumped in) are environmental inputs. The later are being valued at basically the costs of extraction plus profit. An increasing percent of these iresources (clean water, clean air, rare metals, favorable climate, deep topsoil, biodiversity, etc. ) can't easily be replaced. Quite literally a debt we can't repay. We've been pumping in at least another $1 trillion or so of borrowed environmental resources into the economy - making both economic and environmental collapse more likely. The reason we're now doing things like abandoning fuel economy standards or allowing more mercury emissions from something like burning coal is that it makes measures like the DJIA look a bit better in the short term. But, surely at the risk of the not so distant future.

    4) Increasingly hollowed-out GDP numbers on the output side. So, we're borrowing on the input side (both economic debt and environmental debt) in an attempt to juice up the economy. We've also watched more and more of that flow through our "black box" economy end up in the hands of banksters. What about outputs? GDP is the aggregate -- and if we look at it more and more of this is "output" isn't really benefitting the nation. Back in 2008 nearly half the nation's GDP profits were in the financial sector. Our healthcare and pharma cost 2x other nations, but don't improve longevity. Indeed, a grab for money gives us things like the opioid crisis -- and a surprisingly fragile system in terms of response to the coronavirus. Finance and insurance rip us off, scandal by scandal. Once vaunted manufacturers like Boeing (737 Max) and GM (igniton switches) choose to kill customers rather than miss a quarter's profit. List could go on - trillions wasted in stupid wars, deteriorating infrastructure . . .. Point is, a significant porton of what we consider economic output simply isn't contributing to our quality of life.

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    Quote Originally Posted by Trboatworks View Post
    For dozens of oil producers, the plunge in oil prices is devastating.
    Life's tough all over. They'll manage I suspect. Alternative is we pass the hat
    and take up a collection. Doubtful. Maybe for every penny below a dollar a gallon
    for gasoline, we donate a dollar a month to them.

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    I'll say it again, there will be a complete reset of the global financial system.
    Come the other side of Covid 19, every country will have amassed so much debt, and having weakened and depleted populations unable to service said debt, they will all have to find a way of ''parking'' / writing off said debt and starting over.

    A way was found to help the banks out of the 08 crash, as one will be found to sort the pandemic out.

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    you are looking for the boogyman again Pete. The banks will lend out the money, self interest and all, and of course can only do so when the Fed decides to increase the money supply. You're dead wrong about pumping money in when no wants a loan causes inflation. Its the loan and multiplier that brings about the increase and hence inflation, remember more dollars chasing the same number of goods.

    Monetary policy is traditionally not supposed to be a stimulus. Its supposed to keep inflation in the low single digits, but expand the money supply to prevent deflation - basically have money supply expansion track economic expansion. Stimulus is suppose to come from fiscal policy. Now with QE, the stimulus comes from increased availability of credit and low interest rates that come from the expansion. I can't say I think QE is a good thing, but it may be a reasonable reaction to abysmal fiscal policy.

    Money supply is money supply, I think with the black box thing is more like a tinfoil hat thing and you're looking for a way blame a sector you don't like. There's aspects i don't like either, and the gap between haves and have nots can't keep growing however the way to address this is fiscal policy.

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    Quote Originally Posted by jim rozen View Post
    ... injecting bleach and anti-malarial drugs and all
    the other fantasy-land ideas.
    You say zelenko, I say zalinsky, lets call the whole thing off. Trump's buddy Corsi does it again,
    butt dials a federal prosecutor over malaria drug scam. Instead of the guy also in the scam. How
    sweet are republican tears.

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    Quote Originally Posted by Limy Sami View Post
    I'll say it again, there will be a complete reset of the global financial system.
    Come the other side of Covid 19, every country will have amassed so much debt, and having weakened and depleted populations unable to service said debt, they will all have to find a way of ''parking'' / writing off said debt and starting over.

    A way was found to help the banks out of the 08 crash, as one will be found to sort the pandemic out.
    I'm sure what will come out of this is a lot less banks too.
    Mario Draghi (European Central Bank president) said only a few months ago that "there are too many banks in the EU".
    So enforced debt = survival of the fittest, as they sweep up the smaller weaker banks...

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    Quote Originally Posted by barbter View Post
    I'm sure what will come out of this is a lot less banks too.
    Mario Draghi (European Central Bank president) said only a few months ago that "there are too many banks in the EU".
    So enforced debt = survival of the fittest, as they sweep up the smaller weaker banks...
    Who will no longer be in a position to kick against the real big boys and movers n shakers etc etc method of restructuring the entire financial system,...………..with even the hawks on Wall Street eventually going with the flow, ………..when of course they realise it will be the only game in town

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    Quote Originally Posted by Mcgyver View Post
    you are looking for the boogyman again Pete. . . .I think with the black box thing is more like a tinfoil hat thing and you're looking for a way blame a sector you don't like. There's aspects i don't like either, and the gap between haves and have nots can't keep growing however the way to address this is fiscal policy.
    The intention on the inflation thing was that money loaned out and not put to productive use ends up inflating things.

    You're right that I am trying to track down the "bogeymen" involved. I just don't think they are imaginary.

    I grew up in an economy dominated by productive enterprises (agriculture, manufacturing, professional services).

    Now we have an economy dominated by finance, booming and busting every ten years, with rising inequality, kids unable to afford their educations, find jobs after, much less buy a home. As a nation, not sure we have any plan when, say, we automate a million truck driver jobs out of existence.

    Too-big-to-fail industries buying political and regulatory favor.

    Trillions lost in stupid wars.

    Healthcare costing 2x what it should and a "system" left that now has the the most lives and most dollars lost to coronavirus of any.

    Increasing environmental damage and unwillingness to even talk about climate change, for short term gain.

    A pharma-led opioid crisis killing more than heroin on the streets. Guys like Shkreli increasingly common as pharma CEOs.

    Trillions borrowed to pump up the DJIA, now in a complete bust and requiring trillions more.

    Seems to me these are real, not imagined, problems. Question is how do we fix them?

    As for the "black box" notion - this is my own attempt to try to sort this out. Haven't seen it elsewhere, though the idea is old enough (goes back to early attempts to sort out complex systems) surely someone else has. If you think I'm missing something in terms of outputs and their quality (GDP), or that what we borrow from the environment isn't really an input -- or monetary debt isn't an input -- or that the toppy top of our financial sector isn't getting richer as the middle class shrinks -- be happy to know why.

    As just an example, what does it mean that (under Obama and doubled down under Trump) that we borrow 5% of GDP to make that number larger, only actually see under 3% of GDP "growth" and count this as the greatest economic miracle of the past century? And now, we're borrowing more like 15% of GDP just to hope we only lose maybe 1-2% of GDP and see that is the sort of solution (in 2000, 2008, 2020) we'll keep doing for the future?

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    Quote Originally Posted by PeteM View Post

    As just an example, what does it mean
    There is lots wrong with the world. We'd probably agree on most of it. What I object to, because its choosing the path of no hope, is the people who in ignorance erroneously blame the wrong things and in angst pick false saviours.

    The issues are fiscal policy and law related. How are ever going to demand better from politicians when instead of learning the subject people jump on board with crackpot who comes along? If people were educated on it, most here would be objecting to the nutbar stuff. Instead its argument about which way to turn a RH tap. Politicians must be rubbing their hands with glee at seeing people so easily distracted into thinking the issue is monetary policy, wanting a gold standard, saying deflationary is ok, that its a black box banking thing, etc.

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    The whole situation is a bit like the (great) movie "speed" with the central banks being the star, and hopped up on amphetamins (debt and gdp deficits) with a suicide grenade (confidence in the global monetary system, and the us $ (debt) in particular) strapped to all the 30+ major central banks hopheads.

    As was said, it may be that a way out is found via financial engineering, aka lies, to avoid a major issue aka global collapse of the financial system.
    I used to think this was impossible, now I am not so sure.

    E.
    If the big 5 economies agree that 100-year loans hived off to hold the national debts, at nominal 2% real interest rates (not paid but accumulated), are "real" then all nations are "wealthy" again and can continue to deficit spend another 30 years.

    This is just like QE, on steroids, and no more real or false than the US dollar.
    As long as all big economic players agree on the value, fictional, just like currency today, there is no reason endless debt cannot be piled up until the confidence is broken.

    Sooner or later the weimar republic, or zimbabwe, or brasil, effect will happen.
    Until that time real assets are being bought, and goods produced, and real value made in terms of tangible goods and services.

    If the saudis or the chinese called in their debts and wanted to liquidate off the US dollar, the US (and the world) economies would collapse.
    1.1T$ in debt to china, the US could easily pay, with a 20T$ economy and huge real assets.

    But a 1.1T$ margin call from china would collapse confidence in the US dollar, leading to a perhaps 20% lower value in US dollars, perhaps less to 30% losses.
    The US banks, the stock markets, and all major US corporations would be essentially bankrupt within days, if a sudden 30% drop in their dollar reserves value happened.

    The US corps could not afford to pay 30% more dollars to say EU trade partners for goods and services and outstanding commitments.
    The largest US trade.
    The EU trade partners would see their trade collapse, as suddenly their products and services to the US are unaffordable and insurance rates become higher than the gross margins on the products.
    EU major corps would collapse into bankruptcy.
    This would kill shipping, manufacturing, food, retail, banks, everything.

    A stable global currency system underpins oil, shipping, food, retail, electricity, electronics, netflix, everything.
    If say walmart, amazon and netflix went suddenly bankrupt in the US, so would the USA.

    It would be a systemic shock leading to cascade collapse, globally, on essentially basically generally healthy systems.

    Any talk of punishing china via not paying interest or threatening the IOUs the US has issued, must come from someone mad.
    And totally ignorant of realities and economics.
    The problem is not so much china debt - it is ALL total global US debt that every country from canada to australia would suddenly see at risk and essentially worthless due to political risk from one aberrant actor.

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    Here's a first pass at a summary:

    1) McGyver thinks the issues are legal (regulatory) and fiscal policy. I'd pretty much agree, but add an emphasis on our our changing (and not for the better) cultural values. Used to be we admired innovation, creativity, Yankee Ingenuity, knowledge, and value added in any productive realm. Now the cultural aspiration is more like being rich and famous via reality TV -- lying to get ahead -- or skimming a few billions out of the economy and then showing off our 300' yacht and most recent trophy wife on LIfestyles of the Rich and Famous. We still have admiration for our geeks and entrepreneurs actually adding value -- but it's being increasingly being crowded out by the other stuff.

    2) Hanermo thinks we're kicking the can down the road on fiscal policy -- and might even get away with it for as much as 30 years -- before a bust. Could be. My own take is that we'll get economically weaker, despotic regimes will get stronger, and the world will be a worse place. Given that "trust" determines how long we can keep kicking the metaphoric can and the dizzying rate at which the US is eroding trust - might well be a deep rather than a gradual loss of the freedoms we say we value.

    3) Pete thinks we're also kicking the environmental "can" down the road -- and might even get away with it for as much as 30 years -- before a double bust (economic and environmental) that will be crushing for the generation or two behind us.

    So, how do we keep from electing idiots? One thing is to get the hidden money out of politics. Bullock had a simple fix to make progress on that -- but barely a word of it since. Both parties promised, in 2016, to separate normal banking and personal/business loans from high risk finance. Nothing since.

    Another step might be the revulsion and pity at our politics (recent Irish Times editorial, an instance). Could be it won't be as popular to embrace reality TV stars as economic saviors as, say, the Angela Merkel's or Jacinda Adern's of the world?

    Other solutions? My own take is that this recession is a much a warning shot as the only bump in the road ahead.

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    The level of pessimism that I have witnessed of many recent posts is extreme.

    Most importantly, stay healthy and if you are, invest in your business.

    A boom in manufacturing is near, don't be caught leaning the other way.

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    Quote Originally Posted by otrlt View Post
    The level of pessimism that I have witnessed of many recent posts is extreme.

    Most importantly, stay healthy and if you are, invest in your business.

    A boom in manufacturing is near, don't be caught leaning the other way.
    Do you actually own a business, or are you an employee?
    Because as a business owner, I cant quite understand this "leaning the other way" thing. I currently have a couple of part time employees, but no way am I hiring anybody full time to work in the shop until I have a signed contract- and, in my industry, actual production work usually takes 6 months to 2 years after the contract is signed. So IF my work suddenly picked up, my real cash flow wouldnt start til late 2021...
    So I am leaning towards spending less, and keeping the floor swept.

    In 2008, I saw two years worth of work, WITH signed contracts, dry up and blow away in a couple months, and it took five years for it to get back to a half way decent point, still well below the early 2000s.
    So I am not holding my breath for C17s full of hundred dollar bills to be buzz bombing my place...

    A "boom" takes some time to get momentum- and I think you are dreaming if you think its coming any time this year. I suppose if the democrats win the presidency and the senate, and pass a WPA type bill, to spend $5 or $10 Trillion right away on infrastructure, but I sure dont think thats very likely.

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    Quote Originally Posted by Ries View Post
    Do you actually own a business, or are you an employee?
    Because as a business owner, I cant quite understand this "leaning the other way" thing. I currently have a couple of part time employees, but no way am I hiring anybody full time to work in the shop until I have a signed contract- and, in my industry, actual production work usually takes 6 months to 2 years after the contract is signed. So IF my work suddenly picked up, my real cash flow wouldnt start til late 2021...
    So I am leaning towards spending less, and keeping the floor swept.

    In 2008, I saw two years worth of work, WITH signed contracts, dry up and blow away in a couple months, and it took five years for it to get back to a half way decent point, still well below the early 2000s.
    So I am not holding my breath for C17s full of hundred dollar bills to be buzz bombing my place...

    A "boom" takes some time to get momentum- and I think you are dreaming if you think its coming any time this year. I suppose if the democrats win the presidency and the senate, and pass a WPA type bill, to spend $5 or $10 Trillion right away on infrastructure, but I sure dont think thats very likely.
    I'm the owner of this business (and that is the last time that I have to state that), furthermore, this isn't a garage shop.

    The acceleration of orders is off the chart, and there is no let up in sight.

    4 months into the year... if it comes to a stop on Monday,

    it will still be our best year ever.


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