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Old 11-28-2018, 04:14 AM
Danny B Danny B is offline
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Join Date: Oct 2012
Location: L.A. Ca.
Posts: 4,848
Creating $trillions to keep employment going

"There’s $3 trillion in outstanding dollar-denominated debt issued by Chinese companies" "Defaults on dollar-denominated Chinese bonds stood at $3.4 billion in the first 10 months of this year,"
"This is because more bonds are coming due. About $33.3 billion in dollar-denominated Chinese bonds are expected to mature each quarter through the end of 2020,"
"Data from Dealogic shows that 385 billion yuan ($55 billion) of local-currency debt and $15 billion of dollar debt will come due next year for Chinese property developers, "
China is in bad need of dollars and, Powell is cutting the supply.

"Earlier this year, I wrote a series of articles (synopsis and links here) predicting a debt “train wreck” and eventual liquidation. I dubbed it “The Great Reset.” I estimated we have another year or two before the crisis becomes evident.
Now I’m having second thoughts. Recent events tell me the reckoning could be closer than I thought just a few months ago."
"Central banks enable debt because they think it will generate economic growth. Sometimes it does. The problem is they create debt with little regard for how it will be used."
A common misconception. They are trying to preserve employment.
"China’s debt productivity dropped 42.9% between 2007 and 2017. That was the worst among major economies, "
Underwriting zombi companies to build 50 million extra housing units to keep people working

" Notably, the combined debt of the US, Eurozone, Japan, and China has increased more than ten times as much as their combined GDP [growth] over the past year.
Yes, you read that right. In the last year, the world’s largest economies are generating debt 10X faster than economic growth. "
With 96 million Americans of working age NOT in the labor force, what do you expect. The debt is being created to finance consumption, NOT investment.
"I am trying to imagine a scenario where this ends in something less than chaos and crisis. The best I can conceive is a decade-long (and possibly more) stagnation while the debt gets liquidated.

But realistically, that won’t happen because debtors won’t let it. And they outnumber lenders. For this reason, something like “the Great Reset” will happen first."

"After both investment grade and high yield bonds got crushed in the past month with spreads blowing out to multi-year wides and generated negative YTD returns as Morgan Stanley now sees the bear market gripping credit accelerating into 2019, many traders were wondering how long before the final bastion of the credit bubble - leveraged loans - would also pop.

It appears the answer may be "now" because as Bloomberg reports,"
Check out the graph,
"As for the leveraged loans underlying these CLOs, Morgan Stanley has been warning that covenant quality is weaker than 2007"
Covenants are protection clauses in financial instruments. They cost money and, are slowly being weakened. (covenant lite)
"Morgan Stanley also expects new issue supply to fall to $90 billion for 2019 from $126 billion this year"
To the asset markets, this is a serious deflation of liquidity.
"As a result, the bank recommends defensive positioning "in AAAs instead of junior AAAs or AAs because of the better liquidity and lower spread duration"
This pulls liquidity OUT of junk bonds that so many companies depend on. That is the reason that Ford is expected to crash.

Exclusive: The Pentagon’s Massive Accounting Fraud Exposed
Posted on November 27, 2018 by Dave LIndorff
How US military spending keeps rising even as the Pentagon flunks its audits.

By Dave Lindorff

On November 15, Ernst & Young and other private firms that were hired to audit the Pentagon announced that they could not complete the job. Congress had ordered an independent audit of the Department of Defense, the government’s largest single cost center—the Pentagon receives two out of every three federal tax dollars collected—after the Pentagon failed for decades to audit itself. The firms concluded, however, that the DoD’s financial records were riddled with so many bookkeeping deficiencies, irregularities, and errors that a reliable audit was simply impossible.

Deputy secretary of Defense Patrick Shanahan tried to put the best face on things, telling reporters, “We failed the audit, but we never expected to pass it.” Shanahan suggested that the DoD should get credit for attempting an audit, saying, “It was an audit on a $2.7 trillion dollar organization, so the fact that we did the audit is substantial.” The truth, though, is that the DoD was dragged kicking and screaming to this audit by bipartisan frustration in Congress, and the result, had this been a major corporation, likely would have been a crashed stock.

As Republican Senator Charles Grassley of Iowa, a frequent critic of DoD’s financial practices, said on the Senate floor in September 2017, the Pentagon’s long-standing failure to conduct a proper audit reflects “twenty-six years of hard-core foot-dragging” on the part of the DoD, where “internal resistance to auditing the books runs deep.” In 1990, Congress passed the Chief Financial Officers Act, which required all departments and agencies of the federal government to develop auditable accounting systems and submit to annual audits. Since then, every department and agency has come into compliance—except the Pentagon."
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