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  • Danny B
    Fallout from the rise of the 10 year,,, Venezuela

    As I already posted, the Central Banks can buy U.S. public debt at no cost. The CBs are all just financing each other. Actually, they are just financing the FED. BUT, "US Fed lent $3.3tn to multinationals, billionaires and foreign banks"
    The bankers look out for each other. Private investors are a different story,
    Bond prices fall when yields rise – and being short the 10-year Treasury, and thus betting on a rising yield, has become a very crowded and profitable trade for hedge funds and other speculators.
    OK, so, a "short" bet is a bet that interest rates will go up.
    Alarm! 10Y Treasury Shorts Reach All-time High, Net Shorts For VIX, Gold and 10Y Treasuries Near Record

    Corporate America has debt equal to 50% of the GDP ($6 trillion) Raising interest rates will make it much harder for them to service their debt. Powell is determined to raise interest rates. The market is betting that this will happen.
    Raising rates is a full-on attack on both Europe and the East. China, in particular is sliding down.
    9/01 Less than 20% of Chinese bond defaults have been paid back – Bloomberg
    So, everybody is betting that the 10 year note will go up. What about the fallout? I already mentioned corporate debt. What else?
    As interest rates go up, everything else goes down. RE will fall.
    Here is a long, detailed article from 8 years ago, proving that interest rates on Treasury notes will eventually go to zero.
    Why US Treasury Notes Will Eventually Yield Nothing :: The Market Oracle ::
    Keep in mind that you must subtract the price inflation rate from the paid out interest rate on a bond. Price inflation is running just over 10%.
    Alternate Inflation Charts

    "Zimbabwe wrote the book on trying to print their way out of economic dysfunction and eventually stopped printing with a z$100 trillion bill. As we all know, a printing press that never stops promotes inflation that eventually makes the printing press irrelevant. Not long after the introduction of the z$100 trillion, Zimbabwe thought about introducing the z$1 quadrillion bill. "

    Venezuela, "In 2010 VEF-USD traded just above 8 bolivares per dollar in the black market. As of today it stands at more than 8.7 million bolivares per dollar" Here is the graph. The date of 11/17 marks the start of the rise. that is when Venezuela first defaulted.
    "The next chart shows Venezuela’s narrow money supply M1 since 2008 "
    "We calculated that Venezuela’s money supply growth amounts to 46.68 billion percent since the early 1960s."
    Venezuela ? An Economic Catastrophe in Charts |
    Socialism kills motivation at all levels. Price controls are especially corrosive. State-caused monetary inflation means that far more money is chasing the same amount of goods. This causes price inflation. If the State institutes price controls, the producer has no motivation to produce. He just closes up shop.
    Chavez / Maduro inflated the lower loop. Greenspan / Bernanke inflated the upper loop. Armstrong said the hyperinflation is reserved for peripheral economies. Central economies don't suffer it. BUT, Germany was a central economy when the Weimar hyperinflation hit.

    Powell seems to be betting that his attack on the rest of the world will not set off a debt crash in America. Long before we had instant worldwide capital transfer (1930), the crash of Credit Anstalt in Austria brought worldwide contagion to the banking system. Deutsche Bank is soon to have a shotgun wedding with Commerz Bank. The Italians are on track to bring down the ECB. Turkey is on track to bring down the Spanish banks.
    There will be plenty of default contagion to bring down American banks.
    Then, there is the looming Bexit that will / would be a disaster for British banks.
    A hard Brexit is looking increasingly likely ... - The Independent

    Powell is going to light something, somewhere.

    Leave a comment:

  • Danny B
    Looming deflation,,,dis-solution of empire.

    Government around the country is spending $ billions to (allegedly) help the homeless. Apparently, it is a big scam in most cases.
    Charles Huge Smith makes a back of the envelope calculation of the nominal wealth that will be lost when the bubble pops.
    "That's $30 trillion up in smoke, and we haven't even gotten to pensions and $15 trillion in "other financial assets." Whatever they are, we can bet that $10 trillion in pension entitlements and "other financial assets" disappear, too."
    "So a reasonable estimate is post-bubble, household net worth drops by 40%, or $40 trillion. "
    oftwominds-Charles Hugh Smith: Once the Bubbles Pop, We're Broke
    John Hussman shows a much larger deflation with his calculations.
    Chris Hedges has a lot of experience from his many years of work around the world. Here is his report.
    The emergence of the Eurasian land powers

    Once again, Armstrong claims that it is impossible to manipulate markets. Once again, he is leaving out a historical perspective. The price of tulip bulbs was completely manipulated in the short run,,, just like gold. The long run is a different story.

    "Our Democracy is based on Untenable Myths of Privilege"
    Once again, the ills of crony-capitalism and corporatism are blamed on democracy and capitalism.

    The loss of morality in the legislature allowed in regulatory capture.
    Regulatory capture allowed in high inflation in prices with almost no inflation in wages. Blame it all on corruption.

    Leave a comment:

  • Danny B
    Armstrong,,EMs running out of cash,,,The public food trough

    Armstrong in his echo chamber.
    "The economic growth has been declining for decades as has the velocity of money, As the velocity declines, it shows that people are either saving more or they do not have disposable income after taxes to spend"
    "the velocity declines because people really do not have the money after taxes to spend. This is one reason I keep harping on – it’s the taxes stupid!"
    95,745,000: Record Number Not in Labor Force
    BUT, it is the taxes that are curtailing spending.

    "We see this with central banks setting targets for 3% inflation and they cannot reach that level."
    Look at the stock market and tell me that they can't get 3% inflation.

    Armstrong, "They point out that corporate-buy-backs will also reach an all-time high in 2018. They present this as evidence that somehow these purchases are not legitimate. In truth, the excess cash has led companies to buy back shares "
    Buybacks were illegal manipulation until recent legal changes.
    "Excess cash"
    Debt for US corporations tops $6 trillion S&P Global
    Corporate debt is equal to nearly half of U.S. GDP

    Armstrong has his own agenda. He says that public debt will CRASH but, that the private debt / sector will do OK. FED GOV spends about 30% of the GDP. There is no possibility of the private sector coasting through this mess.

    8/31 Emerging market sell-off looks contagious – Bloomberg
    8/31 Economic doom returns as EM currencies crash to record lows – Economic Collapse

    This "turnaround" in exchange rates can result in an increase in debt repayment costs reaching an effective interest cost of 60% or higher.
    8/31 Italian bond market on edge ahead of ratings verdict – Reuters
    There will be some arm-twisting but, Italy can't survive without the ECB printing press.

    The weak currency States have to use their hard currency reserves to try to uphold the value of their home currencies. They pump dollars into the FX markets buying their own currency. How long can that go on?
    Here is a graph.
    "More importantly, what this ratio shows is how long a given emerging market has before it runs out of cash. And, as the chart below shows, if we were investors in Turkey, Ukraine, Argentina, or any of the other nations on the left side of the chart - and certainly those with less than a year of reserves to fund its external funding needs - we would be worried."

    You can bet that these weak States will stiff foreign debt holders to preserve capital for domestic use. Panic now and, avoid the rush.
    8/31 India’s rupee falls to an all-time low – CNBC
    Prime Minister Narendra Modi's Rise From Tea Seller to Prime Minister
    Slowly evolving;
    8/31 In a posh Bangkok neighborhood, residents trade energy with blockchain – Solarplaza
    8/31 Russian lawmaker suggests gold-linked cryptocurrency for weapons exports – GATA

    Eventually, the blockchain will bring some honesty to markets.

    German construction workers seal inflation-busting wage deal
    12/5/2018, "German unions and employers on Saturday agreed on an inflation-busting pay hike of roughly 6 percent"
    8/31 2018 Inflation nearly wipes out wage increase in Germany – Xinhuanet
    So, a 6% wage hike is inflationary but, constant price inflation is good for us.

    "unfunded liabilities of state-administered pensions now exceed $6 trillion. The number increased by $433 billion in the last twelve months"
    "The retired head of the Oregon Health & Science University takes home a pension of $76,111 — each month! Fifty-eight percent of police and firefighters in Scranton, Pa., are on disability pensions; the average retirement age of a Scranton police officer is just under 45 years old. "

    "note the strong correlation between states that have managed their pension programs responsibly and states with pro-growth economic policies that favor free-market solutions over government ones. Note that each of the five states with the highest funding levels are also states that rely less on the government to sustain their economies. In none of these states does government control more than 45 percent of the economy,"
    "On the other end of the spectrum, 57 percent of Kentucky’s economy is controlled by government, while the public sector controls 55 percent of Mississippi’s economy. "

    Leave a comment:

  • Danny B
    The end of the Central Bank?

    The G-30 published an important paper on the creation and role of the Central Bank. After the forward, on page one,,, at the bottom, the G-30 have this to say, "Central banks were first established in the 17th
    century, with the primary purpose of providing war finance to governments and managing their debts. "
    It was never about doing something beneficial for the people. The controllers of the printing press were / are only concerned about war and State debt. There has been FAR too much of both of these abominations.

    In the Report From Iron Mountain, It is stated, "concludes that a lasting peace would not be in society's best interest because warfare is the main organizing principle of government, as well as the primary driver of both cultural values and scientific progress. It states that warfare's main purposes, far from being to settle disputes between nation-states, are to control unemployment, reduce the population, drive scientific and artistic development, provide legitimacy and growth to the government, "

    "cultural values" Here is a vid of a Viet nam vet executing a cop in cold blood. So much for the values learned in war.
    Pox Americana teaches and demands that it's soldiers learn to kill with no remorse. Cultural values learned from the State are abominable.
    "scientific progress" Mankind has reached the pinnacle of success where he can kill every living thing on the planet.
    "artistic development" You are out of your BLOODY mind.
    The advent of the Central Bank has coincided with the worst and bloodiest episodes in the history of mankind. Will this era come to an end,,, dunno.

    The monetary inflation created by the Central Bank to save the private banks has destroyed all markets. There is no such thing as honest price discovery. As honest price discovery disappears, so does confidence. This is playing out in the States with a weaker currency. Argentina has to pay 60% interest to try to attract investment. Italy has elected a populist government and, investors are getting nervous and, leaving.

    The ECB has been printing steadily for almost 10 years. They now claim that they are going to stop. That should destroy just about everything.
    Taps Coogan: ECB's Balance Sheet Has Outgrown the Eurozone Three Years Running - The Sounding Line

    South Africa plans to steal all the white-owned land. So, investors are running away from S.A. also.
    So, various emerging markets are crashing. The ECB plans to cut out money printing. Evidently, the situation looks SO BAD that the Germans want to send money to Turkey to hold back contagion. The ECB might end up like the BOJ and, never be able to shut off the printing presses..
    It is often speculated that the CBs will eventually be forced to relent and, fire up the presses once again.

    "But, decades of declining births, a falling childbearing population, and failed attempts to turn this around (detailed HERE and HERE) mean a secular downturn in demand is underway in China but more broadly across East Asia. Couple this with a falling base of importer nations, and domestic plus international demand will fall indefinitely from here. Falling core populations, decelerating and declining energy consumption, and falling economic activity all go hand in hand (detailed HERE and HERE). "

    "A fast falling childbearing population (yellow columns below) with continued deeply negative fertility rates equals a continued collapse in births."
    "Rising wages in the face of declining demand and consumption seems unlikely. Growth has ended and decline will be the central feature for decades, if not centuries. How we decide to handle this new reality will determine the financial and economic systems. "
    "the world is faced with how to deal with the growing inequality among (and within) nations, resultant overcapacity, ongoing urbanization versus large scale rural depopulation, and a general bankruptcy / reorganization of all the promises made that required perpetual growth to make them come true."
    They took our wages. They took our confidence. We refuse to procreate.

    So, emerging markets are looking like a default. Student debt is defaulting more than claimed.
    8/30 Pre-tax corporate profits rise 0.2%, after-tax corporate profits rise 6.7% – Mish
    The tax reduction was a shot of adrenaline. Bernanke, Armstrong and Schiff all claim that this shot will wear off going in to 2020.

    We've had a serious deflation in purchasing power. A fall in the birth rate. A rise in the price of energy. A fall in employment.
    NOT TO worry,, the credit bubble is still growing.

    Leave a comment:

  • Danny B
    Global wages fall = global trade falls

    Money in circulation has far outrun actual tangible wealth. This would normally cause hyperinflation of prices. This monetary inflation has been mostly corralled in the upper loop which has seen the stock market go up by huge multiples. We do have hyper-inflation but, it is mostly dangerous for the speculators. The speculators don't see any danger.

    Eventually, this euphoric bubble finds a pin. The prime candidate at the moment seems to be Turkey. We should find out fairly soon.
    For the time being, the various banks are allowed to create money out of thin air and, but GOV bonds. This all works fine until the West hits a bump in the road that is just too big for credit markets to ignore.
    Russia has dumped all of it's U.S. sovereign debt so, it can't be easily punished if it allows Turkey to join up after dumping Western debt.

    World trade has fallen badly and, the credit markets are going to take a huge hit. The East can default whenever it decides that default is advantages.
    8/30 More fraud exposed in Chinese official econ data – Zero Hedge
    The Chinese never projected that their economic miracle would run out of steam. They were going to connect the whole East to the West by road, rail and marine. They are making great advances. What they can not do is; raise global wages to allow a consumer economy. Everybody is stuck in a survival economy. Global trade is falling in response to the falling global wages.

    "But you have to understand WHY are we even turning to robots. The answer to that question is TAXES & SOCIALISM!"
    How can he be so WRONG and blind?
    Man is competitive and; his quest for efficiency is hard-wired in.
    Computer driven surgery is superior.
    Computer driven medical diagnosis is superior.
    Everywhere you look, computers are superior for managing industry.
    Armstrong sees it differently.
    "Let’s eliminate the income tax and adopt a new system which will not make labor outrageously expensive."
    Wages have not gone up in 40 years.

    The speculators would happily suck the life-blood out of the working class to increase their wealth. They are too short-sighted to see that they are NOT independent of the welfare of the working man.

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  • wayne.ct
    bank reserves

    A chart was in this story to which you shared a link. (Share of allocated foreign exchange reserves)

    It looks like data from all the central banks was aggregated to produce this chart. But is it only European central banks? What would this have looked like ten years ago? I could not find such a time series. Perhaps someone with Bloomberg access and knowing how to generate such a chart could come up with one.

    Let's conjecture that ten years ago the 63 percent was 100 and that 50 percent was some sort of critical turning point, then ...

    37 percent change in ten years equals 3.7 percent per year on average.

    Straight line ... we have 13 percent to go from 63 to 50.

    That would be about four years to get from 63 to 50.

    It would be nice to see a chart....

    OK, what about all central banks or all commercial banks worldwide?

    If US banks amount to 90 percent of xxx then what significance is there really to this chart that only considers EU banks? Does it not seem extremely complex to ferret out the situation?

    Ok, let's look at the other side of the case. Any of the relevant players could upset the apple cart and it would only take a matter of weeks to destroy the world economy or balance of power.

    Leave a comment:

  • Danny B
    Blob State blockage,,Brexit,,,,Chinese employment reality

    "China has a voracious appetite for energy but has little oil of its own. Iran is a major oil producer, and China is Iran’s biggest customer.
    But oil is priced in dollars and dollars flow through the U.S. banking system."
    Not much longer.
    "The federal government spends more than $20 billion a year on subsidies for farm businesses. About 39 percent of the nation’s 2.1 million farms receive direct subsidies"
    That's why Mexico can never win in NAFTA.

    "The system of government therefore can thwart even the most enthusiastic of ministers. Politicians remain in office for relatively short periods of time. The bureaucrat can play the long game: stall, bluster, misinform. The wonderful British satire “Yes Minister” of the 1980s showed the game at its best; hilarious but frighteningly true.

    The EU federal dream is shared by the civil servant. It is utopia for the bureaucrat. He becomes seriously important, far more so than his political master who is here today and gone tomorrow. For the last forty years, it has been impossible to climb the promotional ladder without a deep and sincere commitment to the European project"
    The blob State.
    "There are no civil servants who voted Leave. All were horrified at the result and have schemed for two years to thwart the electorate."

    "true nature of the project, a Federal Europe. Powell forecast that when the British became aware of that we would vote to come out. We did. Still there was no honesty about the nature of the EU. Still the debate is all about trade, which is of course irrelevant"
    There will be a fake Brexit, dressed up to look like Brexit but will fool nobody! | Claudio Grass

    "Up to half of China’s investment is a complete waste. It does produce jobs and utilize inputs like cement, steel, copper and glass. But the finished product, whether a city, train station or sports arena, is often a white elephant that will remain unused."
    "What’s worse is that these white elephants are being financed with debt that can never be repaid. And no allowance has been made for the maintenance"
    " China has driven growth for the past eight years with excessive credit, wasted infrastructure investment and Ponzi schemes.

    The Chinese leadership knows this, but they had to keep the growth machine in high gear to create jobs for millions of migrants coming from the countryside to the city and to maintain jobs for the millions more already in the cities."
    "A maxi-devaluation of their currency is probably the best way to avoid the social unrest that terrifies China."

    8/29 Melt-up on the mind as US stock gains approach euphoric levels – Bloomberg
    8/29 Stockman slams “greatest fake bull ever” – Zero Hedge

    8/29 Almost half of Americans can’t pay for their basic needs – CBS
    8/29 Boom! US economy logs best performance in nearly 4 years – CNBC

    8/29 Turkish bank bonds fall after Moody’s warning, FinMin comments – Reuters
    8/29 Argentina burns reserves, asks for early IMF help as peso crashes – Reuters

    Reportedly, world trade is collapsing.

    Leave a comment:

  • Danny B
    CBs buy sovereign debt with free money

    Here is a good, easy article about the debt that Uncle Sam is carrying, as compared to his income.
    Running On Empty | RIA
    It has great graphs that show the enormous debt that the country is carrying. Since Uncle Sam has no intention of repaying that debt, it is only the carrying costs that matter. Sam only has to make interest payments. BUT, as the debt matures, somebody has to buy new debt to roll over the maturing debt. You would think that ALL investors would stay away. MOST investors balance risk with reward. There is one class of investors that don't care about risk.

    "Why are CBs buying so many Treasury bonds with year-over-year inflation at 2.8 percent, the highest since January 2012, and with the current Federal Reserve “dot plot” predicting the Fed Funds rate going to 3.25 percent by the end of 2019? All those factors point to losses on Treasury bonds"

    What are the reserve requirements for U.S. government debt owned by a CB?
    What are the mark-to-market rules for government debt owned by a CB?
    Where does a CB get the funds to buy government debt?
    What are the Basel III capital requirements for government debt owned by a CB?

    Believe it or not, the answers to these questions are

    They are not marked to market.
    It creates the money out of thin air.
    "Since there are no reserve requirements for the government bonds or the matching Treasury deposits at the CBs, the rising Federal funds rate doesn’t affect them. The same goes for the risk-weighted assets for the Basel III capital ratio calculation. The risk weighting is zero, so in theory, banks could expand their balance sheet by infinitely buying government bonds and still not have to put up additional capital."
    “Marketable securities representing claims on (or guaranteed by) sovereigns, central banks, PSEs, the Bank for International Settlements, the International Monetary Fund, the European Central Bank and European Community, or multilateral development banks, and satisfying all of the following conditions:
    Assigned a zero percent risk"

    Armstrong said that public debt would collapse. You can see the problems in States like Italy and Turkey. If ALL sovereign debt is considered risk-free, I suspect that ALL of it would collapse at the same time. There is no stopping global contagion.
    "The Congressional Budget Office (CBO) expects government debt outstanding to rise by over $1 trillion per year for each of the next four years. At the same time, neither we nor the CBO expect to see interest rates decline meaningfully. However, and of grave concern, the possibility of higher rates is real."
    Armstrong has predicted would rise suddenly. That would cause a huge jump in debt service cost for Uncle Sam. Will that rise in interest cost be offset by the CBs buying U.S. sovereign debt with free money?

    Leave a comment:

  • Danny B
    Ron Paul is always a clear voice.
    "In the past seven years, Turkey’s central bank has tripled the money supply " "Turkish politicians have taken advantage of easy money policies to increase subsidies for key voting blocs and special interests."
    "Turkey’s combination of low interest rates, money creation, and massive government spending to “stimulate” the economy parallels the policies the US government has pursued for the past ten years. "
    "Instead of cutting spending or raising taxes, politicians can be expected to pressure the Federal Reserve to do their dirty work for them via inflation. "

    "If we are lucky, the next Fed-caused downturn will cause only a resurgence of 1970s-style stagflation. The more likely scenario is the type of widespread economic chaos not seen in America since the Great Depression. The growth of cultural Marxism, the widespread entitlement mentality, and the willingness of partisans of various sides to use force against their political opponents suggests that this economic crisis will result in civil unrest that will be used to justify new crackdowns on individual liberty."
    "First, prepare a plan to protect your family when the crisis occurs. Second, do all you can to spread the truth in hopes the liberty movement reaches critical mass so it can force Congress to make the changes necessary to avert disaster."
    That ship has already sailed.
    The Ron Paul Institute for Peace and Prosperity : Turkey Now, America Later?

    "Meanwhile, South Korea is pursuing good relations with the North regardless of US backtracking. Washington is reportedly considering sanctions on its South Korean ally if Seoul continues on a peace path with Pyongyang. "
    The wars must go on no matter what.
    "The neocons are not going to give up on their obsession with "regime change" in Syria. Over the weekend National Security Advisor John Bolton all but called for another "chemical attack" in Syria to justify what he promise would be a massive US strike on Damascus."
    Striking Damascus is about the worst thing imaginable.

    8/28 American companies are raising prices at a brisk pace – Bloomberg So, we stop spending.
    The Yuan is gradually being brought in as a reserve currency.

    Leave a comment:

  • Danny B
    SWIFT alternatives,,,

    BOE president, "Mark Carney’s saying “New World Order”, “New Financial System”, “Now Is The Time”, and “Great Change”. Let’s connect the dots…"
    Well, they haven't just been sitting around. Keep in mind that SWIFT is based in Brussels. The broad hints from Germany and Britain claim that America controls SWIFT to the detriment of Europe. I expect that the feds use SWIFT to punish Germany for Nordstream. The Europeans are presently creating an alternative to SWIFT to escape control.

    Add to this, the Russian system, MIR. The Chinese have their own system. ALL of these systems route $trillions away from passing through New York banks. I expect that the N.Y. banks will eventually go up in a cloud of smoke.
    It's not just the NYC banks.
    8/28 No-deal Brexit thrusts UK into ‘legal vacuum’, warns Keir Starmer – Guardian
    The London banks want unrestricted access to European markets.

    The instigator of all the Russian sanctions is an Israeli born woman. The sanctions are all part of the pipeline wars. BUT
    8/28 EU looking to sidestep U.S. sanctions with payment system plan – GATA
    8/28 Gal Luft: The anti-dollar awakening could be ruder and sooner than most think – GATA

    8/28 Italy vows to veto EU budget over migrant clash – Zero Hedge
    NOPE, they want unlimited bond purchases from the ECB. They don't want the music to ever stop.
    8/28 Affordability of starter homes hits a decade low – MSN Priced out by hot-money flows.
    8/27 ‘Boogeyman in housing market’ makes it tougher for Americans to own homes – BI
    That boogeyman (pl) would be Greenspan, Bernanke, & Yellen

    Obviously, politicians can not be trusted. I've made the claim that bonds will eventually be backed with gold and, migrate to the blockchain. There is a bit of a start in that direction.
    Thejuicemedia has some great vids. here is "trickle down economics".
    8/28 Most young Americans are living on the edge financially – MarketWatch
    8/28 Landscapers “reeling” from labor shortage – Zero Hedge

    Apparently, millennials don't want to be landscapers.
    Jim Willie has some articles. Dunno about aliens.
    Israel apparently holds final veto power on American ambassadorial appointments.

    Leave a comment:

  • Danny B
    automation,,, ECB & Italy,,, saving the rich

    "Today, more than 35% of Tunisian young people are unemployed, and many don’t see a future in their own country.
    “The state isn’t giving us anything,” a 24-year-old mechanic in Al Ataya said, "
    Sorry but, the State can't give you anything. Only the market can give you a job.

    "She warns that the business environment of the 2020s will be more volatile as automation may eliminate as many as 20 percent to 25 percent of current jobs—equivalent to 40 million displaced workers—and depress wage growth for many more workers."
    "The robot consists of 20 computers, 350 sensors and 50 actuators that form a robotic assembly line. After the customer places an order with a human, the machine slices buns, tomatoes and onions, grills and grinds meat, adds condiments, sears buns and produces a gourmet hamburger in less than five minutes without any human intervention. "
    There is NO CURE for automation. When the credit collapse hits sovereign bonds, the government will collapse. The paper-pushers will not be in demand in the labor market.

    The ECB is the only entity buying Italian bonds. They plan to stop this about the end of the year. The Italians want the ECB charter changed so that the ECB can buy bonds in perpetuity. This goes completely against German where they mistakenly believe the Quantity of Money theory. Armstrong has shown the theory to be BS. He has also shown that the theory of fixing everything with austerity is pure BS also. Will the Germans relent? Who knows?

    Venezuela is following in the Zimbabwe model.
    The world crash in 2008 was caused to a great degree by the slide down to a global mean wage. All the debt held by the working class had to be bailed out. The bailout consisted of pumping liquidity into the upper loop after the lower loop had crashed. Wages never recovered. The lower loop soldiered on by borrowing LOTS more money. Nothing was actually fixed for the lower loop.

    OZ gets special mention for burning through a list of Prime Ministers very quickly.

    Leave a comment:

  • Danny B
    Powell's big bet,,, curve inversion,,, Turkey

    The focus right now is; rising U.S. interest rates and, falling everything else. Bernanke conducted a huge experiment to see if mammoth money printing could stave off a recession. Powell now has an experiment of his own. Raising rates will wipe out American corporate debt service. Raising rates will wipe out emerging market currencies. Raising rates attracts capital to America. What will be the balance point?
    Rising rates are a direct attack on European banks. Bond buyers are in the driver's seat. The ECB is screwed when it comes to buying bonds. They have to do it out in the open.
    The U.S. treasury can depend on the PPT, ESF and CIA. The FED has visibly bowed out of the market, to create confidence. After all, if private investors have confidence in U.S. bonds, then, everybody else should have confidence.

    Emerging markets desperately need dollars to service dollar-denominated loans.
    "the total dollar denominated debt is 11 trillion outside of the U.S., and that's up 83% since 2009. And one-third of that is owned by emerging markets."
    "There's an increase of $70 trillion worth of global debt since 2007. That's an increase of over 40% and it all hinges on one thing, Mike. It all hinges on the fact that interest rates can never be allowed to rise much above zero, for if they did the entire artificial edifice comes crashing down."
    Ah yes, but, where does it crash first? Powell is making big bets on this.

    "the spread between the 10-year note and the two-year note is just 22 basis points. That is by far the lowest it's ever been outside of the great recession. And the reason is very simple why we're concerned about this. Nine of the last ten times this has occurred since WWII, the economy entered into a very steep recession,"
    "The yield curve is inverting as it always does because the Fed is raising short term interest rates. But here's the question, why is it that the long term interest rates across the world are falling still, if we are in a global synchronized boom or recovery as the carnival barkers like to call it? I mean, why is the 10-year note now well below 3%? It's just about 2.83% today? Why are the long-term bond yields falling in the spectrum of global growth"

    "They'll go in September, they'll probably go in December. That's my best guess. Then the long bond will retreat back towards where it was in 2016, about 1.4%, and the yield curve will be very, very inverted, steeply inverted. And what happens when the yield curve inverts? Why is important? It's a good question that you asked. It's because the credit channel gets shut off. That liquidity pump gets turned off. "

    Corporate America desperately needs dollars to roll over debt. Emerging markets desperately need dollars to service debt. Will the 2 blow sequentially OR, at the same time?
    "people are talking about the stock market being cheap because it's only 17 times next year's earnings." "corporate debt as a percentage of GDP is at a record high, and the corporations took on this debt to buy back shares."
    "The Fed has no choice, as I mentioned, the year on year rate of consumer price inflation is up 2.9%. Now, that's even way above the Fed's fatuous 2% target. So, the Fed has no choice but to react or they risk a spike in long-term borrowing race, which is the last thing they need. Now, a spike in rates would mean to the yield curve didn't invert, but it would also mean that the housing market, which is on life support, is going to roll over big time."
    "the market cap of equities as a percentage of GDP is 145%. Now, it was 110% in 2007 and that ties the record set back in March of 2000, the 145%."
    "China had two major credit waves since 2007. They had a huge one in 2008, another one in 2015 and 2016. They now have the most destabilizing credit bubble in the history of the planet earth. And they're sitting on a $30 trillion in debt. That debt is up 56% in the last five years. "
    Pento: Trade War to Continue, Global Debt Default and Higher Interest Rates Unavoidable

    8/26 Global liquidity is drying up! – Daily Reckoning It will get worse.
    8/27 Another inflation gauge is set to enter the red zone – MarketWatch So, will Powell do the planned rate hikes to head off price inflation?
    8/27 Powell doctrine emerges as Fed chief debuts at Jackson Hole – Bloomberg
    8/27 China’s growth woes aren’t going a way – Bloomberg
    8/27 Are emerging markets ready for a crisis? – Bloomberg

    Stay tuned for further developments.

    8/27 Latest freight data confirms alarming slowdown in global trade – TM
    8/27 BIS warns of perfect storm for global economy – Zero Hedge

    8/27 US, Mexico may announce NAFTA deal as soon as Monday – TM
    Mexico gets a big screw job from American agriculture. Mexico isn't price competitive because American farmers get $ 20 billion in subsidies. Don't call this a tariff?
    The FED sent over $8 trillion to European banks in response to the 2008 crash. That was the Bernanke-bet that he could fix everything by pumping in liquidity. The French government spends 57% of the GDP. THAT is called socialism. No amount of money can fix socialism.
    What is true in France is also true in Illinois.
    8/27 Illinois, already broke, set to borrow even more – Mish

    8/23 How Turkey’s lira crisis was written in Istanbul’s skyline – Guardian
    Yep, Erdogan spent to much buying votes and building the second Ottoman empire.
    "After decades of near-100% annual inflation, the Central Bank of Turkey knocked six zeros off the lira on 1 January 2005, making one new lira worth $0.74. Today it is only $0.15, having lost nearly half its purchasing power this year alone."
    "Indeed, loss of confidence in unbacked currencies is the greatest threat to their credibility, a fact which almost all governments and their central banks are reluctant to accept. Central bankers are all trained in mathematical economics, which allows no room for subjectivity in currency valuation, so when their currency is rejected, they are always surprised."

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  • Danny B
    Yield curve and refi of junk

    8/24 Fed Chair Powell: further rate hikes best way to protect recovery – Reuters
    And what a FINE recovery it is. Powell is pedal-to-the-metal on rate hikes. DAMN THE TORPEDOES, FULL SPEED AHEAD. Ah, those torpedoes,,,,
    I found some comments that I can not corroborate.
    "As pointed out yesterday by Simon Black via the Wall Street journal 60% of all Russell 2k corporations carry junk bonds status.
    Another 37% carry a BBB bond rating."

    "That's right people 97% of all Russell 2k corporations have the lowest investment grade rating or junk.
    Combine the above with the fact that I think around 40% of R2K companies are not even cash flow positive."

    Whatever the reason, nobody wants bonds.
    Bond spread, "And the 2s10s spread is now in the teens for the first time since Aug 2007..." Why does that date ring a bell? Here is a chart of the spread between 10 year and 2 year.

    8/24 Loan demand suddenly tumbles as companies revolt to rising rates – Talk Markets
    So, they refuse to refi but, they need to roll over junk-rated debt.

    Yield-curve inversion isn't an infallible predictor of a crash but, it has been pretty accurate.

    8/24 New reality of China’s failing economy is coming soon – Jim Rickards
    China Inc. is an export driven economy. The shrinkage of the middle class around the world is death to their models. As the global mean wage bites deeper, they will have to print more and more . This brings them more capital outflow AND, they have to print more.

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  • Danny B
    Slide in consumption,,, Amazon to replace the banks

    So, the view count has passed 250,000
    I suspect that it is mostly from non-members. All the government wonks who are wondering how much longer they are going to collect a paycheck.
    For all you wonks who do not understand economics and energy; energy is the master resource. If we can't accomplish price deflation in energy, all prices will continue to rise. Price inflation always outruns wage inflation so, consumption will continue to shrink. This is temporarily papered over by money printing / debt creation. China has set a ceiling on global wages in many sectors. Automation has much the same effect.

    "Since all the global 0 to 64 year old population growth is among the lower middle and low income nations of the world, a closer look at their situation is merited. In short, it ain't good. After rocketing higher from 2002 until 2014, the situation is really deteriorating as the growth of the high and upper middle breaks down...without the growing wealthier markets to export to or in need of greater capacity in low cost countries, the engine is stalling in the poorer nations of the world."

    China appeared on the scene as a flash-in-the-pan that prompted a lot of consumption from low prices. BUT, after they had gutted the wages of their best customers, it all came crashing down. Credit / debt growth in China was beyond all rationality because the Chinese are such avid gamblers.

    "The high income nations represent 64% of global income and the upper middle income nations another 27% while the lower middle and low income nations represent less than 9%, combined. Not coincidentally, these breakdowns of global income, per group, line up very closely with the percentage of global energy consumed "

    As the higher-income nations slide down in consumptive ability, they reduce their birth rate. A new awareness in China and Asia is reducing the birth rate. This "new awareness" hasn't appeared in the stupid nations. Falling birth rates and the demographic crash are incompatible with growth of the debt bubble. Everything is being papered over for the short term.

    U.S. bank profits have hit a new record.
    "as we reported yesterday, there has been a sudden collapse in loan demand, reflecting rising interest rates even as banks loosened loan standards"

    "The US credit card system siphons off excessive amounts of money from merchants, who must raise their prices to cover this charge. In a typical $100 credit card purchase, only $97.25 goes to the seller. The rest goes to banks and processors."
    "The nightmare for the US financial industry is that a major technology company – whether one from China or a US giant such as Amazon or Facebook – might replicate the success of the Chinese mobile payment systems, cutting banks out."
    "China processed a whopping $12.8 trillion in mobile payments in the first ten months of 2017." "More than 90 percent of Chinese mobile payments are run through Alipay and WeChat Pay, rival platforms backed by the country’s two largest internet conglomerates, Alibaba and Tencent Holdings."
    "Alipay is free for smaller users of its platform. As total monthly transactions rise, so does the charge; but even at its maximum, it’s less than half what PayPal charges — around 1.2 percent. "

    "The SF Chronicle casually notes in parenthesis, "By the way, the poop patrolers earn $71,760 a year, which swells to $184,678 with mandated benefits."
    8/24 Italy capital flight is highest two months ever – Mish
    Finance doesn't like the new lefties..
    8/24 China spending push buoys debt sales, calls for new liquidity – Bloomberg China needs new liquidity to feed the tiger,,,,, so that the tiger doesn't eat the rider.
    8/24 Loan demand suddenly tumbles as companies revolt to rising rates – Talk Markets
    Wait, what about all the debt that the MUST roll-over?

    8/23 China’s July grain imports plunge as tariffs on U.S. supplies bite – Reuters
    Russia Is Exporting More Wheat Than Any Country in 25 Years ...

    8/23 China again promises not to start currency war – Bloomberg That is AFTER they increased the money supply by 8.6%
    8/24 Saudi economic war triggers Yemeni currency collapse – Mint Press Soon to be followed by a Saudi currency collapse.

    Western banks will naturally attack Russia when the time seems right. Russia is moving to block that.

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  • Danny B
    Coca & Roundup,,,Saudi Arabia,,, Skills gap

    Colombia Is Testing Drones to Drop Herbicide on Crops Used for Cocaine
    "Under newly elected President Iván Duque, Colombia is testing remote-controlled drones designed to track and destroy coca, the crop used in cocaine production. The government has reportedly tested ten drones so far. The drones carry payloads of glyphosate,"

    Colombia never seems to be able to eradicate the coca. That is because it is all run by the CIA. The State dept brings herbicide to the airport at the coastal "city" of Tumaco in unmarked grey planes. One inch letters under the pilot's window tell you who the plane belongs to. The drums are unloaded and stacked off to the side. I've been there and seen all this myself.
    So, the local "Arcos" must petition the CIA to avoid spraying. They must pay up and, pay a LOT. Anybody who refuses to pay gets their crop sprayed. There is also a military base in Tumaco and I’ve spoken to them. They aren't very effective because they get blocked by the big money interests. I'm guessing that the Colombian GOV wants to take coca spraying out of the hands of the CIA.

    Saudi Arabia was in the process of selling a 10% stake in their national oil company. Nobody was much impressed with the IPO and, it has melted away into the desert sands.

    The Central Banks have rescued the upper loop of the economy. The lower loop is supposed to get by on trickle-down. It just isn't trickling fast enough and, the defaults are picking up/

    Each successive Industrial Revolution reduces the need for human labor. At what point does this become a recognised problem?

    8/23 Standards go out the window as employers struggle to fill jobs – SafeHaven
    10,000 Baby Boomers Reach Retirement Every Day
    Boomers Are Retiring Rapidly: Are Successors Prepared? - Forbes

    "The majority of baby boomers support their adult children
    According to a survey from the National Endowment for Financial Education, 59% of baby boomers who are parents are financially supporting their children ages 18-39.
    45% of baby boomers report having no retirement savings whatsoever."

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