We Are Already In Depression (If Borrowing Money Is Not Income)

The data and chart comes from the Federal Reserve Economic Data base (FRED.) It is Gross domestic Product minus Treasury Debt. If you download them to a spread sheet GDP is expressed in billions so 1,000,000,000 is expressed as 1, while Federal Debt is expressed in millions so 1,000,000,000 is expressed as 1,000. That is why the chart is (Gross Domestic Product * 1000.)

 

Do you consider debt as income? Before you answer that, let’s perform a thought experiment. Imagine that you had taken a long cruise last fall and charged $10,000 to an American Express card. When you did your taxes this year, would have told the IRS that you had $10,000 income from American Express? Of course you wouldn’t. Suppose a major oil company issues $800 million worth of bonds to develop a new old field. Would the company report that as income to the stockholders or the IRS? Of course they wouldn’t. I am sure those sound like silly questions as the answer is a self evident “NO!” We do not consider borrowed money as income. It is a liability that must be paid back. Then why do we count Federal Government debt when measuring national income? I will leave speculation as to the “why” to the readers and focus on the fact that we do count new Treasury Debt as income. Continue reading

Former BIS Chief Economist Warns “More Dangers Now Than In 2007”

Bloomberg

 

Having warned in the past that “the system is dangerously unacnhored,” former chief economist of the Bank for International Settlements, William White, told Bloomberg TV overnight that the current situation “looks very similar to 2008,” adding that OECD sees “more dangers” today than in 2007. Continue reading

69 Percent Of Americans Do Not Have An Adequate Emergency Fund

 

Do you have an emergency fund?  If you even have one penny in emergency savings, you are already ahead of about one-fourth of the country.  I write about this stuff all the time, but it always astounds me how many Americans are literally living on the edge financially.  Back in 2008 when the economy tanked and millions of people lost their jobs, large numbers of Americans suddenly couldn’t pay their bills because they were living paycheck to paycheck.  Now the stage is set for it to happen again.  Another major recession is going to happen at some point, and when it does millions of people are going to get blindsided by it.

Despite all of our emphasis on education, we never seem to teach our young people how to handle money.  But this is one of the most basic skills that everyone needs.  Personally, I went through high school, college and law school without ever being taught about the dangers of going into debt or the importance of saving money. Continue reading

Can a Divided America Survive?

Torn sign at a pro-Trump rally in Portland, Ore., June 4, 2017. (Reuters photo: David Ryder)

 

History has not been very kind to countries that enter a state of multicultural chaos.

The United States is currently the world’s oldest democracy.

But America is no more immune from collapse than were some of history’s most stable and impressive consensual governments. Fifth-century Athens, Republican Rome, Renaissance Florence and Venice, and many of the elected governments of early 20th-century Western European states eventually destroyed themselves, went bankrupt, or were overrun by invaders. Continue reading

World Is Out of Weapons

Satyajit Das has written an excellent article in Bloomberg which clearly details the risks facing the global financial and monetary system and how central bankers are out of monetary ammunition and weapons.

Excerpt:

“No one likes to admit defeat. But global policymakers, who continue to insist that there’s more they can do to revive growth and inflation, are starting to sound like Monty Python’s Black Knight (click link to see video), the limbless and mortally wounded warrior who threatens to bleed on his victorious opponent. The truth is that governments and central banks have very few weapons left — and have probably lost any chance they once had of averting a prolonged stagnation. Continue reading

Saudi Arabia Admits To A Full-Blown Liquidity Crisis: Will Pay Government Contractors With IOUs, Debt

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Previously we documented that as a result of the still low oil prices, largely a result of Saudi Arabian strategy to put high cost producers out of business and to remove excess supply, none other than Saudi Arabia has been substantially impacted, with the result being dramatic state budget, a sharp economic slowdown and  mass worker layoffs.

Just three weeks ago we reported that the biggest construction conglomerate in the middle east, the Saudi Binladin Group had announced it would layoff 50,000 workers ot a quarter of its workforce, slammed by the weak economy.

Now, Saudi Arabia has admitted that in addition to acute economic problems, which will manifest themselves most directly in a soaring Saudi debt load… Continue reading

Fasten your seatbelts: History’s about to repeat itself

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Over the last decade, I’ve found my opinions coinciding more and more with those of SocGen strategist and “uber-bear” Albert Edwards. Last week he hit the headlines again with a claim that a “gut-wrenching slump” in profits amounts to an almost-certain predictor of recession. While the historic evidence for this is compelling, I’m not so sure this time couldn’t be slightly different — at least in terms of causes and effects. Continue reading

Opinion: How negative interest rates take money out of your pocket

Negative interest rates, which central banks in several countries have implemented as a way to spur economic growth, is a radical move. In the last of a three-part series, ‘Negative Thinking,’ commentator Satyajit Das examines this policy and its risks.

Low rates are supposed to encourage debt-financed consumption and investment, feeding a virtuous cycle of expansion. They also increase wealth, encouraging spending. Low rates and abundant liquidity should drive inflation.

Instead, these policies since 2008 have brought the global economy a precarious stability at best, and have not created economic growth or inflation. Continue reading

The Coming Default Wave Is Shaping Up to Be Among Most Painful

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When the next corporate default wave comes, it could hurt investors more than they expect.

Losses on bonds from defaulted companies are likely to be higher than in previous cycles, because U.S. issuers have more debt relative to their assets, according to Bank of America Corp. strategists. Those high levels of borrowings mean that if a company liquidates, the proceeds have to cover more liabilities.

“We’ve had more corporate debt than ever, and more leverage than ever, which increases the potential for greater pain,” said Edwin Tai, a senior portfolio manager for distressed investments at Newfleet Asset Management. Continue reading

Few fiscal, monetary policy moves left to fight global growth slowdown, Moody’s warns

Risks to global growth have increased since November and world leaders have little left in their fiscal and monetary arsenals to mitigate the threat, Moody’s has warned.

In its quarterly Global Macro Outlook 2016-17 report released Thursday, the ratings agency said that growth prospects were being hammered by China’s slowdown, a slump in commodity prices and tighter financing conditions in some emerging markets.

Continue reading

Eurozone crisis IMMINENT as debt-ridden Italy and Portugal on verge of being new Greece

TROUBLES in the Italian and Portuguese economies could blow up this year to shatter the eurozone, as disastrous Greece almost did last year.

Investors have become increasingly concerned about the anti-austerity agenda of the Portuguese socialist government, fearing defaults could lie further ahead, which has seen the borrowing costs for the government soar. Continue reading

The Return Of Crisis

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Financial markets the world over are increasingly chaotic; either retreating or plunging. Our view remains that there’s a gigantic market crash in the coming future — one that has possibly started now.

Bubbles arise when asset prices inflate above what underlying incomes can sustain. Centuries ago, the Dutch woke up one morning and discovered that tulips were simply just flowers after all. But today, the public has yet to wake up to the mathematical reality that over $200 trillion in debt and perhaps another $500 trillion of un(der)funded liabilities really cannot ever be paid back under current terms. However, this fact is dawning within the minds of more and more critical thinkers with each passing day.

Continue reading

Wayne Jett: Strong Dollar Fools Gold

Jett’s statements were made during an interview with Rick Wiles of TRUNEWS  on Wednesday, while discussing how on going international currency wars are destroying the international competitiveness of U.S. manufacturing exports. Continue reading

Is The Cloward-Piven Strategy Being Used To Destroy America?

In the mid-sixties at the height of the “social revolution” the line between democratic benevolence and outright communism became rather blurry. The Democratic Party, which controlled the presidency and both houses of Congress, was used as the springboard by social engineers to introduce a new era of welfare initiatives enacted in the name of “defending the poor”, also known as the “Great Society Programs”. These initiatives, however, were driven by far more subversive and extreme motivations, and have been expanded on by every presidency since, Republican and Democrat alike.

At Columbia University, sociologist professors Richard Cloward and Francis Fox Piven introduced a political strategy in 1966 in an article entitled ‘The Weight Of The Poor: A Strategy To End Poverty’. This article outlined a plan that they believed would eventually lead to the total transmutation of America into a full-fledged centralized welfare state (in other words, a collectivist enclave). The spearpoint of the Cloward-Piven strategy involved nothing less than economic sabotage against the U.S.

Theoretically, according to the doctrine, a condition of overwhelming tension and strain could be engineered through the overloading of American welfare rolls, thereby smothering the entitlement program structure at the state and local level. The implosion of welfare benefits would facilitate a massive spike in poverty and desperation, creating a financial crisis that would lead to an even greater cycle of demand for a fully socialized system. This desperation would then “force” the federal government to concentrate all welfare programs under one roof, nationalize and enforce a socialist ideology, and ultimately, compact an immense level of power into the hands of a select few. Continue reading

The Deflation Monster Has Arrived

 

 

As we’ve been warning for quite a while (too long for my taste): the world’s grand experiment with debt has come to an end. And it’s now unraveling.

Just in the two weeks since the start of 2016, the US equity markets are down almost 10%. Their worst start to the year in history. Many other markets across the world are suffering worse.

If you watched stock prices today, you likely had flashbacks to the financial crisis of 2008. At one point the Dow was down over 500 points, the S&P cracked below key support at 1,900, and the price of oil dropped below $30/barrel. Scared investors are wondering:  What the heck is happening? Many are also fearfully asking: Are we re-entering another crisis?

Sadly, we think so. While there may be a market rescue that provide some relief in the near term, looking at the next few years, we will experience this as a time of unprecedented financial market turmoil, political upheaval and social unrest. The losses will be staggering. Markets are going to crash, wealth will be transferred from the unwary to the well-connected, and life for most people will get harder as measured against the recent past. Continue reading