Home » Posts tagged 'debt'

Tag Archives: debt

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai III: Cataclysm
Click on image to purchase

Bank Bail-In Risk In Europe Seen In 5 Charts

Bank Bail-In Risk In Europe Seen In 5 Charts

– Nearly €1 trillion in non-performing loans poses risks to European banks’
– Greece has highest non-performing loans as a share of total credit
– Italy has the biggest pile of bad debt in absolute terms

– Bad debt in Italy is still “a major problem” which has to be addressed – ECB
– Level of bad loans in Italy remains above that seen before the financial crisis
– Deposits in banks in Greece, Cyprus, Italy, Ireland, Czech Republic and Portugal most at risk from bank bail-in

As reported by Bloomberg this week in an important article entitled ‘Five Charts That Explain How European Banks Are Dealing With Their Bad-Loan Problem’:

For European banks, it’s a headache that just won’t go away: the 944 billion euros ($1.17 trillion) of non-performing loans that’s weighing down their balance sheets.

Economists say the pile of past-due and delinquent debt makes it harder for banks to lend more money, hurting their earnings. European authorities are prodding lenders to sell or wind down non-performing credit, but they’re split on how to tackle the issue, and some investors are disappointed by the pace of progress.

There are various ways of calculating soured loans. The European Central Bank advises that non-performing asset indicators should be interpreted with caution because the definition of impaired assets and loss provision differ between countries. The data used below refers to domestic banking groups and standalone banks only, and excludes foreign subsidiaries and controlled branches.

 “The data for the Czech banking sector consist of the banks that represent only 6 percent of credit extended by the banks operating in the Czech Republic,” the central bank said by email.

Here are five charts (above and below) using the ECB data that help explain the non-performing loan issue and how banks are tackling it.

…click on the above link to read the rest of the article…

The Writing on the Wall

The Writing on the Wall

Many times people’s eyes glaze over when it comes to macro analysis and I get it. Macro analysis is by definition: Macro. It’s like watching a glacier melt and it only becomes of concern when the glacier structure collapses and you just happen to be in front of it. And then everybody says: Nobody could’ve seen it coming.

Yet following the macro pieces is so incredibly important and I continuously try to dedicate some time to dissect the big data pieces and the data keeps screaming the same message: The Writing is on the Wall.

For reference I keep track of these observations in NT blog and the Macro Corner.

Here’s a few that stuck out in the past few days.

Goldman Sachs sees red ink everywhere, warns US spending could push up rates and debt levels

Goldman Sachs sees a tidal wave of red ink — and it may drag the U.S. economy into its undertow.

Federal deficit spending is headed toward “uncharted territory,” the firm said on Sunday, suggesting that the Trump administration and Congressional Republicans may not be able to count on the economic boost of tax reform for very longer. Goldman Sachs warned that the economic impetus from tax reform may have diminishing returns after this year. “The fiscal expansion should boost growth by around 0.7pp in 2018 and 0.6pp in 2019, but will likely come to an end after that”—listing a litany of reasons why spending and debt would conspire to undermine the world’s largest economy. 

Goldman’s analysts wrote that the “growth effect comes from the change in the deficit, not the level, and further expansion would put the U.S. onto an even less sustainable long-term trend. Second, some of the recent deficit expansion relates to changes unlikely to be repeated, such as the temporarily large effect of certain tax provisions.”

…click on the above link to read the rest of the article…

US Fiscal Policy Will Lead To A Debt Catastrophe: Goldman

Judging by how urgently Goldman’s research department is trying to get the bank’s clients to sell treasuries, Goldman’s prop traders must have a desperate bid for duration in anticipation of what probably will be a historic deflationary shock. It started a month ago when Goldman calculated that the US debt supply will more than double from $488bn to $1,030bn in 2018.

Then last Friday, Goldman revised its 10-year bond yield forecasts by around 20bp across the board – in part due to revised growth and inflation expectations – and now projects 3.25% for US Treasuries, 1.0% for Bunds, 2.0% for Gilts and 10bp for JGBs (the bank kept the peak level of Treasury yields in this cycle unchanged at 3.5-3.75%). Its full old vs new projection matrix is shown below:

Now, in yet another note meant to prompt selling of Treasurys (and buying of stocks that Goldman’s co-head of equities admitted last week he is all too willing to sell), overnight Goldman’s economist team wrote that “Federal fiscal policy is entering uncharted territory” after Congress “voted twice in the last two months to substantially expand the budget deficit despite an already elevated debt level and an economy that shows no need for additional fiscal stimulus.”

As a result of this historic expansion in U.S. borrowing during a period of economic growth, alongside rising bond yields, Goldman predicts a surge in the cost of servicing American debt, and goes so far as to warn that the current US fiscal trajectory would lead to catastrophe: “the continued growth of public debt raises eventual sustainability questions if left unchecked.”

* * *

What has so spooked Goldman, which rhetorically asks “what’s wrong with Fiscal Policy?” is that “US fiscal policy is on an unusual course.

…click on the above link to read the rest of the article…

 

Debt Cancer: More Than 80 Percent Of American Adults Owe Somebody Else Money

Debt Cancer: More Than 80 Percent Of American Adults Owe Somebody Else Money 

How long can our debt levels keep growing much, much faster than the overall economy?  We haven’t had a year of 3 percent growth for the U.S. economy since the middle of the Bush administration, but we keep borrowing money as if there is no tomorrow.  Much of the focus has been on the exploding debt of the federal government, and that is definitely something I plan to address once I get to Washington.  But on an individual level, U.S. consumers have been extremely irresponsible as well.  In fact, one new survey has found that more than 80 percent of all American adults are currently in debt

It’s no secret that America is a nation that runs on debt, but it may surprise you to learn that the overwhelming majority of U.S. adults owe money in some way, shape, or form. According to new data from Comet, here’s how many Americans have debt at present:

  • 80.9% of Baby Boomers
  • 79.9% of Gen Xers
  • 81.5% of Millennials

For most of us, it starts very early.  We were told that going into debt to get a college education would not be a problem because we would be able to pay those loans off with the good jobs we would get after graduation.

Unfortunately, those good jobs never really materialized for many of us, and now millions of former college students are absolutely drowning in debt

A study released Friday by the Brookings Institution finds that most borrowers who left school owing at least $50,000 in student loans in 2010 had failed to pay down any of their debt four years later. Instead, their balances had on average risen by 5% as interest accrued on their debt.

…click on the above link to read the rest of the article…

On Closer Inspection, Debt of Bankrupt Spanish Construction Firm Grows Four-Fold

On Closer Inspection, Debt of Bankrupt Spanish Construction Firm Grows Four-Fold

What happens if cases like this prove to be the rule rather than the exception?

Spain appears to have a brand-new Abengoa — the imploded energy giant whose fabulous accounting tricks pushed creditors into a black hole — on its hands: Isolux was until recently a fairly large privately owned infrastructure company with operations spanning the globe.

When the group declared bankruptcy last July, its cash flow in Spain was barely enough to cover a month’s operating costs. The group had a a total workforce of 3,884 and 119 infrastructure projects under development of which 39 were still operational and the remaining 90 had been halted.

The company tried to reduce its debt addiction through agreements with investment funds but they fell through. It also made two attempts to go public, in Brazil and Spain. Both failed.

The bankruptcy proceedings affected seven subsidiaries. At the time, the company stated that it owed €405 million to suppliers, that its total financial debt — including those companies not included under the Spanish Insolvency Act filing — was €1.3 billion, of which €557 million was associated with project financing, and that the total deficit on the group’s balance sheet was about €800 million.

Turns out, according to the bankruptcy receivers, the shortfall is actually €3.8 billion — four-and-a-half times the company’s original estimate — and the group’s total debt, at €5.7 billion, is over €4 billion more than the amount stated by the company 10 months ago.

This amount does not include the group’s dual or contingent liabilities. The receiver’s report concludes that the current situation will probably culminate in the liquidation of the entire group.

How did all this come to pass? According to the receiver’s report, the collapse of the real estate bubble in Spain and the drastic reduction in public work tenders during the crisis led Isolux to massively expand its international operations, as many large Spanish companies did in the aftermath of the housing bubble collapse.

…click on the above link to read the rest of the article…

The World Embraces Debt At Exactly The Wrong Time

The World Embraces Debt At Exactly The Wrong Time

Self-destruction usually happens in stages. At first there’s a binge in which the thrill outweighs the sense of transgression. This is usually followed by remorse, acknowledgement of risks, and an attempt to reform.

But straight-and-narrow is exhausting, and because of this is frequently just temporary, eventually giving way to a kind of capitulation in which the addict drops even the pretense of self-control.

2018 is apparently the year in which the world enters this final stage of its addiction to debt. Wherever you look, leverage is soaring as governments, corporations and individuals just give up and embrace the idea that borrowing is no longer a necessary evil, but simply necessary. Some recent examples:

China January new loans surge to record 2.9 trillion yuan, blow past forecasts

(Reuters) – China’s banks extended a record 2.9 trillion yuan ($458.3 billion) in new yuan loans in January, blowing past expectations and nearly five times the previous month as policymakers aim to sustain solid economic growth while reining in debt risks.

Net new loans surpassed the previous record of 2.51 trillion yuan in January 2016, which is likely to support growth not only in China but may underpin liquidity globally as major Western central banks begin to withdraw stimulus.

Corporate loans surged to 1.78 trillion yuan from 243.2 billion yuan in December, while household loans rose to 901.6 billion yuan in January from 329.4 billion yuan in December, according to Reuters calculations based on the central bank data.

Outstanding yuan loans grew 13.2 percent in January from a year earlier, also faster than an expected 12.5 percent rise and compared with an increase of 12.7 percent in December.

———————–

Total US household debt soars to record above $13 trillion

(CNBC) – Total household debt rose by $193 billion to an all-time high of $13.15 trillion at year-end 2017 from the previous quarter, according to the Federal Reserve Bank of New York’s Center for Microeconomic Data report released Tuesday.

…click on the above link to read the rest of the article…

U.S. Public Debt Surges By $175 Billion In One Day

U.S. Public Debt Surges By $175 Billion In One Day

After the U.S. Government passed the new budget and debt increase, with the President’s signature and blessing, happy days are here again.  Or are they?  As long as the U.S. Government can add debt, then the Global Financial and Economic Ponzi Scheme can continue a bit longer.  However, the days of adding one Dollar of debt to increase the GDP by two-three Dollars are gone forever.  Now, we are adding three-four Dollars of debt to create an additional Dollar in GDP.  This monetary hocus-pocus isn’t sustainable.

Well, it didn’t take long for the U.S. Government to increase the total debt once the debt ceiling limit was lifted.  As we can see in the table below from the treasurydirect.gov site, the U.S. public debt increased by a whopping $175 billion in just one day:

I gather it’s true that Americans like to do everything… BIG.  In the highlighted yellow part of the table, it shows that the total U.S. public debt outstanding increased from $20.49 trillion on Feb 8th to $20.69 trillion on Feb 9th.  Again, that was a cool $175 billion increase in one day.  Not bad.  If the U.S. Government took that $175 billion and purchased the average median home price of roughly $250,000, they could have purchased nearly three-quarter of a million homes.  Yes, in just one day.  The actual figure would be 700,000 homes.

Regardless, we are now off to the races when it comes to adding GOBS of DEBT to continue a Ponzi Scheme that would make Bernie Madoff jealous.

There is so much that I want to write about and put into videos, but there is only so much time in the day.

…click on the above link to read the rest of the article…

The U.S. Deficit Is Beyond Control: Markets Don’t Like Long-Term Government Insolvency

The U.S. Deficit Is Beyond Control: Markets Don’t Like Long-Term Government Insolvency

johnwilliams

Economist John Williams sat down with USA Watchdog‘s Greg Hunter to discuss the dire state of the dollar and United States economy.  The monetary path the US is on is out of control, and the unwillingness of government officials to reduce the deficit and stop spending money will cause major problems in the very near future.

Years of socialist policies and reckless spending will eventually end in a complete collapse. Williams is not the only economist to sound the alarm either. As the tax cuts are always positive (people keeping more of their money is always good for the economy) the unwillingness to decrease the size and scope of the government with an expanded deficit will be the downfall of a once great nation.

The interview with Williams begins with him declaring the drop in the stock market to be the fault of the federal reserve. “Did the Fed trigger this most recent round of selling?” asks Hunter.

“It looks like it. If you recall, the story was, bond yields are rising. Rising bond yields means someone’s selling bonds. The Fed wasn’t actually selling bonds, they just were not rolling over the bonds that they normally would…I think you’re gonna see the dollar selling off very rapidly and gold rallying as a flight to safe haven.”

Then the discussion of the tax cuts comes up, as Hunter asks Williams to deliver his take on the lower taxes.

The tax cuts are generally positive. Anytime you cut taxes that is generally a plus for the economy. The problem is the average guy is still not making ends meet. Anything that increases the disposable income is a plus.

…click on the above link to read the rest of the article…

Global Debt Crisis II Cometh

Global Debt Crisis II Cometh

– Global debt ‘area of weakness’ and could ‘induce financial panic’ – King warns
– Global debt to GDP now 40 per cent higher than it was a decade ago – BIS warn
– Global non-financial corporate debt grew by 15% to 96% of GDP in the past six years

– US mortgage rates hit highest level since May 2014

– US student loans near $1.4 trillion, 40% expected to default in next 5 years
– UK consumer debt hit £200b, highest level in 30 years, 25% of households behind on repayments

The ducks are beginning to line up for yet another global debt crisis. US mortgage rates are hinting at another crash, student debt crises loom in both the US and UK, consumer and corporate debt is at record levels and global debt to GDP ratio is higher than it was during the financial crisis.

When you look at the figures you realise there is an air of inevitability of what is around the corner. If the last week has taught us anything, it is that markets are unprepared for the fallout that is destined to come after a decade of easy monetary policies.

Global debt is more than three times the size of the global economy, the highest it has ever been. This is primarily made up of three groups: non financial corporates, governments and households. Each similarly indebted as one another. Debt is something that has sadly run the world for a very long time, often without problems. But when that debt becomes excessive it is unmanageable. The terms change and repayments can no longer be met.

This sends financial markets into a spiral. The house of cards is collapsing and suddenly it is revealed that life isn’t so hunky-day after all. Rates are set to rise and as they do they will spark more financial shocks, as we have seen this week.

…click on the above link to read the rest of the article…

 

Household Debt Rises By $572 Billion, Ends 2017 At All Time High

After we first reported last week  that US credit card, student and auto debt all hit record highs in December of 2017…

… it should not come as a surprise that according to the just released latest quarterly household debt and credit report  by the NY Fed, Americans’ debt rose to a new record high in the fourth quarter on the back of an increase in virtually every form of debt: from mortgage, to auto, student and credit card debt (although HELOCs posted a tiny decline).

Aggregate household debt increased for the 14th straight quarter, rising by $193 billion (1.5%) to a new all time high, and as of December 31, 2017, total household indebtedness was $13.15 trillion, an increase of $572 billion from a year ago – the fifth consecutive year of increases – equivalent to 67% of US GDP, versus a high of around 87% in early 2009. After years of deleveraging in the wake of the 2007-09 recession, household debt has risen more than 18% since the trough hit in the spring of 2013.

Some more big picture trends:

  • Mortgage balances, the largest component of household debt, increased by $139 billion during the quarter to $8.88 trillion from Q3 2017.
  • Balances on home equity lines of credit (HELOC) have been slowly declining; they dropped by another $4 billion and now stand at $444 billion.
  • Non-housing balances, which have been increasing steadily for nearly 6 years overall, saw a $58 billion increase in the fourth quarter.
  • Auto loans grew by $8 billion to $1.22 trillion
  • Credit card balances increased by $26 billion to $834 billion
  • Student loans saw a $21 billion increase to $1.38 trillion

There were some red flags of caution: confirming recent negative data from Wells Fargo, and suggesting that the housing recovery is stalling, mortgage originations were at $452 billion, down from $479 billion in the third quarter.

…click on the above link to read the rest of the article…

 

The Dollar–From Bohemia to Bust

THE DOLLAR – FROM BOHEMIA TO BUST

Virtually no investor studies history and the few who do always think it is different today. The most important lesson is that people never learn. If they did, they wouldn’t be invested in a stock market that on any criteria is now at a bubble extreme. And they wouldn’t be invested in a global debt market which has grown exponentially in recent decades and which will become worthless in the next few years as debtors default. Nor would anyone hold paper money which is down 97-99% in the last 100 years and which is guaranteed to soon fall the final bit to take the value to zero.

The history of money clearly illustrates that “Plus ça change, plus c’est la même chose” (the more it changes, the more it is the same thing). The most constant factor in the history of money is the cycle of boom and bust or euphoria and despair. Cycles are part of nature just like the change of seasons.

But throughout history, mankind has always believed that they know better than previous generations and can eliminate the cycle of boom and bust. This is what the British prime minister Gordon Brown proudly declared before the economy collapsed in 2007. And the Nobel Prize winner in Economics, Paul Krugman, also believes that eternal prosperity can be generated by creating endless debt and printing unlimited money.

But history has time and time again turned hubristic know-it-alls into humbled has-beens.

FOR 6,000 YEARS GOLD HAS OUTLIVED ALL CURRENCIES

Whenever mankind has deviated from sound money, the consequences have without fail been catastrophic. The only money which has survived since it first came into use around 6,000 years ago is gold. All other money has been destroyed by greed and economic mismanagement. I believe I have quoted Voltaire for over 20 years and will continue to do so: “Paper Money Eventually Returns to its Intrinsic Value – ZERO”.

…click on the above link to read the rest of the article…

Rising Debt + Rising Rates

Rising Debt + Rising Rates

Have they all lost their collective minds? Look I get that some people are leaning Democrat versus Republican and vice versa and that’s fine, but what exactly are voters getting? If, on the one hand, you think Democrats tax and spend too much you get Republicans on the other hand who cut taxes with disproportional benefit to the top 1% and then spend even more. Fiscal conservatives? Please.

In early February the US government was already scheduled to borrow nearly $1 trillion this year. 

A week later and that figure is already out the door as this week both parties agreed to expand spending caps seemingly preparing for World War III. An incremental hundreds of billions of dollars to the military budget alone in just 2 years. What for? To what end? It’s a bonanza for defense contractors surely and the president apparently wants a parade, but have we entered the math no longer applies zone?

The numbers are staggering:

Ok, if nobody will say it I will: This is insane.
Just the increase alone is larger than Russia’s entire annual military budget.
“The budget deal would raise military spending by $80B through the rest of fiscal year and by $85B in fiscal year 2019”https://www.marketwatch.com/story/congressional-leaders-say-theyve-struck-two-year-budget-deal-2018-02-07?link=sfmw_tw 


The end result? Much, much more borrowing and deficits into the trillion+ range forever and ever amen:

2019? Looks lot be $1.4 Trillion.

I didn’t see these figures mentioned in any campaign brochures have you? And this is all pre-recession folks. We get a recession and you are looking at 2-3 trillion dollar deficits.

Think I’m going hyperbole on you?

…click on the above link to read the rest of the article…

What Just Changed?

What Just Changed?

The illusion that risk can be limited delivered three asset bubbles in less than 20 years.

Has anything actually changed in the past two weeks? The conventional bullish answer is no, nothing’s changed; the global economy is growing virtually everywhere, inflation is near-zero, credit is abundant, commodities will remain cheap for the foreseeable future, assets are not in bubbles, and the global financial system is in a state of sustainable wonderfulness.

As for that spot of bother, the recent 10% decline in stocks: ho-hum, nothing to see here, just a typical “healthy correction” in a never-ending bull market, the result of flawed volatility instruments and too many punters picking up dimes in front of the steamroller.

Now that’s winding up, we can get back to “creating wealth” by buying assets–$2 million homes in Seattle that were $500,000 homes a few years ago, stocks, bonds, private islands, offshore wealth funds, bat guano, you name it. Just borrow whatever you need to borrow to buy more.

(But don’t buy bitcoin. No no no, a thousand times no. It is going to zero, Goldman Sachs guaranteed it.)

Ahem. And then there’s reality: something has changed, something important.What changed? The endlessly compelling notion that risk has magically vanished as the result of financial sorcery is now in doubt. If risk hasn’t been made to disappear, and even worse, can’t be corralled into a shortable instrument like VIX, then–gasp–every asset and instrument might actually be exposed to some risk.

As I’ve noted many times here, risk cannot be made to disappear; it can only be transferred onto others or off-loaded into the financial system itself. Risk can be cloaked or masked, and indeed, that is the beating heart of financial alchemy: we can eliminate risk by hedging via exotic instruments.

…click on the above link to read the rest of the article…

Party On, Dudes


As of this week, the shale oil miracle launched US oil production above the 1970 previous-all-time record at just over ten million barrels a day. Techno-rapturists are celebrating what seems to be a blindingly bright new golden age of energy greatness. Independent oil analyst Art Berman, who made the podcast rounds the last two weeks, put it in more reality-accessible terms: “Shale is a retirement party for the oil industry.”

It was an impressive stunt and it had everything to do with the reality-optional world of bizarro finance that emerged from the wreckage of the 2008 Great Financial Crisis. In fact, a look the chart below shows how exactly the rise of shale oil production took off after that milestone year of the long emergency. Around that time, US oil production had sunk below five million barrels a day, and since we were burning through around twenty million barrels a day, the rest had to be imported.

Chart by Steve St. Angelo at www.srsroccoreport.com

In June of 2008, US crude hit $144-a-barrel, a figure so harsh that it crippled economic activity — since just about everything we do depends on oil for making, enabling, and transporting stuff. The price and supply of oil became so problematic after the year 2000 that the US had to desperately engineer a work-around to keep this hyper-complex society operating. The “solution” was debt. If you can’t afford to run your society, then try borrowing from the future to keep your mojo working.

The shale oil industry was a prime beneficiary of this new hyper-debt regime. The orgy of borrowing was primed by Federal Reserve “creation” of trillions of dollars of “capital” out of thin air (QE: Quantitative Easing), along with supernaturally low interest rates on the borrowed money (ZIRP: Zero Interest Rate Policy). T

…click on the above link to read the rest of the article…

Moody’s Threatens US Downgrade Due To Soaring Debt, “Fiscal Deterioration”

Back in 2011, Standard & Poors’ shocked the world, and the Obama administration, when it dared to downgrade the US from its vaunted AAA rating, something that had never happened before (and led to the resignation of S&P’s CEO and a dramatic crackdown on the rating agency led by Tim Geithner).

Nearly seven years later, with the US on the verge of another government shutdown and debt ceiling breach (with the agreement reached only after the midnight hour, literally) this time it is Warren Buffett’s own rating agency, Moody’s, which on Friday morning warned Trump that he too should prepare for a downgrade form the one rater that kept quiet in 2011. The reason: Trump’s – and the Republicans and Democrats – aggressive fiscal policies which will sink the US even deeper into debt insolvency, while widening the budget deficit, resulting in “meaningful fiscal deterioration.

In short: a US downgrade due to Trumponomics is inevitable. And incidentally, with today’s 2-year debt ceiling extension, it means that once total US debt resets at end of day – unburdened by the debt ceiling – it will be at or just shy of $21 trillion.

We expect if not a full downgrade, then certainly a revision in the outlook from Stable to Negative in the coming  months.

Here’s Moodys:

The stable credit profile of the United States (Aaa stable) is likely to face downward pressure in the long-term, due to meaningful fiscal deterioration amid increasing levels of national debt and a widening federal budget deficit. However, the US economy is very strong, wealthy, dynamic and well diversified, and its role in the global financial system is unmatched. These factors help compensate for the impending fiscal weakness, Moody’s Investors Service says in a new report.

…click on the above link to read the rest of the article…

 

 

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai III: Cataclysm
Click on image to purchase