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Europe’s Bailouts Risk a Full-Blown Financial Crisis
EUROPE’S BAILOUTS RISK A FULL-BLOWN FINANCIAL CRISIS
The measures implemented by governments in the eurozone have one common denominator: a massive increase in debt from governments and the private sector.
Loans lead the stimulus packages from Germany to Spain. The objective is to give firms and families some leverage to pass the bad months of COVID lockdowns and allow the economy to recover strongly in the third and fourth quarters. This bet on a speedy recovery may put the troubled European banking sector in a difficult situation.
Banks in Europe are in much better shape than they were in 2008, but that does not mean they are strong and ready to take billions of higher-risk loans. European banks have reduced their nonperforming loans, but the figure is still large at 3.3 percent of total assets according to the European Central Bank. Financial entities also face the next two years with poor net income margins due to negative rates and a very weak return on equity.
The two most important measures that governments have used in this crisis are large loans to businesses partially guaranteed by the member states and significant jobless subsidy schemes to reduce the burden of unemployment.
Almost 40 million workers in the large European nations are under a subsidized jobless scheme according to Eurostat and Bankia Research. Loans that add up to 6 percent of the eurozone’s GDP have been granted to allow businesses to navigate the crisis. So, what happens if the recovery is weak and uneven and the third and fourth quarter growth figures disappoint, as I believe will happen? First, the rise in nonperforming loans may elevate the total figure to 6 percent of total assets in the banking sector, or €1.2 trillion. Second, up to 20 percent of the subsidized unemployed workers will probably join full unemployment, which may increase the risk in mortgage and personal loans significantly.
…click on the above link to read the rest of the article…
Huge Debt Payments Come At Worst Time Possible For Canadian Drillers
Huge Debt Payments Come At Worst Time Possible For Canadian Drillers
The collapse in oil prices has significantly deteriorated Canada’s oil companies’ finances and has made repaying their debt more challenging. Over the past decade, Canadian firms have borrowed money to survive the previous oil crisis of 2015-2016 and boost production post-crisis. But now the second price collapse in less than five years is leaving Canada’s oil patch, especially the smaller players, extremely vulnerable as debt maturities approach.
This year, the oil crash coincides with the highest-ever annual debt maturities in the Canadian energy sector, according to Refinitiv data cited by Reuters. In 2020, oil and gas firms have to repay US$3.7 billion (C$5 billion) in debt maturities, up by 40 percent compared to last year.
The debt pressure adds to the Canadian energy sector’s new predicament with low oil prices, low cash flows, and low overall demand for crude oil due to the coronavirus pandemic.
Some companies are set to default on debts, while others are looking at restructuring options and refinancing. Banks are not generally too keen to own energy assets. But the banks may be the ultimate judge of who can refinance, who can stay afloat, or who can go belly up in this crisis, legal and industry professionals told Reuters.
Some of Canada’s oil and gas firms had not overcome the previous crisis when this one hit.
According to Bank of Canada’s recent Financial System Review—2020, the COVID-19 crisis led to widespread financial distress in all sectors, but “Canada is also grappling with the plunge in global oil prices, which hit while many businesses in the energy sector were still recovering from the 2014–16 oil price shock.”
The energy sector has the most refinancing needs over the next six months, at US$4.43 billion (C$6 billion), and faces the most potential downgrades, according to Bank of Canada.
…click on the above link to read the rest of the article…
Chesapeake Files For Bankruptcy, Wiping Out $7 Billion In Debt And Any Existing Equity Value
Chesapeake Files For Bankruptcy, Wiping Out $7 Billion In Debt And Any Existing Equity Value
After years of melting, the Chesapeake icecube is finally history: at exactly 350pm on Sunday afternoon, the company that launched the US shale boom, finally gave up and filed for a pre-packaged bankruptcy in the Southern District of Texas. In so doing, the company with roughly $9.5 billion in debt has become one of the biggest victims of a spectacular collapse in energy demand from the virus-induced global recession, and follows the collapse of another high-flyer in the US oil patch, Whiting Petroleum, which filed for Chapter 11 at the start of April after championing what was once the premiere U.S. shale field, the Bakken of North Dakota.
As part of its prepack agreement, Chesapeake announced that it had entered into a Restructuring Support Agreement (“RSA”) with 100% of the lenders under its revolving credit facility, holders of approximately 87% of the obligations under its Term Loan Agreement, approximately 60% of its senior secured second lien notes due 2025, and approximately 27% of its senior unsecured notes, pursuant to which Chesapeake will implement a Chapter 11 plan of reorganization to eliminate approximately $7 billion of debt.
Of course, since 73% of unsecured bondholders refused to sign off on the deal, expect a very vicious bankruptcy fight over the recoveries, as hedge funds that accumulated positions in the bonds unleash hell in their fight with the secureds (even as the equity committee claims that all classes above it should be unimpaired).
Also, we have some bad news for Jefferies, which won’t be able to repeat its hilarious attempt to fund the company in bankruptcy by selling stock to Robnhood daytraders: as part of the RSA, the Company has secured $925 million in debtor-in-possession financing lenders under Chesapeake’s revolving credit facility. The DIP will provide Chesapeake the capital necessary to fund its operations during the Court-supervised Chapter 11 reorganization proceedings.
…click on the above link to read the rest of the article…
Can Too Big For Fed & ECB
CAN TOO BIG FOR FED & ECB
There are lies, damned lies, and economists. Whether these economists work for the government or a bank, they spend all their time on the computer extrapolating current trends with minor adjustments.
If you want to understand the future, don’t spend your life preparing and constantly revising an Excel sheet with masses of economic data. Collective human behaviour is extremely predictable. But not by spreadsheet analysis but by studying history.
HISTORY IS A BETTER FORECASTER THAN ECONOMISTS
There just is nothing new under the sun. So why is there so much time and money wasted around the world to make economic forecasts that are no better than a random job by a few chimps?
Instead, give some lateral thinkers a few history books and let them study the rise and decline of the major empires in history. That will tell them more about long term economic forecasts than any spreadsheet.
After a 50 year decline of the US economy and the dollar, we still hear about the V-shaped recovery being imminent.
On what planet do these people live who believe that a world on the cusp of an economic and social collapse is going to see a miraculous recovery out of the blue.
This is the problem with a system that is totally fake and dependant on constant flow of stimulus even though it has zero value. Most people are fooled and believe it is for real.
ALL EMPIRES END WITH COLLAPSING CURRENCY AND SURGING DEBTS
We are now in the final stages of the end game. The end of the end could be extended affairs or they could be extremely quick. Most declines of major cycles are drawn out and this one has lasted half a century. During that time the dollar is down 50% against the DM/Euro and 78% vs the Swiss franc. And US debt has gone up 65x since 1971 from $400B to $26T. A collapsing currency and surging debts are how all empires end.
…click on the above link to read the rest of the article…
U.S. Debt Has No Meaning Anymore (Until It Eventually Does)
U.S. Debt Has No Meaning Anymore (Until It Eventually Does)
Photo by Wikimedia.org | CC BY | Photoshopped
The national debt currently looks like a runaway freight train. Not only is it clocking in at $26.1 trillion at the moment, but it has made the jump of the last few trillion dollars fast.
Really fast.
Wolf Richter summarizes the frenzied ascent in a recent article, appropriately calling it “debt out the wazoo”:
Trillions are now whooshing by at a breath-taking pace. The US gross national debt – the total of all Treasury securities outstanding – jumped by $1 trillion over the past five weeks, from May 4 through June 8, and by $2.5 trillion for the 11 weeks since March 23.
The debt, which had been growing by as much as $1 trillion per year since 2012, suddenly increased 2.5 times as much in a span of only 11 weeks. (See graph below for the spike.)
This dramatic increase comes along with a 5% increase in business debt and a staggering 29% increase in commercial loan debt – but we’ll set that aside for another article.
When you stop and think about how much of an anchor that $26 trillion in debt could represent for the U.S. economy if anything more goes sideways, it’s mind-boggling.
Byron King from Agora Financial sums up the state of the insanity…
“That $26 Trillion of Debt is Utterly Unpayable”
When the average person incurs debt, they pay the debt back plus a certain rate of interest.
Byron King thinks the U.S. is at the point “where even paying interest will be problematic.” Assuming this is true, at minimum, the U.S. could get stuck in a perpetual state of paying just the interest on its mountain of debt.
…click on the above link to read the rest of the article…
Canadian Banks Hit Hard By Low Oil Prices
Canadian Banks Hit Hard By Low Oil Prices
Canada’s government has been perhaps surprisingly ready to help the country’s ailing oil industry. Interest-only loans, backstopping loans that troubled companies can’t pay have been among the steps taken so far. But they may not be enough. Canada’s oil industry has arguably suffered more than its peers across its southern border or even most producers around the world. Already cheap because of pipeline troubles, Canadian oil slumped to new lows amid the oil price war and the coronavirus pandemic earlier this year. While it has since improved in line with the international benchmarks, it hasn’t improved enough for the comfort of the local extractive industry. And it may drag banks down with it.
Bloomberg reported earlier this month that Canada’s largest banks reported an almost two-fold increase in impaired energy loans over their second quarter due to the oil price plunge and the pandemic. The increase amounted to more than US$1.47 billion (C$2 billion). What’s more, according to the report the country’s top six lenders had boosted their new lending to energy companies jumped by as much as 23 percent during that same quarter.
“Canadian banks’ energy exposure risks are increasing, with oil in a freefall and Canadian oil producers fighting to survive, as cash burn accelerates and liquidity dwindles,” a Bloomberg Intelligence analyst said in April when banks and companies were both bracing for this year’s renegotiation of borrowing bases amid the price plunge. According to Paul Gulberg, if just a tenth of the loans that Canadian banks had on their books at that time went bad, the lenders could lose a collective US$4.40 billion (C$6 billion).
…click on the above link to read the rest of the article…
Weekly Commentary: Extraordinary Q1 2020 Z.1 Flow of Funds
Weekly Commentary: Extraordinary Q1 2020 Z.1 Flow of Funds
Financial crisis erupted in March. The Fed slashed rates at a March 3rd emergency meeting – and then began aggressively expanding its holdings/balance sheet (creating market liquidity). Even from a “flow of funds” perspective, it was one extraordinary quarter.
Total Non-Financial Debt (NFD) surged a nominal $1.597 TN during the first quarter ($6.379 TN seasonally-adjusted and annualized!) to $54.325 TN. This was the strongest quarter of NFD growth on record (blowing past Q1 2004’s $1.234 TN). Indeed, Q1 growth surpassed full-year NFD expansions for the years 2009, 2010, 2011 and 2013. This pushed one-year growth to $3.271 TN (6.2%), significantly exceeding 2007’s record $2.521 TN expansion. NFD increased $20.857 TN, or 59%, since the end of 2008. NFD as a percentage of GDP rose to a record 260%. This compares to previous cycle peaks of 226% (Q4 ‘07) and 183% (Q4 ’99).
Financial Sector borrowings jumped $963 billion during Q1, surpassing the previous record $656 billion from Q3 ’07. This pushed one-year Financial Debt growth to $1.247 TN (7.6%), the strongest expansion since ‘07’s $2.065 TN.
Total Credit (Non-Financial, Financial and Foreign) surged nominal $2.391 TN for the quarter to $77.861 TN, surpassing previous record growth from Q1 ‘04 ($1.512 TN). One-year growth of $4.790 TN was the strongest since 2007. Total Credit jumped to 362% of GDP, the high going back to 2010.
Federal Liabilities (excluding massive “contingent”/off balance sheet liabilities) jumped to $22.0 TN during Q1. At 102%, Federal Liabilities surpassed 100% of GDP for the first time in at least six decades. For perspective, Federal Liabilities ended the seventies at 50% of GDP; the eighties at 63%; the nineties at 59%; and 2010 at 85%. It would not be surprising to see this ratio approach 150% over the next three to five years.
Outstanding Treasury Securities jumped nominal $500 billion during the quarter to a record $19.518 TN. This pushed one-year growth to a staggering $1.612 TN (9.0%) and two-year growth to $2.472 TN (14.5%). Treasuries ballooned $13.467 TN, or 223%, since the end of ’07. Treasuries-to-GDP jumped to 91%, more than doubling the 41% from the end of 2007.
…click on the above link to read the rest of the article…
U.S. Total Public Debt Increases a Stunning $25 Billion A Day In 2020
U.S. Total Public Debt Increases a Stunning $25 Billion A Day In 2020
Americans better become reacquainted with Gold and Silver. With the Federal Government adding $25 billion of new debt every day so far this year, at some point, investors are going to lose faith in the U.S. Dollar and U.S. Treasuries. Just think about that for a minute. On average, for every working day this year (116 days so far), the U.S. Public Debt has increased by $25 billion.
In just one week, the additional $125 billion of U.S. Public Debt could have purchased all global silver mine supply for the past eight years, nearly 7,000,000,000 oz. And, in a little less than a month and a half, the increase in U.S. Public Debt would have purchased ALL KNOWN Global Silver Production since 1493… 52,000,000,000+ oz. This is how insane the whole system has become.
According to the data from the St. Louis Federal Reserve and TreasuryDirect.gov, total U.S. Public Debt increased from $23.2 trillion in Q4 2019 to $26.1 trillion as of June 10th (the figure is $26.065 trillion, but I rounded it up to $26.1 trillion).
So, in less than six months, the total U.S. Federal Debt ballooned by nearly $3 trillion. Now, if we go back and take the annual debt increase for each year and divide it by 250 working days, we have the chart below:
From 2007 to 2019, the average debt increase per day was $4.4 billion. Take a look at the average increase of U.S. Public Debt so far in 2020. It sticks out like a sore thumb.. eh? If we divide $2.9 trillion of new debt by 116 working days in 2020, it comes out to a nice EVEN $25 billion PER DAY… LOL.
…click on the above link to read the rest of the article…
Increased Violence Reflects an Energy Problem
Increased Violence Reflects an Energy Problem
Why are we seeing so much violence recently? One explanation is that people are sympathizing with those in the Minneapolis area who are upset at the death of George Floyd. They believe that a white cop used excessive force in subduing Floyd, leading to his death.
I believe that there is a much deeper story involved. As I wrote in my recent post, Understanding Our Pandemic – Economy Predicament, the problem we are facing is too many people relative to resources, particularly energy resources. This leads to a condition sometimes referred to as “overshoot and collapse.” The economy grows for a while, may stabilize for a time, and then heads in a downward direction, essentially because energy consumption per capita falls too low.
Strangely enough, this energy crisis looks like a crisis of affordability. The young and the poor, especially, cannot afford to buy goods and services that they need, such as a home in which to raise their children and a vehicle to drive. Trying to do so leaves them with excessive debt. If the affordability problem changes for the worse, the young and the poor are likely to protest. In fact, these protests may become violent.
The pandemic tends to make the affordability problem worse for minorities and young people because they are disproportionately affected by job losses associated with lockdowns. In many cases, the poor catch COVID-19 more frequently because they live and/or work in crowded conditions where the disease spreads easily. In the US, blacks seem to be especially hard hit, both by COVID-19 and through the loss of jobs. These issues, plus the availability of guns, makes the situation particularly explosive in the US.
Let me explain these issues further.
[1] Energy is required for all aspects of the economy.
…click on the above link to read the rest of the article…
First the Deflationary Deluge of Assets Crashing, Then the Tsunami of Inflation
First the Deflationary Deluge of Assets Crashing, Then the Tsunami of Inflation
Once the pool of greater fools dries up, stocks crash regardless of what the Fed does or bleats.
The conventional view is the Federal Reserve creating trillions of dollars out of thin air will trigger inflation. Not so fast. Yes, creating trillions of dollars out of thin air will eventually devalue the purchasing power of each dollar–what we call inflation–but first all the unprecedented asset bubbles will pop and valuations will crash.
Let’s call this a deflationary deluge as unsustainable asset prices are eroded by a hard rain of reality. To understand the enormity of the current bubbles, please glance at the charts below. The first chart depicts recent stock market bubbles; note the extreme height of the current bubble.
The next chart shows the S&P 500, and the extraordinary amplification of the bubble that reached its apex in February 2020. Note that each ramp higher takes less time to reach its peak. The most recent snapback rally gained about 870 points in a mere two months–a move that took roughly 5 years in the early 2000s.
Real estate and other assets have also soared in unprecedented bubbles. Old bungalows that sold for $150,000 less than 20 years ago are now supposedly worth over $1 million.
What made this possible? An equivalent bubble in debt. Every sector–household, corporate and government–has borrowed astronomical sums of money to keep the bubble economy glued together. In this rising tide of currency and capital, whatever had scarcity value–real estate, art, stocks–was purchased with the borrowed money as a store of value and / or as a source of income in a world starved of low-risk yields by central banks that dropped interest rates to near zero.
…click on the above link to read the rest of the article…
Global Debt Default
Global Debt Default
QUESTION: Dear Martin,
I do not speculate on whether the current situation has been orchestrated intentionally or not. This to me sounds more like the case for 9/11 you often described. They knew in advance that a “pandemic” could come any time, and they took advantage of the very first virus spreading around as the perfect excuse to put things into motion.
Indeed, a coordinated action to push the reset button on the world economy and hence a global default on debts seems a plausible plan of action by the ruling classes. You restart with an operating system upgrade, clean the air, create mass surveillance with the excuse of an invisible threat, and impose a new social contract. Authoritarian playbook 101.
My question however is, how would in practice a global coordinated debt default unfold? Could you elaborate in some detailed causes and consequences, please.
SB
ANSWER: It has been coordinated and this virus is by no means something that is so lethal. There are many who argue it was the result of experimentation in a laboratory that got out rather than a biological weapon. Others are speculating that it was created by a funded Gates operation and Fauci is responsible. The Chinese fight back by blaming the US military. I seriously question that the USA would have done that because there was nothing to gain. For me, just look at who benefits and follow the money.
Those are things I care not to get involved it. I am more concerned about the impact rather than the origin at this time. From that perspective, I have finished a report which will be posted for downloads this weekend. It is not the “rich” who are looking to crash the debt — it is government who will default on the rich.
California Just Put Washington in this Economic “Catch-22”
California Just Put Washington in this Economic “Catch-22”
Government bailouts are being revived, and this time, unlike during the 2008 recession, it appears large financial companies won’t be the only ones asking for help.
The problem is, the government may not be able to help this time.
In response to a bloated state budget and a massive debt of over $550 billion, Newsmax reports that California Governor Gavin Newsom is looking for a bailout from the federal government:
Without an infusion of at least $14 billion from Congress, Newsom said the state would have to cut billions to public schools, not to mention hundreds of millions for preschool, child care and higher education programs. It’ll also need to eat into health benefits for the poor, among other things.
“The enormity of the task at hand cannot just be borne by a state,” Newsom said. “The federal government has a moral and ethical and economic obligation to help support the states.”
Obviously, Newsom’s decision to impose lockdowns in response to the coronavirus pandemic, resulting in more than 746,000 unemployed, partly explains the sudden need for cash.
Economist Robert Wenzel thinks the “lockdown is projected to lead to a state budget shortfall this year of $54 billion,” which is bound to make things more complicated.
Wenzel added another sharp critique of Newsom’s request for a bailout, and a comparison to Greece’s economic bust in 2007:
[Newsom] is now in begging mode just like Greece was, but, whereas a lot of Greece’s financial trouble was about paying off old debt, California’s problem is about running the current state government (and also local governments).
It sure seems like California has been playing a dangerous debt game, first ignoring economic realities prior to the pandemic, and then asking the federal government to send bags of cash so things can keep running smoothly.
…click on the above link to read the rest of the article…
No to the ECB madness
No to the ECB madness
The latest ruling of the Federal Constitutional Court is a drop of bitterness in the idyll of the ECB’s excessive money printing. What Super Mario (Draghi) did and what the IMF-imported Christine Lagarde mercilessly continues – 2.6 trillion euros (since 2015), invested in government, corporate and other securities to boost the economy and inflation – are a blessing for financiers and their customers (plutocracy) and a curse for savers and future pensioners. Roughly speaking, the ECB is buying up the debts of banks and large corporations, but is not worried about citizens’ savings melting away as a result of the negative interest rate, while the bubble is growing in markets overheated by cheap money (including the property market). The owners of real assets are benefiting, while owners of financial assets are losing. Companies that would not have been able to survive under any other circumstances remain in the market as zombies, reducing productivity, the rate of return on capital in the eurozone and their competitiveness in the world.
These trillions of euros are therefore ineffective. After all, the eurozone economy weakened significantly much earlier, before the outbreak of the so-called pandemic. Now the bubble has burst on the stock markets and Lagarde immediately started to take new “measures” from her ivory tower in Frankfurt: money presses are running at full speed, markets are recovering, the economy is still at its worst since the end of the Second World War, unemployment rates very high everywhere, but never mind all that, “The show must go on”, until one day, oh, how unpleasant these German judges!
…click on the above link to read the rest of the article…
Pandemic, Lockdowns, Fake and Manipulated Markets – Gold and Silver Outlook
Pandemic, Lockdowns, Fake and Manipulated Markets – Gold and Silver Outlook
◆ The massive global debt driven “Everything Bubble” is bursting due to the pandemic and more specifically the governments draconian economic lockdowns
◆ A dollar crisis is inevitable with U.S. government debt surging by some $2 trillion in a matter of weeks and ballooning to over $25 trillion
◆ Wall Street has just been bailed out at the expense of Main Street and families and businesses in the U.S. and throughout most of the industrial world
◆ Gold and particularly silver remain good value for those looking for safe havens to hedge the risk of financial dislocations and collapse
◆ Due to ongoing price manipulation in the futures market they have yet to price in the scale of the coming crisis; silver is actually lower despite massive demand as seen in a surge in silver ETF holdings, shortages of silver coins and bars and elevated premiums on gold but particularly silver
◆ This is much more than a “logistics” issue and is more due to actual shortages of physical metal from mines, mints and refineries and very strong global demand
◆ Gold and silver, if owned in the safest of ways, will protect people, families and companies in the coming global financial and monetary crisis
◆ Open an account with GoldCore here
◆ All the best from Stephen, Mark and the team. Be well!
NEWS and COMMENTARY
31 Gold and Silver Charts – Demand Will Soar and Gold Will Surge Once It Surpasses $1,900/oz (GoldChartsRUs)
“This event coming into play just prior to taking out all time highs at $1900 after which one could expect the prices to accelerate & demand soar.”
…click on the above link to read the rest of the article…
Fourth Turning Accelerating Towards Climax
FOURTH TURNING ACCELERATING TOWARDS CLIMAX
“At some point, America’s short-term Crisis psychology will catch up to the long-term post-Unraveling fundamentals. This might result in a Great Devaluation, a severe drop in the market price of most financial and real assets. This devaluation could be a short but horrific panic, a free-falling price in a market with no buyers. Or it could be a series of downward ratchets linked to political events that sequentially knock the supports out from under the residual popular trust in the system. As assets devalue, trust will further disintegrate, which will cause assets to devalue further, and so on. Every slide in asset prices, employment, and production will give every generation cause to grow more alarmed.” – Strauss & Howe – The Fourth Turning
I’ve been writing articles about the Fourth Turning for over a decade and nothing has happened since its tumultuous onset in 2008, with the global financial collapse, created by the Federal Reserve and their Wall Street co-conspirator owners, that has not followed along the path described by Strauss and Howe in their 1997 book – The Fourth Turning.
Like molten lava bursting forth from a long dormant (80 years) volcano, the core elements of this Fourth Turning continue to flow along channels of distress, long ago built by bad decisions, corrupt politicians and the greed of bankers. The molten ingredients of this Crisis have been the central drivers since 2008 and this second major eruption is flowing along the same route. The core elements are debt, civic decay, and global disorder, just as Strauss & Howe anticipated over two decades ago.
…click on the above link to read the rest of the article…
