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The Fate of All Municipal Governments – Look to Peoria, Illinois

The system we have is totally corrupt and it outright UNSUSTAINABLE!!!! In Illinois, the city of Peoria has been forced to eliminate 22 firefighter and 16 police positions even after they made 27 layoffs earlier this year. Besides eliminating employees, they are now looking at adding a tax of $50-$300 to try to cover their own pension schemes as pension spending consuming everything. Pension costs are forcing Peoria to cut 38 emergency worker positions and to raise property taxes further. Peoria joins the south Chicago suburb of Harvey which is yet another warning of what is coming over the next three years into 2021.

Trend is Clear – Rapid Decline of World Economy – Egon von Greyerz

Trend is Clear – Rapid Decline of World Economy – Egon von Greyerz

Financial and precious metals expert Egon von Greyerz (EvG) says don’t expect the global financial situation to get better anytime soon. EvG says, “You know what the politicians are doing now? Theresa May is my best example. These politicians are just running around posing and acting, but they are not achieving anything, and they are not achieving anything because the world is in a mess. What we are seeing the beginning of is the decline of the western world economy, which means the whole world economy. . . . There is no use in putting a time period on it, that it’s going to happen this year or next year. The trend is clear. We know that the world economy is in a mess. It’s going to decline, and in my view, it’s going to be a rapid decline.. . . Gold will reflect all of this, and currencies will be totally debased. . . . You don’t need a lot, you might only need another few snowflakes to trigger this avalanche. It could come in a month or in three months time because the system is a fake system. . . . I count $2 quadrillion in money. If you add debt, unfunded liabilities and the risk of derivatives, you come up to $2 quadrillion of debt and liabilities. The global GDP is $70 trillion. . . . So, you are talking about 30 times global GDP.”

What could go wrong? EvG says, “You don’t need much to go wrong. It will happen. They have no remedy anymore. 2007 to 2009, I have said many times that was a rehearsal. The real thing is coming now or in the next few years, and no money printing will ever stop it. They will try, but they will fail. This is why you will get the depressionary hyperinflation, and when that fails you get the implosion of the system.

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

“Severe Collapse” of Home Prices Might Trigger a “Financial-Institution Crisis” in Australia: OECD Frets about the Bank

“Severe Collapse” of Home Prices Might Trigger a “Financial-Institution Crisis” in Australia: OECD Frets about the Bank

“The authorities should prepare contingency plans.” The big four banks are too exposed to mortgages. Even if the banks don’t topple, the economy will get hit hard.

In its latest report on Australia, the OECD focuses to a disturbing extend on housing, household debt, what the current housing downturn might do to the otherwise healthy economy, and what the risks are that this housing downturn will lead to a financial crisis for the big four Australian banks, an eventuality that it says “authorities” should make “contingency plans” for.

The big four banks are huge in relation to the Australian stock market and the overall economy: Their combined market capitalization, at A$341 billion, even after today’s sell-off following the OECD report – accounts for 26% of Australia’s total stock market capitalization.

How they dominate the stock market showed up on Monday after the release of the report:

  • Common Wealth Bank of Australia (CBA): -2.98%
  • Westpac (WBC): -3.38%
  • Australia and New Zealand Banking Group (ANZ): -4.09%
  • National Australia Bank (NAB): -2.54%

The overall ASX stock index on Monday dropped 2.27%.

These big four are heavily owned by Australian pension funds, retail investors, and the like and form a big part of the retirement nest egg of the nation. So a banking crisis that involves the Big Four matters on all fronts – and the OECD report even pointed out that a collapse in the share prices of the Big Four would itself impact the overall economy negatively.

The report (PDF) starts by explaining just how strong the economy is in Australia:

With 27 years of positive economic growth, Australia has demonstrated a remarkable capacity to sustain steady increases in material living standards and absorb economic shocks.

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

France in a Nutshell: “The Government Stopped Listening to the People 20 Years Ago”

France in a Nutshell: “The Government Stopped Listening to the People 20 Years Ago”

The elites’ clever exploitation of politically correct cover stories has enthralled the comatose, uncritical Left, but not those who see their living standards in a free-fall.

A family member who has lived in France for decades summarized the source of the gilets jaunes protests in one sentence: “The government stopped listening to the people 20 years ago. It would be difficult to deny the generalization of this: many if not most governments stopped listening to their people decades ago, preferring instead to listen to financial and political elites and entrenched cultural eliteswho view commoners with disdain.

Legions of commentators are weighing in on the economic and cultural sources of France’s distemper. Many have characterized the protests as working class, broadly speaking, the multitudes who have seen an erosion in the purchasing power of their wages or pensions while France’s financial, political and cultural elites have feasted on whatever meager gains the French economy has registered in the past 20 years.

The protesters rightly perceive that they are politically invisible: the ruling class, regardless of its ideological flavor, doesn’t believe it needs the support of the I>politically invisible to rule as it sees fit. The ruling class has counted on the cultural elites to marginalize and suppress the politically invisible by dismissing any working-class dissent as racist, fascist, nationalistic and other words expressly intended to push dissent into the political wilderness.

The cultural elites reckoned their ceaseless depiction of working-class dissent as racist-fascist populism would continue marginalizing the commoners, but the worm has turned: the financially, politically and culturally marginalized classes are fed up.

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

Democratizing Money

Democratizing Money

The Green New Deal has been in the air lately. In a recent piece on this website, Rob Urie writes that the Green New Deal is “the last, best hope for environmental and social resolution outside of rapid dissolution toward dystopian hell.”

Quite a claim. Let’s take a closer look.

The Green New Deal, first articulated by the Green Party but now supported by many progressive Democrats, calls for “real financial reform” to address the twin problems of climate change and economic insecurity.

Included are some of the standard proposals we regularly hear, such as restoring the Glass-Steagell Act (separating commercial and investment banking), breaking up the big banks, ending bank bailouts, reducing debt burdens, regulating derivatives, and taxing bank bonuses.

These are serious proposals, and would likely provide some relief, but they are partial measures subject to rollback and evasion–just the kind of incremental strategy that has failed for decades.

But the “real financial reform” the Green New Deal calls for goes a lot further. It promises genuine radical change with two new proposals: One is to “democratize monetary policy to bring about public control of the money supply and credit creation,” and the other is to “support the formation of federal, state, and municipal public owned banks that function as non-profit utilities.”

First, some background. Most people don’t realize that the government does not issue money; the private banking system does, by issuing loans at interest. The last time the government issued money in any quantity was during the Civil War, when so-called greenbacks were printed by the Treasury department to pay for the war. Greenbacks were not debt, but direct currency printed to give government contractors money for the goods and services provided, which they then spent into the general economy, stimulating commerce.

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

U.S. Debt Poised To Hit The $22 Trillion Mark As “Storm Clouds” Indicate “We Could Have Another Financial Crisis”

U.S. Debt Poised To Hit The $22 Trillion Mark As “Storm Clouds” Indicate “We Could Have Another Financial Crisis”

The rapidly exploding U.S. national debt is about to cross another critical threshold.  According to the U.S. Treasury, the debt of the federal government is currently sitting at $21,854,296,172,540.94, and at our current pace we will likely hit the $22 trillion mark next month.  This is a horrifying national crisis, and yet nothing is being done about it.  When Barack Obama entered the White House in January 2008, the U.S. was $10.6 trillion in debt, and so that means that we have added 11.2 trillion dollars of new debt to that total in less than 11 years.  Needless to say, it doesn’t take a math genius to figure out that we have been adding an average of more than a trillion dollars a year to the national debt for more than a decade.  But instead of getting our insatiable appetite for debt under control, Congress is actually accelerating our spending.  At this point, there is no possible scenario in which this story ends well.

Meanwhile, the global financial elite are really starting to talk up the possibility of a new financial crisis.

For example, the deputy head of the IMF just said that he sees “storm clouds building”

The storm clouds of the next global financial crisis are gathering despite the world financial system being unprepared for another downturn, the deputy head of the International Monetary Fund has warned.

David Lipton, the first deputy managing director of the IMF, said that “crisis prevention is incomplete” more than a decade on from the last meltdown in the global banking system.

“As we have put it, ‘fix the roof while the sun shines’. But, like many of you, I see storm clouds building and fear the work on crisis prevention is incomplete.”

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

Why We’re Ungovernable, Part 17: In Latin America, Soaring Population + Soaring Debt = “Brutal Justice”

Why We’re Ungovernable, Part 17: In Latin America, Soaring Population + Soaring Debt = “Brutal Justice”

There are two ways of looking at the intersection of debt and population. One way says that if debt is rising population should also rise to allow future workers to pay for the retirement of today’s. More people thus make debt easier to manage.

The other point of view is that debt and population soaring simultaneously creates a negative feedback loop that eventually destroys a culture.

Today’s Latin America appears to validate the second thesis. Debt and population are both soaring, and big parts of the culture seem to be collapsing.

The following chart shows Latin America’s population more than tripling since 1950:

The next chart shows the government debt of Brazil, Latin America’s largest economy, spiking since the end of the Great Recession:

Brazilian Government Debt % of GDP

source: tradingeconomics.com

As for the culture collapsing, consider this (rather grisly) excerpt from today’s Wall Street Journal:

In Latin America, Awash in Crime, Citizens Impose Their Own Brutal Justice

The 16-year-old had spent a balmy Saturday afternoon in May with his high school friends at a funk music party in Brasília’s central park, not far from the country’s presidential palace.

As he headed home shortly after sundown, someone in the crowd grabbed his classmate Ágatha from behind and snatched her phone, witnesses told police. She spun around and saw Victor. Believing him to be the thief, she screamed out for help. Her friends knocked him to the ground and began to beat him.

Hearing Ágatha’s shrieks, another group of partygoers presumed he must be the same teen who had swiped a pair of sunglasses from them earlier. One of them jammed a broken bottle into Victor’s stomach.

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

Historic Debt Is At The Core Of Our Economic Decline

debt at core of economic decline

From Brandon Smith

As I predicted just after the 2016 presidential election, a sordid theater of blame has exploded over the state of the U.S. economy, with fingers pointing everywhere except (in most cases) at the true culprits behind the crash. Some people point to the current administration and its pursuit of a trade war. Others point to the Federal Reserve, with its adverse interest rate hikes into economic weakness and its balance sheet cuts.

Some blame the Democrats for doubling the national debt under the Obama Administration and creating massive trade and budget deficits. And others look towards Republicans for not yet stemming the continually increasing national debt and deficits.

In today’s economic landscape, the debt issue is absolutely critical. While it is often brought up in regards to our fiscal uncertainty, it is rarely explored deeply enough.

I believe that economic crisis events are engineered deliberately by the financial elite in order to create advantageous conditions for themselves. To understand why, it is important to know the root of their power.

Without extreme debt conditions, economic downturns cannot be created (or at least sustained for long periods of time). According to the amount of debt weighing down a system, banking institutions can predict the outcomes of certain actions and also influence certain end results. For example, if the Fed were to seek out conjuring a debt based bubble, a classic strategy would be to set interest rates artificially low for far too long. Conversely, raising interest rates into economic weakness is a strategy that can be employed in order to collapse a bubble. I believe that it is what launched the Great Depression, it is what ignited the crash of 2008, and it is what’s going on today.

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

Economic Downturn: Credit Cards Aren’t Being Paid, Accounts Are Being Closed

Economic Downturn: Credit Cards Aren’t Being Paid, Accounts Are Being Closed

A new report is shining some light on an indicator that the economy is about to take a major downturn. Credit card accounts are not being paid and some accounts are being closed in anticipation for an upcoming recession.

Credit-card delinquencies, application rejections, and involuntary account closures are all on the upswing, according to a report from the Federal Reserve Bank of New York. According to Business Insider, The Fed says these developments reported are “potentially concerning” given the strength of the economy and comparatively low interest rates. Does the Fed not remember that they themselves have been jacking up the interest rates for months now? Sure, they are still relatively low, but that’s little consolation for the person who lives paycheck to paycheck and just saw another rate hike.

The Fed released the results of this report this week. It’s called the “Credit Access Survey” which is a quarterly report on United States borrowers. It brought to the surface a couple of alarming trends that suggest credit-card issuers are getting skittish and paring back risk: Both credit-card rejection rates and involuntary account closures are on the rise.

A separate New York Fed report released last month, the “Quarterly Report on Household Debt and Credit,” produced a similar finding. The report, which mines Equifax consumer credit reports for data, showed an uptick in the past year and a half in account closures, again primarily from credit cards.

The reason credit card companies may be closing accounts and rejecting borrowing increases is that they may be spooked by the increasing number of people who already aren’t paying off their cards. Credit-card delinquency rates began to climb sharply toward the end of 2016, a trend that hasn’t reversed in 2018, according to Fed data.

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

 

The Other Two Kinds Of Debt

The Other Two Kinds Of Debt

“Any corporation, private or governmental, that wishes to provide for a sound and equitable continuity of its business must take steps towards the systematic retirement of debt immediately after it has been incurred. Postponement of all payment for property or privileges by those who presently enjoy their benefits is calculated to bring uncomfortable consequences to them or those who succeed them.”
— Engineering Economics, by C.R Young. 1949
(Read on Guerrilla-Capitalism.com)

We frequently hear pundits and talking heads talking about how short-sighted government policies and unfunded entitlements are in essence “stealing from the future” or at best “borrowing from the future” and I found myself thinking about the difference between the two ideas.
Normally when we think about “the two kinds of debt” we think productive versus unproductive debt. Exemplified in the Richard Kiyosaki “Rich Dad / Poor Dad” series, we learn that productive debt is that which you incur and then use in a way that will help pay itself off.
Examples include vendor or bank financing on buying a business that you would then pay back with the earnings from said acquisition, something I’ve done a couple times over my career; or taking out a mortgage to buy an investment property. From there you would use the rent to pay off the mortgage.

I emphasize paying off the mortgage here as opposed to simply servicing the debt with minimum payments or interest only, and we’ll see why shortly. Contrast this with unproductive debt, which is borrowing money to go on vacation or buy consumer goods, or do anything else with it that leaves you with the bill afterward. As Kiyosoki frequently stresses, it’s the difference between debt that makes you money vs debt that costs you money.

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

The Makings of a Global Debt Crisis Are in Place

The Makings of a Global Debt Crisis Are in Place 

In 2017, the financial world was filled with talk of synchronized sustainable growth in major economies for the first time since before the 2008 global financial crisis. This was being proclaimed by global financial elites including Christine Lagarde, head of the IMF.

Now that vision is in ashes. Synchronized global growth has turned into a synchronized global slowdown. Growth has already turned negative in two of the world’s largest economies, Japan and Germany, and is slowing rapidly in the world’s biggest economies, China and the U.S.

China may report something like 6.8% GDP growth, but when all the waste in its economy is stripped out the actual growth is probably closer to 4.5%. That’s still growth, but not nearly enough to sustain China’s massive debt overload. Its debt is growing faster than the economy and its debt-to-GDP ratio is even worse than the U.S.

For a sense of perspective, China had about $2 trillion total debt in 2000. Today, it’s about $40 trillion. That’s an unbelievable 2,000% increase in under 20 years.

Growth is also slowing in the U.S. The 2009–2018 recovery has already been the weakest recovery in U.S. history despite a few good quarters here and there. And there’s little reason to expect it to pick up from here.

GDP expanded 3.5% last quarter, which looks good on paper. But the trend is pointing down. Since this April, we’ve seen growth of 4.2% (Q2), and 3.5% (Q3). This trend tends to confirm the view that 2018 growth was a “Trump bump” from the tax cuts that will not be repeated. And Q4 GDP will probably be lower than Q3.

Goldman Sachs, for example, projects fourth-quarter GDP to expand at 2.5%. It further expects growth to drop to 2.2% by the second quarter of 2019, and to 1.6% by the end of the year.

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

Trump: “I Won’t Be Here” When The Coming Debt Crisis Goes Nuclear

President Trump reportedly shrugged off concerns over the ballooning national debt, telling senior advisers in an early 2017 meeting “Yeah, but I won’t be here” when presented with “charts and graphics layout out the numbers and showing a “hockey stick” spike in the national debt” set to occur “in the not too distant future.”

The alleged incident from nearly two years ago comes from the Daily Beast – citing “a source who was in the room,” which we note is anonymous – the standard operating procedure for most anti-Trump hit pieces. As such, one may want to take the report with copious grains of salt.

Citing another anonymous White House official, the Beast reports that President Trump hasn’t addressed the national debt “in a truly meaningful way, despite his public lip service.”

“I never once heard him talk about the debt,” said the totally anonymous source.

Then again, former Trump official Marc Short – who went on record, refutes the anonymously sourced suggestion over Debt worries – telling the Beast that he believed Trump recognized “the threat that debt poses,” as evidenced by the president’s repeated concerns over “rising interest rates.”

“But there’s no doubt this administration and this Congress need to address spending because we have out-of-control entitlement programs,” Short said, adding, “it’s fair to say that… the president would be skeptical of anyone who claims that they would know exactly when a [debt] crisis really comes home to roost.”

The Beast adds further to the notion that Trump is concerned about debt, however it’s ultimately up to the legislative branch which has the “power of the purse.”

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

The Art of Defaulting

… the debt-financed overspending of the 1960s had continued into the early 1970s. The Fed had funded this spending with easy-credit policies, but by paying back its debts with depreciated paper money instead of gold-backed dollars, the U.S. effectively defaulted.

Ray Dalio

Principles for navigating big debt crises

Ray Dalio of Bridgewater Associates is one of my role models in life and, when he writes a new book, I would normally visit Amazon.co.uk more quickly than you can count to ten, but not this time!

What? Have I fallen out of love with Ray’s way of thinking? Not at all, but I found out that his new book – Principles for Navigating Big Debt Crises – can actually be downloaded for free. Ray, being the class act he is, has decided that everybody should know how to navigate a debt crisis; hence he has chosen to make it freely available (as a PDF copy).

Much (but not all) of the content below is inspired by Ray’s thinking. He is not as explicit in his new book as I am below (and as he has been before) in terms of the timing of the next debt crisis, but it’s pretty clear that he also thinks the writing is on the wall.

If you want to read the wise words of a very smart man, I suggest you give yourself one for Christmas, which you can do here. Christmas presents rarely come cheaper than this.

Debt crises of different sorts

In the following, I will focus on what Ray calls major debt crises – crises that have caused a slump in GDP of at least 3% but, in reality, there are different types of major debt crises.

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

The Fed Explains the Rate Hikes: To Prevent Financial Crisis 2

The Fed Explains the Rate Hikes: To Prevent Financial Crisis 2

Instead of “bubble” or “collapse,” it uses “valuation pressures” and “broad adjustment in prices.” Business debt, not consumer debt, is the bogeyman this time.

Preventing another financial crisis – or “promoting financial stability,” as the Federal Reserve Board of Governors calls it – isn’t the new third mandate of the Fed, but a “key element” in meeting its dual mandate of full employment and price stability, according to the Fed’s first Financial Stability Report.

“As we saw in the 2007–09 financial crisis, in an unstable financial system, adverse events are more likely to result in severe financial stress and disrupt the flow of credit, leading to high unemployment and great financial hardship.”

Financial firms are OK-ish, except for hedge funds.

The largest banks are “strongly capitalized” and are better able to withstand “shocks” than they were before the Financial Crisis; and “credit quality of bank loans appears strong, although there are some signs of more aggressive risk-taking by banks,” the Financial Stability Report says.

Also, leverage at broker-dealers is “substantially below pre-crisis levels.” And “insurance companies have also strengthened their financial position since the crisis.”

A greater worry are hedge funds that are now being leveraged up to the hilt. “A comprehensive measure that incorporates margin loans, repurchase agreements (repos), and derivatives – but is only available with a significant time lag – suggests that average hedge fund leverage has risen by about one-third over the course of 2016 and 2017.”

“The increased use of leverage by hedge funds exposes their counterparties to risks [that would include banks and broker-dealers] and raises the possibility that adverse shocks would result in forced asset sales by hedge funds that could exacerbate price declines.”

But here is why they won’t get bailed out: “That said, hedge funds do not play the same central role in the financial system as banks or other institutions.”

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

DiMartino Booth: The Fraying Of The Fed’s Fragile Narrative

Former Dallas Fed official Danielle DiMartino Booth joins the show just as Chairman Jay Powell faces his first major challenge: will he keep raising rates as promised now that autos, housing, employment, and even tech stocks look soft? And if not, will he effectively signal that the US economy is in big trouble?

“I’m most concerned about the bottom line evaluations in the corporate debt market…these bring back memories of the sub-prime credit crisis…”

“The corporate bond market has doubled since 2007. It is over 9 $trillion. Subprime loans were 3 trillion… The Fed should be calling out potential financial stability risks. That is the unspoken third mandate.


It looks like the US credit market is about to hit the wall. US wall of maturity is around 2020 to 2022, acc to calculations by SRP.


“Apparently in six weeks we have come “worlds apart from neutral” to “Just under” and that is when markets really, really took off.”

“The Fed could engineer a soft landing, but it is a rare occurrence and as Powell is learning, there is a lagged effect in terms of when those interest rate hikes are put in and when they show up in the economy.”

Powell is trying to broadcast that he is truly data dependent…‘if the data change, I’m going to change with the data.'”

“…look across energy, manufacturing, real estate & construction, leisure & hospitality states…jobless claims across all of these sectors have turned up. It is a weakening economy…”

“If the economy is truly slowing, then top line growth will slow, earnings expectations will be ratcheted down going into 2019.  Those are things that the stock market will not like.”

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

Olduvai IV: Courage
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