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Are Consumers Nearing the End of Their Road of Debt?

Are Consumers Nearing the End of Their Road of Debt?

Are consumers getting close to the end of their road of debt?

There are some indications that they might be and that’s not good news for an economy built on consumers spending money they don’t have.

Total consumer debt grew and set yet another new record in November, according to the most recent data released by the Federal Reserve. But the rate of growth slowed and credit card debt contracted slightly for the third month out of the last four.

Total consumer debt grew by $12.5 billion to $4.176 trillion. (Seasonally adjusted). That represents an annual growth rate of 3.6%, down from 5.5% in October.

The Fed consumer debt figures include credit card debt, student loans and auto loans, but do not factor in mortgage debt.

Revolving credit outstanding, primarily credit card debt, fell by $2.4 billion, a 2.7% decline. That was offset by a healthy increase of $14.9 billion (5.8%) in non-revolving credit, including student loans, automobile loans and financing for other big-ticket purchases.

Even with the decline in revolving credit card debt, Americans still owe nearly $1.1 trillion on their plastic.

But the overall trend in borrowing has fallen over the last six months and credit card borrowing has taken a noticeably steep downturn.

Some are taking the sagging level of borrowing as a warning sign. As one analyst put it in an article on Seeking Alpha:

It could be that the consumer end of the economy has reached the point at which it cannot add any more debt. Unlike the federal government which has sovereign dollars to print, the consumer has a fixed amount they can spend including paying back any loans.”

Generally, consumer spending and consumer debt tend to move in the same direction. In other words, the drop in borrowing could indicate consumers are shutting their wallets.

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

China’s Growing Economic Miracle…(Collapse). Or… Everyone Pays the Piper!

China’s Growing Economic Miracle…(Collapse). Or… Everyone Pays the Piper!

In emulating the American economic raison d’etre, China has attempted to develop its unique capitalist model while ignoring that it too will soon suffer the same fate for the same reason: Unsustainable debt.  When examining the recent realities of Chinese banking and finance over the past year it seems the steam that president Xi Jinping touts as powering the engine of his purported economic miracle of a master-planned economy is only a mirage, now almost completely evaporated before his eyes.

Like the many other similarly foolish western nations, China seeks only one path out of this fiscal death spiral, one that will likely spell doom and/or revolution in many countries soon: More debt.

China is becoming increasingly unable to continue to pay into the base of the world’s largest pyramid scheme of an economy and the cracks in the bubble are showing. This past year, saw three of the 4,279 Chinese lenders almost fail, if not for the massive intervention by the People’s Bank of China (PBoC) of immediate liquidity via more debt. The Chinese economic miracle is built on unsustainable debt-based infrastructure projects over the past two decades that have provided China with a face of prosperity to show the world, but this is only a mask to hide the limited countrywide success of the Chinese miracle into the rural areas. The injection of $Trillions in capital has seen China distribute these sums across the base of its economy creating a GDP that hit a high of 14.2 % in 2007 then averaged nearly 9% for the next decade before dropping yearly to 6.1% in 2018. All this growth had produced a personal affluence to a sub-set of Chinese society that has stoked this appearance of a flourishing economy.

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

2020 Will Be A Crucial Year For Oil

2020 Will Be A Crucial Year For Oil

Oil

It’s the start of a new year and a new decade, and the oil market is as unpredictable as ever.

Will OPEC+ extend its cuts? Will U.S. shale finally grind to a halt? Is this the “year of the electric vehicle”? Here are 10 stories to watch in 2020.

Shale debt, shale slowdown. The debt-fueled shale drilling boom is facing a reckoning. Around 200 North American oil and gas companies have declared bankruptcy since 2015, but the mountain of debt taken out a few years ago is finally coming due. Roughly $41 billion in debt matures in 2020, which ensures more bankruptcies will be announced this year. The wave of debt may also force the industry to slam on the breaks as companies scramble to come up with cash to pay off creditors.

Year of the EV. Some analysts say that 2020 will be the “year of the EV” because of the dozens of new EV models set to hit the market. In Europe, available EV models will rise from 100 to 175. The pace of sales slowed at the end of last year, but the entire global auto market contracted. EVs may struggle to keep the pace of growth going, but EVs are capturing a growing portion of a shrinking pie.

Climate change. 2020 starts off with hellish images from the out-of-control Australian bushfires. 2019 was one of the warmest years on record and the 2010s was the warmest decade on record. As temperatures rise and disasters multiply, pressure will continue to mount on the oil and gas industry. As Bloomberg Opinion points out, climate change has surged as a point of concern for publicly-listed companies. Oil executives are betting against climate action, but they are surely aware of the rising investment risk. In the past two months, the European Investment Bank is ending financing for oil, gas and coal, and Goldman Sachs cut out financing for coal and Arctic oil. More announcements like this are inevitable.

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

Prelude to Crisis

Prelude to Crisis

Simple Conceit
Radical Actions
Ballooning Balance Sheet
Merry Christmas and the Happiest New Year

Ignoring problems rarely solves them. You need to deal with them—not just the effects, but the underlying causes, or else they usually get worse. The older you get, the more you know that is true in almost every area of life.

In the developed world and especially the US, and even in China, our economic challenges are rapidly approaching that point. Things that would have been easily fixed a decade ago, or even five years ago, will soon be unsolvable by conventional means.

There is almost no willingness to face our top problems, specifically our rising debt. The economic challenges we face can’t continue, which is why I expect the Great Reset, a kind of worldwide do-over. It’s not the best choice but we are slowly ruling out all others.

Last week I talked about the political side of this. Our embrace of either crony capitalism or welfare statism is going to end very badly. Ideological positions have hardened to the point that compromise seems impossible.

Central bankers are politicians, in a sense, and in some ways far more powerful and dangerous than the elected ones. Some recent events provide a glimpse of where they’re taking us.

Hint: It’s nowhere good. And when you combine it with the fiscal shenanigans, it’s far worse.

Simple Conceit

Central banks weren’t always as responsibly irresponsible, as my friend Paul McCulley would say, as they are today. Walter Bagehot, one of the early editors of The Economist, wrote what came to be called Bagehot’s Dictum for central banks: As the lender of last resort, during a financial or liquidity crisis, the central bank should lend freely, at a high interest rate, on good securities.

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

Jim Rickards Warns that Tsunami of Debt Could Upend the Economy

Jim Rickards Warns that Tsunami of Debt Could Upend the Economy

global debt Rickards
Photo by Wikimedia.orgCC BY | Photoshopped

At some point, an economic problem deepens so much that the piper has to be paid. Both in the U.S. and globally, one of those problems appears to be mountains of debt.

Jim Rickards recently issued a dire proclamation about the global debt situation:

Current global debt levels are simply not sustainable. Debt actually is sustainable if the debt is used for projects with positive returns and if the economy supporting the debt is growing faster than the debt itself. But neither of those conditions applies today.

In other words, most of the global debt we’re racking up isn’t being used for productive purposes. Instead it’s being used to service “benefits, interest and discretionary spending,” according to Rickards.

This debt growth should continue. According to the Institute of International Finance (IIF), global debt is expected to pass $255 trillion by the end of this year, and they don’t see the pace of debt accumulation slowing down.

In fact, you can see below how the official global debt has already skyrocketed from about $80 trillion in 1999 to this new record:

global debt
global debt

Zero Hedge reports that, by year’s end, the global debt will be “roughly equivalent to a record 330% of global GDP.”

With debt outpacing growth by such a large margin, we are fast approaching a day of reckoning. And when that day arrives, it could be disastrous.

Rickards: “It’s a Catastrophic Global Debt Crisis Waiting to Happen”

Another Zero Hedge artjcle reports:

The world bank looked at the four major episodes of debt increases that have occurred in more than 100 countries since 1970 — the Latin American debt crisis of the 1980s, the Asian financial crisis of the late 1990s and the global financial crisis from 2007 to 2009.

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

Shattering the Overton Window

Shattering the Overton Window

Aim your rocks at glass houses.

The Overton window is the range of policies politically acceptable to the mainstream population at a given time.[1] It is also known as the window of discourse. The term is named after Joseph P. Overton, who stated that an idea’s political viability depends mainly on whether it falls within this range, rather than on politicians’ individual preferences.[2][3] According to Overton, the window frames the range of policies that a politician can recommend without appearing too extreme to gain or keep public office given the climate of public opinion at that time.

CIA Wikipedia

Heaven forbid anyone appear too extreme. Our rulers keep discourse safely within the Overton window by allowing debate about the details of what the government does or doesn’t do. However, those who question the necessity of particular government agencies or programs, or government in general, are beyond-the-pale extremists and cast into the Abyss of the Unacceptable, one zip code over from the Abyss of the Deplorable.

The Federal Reserve has been much in the news lately, The term “repo” is shorthand for a repurchase agreement. The repo market allows those who own securities to sell them to lenders and repurchase them on a set day at a higher price. The difference between the sale and the repurchase price is interest to the lender. The repo market is huge, providing short-term financing for hundreds of billions of dollars worth of transactions daily, primarily in government and agency debt.

On September 16 the repo market blew up. Short term repos usually carrying interest rates of 1 or 2 percent required rates approaching 10 percent for the market to clear. The Fed stepped in, offering massive fiat credit to push rates back down. It wasn’t just a one-time glitch. Since then, the repo market has required substantial and repeated injections of Fed fiat credit.

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

Negative Rates, The Destruction Of Money. Sweden Ends Its Experiment.

Negative Rates, The Destruction Of Money. Sweden Ends Its Experiment.

Negative Rates, The Destruction Of Money. Sweden Ends Its Experiment.

Negative rates are the destruction of money, an economic aberration based on the mistakes of many central banks and some of their economists who start from a wrong diagnosis: the idea that economic agents do not take more credit or invest more because they choose to save too much and therefore saving must be penalized to stimulate the economy. Excuse the bluntness, but it is a ludicrous idea.

Inflation and growth are not low due to excess savings, but because of excess debt, perpetuating overcapacity with low rates and high liquidity and zombifying the economy by subsidizing the low productivity and highly indebted sectors and penalizing high productivity with rising and confiscatory taxation.

Historical evidence of negative rates shows that they do not help reduce debt, they incentivize it, they do not strengthen the credit capacity of families, because the prices of non-replicable assets (real estate, etc.) skyrocket because of monetary excess, and the lower cost of debt does not compensate for the greater risk.

Investment and credit growth are not subdued because economic agents are ignorant or saving too much, but because they don’t have amnesia. Families and businesses are more cautious in their investment and spending decisions because they perceive, correctly, that the reality of the economy they see each day does not correspond to the cost and the quantity of money. 

It is completely incorrect to think that families and businesses are not investing or spending. They are only spending less than what central planners would want. However, that is not a mistake from the private sector side, but a typical case of central planners’ misguided estimates, that come from using 2001-2007 as “base case” of investment and credit demand instead of what those years really were: a bubble.

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

World Bank Warns “Wave Of Debt” Could Unleash Historic Crisis, Crush The Global Economy

World Bank Warns “Wave Of Debt” Could Unleash Historic Crisis, Crush The Global Economy

Something happens to the world’s “really smart people” when the topic of debt is discussed: they become blabbering idiots.

Consider that last month we reported that according to the Institute of International Finance, global debt has now hit $250 trillion and is expected to rise to a record $255 trillion at the end of 2019, up $12 trillion from $243 trillion at the end of 2018, and nearly $32,500 for each of the 7.7 billion people on planet. “With few signs of slowdown in the pace of debt accumulation, we estimate that global debt will surpass $255 trillion this year,” the IIF said in the report.

Separately, Bank of America recently calculated that since the collapse of Lehman, government debt has increased by $30tn, corporates debt by $25tn, household by $9tn, and financial debt by $2tn; And with central banks expected to support government debt, BofA warns that “the biggest recession risk is disorderly rise in credit spreads & corporate deleveraging.”

Where the “really smart people” come in, is the periodic return every couple of years of the naive assumption that despite this relentless increase in global debt, central banks can tighten financial conditions and the world can sustain higher interest rates. What ends up happening is that after a few quarters of “reflation” – which ironically and circularly is critical to inflate the debt away – markets realize that higher rates on this mountain of debt are unsustainable, risk assets tumble and central banks are forced to unleash another wave of easing, in the process further Japanifying first Europe, and then the entire world.

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

Rickards: World on Knife Edge of Debt Crisis

Rickards: World on Knife Edge of Debt Crisis

Rickards: World on Knife Edge of Debt Crisis

Herbert Stein, a prominent economist and adviser to presidents Richard Nixon and Gerald Ford, once remarked, “If something cannot go on forever, it will stop.”

The fact that his remark is obvious makes it no less profound. Simple denial or wishful thinking tends to dominate economic debate.

Stein’s remark is like a bucket of ice water in the face of those denying the reality of nonsustainability. Stein was testifying about international trade deficits when he made his statement, but it applies broadly.

Current global debt levels are simply not sustainable. Debt actually is sustainable if the debt is used for projects with positive returns and if the economy supporting the debt is growing faster than the debt itself.

But neither of those conditions applies today.

Debt is being incurred just to keep pace with existing requirements in the form of benefits, interest and discretionary spending.

It’s not being used for projects with long-term positive returns such as interstate highways, bridges and tunnels; 5G telecommunications; and improved educational outcomes (meaning improved student performance, not teacher pensions).

And developed economies are piling on debt faster than they are growing, so debt-to-GDP ratios are moving to levels where more debt stunts growth rather than helps.

It’s a catastrophic global debt crisis (worse than 2008) waiting to happen. What will trigger the crisis?

In a word — rates. Low interest rates facilitate unsustainable debt levels, at least in the short run. But with so much debt on the books, even modest rate increases will cause debt levels and deficits to explode as new borrowing is sought just to cover interest payments.

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

The State of the Canadian Debt Slaves, How They Compare to American Debt Slaves, and the Bank of Canada’s Response

The State of the Canadian Debt Slaves, How They Compare to American Debt Slaves, and the Bank of Canada’s Response

“The high household debt load is the most important risk facing the financial system”: Bank of Canada Governor Poloz, another central banker that bemoans the effects of this handiwork.

Canadian households, rated near the top of the most indebted in the world, accomplished something awe-inspiring: They got even more indebted and their leverage rose to a new record, according to data released today by Statistics Canada. The portion of their disposable income (total incomes from all sources minus taxes) that Canadian households spent on making principal and interest payments, including on mortgage debts and non-mortgage debts such as credit card balances, reached a new record of 14.96% in the third quarter,  This record beat the prior record of 2007, and this happened despite still ultra-low interest rates:

Mortgage debt was the driver behind this new record, as the portion of disposable income that Canadians spent to make interest and principal payments on their mortgages rose to 6.74%, the highest ever.

But these are aggregate numbers, and for some individual households, the burden is a lot higher. Based on data from the 2016 census, 67.8% of Canadian households own their home, and the ratio has been dropping. The remaining households rent, and they do not have a mortgage. And a portion of those who own a home do not have a mortgage either because they’d already paid it off. And another portion of homeowners only carries a relatively small amount of mortgage debt.

But among the remaining homeowners, particularly those who bought in recent years, the burden of their mortgage is heavy.

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

Is the Corporate-Debt Bubble Ripe Yet?

Is the Corporate-Debt Bubble Ripe Yet?

What does it mean when the Fed and other central banks jointly bemoan the effects of their own policies? Worried about not being able to keep all the plates spinning?

This is the transcript from my podcast last Sunday, THE WOLF STREET REPORT:

The Federal Reserve, the ECB, the individual central banks of Eurozone countries, such as the Bundesbank and the Bank of France, the central banks of negative-interest-rate countries outside the Eurozone, such as in Switzerland and Sweden, they’re all now lamenting, bemoaning, and begroaning one of the consequences of low and negative interest rates, the ballooning record-breaking pile of business debts.

This is ironic because these outfits that are now lamenting, bemoaning, and begroaning the pileup of business debts are the ones that manipulated interest rates down via their radical and experimental monetary policies, thereby triggering the pileup of business debts.

This debt pileup isn’t an unintended consequence of their policies. It was one of the purposes of their policies.

But central banks also know from history that this historically high level of business debts is a powder keg waiting to explode – company by company at first, and then as contagion spreads, all at once.

The Fed is a superb example. In its most recent “Financial Stability Report,” released in November, the Fed warns about the historic record-breaking pileup of business debts in the US, as a consequence of low interest rates, and it considers this business debt the biggest risk to financial stability in the US.

But this warning came after the Fed had just cut its policy interest rates three times, and after it had begun to bail out the repo market with over $200 billion so far, and after it had begun buying $60 billion a month in T-bills, in total printing over $300 billion in less than three months, to repress short term rates in the repo market and to bail out its crybaby-cronies on Wall Street – and not necessarily banks – that had become hooked on these low interest rates.

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

THE WOLF STREET REPORT: Is the Corporate-Debt Bubble Ripe Yet?

THE WOLF STREET REPORT: Is the Corporate-Debt Bubble Ripe Yet?

What does it mean when the Fed and other central banks jointly bemoan the effects of their own policies? Worried about not being able to keep all the plates spinning? (11 minutes)

Every Bubble Eventually Finds its Pin

Every Bubble Eventually Finds its Pin

The transfer of wealth from workers and savers to governments and big banks continued this week with Swiss-like precision.  The process is both mechanical and subtle.  Here in the USA the automated elegance of this ongoing operation receives little attention.

NFL football.  EBT card acceptance at Del Taco.  Adam Schiff’s impeachment extravaganza.  You name it.  Bread and circuses like these – and many others – offer the American populace countless opportunities for chasing the wild goose.

All the while, and with little fanfare, debts pile up like deadwood in Sequoia National Forest.  These debts, both public and private, stand little chance of ever being honestly repaid.  According to the IMF, global debt –  both public and private – has reached an all-time high of $188 trillion.  That comes to about 230 percent of world output.

Certainly, some of the private debt will be defaulted on during the next credit crisis and depression.  But when it comes to the public debt, governments do everything they can to prevent an outright default.  Central banks crank up the printing press and attempt to inflate it away.

After Nixon temporarily suspended the Bretton Woods Agreement in 1971, the money supply could be expanded without technical limitations.  This includes issuing new debt to pay for government spending above and beyond tax receipts.  Hence, since 1971, government directed money supply inflation has been the standard operating procedure in the U.S. and much of the world.

Downright Disgraceful

Expanding the money supply has the effect of dissipating wealth from the currency.  The process allows governments, which are first in line to spend this newly created money, a back door into your bank account.  Without levying taxes, they get access to your wealth and future earnings and leave you with money of diminished value.

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

Shale’s Debt-Fueled Drilling Boom Is Coming To An End

Shale’s Debt-Fueled Drilling Boom Is Coming To An End

Marcellus shale

The financial struggles of the U.S. shale industry are becoming increasingly hard to ignore, but drillers in Appalachia are in particularly bad shape.

The Permian has recently seen job losses, and for the first time since 2016, the hottest shale basin in the world has seen job growth lag the broader Texas economy. The industry is cutting back amid heightened financial scrutiny from investors, as debt-fueled drilling has become increasingly hard to justify.

But E&P companies focused almost exclusively on gas, such as those in the Marcellus and Utica shales, are in even worse shape. An IEEFA analysis found that seven of the largest producers in Appalachia burned through about a half billion dollars in the third quarter.

Gas production continues to rise, but profits remain elusive. “Despite booming gas output, Appalachian oil and gas companies consistently failed to produce positive cash flow over the past five quarters,” the authors of the IEEFA report said.

Of the seven companies analyzed, five had negative cash flow, including Antero Resources, Chesapeake Energy, EQT, Range Resources, and Southwestern Energy. Only Cabot Oil & Gas and Gulfport Energy had positive cash flow in the third quarter.

The sector was weighed down but a sharp drop in natural gas prices, with Henry Hub off by 18 percent compared to a year earlier. But the losses are highly problematic. After all, we are more than a decade into the shale revolution and the industry is still not really able to post positive cash flow. Worse, these are not the laggards; these are the largest producers in the region.

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

Debt Bubble to End All Bubbles – Michael Snyder

Debt Bubble to End All Bubbles – Michael Snyder

Journalist and book author Michael Snyder says corporate debt is at record highs standing at $10 trillion. Snyder points out debt is setting records in every aspect of the economy and contends, “If you include all other forms of corporate debt not listed on the stock exchanges, that brings the total to $15.5 trillion, which is equivalent to 74% of GDP. We’ve never seen anything like this before in all of U.S. history. That is just one form of debt and how our society has grown the debt. People need to realize the only reason why we have any prosperity in this country today is because it is fueled by debt. We have been building up this bubble, and it is the bubble to end all bubbles. Look at consumers. U.S. consumers are now $14 trillion in debt, which is an all-time record. State and local governments are at all-time debt record levels. The U.S. government . . . we just hit $23 trillion in debt, more than double since the last financial meltdown. . . . We are stealing from future generations more than $100 million every single hour of every single day. This is a crime beyond comprehension, and it’s been going on more than a decade. . . .All the debt has bought for us is more time to expand the bubble for relative stability. Meanwhile, we are literally committing national suicide and literally destroying the future of this country and the future of this republic. We are destroying everything the founders built by insatiable greed in this generation.”

Snyder says you don’t have to wait for the next recession because it’s already started. Snyder says, “Eventually, this whole thing is going to come crashing down. This thing is not sustainable. Here in the United States, we are already in a manufacturing recession. We are already in a transportation recession.

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

Olduvai IV: Courage
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Olduvai II: Exodus
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