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Weekly Commentary: State-Directed Credit Splurge

Weekly Commentary: State-Directed Credit Splurge

New data released Friday confirm ongoing historic Chinese Credit excess. Total Aggregate Financing increased (a ridiculous) $524 billion during August to $40.5 TN, doubling July’s growth and exceeding estimates by almost 40%. It was the strongest monthly gain since March’s record $759 billion. This pushed y-t-d (8-month) growth to $3.828 TN, up 45% from comparable 2019 ($2.650 TN) and 67% ahead of comparable 2018 ($2.297 TN) growth. It’s worth noting Aggregate Financing surged an incredible $2.960 TN over the past six months, 62% ahead of comparable 2019 ($1.823 TN). At 13.3%, year-over-year growth was the strongest in several years.
With 2020 GDP estimates in the 2.0 to 3.0% range, the divergence between Chinese Credit and economic output is unprecedented. That Credit growth has accelerated in the face of rapidly deteriorating economic prospects portends major troubles ahead. China’s “Terminal Phase” excess – including rapid acceleration of late-cycle loans of deteriorating quality – is unparalleled in terms of both degree and duration. Stoking a stock market mania while prolonging a historic apartment Bubble only exacerbates systemic fragility.

August New Bank Loans increased an above forecast $187 billion. This boosted y-t-d loan growth to $2.102 TN, 20% ahead of comparable 2019. Six-month growth ($1.481 TN) was 29% above comparable 2019. Bank Loans were up 13.0% over the past year, 27% in two years, and 84% over five years.

Consumer Loans rose $123 billion during August. Year-to-date growth of $755 billion was 4.7% ahead of comparable 2019. However, six-month Consumer Loan growth of $722 billion was 23% ahead of comparable 2019. Consumer Loans were up 14.5% year-over-year, 33% over two years, 58% in three and 135% over five years.

Corporate Bonds expanded $53 billion. This pushed year-to-date growth to $580 billion, up 80% from 2019 and 133% from comparable 2018 growth.

But the August winner of the Chinese Credit Sweepstakes goes to government finance. Government Bonds jumped $202 billion during the month to $6.362 TN, the largest monthly increase in a data series going back to 2017. At $837 billion, year-to-date growth was 59% ahead of comparable 2019. Government Bonds increased 18.7% over the past year, 38% in two and 66% over three years (5-yr data not available).

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

Weekly Commentary: Summer of 2020

Weekly Commentary: Summer of 2020

QE fundamentally changed finance. What commenced at the Federal Reserve with a post-mortgage finance Bubble, $1 TN Treasury buying operation morphed into open-ended purchases of Treasuries, MBS, corporate bonds and even corporate ETFs holding high-yield “junk” bonds. Markets assume it’s only a matter of time before the Federal Reserve adds equities to its buy list.

For years now, Treasury bonds (and agency securities) have traded at elevated prices – low yields – in anticipation of an inevitable resumption of QE operations/securities purchases. Conventional analysis has focused on persistent disinflationary pressures as the primary explanation for historically depressed bond yields. While not unreasonable, such analysis downplays the prevailing role played by exceptionally low Federal Reserve interest-rates coupled with latent (and escalating) financial fragility. Meanwhile, near zero short-term rates and historically low Treasury and agency securities yields have spurred a desperate search for yields, significantly inflating the demand and pricing for corporate Credit.

The Fed’s COVID crisis leap into corporate debt has wielded further profound impacts on corporate Credit – yields, prices and issuance.

September 2 – Financial Times (Joe Rennison): “Companies have raised more debt in the US bond market this year than ever before… A $2bn bond from Japanese bank Mizuho and a $2.5bn deal from junk-rated hospital operator Tenet Healthcare helped nudge overall US corporate bond issuance to $1.919tn so far this year, surpassing the previous annual record of $1.916tn set in 2017, according to… Refinitiv. The surge marks a dramatic revival for the market since the coronavirus-induced rout in March, when prices slumped and yields soared… ‘There has been a phenomenal amount of issuance,’ said Peter Tchir, chief macro strategist at Academy Securities… ‘It’s been the busiest summer I have ever seen. It’s felt like we have been setting issuance records month after month.’”
…click on the above link to read the rest of the article…

Weekly Commentary: Moral Hazard Quagmire

Weekly Commentary: Moral Hazard Quagmire

The Nasdaq100 jumped another 3.5% this week, increasing 2020 gains to 32.3%. Amazon gained 4.3% during the week, boosting y-t-d gains to 77.8% – and market capitalization to $1.626 TN. Apple surged 8.2% this week, increasing 2020 gains to 69.4%. Apple’s market capitalization ended the week at a world-beating $2.127 TN. Microsoft rose 2.0% (up 35.1% y-t-d, mkt cap $1.612 TN). Google rose 4.8% (up 18.2% y-t-d, mkt cap $1.073 TN), and Facebook gained 2.2% (up 30.1%, mkt cap $761bn). The Nasdaq100 now trades with a price-to-earnings ratio of 37.4.
This era will be analyzed and debated for decades to come – if not much longer. Market Bubbles, over-indebtedness, inequality, financial instability and economic maladjustment – festering for years – can no longer be disregarded as cyclical phenomena. Ben Bernanke has declared understanding the forces behind the Great Depression is the “Holy Grail of economics”. It’s ironic. That the Fed never repeats its failure to aggressively expand the money supply in time of crisis is a key facet of the Bernanke doctrine – policy failing he asserts was a primary contributor to Depression-era financial and economic collapse. Yet this era’s unprecedented period of monetary stimulus is fundamental to current financial, economic, social and geopolitical instabilities.

August 18 – Bloomberg (Craig Torres): “The concentration of market power in a handful of companies lies behind several disturbing trends in the U.S. economy, like the deepening of inequality and financial instability, two Federal Reserve Board economists say in a new paper. Isabel Cairo and Jae Sim identify a decline in competition, with large firms controlling more of their markets, as a common cause in a series of important shifts over the last four decades. Those include a fall in labor share, or the chunk of output that goes to workers, even as corporate profits increased; and a surge in wealth and income inequality, as the net worth of the top 5% of households almost tripled between 1983 and 2016. 

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

Weekly Commentary: Precarious World

Weekly Commentary: Precarious World

Another fascinating – if not comforting – week. A Friday Wall Street Journal headline: “Big Tech’s Embarrassment of Riches – Amazon, Apple, Facebook and Google all show resilience during pandemic while undergoing congressional scrutiny.” Amazon, Apple, Facebook and Google all reported booming earnings the day following Wednesday appearances by respective CEOs before the House Antitrust Subcommittee hearing. Down the road from Capitol Hill, the FOMC released their post-meeting policy statement. Chairman Powell conducted a virtual press conference where he addressed key issues: “inflation running well below our symmetric 2% objective,” and “inequality as an issue has been a growing issue in our country and in our economy for four decades.”

While it is true that inequality has been building for decades, this trend has worsened markedly since the 2008 crisis. Much more so of late.

Powell: “So [inequality is] a serious economic problem for the United States, but it’s got underlying causes that are not related to monetary policy or to our response to the pandemic. Again, four decades of evidence suggests it’s about globalization, it’s about the flattening out of educational attainment in the United States compared to our other competitor countries. It’s about technology advancing too.

If we could chart “inequality,” it would at this point be rising parabolically – following the trajectory of the Fed’s balance sheet. I had been assuming Fed holdings would at some point be getting a lot larger. It seemed clear inequality would only get worse. COVID dramatically accelerated both trends.

Bubble analysis is these days as fruitful as ever. We’re in the waning days of a multi-decade super-cycle. Bubble markets have become extraordinarily distorted and increasingly disorderly. Protracted deep structural maladjustment has fostered pervasive Bubble Economy Dynamics. Aggressive monetary inflation and central bank market interventions – primary contributors to financial and economic Bubbles – are being deployed to hold Bubble collapse at bay. And we’re now witnessing the initial consequences of desperately throwing massive stimulus at speculative market Bubbles and a Bubble Economy.

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

Weekly Commentary: Drone Money

Weekly Commentary: Drone Money

In particular, to maintain downward pressure on longer-term interest rates, the Federal Open Market Committee (FOMC) likely will provide forward guidance about the economic conditions it would need to see before it considers raising its overnight target rate. And it likely will clarify its plans for further securities purchases (quantitative easing). It is possible, though not certain, that the FOMC will also implement yield-curve control by targeting medium-term interest rates.” Ben Bernanke and Janet Yellen, Testimony on COVID-19 and Response to Economic Crisis, July 17, 2020.

With highly speculative securities markets having fully recovered COVID losses – and Nasdaq sporting a 17% y-t-d gain – why the talk of more QE? And with 10-year yields at 0.63% and financial conditions extraordinarily loose, what’s the purpose for discussing the pegging of Treasury bond prices (aka “yield curve control”)? Aren’t the markets already conspicuously over-liquefied?

Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated.” Milton Friedman, “The Optimum Quantity of Money,” 1969.

It was Dr. Ben Bernanke that, in the wake of the “tech” Bubble collapse, elevated Friedman’s academic thought experiment to a revolutionary policy proposal. And in this runaway real world experiment, “often repeated” supplanted Friedman’s “will never be repeated” – and it changed everything.

The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.

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

Weekly Commentary: Utmost Crazy

Weekly Commentary: Utmost Crazy

The Shanghai Composite surged 7.3% this week, increasing y-t-d gains to 10.9%. The CSI 300 rose 7.6%, with 2020 gains of 16.0%. China’s growth-oriented ChiNext Index’s 12.8% surge boosted year-to-date gains to 54.5%. Copper jumped 7.1% this week. Aluminum rose 4.6%, Nickel 4.0%, Zinc 8.3%, Silver 4.2%, Lead 4.2%, and Palladium 3.5%. China’s renminbi advanced 0.9% this week to a four-month high versus the less-than-king dollar.

July 9 – Bloomberg: “Like millions of amateur investors across China, Min Hang has become infatuated with the country’s surging stock market. ‘There’s no way I can lose,’ said the 36-year-old, who works at a technology startup… ‘Right now, I’m feeling invincible.’ Five years after China’s last big equity boom ended in tears, signs of euphoria among the nation’s investing masses are popping up everywhere. Turnover has soared, margin debt has risen at the fastest pace since 2015 and online trading platforms have struggled to keep up. Over the past eight days alone, Chinese stocks have added more than $1 trillion of value — far outpacing gains in every other market worldwide.”

China’s Total Aggregate Financing (TAF) expanded a much stronger-than-expected $490 billion in June, up from May’s $455 billion expansion and 30% above growth from June 2019. TAF surged a remarkable $2.976 TN during the first-half, 43% ahead of comparable 2019 (80% ahead of first-half 2018).

It’s not easy to place China’s ongoing historic Credit expansion in context. While not a perfect comparison, U.S. Total Non-Financial Debt (NFD) expanded a record $3.3 TN over the four quarters ended March 31st. In booming 2007, U.S. NFD expanded about $2.5 TN. Chinese Total Aggregate Financing has expanded almost $3.0 TN in six months.

In the face of economic contraction, TAF increased a blistering $4.39 TN, or 12.8%, over the past year. For perspective, y-o-y growth began 2020 at 10.7% – and is now expanding at the strongest pace since February 2018. Beijing is targeting TAF growth of $4.3 TN (30 TN yuan) for 2020, about 25% ahead of record 2019 growth (and up 45% from 2018 growth).

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

Weekly Commentary: More W than V

Weekly Commentary: More W than V

The much vaunted “V” recovery is improbable. To simplify, a somewhat “w”-looking scenario is a higher probability. After such an abrupt and extraordinary collapse in economic activity, a decent bounce was virtually assured. Millions would be returning to work after temporary shutdowns to a substantial chunk of the U.S. services economy. There would be pent-up demand, especially for big ticket home and automobile purchases. A massive effort to develop vaccines would ensure promising headlines.

With incredible amounts of liquidity sloshing around, constructive data supporting the “V” premise were all the markets needed. The enormous scope of hedging and shorting activity back in the March and April timeframe ensured the availability of more than ample firepower to fuel a rally. An equities revival would then spur a general restoration of confidence and spending – in a self-reinforcing “V” dynamic.

Inevitably, highly speculative Bubble Markets inflated way beyond anything even remotely justified by the fundamental backdrop – actually coming to believe the “V” hype. The rapid recovery phase, however, will prove dreadfully short-lived. Scores of companies won’t survive, and millions of job losses will prove permanent. Fearful consumers have made lasting changes in spending patterns, with many retrenching. Tons of fiscal stimulus will be burned through with astonishing rapidity. And a raving Credit market luxuriating in Fed monetary inflation will confront Credit losses at a breadth and scale much beyond the last crisis.

My concern has been that the COVID dislocation would be with us for a while. It’s surprising we haven’t seen at least some relief as summer unfolds. I was not expecting major outbreaks in Arizona, Florida, Texas and Southern California this time of year.

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

Weekly Commentary: Update COVID-19

Weekly Commentary: Update COVID-19

Can we even attempt a reasonable discussion? Someone’s got this wrong.

June 12 – Reuters (Judy Hua, Cate Cadell, Winni Zhou and Andrew Galbraith): “A Beijing district put itself on a ‘wartime’ footing and the capital banned tourism and sports events on Saturday after a cluster of novel coronavirus infections centred around a major wholesale market sparked fears of a new wave of COVID-19… ‘In accordance with the principle of putting the safety of the masses and health first, we have adopted lockdown measures for the Xinfadi market and surrounding neighbourhoods,’ Chu said.”

June 14 – Financial Times (Don Weinland): “Over the weekend, authorities closed the Xinfadi market, a sprawling complex that provides most of Beijing’s fresh seafood, fruits and vegetables. Several residential compounds on the west side of the city have been locked down and more than 100 people have been put in quarantine… China has adopted a ‘zero tolerance’ stance toward new cases. Areas that present any new cases have been quickly locked down, often trapping millions of people.”

June 19 – CNN (Nectar Gan): “Within a matter of days, the metropolis of more than 20 million people was placed under a partial lockdown. Authorities reintroduced restrictive measures used earlier to fight the initial wave of infections, sealing off residential neighborhoods, closing schools and barring hundreds of thousands of people deemed at risk of contracting the virus from leaving the city.”

China is said to have mobilized its 100,000-strong infection tracing force. More than 1.1 million tests were administered in Beijing over the past week. From the UK Guardian (Lily Kuo): “Officials have ordered all residents to avoid non-essential travel outside of the capital, and suspended hundreds of flights and all long-distance buses. Other cities and provinces have begun to impose quarantine measures on travellers from Beijing… ‘Everyone is scared. No one wanted this to happen,’ says Zhang, waiting in the queue near Chaoyang park.”

…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…

Weekly Commentary: Bubble Meets Pandemic Consequences

Weekly Commentary: Bubble Meets Pandemic Consequences

For posterity, some numbers: Over the past three weeks (14 sessions), the S&P500 gained 11.5%. The KBW Bank Index surged 36.1%, with the NYSE Financials up 23.9%. The Dow Transports rose 27.2% in 14 sessions, with the Bloomberg Americas Airlines Index up 75.8%.

Over this period, the broader market significantly outperformed the S&P500. The small cap Russell 2000 jumped 19.9% and the S&P400 Midcaps 21.1%. The Philadelphia Oil Services Index surged 50.0%. The Homebuilders (XHB) jumped 26.2% and the Bloomberg REIT index rose 22.5%. The average stock (Value Line Arithmetic Index) surged 25.3% in three weeks.

Over three weeks, United Airlines rose 113%, American Airlines 106%, Norwegian Cruise Line 105%, Royal Caribbean Cruises 85%, CIT Group 86%, Delta Air Lines 78%, Simon Property Group 73%, L Brands 72%, Boeing 71%, Carnival Corp 68%, Macy’s 68%, Alaska Air Group 67%, Kimco Realty 66%, Gap 62%, and Southwest Airlines 60%.

The Nasdaq Composite rose 8.9% over the past three weeks to close this week at all-time highs. The Semiconductors jumped 17.8% to end Friday at record highs. The Nasdaq100 (NDX) gained 7.3% in three weeks to new highs.

June 5 – Bloomberg (Sarah Ponczek): “The latest U.S. jobs report will go down in history as the data that shocked economists. And the market. Forecasts for a drop of 7.5 million in payrolls were met with the reality of a 2.5 million increase in May, supporting the view that the world’s largest economy may be more resilient than previously thought. A stock market already up 40% in a record period of time rallied further, with particular pockets going haywire. From a blowup in the momentum factor trade to a surge in small-cap shares, here’s a sample of what was happening under the equity market’s surface Friday. The momentum factor, which in essence bets that the recent winners will keep on winning, got pummeled Friday. At its lows, a Dow Jones market neutral momentum portfolio that goes long the highest momentum stocks and shorts those with the least momentum dropped 9% — the worst day since at least 2002.”

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

Weekly Commentary: Global Bubbles are Deflating

Weekly Commentary: Global Bubbles are Deflating

“Bubble” is commonly understood to describe a divergence between overvalued market prices and underlying asset values. And while price anomalies are a typical consequence, they are generally not among the critical aspects of Bubbles. I’ll start with my basic definition: A Bubble is a self-reinforcing but inevitably unsustainable inflation.

Bubbles, at their core, are fueled by Credit – or “Credit inflation.” Asset inflation and speculative asset price Bubbles are a common upshot. At their core, Bubbles are mechanisms of wealth redistribution and destruction.

The more protracted the Bubble period, the greater the maladjustment to underlying financial and economic structures. And the longer the Bubble inflation, the greater the wealth disparities and underlying social and political strain. While Bubble-related inequalities reveal themselves more prominently later in the up-cycle, the scope of wealth destruction only becomes apparent as the Bubble finally succumbs. As Dr. Richebacher always stressed, there’s no cure for Bubbles other than not allowing them to inflate. The catastrophic policy failure over the past 20 years has been the determination to aggressively inflate out of post-Bubble stagnation.

Bubbles can have profound geopolitical impacts as well. The inflation of Bubbles and corresponding booming economies promote the view of an expanding global economic “pie”. The inflating Bubble phase is associated with cooperation, integration and solidarity. The backdrop shifts late in the Bubble phase, as inequities and maladjustment become more discernible. Bursting Bubbles mark a radical redrawing of the geopolitical landscape. The insecurities and animosities associated with a shrinking economic pie see a rise of nationalism and “strongman” leadership. The backdrop drifts toward fragmentation, disintegration and conflict.

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

Weekly Commentary: Schumpeter’s Business Cycle Analysis

Weekly Commentary: Schumpeter’s Business Cycle Analysis

The work of the great economist Joseph Schumpeter (1883-1950) has always resonated. When I ponder analytical frameworks pertinent to these extraordinary times, none are more germane than Schumpeter’s Business Cycle Analysis. Best known for “creative destruction,” Schumpeter’s seminal work materialized after experiencing the spectacular “Roaring Twenties” boom collapse into the Great Depression.

Contrary to Milton Friedman and Ben Bernanke, Schumpeter didn’t view the twenties as the “golden age of Capitalism.” Depression was a consequence of egregious boom-time excess rather than the result of the Fed’s post-crash failure to print sufficient money. Schumpeter possessed a deep understanding of Credit; he keenly appreciated the roles entrepreneurship and risk-taking played during booms. Schumpeter also understood Capitalism’s vulnerabilities.

Whenever a new production function has been set up successfully and the trade beholds the new thing done and its major problems solved, it becomes much easier for other people to do the same thing and even to improve upon it. In fact, they are driven to copying it if they can, and some people will do so forthwith. It should be observed that it becomes easier not only to do the same thing, but also to do similar things in similar lines… This seems to offer perfectly simple and realistic interpretations of two outstanding facts of observation: First, that innovations do not remain isolated events, and are not evenly distributed in time, but that on the contrary they tend to cluster, to come about in bunches, simply because first some, and then most, firms follow in the wake of successful innovation; second, that innovations are not at any time distributed over the whole economic system at random, but tend to concentrate in certain sectors and their surroundings.” Joseph A. Schumpeter, Business Cycles, 1939

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

Weekly Commentary: Fault Lines

Weekly Commentary: Fault Lines

Now on a weekly basis, we’re witnessing things that couldn’t happen – actually happen.

April 20 – Bloomberg (Catherine Ngai, Olivia Raimonde, and Alex Longley): “Of all the wild, unprecedented swings in financial markets since the coronavirus pandemic broke out, none has been more jaw-dropping than Monday’s collapse in a key segment of U.S. oil trading. The price on the futures contract for West Texas crude that is due to expire Tuesday fell into negative territory — minus $37.63 a barrel.”

For posterity, the latest numbers on U.S. monetary inflation: Federal Reserve Assets expanded $205 billion last week to a record $6.573 TN. Fed Assets surged $2.307 TN, or 56%, in just seven weeks. Asset were up $2.645 TN over the past 33 weeks. M2 “money” supply surged $125bn last week to a record $16.870 TN, with an unprecedented seven-week expansion of $1.362 TN. M2 inflated $2.329 TN, or 16.0%, over the past year. Institutional Money Fund Assets (not included in M2) jumped $123 billion last week. Over seven weeks, Institutional Money Funds were up $845 billion. Combined, M2 and Institutional Money Funds jumped a staggering $2.207 TN over seven weeks ($100bn less than the growth of Fed Assets).

It’s increasingly clear this pandemic is striking powerful blows at the most fragile Fault Lines – within communities, regions, societies, nations as well as for the world order. To see this disease clobber the most vulnerable ethnic groups and the downtrodden only compounds feelings of inequality, injustice and hopelessness. It is as well stunning to watch COVID-19 hasten the partisan brawl. A nation terribly divided is split only more deeply on the process of restarting the economy. To witness rival global superpowers plunge further into accusation and enmity. And to see the coronavirus viciously attack Europe’s fragile periphery, further splitting a hopelessly divided Europe and pressuring a critical global Fault Line.

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

Weekly Commentary: When Money Died

Weekly Commentary: When Money Died

Sitting at the dinner table, our eleven-year old son inquired: “If a big meteor was about to hit the earth, how much money would the Fed print?” I complimented his sense of humor. Yet it was a sad testament to the historic monetary fiasco that will haunt his generation.

Federal Reserve Assets surpassed $6.0 TN for the first time, having inflated another $272 billion for the week (to $6.083 TN). Fed Assets inflated an astonishing $1.925 TN, or 46%, in only six weeks. Bank of American analysts this week suggested the Fed’s balance sheet could reach $9.0 TN by year-end.

M2 “money supply” surged another $371 billion for the week (ending 3/30) to a record $16.669 TN. M2 expanded an unprecedented $1.136 TN over five weeks (up $2.123 TN, or 14.6%, y-o-y). For some perspective, M2 has expanded more during the past six months than it did the entire nineties (no slouch of a decade in terms of monetary inflation). Not included in M2, Institutional Money Fund Assets expanded an unparalleled $676 billion in five weeks to a record $2.935 TN. Total Money Fund Assets were up $1.375 TN, or 44%, over the past year to a record $4.473 TN.  

There was a sordid process – rather than a specific date – for When Money Died. But it’s dead and buried. There are a few things that should remain sacrosanct. Money is absolutely one of them. Money is special. Sound Money is precious – to be coveted and safeguarded. As a stable and liquid store of value, Money is the bedrock of Capitalism, social cohesion and stable democracy. Society trusts Money – and with that trust comes great responsibility and risk.  

Analysis I read some years back on the Gold Standard resonates even more strongly today: Limiting the capacity for inflating its supply, the structure of backing Money with the precious metal worked to promote monetary and economic stability.

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

Doug Noland: There’s No New Bubble Coming To Save Us

Doug Noland: There’s No New Bubble Coming To Save Us

In this week’s Credit Bubble Bulletin, Doug Noland points out the ominous truth that the world’s governments have run out of new financial bubbles to inflate.

The result, as John Rubino sums up perfectly, “This time is different, in a very bad way.”

Here’s an excerpt from the much longer article, that should be read in its entirety:

Please Don’t Completely Destroy…

I’ve been dreading this. In the midst of all the policy responses to the collapse of the mortgage finance Bubble, I recall writing something to the effect: “I understand we can’t allow the system to collapse, but please don’t inflate another Bubble.” It was obvious early on that policymakers had every intention to reflate Bubbles.

There was a failure to grasp the most critical lessons from that terrible boom and bust episode: Aggressive monetary stimulus foments market distortions, while promoting risk-taking, leveraged speculation and latent risk intermediation dysfunction. Years of deranged finance ensured unprecedented economic imbalances and deep structural impairment. There was no predicting a global pandemic. Yet today’s acute financial and economic fragility – and the risk of financial collapse – are directly traceable to years of negligent monetary management.

I have to adjust my message for this post-Bubble backdrop: I understand we can’t allow the system to collapse, but Please Don’t Completely Destroy the Soundness of Central Bank Credit and Government Debt. Does anyone realize what’s at stake?

I don’t see another Bubble on the horizon. Each reflationary Bubble must be greater in scope than the last. Mortgage finance was used for post-“tech” Bubble reflation. Policymakers unleashed the “global government finance Bubble” during post-mortgage finance Bubble reflation. Massive international inflation of central bank Credit and sovereign debt went to the heart of global finance – the very foundation of “money” and Credit.

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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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