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Just recently, Rex Nutting penned an opinion piece for MarketWatch entitled “Consumer Debt Is Not A Ticking Time Bomb.” His primary point is that low per-capita debt ratios and debt-to-dpi ratios show the consumer is quite healthy and won’t be the primary subject of the next crisis. To wit:

“However, most Americans are better off now than they were 10-years ago, or even a few years ago. The finances of American households are strong.
But, that’s not what a lot of people think. More than a decade after a massive credit orgy by households brought down the U.S. and global economies, lots of people are convinced that households are still borrowing so much money that it will inevitably crash the economy.
Those critics see a consumer debt bomb growing again. But they are wrong.”

I do agree with Rex on his point that the U.S. consumer won’t be the sole cause of the next crisis. It will be a combination of household and corporate debt combined with underfunded pensions, which will collide in the next crisis.

However, there is a household debt problem which is hidden by the way governmental statistics are calculated.

Indebted To The American Dream

The idea of “maintaining a certain standard of living” has become a foundation in our society today.Americans, in general, have come to believe they are “entitled” to a certain type of house, car, and general lifestyle which includes NOT just the basic necessities of living such as food, running water, and electricity, but also the latest mobile phone, computer, and high-speed internet connection. (Really, what would be the point of living if you didn’t have access to Facebook every two minutes?)

But, like most economic data, you have to dig behind the numbers to reveal the true story.

So let’s do that, shall we?

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

The Real Reason US Central Bankers Cannot Raise Interest Rates for the Rest of 2019

August 5, 2019

The Real Reason US Central Bankers Cannot Raise Interest Rates for the Rest of 2019

The real reason why the US Central Bank cannot raise interest rates can traced back to eight simple words – their response to the 2008 global financial crisis. US Central Bankers reached a crossroad of responsibility versus socialism for the über wealthy years before the 2008 financial crisis manifested, and they chose socialism for the über wealthy as could be expected, because Central Bankers have to somewhat appease the highest echelons of global wealth if they don’t want this class to turn their resources against them and argue for the dissolution of Central Banks. When Central Bankers, both in the US and in Europe, deliberately and very consciously chose the path of catering to the few thousands that constitute the class of the über wealthy over helping the remaining 6.8 billion people on planet Earth in 2008, they sealed the fate of what their decisions had to be some ten years later.

During 2008, all of the largest European banks and US banks were completely bankrupt. To this day, I know that claim is disputed even though Finance Ministers that had privy to this data, like Greece’s Yanis Varoufakis, have made such claims. Furthermore, any reasonable person that looked more deeply into the financial health of all major US and European banks, the failure of which triggered the 2008 global financial crisis, would have understood that their unwillingness to operate as banks, but as massive hedge funds and to risk their clients’ deposits in hopes of making billions of profits every year, would have realized that regulatory agencies that suspended the necessity of banks marking their financial assets to market value was enacted to allow banks to lie about their bankrupt status and project a robustness in financial health that simply did not exist.

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

A Bank With 49 Trillion Dollars In Exposure To Derivatives Is Melting Down Right In Front Of Our Eyes

July 19, 2019

A Bank With 49 Trillion Dollars In Exposure To Derivatives Is Melting Down Right In Front Of Our Eyes

Could it be possible that we are on the verge of the next “Lehman Brothers moment”? Deutsche Bank is the most important bank in all of Europe, it has 49 trillion dollars in exposure to derivatives, and most of the largest “too big to fail banks” in the United States have very deep financial connections to the bank. In other words, the global financial system simply cannot afford for Deutsche Bank to fail, and right now it is literally melting down right in front of our eyes. For years I have been warning that this day would come, and even though it has been hit by scandal after scandal, somehow Deutsche Bank was able to survive until now. But after what we have witnessed in recent days, many now believe that the end is near for Deutsche Bank. On July 7th, they really shook up investors all over the globe when they laid off 18,000 employees and announced that they would be completely exiting their global equities trading business…

It takes a lot to rattle Wall Street.
But Deutsche Bank managed to. The beleaguered German giant announced on July 7 that it is laying off 18,000 employees—roughly one-fifth of its global workforce—and pursuing a vast restructuring plan that most notably includes shutting down its global equities trading business.
Though Deutsche’s Bloody Sunday seemed to come out of the blue, it’s actually the culmination of a years-long—some would say decades-long—descent into unprofitability and scandal for the bank, which in the early 1990s set out to make itself into a universal banking powerhouse to rival the behemoths of Wall Street.

These moves may delay Deutsche Bank’s inexorable march into oblivion, but not by much.

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

Lagarde, the ECB and the next crisis

July 9, 2019

Lagarde, the ECB and the next crisis

The appointment of Christine Lagarde as president of the ECB has been greeted with euphoria by financial markets. That reaction in itself should be a warning signal. When risky assets soar in the middle of a huge bubble due to a central bank appointment, the supervising entity should be concerned.Lagarde is a lawyer, not an economist, and a great professional, but the market probably interprets correctly is that the European Central Bank will become even more dovish. Lagarde, for example, is a strong advocate of negative rates.

Lagarde and Vice President De Guindos have warned of the need to carry out measures to avoid a possible financial crisis, proposing different mechanisms to mitigate the shocks created by excess risk. Both are right, but that search for mechanisms to work as shock buffers runs the risk of being sterile when it is the monetary policy that encourages excess. When the central bank solves a financial crisis by absorbing the excess risk that the market once took it does not reduce it, it only disguises it.

Supervisors ignore the effect of risk accumulation because they perceive it as necessary collateral damage to the recovery. Risk accumulates precisely because it is encouraged.

Draghi said that monetary policy is not the correct instrument to deal with financial imbalances and macroprudential tools should be used. However, it is the monetary policy which is causing those imbalances when an extraordinary, conditional and limited measure becomes an eternal and unconditional one.

When monetary policy disguises and encourages risk, macroprudential measures are simply ineffective. There is no macroprudential measure that mitigates the risk created by negative rates and almost three trillion of asset purchases.

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

Goldman Warns Risk Of Market Crash Is Highest Since The Financial Crisis, Nearing 60%

June 27, 2019

Goldman Warns Risk Of Market Crash Is Highest Since The Financial Crisis, Nearing 60%

A common refrain among the bullish talking heads on CNBC in recent months has been that whether one includes the Fed’s invisible hand in “price discovery”, or excludes it as so many naively continue to do, the result would be the same as stock fundamentals are still very strong. But is that really the case or are they just talking their book?

According to a new report from Goldman strategist Christian Mueller-Glissman, the answer is the latter.

As the Goldman analyst writes, “valuations of risky assets have increased materially YTD” just in case anyone has failed to notice. This, contrary to what one may hear on CNBC is very troubling, because as the Goldman report notes, “purely based on elevated equity valuations, as measured by the S&P 500 Shiller P/E, and current growth, according to our US Current Activity Indicator (CAI), the risk of an equity drawdown of more than 10%”, i.e. a sharp market drop, or for lack of a better word, crash, “is the highest since the GFC.”

Indeed, as shown in the chart below, the risk of a market crash in the next 12 months is now well above 50% (it is approaching 60%), and the highest level since the global financial crisis, when it hit 90%.

Why is the market ignoring this rising risk of growing corporate imbalances and buying stocks at any opportunity? Because as Goldman concedes “after a small drawdown in May, central banks have helped buffer volatility in June.”

Even so, the strategist warns that “to stabilise risk appetite on a sustained basis and anchor volatility, better global growth is needed. Until then, markets remain vulnerable to monetary policy disappointments and political risks. And another buyback blackout period has started this week, which reduces a key demand for equities.“

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

Will A False Flag Iran War Cause A Financial Crisis?

June 17, 2019

Will A False Flag Iran War Cause A Financial Crisis?

Just a couple of weeks ago the financial world’s biggest worry was the plunging price of oil. Supply was up, stockpiles were building and speculation was pointing towards $40 a barrel, a price at which the fracking/shale oil “miracle” would evaporate. A trillion dollars of related junk debt would default, taking a big part of the leveraged speculating community along for the ride.

Then it all changed. Someone attacked some ships and oil infrastructure in the Middle East, the US and Saudi Arabia accused Iran, and now the fear is that a major regional war will interrupt the flow of oil, sending its price way up and causing a financial crisis at least as severe as a shale oil debt collapse.

This is a legitimate concern, for two reasons.

First, oil shocks have happened in the past, most notably during the Arab-Israeli war of the 1970s. So we know what they do, and it isn’t pretty. Gas prices jump, workers can’t afford their commute, the economy slows dramatically and pretty much everyone other than domestic energy companies suffers badly.

Second and potentially more serious, the pretext for this war is so blatantly false that it risks destroying what little creditability the US government has left. Think about it: With the US doing everything it can to delegitimize and destabilize Iran while positioning assets for an invasion, Iran’s leaders … start attacking oil tankers in its offshore waters.

Does that make sense? Of course not. Much more likely is that this is yet another false flag – that is, an incident faked to give a pretext for war – and a clumsy one at that.

For readers who aren’t clear on the false flag concept and its ubiquity in geopolitics, here are just a few of the dozens of documented examples:

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

Global Economic Growth In Serious Trouble When U.S. Shale Oil Peaks & Declines

May 12, 2019

Global Economic Growth In Serious Trouble When U.S. Shale Oil Peaks & Declines

The global economy would be in serious trouble if it weren’t for the rapid growth of U.S. shale oil production. Since the 2008 financial crisis, U.S. shale oil production has increased by more than 6 million barrels per day. Without these additional barrels of oil, the massive money printing and asset purchases by the central banks would not have been as successful in propping up the economy and markets.

We must remember this simple fact; energy drives the markets, not finance. Finance steers the market. So, for the economy to expand, there must be oil production growth. However, it would be unwise for the market-economy to rely upon the U.S. shale industry as the leading driver of global oil production growth for the foreseeable future.

Why? Well, there are several reasons, but let’s first look at how much the increase in U.S. shale oil production has accounted for the rise in global oil supply since 2008. Of the 9.6 million barrels per day (mbd) of global oil production growth 2008-2017, the United States supplied two-thirds or 6.3 mbd of the total:

Interestingly, global oil production minus the United States and Canada didn’t increase in 2009, 2010 or 2011. There was a small bump up in 2012 and finally by 2105-2017 did global oil production minus the U.S. and Canada increase by 1.7 mbd. Now, let me repeat that. If we add up ALL THE OTHER COUNTRIES in the world producing oil, the net increase from 2008 to 2017 was only 1.7 mbd. Thus, of the total 9.6 mbd of global oil production growth 2008-2017, the U.S. (6.3 mbd) and Canada (1.6 mbd) accounted for 82% of the total.

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

The Next Financial Crisis Won’t Be Caused by Fraud: This Time Will Be Different

April 18, 2019

The Next Financial Crisis Won’t Be Caused by Fraud: This Time Will Be Different

Extreme levels of debt and overvaluation characterize the entire global economy, and are not limited to any one nation or sector.

Financial crises come in two flavors: fraud and credit-valuation over-reach.

Fraud-based financial crises may differ in particulars, but they share many traits: perverse incentives are institutionalized; the perverse incentives reward figuring out how to evade oversight via fraud, embezzlement, masking risk, etc. which are soon commoditized; regulations are gutted by insider-funded lobbying; regulators fail to do their job in hopes of getting lucrative positions in the industry they’re supposed to be regulating; reports of systemic, commoditized fraud are ignored because everyone’s getting rich, and so on.

The resolution has to 1) eliminate the perverse incentives that fueled the crisis; 2) institutionalize oversight that actually functions to limit dangerous excesses and 3) all the malinvestment / bad debt must be liquidated and the losses taken / distributed.

Correspondent David E. recently sent me this insightful outline of how the Texas Savings & Loan financial crisis arose and was slowly and painfully resolved in the 1980s:

“The S&L crisis provides an excellent example of both how to make a problem worse and how to resolve it in the end. (note: I watched this play out in Texas; some of your readers may have a different perspective).1. Prior to the mid-1970s, S&Ls lived by the 3-6-3 rule – pay depositors 3%; make home loans at 6%; and be on the golf course at 3 o’clock. This cozy little world had been in place since the 1950s.2. Inflation in the 70s wrecked this calculation. The loans (long term home mortgages) still paid 6%, but the S&L’s were having to pay the depositors more – often more than the 6% they were making on the loans. Bankruptcy loomed.

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

No Fix for Recession: Without a Financial Crisis, There’s No Central Bank Policy Fix

April 15, 2019

No Fix for Recession: Without a Financial Crisis, There’s No Central Bank Policy Fix

There are no extreme “fixes” to secular declines in sales, profits, employment, tax revenues and asset prices.

The saying “never let a crisis go to waste” embodies several truths worth pondering as the stock market nears new highs. One truth is that extreme policies that would raise objections in typical times can be swept into law in the “we have to do something” panic of a crisis.

Thus wily insiders await (or trigger) a crisis which creates an opportunity for them to rush their self-serving “fix” into law before anyone grasps the long-term consequences.

A second truth is that crises and solutions are generally symmetric: a moderate era enables moderate solutions, crisis eras demand extreme solutions. Nobody calls for interest rates to fall to zero in eras of moderate economic growth, for example; such extreme policies may well derail the moderate growth by incentivizing risk-taking and excessive leverage.

Speculative credit bubbles inevitably deflate, and this is universally viewed as a crisis, even though the bubble was inflated by easy money, fraud, embezzlement and socializing risk and thus was entirely predictable.

The Federal Reserve and other central banks are ready for bubble-related financial crises: they have the extreme tools of zero-interest rate policy (ZIRP), negative-interest rate policy (NIRP), unlimited credit lines, unlimited liquidity, the purchase of trillions of dollars of assets, etc.

But what if the current speculative credit bubbles in junk bonds, stocks and other assets don’t crash into crisis? What if they deflate slowly, losing value steadily but with the occasional blip up to signal “the Fed has our back” and all is well?

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

What Went Wrong With Pensions — And Why The Whole World Should Be Worried

April 12, 2019

What Went Wrong With Pensions — And Why The Whole World Should Be Worried

The past decade was a uniquely smooth stretch of financial highway. Pretty much every major asset class – stocks, bonds, real estate, fine art, you name it – did well, making it hard for conventional investors to lose money and easy for them to earn outsized returns.

So why then are US public sector pensions (which own a ton of the above assets) a looming disaster that could trigger the next great financial crisis? Several reasons, ranging from negligence and criminality.

Let’s start with the fact that Wall Street preys on the ignorance of pension fund managers to extract huge fees for little or no excess return. Here’s a video in which pension expert and “forensic lawyer” Ted Siedle lays it all out for Peak Prosperity’s Chris Martenson:

An even bigger problem is the tendency – understandable but still despicable – of state and local politicians to underfund pensions and then lie about it, pushing the eventual reckoning onto their successors.

As baby boomer teachers, police and firefighters retire, the required pension payouts are soaring. Combine this with inadequate contributions, and the liabilities of major U.S. public pensions are up 64% since 2007 while assets are up only 30%.

This math is simple enough for even a politician or fund trustee to grasp, but because there’s no immediate penalty for underfunding a pension system, it has become normal practice in a long list of places.

Another, related problem is also mathematical, but it’s harder to manage in a boom-and-bust world: When pension plans suffer a big loss, as they tend to do in bear markets, the next few years’ returns have to go towards making up that loss before plan assets can start growing again. The following chart, from a recent Wall Street Journal article, shows pension fund assets falling behind in the past two bear markets and having increasing trouble catching up with steadily-growing liabilities.

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

Just Before The Great Recession, Mountains Of Unsold Goods Piled Up In U.S. Warehouses – And Now It Is Happening Again

March 27, 2019

Just Before The Great Recession, Mountains Of Unsold Goods Piled Up In U.S. Warehouses – And Now It Is Happening Again

When economic conditions initially begin to slow down, businesses continue to order goods like they normally would but those goods don’t sell as quickly as they previously did. As a result, inventory levels begin to rise, and that is precisely what is happening right now. In fact, the U.S. inventory to sales ratio has risen sharply for five months in a row. This is mirroring the pattern that we witnessed just prior to the financial crisis of 2008, and it is exactly what we would expect to see if a new recession was now beginning. In recent weeks, I have been sharing number after number that indicates that a serious economic slowdown is upon us, and many believe that what is coming will eventually be even worse than what we experienced in 2008.

And even though I write about this stuff every day, I was stunned by how rapidly inventory levels have been rising recently. The following numbers come from Peter Schiff’s website…

This comes on the heels of the largest gain in wholesale inventories in more than five years in December.
Inventories rose 7.7% from a year ago in January. Meanwhile, sales only rose by 2.7%. Overall, total inventories were $669.9 billion at the end of January, up 1.2% from the revised December level.
The increase in durable goods inventories at the wholesale level was even starker. These inventories were up 11.7% from January a year ago, and are up 17% from January two years ago, hitting $415 billion, the highest ever.

Businesses don’t like to have excess inventory, because carrying excess inventory is expensive and cuts into profits. So they try very hard to manage their inventories efficiently, but if the economy slows down unexpectedly that can catch them off guard…

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

Crisis after crisis: Why financial sector reform is not enough

February 27, 2019

Crisis after crisis: Why financial sector reform is not enough

It is now clear that financial crises are not discrete events but are linked phenomena that have been unleashed on the globe ever since the financial markets were liberalized during the Reagan-Thatcher era in the early 1980’s. To take just the three most prominent crashes, surplus capital that could not find profitable domestic outlets after the Japanese bubble burst in the late eighties found its way as speculative capital into Southeast Asia, where it contributed to the Asian financial crisis in 1997-98; and the Asian crisis, in turn, helped generate Wall Street’s implosion in 2008 owing to the Asian countries’ channeling their financial reserves – accumulated to protect them from a repeat of 1997 – into the US, where they helped fuel the subprime real estate boom.

The turbulence that hit global stock markets last February, causing much fright and a paper loss of 4 trillion dollars, was a reminder that the next big implosion may be just around the corner. A just concluded study by the Transnational Institute reveals that in 10 critical areas where major reform is needed, few to no measures have been taken to prevent a recurrence of 2008.[1]These areas range from shadow banking to fractional reserve banking to international financial governance to central bank accountability.

Skating on thin ice once more

So, not surprisingly, current indicators show that the world again is skating on thin ice.

First, the “too big to fail” problem has become worse. The big banks that were rescued by the US government in 2008 because they were seen as too big to fail have become even more too big to fail, with the “Big Six” US banks – JP Morgan Chase, Citigroup, Wells Fargo, Bank of America, Goldman Sachs, and Morgan Stanley – collectively having 43 per cent more deposits, 84 per cent more assets, and triple the amount of cash they held before the 2008 crisis. Essentially, they have doubled the risk that felled the banking system in 2008.[2]

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

We’re Overdue for a Sell-Everything/No-Fed-Rescue Recession

February 12, 2019

We’re Overdue for a Sell-Everything/No-Fed-Rescue Recession

We’re way overdue for a sell-everything recession, one that the Fed will only make worse by pursuing its usual policies of lowering interest rates and goosing easy money.

As I noted last week, central banks, like generals, always fight the last war–until the war is lost. The global economy is careening into recession (call it a “slowdown” if you are employed by the Corporate-State Media), and while we don’t yet know just how deep and wide this recession will be, we can make an educated guess that it won’t be a repeat of any of the previous five recessions: 1973-74, 1981-82, 1990-91, 2001-02 or 2008-09.

Recessions triggered by energy or financial crises tend to be short and shallow as the crisis soon eases; recessions caused by structural imbalances tend to be enduringly brutal. Many recessions are structural, but the triggering event is a short-term crisis.Some recessions savage specific sectors but leave most of the economy relatively unscathed. Others disrupt virtually everything, even the generally impervious-to-recession government sector.

Let’s run down the general outlines of the previous five recessions. If you’ve lived long enough, you’ve experienced the suffering firsthand. Younger readers will have difficulty relating firsthand, but understanding the dynamics is the goal here, and so direct experience is a bonus, not an essential.

1973-74: the Oil Shock to the U.S. economy as OPEC raised prices and punished the U.S. for supporting Israel in the 1973 Yom Kippur war created havoc–long lines at gas stations and a sharp downturn (a.k.a. recession). Though the economy supposedly recovered statistically in 1975, the structural issues that were laid bare by the recession continued eroding the economy for the next six years.

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

A World of Debt–Where Are the Risks?

January 31, 2019

A WORLD OF DEBT – WHERE ARE THE RISKS?

Private debt has been the main source of rising debt to GDP ratios since 2008
Advanced economies have led the trend
Emerging market debt increases have been dominated by China
Credit spreads are a key indicator to watch in 2019

Since the financial crisis of 2008/2009 global debt has increased to reach a new all-time high. This trend has been documented before in articles such as the 2014 paper from the International Center for Monetary and Banking Studies – Deleveraging? What deleveraging? The IMF have also been built a global picture of the combined impact of private and public debt. In a recent publication – New Data on Global Debt – IMF – the authors make some interesting observations: –

Global debt has reached an all-time high of $184 trillion in nominal terms, the equivalent of 225 percent of GDP in 2017. On average, the world’s debt now exceeds $86,000 in per capita terms, which is more than 2½ times the average income per-capita.
The most indebted economies in the world are also the richer ones. You can explore this more in the interactive chart below. The top three borrowers in the world—the United States, China, and Japan—account for more than half of global debt, exceeding their share of global output.
The private sector’s debt has tripled since 1950. This makes it the driving force behind global debt. Another change since the global financial crisis has been the rise in private debt in emerging markets, led by China, overtaking advanced economies. At the other end of the spectrum, private debt has remained very low in low-income developing countries.
Global public debt, on the other hand, has experienced a reversal of sorts. After a steady decline up to the mid-1970s, public debt has gone up since, with advanced economies at the helm and, of late, followed by emerging and low-income developing countries.

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

Where Will The “Pending” Financial Crisis Originate?

January 14, 2019

Where Will The “Pending” Financial Crisis Originate?

– Case for a pending financial collapse is well grounded warns Rickards
– “Ticking time bomb” the Federal Reserve has created is set to go off…
– Economist warns U.S. high-yield debt, default of “junk bonds” could cause next crisis
– Systemic risk is “more dangerous than ever” as “entire system is larger than before”
– Protect wealth by allocating at least 10% of assets in physical gold and silver

Source: BofA Merrill Lynch via Marketwatch.com

from The Daily Reckoning:

The case for a pending financial collapse is well grounded. Financial crises occur on a regular basis including 1987, 1994, 1998, 2000, 2007-08.

That averages out to about once every five years for the past thirty years. There has not been a financial crisis for ten years so the world is overdue. It’s also the case that each crisis is bigger than the one before and requires more intervention by the central banks.

The reason has to do with the system scale. In complex dynamic systems such as capital markets, risk is an exponential function of system scale. Increasing market scale correlates with exponentially larger market collapses.

This means a market panic far larger than the Panic of 2008.

Today, systemic risk is more dangerous than ever because the entire system is larger than before.

Due to central bank intervention, total global debt has increased by about $150 trillion over the past 15 years. Too-big-to-fail banks are bigger than ever, have a larger percentage of the total assets of the banking system and have much larger derivatives books.

Each credit and liquidity crisis starts out differently and ends up the same. Each crisis begins with distress in a particular overborrowed sector and then spreads from sector to sector until the whole world is screaming, “I want my money back!”

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

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