Steve Bull's Blog, page 1360
June 10, 2017
Debt Has No Consequences? Color Me Skeptical
The entire status quo is based on the delusion that rapidly rising debt will never generate any negative consequences.
Here’s a chart of America’s national debt, extended a mere dozen years into the future: the current $20 trillion in debt will double to $40 trillion, and that assumes 1) trillions of dollars in private and local government pensions don’t implode and have to be bailed out by the federal government, a bail-out that will have to be paid by borrowing more money, 2) a recession doesn’t slash federal tax revenues, 3) Universal Basic Income (UBI) doesn’t become policy, adding $1+ trillion in additional borrowing annually–and so on.
Color me skeptical that doubling the debt in 12 years won’t have any negative consequences. Let’s start by noting that federal debt is only the tip of America’s total debt load, which is rising fast in all sectors: federal, state/county/city, corporate and household.
Total government, corporate and household debt soared from $15.5 trillion in 2000 to $41.1 trillion in 2016. (see chart below, courtesy of 720Global). If we extend this expansion another 12 years, we will have a total debt load in the neighborhood of $100 trillion by 2030. And that’s if the “recovery” news is all good.
The consensus is that all this debt will have no negative consequences because 1) interest rates will remain near-zero forever and 2) it’s all “investment”, right? Actually, no; the vast majority of this debt is consumption, not investment, or even worse, it simply services existing debt or funds speculative gambling (stock buybacks, etc.)
Recall that every debt is somebody’s asset. Debt jubilees sound great to debtors, but not so appealing to insurance companies, pension funds, mutual funds, etc. that own the debt and rely on the income from that debt to pay pensioners their pensions, settle insurance claims, etc.
…click on the above link to read the rest of the article…
Germany’s Gabriel Warns Qatar Crisis “Could Lead To War” As Qatar Emissary Flies To Moscow
Germany’s foreign minister Sigmar Gabriel warned that the ongoing isolation of Qatar by Saudi Arabia and its allies could lead to a war in the Gulf region, according to an interview he gave to Germany’s Frankfurter Allgemeine Sonntagszeitung, although he added that he still saw a chance to defuse the tension.
“There is a danger that this dispute could lead to war,” Gabriel said citing what he called a “dramatic” harshness in relations between allied and neighbouring countries in the Gulf.
The foreign minister said personal talks this week with his counterparts from Saudi Arabia, Qatar and Turkey, and phone calls with the foreign ministers of Iran and Kuwait underscored his concerns.
“After my talks this week, I know how serious the situation is, but I believe there are also good chances to make progress.”
Gabriel also said that he had a phone conversation with Secretary of State Rex Tillerson on the Gulf situation on Friday and said that Tillerson showed a “very wise and prudent attitude” that has contributed to calming the conflict.
Yet while Tillerson was “calming” the conflict, during a press conference on Friday Trump appeared to be adding fire to it, when the president accused Qatar of being a “high level” funder of terrorism even as the Pentagon and Tillerson cautioned against the military, commercial and humanitarian effects of a blockade imposed by Arab states and others.
As expected, on Saturday Saudi Arabia and Bahrain welcomed Trump’s demand for Qatar to stop supporting terrorism, but did not respond to a U.S. Department of State call for them to ease pressure on the Gulf state. After severing ties with Qatar on Monday, Saudi Arabia said it was committed to “decisive and swift action to cut off all funding sources for terrorism” in a statement carried by state news agency SPA, attributed to “an official source”.
…click on the above link to read the rest of the article…
Putin Warns Of “Hot War” And Nuclear Holocaust: “I Don’t Think Anyone Would Survive”
With tensions among the world’s super powers mounting in places like Ukraine, Syria, North Korea and most recently Qatar and Iran, it may only be a matter of time before someone pushes the red button.
When they do, all bets are off, and as we’ve learned from the assassination of Archduke Ferdinand in June of 1914, once the trigger is pulled there’s no going back and hundreds of millions of lives, perhaps billions, will hang in the balance.
Considering that Russia is closely allied with Syrian President Assad, has a direct interest in maintaining control of Ukraine’s former Crimea region, and its ties to Iran, ignoring the possibility of a global war in coming years could be a devastating oversight.
We are, in fact, at war right now. But just as was the case from the 1960’s through the end of the 1980’s, it is a “cold war.” There have been no direct troop engagements that we know of between the Russians and the United States. But look to cyber space and it should be clear that there is a battle taking place on a daily basis. Moreover, as we’ve previously reported, nuclear war may well be on the horizon, because the confrontations taking place on the geo-political stage are no longer just talk.
Action has already been taken by both sides:
Putin and the Russian people believe the U.S.’s actions are going to lead to a nuclear conflict initiated by the United States. The leadership of the U.S. is made up of politicians who began their careers as Marxist-Socialists. Traitors now have their fingers on the triggers of the nuclear warheads, aided by “yes-men” of the general staffs who will not remember their oaths to the Constitution of the United States and the American people.
…click on the above link to read the rest of the article…
The Three Headed Debt Monster That’s Going to Ravage the Economy
Mass Infusions of New Credit
“The bank is something more than men, I tell you. It’s the monster. Men made it, but they can’t control it.” – John Steinbeck, The Grapes of Wrath
Something strange and somewhat senseless happened this week. On Tuesday, the price of gold jumped over $13 per ounce. This, in itself, is nothing too remarkable. However, at precisely the same time gold was jumping, the yield on the 10-Year Treasury note was slip sliding down to 2.15 percent.
In short, investors were simultaneously anticipating inflation and deflation. Naturally, this is a gross oversimplification. But it does make the point that something peculiar is going on with these markets.
Clear thinking and simple logic won’t make heads or tails of things. For example, late Wednesday and then into Thursday the reverse happened. Gold gave back practically all $13 per ounce it had gained on Tuesday, while the yield on the 10-Year Treasury note climbed back up to 2.19 percent. What to make of it?
Gold and treasury yields have been inversely correlated for some time. This is probably due to inflation expectations driving expectations about interest rate policy – click to enlarge.
With a little imagination one can conceive of where the money’s coming from to buy Treasury bonds. More than likely, it has something to do with central bank intervention into credit markets. Though, the Federal Reserve is not the only culprit.
If you recall, the Federal Reserve’s quantitative easing program concluded in late 2014. The Fed even says it plans to start shrinking its balance sheet later this year. So if the Fed’s not the source of liquidity for Treasury purchases, who is?
…click on the above link to read the rest of the article…
Why The Markets Are Overdue For A Gigantic Bust
r.classen/Shutterstock
Why The Markets Are Overdue For A Gigantic Bust
It’s just not possible to print our way to prosperity
Let me begin with a caveat: confirmation bias is an ever-present risk for an analyst such as myself.
If you’re not familiar with the term, ‘confirmation bias’ suggests that once we’ve invested time and emotional energy into developing a worldview, we’ll then seek information to confirm that view.
After writing about the economy for so many years, I’m now so convinced that we can’t print our way to prosperity that I find myself seeing signs confirming this view everywhere, every single day. So that’s the danger to be aware of when listening to me. I’m going to keep repeating this mantra and Im going to keep finding data that supports this view.
Based on lots of historical inputs, I have concluded that Printing money out of thin air can engineer lots of things, including asset price bubbles and the redistribution of wealth from the masses to the elites. But it cannot print up real prosperity.
As much as I try, I simply cannot jump on the bandwagon that says that printing up money out of thin air has any long-term utility for an economy. It’s just too clear to me that doing so presents plenty of dangers, due to what we might call ‘economic gravity’: What goes up, must also come down.
Which brings us to this chart:
The 200 bubble blown by Greenspan was bad, the next one by Bernanke was horrible, but this one by Yellen may well prove fatal. At least to entire financial markets, large institutions, and a few sovereigns.
It’s essential to note that more than two-thirds of the net worth tracked in the above chart is now comprised of ‘financial assets.’ That is, paper claims on real things.
…click on the above link to read the rest of the article…
June 5, 2017
It’s A “Geopolitical Earthquake”: A Stunned World Responds After Saudi Alliance Cuts All Ties With Qatar
Virtually nobody saw it coming.
Late on Sunday night, the Saudi-led alliance of Gulf Arab states, Saudi Arabia, the UAE and Bahrain including Egypt, shocked the world when they announced they had severed ties and closed borders with one of the Gulf’s wealthiest, if smallest, neighbors Qatar, a (now former) member of the Gulf Cooperation Council in what we called a “geopolitical earthquake” and what Bloomberg dubbed “an unprecedented move designed to punish one of the region’s financial superpowers for its ties with Iran and Islamist groups in the region.”
As we noted first last night, just days after president Trump left the region, a “geopolitical earthquake” took place in the Middle East as the rift between Qatar and other members of the Gulf Cooperation Council exploded with Bahrain, UAE, Saudi Arabia, and Egypt cutting all diplomatic ties with Qatar accusing it of “spreading chaos,” by funding terrorism and supporting Iran. Saudi Arabia, Bahrain, the United Arab Emirates and Egypt all said they will suspend air and sea travel to and from the Gulf emirate. Saudi Arabia will also shut land crossings with its neighbor, potentially depriving the emirate of imports through its only land border.
It was not immediately clear when the proposed measures would be implemented. Saudi Arabia said it would “begin immediate legal measures with friendly, sisterly countries and international companies to implement that measure as quickly as possible for all types of transit from and to the state of Qatar.”
Saudi Arabia cited Qatar’s support of “terrorist groups aiming to destabilize the region,” including the Muslim Brotherhood, Islamic State and al-Qaeda. It accused Qatar of supporting “Iranian-backed terrorist groups” operating in the kingdom’s eastern province as well as Bahrain. Saudi Arabia, along with Bahrain and the U.A.E., gave Qatari diplomats 48 hours to leave.
Donald Trump meets Qatar’s ruler Sheikh Tamim bin Hamad al-Thani in Riyadh in May
…click on the above link to read the rest of the article…
The Path to Inflation: “Helicopter Money”
The general view in inflation is dead, essentially forever. Maybe. Maybe not.
We all know real-world inflation for big-ticket expenses is far above the official rate of around 2% annually.
Yet conventional economists are virtually unanimous that deflation is the danger and inflation is a “good thing” we need to spur so servicing existing debt becomes easier for debtors.
Due to the deflationary pressures of technology and stagnant wages for the bottom 90%, the consensus sees low inflation as far as the eye can see.
When the consensus is near-100% on one side of the boat, we can safely bet Reality will not conform to expectations. This leads to a question: what could cause official near-zero inflation to surprise the consensus and leap higher?
One possible answer is “helicopter money”: money created by central banks that is distributed directly to households via tax rebates, debt forgiveness, or Universal Basic Income (UBI).
For the past 17 years, central banks have funneled credit and liquidity into the banks at the top of the wealth-power pyramid. Very little of this new “wealth” has trickled down to the bottom 90% of households in the real economy who have seen their earnings stagnate and their costs rise.
Now that debt and essentials are absorbing much of the bottom 90%’s earnings, there’s little fuel left for additional debt-based consumption. This is why we see auto sales plummeting.
The only way the central banks/states can fuel more debt and spending is to drop “helicopter money” directly into the consumers’ checking accounts.
Once they do this, the “new money” goes directly into the real economy. This is quite different than the past 17 years of monetary stimulus that went mostly into assets owned by the wealthy.
There’s another driver of inflation: shortages of essential commodities. I define inflation very simply: a loss of purchasing power, which means we are paying more money for the exact same good or service.
…click on the above link to read the rest of the article…
Worst Hurricane Season In A Decade Threatens Gulf Coast Production
2017 could be an “above-normal” year for large hurricanes, according to the National Oceanic and Atmospheric Administration (NOAA), a potential problem for Gulf Coast oil drillers and refiners.
NOAA puts the odds of an “above-normal” season for hurricanes at 45 percent, while the chances of a normal and below-normal season are at 35 and 20 percent, respectively. In fact, they said that there is a 70 percent likelihood of 11 to 17 named storms, which are storms that have 39 mile-per-hour winds or higher. About 5 to 9 of those could become hurricanes (winds of 74 mph or higher); 2 to 4 of which could become major hurricanes (winds of 111 mph or higher). The average season (which runs from June through November) tends to have just 12 named storms, so the potential for 17 named storms puts the 2017 hurricane season in more treacherous territory.
“We’re expecting a lot of storms this season,” Gerry Bell, lead seasonal hurricane forecaster with NOAA’s Climate Prediction Center, told reporters. “Whether it’s above normal or near normal, that’s a lot of hurricanes.”
Part of the reason for the expected uptick in hurricane activity is because the El Nino phenomenon is not expected to show up. El Ninos tend to suppress hurricanes. Also, sea-surface temperatures are above-average, which contributes to stronger storms.
There has been a decade-long lull in major hurricanes that have struck the U.S., but there is a growing probability that that changes this year.
That should be cause for concern for the oil and gas industry, much of which is located along the Gulf Coast. They have been spared the worst that Mother Nature has to offer for quite some time. Related: Oil Prices Fall As U.S. Rig Count Rises For 20th Straight Week
…click on the above link to read the rest of the article…
Letters from Venezuela: This Is What Life Is Really Like in a Post-Collapse Society
If you ever wondered what life was really like in a post-collapse society, look no further than Venezuela. Today, I’d like to share a first-hand report of everyday life there.
The country has been on the way down since a socialist government destroyed the economy. Here’s a quick timeline:
Private ownership of guns was banned in 2012. Then things began to go downhill in a hurry.
In 2013, preppers were relabeled “hoarders” and the act of stocking up became illegal.
In 2014, the government instituted a fingerprint registry for those who wished to buy food to ensure they didn’t take more than their “share.”
In 2015, things began to devolve more quickly as electricity began to be rationed and farmers were forced to turn over their harvests to the government.
2016 brought the announcement that folks were on their own – there was simply not enough food. As well, despite the rationing, an electricity shortage was announced.
2016 also brought the news that the country was out of everything: food, medicine, and nearly all basic necessities. People were dying of starvation and malnourishment made other illnesses even worse. Hyperinflation brought exorbitant prices, like $150 for a dozen eggs.
Now, civil war is near (if not already happening.) They’re calling it “protests” but violence between the people and the government is ongoing. This rage is stoked by wealthy Venezuelans who enjoy luxurious meals, fabulous parties, and lush accommodations while the rest of the country struggles to find a bag of rice they can afford. Let them eat cake?
It appears there is no end in sight to the tribulations of the Venezuelans.
So, what is day-to-day life like for the average Venezuelan?
…click on the above link to read the rest of the article…
May 31, 2017
The Next Recession May Be A Complete Reset Of All Asset Valuations
Sometime this year, world public and private plus unfunded pensions will surpass $300 trillion. That is not even counting the $100 trillion in US government unfunded liabilities. Oops.
These obligations cannot be paid. A time is coming when the market and voters will realize this.
Will voters decide to tax “the rich” more? Will they increase their VAT rates and further slow growth? Will they reduce benefits? No matter what they decide, hard choices will bring political turmoil.
And that, of course, will mean market turmoil.
The Great Reset Will Cause a Horrible Global Recession
We are coming to a period I call “the Great Reset.” As it hits, we will have to deal, one way or another, with the largest twin bubbles in the history of the world. One of those bubbles is global debt, especially government debt. The other is the even larger bubble of government promises. The other is the even larger bubble of government promises.
History shows it is more than likely that the US will have a recession in the next few years. When it does come, it will likely blow the US government deficit up to $2 trillion a year.
Obama took eight years to run up a $10 trillion debt after the 2008 recession. It might take just five years after the next recession to run up the next $10 trillion.
Here is a chart my staff at Mauldin Economics created in late 2016 using Congressional Budget Office data. It shows what will happen in the next recession if revenues drop by the same percentage as they did in the last recession (without even counting likely higher expenditures this time).
…click on the above link to read the rest of the article…
