Category Archives: Debt

Bubble Fortunes, by Raúl Ilargi Meijer

A lot of bubble fortunes will be no more when the bubble pops. From Raúl Ilargi Meijer at theautomaticearth.com:

A few days ago, former Reagan Budget Director and -apparently- permabear (aka perennial bear) David Stockman did an interview (see below) with Stuart Varney at Fox -a permabull?!-, who started off with ‘the stock rally goes on’ despite a London terror attack and the North Korea missile situation. His first statement to Stockman was something in the vein of “if I had listened to you at any time after the past 2-3 years, I’d have lost a fortune..” Stockman shot back with (paraphrased): “if you’d have listened to me in 2000, 2004, you’d have dodged a bullet”, and at some point later “get out of bonds, get out of stocks, it’s a dangerous casino.” Familiar territory for most of you.

I happen to think Stockman is right, and if anything, he doesn’t go far enough, strong enough. What that makes me I don’t know, what’s deeper and longer than perennial or perma? But it’s Varney’s assumption that he would have lost a fortune that triggered me this time around. Because it’s an assumption built on an assumption, and pretty soon it’s assumptions all the way down.

First, that fortune is not real, unless and until he sells the stocks and bonds he made it with. If he has, that would indicate that he doesn’t believe in the market anymore, which is not very likely for a permabull to do. So Varney probably still has his paper ‘fortune’. I’m using him as an example, of course, of all the permabulls and others who hold such paper.

Presumably, they often also think they have made a fortune, and presumably they also think that means they are smart. But that begs a question: how can it be smart to put one’s money into paper that is ‘worth’ what it is today ONLY because the world’s central banks have been handed the power to save the ailing banks that own them with many trillions of freshly printed QE? And no, there can be no doubt of that.

And there are plenty other data that tell the story. The world’s central banks have blown giant bubbles all over the place. That’s where the bulls’ “fortunes” come from. They are bubble fortunes. It has nothing to do with being smart. And of course, as I’ve said many times before, there are no investors left to begin with, because you can’t be an investor if there are no functioning markets, and for a market to function you need price discovery.

To continue reading: Bubble Fortunes

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Pension Storm Warning, by John Mauldin

Governments have made promises of pension benefits that they will never be able to keep. From John Mauldin at maudlineconomics.com:

This time is different are the four most dangerous words any economist or money manager can utter. We learn new things and invent new technologies. Players come and go. But in the big picture, this time is usually not fundamentally different, because fallible humans are still in charge. (Ken Rogoff and Carmen Reinhart wrote an important book called This Time Is Different on the 260-odd times that governments have defaulted on their debts; and on each occasion, up until the moment of collapse, investors kept telling themselves “This time is different.” It never was.)

Nevertheless, I uttered those four words in last week’s letter. I stand by them, too. In the next 20 years, we’re going to see changes that humanity has never seen before, and in some cases never even imagined, and we’re going to have to change. I truly believe this. We have unleashed economic and technological forces we can observe but not entirely control.

I will defend this bold claim at greater length in my forthcoming book, The Age of Transformation.

Today we will zero in on one of those forces, which last week I called “the bubble in government promises,” which I think is arguably the biggest bubble in human history. Elected officials at all levels have promised workers they will receive pension benefits without taking the hard steps necessary to deliver on those promises. This situation will end badly and hurt many people. Unfortunately, massive snafus like this rarely hurt the politicians who made those overly optimistic promises, often years ago.

Earlier this year I called the pension mess “The Crisis We Can’t Muddle Through.” Reflecting since then, I think I was too optimistic. Simply waiting for the floodwaters to drop down to muddle-through depth won’t be enough. We face an entire new ocean, deeper and wider than we can ever cross unaided.

To continue reading: Pension Storm Warning

Holy Moly, Now Wells Fargo Recommends a Credit Freeze in Equifax Hack, by Wolf Richter

Credit being the life blood of the US economy, if credit freezes up because of the Equifax fiasco, it could well have knock-on economic effects. From Wolf Richter at wolfstreet.com:

Third largest US bank reaches out to its customers. A mass credit freeze would have a huge impact.

No one knows yet how the Equifax hack – during which Social Security numbers, birth dates, addresses and, “in some instances,” driver’s license numbers of 143 million consumers had been stolen – will wash out for Equifax, or for the other credit bureaus.

But it increasingly looks like a far bigger and broader mess not only for the credit bureaus but for the overall consumer-based US economy whose grease is easy and often instant consumer credit.

People are trying to put a credit freeze on their data at the three major credit bureaus to protect themselves from identity theft. Victims of identity theft get caught in years of a Kafkaesque nightmare where debt collectors hound them for debts incurred in their name by someone else.

A credit freeze is the best protection against identity theft. It has now been recommended by State Attorneys General, the US Government, the biggest mainstream media outlets, and numerous other outfits including from the first moment on – the evening of September 7 when the hack was disclosed – my humble site. In over 400 comments on my three articles (here, here, and here), readers have shared tips and frustrating experiences trying to deal with overloaded websites that crashed, sent people in wrong directions, or failed in other ways to produce results.

The credit bureaus claim that they have staffed up their call centers, beefed up their websites, etc. etc. But it’s still a mess. And it has been going on for ten days!

So we know there is a surge of consumers trying to protect themselves by putting a credit freeze on their data at the three major credit bureaus. But only the credit bureaus know the actual number. And they keep it close to their vest.

Now even Well Fargo, the third largest bank in the US by assets, posted an “Equifax Alert” on its customer login-page. This is the page millions of customers see when they log into their accounts.

To continue reading: Holy Moly, Now Wells Fargo Recommends a Credit Freeze in Equifax Hack

 

Equifax Sacks 2 Executives, Turns Devious to Stop You from Demanding a Credit Freeze, by Wolf Richter

More on how to protect yourself after the massive Equifax security breach. From Wolf Richter at wolfstreet.com:

Shares of Equifax dropped another 4% today, including after-hours, to $92.70. They’re now down 35%, or $50, from the happier era that ended at 5pm EST on September 7, with the confession that it had found out six weeks earlier that the most crucial personal data – “primarily names, Social Security numbers, birth dates, addresses and, in some instances, driver’s license numbers” – of 143 million consumers had been stolen.

This was promptly followed by chaos and egregious missteps, such as trying to profit from its victims. So far, at 120.4 million shares outstanding as of June 30, the six trading days have cost investors $6 billion. No one cares about consumers. They’re just the product. But $6 billion matter.

Now heads are rolling. Oh no, not CEO Richard Smith. He is notleaving the company to spend more time with his family. Instead, Equifax announced Friday evening that it sacked two lower level executives. I mean, not sacked. Chief information officer, David Webb, and chief security officer, Susan Mauldin, “are retiring,” it said, “effective immediately.”

And they had it coming.

Much was made of Mauldin’s degrees in music. But for a person her age, and with as much corporate experience as she had, college is irrelevant. Gates, Jobs, and Zuckerberg didn’t even graduate from college. What matters is how they perform their work.

And they failed to patch a vulnerability in Apache Struts, an open-source and therefore free software. The vulnerability had been “identified in early March” but wasn’t patched. The hack occurred from May 13 through July 30, 2017.

According to Equifax Friday evening:

The attack vector used in this incident occurred through a vulnerability in Apache Struts (CVE-2017-5638), an open-source application framework that supports the Equifax online dispute portal web application.

Equifax’s Security organization was aware of this vulnerability at that time, and took efforts to identify and to patch any vulnerable systems in the company’s IT infrastructure.

While Equifax fully understands the intense focus on patching efforts, the company’s review of the facts is still ongoing.

To continue reading: Equifax Sacks 2 Executives, Turns Devious to Stop You from Demanding a Credit Freeze

To Hell In A Bucket, by MN Gordon

The US keeps doing the same thing—allowing the government to spend more than it takes in—and keeps hoping that there’s no such thing as debt service or compound interest. From MN Gordon at economicprism.com:

“No one really cares about the U.S. federal debt,” remarked a colleague and Economic Prism reader earlier in the week.  “You keep writing about it as if anyone gives a lick.”

We could tell he was just warming up.  So, we settled back into our chair and made ourselves comfortable.

“The voters certainly don’t care about the federal debt,” he continued.  “They keep electing the same spendthrifts to office.

“And the politicians know the voters don’t care.  They also know that making more and more promises is the formula for getting reelected.

“Deep down, the aging masses know they need massive amounts of government debt to pay their social security, medicare, and disability checks.  On top of that, many of the so-called gainfully employed are really on corporate welfare; they hang their hats on government contracts to fund their paychecks.

“You know as well I do how this crazy debt based fiat money system works.  The debt must perpetually increase or the whole financial system breaks down.  The best we can hope for is that the ongoing currency debasement merely leads to a subtle erosion of living standards.  That’s the best-case scenario.

“But, again, no one except maybe a handful of your readers’ gives a rip about the federal debt.  Plus, if you’re gonna keep writing about it you need to use better terminology.

“The federal debt has grown at such a rapid rate that standard dollar units no longer capture what’s going on.  The debt numbers are so large it is difficult to distinguish between hundreds of billions and tens of trillions of dollars.

Going Broke at Mach 30

“For better perspective, you need to describe the debt growth in astronomical terms.  You see, astronomers use light years to adjust for large distances.  A light year, as its name suggests, is the distance light travels in one year.  One light year converts to light traveling about 5.87 trillion miles per year, excluding leap year of course.

To continue reading: To Hell In A Bucket

 

Catalan Independence Vote October 1: Why? What’s At Stake? What do the Polls Suggest? by Mike “Miss” Shedlock

The unstoppable forces—devolution and decentralization—continue on their merry way. From Mike “Mish” Shedlock at mishtalk.com:

Unless the central government in Madrid forcibly stops elections, the Catalan Independence Vote will take place on October 1.

Politico covers What Spain has to Lose from Catalan Independence.

Catalonia Percent of Spain

Voting Intentions

Poll Source in Spanish: Centre d’Estudis d’Opinió (CEO) June 2017

2015 Advisory Voting Map

Why?

Please consider Why some Catalans want to break away from Spain.

Research from CEO (above link), as translated by Politico

  • Increased autonomy (26 percent)
  • Belief that Catalonia would improve if it struck out on its own (23 percent)
  • Desire for a new model for running a country (19 percent)

“I want a fair country, a more social and leftist country, and I believe the best way to achieve that is leaving Spain,” said Marc Becat, a 22-year-old who works in sales.

“All the money and all the taxes that flow to the Spanish government will stay in [an independent] Catalonia,” said Ana Martí Benavente, a 78-year-old Barcelona pensioner.

“It’s the Popular Party above all things, I hate them, that’s it,” said Alex Fores, a 21-year-old engineering student. “They’re very right-wing and obviously if you look at what people vote here [in Catalonia] it’s a completely different ideology.”

“What we Catalans find surprising is how the international community doesn’t react to the fact that we’re being prevented from voting” — Marta Alsina, teacher.

March in Barcelona

Pro-Independence Flag Face

Spain Threatens to Arrest Mayors in Favour of Vote

The Express reports Spain Threatens to Arrest Mayors in Favour of Vote.

Aljazeera reports Spain Summons Catalan Mayors Over Independence Vote.

Spain’s state prosecutor has ordered a criminal probe of all 700-plus Catalan mayors who have backed an independence referendum, as Madrid seeks to block the separatist vote it deems illegal.

The country’s prosecutor office on Wednesday ordered the 712 mayors, who have agreed to help stage the October 1 vote, to be summoned to court as official suspects and called for their arrest in case of a refusal to appear for questioning.

Barcelona Mayor Ana Colau, who opposes secession but supports a vote, says she wants to help arrange the referendum but won’t do so without assurances that she and her staff would be acting legally.

To continue reading: Catalan Independence Vote October 1: Why? What’s At Stake? What do the Polls Suggest?

Swindling Futurity, by Jim Quinn

There’s nothing normal about deficits since the financial crisis financed at microscopic interest rates, and the future butcher’s bill is going to be huge. From Jim Quinn at theburningplatform.com:

“The principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”Thomas Jefferson

Yesterday the government reported a “modest” August budget deficit of $108 billion. That’s one month folks. This is another example of how the government and their mainstream media mouthpieces portray horrifically bad, extremely abnormal financial data as normal and expected. They pretend everything that has happened since 2008 is just standard operating procedure. They follow the Big Lie theory to the extreme. The masses have been so dumbed down, desensitized, and taught to believe delusions, they can’t distinguish the abnormal from the normal.

Those in power pretend near zero interest rates eight years after the recession was supposedly over is normal. They pretend $500 billion to $1.4 trillion annual deficits are normal. They pretend 20% unemployment is really 4.4%. They pretend the stock market is at all-time highs due to an improving economy rather than central bank easy money and corporate stock buybacks. They pretend $20 trillion of debt and $200 trillion of unfunded welfare promises is no problem. We are living in the grand delusion.

The $108 billion August deficit brought the year to date deficit to $674 billion. With one month left in the fiscal year, the deficit will end at approximately $750 billion. Does that strike you as normal? The propaganda media will spin this dreadful result as positive by saying it is down from $1.4 trillion in 2009. They won’t mention it is up 70% from the 2015 deficit and the highest since 2012. No one ever mentions the annual deficit in 2007 was “only” $161 billion. As a cherry on top of this mass deception, the total budget deficits reported since 2002 totaled $9.4 trillion, while the national debt rose by $13.8 trillion. Just a slight $4.4 trillion accounting discrepancy among friends.

To continue reading: Swindling Futurity