Category Archives: Debt

The Global Inflation Nightmare That You Have Been Warned About Is Here, by Michael Snyder

Inflation means inflation whatever passes for the money supply. Inflation has varying effects on the general price level and on specific prices. That said, if you inflate the money supply like developed world governments and their central banks have been doing the last year, it’s a pretty good bet that it will drive up most prices. From Michael Snyder at themostimportantnews.com:

If you thought that authorities all over the planet could print, borrow and spend money like there was no tomorrow without any consequences, you were being delusional.  Since the beginning of the COVID pandemic, we have witnessed the greatest monetary binge in world history.  Of course that was going to cause enormous problems.  Of course that was going to cause nightmarish inflation.  Anyone with an ounce of common sense should have been able to see that.  When the value of money is tied to nothing, “more money” is always such a tempting solution for those in power.  But as history has demonstrated over and over again, going down that path almost always leads to tragedy.

In our case, it will be the poorest people on the planet that suffer the most.  According to Bloomberg, basic food staples are dramatically spiking in price all over the globe…

Global food prices are going up, and the timing couldn’t be worse.

In Indonesia, tofu is 30% more expensive than it was in December. In Brazil, the price of local mainstay turtle beans is up 54% compared to last January. In Russia, consumers are paying 61% more for sugar than a year ago.

And as Albert Edwards has pointed out, annual inflation in cereals has hit 20 percent, which represents “the highest annual rise since mid-2011 when the Arab Spring was in full flow!”

If prices continue to rise like this, it is just a matter of time before we see widespread food riots all over the globe.

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Warren Buffett: “Retirees face a bleak future”, by Simon Black

Negative real interest rates mean there’s no way to save for retirement with even a modicum of safety. From Simon Black at sovereignman.com:

Warren Buffett minced no words in his most recent annual shareholder letter (which came out over the weekend) when he told investors that “retirees face a bleak future.”

Buffett was referring to the pitifully low interest rates that dominate fixed income investments (like bonds and annuities).

In September 1981, he writes, investors could buy a 10-year US government bond yielding nearly 16%.

Now, inflation was a lot higher in the 1980s than it is today. But even after adjusting for inflation, the average annual yield for any investor who held that 1981 bond to maturity over the next decade would have been 5.7% per year.

Today, that same 10 year bond yields just 1.4%. But the official inflation rate in the United States is also 1.4%. This means that, after adjusting for inflation, your net yield today is ZERO.

What’s even more incredible is that there are obvious signs inflation may be on the rise; for example, the most recent Producer Price Index of wholesale price inflation reached its highest level since 2009.

Yet simultaneously the Federal Reserve keeps saying that they want to keep interest rates low. And they’re doing their best to push the 10-year yield even lower than 1.4%.

In other words, inflation could go higher, and interest rates lower. So anyone who buys bonds will actually suffer a negative yield after adjusting for inflation.

And this is precisely what Buffett was talking about.

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Oil and Debt: Why Our Financial System Is Unsustainable, by Charles Hugh Smith

Energy is and will always be the dominant variable. From Charles Hugh Smith at oftwominds.com:

How much energy, water and food will the “money” created out of thin air in the future buy?

Finance is often cloaked in arcane terminology and math, but the one dynamic that governs the future is actually very simple.

Here it is: all debt is borrowed against future supplies of affordable hydrocarbons (oil, coal and natural gas). Since global economic activity is ultimately dependent on a continued abundance of affordable energy, it follows that all money borrowed against future income is actually being borrowed against future supplies of affordable energy.

Many people believe that alternative “green” energy will soon replace most or all hydrocarbon energy sources, but the chart below shows why this belief is not realistic: all the “renewable” energy sources are about 3% of all energy consumed, with hydropower providing another few percent.

There are unavoidable headwinds to this appealing fantasy:

1. All “renewable” energy is actually “replaceable” energy, per analyst Nate Hagens: every 15-25 years (or less) much or all of the alt-energy systems and structures have to be replaced, and little of the necessary mining, manufacturing and transport can be performed with the “renewable” electricity these sources generate. Virtually all the heavy lifting of these processes require hydrocarbons and especially oil.

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Doug Casey on Rapidly Rising Taxes and 3 Other Imminent Dangers to Your Wealth

Broke governments are going to be even more unbelievably rapacious than they are now. From Doug Casey at internationalman.com:

dangers to your wealth

International Man: President Biden’s Treasury Secretary—and Obama Fed Chair—Janet Yellen recently floated the idea of taxing unrealized capital gains through a “mark-to-market” mechanism.

What is going on here?

Doug Casey: When you tax unrealized capital gains—as they do with foreign stocks in a number of countries, like New Zealand, where it made my life expensive and miserable while I was living there—any stock market assets that you have are marked to market annually. This is a big disincentive to own them because whether you sell the asset or not, you’re going to pay taxes as if you’d sold it.

This is why very few Kiwis own foreign stocks. They’re liable to be taxed on gains, whether or not they sell and actually pocket the gains. I presume that’s what Yellen is talking about. It would make it pointless to buy a stock like Berkshire Hathaway and just hold it for decades to escape capital gains taxes. But the bright side is that if this law was in force, Warren Buffett would no longer be able to whine about the injustice of paying fewer taxes than his secretary.

I question whether the proposal will be enacted, though, simply because it’s so stupidly destructive. It’s clear that Yellen needs to collect on some more six-figure speeches to gain a proper understanding of it and get off that hobby horse.

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It Starts: The Cascading Financial Repercussions of the Texas Electricity Crisis, by Wolf Richter

It looks like the Texas freeze is going to wipe some businesses out. From Wolf Richter at wolfstreet.com:

Now hoping for “corrective action” and “credit intervention” by the State of Texas.

The financial repercussions of the winter-storm electricity crisis in Texas have entered the confession phase.

Just Energy Group, the Canada-based retailer of electricity and natural gas that is heavily involved in Texas, announced this morning in an SEC filing that it might have lost $250 million over the few days during the “Weather Event” in Texas, and that “the financial impact could change as additional information becomes available,” and that “once known,” the financial impact “could be materially adverse to the Company’s liquidity and its ability to continue as a going concern.”

This “going concern” warning is a standardized accounting term for the acknowledged possibility that the company might not be able to meet its obligations and might not be able to stay afloat.

In terms of its “liquidity”: The $250 million loss over the past few days contrasts with just $78 million in cash on hand that the company reported in its most recent earnings report for the quarter ended September 30. It also had $780 million in long-term debt, a third of which comes due this year. And its balance sheet has been hollowed out to where its stockholder equity is negative (-$500 million).

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Anatomy of a Bubble and Crash, by Charles Hugh Smith

Bubble markets generally crash back to their point of lift off, which can mean an over 90 percent drop. From Charles Hugh Smith at oftwominds.com:

Needless to say, few are expecting bubble symmetry to manifest now, because, well, of course, “this time it’s different.” Indeed. It’s always different and yet always the same, too.

Let’s indulge in some basic logic:

1. All speculative bubbles pop, regardless of source, time or place. (100% of all historical evidence supports this.)

2. The current “Everything Bubble” is a speculative bubble.

3. Therefore the current speculative bubble will pop.

Now that we got that out of the way, the question becomes: how will the crash play out? There is no way to forecast precisely when or how the current speculative bubble will crash, but history offers a few potential templates.

The dot-com bubble offers a classic example of bubble symmetry and scale invariance. (See chart below.) Note how the bubble arose in two legs of X duration and it crashed in two symmetrical legs of X duration. In both legs, the crash returned to the same levels from which the bubble took off.

Scale invariance: this same symmetry is visible in bubbles that soar and crash in 6 days, 6 months or 6 years. The symmetry also holds whether the instrument soars from $1 to $5 or $100 to $500, or whether it is in index, commodity or equity. (See charts of Cisco Systems (CSCO) in 2000 and Tesla (TSLA) in 2020 below.)

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Calling the Holdings of Central Banks “Assets” Is a Travesty, by Egon von Greyerz

Central Banks are holding trillions of dollars in fiat debt instruments issued by governments that will never be repaid. From Egon von Greyerz at goldswitzerland.com:

Akhlys, the Greek goddess of Misery and Poison, is exerting a major influence on the world currently. And sadly the dosage of misery and poison will increase in coming months and years.

What is now crystal clear is that this excess dose of fake assets and fake liabilities will totally poison the financial system and the world economy.

As Paracelsus, the renowned 16th century Swiss physician said; “all things are poison, it is the dosage that makes it either a poison or a remedy.”

When a world already in trouble was hit by a severe financial crisis in September 2019, the dose of debt was already excessive. But as the Fed and the ECB opened the money spigots fully, they filled the world with poisoned or fake money. The BY team (Biden & Yellen) will now be certain to finish this process with their profligate spending plans.

MAJOR CENTRAL BANKS BALANCE SHEETS UP 6X SINCE 2006

The financial system has been poisoned for decades by governments’ excess spending and central banks’ prodigal printing of toxic and worthless money.

And now, with Covid, they have the perfect excuse to senselessly create trillions of dollars, euros, yuan or yen. The world doesn’t realise that this money, fabricated by pressing a button, is no different from the Monopoly board game money.

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The Great Egghead Caper, by MN Gordon

There is no idea so stupid that some professor or other esteemed intellectual won’t believe it. From MN Gordon at economicprism.com:

“Where the hell are we?” – President Joe Biden, February 16, 2021

Highway to Hell

The President asked a most important question.  So we’ll offer the puzzled fellow an answer…

We – as in the USA – are hurtling down the highway to hell.  The state of the union is chaos.  America’s finances are completely out of control.

Spending is rapidly outpacing revenue.  Debts and deficits are mushrooming like mold spores on wet drywall.  Rot and decay have set in.  The nation’s structural foundations have fallen into irreversible disrepair.

Don’t believe us?

According to the recently published Congressional Budget Office (CBO), Budget and Economic Outlook: 2021 to 2031, America’s broker than broke.  For example, the CBO projects a federal budget deficit of $2.3 trillion in 2021.  At 10.3 percent of gross domestic product (GDP), the deficit in 2021 would be the second largest since 1945, exceeded only by the 14.9 percent shortfall recorded last year.

The CBO projects federal debt held by the public will reach 102 percent of GDP at the end of 2021, and more than 107 percent of GDP by the end of 2031.  And as the Committee for a Responsible Federal Budget clarifies, the CBO’s report shows:

“Four major trust funds are on a path toward insolvency.  CBO projects Highway Trust Fund insolvency in FY 2022, Medicare Hospital Insurance trust fund insolvency in FY 2026.  Social Security Old Age and Survivors Insurance trust fund insolvency appears likely in calendar year 2032 and Social Security Disability Insurance trust fund insolvency in the mid-2030s.

“Debt could be even higher than projected. If policymakers enact $2 trillion of additional fiscal relief, extend expiring tax provisions, and grow annual appropriations with GDP, debt would total 120 percent of GDP by 2031.”

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The Trustees Have Failed, by Techno Fog

The older generation, the boomers, hasn’t done too well for future generations. From Techno Fog at technofog.substack.

Brown and Black Wooden Chairs Inside Room

A Story of Generations

I often reflect on the concept of generational responsibilities. That each generation, whether mine or yours, has the same type of supportive role to the other for the common good, although the obligations may be different. Let me put this another way:

Every generation is the caretaker of the generations that came before, and the trustee of those who will come after. 

To explain by example: a child enters this world under the care of their parents. And the parents leave this world being cared for by their children. These are general observations (and aspirations) that leave out everything in between and all those little moments that define care.

To be more specific, and to hopefully state the obvious, caring for a child isn’t just a roof over their head and three meals a day. It’s teaching them values, being an example for them to follow, making them feel safe. It is making a marriage work for the benefit of the children and not divorcing for the convenience of the adults. Ensuring, as best we can, their future.

Then as we age, we see our parents start to fight with the parts of their daily lives they once did with ease. Their struggle is our struggle, though the struggles are different. Each day a brush more diminished until we say goodbye.

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Robinhood Thursday and the Washington Idiots at Work, by David Stockman

Central banks’ profligate production of fiat debt liquidity is behind the Gamestop fiasco and stock market valuations completely untethered from underlying economic value. From David Stockman at David Stockman’s Contra Corner via lewrockwell.com:

Today, especially, the “idiots at work” sign should be flying high over Capitol Hill.

We are referring to the boisterous congressional hearings about who is to blame for the crash of GameStop, the alleged nefarious machinations of the hedge funds and Robinhood and the purportedly innocent victims in mom’s basement who thought call options were the greatest new video game since Grand Theft Auto IV.

But among today’s silly foibles, the incessantly repeated idea that the Reddit Mob was a victim of a “pump and dump” scheme surely takes the cake. If these people were stupid enough to think that the value of a company dying in plain sight (i.e. GME) could go from $400 million to $23 billion in less than six months while its reported finances continued to deteriorate, they deserve to loose every dime of the stimmy money they threw into the Robinhood pot.

Still, the fact that the greedy, dimwitted Reddit Mob got its just desserts isn’t the half of it.

What was really on display Thursday in the recently christened (since January 6th) Holy of Holies of American Democracy is the utter cluelessness on both sides of the political aisle with respect to the financial elephant in the room: Namely, that the Fed has transformed Wall Street into a giant, destructive gambling den, which is now sucking a growing share of the populace into the pursuit of instant get-rich speculations that have no chance of panning out.

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