Category Archives: Debt

Spending it Forward? By Eric Peters

A strong argument can be made that it’s a good time to convert fiat debt instruments into actual, tangible things. From Eric Peters at ericpetersautos.com:

It’s hot outside, but I am splitting and stacking firewood – in anticipation of when it gets cold, not too many months from now. More precisely, I am stockpiling wood as a fallback – in the event the power goes out this fall. A not-unlikely event, given the “electrification” of everything. Also as an alternative, in the event the cost of propane rises beyond the constantly diminishing purchasing power of the currency we’re all forced to us to buy such things with.

But it is also a hedge.

The wood being more than just a source of heat – both to keep us warm and (should it become necessary) a way to heat food and even water, so as to  keep us clean. It is also a way to store the value of currency before it dissipates further.

Much better than a bank. Or rather, it is the best kind of bank there is.

The wood is a tangible asset, directly under my control. It can be withdrawn at any time and without even having to show ID. I can withdraw as much of it as I like, whenever I like, without having to worry about the transaction causing unwanted scrutiny. And – most of all – it will still be in my “account” come winter, even if the banks decide to lock my accounts with them, over something I wrote or said.

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Russia ‘Defaults On Foreign Debt’ For First Time Since Bolshevik Revolution Amid Western Sanctions, by Katabella Roberts

Is it really a default if your creditor refuses payment or makes it impossible for you to repay, but you are ready, willing, and able to do so? From Katabella Roberts at The Epoch Times via zerohedge.com:

Russia on Sunday defaulted on its foreign debt for the first time since 1918 after the grace period on its $100 million payment expired, according to reports.

The $100 million interest payment deadline due to be met by the Kremlin had initially been set to May 27 but a 30-day grace period was triggered after investors failed to receive coupon payments due on both dollar and euro-denominated bonds.

Russia said that it had sent the money to Euroclear Bank SA, a bank that would then distribute the payment to investors.

But that payments allegedly got stuck there amid increased sanctions from the West on Moscow, according to Bloomberg, meaning creditors did not receive it.

Euroclear told the BBC that it adheres to all sanctions.

The last time Russia defaulted on its foreign debt was in 1918 when the new communist leader Vladimir Lenin refused to pay the outstanding debts of the Russian Empire during the Bolshevik Revolution.

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BlackRocking . . . by Eric Peters

As homeowners become involuntary renters, the homeowners who are left will end up subsidizing those rents. From Eric Peters at ericpetersautos.com:

 

Why are billion-dollar “capital” entities like BlackRock buying up hundreds of millions of dollars of formerly privately owned homes? It may be possible to divine the answer by looking at another number:

The millions of people on the cusp of being evicted from the places they rent.

According to the U.S. Census Bureau, there are some 6.7 million of these people – who’ve had their rents increase by $250 per month, on average. The majority of these people earn less than $25,000 annually – and all of them have had the buying power of whatever they earn reduced by about 15 percent, via what is styled “inflation,” in order to make the victims of it think that the things they need to buy or pay for (like rent) cost more. In fact, their money just buys – and pays for – less.

Many of these renters have had their rent subsidized as part of what was styled “pandemic” relief,” an odd way of putting it since the “pandemic” didn’t force anyone to stop working (or hiring workers).

Rather, it was the government that did it.

The same government also told landlords they could not evict renters who weren’t paying rent. Which meant that landlords were being forced by the government to pay their rent – via the cost of paying the property taxes the government didn’t hold in abeyance, as well as all the associated carrying costs of owning a rental property – including the monthly mortgage payment.

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The Age of Discord, by Charles Hugh Smith

We’re sure not living through the Age of Sweetness and Light. From Charles Hugh Smith at oftwominds.com:

It’s very difficult to find common ground that supports cooperation in the disintegrative stage of scarcities, rising prices, catastrophically centralized power and social discord.

Today’s topic echoes Peter Turchin’s 2016 book, Ages of Discord, which I have often referenced in blog posts.

I’ll also discuss two other books I’ve often referenced, Global Crisis: War, Climate Change and Catastrophe in the Seventeenth Century by Geoffrey Parker and The Great Wave: Price Revolutions and the Rhythm of History by David Hackett Fischer.

Turchin proposes repeating cycles of history of social integration (people finding reasons to cooperate) and disintegration (people finding reasons to not cooperate).

Clearly, we’re in a disintegrative stage.

Fischer proposed a repeating cycle of history in which humans expand their numbers and economy to consume all available resources.

Once all the low-hanging fruit has been consumed, scarcities arise, pushing prices above what commoners can afford, and the result is economic stagnation and social/political revolution.

Either humans exploit a new energy source at scale to provide for the larger population and higher consumption per person, or the population and consumption decline to fit available resources.

Parker covers the mutually reinforcing climate, political, social and economic crises of the 17th century. A long cycle of cold, wet summers reduced crop yields, leading to hunger and strife.

Parker also identifies another cause of the tumultuous, war-plagued 1600s: political leaders had consolidated too much power, enabling them to pursue disastrous wars without any restraint from competing domestic social-political interests.

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The Global Power Shift Isn’t West to East–It’s Not That Simple, by Charles Hugh Smith

The power shift is going to be from those who borrow or beg to those who produce. From Charles Hugh Smith at oftwominds.com:

The mercantilist dependence on exports for growth, a winner for the past 70 years, has reached diminishing returns. Rather than be a source of growth, it’s a source of stagnation.

Conventional wisdom holds that geopolitical power is inevitably shifting from West to East. It isn’t quite this simple. The real shift is occurring between three sources of power that are not so neatly geographic:

1. The commodity exporters

2. The mercantilist exporters of products

3. The consumer-importing nations

Gordon Long and I tease apart the many dynamics in this complex power shift in Tectonic Shift of Mercantilism Revalued (42 min). There are three starting points: neocolonialism, mercantilism and importer by choice.

In classic colonialism, the colonial power expropriated commodities by force. The invaders took control of commodity-producing nations via military force and then oversaw the extraction of low-cost raw materials to provide the home markets with cheap materials to feed the colonial power’s valued-added manufacturing. The manufactured goods were then sold in the captured markets of the colonial states.

In what I call the Neocolonial Model, the control mechanism isn’t military force, it’s financialization and globalization. The Neocolonial Power extends cheap credit to the commodity exporting nation, and the state and its citizens gorge on this heretofore unavailable banquet of debt. Soon the state and its enterprises are creaking under unsustainable debt loads, and the Neocolonial Power swaps assets for debt, buying up the most valuable resources on the cheap or extracting the wealth via interest payments and refinancing.

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The European Union Is Again Close To A Meltdown, by Bruce Wilds

Europe is looking at an ugly combination of rising prices, a faltering euro, contracting economies, and they’re taking their biggest supplier of energy off-line. From Bruce Wilds at brucewilds.blogspot.com:

The Ukraine conflict is taking a toll on the Euro-zone and it could result in finally pushing it over the edge. Everything flowing from Russia’s incursion poses a big negative for the region which is already struggling. When you couple soaring energy prices with stagnate growth and a growing trade balance with China you have the recipe for disaster. This is also apparent on the inflation front.

According to Reuters, the Euro-zone inflation rate surged to yet another record high in May. Inflation accelerated to 8.1% in May from 7.4% in April. A big part of the problem is that  it is no longer just energy pulling up the headline figure. Looking past the headline figure, we find excluding food and energy prices, inflation rose to 4.4% year-on-year from 3.9%. This puts pressure on the European Central Bank to increase rates further. The timing of such a move is horrible in that Europe’s dust-up with Russia has brought to the forefront just how weak Europe is.

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David Stockman on Why the Great Reckoning Has Begun

The Federal Reserve has suppressed interest rates for decades, such that the economy can only function on what are historically very low rates. Now inflation is raging and interest rates are spiking. The Great Reckoning has arrived. From David Stockman at internationalman.com:

Well, that should have been a wake-up call. The 30-year mortgage rate soared by 24 basis points recently to 6.18%. So the latter now stands at well more than double the 2.65% rate which prevailed just 18 months ago in January 2021, and at the highest level since the tail end of the Great Financial Crisis in 2009.

In a word, the Fed’s fake economy based on ridiculously unsustainable ultra-low interest rates is coming to a thundering end. And far more abruptly and violently than the Fed and its Wall Street megaphones ever remotely imagined.

Not surprisingly, the eruption of the mortgage rate depicted above has sent housing “affordability” into the drink. In fact, housing affordability is now at the lowest point on record going back to the late 1980s.

Needless to say, household budgets are about to get hammered and the housing market is fixing to experience another great implosion. It would actually take a 30% drop in average home prices to reverse the affordability plunge just since the pre-Covid levels.

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Concurrent Deflation and Hyperinflation will Ravage the World, by Egon von Greyerz

FLATION is the suffix for the various phenomena that occur in fiat-debt systems. From Egon von Greyerz at goldswitzerland.com:

FLATION will be the keyword in coming years. The world will simultaneously experience inFLATION, deFLATION, stagFLATION and eventually hyperinFLATION.

I have forecasted these FLATIONARY events, which will hit the world in several articles in the past. Here is a link to an article from 2016.

With most asset classes falling rapidly, the world is now approaching calamities of a proportion not seen before in history. So far in 2022, we have seen an implosion of asset prices across the board of around 20%. What few investors realise is that this is the mere beginning. Before this bear market is over, the world will see 75-90% falls of stocks, bonds and other assets.

Since falls of this magnitude have not been seen for more than three generations, the shockwaves will be calamitous.

At the same time as bubble assets deflate, prices of goods and services have started an inflationary cycle of a magnitude that the world as whole has never experienced before.

We have seen hyperinflation in individual countries previously but never on a global scale.

Currently the official inflation rate is around 8% in the US and Europe. But for the average consumer in the West, prices are rising by at least 25% on average for their everyday needs such as food and fuel.

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Doug Casey on Crashing Markets, Commodities, and What Happens Next

A quick preview of what happens next: nothing good. From Doug Casey at internationalman.com:

Crashing Markets

International Man: In addition to stocks, it seems that almost every asset class is also crashing.

What’s your take on the markets, and where do you think it’s headed?

Doug Casey: Let’s take them in order of size and importance.

The biggest market is bonds. It’s especially dangerous because it’s the most overpriced. Bonds are a triple threat to your capital. First, because of the inflation risk, which is huge and growing. Second, is the interest rate risk; I expect rates to double, triple, or quadruple from here, going back to or above the levels of the early 80s. The third is the default risk, which applies to everything except US Government debt. AAA corporate debt hardly exists anymore.

Interest rates have skyrocketed in the last year, with mortgage rates going from under 3% to over 6%. 30-year treasury bonds still only yield 3.25%. But with inflation running 10, 12, or 15% and going higher, long-term Treasuries have a lot further to fall. I remain short T-bonds.

Everybody’s paying attention to the stock market because they’re fully invested. The meme stocks, SPACs, and tech stocks have all collapsed. The big ones are down 25%, and many are down 80 or 90%. It’s not over yet. People still feel that they can buy the dips. They’re hurting, but they’ve been paper-trained over a couple of generations to believe the Fed will kiss everything and make it better.

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Blue and Red Do Have Something in Common. They’ve Both Been Ripped Off, Repeatedly, by Matt Taibbi

When the same people always win the game, the game is fixed. From Matt Taibbi at taibbi.substack.com:

Our “transitory” inflation disaster and looming market crash mimic past bubble disasters, which all had the same feature: a few insiders won, and everyone else got creamed

“Putin’s hiking prices right now, from under this lectern!”

Good, honest, hardworking people, white collar, blue collar. Doesn’t matter what color shirt you have on… People of modest means continue to elect these rich cocksuckers who don’t give a fuck about them. They don’t give a fuck about you. They don’t give a fuck about you… It’s called the American dream because you have to be asleep to believe it. — George Carlin

On June 14th, in Philadelphia, President Joe Biden gave a speech before leaders of the AFL-CIO. This is the role Joe Biden was hired to play, the hardscrabble “Scranton Joe” persona who gets the common working person. He addressed an issue very much on the minds of ordinary folk:

I’m doing everything in my power to blunt Putin’s gas price hike.  Just since he invaded Ukraine, it’s gone up $1.74 a gallon — because of nothing else but that.

This followed remarks he’d made in Los Angeles a week before, at the 9th Summit of the Americas:

The COVID-19 pandemic hit our region particularly hard… Twenty-two million more people fell into poverty in just the first year of the pandemic. Inequity continues to rise. Global [inflationary] pressures… made worse by Putin’s brutal and unprovoked war against Ukraine… are making it harder for families to make ends meet. 

Watching Biden on the stump these days is heartbreaking. He combines Ron Burgundy-style slapstick teleprompter-dependence (one half expects him to end a speech soon with “Go fuck yourself, San Diego”) with the terror of a man who can see the bright light coming. Both effects are worsened by the fact that he’s peddling an insane, indefensible lie, i.e. that America is suffering through “Putin price hikes,” and not the inevitable consequence of yet another transparent state-aided ripoff scheme to soak the middle and lower classes on behalf of the 1%.

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