Category Archives: Debtonomics

Just Wait a Little While, by James Howard Kunstler

Prompted by the coming financial crisis, America and Americans will have to change dramatically. Better prepare yourself. From James Howard Kunstler at

The trouble, of course, is that even after the Deep State (a.k.a. “The Swamp”) succeeds in quicksanding President Trump, America will be left with itself — adrift among the cypress stumps, drained of purpose, spirit, hope, credibility, and, worst of all, a collective grasp on reality, lost in the fog of collapse.

Here’s what you need to know about what’s going on and where we’re headed.

The United States is comprehensively bankrupt. The government is broke and the citizenry is trapped under inescapable debt burdens. We are never again going to generate the kinds and volumes of “growth” associated with techno-industrial expansion. That growth came out of energy flows, mainly fossil fuels, that paid for themselves and furnished a surplus for doing other useful things. It’s over. Shale oil, for instance, doesn’t pay for itself and the companies engaged in it will eventually run out of accounting hocus-pocus for pretending that it does, and they will go out of business.

The self-evident absence of growth means the end of borrowing money at all levels. When you can’t pay back old loans, it’s unlikely that you will be able to arrange new loans. The nation could pretend to be able to borrow more, since it can supposedly “create” money (loan it into existence, print it, add keystrokes to computer records), but eventually those tricks fail, too. Either the “non-performing” loans (loans not being paid off) cause money to disappear, or the authorities “create” so much new money from thin air (money not associated with real things of value like land, food, manufactured goods) that the “money” loses its mojo as a medium of exchange (for real things), as a store of value (over time), and as a reliable index of pricing — which is to say all the functions of money.

To continue reading: Just Wait a Little While


Productivity and Debt, by Raúl Ilargi Meijer

Raúl Ilargi Meijer reaches the same conclusion as SLL for the US’s declining productivity and wealth: debt. From Meijer at

Earlier this week I was struck by the similarities and differences between two graphs I saw float by. And the thought occurred that they are as scary as they are interesting. The graphs show eerily similar trends. And complement each other. The first graph, which Tyler Durden posted, shows productivity, defined as more or less the same as GDP per capita. It goes all the way back to 1790 and contends that 2017 productivity is about back to the level it was at in 1790. In the article, Tyler suggests a link with the amount of time people spend on Instagram et al, but perhaps there is something more going on.

That is, America and Western Europe exported almost their entire manufacturing capacity to China etc. And how can you be productive if you don’t manufacture anything? Yeah, I know, ‘knowledge economy’ and ‘service economy’ and all that, but does anyone still really believe those terms? Sure, that may have worked for a while as others were still actually making stuff (and nobody really understood the idea anyway), but it’s a sliding scale. As productivity plunged, so did GDP per capita. We can all wrap our heads around that.

America’s Productivity Plunge Explained

For the first time since the financial crisis, US multifactor productivity growth turned negative last year, mystifying economists who have struggled to find something to blame for the fact that worker productivity is declining despite a technology boom that should make them more efficient – at least in theory. To be sure, economists have struggled to find explanations for the exasperating trend, with some arguing that the US hasn’t figured out how to properly measure productivity growth correctly now that service-sector jobs proliferate while manufacturing shrinks. But what if there’s a more straightforward explanation? What if the decline in US productivity measured since the 1970s isn’t happening in spite of technology, but because of it?

To wit, Facebook has just released user-engagement data for its popular Instagram photo-sharing app. Unsurprisingly, the data show that the average user below the age of 25 now spends more than 32 minutes a day on the app, while the average user aged 25 and older. The last time Facebook released this data, in October 2014, its users averaged 21 minutes a day on the app. According to Bloomberg, “time spent is an important metric for advertisers, which like to hear that users are browsing an app beyond quick checks for updates, making them more likely to run into some marketing.” Maybe they should matter more to economists, too.

To continue reading: Productivity and Debt

How Debt-Asset Bubbles Implode: The Supernova Model of Financial Collapse, by Charles Hugh Smith

When debt expands at a greater rate than underlying economic growth, and all real assets become collateral, eventually something has to give. It’s never pretty. From Charles Hugh Smith at

Gravity eventually overpowers financial fakery.

When debt-asset bubbles expand at rates far above the expansion of earnings and real-world productive wealth, their collapse is inevitable. The Supernova model of financial collapse is one way to understand this.
As I noted yesterday in Will the Crazy Global Debt Bubble Ever End?, I’ve used the Supernova analogy for years, but didn’t properly explain why it illuminates the dynamics of financial bubbles imploding.
According to Wikipedia, “A supernova is an astronomical event that occurs during the last stellar evolutionary stages of a massive star’s life, whose dramatic and catastrophic destruction is marked by one final titanic explosion.”
A key feature of a pre-supernova super-massive star is its rapid expansion. As the star consumes its available fuel via nuclear fusion, the star’s outer layer expands. Once there is no longer enough fuel/fusion to resist the force of gravity, the star implodes as gravity takes over.
This collapse ejects much of the outer layers of the star in an event of unprecedented violence.
The financial analogy is easy to see: when rapidly expanding debt consumes a critical threshold of earnings (fuel), the equivalent of gravity (default, inability to service the enormous debt) triggers the collapse of the entire debt/leverage-dependent financial system.
As I explained yesterday, if earnings stagnate or decline while debt races higher, eventually earnings are insufficient to service the debt and default is inevitable. The other problem that arises as more and more of earned income goes to debt service is that there is less and less disposable income left to support consumer spending–the lifeblood of economies worldwide.

Will the Crazy Global Debt Bubble Ever End? by Charles Hugh Smith

All debt bubbles end because in a bubble the debt expands faster than the economy’s capacity to service it. From Charles Hugh Smith at

There are multiple sources of friction in the Perpetual Motion Money Machine.

We’ve been playing two games to mask insolvency: one is to pay the costs of rampant debt today by borrowing even more from future earnings, and the second is to create wealth out of thin air via asset bubbles.
The two games are connected: asset bubbles require leverage and credit. Prices for homes, stocks, bonds, bat guano futures, etc. can only be pushed to the stratosphere if buyers have access to credit and can borrow to buy more of the bubbling assets.
If credit dries up, asset bubbles pop: no expansion of debt, no asset bubble.
The problem with these games is the debt-asset bubbles don’t actually expand the collateral (real-world productive value) supporting all the debt. Collateral can be a physical asset like a house, but it can also be the ability to earn money to service debt.
Credit card debt, student loan debt, corporate debt, sovereign debt–all these loans are backed not by physical assets but by the ability to service the debt: earnings or tax revenues.
If a company earns $1 million annually, what’s its stock worth? Whether the market values the company at $1 million or $1 billion, the company’s earnings remain the same.
If a government collects $1 trillion in tax revenues, whether it borrows $1 trillion or $100 trillion, the tax revenues remain the same.
If the collateral supporting the debt doesn’t expand with the debt, the borrower’s ability to service debt becomes increasingly fragile. Consider a household that earns $100,000 annually. If it has $100,000 in debt to service, that is a 1-to-1 ratio of earnings and debt. What happens to the risk of default if the household borrows $1 million? If earnings remain the same, the risk of default rises, as the household has to devote an enormous percentage of its income to debt service. Any reduction in income will trigger default of the $1 million in debt.

The Federal Fiscal Condition: Kick the Can ’til You No Longer Can, by Morgan Reynolds

Perhaps the most important issue stemming from the federal debt is whether the default will be “hard” or “soft.” Morgan Reynolds at explains.

Donald Trump wants to cut the tax/confiscation rate.  Ok, but maybe it would be a good idea to look at the monetary and fiscal facts on the ground first, just to scope out how much wiggle room he has to play with.

On August 15, 1971 the Nixon administration closed the gold window, removing the last restraint on government inflation of the paper money stock.  Currency plus checking-type accounts in the hands of the public (M1) increased from $226.5 billion to $3.5 trillion since 1971, an annual inflation rate of 6.1%.  Yippee, we are all rich now, right?  Since the financial crisis of 2008-9, M1 ballooned from $1.4 trillion to $3.5 trillion, an annual 12% inflation.  Even mo better!

What about federal debt?  At $408 billion in 1971, it grew to $10,000 billion (= $10 trillion) by early 2009 and then doubled to $19.8 trillion by this year.  Blame Obama?  Be my guest, yet the average national debt increase has been 8.8% per year since 1971 and 9% per year since Obama took office in early ’09.  Kind of average in other words.

What about the share of the national debt held by the public?  That increased from $305 billion in 1971 to $6.4 trillion in early ’09 and then to $14.4 trillion this year.  That’s an annual growth of 8.7% per year since 1971 and 10.7% since ’09.

Down the road what happens as the monster thrives?  The nonpartisan Congressional Budget Office worries about that, so what does it forecast?  CBO predicts that the debt of $15 trillion held by the public at the end of 2017 will rise to $25 trillion by 2027.  Sounds too optimistic to me.  Back in 2007 CBO forecast that public debt held by the public would be $4.2 trillion in 2017 but it turns out to be $15 trillion by the end of this year, about 3.5X the CBO forecast of 10 years ago!  Holy mackerel.

To continue reading: The Federal Fiscal Condition: Kick the Can ’til You No Longer Can

Why This Market Needs To Crash, And likely will, by Chris Martenson

This article’s conclusions are nothing you haven’t heard from SLL and its guest posters, but it is well reasoned and well supported. From Chris Martenson at

Like an old vinyl record with a well-worn groove, the needle skipping merrily back to the same track over and over again, we repeat: Today’s markets are dangerously overpriced.

Being market fundamentalists who don’t believe it’s possible to simply print prosperity out of thin air, we’ve been deeply skeptical of the financial markets ever since the central banks began their highly interventionist policies. Since 2009, they have unleashed over $12 Trillion in new money into the world, concentrating wealth into the hands of an elite few, while blowing asset price bubbles everywhere in the process (see our recent report The Mother Of All Financial Bubbles).

Our consistent view is that price bubbles always burst. Which is why we predict the world’s financial markets will implode spectacularly from today’s heights — destroying jobs, dreams, hopes, economies and political careers alike.

When this happens, it will frighten the central bankers enough (or merely embarrass them enough, being the egotists that they are) that they will respond with even more aggressive money printing — and that will then cause the entire money system to blow up. Ka-Poom! First inwards in a compressed ball of deflation, then exploding outwards in a final hyperinflationary fireball (see our recent report When This All Blows Up…).

It really cannot end any other way. Money is not wealth; it is merely a claim on wealth. Debt is a claim on future money. The only way to have faith in our current monetary policies is if one believes that we can always grow our debts at roughly twice the rate of GDP — forever. That is, compound the claims at twice the rate of income year after year from here on out.

This would be like having your credit card balance rolled over every month as the balance grows at 10% each year, while your income advances at only 5% per year. Eventually you simply have a math problem: your income becomes swamped by your debt service payment. First you are insolvent, then bankruptcy eventually follows.

To continue reading: Why This Market Needs To Crash, And likely will


The Ruler of the World, by Robert Gore

The emperor will make a mockery of the future.

There is a Supreme Ruler of the world. During the early years of his reign he won accolades and devotion, showering his subjects with goods and services that were beyond their means. As he consolidated his rule, a few malcontents warned that there was less to his cornucopia than met the eye. However, his grip on power tightened and they were shunned. Once he had an iron chokehold, their warnings were forgotten or ignored.

Meet Emperor Debt. The first true globalist ruler, his dominion spans the planet. A cosmopolitan and multiculturalist, he reigns impartially over all races, nationalities, ethnicities, genders, creeds, and political persuasions. The little figures who supposedly run things think he’s their servant; they are actually his puppets. They promise and propose; he denies and disposes. Just the other night a puppet made a long speech full of promises and proposals. The Emperor smiled at the speech and the raucous reaction in the ownership-claims market the next day. “We’ll see about that,” he said to himself.

One of Emperor Debt’s minions once said, “In the long run we’re all dead.” A ninety-four-year long run later, we’re all in debt, and it would be an optimistic mischaracterization to say up to our eyeballs. We’re buried. The world’s debt is so stupendously huge it can only be estimated. Nominal debt is roughly $250 trillion dollars, or over three times what the world produces each year. Unfunded promises for old age pensions and medical care are another $500 trillion or so. Throw in financial derivatives of $1.5 quadrillion. Stated debt, unfunded liabilities, and derivatives sum to $2.25 quadrillion, or about $300,000 per person. Leave out the derivatives and per capita debt and unfunded liabilities are still $100,000 (figures from “March 2017: The End Of A 100 Year Global Debt Super Cycle Is Way Overdue”).

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US statistics are equally unsettling. Nominal personal, business, and government debt is $67 trillion (over 3.5 times the GDP), unfunded government pension and medical liabilities are estimated at $105 trillion (some estimates are up to two times higher), and derivatives held by US institutions at $612 trillion (all figures from US Debt That’s $2.412 million per person. Back out derivatives and it’s “only” $529,000 per person. The Debt Clock says we have $395,000 assets per person, so net debt is around $134,000. However, asset values are the Emperor’s sleight-of-hand. His debt blows up asset values, but sometimes the Emperor punctures the bubble and asset values deflate. Obligations to pay interest and principle on debt, on the other hand, do not deflate, absent rescheduling or bankruptcy.

“We’ve been hearing about debt from Cassandras, Nervous Nellies, and Chicken Littles for years; nothing’s happened!” cries the Chorus, and the Emperor smiles. The Chorus is dead wrong; plenty has happened, none of it good. The more you borrow from the future, the less future you’ll have. Debt has grown faster than production; the future has arrived and growth rates are falling. Unable to borrow its way to prosperity, Japan has been in a recession punctuated by interludes of anemic growth for 27 years. Growth in Europe has been virtually non-existent since the turn of the century, and debt crises loom in Greece and Italy. In the US, Barack Obama left office as the first president who did not have even one year of 3 percent real growth. His government needed to borrow over $9 trillion just to buy a feeble recovery. The Chinese “miracle” has sputtered as China struggles to carry its increasingly heavy debt load.

In the US, real incomes are lower now than at the turn of the century. The young see an increasingly bleak future—more debt, less opportunity—and forego marriage and procreation. Birth rates have fallen across the Emperor’s domain, well below replacement rates. Populations are aging and there are fewer workers supporting more of the elderly trying to collect on all those unfunded liabilities. Some day the young will rebel against debt slavery to the old and the Emperor will smile: divide and conquer.

Central bankers are the Emperor’s subalterns. They promote cheap debt, “magically” breaking the link between debt and the production or assets needed to pay it back. The Emperor’s propaganda ministers hail the “prosperity” that flows from central banks exchanging their debt for governments’ debt. Both sets of debt are collateralized by nothing and are claims on nothing; they can only be “redeemed” for more central bank or government debt. Yet this debt can be produced without limit or restraint—including the obligation to pay it back with real goods and services—and the Emperor’s subjects think of it as money and wealth. Constantly expanding debt and illusory prosperity promote a mirage economy.

Say what you want about the Emperor, he has a sense of humor. Amused by his subjects’ delusions, he plays with them like a cat plays with its prey. When financial asset prices drop, buy into the next debt-fueled upswing. Prosperity won’t end as long as credit standards fall and more credit is extended. Borrow two dollars for a dollar’s worth of growth. Credit is income. Creditors’ claims are wealth.

Sooner or later, both the Emperor and the cat tire of their games. Pouncing, they make waste of the best laid schemes of men and mice. The Emperor has stopped armies, brought down governments, sparked revolutions, opened countries to invasion, and left poverty, devastation, and misery in his wake. Only fools doubt that he is not once again readying a destructive masterstroke that will level welfare and warfare states alike. Given the paper and promises that litter the globe, encumbering every asset and income stream, this one will be his most terrifying.

The Emperor’s reign waxes and wanes, but as long as humans remain human it won’t end. Hubris, avarice, and folly are occasionally tempered, never vanquished. There will always be that wish for something for nothing, that desire to consume more than one produces, that hope that continued improvidence won’t lead to ruin. Events, not contemplation, end mass delusion. It takes little foresight to see what’s coming, and little wisdom to recognize that it can no longer be prevented, but the herd refuses to see or think. That is the ultimate default.



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Real Money and Why You Need it Now (Part 2), by Bill Bonner

The concluding half of Bill Bonner’s analysis of real money (gold), From Bonner and

What troubles my sleep is what is not in the textbooks.

Central banks are in the process of making trillions in government debt disappear. Governments borrow money that doesn’t exist. The debt is bought up by the central bank, which creates money for that purpose. The interest paid to the central bank on the debt is paid back to the U.S. Treasury (that’s the deal between the Fed and the U.S. government).

Then, when the bond matures, the “normal” thing would be for the borrower – the U.S. government – to repay the loan. This repayment money would have to come out of the economy and into the Fed’s vaults, thus reducing the amount of money in circulation and triggering an economic slump.

The federal government would have to run a surplus in order to actually be a net payer of debt rather than a net borrower. That’s not going to happen. Instead, it borrows more – to repay the old loan – and adds further fuel to hot asset markets. The debt is never settled… it goes on forever… eternally unpaid, forgotten in the bank’s vaults. It is as if it had disappeared completely.

The debt may disappear. But the credit – the money put into the economy to create the debt – lives on. It spends its days chasing asset prices. Stocks, bonds, real estate, art – all go up. Bread and automobiles remain more or less where they were. Who complains?

Keynesian economists Larry Summers of Harvard and Paul Krugman of Princeton practically drool when they think of it… a paradise where governments can redistribute wealth and undertake huge capital investment projects – roads, hospitals, bridges, harbors – at no cost. The feds get to borrow money, hire people, and spend on pet projects. Then, as if by magic, the debt vanishes. What could be better?

To continue reading: Real Money and Why You Need it Now (Part 2)

QE/ZIRP Is Crushing the Global Supply Chain, Product Quality and Profits, by Charles Hugh Smith

Charles Hugh Smith does a good job of explaining the link between central bank policies and their harmful economic consequences. From Smith at

We will soon wish we were allowed an honest business cycle recession once the current overcapacity implodes the global economy.

We all know the quality of many globally sourced products has nosedived in the past few years. I addressed this in Inflation Hidden in Plain Sight (August 2, 2016): not only is inflation (i.e. getting less quantity for your money compared to a few years ago) visible in shrinking packages, it’s present but largely invisible in declining quality.

When products fail in a matter of months, we’re definitely getting less for our money, as what we’re buying is a product cycle, not just the product itself. We buy a product expecting it to last a certain number of years, and when it fails in a matter of weeks or months, this failure amounts to theft and/or fraud.

When a costly repair is required in a relatively new product, we’re getting less for our money, and when the repair itself fails (often as a result of a sub-$10 or even sub-$1 part), we end up paying twice for the inferior product.

Why has the quality globally sourced products nosedived? The obvious response is corner-cutting to lower costs to maintain profit margins, but this simply poses the next question: what’s changed in the past eight years that’s made corner-cutting essential to maintaining profit margins?

The answer may surprise you: central bank stimulus: QE (quantitative easing) and ZIRP (zero interest rate policy. Gordon Long and I discuss this dynamic in Bankers Crippling the Global Supply Chain (34:50).

Nearly free money was intended to bring demand forward as a means of boosting a stagnant global economy. But there are unintended consequences of this policy: nearly free money doesn’t just distort demand–it also distorts supply.

Nearly free money (what I call free money for for financiers encourages the expansion of production: since a corporation can borrow capital for next to nothing, why not expand production to grab more market share? Once market share expands, profits will follow.

Nearly free money initially boosted demand for goods and services, and this demand boosted profits and incentivized expanding production. Globalization enabled corporations to expand production overseas in cheaper labor markets (known as labor arbitrage), which lowered production costs and raised profits.

Now that everyone boosted production, the world is awash in overcapacity. The capacity is in place to produce quantities of autos, widgets, phones, etc. far in excess of demand.

Overcapacity leads to the collapse of pricing power, and the collapse of pricing power leads to the collapse of profits. In a market of strong demand, producers have pricing power: they can raise the wholesale and retail prices of goods a notch at a time and reap more profit.

But when demand is stagnant or supply far exceeds demand, pricing power vanishes: any attempt to raise prices causes retailers and consumers to flee to other suppliers.

In an economy of overcapacity, the only way to maintain profit margins is to lower production costs (including labor) or cut corners: lower quantity and quality, or cheat the labor force or customer (or both) in on way or another.

To continue reading: QE/ZIRP Is Crushing the Global Supply Chain, Product Quality and Profits

Canaries In Extremis, by Robert Gore

Most people’s strongest memory of the last financial crisis was the September 2008 bankruptcy of Lehman Brothers. However, thirteen months prior to that, August 2007, two Bear Stearns’ mortgage hedge funds went bankrupt. That was the bell tolling for the housing market, the mortgage securities market, and—because of the leverage and the interconnections—the global financial system itself. The Dow Jones Industrial Average would not make its high for another couple of months, but for those who knew what they were looking for, the Bear Stearns’ bankruptcies signaled the impending reversal in financial markets and the economy.

Sometimes one has to see the big picture, and sometimes looking at a host of smaller pictures is more worthwhile. While housing and mortgage finance were the epicenters of the last crisis, there will probably be no single identifiable catalyst for the next one. Not because there are no central-bank sponsored debt-driven bubbles out there, but because there are so many of them, all over the world. Multiple coal mine canaries are in extremis and they’re sending the same message as the Bear Stearns’ bankruptcies did.

If the US real economy is not already in a recession, it’s on the verge. Since 2014, the economy has lost 32,000 manufacturing jobs, while adding 547,000 food service jobs. Factory orders have declined on a year-over-year basis for 22 straight months, the longest non-”official” recessionary streak in history. As of August, the Cass Freight Index of transactions by large, non-bulk-commodity shippers has fallen year-over-year for eighteen straight months. Orders for new long-haul trucks have been in a twenty-month downtrend, and orders last month were the worst for a September since 2009. Volvo Trucks North America, Freightliner (a unit of Daimler), Navistar, and Paccar have announced or implemented layoffs this year.

The Merchandise World Trade Monitor topped out in January, 2015 and July’s number takes it back to the reading for September 2014. The world’s seventh largest container carrier, South Korea’s Hanjin, recently filed for bankruptcy. Closures and consolidation are the orders of the day for the remaining shippers. Bear markets, overcapacity, and gluts in a range of commodities, other raw materials, intermediate goods, and finished goods garnered a lot of headlines last year and early this year. The headlines have faded but not the underlying conditions. It will take years—far beyond the media’s attention span—and substantial pain before those conditions are remedied or even ameliorated.

Only in Wall’s Street’s bizarro world can the goods economy be dismissed as a small part of the overall economy, which is supposedly driven by finance and services. What does the finance industry finance and the service economy service? In many instances—this will come as no surprise to anybody but Wall Streeters—manufacturing, mining, oil extraction and refining, shipping and trade; all the sectors that are taking gas. Also no surprise: real economy deterioration affects finance and the rest of the service economy.

In August, commercial and industrial loans made by US banks fell for the first time since October 2010. The automobile sector has been a bright spot in the economy, but the lending, particularly subprime lending, that has fueled sales is unraveling. Delinquencies and defaults are rising for subprime auto loans. The delinquency rate is rising even for prime auto loans, although the absolute rate remains low. The aggregated earnings of companies in the S&P 500 have been down for five straight quarters, and will most likely be down for the quarter just ended. In 2015 and all but certainly for 2016, those companies have paid out more in share buybacks and dividends than they have earned.





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US commercial bankruptcy filings were up 38 percent year-over-year in September. For the first nine months of 2016 they were up 28 percent from the same period in 2015. Bankruptcy is no longer confined to the oil patch and mining industry. Notably, filings by retailers and restaurants, two bulwarks of the service economy, are increasing. In the last two weeks, four restaurant chains have filed. Say good-bye to that industry’s stellar job growth.

The recovery since 2009, such as it is, has bestowed most of its meager blessings on those in the top 1 percent of income and wealth. Here’s another inescapable reality for Wall Streeters: a central bank exchanging its conjured-from-thin-air fiat debt scrip for the government’s thin-air fiat debt scrip does not, cannot, produce anything of real economic value. It drives down the interest rate on the government’s fiat debt and it provides a windfall for the 1 percenters who can borrow at low or negative rate and propel asset prices. For the rest of us it’s inconsequential at best, but generally deleterious.

The inconsequentiality of debt monetization is confirmed by the real world details enumerated above, which indicate the weakest so-called recovery on record is faltering and will soon end, if it has not already done so. There is, of course, no chance that even the faltering will be officially recognized before the election. SLL has maintained that the period since 2009 is merely an interlude in an ongoing depression, similar to respites during the Great Depression. By discouraging true savings, adding to the debt pile, and driving down the return on investment, debt monetization has hindered rather than helped the real economy. The anemic growth rate since 2009 is not despite skyrocketing government debt and soaring central bank balance sheets, but because of them. FDR and his hapless New Dealers would be proud.

Weakness is even percolating up to the rarified ranks of the 1 percent. Rents are falling and high-end real estate sales slowing in Silicon Valley, the Bay Area, New York, and Houston, formerly pockets of economic strength. The art market, especially for “art” that most of us don’t call “art,” has noticeably softened. The demand for luxury goods isn’t what it used to be, and many purveyors have issued revenue and profit warnings. Those markets have been propelled by Chinese, Russian, and Arab buyers, but home economies are facing challenges and they’re pulling in their horns.

The “donut” of the global economy is history’s greatest debt bubble, fueled by governments and central banks. The unimportant “hole” is whatever critical hot spot ultimately sends markets and economies down the drain. Who knows which crisis will be assigned the “blame” for the impending cataclysm. The odds-on-favorite is the looming European banking crisis, but here are plenty of other contenders—a pension fund or insurance company driven to insolvency by ZIRP and NIRP, Chinese debt, an upside break out in Middle Eastern or Ukrainian hostilities, political turmoil in Europe or the US—take your pick. No matter which possibility proves out, be prepared. Things will get very ugly, very fast.


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