Category Archives: Economy

Eurozone Whistles Past its Biggest Threat, by Don Quijones

The Italian financial system is in deep trouble and will crash without a large infusion of funds, undoubtedly from Europe’s beleaguered taxpayers. From Don Quijones at wolfstreet.com:

 

Italy’s Multi-Headed Hydra Predicament.

For the last three years, the political establishment in Italy and beyond have had a field day attacking, ridiculing, and vilifying Beppe Grillo’s 5-star movement. Europe’s media have tarred him with the brush of populism. In 2013 The Economist labelled him a clown on its front cover. Yet his party still leads the polls. And that lead is growing.

A new Ipsos poll in Corriere della Sera newspaper has put Beppe Grillo’s 5-Star Movement on 32.3% – its highest ever reading. It placed 5.5 points ahead of the governing PD, on 26.8%, after the PD dropped more than three percentage points in a month, as former prime minister Matteo Renzi battles to reassert his authority following a walkout by a left-wing faction.

Internal political battles are nothing new in Italy. The country enjoys a hard-earned reputation for political instability and paralysis, having seen 63 governments come and go since 1945. The problem this time around is that internal weakness and strife in Italy’s traditional center-left and center-right parties could end up gifting the next election to a party that refuses to play by the book.

If it wins the next elections, which could be brought forward to as early as June this year, 5-Star Movement has pledged to hold a referendum of its own — albeit a non-binding one — on Italy’s membership of the euro. As polls have shown, there is much broader public apathy toward the single currency than in just about any other euro zone nation. Grillo’s plan could also receive the backing of former prime minister Silvio Berlusconi who is determined to pull off a political comeback and is talking of restoring the Italian Lira.

As Reuters reports, such a scenario could spook financial markets “wary of both the 5-Star’s euroskepticism and the threat of prolonged political instability in Italy,” which boasts a public debt burden of over €2 trillion (133% of GDP). In any normal situation that would be a problem. But Italy is not in a normal situation; it is on the cusp of a potentially very large financial crisis that, if mishandled, could bring down Europe’s entire financial system.

To continue reading: Eurozone Whistles Past its Biggest Threat

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Watch These Geopolitical Flashpoints Carefully, by Brandon Smith

Brandon Smith highlights the dangers ahead. From Smith at alt-market.com:

Anyone who has been involved in alternative geopolitical and economic analysis for a decent length of time understands that the establishment power structure thrives according to its ability to either exploit natural crises, or to engineer fabricated crises.

This is not that hard to comprehend, but for some reason there are a lot of people out there who simply assume that global sea-change events just happen “at random,” that the elites are stupid or oblivious, and that all outcomes are a matter of random chance rather than being directed or manipulated. I call these people “intellectual idiots,” because they believe they are applying logic to every scenario but they are sabotaged by an inherent bias which causes them to deny the potential for “conspiracy.”

To clarify, their logic folds in on itself and becomes faulty. They believe themselves objective, but they abandon objectivity when they staunchly refuse to consider the possibility of covert influence by organized special interests. When you internally dismiss the possibility of a thing, no amount of evidence will ever convince you of its reality. This is how the “smartest” people in the room can end up being the dumbest people in the room.

In the survivalist community there is a philosophy – there is no such thing as a crisis for those who are prepared. This is true for prepared individuals as much as it is true for prepared communities and prepared nations. The only way a society can fall is when it becomes willfully ignorant of potential outcomes and refuses to organize against them.

By extension, it would make sense that by being prepared for a particular crisis or outcome an individual or group could not only survive, but also profit. It is not crazy or outlandish to entertain the idea that there are groups in power (perhaps for many generations) that aggressively seek to predict or even force particular outcomes in geopolitics for their own profit. And, by profit, I do not necessarily mean material wealth. In many cases, the power of influence and psychological sway over the masses might be considered a far greater prize than money or property.

To continue reading: Watch These Geopolitical Flashpoints Carefully

This new bubble is even bigger than the subprime fiasco, by Simon Black

There are now more student loans outstanding than there were subprime loans at the height of the housing bubble. And just like those subprime loans, student loan repayment rates are faltering. From Simon Black at internationalman.com:

In 1988, a bank called Guardian Savings and Loan made financial history by issuing the first ever “subprime” mortgage bond.

The idea was revolutionary.

The bank essentially took all the mortgages they had loaned to borrowers with bad credit, and pooled everything together into a giant bond that they could then sell to other banks and investors.

The idea caught on, and pretty soon, everyone was doing it.

As Bethany McLean and Joe Nocera describe in their excellent history of the financial crisis (All the Devils are Here), the first subprime bubble hit in the 1990s.

Early subprime lenders like First Alliance Mortgage Company (FAMCO) had spent years making aggressive loans to people with bad credit, and eventually the consequences caught up with them.

FAMCO declared bankruptcy in 2000, and many of its competitors went bust as well.

Wall Street claimed that it had learned its lesson, and the government gave them all a slap on the wrist.

But it didn’t take very long for the madness to start again.

By 2002, banks were already loaning money to high-risk borrowers. And by 2005, all conservative lending standards had been abandoned.

Borrowers with pitiful credit and no job could borrow vast sums of money to buy a house without putting down a single penny.

It was madness.

By 2007, the total value of these subprime loans hit a whopping $1.3 trillion. Remember that number.

And of course, we know what happened the next year: the entire financial system came crashing down.

Duh. It turned out that making $1.3 trillion worth of idiotic loans wasn’t such a good idea.

By 2009, 50% of those subprime mortgages were “underwater”, meaning that borrowers owed more money on the mortgage than the home was worth.

To continue reading: This new bubble is even bigger than the subprime fiasco

 

The ‘Retail Apocalypse’ Is Officially Descending upon America, by Carey Wedler

The hits just keep on coming on the retail front. From Carey Wedler at theantimedia.org:

Consumerism has long been a defining element of American society, but retail giants are now shutting down thousands of their locations amid a long-anticipated “retail apocalypse,” as Business Insider describes it.

The outlet reports that over the next couple months, more than 3,500 stores are expected to close:

“Department stores like JCPenney, Macy’s, Sears, and Kmart are among the companies shutting down stores, along with middle-of-the-mall chains like Crocs, BCBG, Abercrombie & Fitch, and Guess.”

Some stores, like Bebe and The Limited, are closing all of their locations to focus more on online sales. Other larger chains, like JC Penney, are “aggressively paring down their store counts to unload unprofitable locations and try to staunch losses,” Business Insider notes. Sears and K-Mart are following a similar trajectory moving forward.

Sears is shutting down 150 Sears and Kmart locations, about 10% of their shops. JCPenney is shutting down 138 stores, about 14% of their total locations.

These closures are the consequence of several different factors. First, the United States has more shopping mall square footage per person than other parts of the world. In America, retailers reserve 23.5 square feet per person; in Canada and Australia, the countries with the second- and third-most space have 16.4 and 11.1, respectively.

Another reason retail brick and mortars are failing is the growth of e-commerce. Between 2010 and 2013, visits to shopping malls declined 50%, according to data from real estate research firm Cushman and Wakefield. Meanwhile, online sales from huge online outposts, like Amazon, have exploded.

To continue reading: The ‘Retail Apocalypse’ Is Officially Descending upon America

Commercial and Residential Real-Estate Bubble once again a Risk to “Financial Stability,” and Fed’s Rosengren is Worried, by Wolf Richter

Another bubble that’s starting to leak. From Wolf Richter at wolfstreet.com:

The Fed caused it, but it won’t do much to contain it.

Last year, Boston Fed President Eric Rosengren — considered a “dove” on the Fed’s policy-setting committee — started warning about the commercial real-estate bubble in the US and what its demise could do to banks. But in his speech on Financial Stability on March 22 in Indonesia, he added what I’ve come to call “Housing Bubble 2” to his ever more emphatic concerns.

Like all central bankers, he can’t warn publicly about an approaching problem because it could trigger the very problem he’d be warning about. In this manner, no one at the Fed saw the last bust coming. So Rosengren started out his presentation, “Financial Stability: The Role of Real Estate Values” – by clarifying this: “First, I am not here today to predict problems, but rather to suggest we continue working to head them off.

The phrase, “continue working to head them off,” is ironic because he also pointed out what has caused these problems: “very low interest rates” that were “wholly necessary” and that he “strongly supported.”

But the risks are massive.

Rosengren finds that “the root cause of the financial crisis was a significant decline in collateral values of residential and commercial real estate” and “exposures across the banking system that are correlated and sizeable.”

Real estate becomes a trigger for a financial crisis because of its high leverage. For banks, these properties are collateral. When property values tank, the collateral is impaired. Defaults rise. Then broader problems spread into the economy. Property owners experience a reduction in income. Homeowners see their paper wealth evaporate and financial stress rises. At some point, banks begin to fail.

To continue reading: Commercial and Residential Real-Estate Bubble once again a Risk to “Financial Stability

Nine years later, Greece is still in a debt crisis… by Simon Black

The debt noose is starting to cinch. From Simon Black at internationalman.com:

Sometimes you have to marvel at the absurdity of the financial universe in which we live.

On one side of the Atlantic, we have the United States of America, which triggered yet another debt ceiling disaster last Thursday when the US government’s maximum allowable debt reset to just over $20 trillion.

Of course, the US national debt is pretty much already at $20 trillion.

(That’s roughly $166,000 per taxpayer in the Land of the Free.)

This means that Uncle Sam is legally prohibited from ‘officially’ borrowing any more money.

But far be it from the US government to start living within its means. Sacrilege!

These guys have zero chance of making ends meet without going into debt.

Just last year, according to the government’s own financial report, their annual net loss totaled $1 TRILLION, and the national debt increased by $1.4 trillion.

And that was in a relatively stable year. There was no major war or financial crisis to fight. It was just business as usual.

This year isn’t going to be any different.

So, cut off from their normal debt supply (the bond market), the Treasury Department is resorting to what they call “extraordinary measures.”

They’re basically pillaging government employee retirement funds, and will continue to do so until Congress raises the debt ceiling.

It’s a repeat of what happened in 2015. And 2013. And 2011.

Pretty amazing to consider that the “richest” country in the world has to plunder retirement funds in order to keep the lights on.

Former US Treasury Secretary Larry Summers said it perfectly when he quipped “How long can the world’s biggest borrower remain the world’s biggest power?”

Then, of course, on the other side of the Atlantic, we have Greece, which is now in its NINTH YEAR of a major debt crisis.

Incredible.

Greece has had nine different governments since 2009. At least thirteen austerity measures. Multiple bailouts. Severe capital controls. And a full-out debt restructuring in which creditors accepted a 50% loss.

Yet despite all these measures GREECE IS STILL IN A DEBT CRISIS.

To continue reading: Nine years later, Greece is still in a debt crisis…

The Useful and the Useless, by Robert Gore

 

USEFUL

USELESS

The battle lines are forming.

You’re standing on the prow of an ocean liner cutting through the icy waters of the North Atlantic. A huge iceberg looms dead ahead. You’ve seen it for some time, but now it’s too close, and the liner too big and fast, to avoid the collision. You quietly make your way to the lifeboats, knowing they’re the only chance for saving yourself and your loved ones. Below decks, an orchestra plays a waltz and oblivious revelers dance.

Most people don’t foresee the world’s inevitable collision with the iceberg of unsustainable fantasy. When it happens, they’ll respond predictably, with panic and cowardice. Those who’ve seen it coming and moved to the lifeboats will experience their own roiling emotions, attenuated by recognition of the logic behind the disaster. While the forewarned have dreaded impact, many will also welcome it, in the way one welcomes an unpleasant medical procedure: let’s get it over with. The motive is not malice, but conviction born of experience that actions have consequences and there’s no escaping them. After seemingly inexplicable and interminable delay, consequences shall arrive, amplified by the tawdry stratagems that promoted delay.

It will come as a surprise to many, but governments cannot suspend reality. Their arsenal, when things break down, comes down to their arsenal: the capacity to coerce. Violence or its threat enables governments to exact compliance. Proponents of government power invariably see themselves exercising it. Once the ship hits the iceberg, it will be obvious that governments’ guns are not wands, freeing citizens from the necessity of producing as much or more than they consume. They cannot compel innovators to innovate or producers to produce. While coercive power comes from one end of a gun, none of the powers that produce progress (and the gun) magically materialize at the other end.

It is said that America is a society divided. True enough, but the important question is: along what lines? Crisis and social breakdown will provide clarification: it’s governments and their beneficiaries versus producers. In other words, those who don’t do useful things versus those who do.

Huge shifts in social mood and direction are presaged. President Trump’s election presages the coming division. Among the analyses of the election, few noted an obvious dividing line. Trump’s supporters by and large do useful things, or are angry because they’re prevented from doing useful things. They build, engineer, manufacture, plant, grow, operate, maintain, repair, transport, and sell the things we find useful or essential. When we ram the iceberg, their skills, brains, and adaptability will be sorely needed.

Politicians and bureaucrats and the millions dependent on them for their fake jobs, income, food, shelter, transportation, and medical care will find little demand for their skills, such as they are. The useful may well conclude that keeping them alive is more trouble than it’s worth. There will be those who are too young, old, or infirm to produce, but whom the useful will support out of friendship or kinship. However, it would be surprising if they felt anything but contempt for the faceless hordes demanding that someone, anyone, take care of them.

Take away the undeserved from the undeserving and you get a tantrum. Steal the earned from those who earned it and you get righteous rage. One’s a firecracker, the other a volcano. The game has been to impress upon the useful a moral obligation to support the useless, but the volcano’s about to blow, burying that obscene morality in lava and ash. Given the staggering levels of accumulated debt and promises, the useful know their talents, skills, hard work, productivity and futures have been mortgaged for the useless. This is the salient and intractable social division. No reconciliation is possible between the useful and those who believe themselves entitled to their enslavement. The Trump fissure will become a yawning chasm when the Good Ship Profligate Government collides with the iceberg.

Centralization serves the needs of government and its dependents. Honest production and exchange require little government, perhaps none at all. Those who believe current arrangements should persist have to believe that the useful who support those arrangements will provide more and more while receiving less and less. The implicit premise has to be that when it all finally breaks down, the useful can be brutally subjugated—but kept producing—while receiving nothing more than their subsistence. Slavery cannot support the police state necessary to impose it, much less a modern economy. Those who believe any outcomes other than destruction and death are possible are delusional. If those are the outcomes they anticipate and desire, they’re homicidally and suicidally psychopathic.

Governments will have their surveillance apparatuses, police, militaries, prisons, torture chambers, concentration camps, killing fields, and the like. The useful will have their minds. Totalitarian accounting is daunting. All that money going out for suppression, so little coming in from a populace whose best and brightest have been imprisoned or murdered, or who produce the minimum necessary to survive. The day comes when the policeman, soldiers, and guards can’t be paid with anything of value and all hell breaks loose. Or, less colloquially, centralization gives way to decentralization.

To what depths governments will descend and how long they will survive as agents of repression is unknowable, but their dissolution is foreordained. They cannot commandeer the resources necessary to sustain the current level of tyranny. The useful will vote with their feet and if that’s not possible, bullets will be their ballots. They will establish enclaves and protect themselves from the tantrums, chaos, and depredations of the useless. (Useful in such a context may require nothing more than a willingness to work hard.) The useless depend on the useful, who of course don’t need them at all. The useful will eventually triumph, if the species survives (not a sure thing). Tragically, the butcher’s bill is likely to be exorbitant.

THEY REALLY ARE BASTARDS

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