By socializing risk, in other words by making others pay for someone else’s mistakes, we make sure those risks will be taken again and again. From Simon Black at sovereignman.com:
Several years ago back in 2004-2006, if you had a pulse, you could borrow money from a bank to buy a house.
In fact, bank lending standards were so loose back then that there were some infamous cases of people who DIDN’T have a pulse who were still able to borrow money.
That’s right. Some banks were so irresponsible that they actually loaned money to dead people.
Of course, it turned out that lending money to dead people… or people with terrible credit who had a history of default, was a bad idea.
And the entire financial system almost blew up as a result of this reckless stupidity.
But then something even crazier happened: the Federal Reserve came in and bailed out all the banks with trillions of dollars of free money.
That was utterly nuts. Instead of being wiped out by their idiotic mistakes, the banks learned that they would always be bailed out no matter how stupid or greedy they acted.
The key lesson was that there would be zero consequences for bad behavior.
Posted in Business, Capitalism, Collapse, Cronyism, Debt, Economics, Economy, Financial markets, Government, Investing, Politics
Tagged bail outs, Japan, Risk, Safety nets
It’s only a matter of time before it all blows up. It’s probably already started. From Jim Quinn at theburningplatform.com:
“This country, and with it most of the Western world, is presently going through a period of inflation and credit expansion. As the quantity of money in circulation and deposits subject to check increases, there prevails a general tendency for the prices of commodities and services to rise. Business is booming. Yet such a boom, artificially engineered by monetary and credit expansion, cannot last forever. It must come to an end sooner or later. For paper money and bank deposits are not a proper substitute for non-existing capital goods. Economic theory has demonstrated in an irrefutable way that a prosperity created by an expansionist monetary and credit policy is illusory and must end in a slump, an economic crisis. It has happened again and again in the past, and it will happen in the future, too.” – Ludwig von Mises – 1952
As the von Mises quote proves, economic cycles, artificial booms created by Federal Reserve easy money and delusional human nature are cyclically constant across the decades. Anyone with an ounce of critical thinking skills realizes the current artificial boom, created by a feckless Fed captured by Wall Street banks and corrupt Washington politicians who took Dick Cheney’s “deficits don’t matter” mantra to obscene levels, will end in another financial crisis. Our Deep State controllers have “solved” a financial crisis caused by too much debt by tripling down on more debt.
If the yield on the Treasury ten-year note goes up another percentage point, it will spell doom for the stock market. So says Bill Bonner at bonnerandpartners.com:
We spent a delightful, long Thanksgiving weekend in the country, entertaining children and grandchildren. Not once did we open our laptop computer or look at the headlines.
But now, it is another workweek, and we’re back on the job. As usual, we are looking at dots… and wondering how they got to be so goofy.
This morning, for example, brings a particularly moronic news item from CNBC. The report tells us that the Dow has another 2,000 points left to drop before recovering:
More than half of the members of the CNBC Global CFO Council think the Dow Jones Industrial Average will fall below 23,000 – roughly 2,000 points from its current level – before the stock market barometer is ever able to top the 27,000 level. The 23,000 level would equate to another 8 percent in decline among the Dow group of stocks before the selling stops.
But hey… why stop there?
Weakness in the price of oil often signals weakness in the overall economy. From Lance Roberts at realinvestmentadvice.com:
Oil Sends A “Crude Warning”
As with many Americans, I am on the road with the family making the traditional holiday rounds. Of course, my family is more “The Griswolds” than “The Waltons. but even with all of the antics, comedy, and occasional drama, it is always an enjoyable time of the year.
However, I did wake up from my tryptophan-induced coma long enough to pen a few thoughts on the crash in crude oil and the message it is sending.
On Monday, I am publishing an article on the fallacy that “falling energy prices are an economic boost.” It isn’t, and we dig into all the reasons why in that article.
However, the short version is that oil prices are a reflection of supply and demand. Global demand has already been falling for the last several months and oil prices are now waking up that reality. More importantly, falling oil prices are going to put the Fed in a very tough position in the next couple of months as the expected surge in inflationary pressures, in order to justify higher rates, once again fails to appear. The chart below shows breakeven 5-year and 10-year inflation rates versus oil prices.
Posted in Business, Debt, Economics, Economy, Energy, Financial markets, Geopolitics, Government, Investing, Money
Tagged Oil, Oil company debt, oil prices
Will Mexico walk down the same path as Venezuela? From Don Quijones at wolfstreet.com:
Mexico is #1 silver producer in the world, #2 gold producer in Latin America, and a major copper producer.
For a president who hasn’t taken office yet and whose government is still in waiting, Mexico’s Andres Manual Lopez Obrador (AMLO) has managed to ruffle a lot of very important feathers. First, he scrapped the country’s most lucrative infrastructure project, a partly built airport for the capital that was expected to generate billions of dollars for many of the country’s richest companies, banks and families. Then, two weeks ago, his National Regeneration Movement (MORENA) party proposed a bill that directly threatens one of the banks’ core businesses: fee gouging. Since then, billions of dollars have been wiped off the banks’ market value.
Now, the same party, which, together with its allies, holds majorities in both houses of Congress, has set its sights on the activities of the mining industry. On Tuesday Senator Angelica Garcia presented a bill that would make significant changes to Mexico’s mining laws, including a proposal that would allow the country’s Energy Secretary to declare certain parts of the country off-limits for mining companies due to their negative social or environmental impact.
Posted in Business, Crime, Cronyism, Economics, Economy, Financial markets, Government, Investing, Labor, Law
Tagged Andres Obrador, Mexico, Mining
Italy may want to think twice before it pisses of the EU. The ECB has been the only buyer of Italy’s debt, and Italy wants to issue €275 billion next year. From Don Quijones at wolfstreet.com:
“Who will purchase the €275 billion of government debt Italy is to issue in 2019?”
The ECB, through its army of official mouthpieces, has begun warning of the potentially calamitous consequences for Italian bonds when its QE program comes to an end, which is scheduled to happen at the end of this year.
During a speech in Vienna on Tuesday, Governing Council member Ewald Nowotny pointed out that Italy’s central bank, under the ECB’s guidance, is the biggest buyer of Italian government debt. The Bank of Italy, on behalf of the ECB, has bought up more than €360 billion of multiyear treasury bonds (BTPs) since the QE program was first launched in March 2015.
In fact, the ECB is now virtually the only significant net buyer of Italian bonds left standing. This raises a key question, Nowotny said: With the ECB scheduled to exit the bond market in roughly six weeks time, “who will purchase the roughly €275 billion of government securities Italy is forecast to issue in 2019?”
With foreigners shedding a net €69 billion of Italian government bonds since May, when the right-wing League and anti-establishment 5-Star Movement took the reins of government, and Italian banks in no financial position to expand their already bloated holdings, it is indeed an important question (and one we’ve been asking for well over a year).
Posted in Currencies, Debt, Financial markets, Geopolitics, Governments, Investing, Money, Politics
Tagged ECB, EU, Italian debt, Italy