Insider
by
charleshughsmith
Executive Summary
- Energy plays a key role in sovereign economic (un)sustainability
- The export boom is imploding
- The neofeudal model is collapsing as 'serf' nations enter default
- Take preparation now, while it still matters
If you have not yet read Part 1: Why Greece Is The Precursor To The Next Global Debt Crisis available free to all readers, please click here to read it first.
In Part 1, we examined the core dynamics that expanded Greek debt to its current unmanageable size—currency/trade deficits and bailouts—and the enormous transfer of private bank debt to the public ledger via the Troika bailouts, only 10% of which trickled down to the Greek people.
There are two other dynamics beneath the surface theater, dynamics which are not unique to Greece but are characteristic of the most heavily indebted nations.
Food and Fuel Imports Drive Structural Imbalances and Debt/Currency Crises
In our recent podcast, Chris mentioned this chart of imported energy by nation. Note that the nations with crushing structural debt loads (the so-called PIIGS—Portugal, Ireland, Italy, Greece and Spain) also happen to be major importers of energy.
What does this have to do with Greece’s debt crisis? Let’s go back to the key driver of Greek debt—imports that far exceeded exports, not occasionally but structurally, year in and year out. Money was borrowed to pay for those imports, interest accrued on the loans and then austerity was pressed on the debtor nations by the lenders as a means of extracting interest on the rising debts.
If a nation does not generate a significant percentage of its own energy and food needs, or export enough goods and services to offset its imports of energy and food…
More Sovereign Defaults Are Coming
PREVIEW by charleshughsmithExecutive Summary
- Energy plays a key role in sovereign economic (un)sustainability
- The export boom is imploding
- The neofeudal model is collapsing as 'serf' nations enter default
- Take preparation now, while it still matters
If you have not yet read Part 1: Why Greece Is The Precursor To The Next Global Debt Crisis available free to all readers, please click here to read it first.
In Part 1, we examined the core dynamics that expanded Greek debt to its current unmanageable size—currency/trade deficits and bailouts—and the enormous transfer of private bank debt to the public ledger via the Troika bailouts, only 10% of which trickled down to the Greek people.
There are two other dynamics beneath the surface theater, dynamics which are not unique to Greece but are characteristic of the most heavily indebted nations.
Food and Fuel Imports Drive Structural Imbalances and Debt/Currency Crises
In our recent podcast, Chris mentioned this chart of imported energy by nation. Note that the nations with crushing structural debt loads (the so-called PIIGS—Portugal, Ireland, Italy, Greece and Spain) also happen to be major importers of energy.
What does this have to do with Greece’s debt crisis? Let’s go back to the key driver of Greek debt—imports that far exceeded exports, not occasionally but structurally, year in and year out. Money was borrowed to pay for those imports, interest accrued on the loans and then austerity was pressed on the debtor nations by the lenders as a means of extracting interest on the rising debts.
If a nation does not generate a significant percentage of its own energy and food needs, or export enough goods and services to offset its imports of energy and food…
by
Nomi Prins
Executive Summary
- The banking system runs on liquidity
- Banks will do anything to keep it flowing — including raiding their depositors
- The risks of a global liquidity crunch are dangerously high today
- Why extracting physical cash from the system is highly advised
If you have not yet read Part 1: In A World Of Artificial Liquidity – Cash Is King available free to all readers, please click here to read it first.
It's All About Liquidity For The Banks
Liquidity is the buzz-word that central banks used to justify their policies of keeping short term rates at zero (give or take) percent and buying bonds from banks in return for giving them more of it. Central banks say their primary responsibility is to balance full employment with low inflation, but that’s just code for being able to keep the largest banks solvent in times of emergency by all means possible. This current emergency has lasted nearly seven years and counting.
Here are my laws of liquidity behavior:
The first law of liquidity – when it is most needed, it will be least available.
The second law of liquidity – the easier it is to get, the less value it holds for the recipient.
The third law of liquidity – the harder it is to find, the greater its systemic cost.
Banks gain on multiple fronts from “accommodative” monetary policy with respect to their liquidity needs. First, they can borrow money at next to nothing. Second, they can hoard that extra cash under the guise of complying with capital reserve requirements and get brownie points for passing stress tests because they are holding the cash or high quality assets bought with the cash, that central banks provided them to begin with. Third, they can sell bonds they don’t want or need at full value to central banks, and afterwards mark similar bonds at higher levels than the market would otherwise value them.
This is all shell-game finance. It is why people should be diligent about…
They’re Coming For Your Cash
PREVIEW by Nomi PrinsExecutive Summary
- The banking system runs on liquidity
- Banks will do anything to keep it flowing — including raiding their depositors
- The risks of a global liquidity crunch are dangerously high today
- Why extracting physical cash from the system is highly advised
If you have not yet read Part 1: In A World Of Artificial Liquidity – Cash Is King available free to all readers, please click here to read it first.
It's All About Liquidity For The Banks
Liquidity is the buzz-word that central banks used to justify their policies of keeping short term rates at zero (give or take) percent and buying bonds from banks in return for giving them more of it. Central banks say their primary responsibility is to balance full employment with low inflation, but that’s just code for being able to keep the largest banks solvent in times of emergency by all means possible. This current emergency has lasted nearly seven years and counting.
Here are my laws of liquidity behavior:
The first law of liquidity – when it is most needed, it will be least available.
The second law of liquidity – the easier it is to get, the less value it holds for the recipient.
The third law of liquidity – the harder it is to find, the greater its systemic cost.
Banks gain on multiple fronts from “accommodative” monetary policy with respect to their liquidity needs. First, they can borrow money at next to nothing. Second, they can hoard that extra cash under the guise of complying with capital reserve requirements and get brownie points for passing stress tests because they are holding the cash or high quality assets bought with the cash, that central banks provided them to begin with. Third, they can sell bonds they don’t want or need at full value to central banks, and afterwards mark similar bonds at higher levels than the market would otherwise value them.
This is all shell-game finance. It is why people should be diligent about…
by
Brian Pretti
Executive Summary
- Expect a bond market bloodbath as rates rise
- Municipal, corporate and sovereign defaults will soon follow
- Liquidity suffers as necessary goods prices rise, but securities prices fall
- The new, nuclear risk of a derivatives market collapse
If you have not yet read Part 1: The Global Credit Market Is Now A Lit Powderkeg available free to all readers, please click here to read it first.
You may remember that what caused then Fed Chairman Paul Volcker to drive interest rates up in the late 1970’s was embedded inflationary expectations on the part of investors and the public at large. Volcker needed to break that inflationary mindset. Once inflationary expectations take hold in any system, they are very hard to reverse.
A huge advantage for Central Bankers being able to “print money” in very large magnitude in the current cycle has been that inflationary expectations have remained subdued. In fact, consumer prices as measured by government statistics (CPI) have been very low in recent years.
When Central Bankers started to print money, many were worried this currency debasement would lead to rampant inflation. Again, that has not happened for a very specific reason. For the heightened levels of inflation to sustainably take hold, wage inflation must be present. I've studied historical inflationary cycles and have not been surprised at outcomes in the current cycle in the least, as in the current cycle, continued labor market pressures have resulted in the lowest wage growth of any cycle in recent memory. But is this about to change at the margin?
The chart below shows us…
What Awaits Us In The Future Of Higher Interest Rates
PREVIEW by Brian PrettiExecutive Summary
- Expect a bond market bloodbath as rates rise
- Municipal, corporate and sovereign defaults will soon follow
- Liquidity suffers as necessary goods prices rise, but securities prices fall
- The new, nuclear risk of a derivatives market collapse
If you have not yet read Part 1: The Global Credit Market Is Now A Lit Powderkeg available free to all readers, please click here to read it first.
You may remember that what caused then Fed Chairman Paul Volcker to drive interest rates up in the late 1970’s was embedded inflationary expectations on the part of investors and the public at large. Volcker needed to break that inflationary mindset. Once inflationary expectations take hold in any system, they are very hard to reverse.
A huge advantage for Central Bankers being able to “print money” in very large magnitude in the current cycle has been that inflationary expectations have remained subdued. In fact, consumer prices as measured by government statistics (CPI) have been very low in recent years.
When Central Bankers started to print money, many were worried this currency debasement would lead to rampant inflation. Again, that has not happened for a very specific reason. For the heightened levels of inflation to sustainably take hold, wage inflation must be present. I've studied historical inflationary cycles and have not been surprised at outcomes in the current cycle in the least, as in the current cycle, continued labor market pressures have resulted in the lowest wage growth of any cycle in recent memory. But is this about to change at the margin?
The chart below shows us…
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