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Economy
by
Brian Pretti
by
Brian Pretti
Executive Summary
- Lack of demand is the key drag on economic growth. And there's no end in sight.
- Private sector credit expansion just isn't happening fast enough
- Why the central banks' "wealth effect" policies have been a total bust
- Capital flows are simply chasing yield, precious little economic productivity is being created
If you have not yet read Part 1: Where To From Here available free to all readers, please click here to read it first.
The Bad
Who wrote this tired sea song set on this peaceful shore? I think you’ve heard this one before…
As mentioned, at least for the small business community, availability of credit has not been a key fundamental issue in the current cycle. In fact, their number one issue of concern for years has been lack of final demand.
Personally, I believe the experience of the small business community is simply a microcosm of the larger domestic and global macro. Subdued final demand IS the key macro. Is this why we see a growing gap between small business perceptions of credit availability and actual capital spending? Probably. The credit is there, but actual final demand that would support credit expansion is not. Hence the current cycle divergence in what has been a very tight data series correlation between credit and cap spending historically.
Of course this is a segue into a broader dark cloud of the current cycle that is private sector credit expansion, or more correctly, lack thereof relative to historical experience. When we listen to pundits speak of the economy potentially reaching “escape velocity”, they are of course referencing prior economic cycle growth results, aided and abetted by prior credit expansion that is now lacking. This is perhaps most dramatically seen in the rhythm of banking system credit, in the change in actual loans and leases outstanding.
As is clear in the chart below, never in any expansion cycle of the last four decades at least has banking system credit not grown in double-digit territory until…
The Bad & The Ugly
PREVIEW by Brian PrettiExecutive Summary
- Lack of demand is the key drag on economic growth. And there's no end in sight.
- Private sector credit expansion just isn't happening fast enough
- Why the central banks' "wealth effect" policies have been a total bust
- Capital flows are simply chasing yield, precious little economic productivity is being created
If you have not yet read Part 1: Where To From Here available free to all readers, please click here to read it first.
The Bad
Who wrote this tired sea song set on this peaceful shore? I think you’ve heard this one before…
As mentioned, at least for the small business community, availability of credit has not been a key fundamental issue in the current cycle. In fact, their number one issue of concern for years has been lack of final demand.
Personally, I believe the experience of the small business community is simply a microcosm of the larger domestic and global macro. Subdued final demand IS the key macro. Is this why we see a growing gap between small business perceptions of credit availability and actual capital spending? Probably. The credit is there, but actual final demand that would support credit expansion is not. Hence the current cycle divergence in what has been a very tight data series correlation between credit and cap spending historically.
Of course this is a segue into a broader dark cloud of the current cycle that is private sector credit expansion, or more correctly, lack thereof relative to historical experience. When we listen to pundits speak of the economy potentially reaching “escape velocity”, they are of course referencing prior economic cycle growth results, aided and abetted by prior credit expansion that is now lacking. This is perhaps most dramatically seen in the rhythm of banking system credit, in the change in actual loans and leases outstanding.
As is clear in the chart below, never in any expansion cycle of the last four decades at least has banking system credit not grown in double-digit territory until…
by
Chris Martenson
Executive Summary
- How sovereign debt is becoming larger and more mis-priced each year
- Why corporate borrowing is accelerating, but only being used for non-productive means
- Junk bonds have never been priced so low (ever), indicating a complete denial of risk
- Today's record bond prices are supported by near-historic low (i.e. extremely tenuous) levels of volume
- Why, mathematically, nearly no-one will be able to exit unscathed when this overinflated market rolls over
If you have not yet read Is Part 1: I Blame The Central Banks available free to all readers, please click here to read it first.
Italy: Insanity On Display
Let’s look at one of the sovereign entities that has piled on the debt to staggering levels. In this case: Italy.
This can serve as a template for understanding the rest of the insanity that exists in the global sovereign bond market.
The rules for lending to a nation should be roughly the same as lending to an individual. You’ve got some measure of the country's credit-worthiness that needs to be taken into account, plus an assessment of its income.
After all, the future principal and interest payments have to come from future income. If there’s too much debt compared to income, then there’s an increasing risk that the debt servicing payments not only will not be made, but cannot be made.
Italy’s sovereign debt has been expanding enormously as the government borrows and spends. Its national debt finally cleared more than $2 trillion euros early in 2014:
Italy's public debt hits record 2.1072 trillion euros
Apr 14, 2014
(ANSAmed) – ROME, APRIL 14 – Italy's massive public debt hit a record 2.1072 trillion euros in February, the central bank reported Monday. The amount was up 17.5 billion euros since January, the Bank of Italy said.
The European Commission has criticized Italy's 2014 budget for not doing enough to bring down debt, around 132% of gross domestic product (GDP).
As a result it has put Italy under "specific monitoring" over its "excessive macroeconomic imbalances", which include high debt and poor competitiveness, as part of an in-depth review.
(Source)
Italy raked up significant debt at a far faster rate than its underlying economy was growing, leading to a steadily rising debt-to-GDP ratio as seen in this next chart…
Something Very Wicked This Way Comes
PREVIEW by Chris MartensonExecutive Summary
- How sovereign debt is becoming larger and more mis-priced each year
- Why corporate borrowing is accelerating, but only being used for non-productive means
- Junk bonds have never been priced so low (ever), indicating a complete denial of risk
- Today's record bond prices are supported by near-historic low (i.e. extremely tenuous) levels of volume
- Why, mathematically, nearly no-one will be able to exit unscathed when this overinflated market rolls over
If you have not yet read Is Part 1: I Blame The Central Banks available free to all readers, please click here to read it first.
Italy: Insanity On Display
Let’s look at one of the sovereign entities that has piled on the debt to staggering levels. In this case: Italy.
This can serve as a template for understanding the rest of the insanity that exists in the global sovereign bond market.
The rules for lending to a nation should be roughly the same as lending to an individual. You’ve got some measure of the country's credit-worthiness that needs to be taken into account, plus an assessment of its income.
After all, the future principal and interest payments have to come from future income. If there’s too much debt compared to income, then there’s an increasing risk that the debt servicing payments not only will not be made, but cannot be made.
Italy’s sovereign debt has been expanding enormously as the government borrows and spends. Its national debt finally cleared more than $2 trillion euros early in 2014:
Italy's public debt hits record 2.1072 trillion euros
Apr 14, 2014
(ANSAmed) – ROME, APRIL 14 – Italy's massive public debt hit a record 2.1072 trillion euros in February, the central bank reported Monday. The amount was up 17.5 billion euros since January, the Bank of Italy said.
The European Commission has criticized Italy's 2014 budget for not doing enough to bring down debt, around 132% of gross domestic product (GDP).
As a result it has put Italy under "specific monitoring" over its "excessive macroeconomic imbalances", which include high debt and poor competitiveness, as part of an in-depth review.
(Source)
Italy raked up significant debt at a far faster rate than its underlying economy was growing, leading to a steadily rising debt-to-GDP ratio as seen in this next chart…
by
Alasdair Macleod
Executive Summary
- The West is extremely vulnerable to financial and currency de-stabilisation through precious metals
- Access to energy supplies will be the real weapon used in the battle over Ukraine (and future geo-political wars)
- Why sanctions against Russia will not succeed
- The East is mobilizing to become less dependent on the West
If you have not yet read Is Part 1: Ukraine: A Perspective from Europe available free to all readers, please click here to read it first.
Russia’s strategy towards Ukraine appears to be to ensure NATO is excluded from Ukrainian territory, the irony being that if NATO members hadn’t interfered with Ukrainian politics in the first place the current crisis would not have occurred. As it is, at a minimum she will seek to secure Donetsk and Luhansk and force the Kiev government to drop any ambitions to join the EU economic bloc.
The fact that NATO is divided between on the one side the US and UK plus all its ex-communist members and on the other the great European welfare states, requires there to be two distinct levels of Russian strategy. They must not be confused with each other, one macro and the other micro.
Macro-Geopolitics Linked To Gold
At the higher level there is the geopolitical clash with the US. This is not just a matter of Ukraine, but it is rapidly becoming the Shanghai Cooperation Council versus America. The US is also embroiled in territorial disputes between its allies and China over mineral rights in the South China Sea. The Middle-East now sells more oil to China than the US, and by leaving the US sphere of influence will fall increasingly under the SCO’s spell. Presumably, America has woken up to the threat to its hegemony from the powerful alliance that is the SCO, together with the loss of Pakistan and India into that sphere of influence. It goes further: even Turkey, a long-standing NATO member, plans to defect to the SCO, apparently a personal project of Recep Erdoğan, the recently re-elected Prime Minister.
American-initiated actions against Russia will probably be kept by Russia and the SCO in this big-picture context. It will be treated as an attack against an SCO member, speeding up integration and trade agreements designed to exclude the US dollar as a settlement medium. In this context the SCO members already appear to have agreed on the need to increase gold ownership as an undefined part-solution to replace the US dollar as the currency standard. In other words, the rush to acquire above-ground gold stocks will continue, and China through her refiners is processing and keeping increasing quantities of African-sourced gold as well as her own which would otherwise have gone to the West.
The Russian central bank has been adding to her monetary gold reserves and officially now has more than China (though China is known to have substantial holdings of bullion not currently declared as monetary reserves). All mine output is likely to be absorbed by the State. Russia has continued to build her gold reserves at a time when it could be argued by western analysts that she needs to hold on to all her foreign currency, given the prospect of escalating sanctions. The truth is that…
The Rise Of The East
PREVIEW by Alasdair MacleodExecutive Summary
- The West is extremely vulnerable to financial and currency de-stabilisation through precious metals
- Access to energy supplies will be the real weapon used in the battle over Ukraine (and future geo-political wars)
- Why sanctions against Russia will not succeed
- The East is mobilizing to become less dependent on the West
If you have not yet read Is Part 1: Ukraine: A Perspective from Europe available free to all readers, please click here to read it first.
Russia’s strategy towards Ukraine appears to be to ensure NATO is excluded from Ukrainian territory, the irony being that if NATO members hadn’t interfered with Ukrainian politics in the first place the current crisis would not have occurred. As it is, at a minimum she will seek to secure Donetsk and Luhansk and force the Kiev government to drop any ambitions to join the EU economic bloc.
The fact that NATO is divided between on the one side the US and UK plus all its ex-communist members and on the other the great European welfare states, requires there to be two distinct levels of Russian strategy. They must not be confused with each other, one macro and the other micro.
Macro-Geopolitics Linked To Gold
At the higher level there is the geopolitical clash with the US. This is not just a matter of Ukraine, but it is rapidly becoming the Shanghai Cooperation Council versus America. The US is also embroiled in territorial disputes between its allies and China over mineral rights in the South China Sea. The Middle-East now sells more oil to China than the US, and by leaving the US sphere of influence will fall increasingly under the SCO’s spell. Presumably, America has woken up to the threat to its hegemony from the powerful alliance that is the SCO, together with the loss of Pakistan and India into that sphere of influence. It goes further: even Turkey, a long-standing NATO member, plans to defect to the SCO, apparently a personal project of Recep Erdoğan, the recently re-elected Prime Minister.
American-initiated actions against Russia will probably be kept by Russia and the SCO in this big-picture context. It will be treated as an attack against an SCO member, speeding up integration and trade agreements designed to exclude the US dollar as a settlement medium. In this context the SCO members already appear to have agreed on the need to increase gold ownership as an undefined part-solution to replace the US dollar as the currency standard. In other words, the rush to acquire above-ground gold stocks will continue, and China through her refiners is processing and keeping increasing quantities of African-sourced gold as well as her own which would otherwise have gone to the West.
The Russian central bank has been adding to her monetary gold reserves and officially now has more than China (though China is known to have substantial holdings of bullion not currently declared as monetary reserves). All mine output is likely to be absorbed by the State. Russia has continued to build her gold reserves at a time when it could be argued by western analysts that she needs to hold on to all her foreign currency, given the prospect of escalating sanctions. The truth is that…
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