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Economy
by
charleshughsmith
Executive Summary
- How much have households, corporations, and the government combined deleveraged since 2008? (Barely at all.)
- Have our national debt-to-income ratios improved since 2008? (No, they've gotten worse.)
- Increasingly, unlevered assets will be sold to maintain the phantom value of levered assets.
- Ultimately, levered losses will need to be taken. Cash and cash equivalents will be in high demand as this happens.
Part I: The Pernicious Dynamics of Debt, Deleveraging, and Deflation
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Deleveraging Pain Is Just Beginning
In Part I, we sought an understanding of the causal linkages between debt, deleveraging, and deflation. In Part II, we analyze the key data and charts to get a better understanding of how far deleveraging has to go.
The basic idea in deleveraging is that debt exceeds the value of the underlying asset—for example, a mortgage exceeds the value of the home. The difference must be made up with savings from income or from the sale of other assets, or the asset must be sold and the loss booked.
In the case of consumer and government debt, the underlying assets are, in effect, future income and future tax revenues. The student has no assets to sell to pay off a student loan; the loan was leveraged off future income. The same is true of government bonds. Though consumers often maintain that the goods they bought on credit have retained value, in many cases the market value of items bought on credit is far below the debt still to be paid.
The situation is thus dire for loans without underlying assets that can be sold. Cash to service these loans must be raised by selling other assets or by diverting income.
I see the forces of debt, deleveraging, deflation, and inflation (money-printing) as positive (self-reinforcing) and negative (countervailing) feedback loops; the interactions are complex and can oscillate in dynamic equilibrium until a crisis pushes the system firmly into disequilibrium.
The Deleveraging Pain Is Just Beginning
PREVIEW by charleshughsmithExecutive Summary
- How much have households, corporations, and the government combined deleveraged since 2008? (Barely at all.)
- Have our national debt-to-income ratios improved since 2008? (No, they've gotten worse.)
- Increasingly, unlevered assets will be sold to maintain the phantom value of levered assets.
- Ultimately, levered losses will need to be taken. Cash and cash equivalents will be in high demand as this happens.
Part I: The Pernicious Dynamics of Debt, Deleveraging, and Deflation
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Deleveraging Pain Is Just Beginning
In Part I, we sought an understanding of the causal linkages between debt, deleveraging, and deflation. In Part II, we analyze the key data and charts to get a better understanding of how far deleveraging has to go.
The basic idea in deleveraging is that debt exceeds the value of the underlying asset—for example, a mortgage exceeds the value of the home. The difference must be made up with savings from income or from the sale of other assets, or the asset must be sold and the loss booked.
In the case of consumer and government debt, the underlying assets are, in effect, future income and future tax revenues. The student has no assets to sell to pay off a student loan; the loan was leveraged off future income. The same is true of government bonds. Though consumers often maintain that the goods they bought on credit have retained value, in many cases the market value of items bought on credit is far below the debt still to be paid.
The situation is thus dire for loans without underlying assets that can be sold. Cash to service these loans must be raised by selling other assets or by diverting income.
I see the forces of debt, deleveraging, deflation, and inflation (money-printing) as positive (self-reinforcing) and negative (countervailing) feedback loops; the interactions are complex and can oscillate in dynamic equilibrium until a crisis pushes the system firmly into disequilibrium.
by
Chris Martenson
Forty years ago, a group of researchers at MIT ran a study to address the question of how humans would adapt to the physical limitations of a finite planet. That study became the book Limits to Growth.
It should have been a starting point for a critical discussion at the national – or even global – level. It could have led to the birthing of many practical and then-implementable initiatives that mighthave brought our unsustainable demographic, industrial, and consumptive behavior under better control. But sadly, the book instead became a lightning rod for controversy. And decades later, the issues it warned of loom larger than ever.
In this interview, Chris discusses our collective failure to act on this book's message with Jorgen Randers, one of the authors of Limits to Growth and Limits to Growth: The 30-Year Update as well as a new book, 2052: A Global Forecast for the Next Forty Years.
While there are some differences in opinion between Jorgen and Chris, particularly on the acuteness of our resource predicament, both agree that continuing to pursue the status quo will result in a poorer quality of life for most of the world's denizens. We increasingly appear to be facing a future shaped either by design or disaster, and unless we actively decide to intelligently change our behavior, the latter outcome will prevail.
Jorgen Randers: Our Species’ Biggest Risk is Our Lack of Coherent Long-Term Decision Making
by Chris MartensonForty years ago, a group of researchers at MIT ran a study to address the question of how humans would adapt to the physical limitations of a finite planet. That study became the book Limits to Growth.
It should have been a starting point for a critical discussion at the national – or even global – level. It could have led to the birthing of many practical and then-implementable initiatives that mighthave brought our unsustainable demographic, industrial, and consumptive behavior under better control. But sadly, the book instead became a lightning rod for controversy. And decades later, the issues it warned of loom larger than ever.
In this interview, Chris discusses our collective failure to act on this book's message with Jorgen Randers, one of the authors of Limits to Growth and Limits to Growth: The 30-Year Update as well as a new book, 2052: A Global Forecast for the Next Forty Years.
While there are some differences in opinion between Jorgen and Chris, particularly on the acuteness of our resource predicament, both agree that continuing to pursue the status quo will result in a poorer quality of life for most of the world's denizens. We increasingly appear to be facing a future shaped either by design or disaster, and unless we actively decide to intelligently change our behavior, the latter outcome will prevail.
by
Gregor Macdonald
Executive Summary
- Why oil price vulnerability is growing
- Why the marginal cost of oil is rising higher at an accelerating rate
- Why the marginal cost of oil for non-OPEC regions is now above $90
- The hard math explaining why an increase an output from OPEC will no longer reduce the world price for oil
- The new rules that will govern the price of oil from here
- The alarming growing risk of large-scale war for oil
Part I: OPEC Has Lost the Power to Lower the Price of Oil
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Cruel Math of the Marginal Barrel
An unpleasant megatrend that has affected global oil production the past decade has been the quickly escalating cost of production. However, prices have finally risen high enough to stabilize declines in regions like North America.
This actually makes for a new and emerging vulnerability: the risk that prices fall at some point through levels that remove the new oil supply.
Given that world oil production has been trapped below 74 mbpd since 2005, and that the cost of the marginal barrel keeps rising, this vulnerability is growing.
The Cruel Math of the Marginal Barrel
PREVIEW by Gregor MacdonaldExecutive Summary
- Why oil price vulnerability is growing
- Why the marginal cost of oil is rising higher at an accelerating rate
- Why the marginal cost of oil for non-OPEC regions is now above $90
- The hard math explaining why an increase an output from OPEC will no longer reduce the world price for oil
- The new rules that will govern the price of oil from here
- The alarming growing risk of large-scale war for oil
Part I: OPEC Has Lost the Power to Lower the Price of Oil
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Cruel Math of the Marginal Barrel
An unpleasant megatrend that has affected global oil production the past decade has been the quickly escalating cost of production. However, prices have finally risen high enough to stabilize declines in regions like North America.
This actually makes for a new and emerging vulnerability: the risk that prices fall at some point through levels that remove the new oil supply.
Given that world oil production has been trapped below 74 mbpd since 2005, and that the cost of the marginal barrel keeps rising, this vulnerability is growing.
by
Chris Martenson
This week we bring back Alasdair Macleod, publisher of FinanceAndEconomics.org, because, as he puts it, "every horror that we discussed last time we spoke is coming about." This is especially scary since our previous conversation with Alasdair was less than three weeks ago…
Today's interview continues building on his excellent synopsis from last month that detailed the origins of the Eurozone crisis. The fundamental shortcomings warned of at the euro's creation in 1997, combined with the excessive sovereign debts run up since then, have finally expressed themselves at a scale too large to be contained any longer.
Today, Alasdair details in depth the huge and serious challenges facing Greece and the major Eurozone countries and the likely impacts of the fast-dwindling options left remaining.
He sees no happy ending to this story, no outcome in which serious pain and permanent behavior change can be avoided. And for those looking for shelter from the unfolding economic storm, he sees few options besides the precious metals (which he believes are severely underpriced at the moment):
Alasdair Macleod: All Roads in Europe Lead to Gold
by Chris MartensonThis week we bring back Alasdair Macleod, publisher of FinanceAndEconomics.org, because, as he puts it, "every horror that we discussed last time we spoke is coming about." This is especially scary since our previous conversation with Alasdair was less than three weeks ago…
Today's interview continues building on his excellent synopsis from last month that detailed the origins of the Eurozone crisis. The fundamental shortcomings warned of at the euro's creation in 1997, combined with the excessive sovereign debts run up since then, have finally expressed themselves at a scale too large to be contained any longer.
Today, Alasdair details in depth the huge and serious challenges facing Greece and the major Eurozone countries and the likely impacts of the fast-dwindling options left remaining.
He sees no happy ending to this story, no outcome in which serious pain and permanent behavior change can be avoided. And for those looking for shelter from the unfolding economic storm, he sees few options besides the precious metals (which he believes are severely underpriced at the moment):
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