(Global Credit) - Symptoms of Too Much Debt

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‘..the “group” .. debt..’

- Frans Veldman (Context)

'The Commission’s fear is that grad­u­ate pro­grams may be turn­ing out a gen­er­a­tion with too many idiots savants, skilled in tech­nique but inno­cent of real eco­nomic issues. (“Report of the Com­mis­sion on Grad­u­ate Edu­ca­tion in Eco­nom­ics”, Amer­i­can Eco­nomic Asso­ci­a­tion 1991)'

- Good Universities and Bad Economics, August 13, 2015

'I have argued that “global government finance Bubble” excesses have been unprecedented – surely multiples of previous Bubbles. Officials globally employed central bank Credit and government debt in a desperate attempt to reflate global securities markets, general price levels and economies. And especially germane to today’s backdrop, policymakers doubled-down on failing reflationary policies back in the summer of 2012. This gambit has failed. Before it’s over I expect spectacular failure. Finally, the extraordinary divergence between inflated market expectations and deflating fundamental prospect has begun the arduous normalization process. The perpetual “money” machine now sputters badly.


I have argued that the underlying finance fueling the global boom has been unsound and unsustainable – that it is based on (“Moneyness of Risk Assets”) false premises and flawed perceptions. Dangerous misperceptions and attendant market Bubble fragilities are coming home to roost.


Bullish misperceptions regarding ETF liquidity are becoming too conspicuous to disregard. It is also clear that the hedge fund industry is really struggling in this market environment. Crowded Trades are a serious ongoing problem. Clearly, way too much “money” has flooded into the ETF and leveraged speculation universes. Too much has inundated sophisticated derivative strategies that too often incorporate some component of trend-following behavior. The scope of “money” following trend-following strategies is now an issue anytime markets are in the midst of a meaningful decline.


One can go down the list these days and see serious cracks developing many of the most popular “investment” and speculative trading strategies. It sure appears the game is winding down. Is it possible that a lot of September put options and derivatives expire worthless? Of course. But that would basically change nothing. Global “Carry Trades” have begun a problematic unwinding. Liquidity will now be an issue. When it becomes a real issue, there’s going to be serious problems associated with all these Trend-Following Strategies. QE4 will be unavoidable. But it will have to be quite large to have much impact.'

- Doug Noland, "Carry Trades" and Trend-Following Strategies, August 25, 2015

'In my view, what central banks have done, notably the Federal Reserve, is A.) create the NASDAQ bubble and then the collapse, and then they superimposed on the NASDAQ bubble and housing bubble under the advice also of the Neo-Keynesians like Krugman and so forth. And we know how it ended. It ended very badly. And then during the crisis in 2007-2008, they began a massive money printing exercise, and in a way, it is true that they saved at that time the financial system. The question is: Was it worth saving and were the costs justifiable?

Since then, the global economy has not done particularly well. It has done well because of a huge stimulus package in China and China contributed – I do not know, maybe 50 percent to global growth overall. But in general, in the U.S. the median household has not done well. But it saved the financial system. And in my view, now we have essentially six years of interest rates at zero percent and what has been achieved is preciously little. And as I said, in my view, the economy is slowing down so what we may have is a postponement of the problems. Do not forget. Global debts as a percent of the global economy are now 30 percent higher than they were prior to the crisis in 2007.


..Everybody in business and in economics and in the financial service sector agrees that basically free markets are the best for economic growth. But here you have a bunch of professors and academics that sit in central banks that think that they can plan the global economy. And there is no currency war. There is a coordinated effort by central banks to essentially print money. It is like in a relay race. The baton is passed from one central bank to another and they all talk to each other every day. And one does this for a while. The U.S. prints money. Then it goes to Japan. Then it goes to the ECB. Then it goes to China and so forth. I mean the whole thing is not going to work.


..an economy depends essentially for growth on productivity and it depends on capital spending. That produces sustainable economic growth. And with money printing, you do not achieve that. And we have plenty of examples of countries that printed money and what followed was a disaster, not strong and sustainable economic growth. It created bubbles and then the bubbles burst and impoverished the majority, like the housing bubble has impoverished the majority of participants, young people. They lost their homes because they were encouraged to borrow money to buy homes and then prices went down so they lost their homes. And now they have to rent and rents go up substantially. So they are struck actually not once but twice.


..we have a credit bubble, a gigantic credit bubble and it is getting worse and worse. But you understand, if you print money you can postpone things for a long time. You cannot postpone it forever. Eventually the system collapses. But will it collapse this year, next year or in three years? We do not know for sure.


..the safest asset in my opinion is gold, provided you can hold onto it and it is not taken away from you because before, central banks and the Neo-Keynesians who have hijacked economics away from the free market and think that they are now the central planners. Before they admit defeat, they will move on and will argue "oh. The problem is we have not done enough. We have to do more." And I have just written about this. The problem with larger governments, more government spending, is you also get more regulations. And regulations stifle business. So under the Neo-Keynesian policies and under the policies of the Fed, in my opinion, economic growth cannot pick up. It cannot pick up. But as long as it does not pick up, they will think they have to do more and more and more because they cannot admit defeat.'

- Marc Faber, The Global Economy Is Entering An Epic Slump, August 23, 2015

Symptoms of Too Much Debt
<ol> <li>Yuan devaluation</li>
<li>Stock market prop jobs by Chinese regulators</li>
<li>Emerging market currency crashes</li>
<li>Global equity bubbles</li>
<li>Commodity price crashes</li>
<li>Junk bond bubbles</li>
<li>Slower global growth</li>
<li>Still raging property bubbles in Australia, Canada, and the US West Coast (thanks to influx of money from China)</li></ol>
Debt the Problem

Numerous bubbles have started to implode, even as property bubbles in some places expand. Central banks are hard pressed to keep all the Ponzi schemes going.

Although we do not see eye-to-eye on the solution, Keen and I agree that debt is a primary problem. Many prominent economists still have not figured that out.

- Mike "Mish" Shedlock, Steve Keen on Economic Forecasts, Ponzi Schemes, GDP, China; One Way Streets and Poison, August 28, 2015

'..The economy’s pool of real funding – its free capital, the saved real resources that are available to fund long-term investment projects – has evidently come under grave pressure due to the succession of credit booms in recent decades. At the same time, governments and their ever-growing bureaucracies continue to over-regulate and over-tax economic activity, undermining the foundation of real wealth generation even further.'

- Acting Man, Real Wealth and Phantom Wealth – Secular Boom and Bust, August 28, 2015

'Most modern-day mainstream economists suffer from an affliction known as “physics envy” – they believe economics should ape the natural sciences in order to be a “proper” science. They have lost sight of the fact that economics is a social science that concerns itself with human action, not lifeless objects. For all their complexity, the mathematical models economists use to help central bankers in their decision-making are essentially utter bunkum. Rarely has as much time and effort been wasted on something as useless and ultimately harmful.


The US debt-berg and economic output. Note the tiny dip in total debt growth recorded in 2008 – this inconsequential decline in debt was enough to create the “greatest crisis since the Great Depression”. This should give us an idea how extremely fragile the system has become..'

- Acting Man, Jackson Hole – Meeting of the Physics Envy Brigade, August 26, 2015


Jackson Hole – Meeting of the Physics Envy Brigade, August 26, 2015

A Republic No More: Big Government and the Rise of American Political Corruption, February 10, 2015

Agent Causation Defended: Theorists v. their Theories, August 20, 2015

(Banking Reform - Monetary Reform) - '..The Theory of Money and Credit .. an invaluable guide for ending the business cycles of our own time.'