A recent series of quick comments.
1 ) See : « IMF Issues Dire Warning – ‘Great Depression’ Ahead? » by GoldCore , Wed, 10/17/2018 – 07:48 https://www.zerohedge.com/news/2018-10-17/imf-issues-dire-warning-great-depression-ahead (see the major Comment No 4.)
Quick comment, October 17, 2018: The real problem is internal to the US and to Europe – the lands of speculative hegemonic finance. Powell wants to purge to re-establish the FED balance sheet.
The excess liquidity went into the Stock Exchange, in part. Suppose Tesla calls for Chapter 11 what is the big deal? A few funds would go broke and hopefully Murdoch too (?), which is reason enough for Powell to accelerate thing!
But the problem is the other few big corps which make up most of the capitalization and with nowhere to go for the investors, since they are already rotating like mad at the speed of their algorithms.
Asia will adopt capital controls and shift partially away from the dollar. They remember the advice given by the IMF in this respect to stop the baht hemorrhage and they probably have looked at Turkey … Which did better in keeping the IMF off, better better in any than pro-US Asia or Hungary
Paul De Marco.
Xxx
2 ) See : « Le déficit budgétaire américain au plus haut depuis 2012 »Pour l’exercice clos le 30 septembre 2018, le déficit s’est envolé à 3,9 % du produit intérieur brut aux Etats-Unis.
LE MONDE | 16.10.2018 à 10h46 | Par Arnaud Leparmentier (New York, correspondant) https://www.lemonde.fr/economie/article/2018/10/16/le-deficit-budgetaire-americain-au-plus-haut-depuis-2012_5370025_3234.html
Noter : + 6,7 milliards – 20 % pour 41.3 M de douanes mais 31 milliards de plus sur le déficit commercial ! Et une stratégie reaganienne d’inflows de capital contre les partenaires qui a déjà échouée …
Tout le reste va à vau-l’eau : « Les dépenses, elles, ont crû de 3 %. Le service de la dette, qui atteint environ 20 000 milliards de dollars, a progressé de 14 % (370 milliards de dollars). S’ensuivent une hausse des dépenses militaires de 6 % (700 milliards de dollars) et de sécurité sociale et de santé publique (+ 4 %, 1 950 milliards) en raison notamment du vieillissement de la population.»
xxx
3 ) See : « The Fed is Going to Hike Until Something BREAKS. » by Phoenix Capita… https://www.zerohedge.com/news/2018-10-16/fed-going-hike-until-something-breaks
Quick comment October 16, 2018: The question is « what is the new normal » in the context of hegemonic speculative finance based on a weak fractional system – weak also because of the shadow banking.
Powell seems to answer « it depends on consumer’s spending ». In the USA, speculative finance makes up to 9 % of GDP and for 20 to 30% – I should update these % – of disposable income of the average household. In an « income stream » paradigm acted after the abrogation of the Glass Steagall Act (1999), this is another way of saying that banks’ ROE is the limit, I guess , but only for the systemic ones. The proverbial « blood on the street is a good thing » as Rothschild once said.
Paul De Marco.
xxx
4 ) New normal? Either big depression or prolonged recession or a new era of prosperity thanks to a new anti-dumping and reduction of the work week, October 12, 2018
See : « Donald Trump is Right About the Fed », by rcwhalen
Thu, 10/11/2018 – 20:23 https://www.zerohedge.com/news/2018-10-11/donald-trump-right-about-fed
Quick comment: Nice article. See also the quote « The two key factors behind large bank earnings over the past decade are 1) cheap funding from the FOMC and 2) cost cutting. As funding costs for US banks “normalize” from $30 billion per quarter at Q2’18 to over $40 billion by year end, revisions to earnings estimates for JPM and other banks may start to turn downward. Given where interest rates are today, quarterly bank funding costs should continue to climb into the $60-70 billion range by next summer. The chart below shows funding costs and interest earnings for all US banks. https://www.theinstitutionalriskanalyst.com/single-post/2018/10/08/Q318-Bank-Earnings-Tight-Spreads-Growing-Liquidity-Risk
Comment (preliminary take):
A ) the balance sheet of the FED and the share added by QEs and Twist and the bailouts – tarp etc.
B ) the impact of this on the financial and non financial system notably through the fractional banking system. This is the problem that will have to be dealt with through the lower price of banks assets. T bonds but also corporate bonds. And stock exchange valuation.
C) the question is how much can be reabsorbed without blowing up the system. You can very well have an economic purge but the financial sector is now 9 % of GDP and some players notably banks are systemic. This is the absolute limit for the FED.
D ) Meanwhile, there can be blood in the street for small and medium banks, quasi-banks and non-financial institutions given the credit crunch that will become even worse. Not much of a problem for hedging given that the FED provides credit lines to other central banks unless it wants to use this as a weapon … In effect this will lead to fusion.
E ) mortgages and auto insurance and insurances will go up. Some households and home owners can get very tight.
F ) as with Volcker-Reagan the inflow of dollars does not lead to productive investing but to speculative investing. And the effect of the stimulus and tax cut from Donald Duck is vanishing already. In effect, many indicators – including Dr Copper – are pointing to a slowdown of the real economy.
G ) the trade war is materializing as a failure – the Chinese exports to the USA are up.
H ) this will then lead to recession if interest rates get up more at a steady rate, namely in 6 to 8 month.
I ) the federal debt is up and with the permanent social security deficit while regressive taxes diminish the ability to finance it.
J ) many US partners are send in crisis such as Argentina, Brazil, a bit less in Asia.
Conclusion: the speculative cycle initiated by Volcker-Reagan – together with free-trade with so-called asymmetric interdependence – and made worse by the abrogation of the Glass Steagall Act is coming to an end BUT with the inability of the FED – and central banks – same for ECB – to arrive at a new normal with would re-establish the economy on a sane basis.
Thus the contradictions inherent to speculative finance will get worse.
1 ) the fiscal contradiction engendered by speculative finance – in particular the role of the primary banks in monetizing the public debt – and monetarist fiscal policy have led to the real fiscal crisis of the State.
2 ) the grotesque capitalizations on the stocks exchanges are a reflection of the fact that this pile of Kerouac paper has nowhere to go.
3 ) and this is where the new danger is: the GAFAM have become fraudulent investment tools – and on top of it they are now mature industries.
Putting this three points together with the hit on the households – including via the 20 to 30 % debasement of their assets in financial guise – including mortgage and pension plans – and increasing poverty and low salaries with an active force at 62,7 % – we are now looking at a big depression coming.
Suppose that the FED backtracks. Then there will be a prolonged recession because the increased liquidities will not find productive investment – especially with the undergoing stupid trade war. Many big corrections will follow each others. Other countries will increasingly stay away from speculative capital especially American. And devise an alternative trading and financial system, even in an ad hoc fashion.
The only way out now would be to negotiate a new anti-dumping protecting the three components of the « global net revenue » of households – see my « Appeal » in the site http://rivincitasociale.altervista.org – together with a general reduction of the working time – to absorb the impact of robots and AI – and adding to this the solemn reaffirmation of « the most favored nation». Then a new era of unprecedented prosperity will open up.
This should be the New Frontier of the USA if it wants to – peacefully – keep its place in the World.
Paul De Marco
Note: The new anti-dumping definition would act as an interpretation rule to all existing free-trade treaties without necessitating long and protracted negotiations leading to a real mutually beneficial fair-trade global environment.
xxx
5 ) « CDS, Market correction, China and public credit »
Quick comment October 11-2018:
See: « ‘Ground Zero’ – Will The Dollar Shortage Kick Off The Next Financial Crisis?» by Palisade Research ., ed, 10/10/2018 – 14:54, via Adem Tumerkan of Palisade-Research.com https://www.zerohedge.com/news/2018-10-10/ground-zero-will-dollar-shortage-kick-next-financial-crisis
See also the perceptive article « Has The Derivatives Volcano Already Begun To Erupt? » by Tyler Durden Wed, 10/10/2018 – 13:20 Authored by David Goldman via The Asia Times, https://www.zerohedge.com/news/2018-10-10/has-derivatives-volcano-already-begun-erupt
This second article on CDS is right on. Therefore, in my view, it is just a correction of the exposure via CDS. But it affects mainly American institutions – and big foreign banks and institutions involved in the USA, hence, in part, their own Central banks, hence the credit line swaps. Can this lead to an explosion of the CDS chain? Probably not, even though Dodd-Frank was badly watered down by Trump. This is simply because big banks can easily offset CDS with other CDS, at least within the US. It is just writing gimmicks for the biggest banks (jeux d’écriture ). In EM countries linked to the US – eg. Argentina – the crisis is already permanent. It started a few years ago with the systemic reverse trade when the FED started tapering. The EM’s people pay but the world financial system does not feel it, indeed it profits from it.
The interesting thing is that this will accelerate the decline of the World dominance of the US dollar. Slowly because neither Japan nor China will unload massively their T Bonds …, as trade and economic exchanges shift to non-dollar areas. Especially if these areas adopt a strict distinction between money and credit and public credit with new bilateral credit lines extended to reorient commerce and economic flows. See my article « Private and Public central banks » in http://rivincitasociale.altervista.org . Note the difference between my mutually beneficial credit lines swaps – that re-orient and equilibrate trade – and the FED’s version, which is aimed at keeping foreign central banks in its sphere of dominance but meanwhile getting interest dutifully paid on on the credit lines!!!
China, Russia and others should develop my version of credit lines swaps to re-orient trade and economic flows and China should quickly step in to keep the IMF out of Pakistan, a country which does not deserve to be enslaved by a declining IMF.
Paul De Marco.
XXX
6 ) See : « Bill Bonner: “America’s Economy Is On A Suicide Mission” » by Tyler Durden Sat, 09/15/2018 – 19:15 https://www.zerohedge.com/news/2018-09-15/bill-bonner-americas-economy-suicide-mission
Here is a nice quote « Financial Anarchy
Trade barriers raise prices. Higher prices mean higher inflation rates and higher interest rates. Higher interest rates mean the feds will have to pay more to finance their higher deficits, which the very same POTUS has given us.
Last month, the feds borrowed $214 billion. They spent $433 billion, of which $32 billion was on interest on the national debt.
In other words, half of what they spent was borrowed. And as interest rates rise to the Fed’s target, that $32 billion will turn into $50 billion a month. Annualized, that’s $600 billion a year – or approximately two months’ worth of tax receipts.
And when the next recession comes… watch out.
Deficits will widen from $1 trillion to $2 trillion. The government debt will soar to $30 trillion. And the interest – at 4% – will take up tax receipts from January through April.
It’s as if a kind of financial anarchy had been loosed upon the land. No one knows exactly what to make of it… or what to expect.
But as their uncertainty increases, their convictions harden…
One side believes we are headed to Heaven and buys. The other sees Hell plainly written on the ticket and sells. We will see where we end up. »
Xxx
New normal? Either big depression or prolonged recession or a new era of prosperity thanks to a new anti-dumping and to the reduction of the work week, October 12, 2018
Posted: 20th Ottobre 2018 by rivincitasociale in Another America is possible, Commenti rapidiA recent series of quick comments.
1 ) See : « IMF Issues Dire Warning – ‘Great Depression’ Ahead? » by GoldCore , Wed, 10/17/2018 – 07:48 https://www.zerohedge.com/news/2018-10-17/imf-issues-dire-warning-great-depression-ahead (see the major Comment No 4.)
Quick comment, October 17, 2018: The real problem is internal to the US and to Europe – the lands of speculative hegemonic finance. Powell wants to purge to re-establish the FED balance sheet.
The excess liquidity went into the Stock Exchange, in part. Suppose Tesla calls for Chapter 11 what is the big deal? A few funds would go broke and hopefully Murdoch too (?), which is reason enough for Powell to accelerate thing!
But the problem is the other few big corps which make up most of the capitalization and with nowhere to go for the investors, since they are already rotating like mad at the speed of their algorithms.
Asia will adopt capital controls and shift partially away from the dollar. They remember the advice given by the IMF in this respect to stop the baht hemorrhage and they probably have looked at Turkey … Which did better in keeping the IMF off, better better in any than pro-US Asia or Hungary
Paul De Marco.
Xxx
2 ) See : « Le déficit budgétaire américain au plus haut depuis 2012 »Pour l’exercice clos le 30 septembre 2018, le déficit s’est envolé à 3,9 % du produit intérieur brut aux Etats-Unis.
LE MONDE | 16.10.2018 à 10h46 | Par Arnaud Leparmentier (New York, correspondant) https://www.lemonde.fr/economie/article/2018/10/16/le-deficit-budgetaire-americain-au-plus-haut-depuis-2012_5370025_3234.html
Noter : + 6,7 milliards – 20 % pour 41.3 M de douanes mais 31 milliards de plus sur le déficit commercial ! Et une stratégie reaganienne d’inflows de capital contre les partenaires qui a déjà échouée …
Tout le reste va à vau-l’eau : « Les dépenses, elles, ont crû de 3 %. Le service de la dette, qui atteint environ 20 000 milliards de dollars, a progressé de 14 % (370 milliards de dollars). S’ensuivent une hausse des dépenses militaires de 6 % (700 milliards de dollars) et de sécurité sociale et de santé publique (+ 4 %, 1 950 milliards) en raison notamment du vieillissement de la population.»
xxx
3 ) See : « The Fed is Going to Hike Until Something BREAKS. » by Phoenix Capita… https://www.zerohedge.com/news/2018-10-16/fed-going-hike-until-something-breaks
Quick comment October 16, 2018: The question is « what is the new normal » in the context of hegemonic speculative finance based on a weak fractional system – weak also because of the shadow banking.
Powell seems to answer « it depends on consumer’s spending ». In the USA, speculative finance makes up to 9 % of GDP and for 20 to 30% – I should update these % – of disposable income of the average household. In an « income stream » paradigm acted after the abrogation of the Glass Steagall Act (1999), this is another way of saying that banks’ ROE is the limit, I guess , but only for the systemic ones. The proverbial « blood on the street is a good thing » as Rothschild once said.
Paul De Marco.
xxx
4 ) New normal? Either big depression or prolonged recession or a new era of prosperity thanks to a new anti-dumping and reduction of the work week, October 12, 2018
See : « Donald Trump is Right About the Fed », by rcwhalen
Thu, 10/11/2018 – 20:23 https://www.zerohedge.com/news/2018-10-11/donald-trump-right-about-fed
Quick comment: Nice article. See also the quote « The two key factors behind large bank earnings over the past decade are 1) cheap funding from the FOMC and 2) cost cutting. As funding costs for US banks “normalize” from $30 billion per quarter at Q2’18 to over $40 billion by year end, revisions to earnings estimates for JPM and other banks may start to turn downward. Given where interest rates are today, quarterly bank funding costs should continue to climb into the $60-70 billion range by next summer. The chart below shows funding costs and interest earnings for all US banks. https://www.theinstitutionalriskanalyst.com/single-post/2018/10/08/Q318-Bank-Earnings-Tight-Spreads-Growing-Liquidity-Risk
Comment (preliminary take):
A ) the balance sheet of the FED and the share added by QEs and Twist and the bailouts – tarp etc.
B ) the impact of this on the financial and non financial system notably through the fractional banking system. This is the problem that will have to be dealt with through the lower price of banks assets. T bonds but also corporate bonds. And stock exchange valuation.
C) the question is how much can be reabsorbed without blowing up the system. You can very well have an economic purge but the financial sector is now 9 % of GDP and some players notably banks are systemic. This is the absolute limit for the FED.
D ) Meanwhile, there can be blood in the street for small and medium banks, quasi-banks and non-financial institutions given the credit crunch that will become even worse. Not much of a problem for hedging given that the FED provides credit lines to other central banks unless it wants to use this as a weapon … In effect this will lead to fusion.
E ) mortgages and auto insurance and insurances will go up. Some households and home owners can get very tight.
F ) as with Volcker-Reagan the inflow of dollars does not lead to productive investing but to speculative investing. And the effect of the stimulus and tax cut from Donald Duck is vanishing already. In effect, many indicators – including Dr Copper – are pointing to a slowdown of the real economy.
G ) the trade war is materializing as a failure – the Chinese exports to the USA are up.
H ) this will then lead to recession if interest rates get up more at a steady rate, namely in 6 to 8 month.
I ) the federal debt is up and with the permanent social security deficit while regressive taxes diminish the ability to finance it.
J ) many US partners are send in crisis such as Argentina, Brazil, a bit less in Asia.
Conclusion: the speculative cycle initiated by Volcker-Reagan – together with free-trade with so-called asymmetric interdependence – and made worse by the abrogation of the Glass Steagall Act is coming to an end BUT with the inability of the FED – and central banks – same for ECB – to arrive at a new normal with would re-establish the economy on a sane basis.
Thus the contradictions inherent to speculative finance will get worse.
1 ) the fiscal contradiction engendered by speculative finance – in particular the role of the primary banks in monetizing the public debt – and monetarist fiscal policy have led to the real fiscal crisis of the State.
2 ) the grotesque capitalizations on the stocks exchanges are a reflection of the fact that this pile of Kerouac paper has nowhere to go.
3 ) and this is where the new danger is: the GAFAM have become fraudulent investment tools – and on top of it they are now mature industries.
Putting this three points together with the hit on the households – including via the 20 to 30 % debasement of their assets in financial guise – including mortgage and pension plans – and increasing poverty and low salaries with an active force at 62,7 % – we are now looking at a big depression coming.
Suppose that the FED backtracks. Then there will be a prolonged recession because the increased liquidities will not find productive investment – especially with the undergoing stupid trade war. Many big corrections will follow each others. Other countries will increasingly stay away from speculative capital especially American. And devise an alternative trading and financial system, even in an ad hoc fashion.
The only way out now would be to negotiate a new anti-dumping protecting the three components of the « global net revenue » of households – see my « Appeal » in the site http://rivincitasociale.altervista.org – together with a general reduction of the working time – to absorb the impact of robots and AI – and adding to this the solemn reaffirmation of « the most favored nation». Then a new era of unprecedented prosperity will open up.
This should be the New Frontier of the USA if it wants to – peacefully – keep its place in the World.
Paul De Marco
Note: The new anti-dumping definition would act as an interpretation rule to all existing free-trade treaties without necessitating long and protracted negotiations leading to a real mutually beneficial fair-trade global environment.
xxx
5 ) « CDS, Market correction, China and public credit »
Quick comment October 11-2018:
See: « ‘Ground Zero’ – Will The Dollar Shortage Kick Off The Next Financial Crisis?» by Palisade Research ., ed, 10/10/2018 – 14:54, via Adem Tumerkan of Palisade-Research.com https://www.zerohedge.com/news/2018-10-10/ground-zero-will-dollar-shortage-kick-next-financial-crisis
See also the perceptive article « Has The Derivatives Volcano Already Begun To Erupt? » by Tyler Durden Wed, 10/10/2018 – 13:20 Authored by David Goldman via The Asia Times, https://www.zerohedge.com/news/2018-10-10/has-derivatives-volcano-already-begun-erupt
This second article on CDS is right on. Therefore, in my view, it is just a correction of the exposure via CDS. But it affects mainly American institutions – and big foreign banks and institutions involved in the USA, hence, in part, their own Central banks, hence the credit line swaps. Can this lead to an explosion of the CDS chain? Probably not, even though Dodd-Frank was badly watered down by Trump. This is simply because big banks can easily offset CDS with other CDS, at least within the US. It is just writing gimmicks for the biggest banks (jeux d’écriture ). In EM countries linked to the US – eg. Argentina – the crisis is already permanent. It started a few years ago with the systemic reverse trade when the FED started tapering. The EM’s people pay but the world financial system does not feel it, indeed it profits from it.
The interesting thing is that this will accelerate the decline of the World dominance of the US dollar. Slowly because neither Japan nor China will unload massively their T Bonds …, as trade and economic exchanges shift to non-dollar areas. Especially if these areas adopt a strict distinction between money and credit and public credit with new bilateral credit lines extended to reorient commerce and economic flows. See my article « Private and Public central banks » in http://rivincitasociale.altervista.org . Note the difference between my mutually beneficial credit lines swaps – that re-orient and equilibrate trade – and the FED’s version, which is aimed at keeping foreign central banks in its sphere of dominance but meanwhile getting interest dutifully paid on on the credit lines!!!
China, Russia and others should develop my version of credit lines swaps to re-orient trade and economic flows and China should quickly step in to keep the IMF out of Pakistan, a country which does not deserve to be enslaved by a declining IMF.
Paul De Marco.
XXX
6 ) See : « Bill Bonner: “America’s Economy Is On A Suicide Mission” » by Tyler Durden Sat, 09/15/2018 – 19:15 https://www.zerohedge.com/news/2018-09-15/bill-bonner-americas-economy-suicide-mission
Here is a nice quote « Financial Anarchy
Trade barriers raise prices. Higher prices mean higher inflation rates and higher interest rates. Higher interest rates mean the feds will have to pay more to finance their higher deficits, which the very same POTUS has given us.
Last month, the feds borrowed $214 billion. They spent $433 billion, of which $32 billion was on interest on the national debt.
In other words, half of what they spent was borrowed. And as interest rates rise to the Fed’s target, that $32 billion will turn into $50 billion a month. Annualized, that’s $600 billion a year – or approximately two months’ worth of tax receipts.
And when the next recession comes… watch out.
Deficits will widen from $1 trillion to $2 trillion. The government debt will soar to $30 trillion. And the interest – at 4% – will take up tax receipts from January through April.
It’s as if a kind of financial anarchy had been loosed upon the land. No one knows exactly what to make of it… or what to expect.
But as their uncertainty increases, their convictions harden…
One side believes we are headed to Heaven and buys. The other sees Hell plainly written on the ticket and sells. We will see where we end up. »
Xxx