Thursday, July 7, 2016

This is REALLY important financial information

If you've been following my previous articles on the economy and financial system, you'll know I've been pretty bearish (i.e. negative) about where we are now and where we're headed.  In particular, I've concentrated on the problem of debt - individual, corporate, national and international.  It's become a millstone around our joint and several economic necks.

Grant Williams, whom we've cited before in these pages, has just produced this extremely informative 40-minute video about the debt crisis facing the world.  He's talking about it as a global problem, but it has direct and immediate implications for each one of us, the "little people" affected by the crisis.

If you consider yourself even slightly economically literate, and are concerned about the current state and future prospects of our financial system, you need to view this video and take note of what it says.  It's that important.

Sobering, and food for much thought.  If he's right - and I believe he is - a reckoning can't be long delayed.  Certainly, David Stockman sees it that way.

Nearly everywhere on the planet the giant financial bubbles created by the central banks during the last two decades are fracturing. The latest examples are the crashing bank stocks in Italy and elsewhere in Europe and the sudden trading suspensions by ... UK commercial property funds.

If this is beginning to sound like August 2007 that’s because it is.

. . .

... the current central banking regime of Bubble Finance inherently and inexorably generates financial boom and bust cycles that must, and always do, end in spectacular crashes.

Bubble Finance is based on the systematic falsification of financial prices. That’s the essence of ZIRP and NIRP.

It’s also the inherent result of massive QE bond-buying with central banks credits conjured from thin air.

. . .

The trouble is, financial prices cannot be falsified indefinitely. At length, they become the subject of a pure confidence game and the risk of shocks and black swans that even the central banks are unable to off-set. Then the day of reckoning arrives in traumatic and violent aspect.

There's much more at the link.

The effect of debt on all sectors of the economy is to act as an anchor, holding them back.  Every dollar of debt attracts interest charges that must be paid currently, and the debt itself must eventually be repaid out of future profits - preventing those profits from being used to fund and grow the business.  When the economy as a whole slows down or stalls, the income required for businesses and individuals to repay their debts is lacking, leading to a liquidity crisis.

We're seeing the signs of a slowdown all around us.  US business spending is generally declining.  As a very important example, we've previously mentioned shipping and transportation as harbingers of economic activity.  In that light, the current slowdown in the US heavy truck transportation industry is very worrying.  The Wall Street Journal reports:

Orders for new heavy-duty trucks hit a nearly six-year low in June, indicating that trucking companies expect little relief from a weak freight market and sluggish economic growth.

. . .

With the manufacturing levels depressed thanks in part due to the strong dollar, and retail inventory levels high, freight volumes have not kept up with the ramp up in truck orders in recent years, leading to overcapacity, said Kenny Vieth, ACT’s president. Truck orders plummeted last fall and have held at low levels throughout 2016.

. . .

In another sign of a weakened freight market, the American Trucking Associations said Wednesday that driver turnover at large truckload fleets, which traditionally have trouble keeping drivers, decreased 13 percentage points in the first quarter to 89%--the lowest level since the second quarter of 2015.

Again, more at the link.

Folks, all the signs are there for those with eyes to see them.  Be alert, and make what preparations you can.  I think things are going to get very uncomfortable in the not too distant future.



tweell said...

Very true, but I'm continually amazed at the ability of our elites to put off that day of reckoning. It's one of the things they are skilled at doing.

Anonymous said...

Can you post a link or write an article on what we, the little people, ought to do? It would be much apreciated.

Aaron said...

It's a fun pattern of Democrats setting policies to explode down the road under a Republican administration. Not to say Republicans never kick the can along themselves but, there seems to be a decent pattern of Dems making policies and spending choices to generate bubble trend that tends to explode after the Democrat President leaves office and the Republican president can be blamed.