To understand why Europe is watching Turkey’s financial crisis with alarm, you just have to see this chart: Spanish – and to a lesser extent French and Italian – banks have lent a lot of money to Turkey. So as that country spins closer to default, those banks and their governments are in danger of […]
Here’s How “External Dollar Debt” Produces An “Emerging Market Crisis”
Emerging market currencies are collapsing pretty much everywhere these days. But it’s safe to assume that most people don’t understand exactly what’s causing this outbreak, why it’s happening now, or what “external dollar debt” has to do with it. So here’s a quick primer followed by the obligatory apocalyptic prediction: Prelude: cheap dollar financing Pretend […]
Another Way Of Looking At The Pension Crisis, As “A Stealth Mortgage on Your House”
Money manager Rob Arnott and finance professor Lisa Meulbroek have run the numbers on underfunded pension plans and come up with an interesting – and highly concerning – new angle: That they impose a “stealth mortgage” on homeowners. Here’s how the Wall Street Journal reported it today: The Stealth Pension Mortgage on Your House Most […]
Global Housing Bubble Is Popping. Here Comes The “Reverse Wealth Effect”
Just a few months ago, real estate was on fire. Prices were blowing past records set during the previous decade’s housing bubble as desperate buyers bought whatever was available at above the asking price while homeowners, confident that prices would keep rising, held out for the next big pop to sell. Notice on the following […]
New Age Fiscal Stimulus Is Unprecedented — And Ominous
In a normal business cycle, the economy expands for a while and businesses hire lots of new people at somewhat higher wages, generating enough tax revenue to shrink the government’s budget deficit – and in rare cases produce a surplus. So, for a while, the government borrows less money. Not this time. The current recovery […]
Is The Interest Rate Death Spiral Finally Starting?
The yield on Italy’s 10-year bond is up by about 100 basis points from its 2018 low. Meanwhile, its government continues to borrow money and roll over its existing debt. But now it has to do so at ever-higher interest rates, which means it has to pay more interest, which means its deficits are rising, […]
Welcome To The Third World, Part 28: The “Bottom Half” “Bolsters” The Economy By Going Into Debt
For maybe the best example of how financial trends are diverging at the opposite ends of the wealth spectrum, contrast the cash flowing into the accounts of the already-rich with the debt accumulating in the accounts of the “bottom half”: Mortgage, Groupon and card debt: how the bottom half bolsters U.S. economy (Reuters) – By […]
Public Sector Pensions: The Parasite Devours Its Host
The Wall Street Journal recently highlighted a better method of analysing the impact of public sector pensions on state and local budgets. The results are ominous for government finances, the bond markets, and pretty much everything else: Why Your Pension Is Doomed A new study shows that benefits are rising faster than GDP in most […]
Student Debt Bubble Expands As Parents Do More Of The Borrowing
Not so long ago, student debt was mostly the responsibility of students. That is, you paid for college with loans and then paid off those loans with the proceeds of the good job you got with an advanced education. These days it’s a little different. The cost of higher education is soaring, the jobs available […]
We Give Up! Part 3: China Stops Deleveraging, Tells Cities To Ramp Up Spending
China’s growth over the past decade has been not just impressive, but historically unprecedented. No single country has ever added this many factories, roads, airports and entire new cities in so short at time. But the transformation has come at a cost, in the form of a debt bubble that’s starting to look unstable. Beginning […]
“Junk In The Trunk” – Investors Get “Comfortable” With Subprime Auto Loan Bonds
The longer an expansion lasts, the crappier its paper becomes. That may seem like a baseless assertion, but it’s actually just simple math. Early in recoveries, borrowers and lenders are both shell-shocked by the last recession, so only high-quality deals get done. But as time passes, all the good borrowers get their loans and if […]
A Spiking Dollar = Emerging Market Chaos, Part 2: The Story In Four Charts
For most of the past few years, emerging market stocks and bonds were among the favorite investments of everyone from hedge funds to pension funds to retirees. Now, not so much. The next two charts (courtesy of Saturday’s Wall Street Journal) show the huge recent run ending in January, to be replaced by a full-on […]
Debt Slaves, Part 1: Million Dollar Student Loans And The Coming Bailout
Today’s Wall Street Journal is profiling an orthodontist who has $1 million in student loans, is paying less than the interest that’s accruing, and because of this will owe $2 million in the not too distant future. The list of things that have to happen for a situation like this to evolve is long and […]
Yet Another Chart That Screams “Look Out!”
So many patterns that have held for decades seem to have broken down, leading to one of two conclusions: Either this time really is different in ways that appear to violate what used to be seen as iron-clad laws of finance, or those laws have been bent but will reassert themselves with a vengeance sometime […]
Rationalizing Those Peak-Cycle Numbers, Part 1: Investors “Unconcerned” About Record Corporate Debt
A branch of journalism that might be called, “don’t worry, be happy, because this time is different” tends to pop up at the peak of cycles when imbalances that caused past crashes start to reemerge. Eager to keep the gravy train going, business publications send reporters out to interview industry experts (who are making fortunes […]