This week, US household debt jumped by the most in 14 years to a new all-time record. The last time it did something like this was in 2007, just as the housing mania was cresting and the Great Recession was looming. The biggest part of the recent gain was from mortgages (it’s official, we’re in […]
This Is How A State Goes Bankrupt, Illinois Edition
Somewhere back in the depths of the 20th century, a bunch of governors, mayors, and public sector union leaders got together and cooked up one of history’s greatest financial scams. They would offer teachers, cops, and firefighters extremely generous pensions but would avoid raising taxes to fund the resulting future obligations. Grateful workers would vote […]
Will A Weak Dollar Bail Out Emerging Markets? Nope
Back in the simpler days of 2019, there was this (now completely forgotten) impending crisis in which emerging market countries’ dollar-denominated debt was going to blow up their – and by extension the rest of the world’s – economies. The short version of the story is that China, Brazil and some other up-and-comers decided to […]
Doug Noland Explains Q1’s “Extraordinary” Debt Binge
Credit Bubble Bulletin’s Doug Noland saves the rest of us a lot of time by digging through the Fed’s quarterly financial reports and presenting the results in an understandable form. These reports are always terrifying, but Q1 2020 is in a class of its own. Here, mostly in Noland’s words, are some of the highlights […]
Bankrupt Cities And States Get The National Disaster They’ve Been Hoping For
The people running states like New Jersey and cities like Chicago know they’re broke. Ridiculously generous public employee pensions – concocted by elected officials and union leaders who had to have understood that they were writing checks their taxpayers couldn’t cover – are bleeding them dry, with no political solution in sight. They also know […]
A Perfect Storm For Emerging Markets
Pretend for a minute that it’s 2019 and you’re Brazil. Or maybe Turkey, your choice. You’ve got a lot of infrastructure to build if you want to keep your people happy, and to fund those projects you’ll need to borrow a lot of money. That’s not a problem, because borrowing is easy. The whole world […]
Retirees Getting Screwed — One Last Time
To understand the impossible situation in which most retirees find themselves, let’s begin with interest rates. When governments raise or lower the cost of credit, they’re communicating with the rest of us. Higher interest rates send the message that “cash is more valuable, so save more and spend less.” Lower rates say the opposite: “Cash […]
Why You Shouldn’t Borrow Too Much Money, China Edition
When the US housing bubble burst in 2007, most observers were focused on the threat to Wall Street banks and their massive derivatives books. This was a legitimate fear, since the worst case scenarios involved the death of Goldman Sachs and JP Morgan Chase, with all the stock market carnage that that implied. But for […]
Different Acronyms, Same Disaster: Bond Ratings Are Once Again For Sale
Of all the amazing scenes in The Big Short, a film about the genesis of the Great Recession, arguably the most shocking is the meeting between a couple of hedge fund managers trying to understand the housing bubble and “Georgia,” a (in a bit of symbolic overkill) visually-impaired executive with the Standard & Poor’s bond […]
Signs Of A 2020 Top: “Buyers Return to Riskiest Junk Bonds”
If you’re managing money and need positive results in the year ahead, you’re in a tough spot. Stocks are at levels that in the past have preceded cycle-ending crashes while high-grade bonds yield virtually nothing but could easily produce big capital losses if interest rates rise even a little. What do you do? Retire, if […]
Time To Sell The News?
Global stock (and bond and real estate) markets have been on a tear this year, apparently in anticipation of three big events. And last week they got them all, sort of: The US and China announced a “trade deal” that is flimsy but a deal nonetheless; the Fed promised to refrain from raising rates until […]
The Parasite Devours Its Host, Part 2: French Pensions
Criticizing the “public sector” is tricky, because teachers, firefighters, cops and bus drivers are by-and-large great people doing hard things that benefit the rest of us. But there’s this problem, which is that once a country’s public sector grows beyond a certain size, it takes on a life of its own, demanding more resources even […]
The Global Debt Bubble Enters Its Blow-Off Stage
People have been talking about a “debt bubble” for some years now. They’ve been right, of course, based on the combination of surging borrowing and plunging rates. But the bubble hasn’t stopped inflating, and recently it entered what certainsly looks like a terminal blow-off stage. Some highlights: Though July, China’s total debt rose by $2 […]
This Cycle’s Most Dangerous Bubble, In Three Charts
One of the lessons of the past few decades’ boom/bust cycles is that each financial bubble emerges in a different asset class. In the 1970s it was precious metals, in the 1980s junk bonds, in the 1990s tech stocks and in the 2000s mortgage-backed bonds. Today the only one of these with a reasonable chance […]
Negative Interest Rates Spread To Mortgage Bonds
There are trillions of dollars of bonds in the world with negative yields – a fact with which future historians will find baffling. Until now those negative yields have been limited to the safest types of bonds issued by governments and major corporations. But this week a new category of negative-yielding paper joined the party: […]
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