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 […]
Consumers In Surprising Places Are Borrowing Like Crazy
The Money Bubble is inflating at different speeds in different places. But apparently no culture is immune: Household Debt Sees Quiet Boom Across the Globe (Wall Street Journal) – A decade after the global financial crisis, household debts are considered by many to be a problem of the past after having come down in the […]
2018: The Year Of The Margin Call
Analysts disagree about which indicator is best for calling market tops, but the easiest to understand — and the most tragic — is probably margin debt. This is money borrowed by (usually individual or “retail”) investors against their existing stocks to buy more stocks. Investors tend to do this when markets are rising and using […]
Loan Shark Nation: Forcing Our Kids To Choose Between Student Loans And Everything Else
It’s mid-winter, which means millions of high school seniors are winding up their childhoods and planning for what comes next. For many this next stage is college. But in yet another example of how we baby boomers have rigged the system in our favor at the expense of pretty much everyone else, student loans – […]
The World Embraces Debt At Exactly The Wrong Time
Self-destruction usually happens in stages. At first there’s a binge in which the thrill outweighs the sense of transgression. This is usually followed by remorse, acknowledgement of risks, and an attempt to reform. But straight-and-narrow is exhausting, and because of this is frequently just temporary, eventually giving way to a kind of capitulation in which […]
2007 All Over Again, Part 7: Borrowers Start Scamming Desperate Lenders
One of the hallmarks of late-stage bubbles is a shift of power from lenders to borrowers. As asset prices soar and interest rates plunge it becomes harder to generate a decent yield on bonds and other fixed income securities, so people with money to lend (like pension funds and bond mutual funds) are forced to […]
Really Bad Ideas, Part 3: Government Debt Isn’t Actually Debt
The failure of fiat currency and fractional reserve banking to produce a government-managed utopia is generating very few mea culpas, but lots of rationalizations. Strangest of all these rationalizations might be the notion that government debt is not really a liability, but an asset. Where personal and business loans are bad if taken to excess, […]
Welcome To The Third World, Part 25: Illinois Death Watch
It’s been a long time coming, but Illinois’ slow-mo financial disaster is now front page news. A few recent examples: Roadwork Could Shut Down Across Illinois Due To Budget Impasse (Chicagoist) – Roadwork across Illinois may grind to a halt at the end of June due to the continued state budget impasse, a representative for […]
Soaring Debt = Slow Growth = Even More Debt = Systemic Crisis
It’s just common sense: Borrow too much money and the weight of this debt makes it hard to do things that used to be easy. This truism is now (finally!) hitting home, and blame is being apportioned. A couple of recent examples: Over The Last 10 Years The U.S. Economy Has Grown At EXACTLY The […]
Really Bad Ideas, Part 2: Giving Up Without Admitting It
Doing the right thing is hard for both individuals and their governments. Name the goal – maintaining a healthy weight, paying off high-interest credit cards, keeping debt-to-GDP at reasonable levels, whatever – and with each missed deadline or broken promise success recedes further into the distance. And the temptation grows to just give up and […]
You’d Think We’d Be A Little More Worried…
By now everyone with an Internet connection is aware of the “ransomware” attack that shut down hundreds of thousands of computers over the weekend. The fact that the onslaught is just beginning — as the military-grade hacking tools developed by the NSA and recently leaked are weaponized by hackers and released into the wild — […]
Soaring Global Debt Sets Stage For “Unprecedented Private Deleveraging”
The UK’s Telegraph just published an analysis of global debt that pretty much sums up the coming crisis. Here’s an excerpt with a couple of the more hair-raising charts: Global debt explodes at ‘eye-watering’ pace to hit £170 trillion Global debt has climbed at an “eye-watering” pace over the past decade, soaring to a fresh […]
How We Got Here In One Sentence
In every annual budget debate since the 1980s, one side figures out that the way to get what it wants – which is higher spending – is to frame the request in a particular, ingenious way: We have to borrow and spend way more now if we want to borrow and spend way less later. […]
Modern Delusions, Part 1: Japan Thinks It Can Balance Its Budget
A recurring problem for most developed-world governments is explaining why last year’s plan didn’t work while convincing voters that this year’s new and improved plan will do the trick. This is especially tough when the new plan is pretty much the same as the old one and therefore just as likely to fail. Let’s take […]