Economics

Debt Excess and the Liquidation Process in a Historical Context

"We find it constructive to divide debt into three categories based on the criteria of capital consumption. We'll start with liabilities taken on with the intent of making a subsequent sale at a profit: in other words, debt that increases the capital base, such as business loans. We call this 'good' debt. In the second category, we have mortgages, financial sector loans and foreign debt, all of which are classified as 'bad' debt. In the third and last category, we have debt that allows pure capital consumption, such as consumer credit and government debt. It should be obvious that consumptive debt cannot exceed productive debt for an indefinite period of time." Continue reading →

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Bill Bonner: US Market Crash Alert!

"Investors trust the Federal Reserve to protect their money...just as the Fed makes their investments less trustworthy! Because the more influence the Fed exerts over prices, the farther they move away from where they ought to be. Ah yes, dear reader, that is one of the curious, always-fascinating feedback loops that keeps life on planet Earth ‘normal’. Whenever things get too weird, something intervenes to make them less weird. And one of those things is a certain Mr. Market. It’s all very well for investors to believe the Fed won’t allow them to lose money. That’s what makes it possible for non-delusional investors to make a lot of money." Continue reading →

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Credit crisis begins to cripple Chinese cities

"Worried lenders in the informal sector raised interest rates for small and medium-size businesses, setting off a much broader wave of defaults in recent weeks, as owners found themselves unable to repay billions of dollars in bad debts, many of them handwritten and hard to enforce in court. State-owned banks have long been allowed to lend only at low, regulated rates barely above the inflation rate, with the total value of loans controlled by quarterly quotas. These loans go overwhelmingly to large state-owned businesses, government officials and politically connected individuals, who then relend the money at much higher interest rates." Continue reading →

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Thanks shallot! Indian police foil onion heist

"Indian police have foiled a bid by robbers to make off with a truck laden with onions, in an unusual crime apparently motivated by rocketing prices of the staple food. The humble root vegetable, an essential ingredient in Indian cooking, has a surprisingly weighty track record of political influence. In 1980, Indira Gandhi exploited rising onion prices to storm back to power, appearing at campaign rallies waving huge strings of them with the message that a government that can not control onion costs has no right to govern. And in 1998, a six-fold surge in the cost of onions was held partly responsible for the electoral defeat of the ruling Delhi state government." Continue reading →

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The Source of Systemic Crisis: Risk and Moral Hazard

"No government agency ever projects deep, long-lasting recessions, because such a period of stagnation would upend all the rosy projections that the status quo is eternally sustainable and stable. Where does all this lead us? To this: Programs that backstop banks and social insurance systems like Medicare are not like fire or life insurance because they are effectively open-ended in terms of costs and in exposure to risk. A system which pools risk without distributing it to the participants and eliminates the causal connection between risk and consequence introduces moral hazard on a grand scale." Continue reading →

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The Impending Collapse of the Global “Bernanke Bubble”

"In the past few months, the Turkish lira has depreciated by 4.5% against the dollar, while its dollar-denominated debt stands at $172 billion or 22% of its GDP. Goldman Sachs forecasts a further 15% fall in the Turkish lira, spurring a financial crisis as it becomes more and more expensive to buy dollars to service these loans, most of which are short term. Furthermore, 'some of the biggest beneficiaries of the Fed’s largess were . . . among the politically connected elite in emerging nations like Turkey, where vanity towers, glitzy shopping malls and even grander projects to come have become representative of the nation’s new dynamism.'" Continue reading →

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Health Insurance Costs: $16,351 a Year per Family

"This is what the typical premium costs for families whose health insurance is paid for by their employers. The main advantage is that this is not taxable income. For workers whose employers provide health insurance coverage, this is a huge tax loophole. Here is a chart on what it costs families. The costs have skyrocketed over the last decade. Health insurance is regulated heavily by state governments and the federal government. Costs are rising relentlessly. ObamaCare will make them rise even more. When the government comes to help you, beware. 'Keep your hand upon your wallet, and your back against the wall.'" Continue reading →

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Germany Fights Population Drop

"There is perhaps nowhere better than the German countryside to see the dawning impact of Europe’s plunge in fertility rates over the decades, a problem that has frightening implications for the economy and the psyche of the Continent. In some areas, there are now abundant overgrown yards, boarded-up windows and concerns about sewage systems too empty to work properly. The work force is rapidly graying, and assembly lines are being redesigned to minimize bending and lifting. Raising fertility levels in Germany has not proved easy, even while spending $265 billion a year on family subsidies." Continue reading →

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Peter Schiff: The GDP Distractor

"Over eons, small creeks can carve large canyons through solid rock. The same phenomenon may be at work in our economy. A minor, but persistent under bias in the inflation gauge used in the Gross Domestic Product (GDP) may have created a wildly distorted picture of our economic health." Continue reading →

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