Tag Archives: debt bubble

The West Is Collapsing As The East Ascends

The 24 Mega Green City infrastructure project in India will connect Delhi with Mumbai, creating a commerce corridor incorporating 21st century technologies and amenities. – Interview with ZincOne Resources’ Jim Walchuck, The Daily Coin

It seems absurd that Asia is willing and able to build high-speed “bullet” trains to connect large population centers while the United States struggles with an antiquated Amtrak rail system often beset with service interruptions and lethal accidents.   The truth of the matter is that the major U.S. metropolitan areas are beset with massive loads of debt, including a ticking-time debt-bomb in the form of several trillion dollars in unfunded public pension funds.

The Delhi-Mumbai Industrial Corridor is a major infrastructure project that India is developing with Japan. The project will upgrade nine mega industrial zones as well as the country’s high-speed freight line, three ports, and six airports. A 4,000 MW power plant and a six-lane intersection-free expressway will also be constructed, which will connect the country’s political and financial capitals.  – The Daily Coin

The 24 Mega City project underscores the economic, political and cultural contrast between the eastern and western hemisphere countries, with the sun setting in the west and rising in the east.  The west is mired in a catastrophic web of Government-heavy economies that exist on the life support of trillions in money printing and debt issuance. True, some countries like China have relatively high debt levels but they are offsetting that form of fiat currency debasement with massive gold accumulation.  The heart of the problem is highlighted by the graphic below (click to enlarge):

The budget for the U.S. Government will primarily be spent on social security, defense, medicare/medicaid and interest on the Government’s debt. Those five items will burn more two-thirds of the Government’s budgeted expenditures in Fiscal Year 2017.

But don’t bother asking how the Government plans on paying for that.   The funds will come from oldest forms of currency debasement: money printing and debt issuance.  And Trump’s proposed spending agenda will accelerate the growth rate of both .

It’s amazing that the U.S. Government seems to have unlimited funds available to spend on guns, bullets and surveillance of the citizenry.   Ranked in order of expenditures, The U.S. spends more on its military than the next 14 highest ranked countries.  “On the books,” the U.S. spent $597 billion in 2015.  That was 4x more than China and 9x more than Russia (source:  International Institute for Strategic Studies).

While the west, led by the United States, advances its collapse with rampant currency debasement and unbridled imperialism, the east is investing its resources in the future – in the advancement of its civilization.  Perhaps the hallmark of this contrast is best represented by the flow of physical gold from west to east.  The Shadow of Truth has devoted today’s episode discussing some of the signs pointing to the collapse of the west and the rise of the east:

Trump Will Let The Bankers Continue Destroying The U.S.

About 30 days into Obama’s first term I predicted that, “Obama will eventually go down as a worse President than W, which is hard to do because W might be one of the worst Presidents in U.S. history.”  I am making the same prediction of Trump:  he’ll go down as a worse President than Obama.

I would surmise that a majority of Trump’s voters voted for Trump as a vote against Hillary. Many of them have expressed relief that “Trump is not as bad a Hillary.”   But, au contraire. The decision faced by voters was no different than choosing between liver cancer and pancreas cancer.

Trump promised to “drain the swamp.”  That was nothing more than a clever marketing slogan adopted by Trump’s team to galvanize the majority of Americans who felt betrayed by the Democrats, led by Obama, who beginning on day one back-pedaled and repudiated the policy platform on which he campaigned (anyone besides me recall these promises:  “I’ll close Guantanomo in the first 90 days”  and “I’ll eliminate the use of Executive Orders” and “I’ll repeal all of Bush’s surveillance Executive Orders”).

The Democrats I know have the memory of fruit fly because every one of them seems to have a case of selective memory.  Perhaps Obama’s most memorable promise, aside from universal healthcare (Obama’s version of which is collapsing before he leaves office), was his vow to clean up the corruption on Wall Street.  Of course, his Attorney General appointment for most of his Presidency was Eric Holder, a career Democratic operative who worked at the Covington Burling law firm.  Covington Burling is Wall Street’s “body guard” in Washington, DC.  Most people have never heard of Covington Burling, which is how it is intended to be.  CB is the real life version of Bendini, Lambert and Locke, the infamous mob law firm in John Grisham’s, “The Firm.”

A little trivia:  Holder, as AG for the District of Columbia in the late 1990’s, drafted the pardon letter for Marc Rich, the infamous tax-evader who fled to Switzerland, signed by Bill Clinton as he walked out of the Oval Office for the last time (Clinton’s reward was carnal knowledge of Rich’s wife, Denise).

While the politicians promised that Dodd Frank and the Consumer Financial Protection Bureau and other legislative reforms had made America safe from Wall Street, in fact the opposite is true.  The subprime mortgage bubble has been replaced by a nearly equally as large, if not more insidious, subprime auto debt bubble.  With the help of Obama’s Government-backed mortgage “reforms,” Wall Street banks have spawned another subprime mortgage and housing bubble.   Derivatives “reforms” did nothing other than enable banks to hide their criminal use of these highly profitable weapons of mass financial destruction.

In other words, the only “cleaning” up that was accomplished over the last eight years by Obama was removing the last remnants of transparency from Wall Street’s operations, as all of these so-called “reforms” have enabled the Too Big To Fail Banks to conduct their fraudulent activities further “off balance sheet.”

So Obama has left his successor with 100% more Government debt, a collapsing healthcare system that is unaffordable for most other than corporate fat-cats and the recipients of free medicaid (and of course for the Congressmen who are exempt from Obamacare and have their healthcare paid for by the public anyway) and a financial bubble that dwarfs the bubble that was popping when Obama took office.

The Wall Street problem for this country is going to get worse under Trump.  In some ways it makes sense.  Trump’s casino business was a product of Drexel Burnham Lambert’s junk bond juggernaut.  I know this because I traded all of the old Trump junk bonds which, by the early 1990’s, were trading at distressed levels.  Trump is a real estate guy and real estate guys love debt more than they love their mothers.  And Wall Street loves nothing more than to underwrite that debt loved by guys like Trump.  In other words, in some ways Trump is a slave to Wall Street as much as, if not more than, his predecessor.  Note that among the first words out of Trumps mouth when he claimed victory was a promise to take deficit spending to new levels in order to build out the infrastructure.  There’s only way to finance deficit spending…

Circling back to Trump’s promise to “drain the swamp,” I think most of us assumed it not only meant getting rid of the career politicians like Hillary Clinton who had become completely controlled by corporate/Wall Street interests but also getting rid of the elements that controlled them.  Most notably the Wall Street bankers ensconced throughout all levels of the Obama Government.

But Trump’s appointments, for the most part, suggest that Trump is merely “draining” the swamp of the Blue swamp monsters and is replacing them with Red swamp monsters.  And in reality, Wall Street monsters do not distinguish between Red and Blue. That’s because the god they worship is GREEN.    The latest proposed appointment is a Sullivan & Cromwell lawyer to head the SEC.   Sullivan & Cromwell is Wall Street’s most highly regarded legal operative in NYC.   Need anymore be said?

Blame It On China…

Nothing is ever the fault of the “exceptional” United States.  It’s not our fault that we have to spend trillions containing the evil terrorists in the Middle East while we steal their oil and occupy their countries.

And of course it’s China’s fault that the U.S. stock market is all of a sudden finding the gravitational pull of economic, financial and political fundamentals.

BlameChina

China must be the reason that the U.S. stock market has been bought up the highest p/e ratio in history.  Note:  I’m using a p/e ratio based on the way earnings were calculated using GAAP 20 years ago – not today’s garbage GAAP which enables companies to manipulate their accounting to an extreme degree.

I guess it’s China’s fault that almost every public and private pension fund in the U.S. is extraordinarily underfunded.

It’s probably even China’s fault that U.S investors and pensions gobbled up shale oil industry junk bonds like they were going out of style on the assumption that oil would stay above $100/barrel forever.

It’s China’s fault that student debt and auto loans have hit an all-time high in this country.  When housing prices crash again that will be China’s fault too.

I guess when it comes right down to it, it’s China’s fault that Hilary Clinton is being hounded by problems with her use of her personal email to sell U.S. foreign policy decisions to the highest bidder while she was Secretary of State.  Hell, I guess it was China who took a paper towel and wiped clean the hard drive on her personal server.

The fact of the matter is that there was indeed a series of big asset bubbles that formed in China.  But they are no different or more severe than the same asset bubbles that have formed all over the world, including and especially in the United States.  But at least China is trying to address its bubbles.  It was the first to throw its cards on the table and try to let some air out its asset bubbles.  Meanwhile the U.S. continues to defend and inflate its bubbles.

I mean, c’mon on – triple C-rated junk bonds in this country were trading at 4% at one point.  A triple C rating means that the company which issued that debt has a very high probability of going bust.  Triple C-rated paper in the 1990’s traded at yields in the high teens or higher.  More than likely CCC- rated bonds become the new equity of a company when it files for bankruptcy reorganization.  Or it becomes worth pennies on the dollar if the company liquidates.   Triple C-rated paper trading at 4% implies an extreme bubble in the junk bond asset class.  But that’s China’s fault, I guess.

UntitledThis will not end well for the United States.   The problem with forcing the “blame China” propaganda on the U.S. public is that it inevitably will lead to a scenario in which the U.S.Government’s neocons who run the Department of Defense will justify starting a war with China.  A war with Russia is being started in Syria as I write this.  But that’s China’s fault too…

The Economics Of A Crash – Alasdair Macleod

Bloomberg was out today heralding the “new bull market” in oil.  I herald it as Bloomberg’s new bullmarket in bullshit.  The price of oil is determined in the short run by a lot of factors besides the law of economics.  The spike up today in the price oil was most likely technically driven by hedge funds covering large short positions put on over the past couple of weeks.  The short-cover trigger was likely a big bid put into the market by the Too Big To Fail banks backed by the Fed.

Make no mistake about it, the Federal Reserve in conjunction with the big banks have “blood money” motivation to try and keep the price of oil propped up.  The big banks are exposed both on and off balance sheet to the price of oil.  Many of the big banks are heavily exposed on-balance sheet to the collapsing oil shale/fracking industry in the form of hundreds of millions of asset-based revolvers.  These are shorter term funding facilities, the size of which is determined by the value of the estimated shale reserves of the borrower. However, many of these revolvers were drawn down when the price of oil was much higher.  It is highly probable that the big banks like JP Morgan are sitting on drawn revolver facilities that are worth dimes on the dollar.

Preventing this default has become a growing problem and is the primary task facing central banks. Household, corporate, government and financial sectors are all exposed to debt default, ensuring political and business considerations will allow no alternative outcome.  – Alasdair Macleod (link below)

A former colleague of mine who trades distressed energy debt told me he thought the big banks had these debt facilities marked at par (100 cents on the dollar).  When I asked him if if any of was trading yet in the secondary market he responded:  “no, but all hell will break loose when it does.”

This debt will blow big holes in bank balance sheets.  We only can assess the on-balance-sheet damage.  There is no doubt 10x that amount of exposure in the form of OTC derivatives.  The lower the price of oil goes, the bigger will be the hole that is blown.  This is specifically why the Fed/TBTF banks are working to keep the price of oil aloft and why they are feeding pump and dump outlets like Bloomberg the information that a new bull market in oil has started.

Equity markets are telling us that the debt crisis is now upon us again. The detailed course that events will take from here cannot be predicted, but we can be certain that over the coming months governments will be ready to move heaven and earth to prevent a deepening crisis, by any means at their disposal.  – Alasdair Macleod

The start of an economic crash of unprecedented magnitude began in 2008.  The true severity of this crash was delayed by mark to market accounting, increased debt issuance and money printing.  Many trillions of it.   But ultimately history tells us that the no amount of artificial manipulation and attempted market control can evade the laws of economics. The collapsing price of oil is a rock-solid indication that economies globally, including and especially the U.S. economy, are in a state of collapse.

Alasdair Macleod has written a must-read commentary/analysis of what is now unfolding and why.  You can read his entire article here:   Economics Of A Crash

The Shadow Of Truth will be hosting Alasdair this Thursday.  We will discussing this article as well as his take on what is now unfolding in the precious metals markets and China.