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ECON Massive Global Defaults Coming, Also: Big Banks In Trouble- Greg Hunter
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  1. #1
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    Massive Global Defaults Coming, Also: Big Banks In Trouble- Greg Hunter

    The lookout in the Titanic crows nest rang the warning bell and shouted "Iceberg right ahead!" over the telephone to the bridge. https://www.encyclopedia-titanica.or...ght-ahead.html

    As nearly as I can determine, what you are hearing now is the economic equivalent of "Iceberg right ahead!" Ignore the warning at your peril.
    ----------------------------------------------------------------------------------------------

    Video at the link, or see https://www.youtube.com/watch?time_c...&v=WOFWq3Cau2c

    R/T 26:35
    ===========================

    https://usawatchdog.com/massive-glob...michael-pento/

    Massive Global Defaults Coming Ė Michael Pento
    By Greg Hunter On October 11, 2017 In Market Analysis 167 Comments
    By Greg Hunterís USAWatchdog.com

    Money manager Michael Pento says President Trump sent a profound financial message to Wall Street and Main Street when he said $74 billion in Puerto Rican debt needed to be ďwiped out.Ē Pento, who is also an economist, explains, ďWhat I find very striking is that Trump said, very honestly, weíre going to get rid of that. Weíre going to abrogate it. Weíre going to cancel that debt. So, heís telling private creditors, Goldman Sachs, pension funds and individual bond holders, youíre going to get close to, if not exactly, zero cents on the dollar. Thatís an explicit default on debt. . . .

    Ladies and gentleman, please listen to me, the governments of the world, which include the United States, Puerto Rico, Greece, China, Japan and Eurozone, they are going to default on their debt either explicitly or implicitly through inflation. That is whatís happening now, and that condition will only exacerbate as we go through time.Ē

    Is Puerto Rico a test for debt default? Pento says, ďAbsolutely correct. Itís whatís going to happen. There has also been a test case in Cyprus and in Greece. They are telling creditors you are going to get ĎXí cents on the dollar. These are small isolated cases, and please donít believe that the United States can ever fund its $20.3 trillion worth of debt thatís on the balance sheet. We have over a hundred trillion dollars in unfunded liabilities, and quadrillions of debt in derivatives. So, we are going to have massive defaults.Ē

    Pento says even though the stock market has made huge gains in 2017, donít expect this to continue. Pento contends, ďYear-over-year growth for the third quarter (Q3) is just 2.9%. . . . So, you have no more earnings growth. Itís very miniscule. GDP (Gross Domestic Product) according to the New York Fed for Q3, itís 1.8%. If you look at the Atlanta Fed, itís just a little bit above 2%. So, you are still stuck in that 2% range. Thereís no real growth in GDP and no real growth in earnings. The only thing you have left (holding up the markets) is central banks, and that game is ending. You have central banks selling when there is a high risk of nuclear war, WWIII, stocks are trading at all-time record highs and 138% total market cap to GDP when the average is 50%. This is crazy. There is no way you can justify the level of stock prices without massive and unrelenting money printing, which is coming to an end.Ē

    On gold, Pento says, ďYouíve got to have 10% physical gold in your liquid net worth. It has to be physical gold that you possess directly. I cannot stress that enough. . . . I like all precious metals. They are going to be in a massive and unprecedented bull market sometime in 2018.Ē

    Join Greg Hunter as he goes One-on-One with economist Michael Pento of Pento Portfolio Strategies.
    (To Donate to USAWatchdog.com Click Here)

    After the Interview:
    Michael Pento also predicts in the coming crash that the tech heavy NASDAQ will fall 85% and wonít come back for 15 years, same as in the Dot-com crash in 2000. There is free information, analysis and videos on PentoPort.com.
    Last edited by Dozdoats; 10-13-2017 at 02:05 AM.
    The wonder of our time isnít how angry we are at politics and politicians; itís how little weíve done about it. - Fran Porretto
    -http://bastionofliberty.blogspot.com/2016/10/a-wholly-rational-hatred.html

  2. #2
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    Video at the link, or see https://www.youtube.com/watch?v=a3qbrBvfzLw

    R/T 28:05
    ======================

    https://usawatchdog.com/big-banks-in...x-cuts-update/

    Big Banks in Big Trouble, Syria/NK Update, Trump Tax Cuts Update
    By Greg Hunter On October 13, 2017 In Weekly News Wrap-Ups No Comments
    By Greg Hunter’s USAWatchdog.com
    (WNW 306 10.13.17)

    The International Monetary Fund (IMF) says there are nine big global banks in big financial trouble. These nine banks represent $47 trillion in assets. Gregory Mannarino of TradersChoice.net says these nine banks could all be the equivalent to Lehman Brothers that imploded the financial markets in 2008. The IMF agrees and warns it will only take one of the nine named banks to cause global “systemic stress.” Citigroup is the only U.S. bank named by the IMF as a struggling global bank.

    Turkey, a NATO ally, is siding with Russia and Iran in Syria. That is going to be a big problem for the Trump Administration as the U.S. is backing the Kurds, which are an enemy of Turkey. Meanwhile, in North Korea, the signs are that a new ballistic missile test is coming. How will the Trump Administration respond?

    The Trump tax cuts are facing big headwinds in Congress. Some want more cuts and some want less. Conservatives do not want the deficit to explode, and some Democrats agree. The potential Trump tax cuts are one of the big reasons the stock market is hitting new highs. Some predict if the tax cuts fail to pass, the markets will crash.

    Join Greg Hunter as he talks about these stories and more in the Weekly News Wrap-Up.
    (To Donate to USAWatchdog.com Click Here)

    After the Wrap-Up:
    Pat Muth, author of the new book “A Title in the Making,” will be the guest for the Early Sunday Release. She documents that ever since the Ross Perot movement, America has been slowly waking up to the fact the country is run by crooks. It’s now reaching critical mass to provoke real change for the good of the citizens and not the donors. Muth contends the two parties today consist of “We the People” vs. the “Swamp Creatures.” It’s an eye opening and inspiring interview.
    The wonder of our time isnít how angry we are at politics and politicians; itís how little weíve done about it. - Fran Porretto
    -http://bastionofliberty.blogspot.com/2016/10/a-wholly-rational-hatred.html

  3. #3
    Michael Pento on the coming bond market collapse, global debt ...
    Video for Michael Pento bond market collapse


    https://www.youtube.com/watch?v=XcX-nVKWcj4

    Mar 16, 2017 - Uploaded by David Moadel


    Michael Pento on the coming bond market collapse, global debt, precious metals, portfolio protection


    Michael Pento on the coming bond market collapse, global debt, precious metals, portfolio protection, and more! // fiat currency failure, market crash, precious metals, market manipulation, Mike Pento, stock market crash 2017, bond market crash 2017, stocks gold silver commodities investing trading tips strategies, silver shortage, market crash 2017, GLD and SLV, market collapse coming, silver investing 2017, silver investing news, silver investing today, silver investing for beginners, silver investment, silver investment 2017, physical silver, physical silver shortage, physical silver demand, physical gold and silver, gold shortage, physical gold shortage, gold silver shortage, stock market crash 2017, best silver investment Visit Mr. Pento's website: https://www.pentoport.com/ and while you're there, check out his podcast, The Midweek Reality Check! And you can contact Michael Pento at mpento@pentoport.com Want more help from David Moadel? Contact David at davidmoadel @ gmail . com Subscribe to David Moadel's YouTube channel: https://www.youtube.com/channel/UCUoW... Plenty of stock / options / finance education videos here: https://davidmoadel.blogspot.com/

  4. #4
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    No offense but if you’ve heard one Greg Hunter show, you’ve heard them all...

    o)<

    mike
    black is white...

  5. #5
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    So you see absolutely no reason for concern at this point?
    The wonder of our time isnít how angry we are at politics and politicians; itís how little weíve done about it. - Fran Porretto
    -http://bastionofliberty.blogspot.com/2016/10/a-wholly-rational-hatred.html

  6. #6
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    Markets acting "Funky" last 3 weeks or so... been sitting on the wallet. The "Tells" are there but no follow up money flow. Smart & Big money hiding their intentions well. Waiting for earnings???
    Since banks are the topic, here's a list of the bigger banks trading today. See what happens as the day goes on.

    https://finance.yahoo.com/quotes/dbk...=1&bypass=true
    A man never discloses his own character so clearly as when he describes another's.

    Have you ever listened to someone and wondered,,,,,,,,
    "Who ties your shoes for you??"

  7. #7
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    Quote Originally Posted by Dozdoats View Post
    So you see absolutely no reason for concern at this point?
    The whole thing has been fake since at least 911...I'm out of the markets and anyone in them is playing with fire.
    I keep as little of my savings as possible in US dollars. Only what I need.
    Everything else is in AU/AG and Bitcoin.
    Who knows how long they can hold it together? I figured it would have crashed and burned quite a while ago...
    Anyhow, it's gonna be UGLY if it ever does get out of the puppeteers' control...

    o)<

    mike
    black is white...

  8. #8
    It was a good interview. Another recent hunter interview with Jim Rickarts (spell?) backs Pento up, from a slightly different angle. No way to get around debts that can't be paid, and one government's bond is another person's retirement plan.

    I watched a recent Kyle Bass interview yesterday. Have to say, if I had any money invested with him, I'd get it out now. He used to be the smartest guy in the room. He said numerous naive things in this one. He is investing in Greece, seeing "green shoots" and a relief of earlier putative policies forced on them. No stats for the "green shoots," and no mention of the immigrant invasion. NO economy subject to that can recover from it, so, I can't see where he is coming from here. Bass also spoke of the LV shooting, and the need for gun registration. I thought he was more savy than that.

    Well, my bet is on Pento and Rickarts.

  9. #9
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    Pento's portfolio is a poor representation of his "Trading or Investment" strategy. Look at what he does, not what he says.
    A man never discloses his own character so clearly as when he describes another's.

    Have you ever listened to someone and wondered,,,,,,,,
    "Who ties your shoes for you??"

  10. #10
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    Anyhow, it's gonna be UGLY if it ever does get out of the puppeteers' control...

    For me it isn't an "if" - it's a WHEN.

    Arrangements here are about the same save sans Bitcoin and plus moose pasture...
    The wonder of our time isnít how angry we are at politics and politicians; itís how little weíve done about it. - Fran Porretto
    -http://bastionofliberty.blogspot.com/2016/10/a-wholly-rational-hatred.html

  11. #11
    Quote Originally Posted by alchemike View Post
    The whole thing has been fake since at least 911...I'm out of the markets and anyone in them is playing with fire.
    I keep as little of my savings as possible in US dollars. Only what I need.
    Everything else is in AU/AG and Bitcoin.
    Who knows how long they can hold it together? I figured it would have crashed and burned quite a while ago...
    Anyhow, it's gonna be UGLY if it ever does get out of the puppeteers' control...

    o)<

    mike
    Hey, we're getting there.

    Eventually infrastructure crumbles to the point where it just stops working - dams break, bridges break, water isn't potable, electric is spotty, and goods don't get delivered. Eventually, we get so much diversity, we loose all social cohesion/co-operation, and tribes will just prey on eachother.

    Taken longer than I expected too, but it is coming...I STILL don't see any alternatives.

  12. #12
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    Quote Originally Posted by 2x2 View Post
    Pento's portfolio is a poor representation of his "Trading or Investment" strategy. Look at what he does, not what he says.
    Pento portfolio; Guess what???? can you spot the flaw? Err,,,, Flaws??

    http://pentoport.com/managed-accounts.php
    A man never discloses his own character so clearly as when he describes another's.

    Have you ever listened to someone and wondered,,,,,,,,
    "Who ties your shoes for you??"

  13. #13
    Quote Originally Posted by 2x2 View Post
    Pento portfolio; Guess what???? can you spot the flaw? Err,,,, Flaws??

    http://pentoport.com/managed-accounts.php
    PM's excepted, he warns against "buy and hold." As long as ETF's are currently making money, no reason not to be invested, and dump them as soon as they become loosers. He is a trader, not a purist.

  14. #14
    Quote Originally Posted by alchemike View Post
    The whole thing has been fake since at least 911...I'm out of the markets and anyone in them is playing with fire.
    I keep as little of my savings as possible in US dollars. Only what I need.
    Everything else is in AU/AG and Bitcoin.
    Who knows how long they can hold it together? I figured it would have crashed and burned quite a while ago...
    Anyhow, it's gonna be UGLY if it ever does get out of the puppeteers' control...

    o)<

    mike
    That all sounds wise to me...except the bitcoin. I am not sold on that.


  15. #15
    Central Banks Are Transitioning the World Away From the Dollar

    https://www.youtube.com/watch?v=cin_3j7nJeo

    Central Banks around the world continue to position themselves for the eventual day when the US Dollar will be replaced as the reserve currency of the world. All fiat money fails throughout history, always.

    James Rickards discusses what he sees unfolding and how Central Banks are positioning themselves right now, for this new future.


    The days of "King Dollar" are soon coming to a historic and violent end.

  16. #16
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    Err,,,, Flaws??

    Yuck.

    I'll manage my own portfolio, thanks.
    The wonder of our time isnít how angry we are at politics and politicians; itís how little weíve done about it. - Fran Porretto
    -http://bastionofliberty.blogspot.com/2016/10/a-wholly-rational-hatred.html

  17. #17
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    Graphics at the link...

    Imbalances in the market do happen ... it's something to take advantage of, if you can. Keep in mind that the bullion coins are weight as stamped, while the numismatics usually weigh a bit less than even ounces or fractions thereof. Be sure to know what you are buying and what you are paying for whenever you purchase PMs.
    ==============

    https://www.jsmineset.com/2017/10/12...uy-for-profit/

    "Fade" The Little Guy For Profit!
    Posted October 12th, 2017 at 6:11 PM (CST) by Bill Holter & filed under Bill Holter.

    As many of you know, I worked in the brokerage industry as a stockbroker/branch manager for 23 years. During that time and the 10+ years since, I have seen the “herd” move(d) violently in tandem many times. For years, smart investors would discern what retail investors were doing as a group and do the opposite quite profitably. It has been said and I have to agree, “the little guy is almost always wrong, and wrong at the wrong time”. Fade the little guy, it is usually quite profitable!

    We are again seeing this phenomenon as evidenced by the VIX trading at all time lows and huge capital betting on continued non volatility. This thought process has obviously been aided and abetted by central bank’s massive liquidity flows and “official” purchases of anything and everything to support amarkets. Just to point out, it is not so much the fault today of market participants as it is central banks for “fooling” them into their complacency.

    Another area where we can see public action is with official mint sales of coins. Zerohedge recently wrote about this here;
    The public has largely shunned purchasing metals since Feb/March of this year after 18 months of very strong appetite

    The above chart is only half of the story because it relates only to retail demand as opposed to “supply” (selling) in the retail space. (Before going any further, please do not panic as what I am talking about is “retail” as opposed to institutional or even sovereign demand, which has remained strong. And rest assured, the little guy buying retail lots will never determine the market but more on this in a moment).

    What has actually happened this year is something we have NEVER seen before, the little guy has not only backed away from purchasing coin, they have actually been sellers unlike never before. It is hard to say “why” but I have a couple of suspicions. First, “burnout”. People have watched as stocks/ bonds/real estate have continually inflated since 2013 while gold and silver prices have been suppressed. (This is a topic already covered extensively by GATA and others, if you don’t believe metals prices have been suppressed, I have some ocean front property in Arizona for you.)

    Basically, the little guy has gotten “tired” of waiting, in this sense the central banks have won by holding an exploding system together longer than the average investor can wait. Obviously another factor is “the other pasture”, it is hard for people to watch markets go higher and not be on board. Never mind interest rates at 5,000 year lows or stocks and real estate priced at all time high multiples of cash flow, earnings etc. We even see “air” trading at $4,900!

    The mass retail selling has done what one would suppose, coin premiums have sunk to all time lows. This has however created an incredible opportunity! You can now purchase AU Liberties (almost uncirculated 1933 and earlier gold coins) for LESS than current 2017 Eagles. Not only that, the premiums for higher grade “uncirculated” coins in the MS 61-MS 63 grade range are such that pricing is roughly equal to or only slightly higher than one ounce Gold Eagle prices. The anomaly is so severe, even when sourcing 1/4 and 1/2 ounce Liberties, there is little to NO PREMIUM over the one ounce coins! At this point, 1/4 and 1/2 ounce Liberties can be purchased at 5% and larger discounts to their same weight American Eagle counterparts. This makes no sense and has never happened before but it is in fact the case currently.

    To put this in perspective, Liberties were being “bid” (what dealers were paying customers) 60%-70% OVER spot back in 2009. Higher graded uncirculated coins were being bid even higher. The fear back then was president Obama would lead a charge of gold confiscation. Capital moved away from bullion and into these numismatics as an effort to cover from confiscation. The thought process was, and I believe rightly so, pre 1933 coins would be considered your “coin collection” rather than current bullion subject to confiscation. The best thing to have done then was turn numismatics into 60% more bullion, the situation is reversed today.

    The bottom line is this, given the choice of purchasing bullion or numismatics today, the choice is a no brainer. You can purchase coins with numismatic value for equal or less than a current sovereign coin. You will own a rare coin with numismatic value where premium in the future is highly likely (if not guaranteed?) to increase and maybe increase drastically …while paying a discount today to do so. Alternatively, if you own Gold Bullion the opportunity exists to swap into rare coins for very close to even up. If you wanted to swap in higher grade uncirculated coins, you might be giving up only 5%-10% weight but owning coins where the premiums will likely come back and probably substantially. Remember, these Libs and Saints have not been minted since 1933 while sovereign mints create several million of their coins each and every year …and only change the dates on them!

    The opportunity currently exists and has never existed before. Should retail investors (or even institutions if they figure this out) begin to move back in to the tiny numismatic space, the window will close rapidly. If you would like to learn more about the existing opportunity available, please contact me at bholter@hotmail.com or contact Miles Franklin at 800-255-1129. We currently have substantial inventory available and the ability to source more if needed. Obviously, once the market recognizes the mispricing, older and rare coins will be bought up to correct the current mispricing!

    Standing watch,
    Bill Holter
    Holter-Sinclair collaboration
    www.bholter@hotmail.com
    The wonder of our time isnít how angry we are at politics and politicians; itís how little weíve done about it. - Fran Porretto
    -http://bastionofliberty.blogspot.com/2016/10/a-wholly-rational-hatred.html

  18. #18
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    Wells Fargo revises expense outlook, signaling profit difficulties ahead

    (Reuters) - Wells Fargo & Co (WFC.N) management signaled on Friday that the bank may struggle to hit expense targets through next year, raising questions about how much a sales scandal is weighing on the bottom line.

    The third-largest U.S. bank by assets said its third-quarter profit fell 19 percent, due mostly to a $1 billion mortgage litigation accrual.

    But management also revised its outlook on a key expense-related metric, saying the bank expects to spend 61 cents for every dollar of revenue it generates this year, up from a range of 60 to 61 cents. Chief Financial Officer John Shrewsberry suggested Wells Fargo may also face issues hitting next year’s cost-efficiency target.

    Management now hopes to spend 59 cents for every dollar of revenue next year, the high end of a target range of 55 to 59 cents, he said.

    But much depends on loan growth and interest rates, as well as elevated costs from regulations, technology and “lingering sales practice issues,” Shrewsberry cautioned.

    Wells Fargo’s loan balances at the end of the third quarter were $951.9 billion, down $5.6 billion from the second quarter and down $9.4 billion from a year earlier

    “We are waiting for the quarter that Wells shows stronger momentum across the business and this was not the quarter,” analysts from Keefe, Bruyette & Woods said in a client note.

    The mortgage litigation accrual is for a still-pending lawsuit brought by a U.S. Justice Department-led task force, Shrewsberry told Reuters.

    The Residential Mortgage-Backed Securities Working Group has reached multi-billion dollar settlements with other banks over pre-financial crisis conduct, including Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and Goldman Sachs Group Inc (GS.N).

    “They’re working down toward the end of that list and now we’re sort of in discussions with them,” Shrewsberry said in an interview. “The billion dollars is in connection with that activity.”

    The bank’s shares were last down 3.3 percent to $53.40.

    SCANDAL WOES

    Wells Fargo has been embroiled in a sales practices scandal for more than a year. It has acknowledged opening perhaps 3.5 million accounts in customers’ names without their permission, signing others up for unwanted auto insurance, charging some for a mortgage rate-lock feature they did not request and tacking other costly add-ons to accounts.

    The bank also has the same underlying challenges as rivals, including a drop in mortgage refinancing, interest income rising slowly after a prolonged period of rock-bottom rates, expensive technology investments and new regulations.

    That has made it hard for outsiders to quantify how Wells Fargo’s scandal has influenced results.

    On a conference call, analysts asked management whether weak loan growth was attributable to consumers backing away from the bank due to the scandal, or to the bank’s caution about credit risk.

    The bank missed consensus revenue expectations for the fourth straight quarter due to the weak loan growth, and its lending profit fell.

    Overall earnings fell to $4.6 billion. On an adjusted basis, profit was $1.04 per share, scraping past estimates of $1.03, according to Thomson Reuters I/B/E/S.

    Revenue fell 2 percent to $21.9 billion, hit by a 37 percent slump in mortgage banking and auto lending. Analysts had forecast revenue of $22.4 billion.

    Wells Fargo’s net interest margin, which measures the difference between what banks spend on funds and what they generate from lending those funds, was 2.87 percent, down from 2.9 percent the prior quarter and below some analyst expectations.

    The bank spent 65.5 cents per dollar of revenue during the quarter and 63.1 cents per dollar year-to-date.

    Shrewsberry said the bank is committed to a previously stated plan to cut costs by $4 billion by the end of 2019, half of which will be reinvested into businesses.

    Net income in Wells Fargo’s community banking segment, the largest of its three major businesses and the one most directly impacted by the sales scandal, was $2.2 billion, down 31 percent due to the legal charge.

    https://www.reuters.com/article/us-w...-idUSKBN1CI1MC
    יְשׁוּעָה
    I am in competition with no one. I have no desire to play the game of being better than anyone. I am simply trying harder to be a better person than I was yesterday.
    TRUTH

  19. #19
    There are a myriad of financial doomsday threats that are real, and each carry nuclear capabilities. It's a version of Russian Roulett.
    I find it tiring that most of these articles are written by folks who are making a profit off PM's. I enjoy the insight, but

  20. #20
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    Quote Originally Posted by 2x2 View Post
    Markets acting "Funky" last 3 weeks or so... been sitting on the wallet. The "Tells" are there but no follow up money flow. Smart & Big money hiding their intentions well. Waiting for earnings???
    Since banks are the topic, here's a list of the bigger banks trading today. See what happens as the day goes on.

    https://finance.yahoo.com/quotes/dbk...=1&bypass=true
    A chump change day. Not even a good inter-day trade. Again the "tells" are telling but traders are sitting on the wallet.

    The tells; https://finviz.com/futures.ashx

    or better yet; https://finviz.com/futures_charts.ashx?t=GC&p=m5

    Wallet sitting; https://finance.yahoo.com/quotes/JNU...RY,ERX/view/v1
    A man never discloses his own character so clearly as when he describes another's.

    Have you ever listened to someone and wondered,,,,,,,,
    "Who ties your shoes for you??"

  21. #21
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    http://www.scmp.com/comment/insight-...ns-may-well-be

    The bubble economy is set to burst, and US elections may well be the trigger

    Andy Xie says the failure of central banks to focus on asset inflation has led to rising inequality on the back of mistaken stimuli. More than interest rates, it will be political tensions in the West that will burst the bubble

    PUBLISHED : Sunday, 08 October, 2017, 11:01am
    UPDATED : Sunday, 08 October, 2017, 6:37pm
    Comments: 9

    Central banks continue to focus on consumption inflation, not asset inflation, in their decisions. Their attitude has supported one bubble after another. These bubbles have led to rising *inequality and made mass consumer inflation less likely.

    Since the 2008 financial crisis, asset inflation has fully recovered, and then some. The US household net worth is 34 per cent above the peak in 2007, versus 30 per cent for nominal GDP. China’s property *value may have surpassed the total in the rest of the world combined. The world is stuck in a vicious cycle of asset bubbles, low consumer *inflation, stagnant productivity and low wage growth.

    The US Federal Reserve has indicated that it will begin to *unwind its QE (quantitative easing) assets this month and raise the *interest rate by another 25 basis points to 1.5 per cent. China has been clipping the debt wings of grey rhinos and pouring cold water on property speculation. They are *worried about asset bubbles.

    But, if recent history is any guide, when asset markets begin to tumble, they will reverse their actions and *encourage debt binges again.

    Recently, some central bankers have been puzzled by the breakdown of the Philipps Curve: that falling unemployment rates would lead to wage inflation first and consumer price inflation next. This shows how some of the most powerful people in the world operate on flimsy *assumptions.

    This inflation mystery clouds the central bankers’ meeting in Wyoming
    Despite low unemployment and widespread labour shortages, wage increases and inflation in Japan have been around zero for a quarter of a century. Western central bankers assumed that the same wouldn’t happen to them without understanding the underlying reasons.

    The loss of competitiveness changes how macro policy works. Japan has been losing competitiveness against its Asian neighbours. As its population is small, relative to the regional total, lower wages in the region have exerted gravity on its *labour market. This is the fundamental reason for the decoupling between the unemployment rate and wage trend.

    The mistaken stimulus has the unintended consequences of dissipating real wealth and increasing inequality. American household net worth is at an all-time high of five times GDP, significantly higher than the bubble peaks of 4.1 times in 2000 and 4.7 in 2007, and far higher than the historical norm of three times GDP. On the *other hand, US capital formation has stagnated for decades. The outlandish paper wealth is just the same asset at ever higher prices.

    The inflation of paper wealth has a serious impact on inequality. The top 1 per cent in the US owns one-third of the wealth and the top 10 per cent owns three-quarters . Half of the people don’t even own stocks. Asset inflation will increase inequality by definition. Moreover, 90 per cent of the income growth since 2008 has gone to the top 1 per cent, partly due to their ability to cash out in the *inflated asset market. An economy that depends on asset inflation always disproportionately benefits the asset-rich top 1 per cent.

    There have been so many theories on why inequality has risen. The misguided monetary policy may be the culprit. Germany and Japan do not have significant asset bubbles. Their inequality is far less than in the Anglo-Saxon economies that have succumbed to the allure of financial speculation.

    IMF says world economy growing although inequality putting pressure on society
    While Western central bankers can stop making things worse, only China can restore stability in the global economy. Consider that 800 million Chinese workers have *become as productive as their Western counterparts, but are not even close in terms of consumption. This is the fundamental reason for the global imbalance.

    China’s model is to subsidise *investment. The resulting overcapacity inevitably devalues whatever its workers produce. That slows down wage rises and prolongs the *deflationary pull. This is the reason that the Chinese currency has had a tendency to depreciate during its four decades of rapid growth, while other East Asian economies experienced currency appreciation during a similar period.

    Overinvestment means destroying capital. The model can only be sustained through taxing the household sector to fill the gap. In addition to taking nearly half of the business labour outlay, China has invented the unique model of taxing the household sector through asset bubbles. The stock market was started with the explicit intention to subsidise state-owned enterprises. The most important asset bubble is the property market. It redistributes about 10 per cent of GDP to the government sector from the household sector.

    The levies for subsidising investment keep consumption down and make the economy more dependent on investment and export. The government finds an ever-increasing need to raise levies and, hence, make the property bubble bigger. In tier-one cities, property costs are likely to be between 50 and 100 years of household income. At the peak of Japan’s property bubble, it was about 20 in Tokyo. China’s residential property value may have surpassed the total in the rest of the world combined.

    In 1929, Joseph Kennedy thought that, when a shoeshine boy was giving stock tips, the market had run out of fools. Today, that shoeshine boy would be a genius
    How is this all going to end? Rising interest rates are usually the trigger. But we know the current bubble economy tends to keep inflation low through suppressing mass consumption and increasing overcapacity. It gives central bankers the excuse to keep the printing press on.

    In 1929, Joseph Kennedy thought that, when a shoeshine boy was giving stock tips, the market had run out of fools. Today, that shoeshine boy would be a genius. In today’s bubble, central bankers and governments are fools. They can mobilise more resources to become bigger fools.

    In 2000, the dotcom bubble burst because some firms were caught making up numbers. Today, you don’t need to make up numbers. What one needs is stories.
    Hot stocks or property are sold like Hollywood stars. Rumour and *innuendo will do the job. Nothing real is necessary.

    In 2007, structured mortgage products exposed cash-short borrowers. The defaults snowballed. But, in China, leverage is always rolled over. Default is usually considered a political act. And it never snowballs: the government makes sure of it. In the US, the leverage is mostly in the government. It won’t default, because it can print money.

    The most likely cause for the bubble to burst would be the rising political tension in the West. The bubble economy keeps squeezing the middle class, with more debt and less wages. The festering political tension could boil over. Radical politicians aiming for class struggle may rise to the top. The US midterm elections in 2018 and presidential election in 2020 are the events that could upend the applecart.

    Andy Xie is an independent economist


    This article appeared in the South China Morning Post print edition as: No more fool’s gold
    The wonder of our time isnít how angry we are at politics and politicians; itís how little weíve done about it. - Fran Porretto
    -http://bastionofliberty.blogspot.com/2016/10/a-wholly-rational-hatred.html

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