Inflation vs. Deflation debate

[Jason]

Anything new going on with this debate heading into 2015?

Same could be said for 2016?

The longer we go the greater the risk of deflationary collapse...without massive debt forgiveness or free money....

[iWriteStuff]

Anything new going on with this debate heading into 2015?

Same could be said for 2016?

The longer we go the greater the risk of deflationary collapse...without massive debt forgiveness or free money....

I think the free money approach has been tried. But movement in the other direction may cause greater problems, a la the deflationary collapse to which you refer.

Wouldn't it be ironic if "the collapse of the dollar" wasn't the disaster folks have predicting? What if it was the uncontrollable rise of the dollar vs all other currencies? I think that's just as poor of an outcome, if not worse.

[Jason]

Anything new going on with this debate heading into 2015?

Same could be said for 2016?

The longer we go the greater the risk of deflationary collapse...without massive debt forgiveness or free money....

I think the free money approach has been tried. But movement in the other direction may cause greater problems, a la the deflationary collapse to which you refer.

Wouldn't it be ironic if "the collapse of the dollar" wasn't the disaster folks have predicting? What if it was the uncontrollable rise of the dollar vs all other currencies? I think that's just as poor of an outcome, if not worse.

Rising dollar and deflation is what I've been arguing for years on here...

I've not seen the free money approach tried on a macro scale....just some handouts to the banks to keep them alive and well. Not to the folks on the bottom holding up the weight of the pyramid....although I reckon could be argued with some refundable tax credits (recall Bush doing big tax credit payment back...but amounted to chump change at the end of the line)...

[iWriteStuff]

Anything new going on with this debate heading into 2015?

Same could be said for 2016?

The longer we go the greater the risk of deflationary collapse...without massive debt forgiveness or free money....

I think the free money approach has been tried. But movement in the other direction may cause greater problems, a la the deflationary collapse to which you refer.

Wouldn't it be ironic if "the collapse of the dollar" wasn't the disaster folks have predicting? What if it was the uncontrollable rise of the dollar vs all other currencies? I think that's just as poor of an outcome, if not worse.

Rising dollar and deflation is what I've been arguing for years on here...

I've not seen the free money approach tried on a macro scale....just some handouts to the banks to keep them alive and well. Not to the folks on the bottom holding up the weight of the pyramid....although I reckon could be argued with some refundable tax credits (recall Bush doing big tax credit payment back...but amounted to chump change at the end of the line)...

Jason - is the risk a bigger concern for sovereign debt than domestic/private debt? My bet is on a sovereign debt crisis first. I'd say that canary in the coal mine has already been put on life support, if not completely expired already:

http://www.project-syndicate.org/commen ... rt-2015-12" onclick="window.open(this.href);return false;

As far as waves of defaulting countries go, the tide is currently out. But a fresh wave of defaults could be right on the horizon:

defaultwaves.JPG (46.75 KiB) Viewed 3512 times

[Jason]

I agree with your bet.

Most notably in the BRIC's. I've read that Russia is working hard to pay off debt with reserves...although the price of oil is really hampering them. China has a trillion in US treasuries they can liquidate to offset 3 trillion plus in borrowing. India & Brazil though in entirely different arena...along with good portion of Europe and Central/South America.

[Jason]

Why the re-inflation or reflation game cannot continue....and we'll shortly reach the point prophesied of where capital turns on labor and labor upon capital...

It is utterly impossible, as this country has demonstrated again and again, for the rich to save as much as they have been trying to save, and save anything that is worth saving. They can save idle factories and useless railroad coaches; they can save empty office buildings and closed banks; they can save paper evidences of foreign loans; but as a class they cannot save anything that is worth saving, above and beyond the amount that is made profitable by the increase of consumer buying.

It is for the interests of the well to do – to protect them from the results of their own folly – that we should take from them a sufficient amount of their surplus to enable consumers to consume and business to operate at a profit. This is not “soaking the rich”; it is saving the rich. Incidentally, it is the only way to assure them the serenity and security which they do not have at the present moment.

I repeat there is plenty of money today to bring about a restoration of prices, but the chief trouble is that it is in the wrong place; it is concentrated in the larger financial centers of the country, the creditor sections, leaving a great portion of the back country, or the debtor sections, drained dry and making it appear that there is a great shortage of money and that it is, therefore, necessary for the Government to print more.

This maldistribution of our money supply is the result of the relationship between debtor and creditor sections – just the same as the relation between this as a creditor nation and another nation as a debtor nation – and the development of our industries into vast systems concentrated in the larger centers. During the period of the depression the creditor sections have acted on our system like a great suction pump, drawing a large portion of the available income and deposits in payment of interest, debts, insurance and dividends as well as in the transfer of balances by the larger corporations normally carried throughout the country.

we have the power to produce, just as in the period of prosperity

We saved too much in this regard, that we added too much to our capital equipment. Creating overproduction in one case and underconsumption in the other because of an uneconomic distribution of wealth production. . . . Of course, we are losing $2,000,000,000 per month in unemployment. I can conceive of no greater waste than the waste of reducing our national income about half of what it was. I can not conceive of any waste as great as that. Labor, after all, is our only source of wealth.

WE are suffering from a debt structure. We are not suffering from the waste, because after all, we know today that we have the power and the facilities to produce certainly all that the people of this country need and want.

We now see, after nearly four years of depression, that private capital will not go into public works or self-liquidating projects except through government and that if we leave our “rugged individual” to follow his own interest under these conditions he does precisely the wrong thing. Each corporation for its own protection discharges men, reduces pay rolls, curtails its orders for raw materials, postpones construction of new plants and pays off bank loans, adding to the surplus of unusable funds. Every single thing it does to reduce the flow of money makes the situation worse for business as a whole.

I am talking about private credit. If it is credit we need why do not say 200 of our great corporations controlling 40 per cent of our industrial output that are in such shape that they do not need credit – they have great amounts of surplus funds – if it is credit that is needed why do they not put men to work? For the very reason that there is not a demand for goods, that we have destroyed the ability to buy at the source through the operation of our capitalistic system, which has brought about such a maldistribution of wealth production that it has gravitated and gravitated into the hands of – well, comparatively few. Maybe several millions of people. We have still got the unemployment and have got no buying power as a result.

It is elementary that debts between nations can ultimately be paid only in goods, gold, or services, or a combination of the three. We already have over 40 per cent of the gold supply of the world – that is not true; it is between 35 and 40 per cent – and as a result most of the former gold standard countries have been forced to leave that standard and currency inflation has been the result. This has greatly reduced the cost of producing foreign goods in terms of our dollar and has made it almost impossible for foreign countries to buy American goods because of the high price of our dollar measured in the depreciated value of their money. This naturally has resulted in debtors trying to meet their obligations by producing and selling more than they buy, thus enabling them to have a favourable balance of trade necessary to meet their obligations to us. If this country is to receive payment of foreign debts, it must buy and consume more than it produces, thus creating a trade balance favourable to our debtors.

We must choose either between accepting sufficient foreign goods to pay the foreign debts owing to this country, or cancel the debts. This is not a moral problem, but a mathematical one.

Debts cancelled. Then I think with the prosperity that you would get in this country you can collect more than that in income and inheritance taxes when you stop this loss of $2,000,000,000 a month through unemployment. You start the process of wealth, and even a capitalist is far better off. I am a capitalist.

I feel that one of two things is inevitable: (1) That either we have got to take a chance on meeting this unemployment problem and this low-price problem or (2) we are going to get a collapse of our credit structure, which means a collapse of our capitalistic system, and we will then start over.

https://fraser.stlouisfed.org/docs/meltzer/ecctes33.pdf" onclick="window.open(this.href);return false;

Easy money is the great cause of over-borrowing. When an investor thinks he can make over 100 per cent per annum by borrowing at 6 per cent, he will be tempted to borrow, and to invest or speculate with the borrowed money. This was a prime cause leading to the over-indebtedness of 1929. Inventions and technological improvements created wonderful investment opportunities, and so caused big debts.

The public psychology of going into debt for gain passes through several more or less distinct phases: (a) the lure of big prospective dividends or gains in income in the remote future; (b) the hope of selling at a profit, and realising a capital gain in the immediate future; (c) the vogue of reckless promotions, taking advantage of the habituation of the public to great expectations; (d) the development of downright fraud, imposing on a public which had grown credulous and gullible.

n the great booms and depressions, each of the above-named factors has played a subordinate role as compared with two dominant factors, namely over-indebtedness to start with and deflation following soon after; also that where any of the other factors do become conspicuous, they are often merely effects or symptions of these two.

Assuming, accordingly, that, at some point of time, a state of over-indebtedness exists, this will tend to lead to liquidation, through the alarm either of debtors or creditors or both. Then we may deduce the following chain of consequences in nine links: (1) Debt liquidation leads to distress selling and to (2) Contraction of deposit currency, as bank loans are paid off, and to a slowing down of velocity of circulation. This contraction of deposits and of their velocity, precipitated by distress selling, causes (3) A fall in the level of prices, in other words, a swelling of the dollar. Assuming, as above stated, that this fall of prices is not interfered with by reflation or otherwise, there must be (4) A still greater fall in the net worths of business, precipitating bankruptcies and (5) A like fall in profits, which in a “capitalistic,” that is, a private-profit society, leads the concerns which are running at a loss to make (6) A reduction in output, in trade and in employment of labor. These losses, bankruptcies and unemployment, lead to (7) Hoarding and slowing down still more the velocity of circulation.

The above eight changes cause (9) Complicated disturbances in the rates of interest, in particular, a fall in the nominal, or money, rates and a rise in the real, or commodity, rates of interest.

Evidently debt and deflation go far toward explaining a great mass of phenomena in a very simple logical way.

In summary, we find that: (1) economic changes include steady trends and unsteady occasional disturbances which act as starters for cyclical oscillations of innumerable kinds; (2) among the many occasional disturbances, are new opportunities to invest, especially because of new inventions; (3) these, with other causes, sometimes conspire to lead to a great volume of over-indebtedness; (4) this in turn, leads to attempts to liquidate; (5) these, in turn, lead (unless counteracted by reflation) to falling prices or a swelling dollar; (6) the dollar may swell faster than the number of dollars owed shrinks; (7) in that case, liquidation does not really liquidate but actually aggravates the debts, and the depression grows worse instead of better, as indicated by all nine factors; (8) the ways out are either laissez faire (bankruptcy) or scientific medication (reflation), and reflation might just as well have been applied in the first place.

https://fraser.stlouisfed.org/docs/meltzer/fisdeb33.pdf" onclick="window.open(this.href);return false;

...of course reflation is a limited and temporary intervention....no solution...vs. as Eccles pointed out in his desire for debt forgiveness...rather than what we've had happen as a result of hitting the debt saturation point(s)....which is a long term sustained policy of credit expansion a la Greenspan/Bernanke with increasingly lower interest rates to the point of no return...

Here's where we were at in 2008 (chart below):





...comparing the above chart with those noted previously...and the charts below...








...i see we are no better off and indeed much worse off today (8 years later) than we were then...


A good portion of our ability to survive as well as we have this past 8 years I believe we owed to China as noted by the chart below:





In the post 2008 debt saturation point (failure principally initiated in Europe where they have collapsed into socialistic under employment which as Marriner Eccles pointed out is the only true source of wealth)....we subsequently ignited a global economic facade by way of a global credit expansion (principally in China with an insane rise in debt largely spent on non-productive overinvestment, warehouses of undesirable widgets, empty malls, stockpiles upon stockpiles of commodities purchased at high prices, overcapacity highways to nowhere and many millions of empty apartments. Not content to stop there the government (under hard addiction to the financial narcotics) this past summer openly encouraged its people to further the borrowing by investing in trumped up markets of paper stocks...

In wishing you all the very best for 2016, I have no intention of conforming to this pattern. Instead, I plan to investigate the structure of a global economy which has become addicted to borrowing.

In any case, where the economy is concerned, I do not claim to know when things are going to happen. After all – to quote Keynes – “markets can remain irrational longer than you can remain solvent”.

But I do think we know what has to happen, even if the timing is uncertain.

At some point, a global economy which has turned into a giant Ponzi scheme has to implode.

That the world has turned its economy into a gigantic Ponzi scheme is surely beyond doubt. There seems no other way to describe a system that, as well as being massively indebted, can only function by adding yet more debt. The big problem isn’t so much the debt mountain itself as the inability to function without an uninterrupted diet of new credit.

During 2000-07, and excluding the purely inter-bank or “financial” sector, the world took on $38 trillion of new “real economy” debt, meaning that $2.20 had been borrowed for each $1 of reported “growth”. Since then, and despite a banking crisis which ought surely to have caused at least a pause for thought, we have borrowed $49 trillion, or $2.90 for each “growth” dollar.

Even these ratios, scary though they are, flatter to deceive, because the “growth” denominator is itself phoney. Such “growth” as has been reported has really amounted, of course, to nothing more than the spending of borrowed money.

In reality, the vast majority of this new debt has, instead, been wasted. The biggest borrower of recent years – China – has lavished borrowed money on capacity that nobody needs, whilst the Americans and the British, amongst many others, have poured money into inflating their property markets, and boosting consumption beyond what they can really afford.

In order to set the Ponzi economy into some context, let’s put some figures on it. In the United States, total “real economy” debt (which excludes inter-bank borrowing) increased by $19.4 trillion – in real, inflation-adjusted terms – between 2000 and 2014, whilst real GDP expanded by only $3.7 trillion. Britain, meanwhile, added £1.9 trillion of new debt for less than £400bn on “growth” over the same period. I spent part of the holiday period unearthing quite how much debt countries added for each dollar of “growth” over a period starting at the end of 2000 and ending in mid-2015.

Unsurprisingly, the league is topped by Portugal ($5.65 for each $1 of growth), Ireland ($5.42) and Greece ($5.39). Britain’s ratio ($3.46) is somewhat flattering, in that the UK has used asset sales as well as borrowing to sustain its consumption. The average for the Eurozone ($3.54) covers ratios as diverse as Germany (just $1.87) and France ($4.22).

China’s $2.56 looks unexceptional until you note that the more recent (post-2007) number is much worse. Economies which seem to have been growing without too much borrowing (such as Brazil and Russia) are now experiencing dramatic worsening in their ratios, generally in the wake of tumbling commodity prices.

In the proverbial nutshell, then, the world has become addicted to borrowing money, spending it, and passing this off as “growth”. This is a copybook example of a pyramid scheme, which in turn means that the world’s most influential economic mentor is neither Keynes nor Hayek, but Charles Ponzi.

The big corporates that drove globalisation wanted the inherent contradiction of low-paid workers who are also big-spending consumers, a paradox that Henry Ford, for one, knew to be nonsense.

The world’s capital markets mirror a global economy in which debt is enormous and real growth is in very short supply. The market value of capital assets looks inflated on any rational analysis which equates the value of an asset to the stream of income to be expected from that asset over time.

The global economic problem is analogous to the old lady who lives in a big house but has very little money coming in. Like her, the global economy is “asset-rich, income-poor”. The old lady could, of course, sell her large property, but this option is not open to a global economic system whose assets can only be sold to their existing owners.

Property markets are a classic instance of this problem. If you multiply the average price of a nation’s properties by the number of those properties, you can come up with a very impressive asset value for the housing stock as a whole. The snag, of course, is that the only people to whom this housing stock could be sold are the people who already own it.

How, in the absence of growth, can inflated capital values be sustained? The answer, of course, is that they can’t. Like all Ponzi schemes, this ends with a bang, not a whimper.

This is why I find forecasts of a ‘big fall’ or ‘sharp correction’ in markets hard to swallow. Ponzi schemes don’t end gradually, any more than someone can fall off a cliff gradually, or be “slightly pregnant”. The Ponzi economy simply continues for as long as irrationality prevails, and then implodes.

Capital markets, though, are the symptom, not the cause.

The fundamental problem is an inability to escape from an addictive practice of manufacturing supposed “growth” on the basis of borrowed money.

https://surplusenergyeconomics.wordpres ... my-part-1/" onclick="window.open(this.href);return false;

...nothing fundamentally new here in terms of financial concepts as noted by Eccles' comments above...and the only real solution is debt forgiveness. But like a monkey with a handful of rice inside a coconut....I doubt they will let go. And as noted with regard to Ponzi schemes....they continue until they don't. Word breaks...understanding sets in...panic ensues.

Growth-in-National-Debt-1993-2014
http://blog.i4sg.com/wp-content/uploads ... 3-2014.pdf" onclick="window.open(this.href);return false;

Whether or not one believes China’s GDP data, the news is depressing. There was little in the fourth quarter to indicate that gobs of monetary and fiscal easing are doing anything but cushioning the economy through an increasingly painful slog. China’s headline GDP grew 6.8% in the fourth quarter. But in nominal terms, it grew just under 6%, the slowest since last century. With debt in the economy still growing at twice that rate, this implies that a huge amount of new lending is going nowhere but to pay off old loans, not to stimulate the economy. It’s a vicious cycle that will be hard for China to escape. The reason nominal GDP was lower than headline GDP—it’s usually the other way around—was a negative price deflator, indicating overall deflation.

It was the third time in four quarters that China’s deflator has been negative, giving the headline number a boost. Some suspect that China is monkeying with the deflator; the larger it is, the more it improves the headline figure. Nor is the deflator the only figure that private economists suspect is distorting the GDP series. Oxford Economics points to industrial-output numbers that it calls overly optimistic. Adjusting for that, it said China’s GDP grew 6.1% in the fourth quarter. Capital Economics, using various proxy indicators, puts growth at 4.5%. Other indicators support the dour outlook. Industrial-production growth slowed to 5.9% in December from 6.2% in November. Services sustained the party, up 8.2% from a year earlier in the fourth quarter.

But even that is a slowdown from the previous two quarters, a sign of how much the stock-market crash and volatility in the financial-services industry are undermining the idea that China can seamlessly shift the economy from industrial output to services. The poor end to the year is especially depressing in light of the stimulus pumped into the economy over the past six months. How much worse would its performance have been without a sharp ramp-up in government spending, low interbank rates and multiple cuts in interest rates and reserve requirements? For investors who are spooked whenever China’s currency and stock markets plunge, the data are hardly reassuring. And the increasing outflows of yuan from the economy suggest locals are nervous, too.

http://www.wsj.com/articles/china-gdp-l ... 1453183305" onclick="window.open(this.href);return false;

Credit inflation is what we have had in recent decades, not money printing. There is a key difference.

China shares turned higher Tuesday, as investors weighed the likelihood of further stimulus from Beijing following data that the economy grew at its slowest pace in a quarter of a century.

Investors are happy to take a backward step and increase their cash weighting until things stabilize.” Investors have been reluctant to buy up the region’s shares, remaining nervous about how Chinese authorities will guide their markets and lower oil prices. Doubts linger about the ability of China’s central bank to curb yuan speculation, which was the initial trigger for selling in markets worldwide earlier this year.

http://www.marketwatch.com/story/china- ... 2016-01-19" onclick="window.open(this.href);return false;

...sooner or later reality will set in...

“You start to see a huge surge in volatility because everybody is just trying to get through the exits, and they’re pushing prices down just to get out of the positions.” Ten days into 2016 and more than $2 trillion has been wiped from American stocks, with the Standard & Poor’s 500 Index careening to the lowest close since August. Alternating swings in the Dow Jones Industrial Average over the last three days were the wildest since S&P stripped the U.S. of its AAA credit rating in 2011. The Chicago Board Options Exchange Volatility Index, a gauge of trader trepidation tied to options on the S&P 500, ended the week at 27.02, more than 60% above its average level in 2015. At the same time, it sits 12% below its mean reading during the six-day rout that started Aug. 18 – and 34% below its highest close in that stretch.

http://www.bloomberg.com/news/articles/ ... quity-rout" onclick="window.open(this.href);return false;

Firms on Wall Street helped bankroll America’s energy boom, financing very expensive drilling projects that ended up flooding the world with oil. Now that the oil glut has caused prices to crash below $30 a barrel, turmoil is rippling through the energy industry and souring many of those loans. Dozens of oil companies have gone bankrupt and the ones that haven’t are feeling enough financial stress to slash spending and cut tens of thousands of jobs. Three of America’s biggest banks warned last week that oil prices will continue to create headaches on Wall Street – especially if doomsday scenarios of $20 or even $10 oil play out. For instance, Wells Fargo is sitting on more than $17 billion in loans to the oil and gas sector. The bank is setting aside $1.2 billion in reserves to cover losses because of the “continued deterioration within the energy sector.”

JPMorgan is setting aside an extra $124 million to cover potential losses in its oil and gas loans. It warned that figure could rise to $750 million if oil prices unexpectedly stay at their current $30 level for the next 18 months. “The biggest area of stress” is the oil and gas space, Marianne Lake, JPMorgan’s chief financial officer, told analysts during a call on Thursday. “As the outlook for oil has weakened, we would expect to see some additional reserve build in 2016.” Citigroup built up loan loss reserves in the energy space by $300 million. The bank said the move reflects its view that “oil prices are likely to remain low for a longer period of time.” If oil stays around $30 a barrel, Citi is bracing for about $600 million of energy credit losses in the first half of 2016. Citi said that figure could double to $1.2 billion if oil dropped to $25 a barrel and stayed there.

http://money.cnn.com/2016/01/18/investi ... index.html" onclick="window.open(this.href);return false;

Oil is so plentiful and cheap in the U.S. that at least one buyer says it would need to be paid to take a certain type of low-quality crude. Flint Hills Resources, the refining arm of billionaire brothers Charles and David Koch’s industrial empire, said it would pay -$0.50 a barrel Friday for North Dakota Sour, a high-sulfur grade of crude, according to a list price posted on its website. That’s down from $13.50 a barrel a year ago and $47.60 in January 2014. While the negative price is due to the lack of pipeline capacity for a particular variety of ultra low quality crude, it underscores how dire things are in the U.S. oil patch. U.S. benchmark oil prices have collapsed more than 70% in the past 18 months and West Texas Intermediate for February delivery fell as low as $28.36 a barrel on the New York Mercantile Exchange on Monday, the least in intraday trade since October 2003.

http://www.bloomberg.com/news/articles/ ... an-nothing" onclick="window.open(this.href);return false;



....is it a supply problem...or a demand problem?

Government claims demand is up...
http://www.eia.gov/forecasts/steo/report/us_oil.cfm" onclick="window.open(this.href);return false;

Brent crude oil prices rebounded about 3 percent on Tuesday from 12-years lows after data showed Chinese oil demand likely hit a record high in 2015, but the recovery was not expected to last amid warnings that the market would stay oversupplied this year.

Analysts also attributed much of the bounce from under $28 a barrel to a brief short covering rally after oil prices crashed over 20 percent this year, triggering a record volume of short positions in the week through Jan. 12.

http://www.reuters.com/article/us-globa ... SKCN0UX02J" onclick="window.open(this.href);return false;

...and the question of the day - How long can China last?

China’s bond investors are raking it in as an equity rout scatters cash into fixed-income securities. But concerns are rising that spreading defaults and a sliding yuan will spark a selloff. Credit derivatives that are seen as a gauge of risk in the market have spiked 22 basis points since Dec. 31, the worst start to a year in data going back to 2008. The number of listed firms with debt double equity has jumped to 339 amid a weakening economy, from 185 in 2007. Traders surveyed by Bloomberg in December said note failures will spread. “2016 is a year when we will see systemic risks emerge in China’s credit market,” said Ji Weijie, credit analyst in Beijing at China Securities Co., the top arranger of bond offerings from state-owned and listed firms.

The extra yield on top-rated local corporate debentures due in five years over similar-maturity government notes dropped 3.4 basis points since the start of the year to 57.3 basis points, near a record low. The premium on dollar securities from China is at 274 basis points, near the least since 2007, a Bank of America Merrill Lynch index shows. “The Chinese government wants to maintain a low domestic borrowing rate to support growth by injecting liquidity into the system,” said Ben Sy, the head of fixed income, currencies and commodities at the private banking arm of JPMorgan Chase & Co. in Hong Kong. “CDS, on the other hand, is a proxy for global investors’ sentiment toward China and it can be speculative in nature.”

http://www.bloomberg.com/news/articles/ ... n-reaction" onclick="window.open(this.href);return false;

New orders received by Chinese shipbuilders fell by nearly half last year from 2014, suggesting more consolidation is in order as the country’s appetite for raw materials wanes and shipping rates languish at multiyear lows. Shipbuilders in China received new orders amounting to 31.3 million deadweight tons last year, a world-leading 34% share of the global market, the Ministry of Industry and Information Technology said Monday. Backlog orders fell 12% to 123 million deadweight tons, or 36% of global market share. Chinese shipbuilders have sought government support as excess vessel capacity depresses shipping rates, leading to contracts being canceled.

South Korean and Singaporean shipyards are also feeling the pain, compounded by a bribery scandal in Brazil that has further affected orders. China Rongsheng Heavy Industries, once the country’s largest private shipyard, exited the sector last year amid heavy losses and changed its name to China Huarong Energy to reflect its new business focus. In early January, Zhoushan Wuzhou Ship Repairing & Building became China’s first state-owned shipbuilder to go bankrupt in a decade. In a sign of ongoing restructuring in the sector, the 10 leading shipbuilders on the mainland accounted for 53% of total orders completed and 71% of new orders received in 2015, the ministry said.

http://www.bloomberg.com/news/articles/ ... lf-in-2015" onclick="window.open(this.href);return false;

Steel output in the world’s largest producer posted the first annual contraction in a quarter century. Mills in China, which make half of global supply, churned out less last year for the first time since at least 1991 as local demand dropped, prices sank and producers struggled with overcapacity.

Demand is weakening as policy makers seek to steer the economy away from investment toward consumption-led growth. The economy expanded 6.9% last year, the slowest full-year pace since 1990, data showed. Steel output will probably drop 2.6% this year, weakening the outlook for iron ore as global miners increase shipments, Citigroup has estimated.

“This marks the start of declining steel output in China as the economy slows,” Xu Huimin, an analyst at Huatai Great Wall Futures in Shanghai, said. “We’re likely to see more output cuts this year, though the magnitude of declines will be quite similar to 2015. Supply cuts in a glut are a long-drawn process as mills seek to maintain market share.” Crude-steel output in China surged more than 12-fold between 1990 and 2014, and the increase is emblematic of the country’s emergence as the world’s second-largest economy. Demand soared as policy makers built out infrastructure, shifted millions of people into cities and promoted consumption of autos and appliances.

Chinese steel demand is also dropping for the first time in a generation, prompting mills to export record amounts of the metal. Shipments jumped 20 percent last year to 112.4 million tons, an all-time high. Excess supply particularly from China has spurred governments across the globe to take steps to protect their home markets.

http://www.bloomberg.com/news/articles/ ... since-1991" onclick="window.open(this.href);return false;

For an economy facing its slowest economic growth in a quarter century, a 7.7% year-on-year rise in new home prices in December would seem to offer China some light at the end of the tunnel. But the headline number, published by the National Bureau of Statistics on Monday, masks China’s massive property problem – a vast amount of unsold apartments mainly in its smaller cities. Property prices were rising fast in mega cities like southern Shenzhen, where prices rocketed by nearly 47%, Shanghai, up a healthy 15.5%, and Beijing, which posted a respectable 8% gain over a year ago. But the recovery that began in October, after 13 months of straight decline, has only spread to just over half the 70 cities captured by official data, leaving others languishing far behind.

China has some 13 million homes vacant - enough to house the families of several small countries - and whittling down the excess is among Chinese policymakers top priorities for 2016.

For the first 11 months of 2015, property investment accounted for 13 percent of gross domestic product. But the sector's multiplier effect on other industries, from building materials to white goods and furniture, means its impact on the economy is far greater.

"Looking forward, the property market would continue to drag on the broad economy in 2016, with property investment probably showing weak growth momentum," said Wang Jun, senior economist at the China Centre for International Economic Exchanges (CCIEE), a Beijing-based think-tank.

http://www.reuters.com/article/us-china ... SKCN0UW178" onclick="window.open(this.href);return false;

Mark Hart, the hedge fund manager whose bets against U.S. subprime mortgages and European sovereign debt proved prescient, said China should weaken its currency by more than 50 percent this year.

A one-off devaluation would allow policy makers to “draw a line in the sand” at a more appropriate level for the yuan, easing pressure on China’s foreign-exchange reserves and removing an incentive for capital outflows, according to Hart, who’s been betting against the currency since at least 2011. China should devalue before its $3.3 trillion hoard of reserves shrinks much further, he said, because the country can still convince markets it’s acting from a position of strength.

China’s current approach to managing the currency’s decline has been costly. Foreign-exchange reserves dropped by a record $513 billion last year as the central bank intervened to ease the currency’s slide, while an estimated $843 billion of capital flowed out of China in the 11 months through November as some investors sought to get in front of further yuan weakness.

“They’re trying to drive a car with one foot on the brake,” said Hart, who estimates the People’s Bank of China spent more than $100 billion supporting the yuan in onshore and offshore markets during the first 12 days of January. “If China were to devalue to a level that wasn’t actually a true equilibrium they will get run over pretty quickly, they will blow through FX reserves, and then they will lose face because they’ll be forced to devalue.”

He’s not the only hedge fund betting against the yuan. Carlyle Group’s Emerging Sovereign Group in New York and Omni Partners in London are also positioned for a retreat in the currency. Crispin Odey, who runs Odey Asset Management, said in September that the yuan should fall by at least 30 percent.

http://www.bloomberg.com/news/articles/ ... d-fall-50-" onclick="window.open(this.href);return false;

Japan’s government is preparing legislation that would allow its $1.1 trillion public pension reserve fund to directly buy and sell stocks, a plan that is sparking divisions over the state fund’s role in private markets. The Government Pension Investment Fund currently entrusts its stock-investment money to outside managers. The welfare ministry plans to present a plan for direct investment to parliament this spring, though legislation might take until later in the year to pass, say politicians and government officials. The change would mark another step in the GPIF’s transformation from a conservative investor into one that resembles other global pension and sovereign-wealth funds. Prime Minister Shinzo Abe has encouraged the shift to reinvigorate Japan’s financial markets and improve corporate governance.

In 2014, the fund said it was nearly doubling its allocation to equities, which some investors criticized as a “price-keeping operation”—an attempt to pump up the stock market. Criticism started again after the fund posted an ¥8 trillion loss in the third quarter of 2015, and further losses are likely in the current quarter if Japanese stocks continue their current slide. The Nikkei Stock Average has fallen more than 10% since the beginning of the year and fell 1.1% Monday.

http://www.wsj.com/articles/japan-makes ... 1453102859" onclick="window.open(this.href);return false;

...bye bye pension fund...they won't be alone though...

Italian savers ditched €75 billion of bank bonds in the year ended September, further depriving lenders of a cheap source of funding. Retail holdings of the notes tumbled 27% in the period to €200 billion, extending declines since 2012, based on Bank of Italy data released on Monday. A new EU bail-in regime, which forces lenders to impose losses on creditors before they can accept state aid, has driven declines in Italian bank bonds this year, Gallo said.
http://www.bloomberg.com/news/articles/ ... -see-risks" onclick="window.open(this.href);return false;

President Francois Hollande has set out a €2bn job creation plan in an attempt to lift France out of what he called a state of “economic emergency”. Under a two-year scheme, firms with fewer than 250 staff will get subsidies if they take on a young or unemployed person for six months or more. In addition, about 500,000 vocational training schemes will be created. France’s unemployment rate is 10.6%, against a EU average of 9.8% and 4.2% in Germany. Mr Hollande said money for the plan would come from savings in other areas of public spending. “These €2bn will be financed without any new taxes of any kind,” said President Hollande, who announced the details during an annual speech to business leaders.
http://www.bbc.com/news/business-35343611" onclick="window.open(this.href);return false;

Russia could suspend loans to foreign countries as the country’s budget continues to be strained by economic recession, the Interfax news agency reported Monday, citing Deputy Finance Minister Sergei Storchak. “The budget is strained, more than strained. I think we are in a situation where we are forced to take a break from issuing new loans,” Storchak was quoted by the news agency as saying. Given the current state of the national budget, the undertaking of new obligations involves increased risk, he added, according to Interfax. Russia’s federal budget for this year, based on oil prices of $50 per barrel, will likely face problems as the oil price continues to drop dramatically. Storchak also said that negotiations on Russia’s $5 billion loan to Iran were continuing and that no final decision had been taken yet. Last year, Iran requested a $5 billion loan from Russia for the implementation of joint projects, including the construction of power plants and development of railways.
http://www.themoscowtimes.com/article/556181.html" onclick="window.open(this.href);return false;

The new chief of the U.N. refugee agency said Monday the world should find a fairer formula for sharing the burden of Syria’s crisis, including taking in tens of thousands of refugees from overwhelmed regional host nations. More than 4 million Syrians have fled their homeland, the bulk living in increasingly difficult conditions in neighboring countries such as Jordan and Lebanon, while hundreds of thousands have flooded into Europe.
http://english.alarabiya.net/en/News/mi ... rians.html" onclick="window.open(this.href);return false;

As the crash in commodities prices spreads economic woe across the developing world, Europe could face a wave of migration that will eclipse today’s refugee crisis, says Klaus Schwab, executive chairman of the World Economic Forum. “Look how many countries in Africa, for example, depend on the income from oil exports,” Schwab said in an interview ahead of the WEF’s 46th annual meeting, in the Swiss resort of Davos. “Now imagine 1 billion inhabitants, imagine they all move north.”
http://www.bloomberg.com/news/articles/ ... -migration" onclick="window.open(this.href);return false;

Chancellor Angela Merkel’s transport minister has urged her to prepare to close Germany’s borders to stem an influx of asylum seekers, arguing that Berlin must act alone if it cannot reach a Europe-wide deal on refugees. Alexander Dobrindt said Germany could no longer show the world a “friendly face” – a phrase used by Merkel as refugees began pouring into Germany last summer – and that if the number of new arrivals did not drop soon, Germany should act alone. “I urgently advise: We must prepare ourselves for not being able to avoid border closures,” Dobrindt, a member of the Bavarian Christian Social Union (CSU), told the Muenchner Merkur newspaper.
http://www.reuters.com/article/us-europ ... SKCN0UW260" onclick="window.open(this.href);return false;

Caught On Tape: 1,000 Dutch Villagers Storm Town Hall In Anti-Migrant Melee
http://www.zerohedge.com/news/2016-01-1 ... rant-melee" onclick="window.open(this.href);return false;

IBM revenue falls for 15th straight quarter
http://finance.yahoo.com/news/ibm-reven ... 42466.html" onclick="window.open(this.href);return false;

Once upon a time, getting your driver’s license was the best thing that could happen to a teenager: It meant freedom, fun and escape. These days, however, apps, videogames and virtual reality seem to be more appealing.

The percentage of young people with a driver’s license has plunged during the last several years, according to a new study by the University of Michigan’s Transportation Research Institute. In 2008, for instance, 65.4% of 18-year-olds had a driver’s license. Now, 60.1% do. The trend has been underway for decades but seems to have intensified since the recession that began at the end of 2007.

http://finance.yahoo.com/news/these-num ... 57091.html#" onclick="window.open(this.href);return false;

During a conference call, CEO James Gorman uttered a sentence that will most likely make the bank's staff shudder.

"Too many employees based in high-cost centers are doing work that can sensibly be done in lower-cost centers," he said.

"Now is the time to tackle head-on our infrastructure costs."

http://finance.yahoo.com/news/morgan-st ... 50004.html" onclick="window.open(this.href);return false;

....one can see that thought taking shape in managerial and executive heads across numerous industries...the problem though as noted by Henry Ford and Marriner Eccles is that one then takes away income...which no longer services debt...and no longer consumes....which reinforces the downward cycle by encouraging less production/labor....etc. Down the spiral we go!

[Original_Intent]

Lots of good info as always, Glen! I didn't read every bit of it, but I read a lot. Thank you!

[Jason]

Lots of good info as always, Glen! I didn't read every bit of it, but I read a lot. Thank you!

Used to get some good discussion going with these posts...miss the old days.

Drumbeat of deflation picking up in tempo and force...

"It’s Black Wednesday for emerging markets as a whole range of bad news whips out billions of dollars from stocks and currencies," said Bernd Berg, an emerging-markets strategist in London at Societe Generale SA. "The rout in emerging markets could continue for some time, especially as the major global central banks have exhausted their ammunition in recent years, making it unlikely that they will rescue global markets this time around."

More than $2 trillion has been wiped out from the value of developing-nation equities this year as the MSCI Emerging Markets Index slid 12.5 percent, the worst start to a year since data began in 1988. The drop has exceeded the 7.9 percent decline in the gauge in the same period in 1998 during the Asian financial crisis and the drop in the 2009 amid the global financial crisis.

Indian stocks are on the cusp of a bear market, potentially joining the three out of every four major emerging stock markets that have fallen 20 percent from peaks. PetroChina Co. and Petroleo Brasileiro SA slumped to the lowest levels in more than a decade, while Saudi Arabian equities tumbled 5 percent as the kingdom was said to order banks to stop trading options used to bet against the riyal. The Turkish lira and Mexican peso traded near all-time lows.

The ruble weakened as much as 3.1 percent to 81.07 per dollar, surpassing the level it touched when Russia’s financial crisis peaked in December 2014 as fighting intensified in Ukraine and international sanctions deepened concern about Russia’s isolation amid an exodus of foreign investors. Latin American currencies continued to slide, with the Mexican peso, Brazilian real retreating more than 0.5 percent.

http://www.bloomberg.com/news/articles/ ... res-tumble" onclick="window.open(this.href);return false;

Corporate results exacerbated the rout, sending MSCI Inc.’s gauge of global equities to the brink of a bear market and the Standard & Poor’s 500 Index toward its lowest close in 21 months. Russia’s ruble and Mexico’s peso fell to records, while bets mounted on an end to Hong Kong’s dollar peg. Yields on 10-year Treasuries dropped below 2 percent and the yen jumped to a one-year high.

Russia’s Micex Index declined 1 percent and the Bloomberg GCC 200 Index of equities in Gulf markets lost 3.6 percent. The ruble weakened as much as 3.1 percent to a record 81.0490 against the dollar. The Mexican peso fell to a record 18.4775 per dollar and is down 6.4 percent this year, making it Latin America’s worst performing major currency.

Saudi Arabian banks are under orders to stop selling currency products that allow investors to make cheap bets on a devaluation of the riyal, according to five people with knowledge of the matter.

Hong Kong’s dollar traded near its weakest level since 2007 and forwards contracts sank as China’s market turmoil fueled speculation the city’s 32-year-old currency peg will end.

Commodities

West Texas Intermediate crude lost as much as 4 percent to $27.32 a barrel before trading 3 percent lower. Inventories probably increased by 2.75 million barrels last week, according to a Bloomberg survey before a report from the Energy Information Administration Thursday.

Mining stocks plumbed a 12-year low and metals resumed their slump on prospects for slower economic growth in China and sustained low oil prices. Copper fell as much as 1.1 percent. The Bloomberg World Mining Index dropped as much as 2.4 percent to its lowest since September 2003, with the world’s biggest miner, BHP Billiton Ltd., losing 6.9 percent in London.

The risk premium on the Markit CDX North American Investment Grade Yield Index, a credit-default swaps benchmark tied to the debt of 100 of the safest companies, surged to 112.47 basis points, the most in more than three years. The premium on the Markit CDX North American High Yield Index, rose to 569 basis points, the highest mark since 2012.

http://www.bloomberg.com/news/articles/ ... ugust-lows" onclick="window.open(this.href);return false;

The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned.

"The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up," said William White, the Swiss-based chairman of the OECD's review committee and former chief economist of the Bank for International Settlements (BIS).

"Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief," he said.

"It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something," he told The Telegraph on the eve of the World Economic Forum in Davos.

"The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians."

Mr White said Europe's creditors are likely to face some of the biggest haircuts. European banks have already admitted to $1 trillion of non-performing loans: they are heavily exposed to emerging markets and are almost certainly rolling over further bad debts that have never been disclosed.

The European banking system may have to be recapitalized on a scale yet unimagined, and new "bail-in" rules mean that any deposit holder above the guarantee of €100,000 will have to help pay for it.

The warnings have special resonance since Mr White was one of the very few voices in the central banking fraternity who stated loudly and clearly between 2005 and 2008 that Western finance was riding for a fall, and that the global economy was susceptible to a violent crisis.

Mr White said stimulus from quantitative easing and zero rates by the big central banks after the Lehman crisis leaked out across east Asia and emerging markets, stoking credit bubbles and a surge in dollar borrowing that was hard to control in a world of free capital flows.

The result is that these countries have now been drawn into the morass as well. Combined public and private debt has surged to all-time highs to 185pc of GDP in emerging markets and to 265pc of GDP in the OECD club, both up by 35 percentage points since the top of the last credit cycle in 2007.

Mr White said the Fed is now in a horrible quandary as it tries to extract itself from QE and right the ship again. "It is a debt trap. Things are so bad that there is no right answer. If they raise rates it'll be nasty. If they don't raise rates, it just makes matters worse," he said.

There is no easy way out of this tangle. But Mr White said it would be a good start for governments to stop depending on central banks to do their dirty work. They should return to fiscal primacy - call it Keynesian, if you wish - and launch an investment blitz on infrastructure that pays for itself through higher growth.

"It was always dangerous to rely on central banks to sort out a solvency problem when all they can do is tackle liquidity problems. It is a recipe for disorder, and now we are hitting the limit," he said.

http://www.telegraph.co.uk/finance/fina ... teran.html" onclick="window.open(this.href);return false;

The recent 10 percent drop in U.S. stocks looks very small when considered in the context of the 220 percent rally from the 2009 nadir to the 2015 peak.
http://www.bloomberg.com/news/articles/ ... tory-chart" onclick="window.open(this.href);return false;

The flashing yellow light: there’s less and less power behind policy makers’ stimulus. For each $1 in credit expansion, China added the equivalent of 27 cents of gross domestic product last year, the least since 2009, according to data compiled by Bloomberg from government figures released Tuesday. As recently as 2011, each $1 generated 59 cents.
http://www.bloomberg.com/news/articles/ ... redit-buck" onclick="window.open(this.href);return false;

...welcome to the impacts of the debt saturation point!!!

Everybody seems to be a genius when credit is surging. Understandably and rightly, observers are calling upon the Chinese authorities to be more transparent. Given their political system -‘the bureaucrat knows best’- that is going to be hard to do, but this is a second-order matter. The first-order one is that it is unclear how and whether the transition to a more balanced economy is to be made. Again, some people focus on the transition from manufacturing to services. This does seem to be going quite well: according to Chinese data, industry grew at an annual rate of just 6% in the first three quarters of 2015, while services grew 8.4%. However, a large part of this apparent success is due to growth of income from financial services.

The fundamental indicators of a change in the shape of the economy would be a fall in savings and investment and a rise in consumption. Such a shift is necessary not only because much of the investment is wasted, but because it is associated with an explosive rise in debt. China has today a far higher share of investment in GDP than other high-growth east Asian economies ever had. Furthermore, according to the McKinsey Global Institute, overall indebtedness is extremely high with a concentration in non-financial corporations. It is higher than in the US, for example.

In response to the 2008 financial crisis, China promoted a huge rise in debt-fuelled investment to offset the weakening in external demand. But underlying growth in the economy was slowing. As a result, the “incremental capital output ratio” — the amount of capital needed to generate additional income — has roughly doubled since the early 2000s. China’s overall capital-output ratio is also very high and rising. At the margin, much of this investment is likely to be lossmaking. If so, the debt associated with it will also be unsound. But, if wasteful investment were slashed, the economy would go into recession.

http://www.ft.com/intl/cms/s/564c7490-b ... false.html" onclick="window.open(this.href);return false;

BEIJING -- Excess manufacturing capacity, rising real estate inventories and volatile financial markets weigh on China's economy as the government tries to engineer a soft landing, with data for 2015 suggesting that deflation may loom.

Nominal growth, based on official GDP figures, totaled 6.4%, falling below real growth for the first time since 2009. Nominal growth that is slower than real growth indicates heavy deflationary pressure. Severe overcapacity in major manufacturing industries is one cause. China’s steel industry has 400 million tons of excess capacity.

Companies are shouldering heavier real debt-repayment burdens despite repeated interest rate cuts by the People’s Bank of China. Production is depressed, with crude steel, cement and sheet glass output dropping in 2015. Electricity use, a more accurate gauge of economic conditions, slid 0.2%. Mounting real estate inventories are another drag on the economy. Inventories soared nearly 50% in two years to 718.53 million sq. meters at the end of 2015. Housing activity has been sluggish for some time in many outlying cities.

Office building vacancy rates have reached about 40% in the inland cities of Chongqing and Chengdu, a developer said. With little new investment coming in, spending on property development edged up 1% in 2015 – just one-tenth the growth seen in 2014. Turmoil in financial markets compounds the country’s problem.

http://asia.nikkei.com/Politics-Economy ... -deflation" onclick="window.open(this.href);return false;

....not to mention all the folks that took the governments advice believing the government would have their back (too big to fail)...and borrowed to invest in their stock market...

“It doesn’t take a rocket scientist to figure out the growth in old China for the past year or so has been somewhere around zero — it’s nothing like 6.8%,” Straszheim said, explaining that the “new” China of services and consumer spending is tough to measure in the absence of robust data from the private sector. [..] Derek Scissors, a scholar for the American Enterprise Institute, pointed out that China’s own official numbers seem to contradict one another. For example, China’s Xinhua reported that November railways cargo fell 15.6% year on year, but the state statistics office said industrial production through the year was up 6.1%. “What? Did they just produce the goods and leave them on the factory floor and they never went anywhere?” Scissors asked.
http://www.cnbc.com/2016/01/19/what-is- ... gh-in.html" onclick="window.open(this.href);return false;

...welcome to the Chinese welfare system...

BHP Billiton said it is committed to protecting its balance sheet amid a sharp downturn in world commodity markets, as expectations build about the miner preparing to cut its dividend. The Anglo-Australian mining giant has faced growing speculation it may have to cut its payout by as much as half this year as it grapples with plunging resources prices and the fallout from one of its worst mining disasters, a deadly dam burst at a mine operated by Samarco Mineração SA, a 50-50 joint venture with Brazil’s Vale SA. Last week, BHP also announced its largest write-down ever, a roughly US$7.2 billion pretax charge against its U.S. onshore energy assets as oil prices slumped below US$30 a barrel for the first time in more than 10 years.

In August, BHP recorded its worst annual earnings result since 2003. Slackening demand from China, as miners ramp up production from mines planned when prices were booming, has hit prices of nearly every commodity, including coal, iron ore, oil and copper, which are BHP’s core products. BHP’s share price has since slumped to its lowest level in more than a decade. That’s been exacerbated by uncertainty over the Samarco disaster. [..] the Nov. 5 incident killed at least 17 people and triggered a criminal investigation and roughly US$5 billion civil lawsuit by authorities.

Only 18 months ago, the market was speculating about the possibility of a major share repurchase by the company to reward investors. Now, even maintaining its dividend, a US$6.6 billion annual burden on its balance sheet, appears a stretch.

http://www.wsj.com/articles/bhp-lowers- ... 1453249158" onclick="window.open(this.href);return false;

If you were under the impression that the Federal Reserve was done buying Treasuries, think again. While the central bank won’t be expanding its balance sheet, about $216 billion of Treasuries in its portfolio mature in 2016, up from negligible amounts the past few years. Last week, New York Fed President William C. Dudley reiterated policy makers’ plan to keep reinvesting the proceeds for the time being, giving bondholders and Wall Street dealers reason to cheer. The Fed is the biggest holder of the government’s debt. Its $2.5 trillion hoard, amassed in a bid to support the economy after the financial crisis, is more of a focus for some investors than the trajectory of interest rates. From this month through 2019, about $1.1 trillion of Treasuries in the portfolio are set to mature.

If officials had chosen to stop funneling that money into new debt, the government would likely have to boost borrowing by roughly an equivalent amount this year, potentially pushing up Treasury yields.

Officials anticipate keeping the holdings stable until the normalization of interest rates is “well under way,” though there’s no specific level for the Fed’s target at which reinvestment would end, Dudley said in prepared remarks of a speech Jan. 15. That ensures the legacy of the Fed’s quantitative-easing programs, which boosted its Treasuries holdings from less than $500 billion in 2009, will extend even further into the future. As officials roll maturing issues into new debt, that swells the amount coming due later in the decade.

http://www.bloomberg.com/news/articles/ ... era-buying" onclick="window.open(this.href);return false;

...any question who benefited from the last financial crisis...and likely intends to benefit from this one? - i.e. ownership

...have they dug a pit? will they fall into the pit they've dug (all out chaos and loss of control)???

The ECB plans to tell euro zone banks how to better manage bad loans, banking officials said on Tuesday, in an effort to resolve an issue that is curbing the region’s economic recovery. Bad loans have more than doubled across the euro zone since 2009 and stood at nearly a €1 trillion at the end of 2014, the IMF said last year. Those loans burden banks and make it harder for them to lend. The ECB has asked a number of banks across the euro zone, including Italy’s Monte dei Paschi di Siena and UniCredit, about their non-performing loans. They were selected to establish a representative sample, not necessarily because they are particularly affected, the sources said. Italian bank shares have tumbled in recent days on fears the ECB had singled out some banks because of their vulnerabilities.
http://www.reuters.com/article/us-ecb-b ... SKCN0UX23C" onclick="window.open(this.href);return false;

Yanis Varoufakis was instructed last year by Prime Minister Alexis Tsipras to put together a small team of people to draw up a plan for introducing a parallel currency if Greece was unable to reach an agreement with its lenders on a new bailout, the ex-finance minister said in a TV interview late Tuesday. Speaking on Skai TV’s “Istories” (Stories) program, Varoufakis outlined what was known as Plan X. He said that a small team of about six people examined the various parameters surrounding a potential standoff that would lead to Greece being unable to meet its obligations. Among the issues examined by Varoufakis and his advisers were how the country would continue to have access to medicines, fuel and food under such circumstances.

Varoufakis said that he advised Tsipras to put the plan, which would see Greece defaulting on 27 billion euros in Greek government bonds held by the European Central Bank, into action as soon as he called a referendum at the end of June.

Varoufakis said that Tsipras considered adopting Plan X but that he was advised against it by Deputy Prime Minister Yiannis Dragasakis.

“The prime minister thought about it very carefully,” said the ex-minister. “I saw him puzzle over what he should do and in the end he decided to follow Dragasakis’s recommendation and not mine.” Varoufakis added that he was against efforts to secure funding from Russia but that there had been an agreement with China regarding investment in Greece, including in Greek bonds. “This agreement was overturned, though, with a phone call from Berlin,” he claimed. The outspoken economist said that he became frustrated with Tsipras when the prime minister agreed to a primary surplus target of 3.5% of GDP for the coming years, saying that he thought this goal was “macroeconomically impossible.” Tsipras told him that he agreed in return for receiving debt relief. “It’s true I don’t have a lot of hair but when I heard this I started pulling out what little I have left,” he said. Varoufakis admitted that he “failed” during his time in office. “I carry a great responsibility,” he said. “I would do a lot of things differently.”

http://www.ekathimerini.com/205218/arti ... -rejection" onclick="window.open(this.href);return false;

....there's always Plan X...

[Jason]

At least 40 stock markets around the world with a total value of $27 trillion are in bear territory, as investors witness the worst start to a year on record. The U.K. was the latest market to fall 20 percent from its peak, while India is less than 1 percent away from crossing the threshold that traders describe as the onset of bear market. Nineteen countries with $30 trillion have declined between 10 percent and 20 percent, thereby entering a so-called correction, according to data compiled by Bloomberg from the 63 biggest markets on Wednesday.
http://www.bloomberg.com/news/articles/ ... ar-markets" onclick="window.open(this.href);return false;

The 31 biggest developing markets have lost a combined $2 trillion in equity values since the start of 2016. “We’ve seen massive outflows from emerging markets to the benefit of the euro zone and Japan,” said Ibra Wane at Amundi Asset Management. “Institutional investors have been more attracted by these regions.” Wane said the shift in flows is a result of monetary-policy changes, as the Federal Reserve raised interest rates in December for the first time in almost a decade, which is also partly to blame for the volatility in emerging-market currencies. “I’d rather look first at stabilization of currencies,” Wane said. “If this were to come true, then probably also flows would come on top of it.”

All 24 emerging-market currencies tracked by Bloomberg have depreciated against the dollar in the past year, with the Argentine peso, the Brazilian real and the South African rand getting hit the worst. “Countries with large current-account deficits, high levels of foreign-exchange corporate indebtedness and questionable macro policy frameworks would come under particular pressure in the event of further emerging-market retrenchment,” the IIF report said. “At-risk countries include Brazil, South Africa and Turkey.” The Chinese yuan’s 5.5% drop in the past 12 months was one of the drivers of outflows from the world’s second biggest economy, according to the IIF report. “The 2015 outflows largely reflected efforts by Chinese corporates to reduce dollar exposure after years of heavy dollar borrowing, as expectations of persistent RMB appreciation were replaced by rising concerns about a weakening currency,” the report said.

http://www.bloomberg.com/news/articles/ ... o-iif-says" onclick="window.open(this.href);return false;

The front-month U.S. oil contract settled down 6.7%, posting the biggest one-day loss since September. Oil prices have dropped more than 25% this year. Light, sweet crude for February delivery settled down $1.91 to $26.55 a barrel on the New York Mercantile Exchange. The February contract expires at settlement Wednesday. Brent, the global benchmark, fell 82 cents, or 2.9%, to $27.94 a barrel on ICE Futures Europe, also on track for the lowest settlement since 2003. Oil investors fear that demand in China, which consumes about 12% of world’s crude, may falter as the country shifts to a less energy-intensive economic model.
http://www.foxbusiness.com/markets/2016 ... ember.html" onclick="window.open(this.href);return false;

The People’s Bank of China injected the most cash in almost three years in its open-market operations, helping ease a cash squeeze as the coming Chinese New Year holiday spurs demand for funds at a time when capital outflows are mounting. The central bank said it conducted 110 billion yuan ($16.7 billion) of seven-day reverse-repurchase agreements and 290 billion yuan of 28-day contracts. That compares with 160 billion yuan of contracts that matured and resulted in a net cash injection of 315 billion yuan for this week’s two auctions. Other lending tools were used to add about 700 billion yuan this week for terms ranging from three days to a year. Gross domestic product rose last year at the slowest pace in a quarter century and intervention to prop up the exchange rate led to a record $513 billion plunge in the nation’s foreign-exchange reserves. The central bank injected 410 billion yuan into the banking system via three- and 12-month loans under its Medium-Term Lending Facility this week, while Short-term Liquidity Operations were used to add 55 billion yuan of three-day loans on Monday and another 150 billion yuan of six-day funds on Wednesday. The PBOC also auctioned 80 billion yuan of treasury deposits on behalf of the Ministry of Finance this week.
http://www.bloomberg.com/news/articles/ ... s-ijnkv3q4" onclick="window.open(this.href);return false;

If Bank of America is right, Chinese stocks in Hong Kong are poised for a fresh wave of selling. That’s because the benchmark Hang Seng China Enterprises Index is approaching a level that forces investment banks to pare back their bullish futures positions, according to William Chan, the head of Asia Pacific equity derivatives research at BofAML in Hong Kong. The trades, tied to banks’ issuance of structured products, are likely to start unwinding when the index falls through 8,000, a level it briefly breached on Wednesday. The nation is among the region’s biggest markets for structured products and there’s currently a notional value of about $34 billion from Korea linked to the Hang Seng China measure, according to Chan. When banks sell the structured products to investors, they take on an exposure that’s similar to purchasing a put option on the index, Chan said. To hedge against the possibility of a rally, the banks buy Hang Seng China index futures. If the stock gauge falls below knock-in levels for the structured products – the price at which investors begin to lose their principal – the sensitivity of the bank’s position to index swings gets smaller, and banks respond by selling futures to reduce their hedge.
http://www.bloomberg.com/news/articles/ ... res-unwind" onclick="window.open(this.href);return false;

...not bad for a couple weeks ehh?

[Original_Intent]

I guess the problem with convincing everyone that you are right is it does kill the discussion.

[Jason]

I guess the problem with convincing everyone that you are right is it does kill the discussion.

LOL...yeah sorry. Guess I wasn't so concerned with being right as I was enjoying the different viewpoints...which causes me to reflect on mine and think through things a bit more.

You hit the nail on the head though as we are certainly experiencing it...which kills the debate...except perhaps with LIT.

Left with the curiosity of seeing where this is going to land...and what the fall will be like...


What are your thoughts on Plan X?

[Jason]

Japanese stocks surged by the most in four months as investors weighed prospects for central bank stimulus and bought back into a bear market to cover short positions. The Topix index jumped 5.6% to 1,374.19 at the close in Tokyo, the most since Sept. 9 and paring its worst monthly loss since October 2008. The Nikkei 225 Stock Average soared 5.9% to 16,958.53, also supported by a report the Bank of Japan is considering extra monetary easing. Global equities halted losses on the brink of a bear market as oil rallied and the ECB signaled it may boost stimulus. “We’re seeing short squeeze galore,” said Mikey Hsia at Sunrise Brokers. “Much of this is technical. Japan has had big moves for three days in a row now – it’s becoming common.”
http://www.bloomberg.com/news/articles/ ... us-signals" onclick="window.open(this.href);return false;

The story of this young Japanese entrepreneur is fictitious, though there are some real-world parallels. But the part about the Sharp bailouts -- first by the banks and now by the government -- is all too true. Japan Inc. looks dead set on keeping the flailing electronics giant alive. That will keep the market flooded with artificially cheap Sharp products -- mobile phones, solar panels, air conditioners, printers, microwave ovens and a host of other items. Entrepreneurs looking to use the Japanese market as a launching pad for innovative products and processes will find themselves blocked by zombies. In reality, prospective Japanese entrepreneurs know this, and avoid taking the plunge in the first place.
http://www.bloombergview.com/articles/2 ... panies-die" onclick="window.open(this.href);return false;

China’s fragile shares rose modestly on Friday, showing only a muted response to hints of more policy stimulus in Europe and Japan, which prompted a rally in battered oil prices and global equities. Highlighting the lack of faith in the markets, trading volumes in January have been about a third of typical levels last year, which only exaggerates price movements.
http://www.reuters.com/article/us-china ... SKCN0V004N" onclick="window.open(this.href);return false;

...be interesting to know who the third consists of that is doing all the trading...

The ECB president’s hint that policy makers will bolster stimulus on March 10 raises the prospect of the Governing Council delivering another expansion to its €1.5 trillion bond-buying program, including potentially taking it into new asset classes. Emphasizing the ECB’s ambition to reporters on Thursday, Draghi said that there are “no limits” to how far officials will go to safeguard their inflation goal. “It’s a bit like Groundhog Day,” said Carsten Brzeski at ING-Diba in Frankfurt, reminiscing about the 1993 Bill Murray comedy. “The only question is, will he fulfill the dreams of markets this time around, or will he disappoint again?”
http://www.bloomberg.com/news/articles/ ... ket-dialog" onclick="window.open(this.href);return false;

A tide of money went out to emerging markets for more than a decade, pushed by accommodative monetary policy in the U.S. and pulled by the promise of robust growth. Now that tide is coming back in as investors seek to repatriate funds or flock to U.S.-dollar denominated assets as a safe haven amid sluggish economic growth and global market turmoil. “There are around $47 trillion in private and official investment abroad and far too many that wish to retreat home or to the U.S.,” writes Deutsche Bank Macro Strategist Sebastien Galy in a report titled “The Retreat of Global Balance Sheets.” “These flows are triggered in good part by a recognition that emerging markets’ potential growth is slowing down structurally without enough compensating growth in developed economies.” The broad implications of this is that liquidity will be starved in parts of the emerging markets but ample in advanced economies and that the U.S. dollar and euro should benefit, the latter more so from direct investments than from portfolio inflows. Emerging markets, meanwhile, will suffer from elevated debt loads, lower growth prospects, and higher costs of servicing dollar-denominated debt.
http://www.bloomberg.com/news/articles/ ... o-the-u-s-" onclick="window.open(this.href);return false;

A number of emerging markets are taking a risky approach to dealing with growing pressure on their currencies: They’re trying to ban it. Oil-dependent Azerbaijan said this week it would slap a 20% tax on any transaction that takes money out of the country. Saudi Arabia told banks with branches there to stop allowing traders to make certain bets on further depreciation of its currency, the riyal. Nigeria recently halted imports of goods including rice and toothpicks and imposed spending limits on credit and debit cards denominated in foreign currency. The capital controls are aimed at deterring or slowing the outflow of money and reducing the downward pressure on currencies that traders are betting have farther to fall. But they also risk exacerbating the problem by driving away foreign investors who bristle at limitations on the flow of capital and hurting businesses that need to hedge. “It’s a sign of economic weakness and a dramatic shift in terms of trade, and it also increases the risk premium because of the policy uncertainty,” said George Hoguet at State Street Global Advisors. How emerging markets will manage a massive outflow of capital, weakness in their currencies and a swollen debt burden is a major question hanging over the global economy. Trillions of dollars flowed into emerging markets in the years after the financial crisis.

Emerging markets suffered record net outflows of $732 billion in 2015, with China accounting for the bulk of that, according to the Institute of International Finance. Their currencies, meanwhile, weakened an average 17.6% against the dollar last year, according to money manager Ashmore Group, and the trend has shown no signs of letting up. The Russian ruble, Mexican peso and Colombian peso all hit record lows against the dollar on Wednesday. Emerging-market currencies fell 3% in the first two weeks of 2016.

http://www.wsj.com/articles/battered-em ... 1453410496" onclick="window.open(this.href);return false;

As a matter of policy, the Treasury has never disclosed the holdings of Saudi Arabia, long a key ally in the volatile Middle East, and instead groups it with 14 other mostly OPEC nations including Kuwait, the United Arab Emirates and Nigeria. For more than a hundred other countries, from China to the Vatican, the Treasury provides a detailed breakdown of how much U.S. debt each holds. They range from the $3 million stake held by the Seychelles, to the $69.7 billion investment from the oil-producing economy of Norway, and those of China and Japan, which are both in excess of $1 trillion. Apart from the kingdom itself, only a handful of Treasury officials, and those at the Federal Reserve who compile the data on their behalf, have a clear picture of Saudi Arabia’s U.S. debt holdings and whether they’re rising or falling. For everyone else, it’s a guessing game.
http://www.bloomberg.com/news/articles/ ... me-crucial" onclick="window.open(this.href);return false;

At present prices, UK residential property is now ‘worth’ about £5 trillion (£5,000 billion) and about 65% is owner occupied. Commercial property, all those shops, factories, offices, plant is ‘only’ £400 billion. The London Stock Exchange, which includes multinational giants with most of their assets and income overseas, is only worth £2.25 trillion. British Government Bonds are £1.5 trillion. There is approximately £700 billion of cash on deposits held by individuals.
http://www.westernmorningnews.co.uk/Com ... story.html" onclick="window.open(this.href);return false;

The Italian banking index is down 18% this year, and Italy’s third-largest and most historically troubled bank, Monte dei Paschi, has lost 50% of its value during the same period. The most dramatic drops have taken place this week. The Italian stock market regulator has deemed it necessary to ban short selling on Monte dei Paschi stock in an attempt to prevent speculators from benefiting by driving it lower, yet it continues to fall.
http://www.marketwatch.com/story/italy- ... 2016-01-21" onclick="window.open(this.href);return false;

The European Union will need to provide significant debt relief for Greece if it is to persuade the International Monetary Fund to put its financial clout behind the country’s third bailout package, the Washington-based organisation has said. The IMF took part in the first two Greek bailouts but is concerned that, at 175% of GDP, Greece’s debts are too burdensome and will prevent a lasting recovery. Lagarde told Tsipras the IMF regarded reform of Greece’s pension system, which accounts for 10% of GDP, as vital.
http://www.theguardian.com/business/201 ... ew-bailout" onclick="window.open(this.href);return false;

From end-June to November 2015, the capital controls cost Greek exports, and therefore the economy in general, some €3.5 billion, or 2 %age points of the country’s GDP, according to an analysis of Bank of Greece data by the Panhellenic Exporters Association. In addition to the €1.88 billion net loss in takings in the first 11 months of last year compared with the year before, exports are believed to have missed out on another €1.65 billion as according to the course set in the first half of the year, the momentum would have seen exports swell considerably in 2015. At the same time, the transactions terms between Greek enterprises and foreign partners (clients or suppliers) remain very tough, according to the exporters. Furthermore, foreign clients of Greek companies are delaying payments as the local firms are at a disadvantage and cannot exert pressure on them.
http://www.ekathimerini.com/205308/arti ... l-controls" onclick="window.open(this.href);return false;

An estimated 122,700 households in Greece are facing the threat of losing their homes due to accumulated loan and tax obligations that they cannot pay, a survey by Marc research company for the Hellenic Confederation of Professionals, Craftsmen and Merchants showed on Thursday.

A great number of households surveyed (36.3 percent) said that they live on up to 10,000 euros per year, which is the lowest income bracket. This is up from 34.4 percent in 2014 and 28.1 percent in 2013.

Of particular concern is the finding that more than half of the households polled (51.8 percent) have a pension as their main source of income, up from 42.3 percent in 2012. Just 6.1 percent of respondents said they have a business activity as the main source of income, less than half of the share recorded in 2012 (12.6 percent).

http://www.ekathimerini.com/205307/arti ... possession" onclick="window.open(this.href);return false;

According to a survey conducted by the Greek Ombudsman: one in five residents seeks soup kitchens and social groceries in order to get food. Three in ten have no heating and hot water. One in four living in apartment buildings have not turn on the radiators since 2010. The survey has been conducted in 2015 and in Kypseli, Ano Patisia and Agios Panteleimonas districts of Athens as well as in Nikaia-Rendis and Perama suburbs of Piraeus. 17% of the residents of these areas have experienced electricity and/or water outage due to unpaid bills. One in four had to make debt arrangements with the Power or Water company in order to gain again access to electricity and/or water. Almost half (48.5%) said that in the last five years, they have faced difficulties in the repayment of debts to banks, credit cards, taxes, rents, building maintenance cost, tutor schools and schools. One in six (17%) said that they have experienced power/water outage and one in four (23.4%) said that they live in apartment buildings where the central heating does not operate for economic reasons. 80.2% said that their need for heating in winter and cooling in summer is not covered. 29.2% said that their needs for heating/cooling, cooking, hot water, refrigerator and electricity are not covered due to economic reasons. 35.03% use electricity for heating (electric radiator or A/C), 33.09% use heating oil, 9.04% use natural gas, 8.47% use firewood and 7.34% use LPG. 17% said that they had no telephone landline, 23.2 had no personal computer and 27.7% had no internet access.
http://www.keeptalkinggreece.com/2016/0 ... hot-water/" onclick="window.open(this.href);return false;

Migrants and refugees arriving in Greece must state their final destination to travel further into the European Union, a Greek police source told Reuters on Thursday, following moves by neighbouring states to quell migrant flows. Serbia on Wednesday said it would deny migrants access to its territory unless they planned to seek asylum in Austria or Germany. “As of today, the final destination – as stated by the migrants – will be registered in the official documents,” the official said without disclosing the reason for the decision.
http://www.ekathimerini.com/205281/arti ... estination" onclick="window.open(this.href);return false;

Germany’s southern states are confiscating cash and valuables from refugees after they arrive, authorities in Bavaria confirmed on Thursday. “The practice in Bavaria and the federal rules set out in law correspond in substance with the process in Switzerland,” Bavarian interior minister Joachim Herrmann told Bild on Thursday. “Cash holdings and valuables can be secured [by the authorities] if they are over €750 and if the person has an outstanding bill, or is expected to have one.” Authorities in Baden-Württemberg have a tougher regime, where police confiscate cash and valuables above €350. The average amount per person confiscated by authorities in the southern states was “in the four figures,” Bild reported.
http://www.thelocal.de/20160121/germans ... -valuables" onclick="window.open(this.href);return false;

[Original_Intent]

It kills me that the market is completely driven by expectations of the Central banks actions, fundamentals like PE mean little.

[Jason]

[Jason]

U.S. consumers have long had an impressive propensity to get into debt. Lately, though, one lender has been playing a much bigger role in enabling them: Uncle Sam.

Total U.S. consumer credit -- which includes credit cards, auto loans and student debt, but not mortgages -- stood at $3.54 trillion at the end of March, according to the latest data from the Federal Reserve. That's the most on record, both in dollar terms and as a share of gross domestic product.

What's really unusual, though, is the source of the money: The federal government accounted for almost 28 percent of the total. That's up from less than 5 percent before the 2007-2009 recession, thanks in large part to the government's efforts to promote education by making hundreds of billions of dollars in student loans directly, rather than going through banks.

Without the government's involvement, consumer credit as a share of gross domestic product would still be well below the pre-recession level (all else equal).

http://www.bloomberg.com/view/articles/ ... -uncle-sam" onclick="window.open(this.href);return false;

[2EstablishZion]

I believe there will be helicopter money. Probably in the first year of the next president's reign.

[Jason]

I believe there will be helicopter money. Probably in the first year of the next president's reign.

Perhaps. Only way out of a deflationary collapse is debt forgiveness or helicopter money...

I believe they will resort to other methods of control...primarily war and also purple spots...

[2EstablishZion]

I only believe in helicopter money because I keep thinking Boobus Americanus is going to get a clue, grab pitchforks and torches, and "helicopter money" will be the elites way to appease the angry mobs (at least for the short term) while they make their collective egress to destinations unknown.

I don't think that eliminates wars and purple spots - wars at least are pretty much inevitable when we inevitably default on our debts (which helicopter money will have only increased). Purple spots are also inevitable I think due to prophecy, unless we repent on a massive scale - which I don't like the odds of that happening.

[Jason]

I only believe in helicopter money because I keep thinking Boobus Americanus is going to get a clue, grab pitchforks and torches, and "helicopter money" will be the elites way to appease the angry mobs (at least for the short term) while they make their collective egress to destinations unknown.

I don't think that eliminates wars and purple spots - wars at least are pretty much inevitable when we inevitably default on our debts (which helicopter money will have only increased). Purple spots are also inevitable I think due to prophecy, unless we repent on a massive scale - which I don't like the odds of that happening.

I'm not putting down your opinion. Certainly thoughtful and as justified by past history (or more so) than my thoughts on the matter.

The basis for my opinion is the extensive prophetic counsel up to the current day of getting out of debt....which in a hyperinflationary environment becomes quite meaningless. As I've reconciled my thoughts on the economic aspect, the gadianton aspect, and the prophetic aspect...I've come to believe the end of the day will be deflationary.

In terms of how the elite deal with the masses...I believe they will soon come to the conclusion (if not already - Georgia guidestones) that the only answer is to eradicate the majority of the population. War is simply a sideshow attraction to distract people and keep them occupied/focused on an event/object whilst the hand does its moving. Also allows the invoking of powers in the name of the cause that otherwise might not be tapped into (allowed by the people). I think that's why the purple spots will roll forth.

Anyways my attempt at trying to guess the future in light of what I know (prophesies, economics, politics, combinations, etc)...fwiw...

No matter the accuracy of the forecast...interesting times upon us and certainly very interesting times ahead....

[Original_Intent]

I believe the debt free counsel is because it is in accordance with eternal principles. I do no think even if hyperinflation was on the horizon that the prophetic counsel would change to "Hurry up and rack up all the debt you can!". In other words, I don't believe that this counsel means deflation.

I think you have been right about deflation and deflation is what we are seeing and have been seeing. What we know is that TPTB (financial) need both inflation and deflation, and the more they can catch the majority "off-guard" and also the more extreme they can make both swings of the pendulum, the more they can reap the benefits due to foreknowledge of which way they are going to go.

I think that all of the QE and ZIRP is inherently inflationary, but they have managed to hide it due to rapidly rising prices of goods and flat wages. The inflation of the money has gone to a select few on Wall Street, which has inflated the monetary supply while the vast majority live in a deflationary reality.

It's all distortion of markets and interest rates, and I feel that there are eternal laws that govern these things. Right now we are seeing man exerting his will in opposition to the eternal principles - just meaning when the consequences inevitably come, it's going to be a pretty big deal.

Definitely not a matter of you are right, or I am right, it's all a matter of timing. there's going to be deflation, there is going to be inflation as long as the current system is in place. Appreciate your insights and glad you still post from time to time.

[2EstablishZion]

Jason, I don;t know if you have taken the Briggs-Myers personality test, but I highly suspect you are a fellow INTJ or something close to it (?)

I think this forum attracts a disproportionate number of INTJs....

[Jason]

Jason, I don;t know if you have taken the Briggs-Myers personality test, but I highly suspect you are a fellow INTJ or something close to it (?)

I think this forum attracts a disproportionate number of INTJs....

nice analysis! ...back and forth between INFJ & INTJ

[2EstablishZion]

My son is an INFJ those are even more rare than INTJ! Like you he has bounced between INTJ and INFJ.

Myself, I have never tested other than INTJ lol

[Jason]

My son is an INFJ those are even more rare than INTJ! Like you he has bounced between INTJ and INFJ.

Myself, I have never tested other than INTJ lol

fascinating...and again great analytic work!

[Jason]

13 trillion reasons for deflation....

Dutch bonds just did something that we haven't seen in 499 years
http://www.businessinsider.com/dutch-10 ... ime-2016-7" onclick="window.open(this.href);return false;

....why else would folks buy into negative yielding bonds? Isn't that a bet that the actual deflation is going to be much worse than the priced in deflation?