Ilargi: 2016 Is An Easy Year To Predict

Yves here. Finance people are conditioned to see finance as more important than it is….although financiers have done a remarkable job over the last three decades of making finance more important than it ought to be.

It’s noteworthy when someone who does not see themselves as a finance person to predict that the big story of the upcoming year will be deflation. And that’s more a finance story than a macroeconomic story. It is the result of central banks playing a large role in weakening labor bargaining power, of aggrandizing their role by playing to the fantasy that monetary policy can do more to stimulate growth than it really does, and by backing themselves into the ZIRP/QE corner in their effort, as much as possible, to restore status quo ante in the banking system. Stephen Roach came to similar grim conclusions about how the Fed is choosing to back its way out of ZIRP. However, Roach thinks the Fed might be able to prevent a train wreck if it weans investors of the Greenspan/Bernanke/Yellen put. Even if he were right, I can’t imagine this Fed ever doing that.

By Raúl Ilargi Meijer, editor-in-chief of The Automatic Earth. Originally published at Automatic Earth

No year is ever easy to predict, if only because if it were, that would take all the fun out of life. But still, predictions for 2016 look quite a bit easier than other years. This is because a whole bunch of irreversible things happened in 2015 that were not recognized for what they are, either intentionally or by ‘accident’. Things that will therefore now be forced to play out in 2016, when denial will no longer be an available option.

A year ago, I wrote 2014: The Year Propaganda Came Of Age, and though that was more about geopolitics, it might as well have dealt with the financial press. And that goes for 2015 at least as much. Mainstream western media are no more likely to tell you what’s real than Chinese state media are.

2015 should have been the year of China, and it was in a way, but the extent to which was clouded by Beijing’s insistence on made-up numbers (GDP growth of 7% against the backdrop of plummeting imports and exports, 45 months of falling producer prices and bad loans reaching 20%), by the western media’s insistence on copying these numbers, and by everyone’s fear of the economic and financial consequences of the ‘Great Fall of China‘.

2015 was also the year when deflation, closely linked -but by no means limited- to China, got a firm hold on the global economy. Denial and fear have restricted our understanding of this development just as much.

And while it should be obvious that 2015 was the year of refugees as well, that topic too has been twisted and turned until full public comprehension has become impossible. Both in the US and in Europe politicians pose for their voters loudly proclaiming that borders must be closed and refugees and migrants sent back to the places they’re fleeing due to our very own military interventions.

And that said politicians have the power to make that happen, the power to close borders to hundreds of thousands of fellow human beings arriving on their countries’ doorsteps. As if thousands of years of human mass migrations never occurred, and have no lessons to teach the present or the future.

The price of oil was a big story, and China plays the lead role in that story, even if again poorly understood. All the reports and opinions about OPEC plans and ‘tactics’ to squeeze US frackers are hollow, since neither OPEC as a whole nor its separate members have the luxury anymore to engage in tactical games; they’re all too squeezed by the demise of Chinese demand growth, if not demand, period.

Ever since 2008, the entire world economy has been kept afloat by the $25 trillion or so that China printed to build overleveraged overcapacity. And now that is gone, never to return. There is nowhere else left for our economies to turn for growth. Everyone counted on China to take them down the yellow brick road to la-la-land, forever. And then it didn’t happen.

What 2015 should have made clear, and did in a way but not nearly clear enough, is that the world economy is falling apart due to a Ponzi bubble of over-production, over-capacity, over-investment, over-borrowing, all of which was grossly overleveraged. And that this now is, for lack of a better word, over.

Most people who read this will have noticed the troubled waters investment funds -hedge funds, mutual funds, money market funds et al- have recently landed in. But perhaps not many understand what this means, and where it may lead. These things tend to be seen as incidents, as is anything that diverts attention away from the ‘recovery just around the corner’ narrative.

Not only do the losses and redemptions at investment funds drive these funds to the brink, everything they’ve invested in also tumbles. Add to this the fact that most of the investments are highly leveraged, which means that typically a loss of just a few percent can wipe out all of the principal, and a notion of the risks becomes clear.

Of course, since many of the funds hold the same or similar investments, we can add yet another risk factor: contagion. Things will blow up first where the risk is highest. Then everything else becomes riskier. Low interest rates have caused many parties to chase high yields -junk bonds-, and that’s where risks are highest.

This is the 2015 story of investment funds, and it will continue, and aggravate, in 2016. Ultra low interest rates drive economies into deflation and investors into ever riskier assets. This is a process of unavoidable deterioration, unstoppable until it has played out in full. A 0.25% rate hike won’t do anything to change that.

Why do interest rate hikes pose such a problem? Because ZIRP has invited if not beckoned everyone to be up to their necks in debt. The entire economy is being kept lopsidedly upright, Wile. E style, by debt. Asset prices, even as commodities have now begun to fall in serious fashion, still look sort of OK, but only until you start to look at the amount of leverage that’s pinning it all up.

Once you see that, you understand how fragile it all is. Go one step further, and it becomes clear that this exponentially growing ‘machinery‘ can only be ‘sustained’ by ever more debt and leverage. Until it no longer can.

Commodities prices have nowhere to go but down for a long time to come. These prices have been propped up by the illusionary expectations for Chinese growth and demand, and now that growth is gone. So, too, then, must the over-leveraged over-investments both in China and abroad.

Growth that was expected to be in double digits for years to come has shrunk to levels well below that ‘official’ 7%. China’s switch to a consumer driven economy is as much a fantasy as the western switch to a knowledge economy has proved to be. If you don’t actually produce things, you’re done. And producing for export markets is futile when there’s no-one left to spend in those markets.

Ergo, commodities, raw materials, the very building blocks of our economies, from oil all the way to steel, are caught in a fire sale. Everything must go! Eventually, commodities prices will more or less stabilize, but at much lower levels than they -still- are at present. That we will need to figure this out in 2016 instead of 2015 is our own fault. We could have been healing, but we’ve yet to face the pain.

Trying to guesstimate how low oil will go is a way of looking at things that seems very outdated. It’s interesting just about exclusively for people who ‘invest’ in the markets, but the reality is that the Fed, BoJ, PBoC and ECB have first made sure through QE and ZIRP/NIRP that there no longer are functioning markets, and they are now losing their relevance because of these very ‘policies’.

Price discovery has already started (oil, commodities), and central banks have benched themselves. They could only re-enter the game if they quit interfering in the markets, but they’re too afraid, all of them, of the consequences that might have, not even so much for their economies but for their TBTF banks.

Yellen’s rate hike will mean some extra profits for those same banks at the cost of the rest of the financial world, but with growth gone to not return for a very long time, and with deflation hitting everything in sight and then some, there is no pretty picture left.

And none of this is really hard to process or understand. It’s just that there’s these concerted efforts to keep you from understanding, that keep you believing in some miracle salvation effort. Which would, so goes the narrative, have to come from the same central banks and the same Wall Street banks that put everyone and their pet guinea pig as deep in debt as they are.

If you have been reading the Automatic Earth over the past 8 years and change, you know what this is about. There are a few, but unfortunately only a few, other sources that may have put you on the same trail.

I was impressed with the following earlier this month from David Stockman, Reagan’s Director of the Office of Management and Budget, who now seems to have firmly caught up with the deflation theme Nicole Foss and I have been warning about ever since we started writing – pre-TAE – at the Oil Drum 10 years ago. Stockman today says that we are entering an epic deflation and the world economy is actually going to shrink for the first time since the 1930s. (!)

The End Of The Bubble Finance Era

There has been so much over-investment in energy, mining, materials processing, manufacturing and warehousing that nothing new will be built for years to come. [..] .. there will be a severe curtailment in the production of mining and construction equipment, oilfield drilling rigs, heavy trucks and rail cars, bulk carriers and containerships, materials handling machinery and warehouse rigging, machine tools and chemical processing equipment and much, much more.

It’s good to see people finally acknowledging this. It’s still rare. But there’s another, again interlinked, development that is very poorly understood. Which is that in a debt deflation, the ‘money’ that appears to be real and present in leveraged investments more often than not doesn’t get pulled out of one ‘investment’ only to be put into another, it just goes POOF, it vanishes.

And though it may seem strange, conventional economics has a very hard time with that. In the eyes of that field, if you don’t spend your money, you must be saving it. The possibility of losing it altogether is not a viable option. Or, if you lose it, someone else must be gaining it, zero-sum style.

But that view ignores the entire ‘pyramid’ of leveraged loans and investments and commodity prices, which precisely because that pyramid contained no more than a few percentage points of ‘real collateral’ to underpin everything it kept afloat, should have been a red flag. Because this is the very essence of debt deflation.

Just one little example of how and why this happens comes from this Bloomberg item. The key word is ‘evaporates’:

$100 Billion Evaporates as World’s Worst Oil Major Plunges 90%

Colombia is nursing paper losses of more than $100 billion after its oil boom fell short of expectations, wiping out 90% of the value of what was once Latin America’s biggest company. From being the world’s fifth-most valuable oil producer at its zenith in 2012, worth more than BP, state-controlled Ecopetrol now ranks 38th. Its market capitalization has fallen to $14.5 billion, down from its peak of $136.7 billion. “They just haven’t found oil, it’s as simple as that,” Rupert Stebbings at Bancolombia said from Medellin. “The whole oil sector got massively over-bought, and people assumed that one day they’d hit an absolute gusher.”

2016 will be the year when a lot of ‘underlying wealth’ evaporates. Trillions of dollars already have in the commodities markets, but, again, our media don’t tell us about it, or at least they frame it in different terms. They use deflation to mean falling consumer prices, but then insist on calling falling prices at the pump a positive thing. Without recognizing to what extent those falling prices eat away at the entire economy, and at society at large.

To summarize for now: we have elected to deny and ignore what has happened to our economies, our societies and our lives in 2015, only to be forced to face all of it in 2016. That makes the year an easy one to predict. But there are of course a lot of other possible spokes and wheels and other things.

Any government that sees its nation slide down into a deep enough pit will always consider going to war. One or more central banks may opt for a Hail Mary helicopter ride. A volcano may erupt. But none of these things will prevent the bubbles we have blown from deflating. They may divert attention, they may delay the inevitable a bit more, sure. But bubbles never last.

I have a whole list of key words I wanted to use in this, but I think I’ll turn them into a separate article. The main point is you understand the gist of it all. There are no markets, and what has posed as markets is crumbling before our very eyes, inexorably. The best we can do is say ‘see you on the other side’, if we’re lucky.

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  1. Peter Schitt

    I predict 2016 to be the year of “hope and change”. Shias for the win in the mid east and America to bumble around like a sick circus freak with its head up its own ass. Some Euroland province will hopefully crack and and tell mommy Merkel to get f—-d. More war, more violence, . Make America GREAT again! woo hoo!

  2. Dave

    I reember back in 2005 reading about the housing bubble and the end of the oil age and being a bit scared. I started reading many blogs, websites and following geopolitics a wee bit closer, all with a deep rooted distrust of the big media, government. Still reading, still skeptical/cynical of wall st, government and media. The one thing is that the ship is still floating and all predictions of its imminent sinking have been wrong. Perhaps this one hits the nail on the head?

    Not to take away from what is said as I agree for the most part. TPTB are very adept at this game.

    1. PlutoniumKun

      I think the problem is that while its easy to say ‘its all going to collapse’, it is almost impossible to predict the timing and nature of the end of any unsustainable trend. Of course, in 2007 we did get a chain reaction which was almost (but not quite) catastrophic. The truth is that while identifying bubbles or unsustainable policies or trends is easy, predicting how they will end is virtually impossible, there are too many random variables (not least of which increasingly is the climate).

      People who know more about these things than me suggest that the problems in the bond market could blow up catastrophically next year. But just as possible, it will limp on, or it will be one of those ‘contained’ crashes. China’s debt could blow up if circumstances line up in a perfect storm – but its more likely I think that China (along with the rest of the world) will become a bit like Japan in the ’90’s and ’00’s. No crash, just a steady deflationary decline caused by excessive debt and unfavourable demographics. But the problem would be worldwide, not just domestic. The wild card in all this of course is political – rising nationalism and the far right, not just in smaller countries, but in major players. Throw in the first nasty squalls of climate change and its more likely to get bad, not better.

      1. Synoia

        it is almost impossible to predict the timing and nature of the end of any unsustainable trend.

        It is not almost impossible, it is actually impossible to predict when, what amplitude, and the final equilibrium.

        A safe harbor is the only refuge. The nature of the safe harbor depends on your individual, unique skills.

  3. PlutoniumKun

    The price of oil was a big story, and China plays the lead role in that story, even if again poorly understood. All the reports and opinions about OPEC plans and ‘tactics’ to squeeze US frackers are hollow, since neither OPEC as a whole nor its separate members have the luxury anymore to engage in tactical games; they’re all too squeezed by the demise of Chinese demand growth, if not demand, period.

    I’m not sure I buy this at all. IEA figures show a consistent growth of oil demand in China the past few years. There is certainly a question mark over whether this is ‘real’ demand growth or whether it is largely driven by stockpiling (I strongly suspect the latter), but whatever way you look at it, China is buying more oil consistently year on year. While certainly demand is not growing as much as the oil industry hoped, I haven’t seen any evidence to contradict the general view that the core reason for the collapse in price is that the Saudi’s fear their loss of influence as a result of the huge growth in unconventional oils, and have decided to kill them off by crashing prices. The desperate need by struggling oil producers to increase cash flow, and so not slow down production in response to low prices, accounts for the rest of the oil crash. I don’t question the overall thesis of the article, but its not doing itself any favours by this sort of argument.

    Growth that was expected to be in double digits for years to come has shrunk to levels well below that ‘official’ 7%. China’s switch to a consumer driven economy is as much a fantasy as the western switch to a knowledge economy has proved to be. If you don’t actually produce things, you’re done. And producing for export markets is futile when there’s no-one left to spend in those markets.

    The switch to a consumer driven economy is not a fantasy, it is in fact happening and measurable, as Michael Pettis has pointed out. Anyone who keeps an eye on China knows that the CCP commitment to boosting the domestic consumer sector is real. The question is whether they are doing enough, fast enough – the answer to that (as Pettis concludes in that article) is that it is not happening fast enough. In reality, China has changed focus away from export markets and domestic investment quite significantly – but it is probably too late to prevent real disruption and internal deflation along with much slower real growth. Again, this doesn’t contradict Ilargi’s thesis, but he’s not doing his arguments any favours by making sweeping statements like this which are only partially backed by real figures.

    1. Aaron


      What did Saudi do to cause the drop in the oil price? and how do you account for the comparable drops in the prices of most other industrial commodities?

  4. MikeNY

    Roach has been right for so long on the Fed’s boobery and timorousness that it would be foolish to gainsay him. I think he is right (Grantham has said the same) that the regime must change. That will surely cause much pain. Will 2016 be the year? I also doubt that this Fed has the nads (no sexism intended) to do it.

    There is indeed too much productive capacity relative to demand, and robust growth (leaving aside whether that is a good thing) cannot return in conditions of obscene concentration of wealth. Funny how our elites in both parties stubbornly, insistently fail to grasp this.

    1. Whine Country

      Who says the elites fail to grasp this? They are perfectly aware and are prospering accordingly. As Pogo famously said: “We have met the enemy and he is us”.

        1. craazyboy

          Until they ‘fess up and admit to us they’re evil, we’ll never know fer sure. But Jesus is coming. You can’t lie to Jesus.

    2. cnchal

      . . .too much productive capacity relative to demand . . .

      The other day when making a comment about Apple, I incorrectly said that the cash hoard that they were keeping offshore was in the $80 to $100 billion range. That is a staggering sum, but I was off by half. They have a cool $200 billion (one fifth of a trillion $) stashed offshore.

      I also learned the there are a million Chinese that make those Apple products, and they make essentially zero for their chicken broiler jawbs, just enough to eat so they don’t drop dead the next day.

      Apple doesn’t share anything with them. That $200 billion hoard, works out to $200,000 per Chinese employee.

      Demand has been short circuited everywhere you look.

  5. craazyboy

    Pretty much hits it on the head. Some of us lazy people would just describe the situation as globally synchronized central bank bubble blowing*, but a simple sentence like that doesn’t adequately describe the idiocy in it’s full splendor. **

    Tho a whole sentence is better than what we get out of a central bank. They got it down to my second least favorite word “‘inflation”, and my mostest unfavorite word of all, “deflation”.

    So the article prediction is this:

    “This is the 2015 story of investment funds, and it will continue, and aggravate, in 2016. Ultra low interest rates drive economies into deflation and investors into ever riskier assets. This is a process of unavoidable deterioration, unstoppable until it has played out in full. A 0.25% rate hike won’t do anything to change that.”

    We know that central banks will fight deflation with ultra low interest rates{maybe even negative interest rates?) and QE……..

    The lunatics are in charge of the asylum.

    * Tho in China, the central bank, banks, and government seem to be one and the same. Even more so than here, I mean.

    ** Tho maybe the article could have said something about how Deutsche Bank became the largest bank in the world by doing vendor financing, to people who can’t really afford it, for Germany Inc. Also too, Abenomics. Then maybe try and come up with a bullet point list of how the average American benefited from all this global action – how many moved to a ghost city in China? Airplane ticket prices – surely they dropped along with oil prices?. Have our global multinationals passed thru any price decreases to US consumers? Electric bill gone down from low coal and oil prices? Will people start liking pennies again? There has got to be something besides gas prices? Oh yeah, stock buybacks financed by corporate bond sales (just remember to sell your 401K quick to a bagholder – they’re out there!) or maybe our favorite thing the job creators do – M&A followed by productivity boosting white collar layoffs!

    1. craazyboy

      “Electric bill gone down from low coal and oil prices”

      oops, I meant natural gas prices. Oil isn’t used anymore in electric generation. Except in digging up and trucking around coal.

    2. tegnost

      My plane ticket to Sandy Eggo, $140, 2 week advance purchase so a bit higher than normal. I attribute that for some reason to the pricing algos. Drove to reno and back from seattle before xmas, 2.15/gal gas, don’t consider that all saudi arabia, but that’s what I heard on NBR last night. (the analyst had a reasonably dark view of 2016 which surprised me probably because of my low expectations for NBR, but you had to really listen to get it). The “expired car tabs” index increased, In and out burger on the california side of donner pass had 5 or 6 expired tabs in a medium sized lot (probably employees) this to me means those cars won’t be replaced when they break down. demand destruction, haven’t seen the expired tabs thing in a few years, not as bad as ’08 though, anyone else notice this? Interested in alternative views on oil prices specifically, industrial metals don’t seem to be going anywhere, isn’t copper bouncing along on it’s lifetime lows? Most importantly in a “man on the street” view, customers all have done what they wanted to do, no real need for new stuff, have everything they need, no new markets opening, but I and many like me have withheld consumption, those who have more than I saving also. Air b’n’b keeping some friends in their houses. Those who kept income through the GFC sitting pretty, but corporate consolidations continue and job security is an issue in the back of their minds and at the fore of their financial planning. Rents are unrealistically high everywhere, even in small towns on the periphery of the metropolii. I’d say stupid or evil doesn’t really capture the complexities, there’s a real belief in optimism. Supporters of uber like companies think those are the best jobs anyone could hope for, they’re sure those drivers are raking it in, and on their own time, discussions about depreciating assets are passed off as they’re sure the drivers can get $.54/mile from the irs on their tax deduction because of course the gas for driving the suv to la and back every day gets them a nice kickback from both their company and the irs. I’m in the deflation camp and maybe benefiting slightly now ,excluding rent, but think when rent deflation hits if it does, that will hurt everybody…xmas for the nephs and nieces recreational gear focused, last year tech focused, also fewer itunes gift cards and the like. That’s the tea leaves from here.

      1. perpetualWAR

        Rent prices: I have a friend who is managing an apartment building while renting out her house (to fund litigation against the banksters). She says that the rent war is about to begin. Used to be that she could rent a vacant apartment right away. Not so any longer. The massive cranes seen throughout the city building more apartments are the problem. I’ve heard that commercial real estate bubble is about to burst. She has verified that.

    3. Synoia

      “This is the 2015 story of investment funds, and it will continue, and aggravate, in 2016. Ultra low interest rates drive economies into deflation and investors into ever riskier assets. This is a process of unavoidable deterioration, unstoppable until it has played out in full. A 0.25% rate hike won’t do anything to change that.”

      We know that central banks will fight deflation with ultra low interest rates{maybe even negative interest rates?) and QE……..

      The lunatics are in charge of the asylum.

      No. Feedback can be positive or negative (designed to amplify or designed to dampen the output). In circumstances where the system is also dynamic, what appears to be positive feedback (stimulation) can actually dampen the output as the system changes.

      If feedback is in phase with the signal. we get amplification, if our of phase with the signal it dampens (reduces) the output. God alone knows how to apply feedback to a chaotic system like the economy, no central banker actually has the qualification of God (or of a God), as much as the Central Bankers might believe they are gods.

      I’ve see discussion of rate of growth of the economy, (velocity), and rate of change of the rate of change (acceleration), but never seen described the frequency of the economy’s wave function, or its phase, both of whihc must be know to apply feedback (controls).

      The people in charge exhibit the belief they know what they are doing, and are secure in their well paid jobs. Thus they play gods without suffering any consequences.

  6. scott

    2016 is the year that QE becomes discredited and “helicopter-money” becomes mainstream. Once one country does it, others will follow suit. If the world is drowning in debt, either default or hyperinflation are solutions. Helicopter money will be seen as a antidote to deflation, but perturbing an unstable, nonlinear system always has an unwanted effect. When the money-velocity trend turns up, how do you stop it?

      1. scott

        What economists call “helicopter money” will be given some technical-sounding name by the Fed, like “money velocity stimulus program” or “universal tax credit”, something non-Weimar.

    1. Sluggeaux

      I’m no finance person, but if history can be a guide, if I understand the concept correctly I have to agree that we will see more “helicopter money” in the near term (before the end of the current decade). The “geniuses” who are in charge at the Treasury and the Fed are just as aware of the threat of deflation as anyone. The traditional tool for dealing with deflation is to allow hyper-inflation or institute a currency devaluation.

      The Treasury and Fed’s blithe tolerance of mass unemployment makes perfect sense in this context. Wiping-out employment makes inflation less of a problem from a wage standpoint — you can inflate your way out debt without having an effect on production costs because you don’t produce anything anymore using domestic labor.

      The “musical chairs” aspect will involve who is holding “assets” with actual value and who is holding “debt” when our betters slice a couple of zeros off the dollar. That’s going to get ugly for most of us “investors” who read this blog.

  7. craazyman

    could it be an asteroid? or something worse!

    If 2016 is the “Year of the Asteroid” we’ll be counting our blessings. The earth itself could possibly survive an asteroid impact but if the object that grows larger in the night sky, soon to be visible in the day, larger than the moon and growing, colored a woeful orange-red and brown, a planet not an asteroid. This could be “The Year of Nibiru”. If it is, we’ll only wish it was an asteroid. Planet X (called Nibiru by those who know) orbits the sun in a 3000 year elliptical trajectory that last passed by earth in the time of the Sumerians. Most of mankind was enslaved by the inhabitants of Nibiru, enslaved to mine gold and serve their Nibiruian masters. Ancient legends tell of this calamity but are dismissed by scholars as mere myths or fictions. We’ll find out soon enough. Even NASA would certainly cover up the approach of Nibiru. You’ll only know one day when you look up, perhaps to check the weather for a Saturday outing shopping or flying a kite in a park or a picnic in some meadow, only to see a strange appariation that won’t go away. That’s either some construction attached to a high rise building or a blimp or a balloon or . . . it’s Nibiru. It’s hard to know until it happens.

    1. craazyboy

      Some people think Jesus is coming back in 2016. I have a pet theory – Jesus lives on planet Nibiru. So it’s possible both things happen at once – leading to “contagion”, then things get really bad. Things can always be worse than people think.

      1. craazyman

        My first reaction was “That’s a grim vision indeed.” But then I realized, Jesus can raise one finger and make Nibiru disappear completely. That may be the plan.

        1. craazyboy

          Nibiru is invisible already, being in the 5th dimension*. We’ll never see it and Jesus coming. That’s what is so scary about it, and then….contagion!

          * It would have some 3 dimensional projection, but that may appear as just a harmless shooting star crossing overhead – and Norad will merely inform the Whitehouse and Wall Street of it’s presence, so no alarms going off there.

          1. craazyman

            Maybe I’m confusing Jesus with the Fed. If the Fed is on Nibiru that wouldn’t be so good after all. Sometimes it’s hard to know what’s real and what’s not.

            1. craazyboy

              The Fed is in Washington DC and Wall Street. They depend on Wall Street (rumored to be via Prophet Jon Hilsenwrath and the TBTF banker board of the NYFed – tho nobody votes on anything.) and Washington (rumored to be via congressional hearings and the Church of the BLS) to inform them of Jesus sightings, meteorites, and any symptoms of Armageddon.

              They are merely Saints – don’t confuse them with Jesus.

              1. Fiver

                Only when the Saints have exhausted all other possibilities will they come crawling back to Jesus proclaiming their Love – but Jesus has had a very long time to think about it.

  8. allan

    Why income investors should consider peer-to-peer lending [Marketwatch]

    During this long period of low interest rates, income-seekers have been faced with a continuing problem: As their bonds have matured, they have had to either accept lower yields or more risk, taking on dividend stocks, real-estate investment trusts or business development companies.

    Peer-to-peer is an alternative income source that could work out well for investors who take the time needed to understand the risks and rewards. If this sounds like you, read on.

    What could possibly go …

  9. New Deal democrat

    In 2009, Illargi thought monthly job losses would accelerate by about 100,000 each month from 1 MILLION a month to 2 Million a month. In fact they declined by 100,000 a month to nearly zero by year’s end.

    On the very day of the stock market bottom in 2009, Illargi savaged Warren Buffett, who had said the stock market was making a historic low, and said anyone who took Bufffett’s advice to buy stocks would be making a horrific mistake.

    I collected these horrible calls in this post: Those kind of gargantuan errors ought to disqualify Illargi from being taken seriously.

    As to deflation in 2016, right now gas prices are down about 12% YoY, their least negative reading in over a year. They are only $.02 lower than they were at their bottom in the last week of this past January:

    Caveat reader.

    1. tegnost

      while it is true that the doom was like opium in march 2009, what will now replace the stimulus that warren likely had been tipped off was underway at that time?

    2. Trent

      So why are you here? And please explain how they are wrong? Plugging for your blog perhaps? Ha a tax accountant

  10. cnchal

    From Yves link in the introduction regarding Steve Roach’s post, the last paragraph.

    Only by shortening the normalization timeline can the Fed hope to reduce the build-up of systemic risks. The sooner the Fed takes on the markets, the less likely the markets will be to take on the economy. Yes, a steeper normalization path would produce an outcry. But that would be far preferable to another devastating crisis.

    Somebody is off their rocker. Perhaps all of us. Definitely the Fed and their useless eaters that take up space and collect fat paychecks.

    From what I can infer, Mr Roach is advising the Fed to raise interest rates in rapid succession. I say go for it.
    It would be fun to watch, at a distance, as the anvil gets thrown into the gearbox, instead of a couple of little wrenches at a time.

    Mr Roach would also make a great wrestling announcer. Note the three participants in the ring, the Fed, the markets and the economy. Is the Fed going to fight the market so the economy can win?

  11. Greg

    “If you don’t actually produce things, you’re done.”

    Eve isn’t this the bottom line? In pursuit of ever cheaper labor, the
    “customer” somehow was left out of the calculation.

    the skills gap is a myth. If you retrain everyone that would simply
    destroy wages again.

  12. susan the other

    The devastation has already happened. There is no market left. Raising interest rates is insane in the midst of this depression. Janet and Stanley and their henchmen are not rational so something else is going on. There is an agenda and it has nothing to do with normalization. Because there is no capitalism left, no revenue, no profit; defaults are everywhere because there is no growth so debt cannot be serviced even at zirp. The only prediction is this: martial law. And/or a Marshall Plan for our own country to begin greening the planet which will create a new economy – however it’s hard to imagine the new economy producing the sort of profits to ever return us to the old “normal” being used as an excuse by the Fed

    1. Steven

      There is an agenda and it has nothing to do with normalization.

      The agenda is the preservation of the ‘value’ (SIC!) of money Wall Street and Washington have been creating ex nihilo for the last century or more. This ability to create money ‘out of thin air’ and use it to buy up the world’s real wealth was the foundation of both the British and American empires. When you ‘rule the waves’ or exercise “full spectrum dominance” you acquire the right to issue the world’s ‘legal tender’, it’s reserve currency. Your country’s money has ‘value’ because it’s military has the guns and bombs to insure it’s acceptance. Britain’s Boor War was about insuring enough of the world’s gold continued to flow to London The City could keep creating the world’s money without putting boots on the ground everywhere like the US has increasingly been doing everywhere since it abandoned Bretton Woods in 1971. Neo-conservatism is nothing more than the intellectual B.S. the country’s bankers have contrived to cover the abject failure of their custodianship of the country’s wealth – not just that of the 0.01% but the wealth of everyone encouraged to forego consuming wealth equivalent to what they have to turn over to Wall Street and its bankers in exchange for the money they are encouraged to ‘save’ – so it can be turned into more Wall Street / Washington promises to pay, more “debt that can’t be repaid (and) won’t be”.

  13. financial matters

    I think we need to get away from this idea of low interest rates cause people to search out risky investments like junk bonds.

    I think we need to focus on good fiscal policy.

    Higher interest rates tend to harm the economy overall and enrich those who already have money to invest in Treasuries.

    Much better would be things like a minimal BIG, a good JG program, national investment in medicine and education.

    Also we need reform of the stock market so people can invest in good companies with good management.


    Bill Mitchell discusses Treasuries in a 2009 post.


    “Specifically, I would stop issuing Treasury debt instruments – that is, stop public borrowing.

    Such borrowing is unnecessary to support the net spending (deficits) given that the national government is not revenue-constrained. There is nothing positive in terms of advancing the primary goals of the national government

    This would mean that the net spending would manifest as cumulative excess reserve balances at the central bank.

    Some people will immediately ask: so this will be the “printing money” option that is spelled out in the macroeconomic textbooks.

    To which I say: it has nothing to do with “printing money”. All government spending occurs in the same way – altering bank account balances in the private sector or issuing cheques that end up in bank account balances.”

  14. Steven

    What’s tragic about all this is its utter stupidity. The US economy has been marching down the road of waste and conspicuous consumption (AKA the ‘American lifestyle’) paved by Black Gold (oil) for more than a hundred years; the global economy for at least half that long, having destroyed itself in world wars at least twice in the last century. This has all been done so people with more money than they need at the moment or in several lifetimes can continue making more – ‘keeping score’ I believe they call it. If TPTB really wanted to ‘save capitalism’ they would be using their wholly owned governmental subsidies to write laws that made technologies with at least a chance of saving billions of lives, e.g. renewable energy and the electrification of transportation, profitable. (The end game is some form of ‘socialism’ that makes life possible for those billions while preserving the prerogatives of wealth inherited from previous generations or more recently created ex nihilo (‘out of thin air’) by the bankers and financiers. Remember: “Anyone can create money. The problem is getting it accepted.” (Well, not really. You have to have access to credit.)

    They (TPTB) have instead chosen to try to sustain the illusion their money-based wealth, i.e. money created ex nihilo – money that goes “Poof” at the end of every business cycle – first by fractional reserve bankers nominally based on gold or some other form of purported ‘real’ wealth and these days by bogus, impenetrable mathematics that hide the reality of “debts that can’t be repaid (and) won’t be” at least until the next financial crash (or world war).

    The world has been marching down the wrong road for far too long – if the lives of several billion people matter – a road these days paved with the ambitions of Middle Eastern royalty mobilizing their troops with a religious fanaticism encouraging the most ruthless barbarism. It has precious little time remaining to find its direction.

    1. Fiver

      I fear the decision has already been taken at the highest levels of US power to simply cut loose several billions of people: those not already well-integrated within the US financial/trade system are very rapidly going to find themselves prevented from sustainable development at all, i.e., very nearly the entire “Muslim” world, all of Africa, most of the vast expanse of Central and South Asia, including much of Russia, still large portions of South America and elsewhere.

      The Pentagon has made no bones about its acceptance of the thesis of a global run on resources, land, esp., potential agricultural land, and a planet too damaged by the entire cycle of fossil fuels use to allow anything remotely resembling another Chinese development boom – the ‘war on terror’ has been utter ruin for a billion Muslims; with major plans in the works to extend the disaster far more deeply into Africa. After all, what is the current policy if not one of taking Russia, China, Saudi Arabia and some others down a few pegs in order to forestall any silly notion they had of control over their own rates of oil-based growth and power. What would a new Cold War have as its aim if not that all these new US bases being constructed effectively demarcate the US Zone from Rest of Planet. I imagine large areas will in time return to pre-industrial solutions, but at very great cost in lives and social cohesion.

  15. Keith

    The power of finance is the power of debt (the banker’s only product).

    Debt and money are opposite sides of the same coin.

    The debt has various different guises loans, mortgages, etc …….

    But they are all essentially the same; you are borrowing your own money from the future to spend today.

    The loan is issued and spent immediately; the repayments become due in the future.

    Unleashing the power of finance/debt obviously looks good when all the loans are being spent.

    Eventually everyone is up to their eyeballs in debt and the issuing of new loans slows down to a trickle.

    After the loan phase you get the much longer repayment phase when all that money borrowed from the future is paid back.

    The power of finance/debt is just shifting money in time from the future to the present.

    But sooner or later the future arrives, the repayments overwhelm the economy and the inevitable crash follows the boom.

  16. likbez

    “Price discovery has already started (oil, commodities), and central banks have benched themselves. They could only re-enter the game if they quit interfering in the markets, but they’re too afraid, all of them, of the consequences that might have, not even so much for their economies but for their TBTF banks. “

    Good point. That will be the most interesting part of 2016 in oil. But is a sense price discovery for shale industry already ended. They have few chances to survive below $70-80 (if junk dent to be paid) and $50-$60 if it will be rotated or maturity extended.

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