Repost from Jan 2018: Why Our Economy Is In Depression And Will Get Only Worse

I wrote a blog entitled "We're Reaching the End of the Road" where I laid-out a litany of reasons for why our economy is mired in prolonged near-recession conditions and why things won't be improving anytime soon.

I mentioned poor demographics, the declining utility of debt, and the effects of reaching the limits of resources, such as affordable oil, as some of the causes. All these are true and have caused Central Banks all over the world to "pump-up" the money supply to absurd levels, backstopped all markets to maintain desired "wealth effects"and governments have spent borrowed money like never seen before. These emergency measures have continued for 10 years. They are now trying to stop these emergency measures now, but it won't be possible to stop them for long.

Soon, it will become apparent that we're in recession without end; which resembles Depression in duration. It may not be a sharp downturn--since we never had a boom--just a generally slow "sinking" perhaps interrupted for a number of months by the Trump Tax Reform, for example. Think "Japan" for the past 20 years, for example. We're really becoming Japan. This "recession" will not end and emergency spending and "printing"will re-start. Government intervention will only increase. The recession won't end, but the governments may not allow markets to "correct." This is because market declines would worsen the economy and it likely won't be allowed. It's not being allowed even now.

Governments and captive Central Banks have already subverted markets, making them policy tools, by manipulating all of them: first and foremost the bond markets. Governments around the world have manipulated the "risk-free" interest rate (govt bond T-bills) to near zero and below. This itself manipulates all other asset prices. Central Banks have provided a "backstop" to the markets and investors know it. It's causing extreme bubble conditions that will continue. The "appearance" of prosperity must be maintained!

The first chart below shows that world population turns negative this year and declines FOR DECADES.  This means perpetual recession/depression ahead.  If there are a declining number of new workers, there is declining demand for new houses, new furniture, new appliances, new cars, etc. Demand has already been declining because population growth is declining, including young people. All of this causes economies to suffer across the world. These trends are irreversible. We've already been in near-recession but governments are manipulating the data to hide it.

World Population Is Going Negative This Year and Is Negative for Decades Ahead. Declining Population Means Declining Economies For Decades Ahead -- Recession Without End.  (Graph by Chris Hamilton at Econimica blog)

Population Growth in All The Important Economies (Excluding Africa) Has Slowed And Will Decline for Decades Ahead.  Note That Debt Began To Balloon Just After The Peak in Population Growth In 1981. Debt Is Now Rising Exponentially As Pop Growth Slows.  
(Graph by Chris Hamilton at Econimica blog)

Burn. It. The. Fuck. Down. Our Rotting, Corrupted, Bloated, Failing Status Quo Must Burn

Rome is burning. Riots are flaring up across the nation after months of lock-down and further impoverishment mandated by our elites in response to the Wuhan virus "scare."

The Burning of Rome

Like everything else, our ruling elites and their corporate masters get things mostly wrong (which is the best reason for small and local government). The death rate of the Wuhan virus is somewhat greater than the common flu, and it does seem somewhat more contagious. Our Wuhan Virus death toll has now reached 100,000 (which surely includes regular flu deaths in these recent months?).  But few people are aware that 40,000 people died of ordinary flu this past winter season (and no lock downs). Hell, 67,000 people died in 2018 due to opioid overdoses (the last year of known statistics). We should re-label opioid overdose deaths as "deaths of despair."

Despair is the current state of much of our country. Our young people are ready to embrace Socialism or anything BUT what we currently have. Who can blame them? Young people today have little prospect of affording a house, a car, their own apartment, health insurance or a college education --- as the prices of these important things are inflated to extremes by our Central Bank/Big Government cabal and their sponsored monopolies. Everything in this country is a scam, a racket, a fraud or a hustle.

What we have is not capitalism, as failure is not allowed. Instead,every "connected crony" is bailed-out.  What we have is just crony capitalism, not unlike Russia or China.

So strip-mined is our phony economy that wages are peanuts compared to the rising cost of living. Our next generation is royally screwed. The only thing they can look forward to are rides on Uber and a vastly overpriced I-phone. They have no other hope. Even worse, our next generation doesn't even know the hope that is to be found in our great, but now shriveled, religious traditions.  Atheism=Ignorance=Despair (see here).

And all this economic damage is due to nearly non-stop "emergency" doses of easy money (super-cheap debt) for the elites, wealthy speculators and corporations that own the government -- all since 2008.  So when the Fed "prints" it buys bonds, $trillions of those proceeds are placed on-deposit at the big Wall Street Banks. Since big banks are just giant hedge funds, thanks to the repeal of Glass Steagall in 1999, the bankers take some of those $trillions and put it into the stock market. This is the mechanism that the Federal Reserve and the Treasury use to boost equity prices.

Fast forward to now, like 1999/2000, stock market "pumping" is so extreme that any stock valuation norms are now discarded and speculators are having a fun run of rising equities while the economy is literally in "Great Depression" condition. We have a huge bubble market relative to the real economy. Ominously, Millenials are chasing this market now.

What we learned in December, 2018 and recently is that the markets of corporation credit, high yield credit, ETFs, muni-bonds and stocks are now one $100 TRILLION uni-market that goes up together or crashes together. I noticed this in March 2020 and Dec 2018 when the markets started collapsing, ALL of these markets collapsed together. The "uni-market" is now too big to fail! Pension funds live or die with this uni-market too. This is why the authorities are desperate to re-inflate "it." "It" is a monster bubble that can't be allowed to fall or it takes down the entire world economy.

I was watching a new, interesting and frankly disgusting documentary about Jeffrey Epstein on Netflix the other day. I realized that Epstein, and his nearly unstoppable decades of crimes and rapes is the result of our rotten, corrupted financial system that has now corrupted everything beyond belief. Epstein was able to pay-off or bribe every official at every level of government to make serious charges go away. His victims were left dangling in the wind until the very end. Money kept his corruption under wraps, like it does for countless others. Cough..Clinton..Cough..

Epstein got his initial millions or billions starting at the infamous organization of "financial system-gamers", scammers and defrauders known as "Bear Stearns" in one of the many capitals of financial parasites: NYC. His continued connections to moneyed elites allowed him to buy extravagant compounds in New Mexico, the Caribbean, NYC and Paris. In those locales, he gorged his sexual perversions --mainly manipulating and molesting underage girls---unfettered and immune from prosecution. By the end, his many, many victims described their encounters with him as outright rape.

Epstein is just one of the countless in the cozy fraternity of moneyed elites including financial system parasites from NY:  prominent attorneys (Dershowitz for one), presidents (Bill Clinton for one), royalty (Prince Andrew for one) that where able to enjoy a veritable modern Bacchanalia of luxury, excess and perversion worthy of comparison to the most corrupt Roman emperors like Nero or Caligula.   

That's where this country is now, like Rome, at the end of a fabulously corrupted empire of greed, perversion, excesses (due to nearly unlimited easy money and currency debasement) causing extreme income inequality and fraud.  Nothing is working and everything is hopelessly broken: the judicial system, the federal government, the corrupt/lying media,  the stock market scam.  Our people, the "non-elites"(the bottom 80%), where many are poor, often hopeless and significantly indebted in order to survive. Interest rates are 0.1% for the moneyed elites, but 17% (and up) for the bottom 80% struggling to survive on credit card debt.

From my important post Extremes of Unsound Money and Finance Are Leading to Catastrophe: We live in a time of utter and complete corruption of government, media, central banks and our political parties. They are corrupted and held hostage by moneyed elites who are manipulating money and government for their ends-- not yours.

Where we are today is due to utter failure of government and central banks, corruption of all elements of government which has led to a moral and intellectual decay of our population. We have a massive and expensive surveillance state, weaponized police and government departments, massive financial deficits and debt with nothing to show for it, bloated money supplies, a hollowed-out economy stripped of entire industries and well-paying jobs, corrupted and lying media outlets spreading nothing but political propaganda and persecution of Conservatives.

Everything in Washington is broken and failed. Nothing is fixed. Much of Washington is plotting to illegally and unconstitutionally overthrow the Trump administration and has been from day one. Despite all the spending, our infrastructure and military has decayed. Our government is interfering with and manipulating many foreign countries -- yet half of our nation is (was) obsessed with a largely non-existent influence of Russia in ours. These people which include the previous administration had been risking war with a country that has 10,000 nuclear bombs. For what??

It's all become this way because we are told nothing but lies by politicians, corporate chieftains, and other elites that everything is fine even though it's obvious that everything is broken. So much that is wrong with our country and the world is due to corrupting power of unlimited and easy money in the hands of the top 1%.  Even Trump got it when he railed in his "American Carnage" inauguration speech which I have "corrected" with my comments in parentheses:

Today’s ceremony has very special meaning. Because today we are not merely transferring power from one Administration to another, or from one party to another – but we are transferring power from Washington, D.C. and giving it back to you, the American People.

For too long, a small group in our nation’s Capital (and moneyed elites in the world's financial centers) have reaped the rewards of government (-sponsored extremes of unsound money and unsound finance) while the people have borne the cost.  Washington (and all the Elites who are close to the source of massive monetary inflation--banks, hedge funds and moneyed/connected elites like Epstein) flourished – but the people did not share in its wealth.

Politicians prospered – but the jobs left, and the factories closed. The establishment protected itself  (and enriched itself to truly obscene levels thanks to central bank and govt largesse), but not the citizens of our country.

Their victories have not been your victories; their triumphs have not been your triumphs; and while they celebrated in our nation’s Capital, there was little to celebrate for struggling families all across our land....

For many decades, we’ve enriched foreign industry at the expense of American industry; Subsidized the armies of other countries while allowing for the very sad depletion of our military;  We’ve defended other nation’s borders while refusing to defend our own;  And spent trillions of dollars overseas while America’s infrastructure has fallen into disrepair and decay. We’ve made other countries rich while the wealth, strength, and confidence of our country has disappeared over the horizon.  One by one, the factories shuttered and left our shores, with not even a thought about the millions upon millions of American workers left behind.

The wealth of our middle class has been ripped from their homes and then redistributed across the entire world.

All of this American Carnage is due to unsound money and finance. Corruption of our money leads to corruption and ruin, eventually for everyone,

Our inner cities, mostly black and ruined by government failures and the resulting moral decay, are like burned-out hulks of a previously high-level civilization as if we're replaying some dystopian movie like Robocop or Planet of the Apes complete with murder, crime, gangs and massive decay. Our status quo is completely and utterly unsustainable.

We also live in a time of nothing but massively unsound finance and banking thanks to the failures of our Central Bank and the corrupted government. Even our current concept of money is completely corrupted. It's as if no one alive even knows or remembers what sound money or sound finance is.

Maybe that's why there are somewhat regular society-wide and world-wide crises happen about every 80 years as described in The Fourth Turning by Howe and Strauss. Eighty years is the length of a long human lifetime. After 80 years, there is no one alive who can remember the cause of the last crisis. Think about it. Our current crisis started with the crash of 2009 which is exactly 80 years from the last one in 1929.

Brace for impact. This bubble could blow at any minute. Global peace may be shattered at any minute. Markets may fail and collapse to reflect the real economy in any minute. Brace! brace! brace!

An Economy That Cannot Allow Stocks To Decline is Too Fragile to Survive

From Charles Hughes Smith at oftwominds.com blog

The fragile ice shelf of speculative bets and debt clinging to the mountainside is making strange creaking sounds-- will you listen or will you ignore it because 'the Fed has our back'?

Feast your eyes on the chart below of the Nasdaq 100 stock market Index, which is dominated by the six FAAMNG (rhymes with "famine") stocks: Facebook, Apple, Amazon, Microsoft, Netflix and Google which now account for over 20% of the entire U.S. stock market's capitalization.

Notice that despite the global economy sliding into a debt-bust depression, the NDX is within kissing distance of new all-time highs. You're joking, right? Sales and profits won't slide as the depression steps on the neck of hundreds of millions of households?

As you've probably heard by now, sales don't matter, profits don't matter, costs don't matter, and indeed, nothing matters but the Fed has our back so buy stocks, never mind the valuations. In other words, the U.S. stock market has reached the spiritual level where the corporeal tangible world no longer matters: in a word, Nirvana, or Heaven if you prefer.

If we set aside the satire and the absurd justifications of the financial punditry ( "we see a V-shaped recovery of profits in 2023, or was it in 2032? Never mind, doesn't matter..."), we discern a reality that should worry us: America's economy and financial system cannot allow the stock market to decline because any sustained drop will pop the debt-bubble and bring the entire rickety, rotten, corrupt structure down.

Erecting $100 trillion of phantom capital on speculative bets and disconnected-from-reality valuations was always doomed: piling one layer of debt and speculative excess on top of another while the actual collateral supporting the first layer of debt didn't actually change steadily increases the fragility of the entire pyramid.

Now the system is too fragile and brittle to survive even a modest drop in the stock market. Since the Federal Reserve and other tools of the financial-political elites can't increase the productivity of the underlying collateral of the economy, they're forced to manipulate the one signaling device they can control, which is the stock market.

And since they can't actually improve the productivity or prospects of several thousand companies, they've poured their conjured trillions in six mega-stocks to drag the entire market higher. The more money they pour into the Big Tech Six, the greater the market capitalization of these companies and therefore the greater their influence in the stock indices: the Dow Jones Industrial Average, the S&P 500 and the Nasdaq / Nasdaq 100.

It's a self-reinforcing set-up: dump another trillion in the six mega-cap stocks and this pushes the entire market higher. The influence of the real world has been reduced to zero. Nirvana indeed.
The problem is that any system this fragile and brittle cannot survive the slightest contact with reality. The system's stability is an elaborate illusion maintained by the Big Con of the Federal Reserve: we can create as many trillions as we need to prop up the stock market.

This is the hubris and arrogance of mortals claiming god-like powers. As the Fed and other central banks buy every over-valued financial asset in sight to prop up over-valued markets, eventually they will own the majority of the markets (as per the Japanese bond market). At some point there won't be any assets left for private capital to own that actually earn a return. With interest rates at zero or lower, private capital has no way to earn a return--an outcome that collapses the entire rickety, rotten, corrupt structure anyway.

Extreme concentrations of wealth and power, extreme speculative risk, extreme over-valuation, extreme central bank manipulation--all increase fragility and brittleness. America's financial system is the classic tightly bound system with all the lines of dominoes intersecting each other: any one domino will take down the entire system because it's all tightly connected and dependent on extremes of risk, speculation, debt and manipulation (stock buybacks being Exhibit #1).

The Gods of Finance are chuckling as the Fed's trillions push the system ever closer to collapse. No matter what the Fed does, no matter how many billions Apple borrows and throws into the putrid sewage of its endless stock buybacks, the market, the financial system and the economy that has become dependent on those speculative pyramids of debt are doomed to collapse for profoundly systemic reasons.

The fragile ice shelf of speculative bets and debt clinging to the mountainside is making strange creaking sounds-- will you listen or will you ignore it because the Fed has our back? The avalanche will catch everyone by surprise when it finally breaks, and the consequences will be non-linear and therefore disruptive in ways few anticipate.

But in the meantime, please enjoy the cosmic joke of the Nasdaq 100 and Jay Powell's deadpan comedy routine. But be careful that the joke doesn't end up on you: an economy that cannot allow stocks to decline is too fragile to survive.

Time to Clean House at Twitter

From Jonathan Turley's website.

There is a new controversy swirling around Twitter’s new rules allowing the removal or labeling of tweets that the company deems false or misleading. I have a column out this morning criticizing Twitter’s warning attached to recent tweets by President Donald Trump. However this controversy concerns the person who has said that he is in charge of “developing and enforcing Twitter’s rules,” Twitter’s “Head of Site Integrity” Yoel Roth. Critics have highlighted fairly extreme postings from Roth calling Trump and his supporters Nazis. I do not agree that the problem is Roth’s personal views or postings. The problem is his role and the rules at Twitter. The problem is anyone exercising this power of speech regulation. Indeed, as this controversy grew around Roth, Kathy Griffin is the latest poster to face calls for removal for effectively calling for Trump to kill himself. Again, Griffin should be allowed to post such hateful thoughts and the rest of the world should be allowed to denounce her, again, for her unhinged humor.

Twitter also labeled Trump's Tweets highlighting the likelihood of voter fraud with mail-in ballots as "misinformation" with links to CNN to "clarify" the "misinformation!!" Can you imagine?  CNN as a trusted source regarding Trump??!!   Insane.

Roth has attacked Bernie Sanders supporters and proclaimed how he is working against Trump. He compared senior Trump adviser Kellyanne Conway to Nazi propagandist Joseph Goebbels. He has referred to Trump and his team as “ACTUAL NAZIS” and called Senate Majority Leader Mitch McConnell, R-Ky., a “personality-free bag of farts.” As Fox noted, “last August, Twitter suspended McConnell’s Twitter account, prompting the GOP to threaten to cut off advertising on the site until Twitter relented.”

The attacks are numerous, raw, and offensive. However, conservatives calling for him to be fired or his tweets censored are reaching the wrong conclusion. The problem is not Roth but his role. He has a right to express himself. I have no problem with Twitter hiring people with such political views and I believe it is a good thing for people to express themselves on social media. Indeed, we have discussed the free speech concerns as private and public employers punish workers for their statements or actions in their private lives. We have addressed an array of such incidents, including social media controversies involving academics. In some cases, racially charged comments have been treated as free speech while in others they have resulted in discipline or termination. It is that lack of a consistent standard that has magnified free speech concerns. We have previously discussed the issue of when it is appropriate to punishment people for conduct outside of the work place. We have followed cases where people have been fired after boorish or insulting conduct once their names and employers are made known. (here and here and here and here and here and here).

Roth’s comments highlight how bias is always a concern for those who take it upon themselves to decide who can speak or who must be “corrected” in communications with others. Twitter is notorious for a lack of consistency and coherence in the enforcement of its rules. However, regardless of such enforcement, there remains a core free speech issue in the regulation of speech. I recently criticized the calls of Democratic leaders like House Intelligence Committee Chairman Adam Schiff for greater censorship of the Internet and social media. Such calls have been growing for years but leaders like Schiff are citing the pandemic as a basis for speech monitoring and censorship. Roth is merely the personification of the problem of such speech regulation. Again, the real problem is his role and Twitter’s rules.

Don't Buy the Climate Hype: Slight Global Warming Is No Cause For Alarm

The earth has warmed a slight 1.6 deg F in the past 100 years --a little more in the Northern hemisphere and less in the Southern hemisphere -- and mostly due to man. The arctic area has warmed the most, (but not so true in the Antarctic). The sea has been rising at about 7 to 8 inches in 100 years and looks similar going forward. Those are the not-so-alarming facts.

In both cases, things are happening VERY slowly and humans can and will adjust. The warming and it's effects are quite small--despite what alarmists and their faulty models say. There is no cause for alarm.

The big problem that no one seems to understand is that just to halt the rise of CO2 in the atmosphere would require a gargantuan reduction of CO2 emissions of 50%. This would NOT roll back temperatures or CO2 -- just halt any rise!  The problem is there is a mismatch between the rate of ocean absorption of CO2 and our rate of emissions.

To reduce CO2 emissions by 50%, we would have to convert all cars to electric, add more nuclear power for the cars, and scrub every power plant stack in the country (which can't be done). The US has 10,000 power plants alone. Such reductions would cost $10s of Trillions in the US alone and cripple our finances and economy. Al Gore himself put the cost at $70 Trillion. The ocean will eventually absorb all of the excess CO2 without any harm or change in pH.

It amounts to financial suicide. No country like China or India would commit economic suicide either.   Furthermore, the result of such spending would be imperceptible and ineffective!  Oh, and NO ONE IN THE WORLD knows what to do with the massive volume of captured CO2!!

The problem is simple. There is more than a 50% mismatch between the rate that the sea and land absorbs CO2 vs the rate of emissions.  See the figure below for the carbon material balance (from MIT):

The hydrocarbon era will likely end within the next 100 years and we'll be a little warmer and the sea about 8 inches higher. Nuclear energy has to be in a lower carbon future as solar and wind power's scope is very limited due to the cost of grid modifications and other problems. Also, wind and solar power require a near 100% backup using high capacity power generation. How can that be economic?  Thorium molten salt nuclear reactors may be answer given Thorium's abundance in the Earth's crust, it's safety and it's efficiency.

For a bunch of handy graphs about global warming see here.  Judge for yourself.  Just look at the data. No panic is indicated. Economic suicide is not required. However, a program to start the transition to Thorium (or other) power should be started now for the coming decades.

Oh, and all the alarmist "scientists" and their faulty models are wrong! And to think that Al Gore almost was our president!?!

OMG! Algae "Thriving" in Antarctica as Continent Warms!!

Modern day propaganda is promulgated by countless media outlets repeating the same "study" or "story" over and over again without any critical analysis or input by these "mouthpieces." It's because, if you repeat something over and over it begins to have the appearance of truth.  That's the Modus Operandi of the The Left.  Usually it's the same story or article picked-up by countless "media" outlets.  If everyone is saying it, it must be true, right?

I've noticed an increase in hysterical and hyped stories of "record warm" temperatures in the Antarctic.  Recently, I saw tons of stories about Antarctica ice "melting."  I posted a blog on this topic.  Some idiot found some meltwater on top of some snow at the farthest reaches of the Antarctic Peninsula that is no longer in the Antarctic circle and closer to Argentina than the South Pole. In the past few days, I've seen a plethora of stories with "disturbing" news that green algae is "flourishing" on the continent!

Nature.com did a big (and useless) study to document algal blooms on a number of islands on the Antarctic Peninsula. Strangely they concluded that the algal blooms were found on "multi-year snow" in the "warm" summer season and that this new biomass might even be an important "carbon sink" to counteract global warming!  My God, these people are raging idiots.

CNN: Snow is turning green in Antarctica -- and climate change will make it worse!!

Strange that Nature.com feels this is somehow important or groundbreaking when it admits that:

"Ice-free ground makes up only around 0.18% of Antarctica’s continental area, and even in the Antarctic Peninsula, the most "vegetated" region of Antarctica, only 1.34% of this exposed ground is vegetated"

The figure on the left shows the area of "concern", ie., the Antarctic Peninsula which juts out into the South Atlanta and is so long that the tip of the peninsula is closer to Argentina than to the South Pole.

They go on to say that "a single snow algal bloom can cover hundreds of square metres! OMG! They've managed to spot 1679 "patches" in total along the coastal areas of these islands (in summer) and have noted that these blooms are often found where there are colonies of penguins. Imagine that, penguin poop is fertilizer!  Fascinating!

Allow me to let you in on the truth about Antarctic climate: It's well below freezing even in their summer and even on the Antarctic Peninsula.  From Wikipedia's "climate of Antarctic:"

The mean annual temperature of the interior is −70.6 °F. The coast is warmer; on the coast Antarctic average temperatures are around 14.0 °F along the sea coast and in the elevated inland ice sheet (the entire continent) they average about −67.0 °F in Vostok in SUMMER. 

Along the Antarctic Peninsula, has the "mildest" climates within the continent. Its temperatures are warmest in January, averaging 34 to 36 °F, and coldest in June, averages from 5 to −4 °F due to the maritime climate. Temperatures as high as 59 °F have been recorded, though the summer temperatures are below 32 °F most of the time

The Antarctic is not melting---anywhere!    And Greenland is not melting either!!   The Greenland ice sheet juts up 6,000 to 10,000 feet above sea level in the Arctic where temperatures are well below 0 °F.  The low elevation edges of Greenland have seasonal melting due to the arctic maritime climate.

But the real point here is that a ridiculously trivial article gets repeated a hundred-fold by warming-hungry media outlets populated by endless numbers of utter dipshits.  I searched "Antarctic green snow" on google and I came up with 17 pages of search results repeating the Nature.com story but often with "sinister" undertones:  :

Continued below:

The Federal Reserve Destruction of our Nation: Making the Elites Richer and Destroying the Bottom 90%

From Real Investment Advice by Lance Roberts

The Federal Reserve seemingly is an ongoing mission to destroy the bottom 90%. [Doug here: it's really how the Govt and quasi-Govt Fed. Reserve are destroying the entire country. We just haven't seen violent protesters with pitchforks, Molotov bombs and torches yet --- but it's eventually coming.]

The one lesson that we have clearly learned since the 2008 “Great Financial Crisis,” is that monetary and fiscal policy interventions do not lead to increased levels of economic wealth or prosperity. What these programs have done, is act as a wealth transfer system from the bottom 90% to the top 10%.

While we will address the statistical data, there is also the anecdotal evidence which supports this thesis. Since 2008 there have been rising calls for socialistic policies such as universal basic incomes, increased social welfare, and even a two-time candidate for President who was a self-admitted socialist. Such things would not occur if “prosperity” was flourishing within the economy.

As I addressed recently:

“The disparity between the Fed’s interventions, the stock market, and the real economy has become abundantly clear. For 90% of Americans, there has not been, nor will there be, any economic recovery.”

Stocks Are Not The Economy

Take a close look at the chart above.

Companies derive their revenue from the consumption of goods, products, and services they produce. There, it is logical stock price appreciation, over the long-term, has roughly equated to economic growth. However, that relationship has become unhinged since the financial crisis due to the Fed’s interventions and suppressed interest rates.

From Jan 1st, 2009 through the end of March, the stock market has risen by an astounding 159%, or roughly 14% annualized. With such a large gain in the financial markets, there should be a commensurate growth rate in the economy.

After 3-massive Federal Reserve driven “Quantitative Easing” programs, a maturity extension program, bailouts of TARP, TGLP, TGLF, etc., HAMP, HARP, direct bailouts of Bear Stearns, AIG, GM, bank supports, etc., all of which totaled more than $33 Trillion, the cumulative real economic growth was a measily 5.48%.

While monetary interventions are supposed to be supporting economic growth through increases in consumer confidence, the outcome has been quite different.

Low, to zero, interest rates have incentivized non-productive debt, and exacerbated the wealth gap. The massive increases in debt has actually harmed growth by diverting consumptive spending to debt service.

“The rise in debt, which in the last decade was used primarily to fill the gap between incomes and the cost of living, has contributed to the retardation of economic growth.”

The Savings Shortfall

If wages don’t rise at a pace fast enough to offset the costs of maintaining the “standard of living,” individuals are forced to turn to credit to fill the gap. The lack of savings was a recent topic of discussion by the Wall Street Journal:

“Roughly half of U.S. households have no emergency savings, according to a Federal Reserve survey released last year. Those that do may not have enough. Almost 60% said they couldn’t tap into rainy-day funds, borrow from family and friends or sell something to cover three months of living expenses.” – WSJ

There are two reasons for the lack of savings.

“First, incomes for all but the highest-income Americans have been stagnant or falling for decades. Median household income in 2018 was only about 3% higher than in 2000 after adjusting for inflation, according to the Census. For the poorest 20%, incomes had declined 2%.” -WSJ

Yes, lack of wage growth is a problem, but as stated above, it is also a problem of the debt.

“The second reason has to do with the continuing effects of the debt households accumulated before the 2007-09 recession.

A new paper by Atif Mian, of Princeton University, Ludwig Straub of Harvard University and Amir Sufi of The University of Chicago found that rising income inequality over the past few decades created the conditions that fed the rise in debt held by lower-income households in the early 2000s.” – WSJ

 Continued below:

Leftism is Mental Illness and Evil

“If you tell a lie big enough and keep repeating it, people will eventually come to believe it. The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth is the greatest enemy of the State.”    -Joseph Goebbels

There's a factual basis for the saying that "Leftism is an illness." It's painfully obvious that the Left is increasingly deluded and filled with hate, led (and willing to be led) by their idiot "leaders," locked into silos of unreality by surrounding themselves with similarly deluded people on "social" media and on the lying broadcast media. They project their own hate as a characteristic of others.

The Democrats have become Marxists and wannabe tyrants who want to radically remake society and the economy to impose their views on everyone else based on the entirely false ideas that:

• Socialism/Communism is good for you, 90% taxes will solve income inequality (Cuba achieved income equality: the result is $30 per month wage for everyone except those "connected" to the regime),
• Climate change is a massive threat to your well-being and world, 
• A Green New Deal is the answer to all our problems: will create massive new jobs and solve the imminent climate emergency!
• White straight men are toxic, a problem for the country and should be marginalized,  
• All immigrants, legal or illegal, have equal status before the law  and there needs to be no criteria for immigration permission,
• Diversity is our strength
• National borders are inconvenient, cruel, and obsolete.
• Western Civilization is a malignant force in human history.
• Islam is “the religion of peace,” no matter how many massacres of “infidels” are carried out in its name.
• Blacks and Hispanics are intellectually equal to those with European descent
• Welfare and income support have helped black people in the US
• Women are are being intentionally paid less by evil businessmen
• All discussion about race problems and conflicts is necessarily racist.
• The hijab is a device of liberation for women.
• There should be a law against using the wrong personal pronoun for people who consider themselves neither men nor women (recently passed by the Canadian parliament).
• A unifying common culture is unnecessary in national life (anything goes).
• Colonizing Mars is a great solution to problems on Earth.

Crazy fuckers!

They are convinced that is The Right that is full of hate! CNN spreads fake news that whites and whites supremacists are full of hate and are the real danger to the country. But the reality is that the actual number of those people are statistically minuscule. Meanwhile, the insane leftist-supported Antifa criminals have been attacking anyone in their way by trying to bash-in their heads.

It's the Left that is full of hate. Democrats and The Left that are evil and racist and they project that hate quality and assign it to The Right. The truth is that the heart of racism in America is (black) Democrats!! Democrats have become the anti-white party in a nation of 60 to 70%  white people (we don't know how many non-white illegals live in our country BY DESIGN).

The Left are masters of psychological projection. They are full of lies that they tell themselves and accuse others of the very evil that THEY embody. And as a group, they take comfort in repeating lies among themselves because it reinforces their delusions --because if they repeat them day after day, it begins to have the illusion of truth. That's their method of brain-washing their supporters. They live in their own bubbles of delusion in the capitals of Leftism on both coasts and thanks to "social media"and their lying demented heroes on broadcast media nearly everything they believe is untrue, phony or a lie.

The problem with the Left is that they are fundamentally deluded haters and not lovers due to a lack of a faith, a lack of a rigorous education and faulty logic, a lack of religious education and a failure of parental education.

It's really a lack of a faith. It's a very real problem with The Left. They denigrate people of faith while they don't have a good answer or anything to replace a real faith. Instead, they dangerously put all their faith in "man" leading to inevitable disaster.

They want to install wannabe tyrants like Sanders or AOC who will impose their limited view of the world on everyone else. Disaster is assured! Or look at China, like any communist country, wants to stamp-out any religious faith and substitute faith in "man." It lead to disaster every time and no change is allowed!! It's really evil!

They run wild in an unhinged, unreal world where anything goes. Nothing matters. That's what happens when you're detached from reality.  Detachment from reality is a mental illness.

European Banks and the Euro Will Destroy the World

This post is an excerpt of "Rising Risk of Financial and Economic Chaos, Part 2."  It's so important that I felt it deserved to stand alone as a unique post.

The Europeans never allowed any banks to fail during the GFC in 2008, whereas some 157 banks failed and many mergers were arranged in the US during that recession. So nothing was allowed to fail in Europe. No bad debt was eliminated. So EU bank stocks are at 30+ year lows because everyone knows that they are loaded up with bad loans that are papered-over with "mark to fantasy"ratings. The other reason that the EU is faced with a banking crisis is that negative interest rates has effectively crippled the profitability of banks along with profit-killing regulations. The craziest regulation of the EU banking system is the requirement of bail-ins using depositor money should there be a bank failure!  That's crazy! Why would you want to scare away an important source of bank capital???   It's literally insane.  It's the total inverse of our FDIC deposit safety net!

The actions of the ECB to drive interest rates to negative levels is the most irresponsible monetary "experiment" in the history of the world. It's artificially driven up bond prices to truly absurd levels. There are still some $17 Trillion of debt in the EU that have negative yields. It's the biggest bubble in the world! And there's no way out!

But now there's a chorus of "economists" across the world, especially Europe, who are also increasingly critical of negative yields. It's becoming a consensus. It's because QE and negative rates haven't helped; they've hurt and caused damage to retirees, pension funds, insurance companies and most importantly the banking system (especially Europe). Just a week ago, Sweden raised it's interest rate from -0.5% to 0% because of the damage negative rates are causing: housing market price bubbles, bank and pension troubles were cited.

So, we're one populist revolt in a single EU country like Italy or Greece leaving the EU that could begin a real bond rout. Or it could simply be credit markets revolting due to rising risk. What if the ECB, like Sweden, decides to abandon negative rates now that there is consensus that it's actually crazy?

EU banks are large holders of dicey sovereign bonds like Greece and Italy - countries suffering under the yolk of the Euro currency. Germany has loaned 100s of billions to Southern Europe as the Euro currency has imposed a non-stop economic depression on the southern countries. This was predicted long ago by Margaret Thatcher. Such transfers are not sustainable. Even so, economic hardship is causing unrest and populist and/or separatist movements all over the world including Europe. Brexit was first, but who's next? If a country like Italy leaves the Euro currency, it's bonds would drop by about 70% to yield something like 7% from 1.4%. Since European banks are big holders of sovereign bonds, such an event would tip every bank in the EU into insolvency. One hiccup in a EU member's bond market (like Greece or Italy) and say hello to bank failures galore in Europe. Suffice it to say that EU banks are an ongoing problem for the world and probably an existential threat to the world of finance.

The effect could include the instant bankruptcy of nearly all EU banks and this would easily spread to the US and World (like a virus?). The ECB itself would be understood to be technically bankrupt. It CAN go bankrupt unlike our Federal Reserve. Bank runs could easily erupt since large depositors are at risk of losing their money for bail-ins in the event of an EU bank bankruptcy. A flood of money to the US would ensue. The dollar would rocket higher as US causing crises in emerging market countries that have issued dollar-denominated bonds --which is a huge amount.

In my post titled Declining Global Money Supply Taking World Economy With It, I mention that the real dollar money supply for world commerce was found in the Eurodollar markets of European banks. See the graphic.

Essentially all world trade uses the dollar as the core of virtually all international financial and trade transactions, the Eurodollar market therefore facilitates all of the trading and financial transactions for the international and emerging markets and China. Really, it's the "money" supply and lubricant for world trade. 

The "Eurodollar" has developed in past decades as unregulated liquidity that exists on (and mostly off) the large bank balance sheets in Europe and the US. It's really a sort of a "trick" designed to allow banks to skirt regulator's capital requirements. And the regulators, including our Federal Reserve, remain oblivious of what's going on--even now.  

The "Eurodollar,"includes all of it's derivatives. Parentheses around "eurodollar" means it's the aggregate of credit default swaps, interest rate swaps, currency forwards/swaps, repos/reverse repos and other derivatives used mainly to facilitate global and financial trade. "Eurodollars" are only backed by "balance sheet capacity" of the European banks. It's a huge "product" of EU banks and it's designed to bypass and skirt capital requirements set by the government. It'a a way that banks can improve profits through higher-than-permitted leverage.

But there are nearly no dollars backing these instruments. It's nearly pure leverage and very unstable in times of crisis -- as we found out in 2008 (see the graphic above). I'm confident that banks are now attempting to flee these markets again since we're in the Great Financial Crisis #2. But shrinking "Eurodollars" means a shrinking world economy. That's exactly what's happening.

"Eurodollar" liquidity is literally the antithesis of sound money. It's like "internet money." It's pure leverage with no real "backing" except faith in the money center banking system of Europe.  But faith in the European banking system has been dropping for decades. If you didn't know better, you might assume that the EU has been TRYING to ruin their financial system.  Major EU bank stock (equity) prices are at 30 and 40 year lows, indicating extreme lows of faith and high fear concerning these institutions. Fear is rising as indicated by rising LIBOR rates which are considerably higher than the largely irrelevant Fed Funds rate of 0 to .25%.  

Deutsche Bank, one of the largest banks in Europe is at the heart of the EU banking industry.  But the IMF has labeled Deutsche Bank as the world's most dangerous systemically important bank. 

But I'll say it again; there's no dollars in Eurodollars!  There's a high risk that demand for the USD will soar in an acute phase of this 2nd Great Financial Crisis--not unlike GFC1.  Crucially all of this "money" relies on the faith in the EU INTERBANK market and the failure OR EVEN DISTRUST of even one of the EU banks would send the entire Eurodollar market scrambling for the safety of USD securities.  And a rising USD in a crisis is like adding gasoline to a fire, but that's what could happen when the entire world financial system is structurally short of US dollars.  

Shrinking Eurodollars means a shrinking world economy. Shrinking can easily turn into collapse.

Our Dystopian Future: Recession Without End

I'm sitting at home on Thursday, April 23 and watching the DJIA soar nearly 400 points to nearly 24,000.  We're not far from the Dow peak of 29,000 set just a few months ago.  I'm watching this as another 4.4 million people filed for unemployment claims this week bringing the 5 week job loss total to 26.5 million.  This erases ALL THE JOBS CREATED SINCE 1998.

Figure 1: Cumulative Employment Gains Since 1998

Some folks are saying that 2nd Quarter GDP will be about -35% (on and annualized basis or negative 8% for the quarter). This is really bad. Most expect 2020 GDP to decline by 6 to 8% for the year, but even then it'll take years to recover at 1 or 2% growth.  Government debt will be soaring further in the months and years ahead, adding artificially to GDP but putting even more of a long term drag on the economy.

In my post Why Our Economy is in Depression and Will Get Worse, and We're Reaching the End of the Road, I mention a number of reasons for why our economy has already been mired in prolonged recessionary conditions and why things won't be improving anytime soon. For instance, I've pointed out that if you subtract government spending that was funded by debt, US GDP has actually contracted since the first Great Financial Crisis (GFC).

US GDP After the GFC in 2008 Shows Organic Contraction

Figure 2 shows that the US GDP has shrunk by $5.9 Trillion if you back out debt-financed spending in the government sector alone. This is Recession Without End (otherwise known as "Depression").

I mention poor demographics, the declining utility of debt, and the effects of reaching the limits of affordable resources, such as affordable oil as some of the causes. All these are true and have caused Central Banks all over the world to "pump-up" the money supply to absurd levels, backstopped all markets to maintain desired "wealth effects"and governments have spent borrowed money like never seen before. These emergency measures have continued for the past 12 years.  

Now these "reality avoidance" measures are ramped-up on steroids!  You could say everything is fake in this country: the news media and news "personalities" are fake, government statistics are faked, politicians are completely phony and fake, GDP and final demand is faked, our country's debt load is faked in that our future entitlement costs are ignored but are really debt,  Our polls are fake. Our stock markets are fake.  Worse, our money is fake! See Extremes of Unsound Money and Finance Lead to Disaster.

From Charles Hughes Smith's "What's Collapsing Can't Be Saved: Our Fraudulent Economy" he says, "The entire stock market rally of the past 20 years is nothing but a gigantic fraud based on stock buybacks funded by debt. Stocks go up because the majority owners of the stock borrow money from a banking sector that gives nearly free money to financiers and corporations. The corporate insiders buy back shares with the borrowed money, and the company services the loan."

Now we're in the Great Financial Crisis #2, the lastest in a series of bubbles and busts spawned by unsound money from the Federal Reserve and government spending bubbles.  The government is working overtime, using whatever spending and debt schemes to prop-up the last bubble.  THEY. MUST. REFLATE.--- or the whole scheme comes falling down. If the all-important stock market crashes, it's over. The desperation is palpable. It's because if stocks crash, so does corporate credit.

And every time a bubble bursts, the resulting recovery becomes more anemic -- especially after the 2000 Dot.com bubble/bust.

Now we have another bubble bursting. The result will continue to be Recession Without End .

What does this grim future look like? Gail Tverberg has been thinking and warning for some time about the potential of economic collapse as the world confronts limits of affordable energy.  In her most recent post Covid-10 and $1 Oil: Is There a Way Forward, she lists a number of changes that we should expect as much of the world's weakest debt is unwound thru defaults and failure. 

Between her comments and mine, I think I can summarize some of the big themes for the next decade.  

• the earth's population is unlikely to be sustainable at 7 billion persons. 
• Starvation will likely be a problem in Africa, the Middle East and in India starting nearly immediately. Population will continue to drop in most of the world and continue to drop in the developed world.
• The EU and the Euro currency will fail which will likely cause a huge banking crisis in Europe.  
• This collapse will be especially bad for the world economy because the real money supply to the world, the Eurodollar system and associated derivatives, reside on (and off) the balance sheets of EU banks. This shadow banking system is poorly understood by "Economists" and Central Banks. 
• Expect political uprisings in many countries like Italy, Spain, Indonesia and maybe the US and China.
• The entire middle East will collapse. This marks a continuation and conclusion of the collapse that was already underway in that region.  In my post Arab Civilization is Collapsing, I mention that most of the Middle East and North Africa had collapsing cultures most notable after the "Arab Spring."  I then suggested that the entirety of the region will be in collapse once oil prices collapse in a depression scenario.  This is coming true right now.
• Oil producing countries in Latin America will fail: Mexico, Brazil, Ecuador and Venezuela. Starvation in this region is not out of the question .
• The EU and Euro will fail. The WHO and UN may disappear.
• Big cities will become problematic to live in. Big city populations will decline.
• Most stock equities will be mostly worthless. Quantitative easing in some countries may support stock prices and housing for a few months, but eventually reality will prevail.
• Supply chains are already breaking. Manufacturing and trade will decline and eventually there will be shortages of goods and food and drugs
• Manufacturing will be done local and within regions. Globalization will be completely reversed.
• Nationalization of utilities, banks, oil/gas production and pension plans will be required
• Education will likely become primarily the responsibility of families, with television or the internet perhaps providing some support. Universities will wither away.
• International wars and conflicts will erupt

Here's the full text of Gail's post: 

There are clearly parts of the world economy that are not working:

• The financial system is way too large. There is too much debt, and asset prices are inflated based on very low interest rates.
• World population is way too high, relative to resources.
• Wage and wealth disparity is too great.
• Too much of income is going to the financial system, healthcare, education, entertainment, and travel.
• All of the connectivity of today’s world is leading to epidemics of many kinds traveling around the world.

In a less connected world, what we think of today as assets will likely have much less value. High rise buildings will be worth next to nothing, for example, because of their ability to transfer pathogens around. Public transportation will lose value for the same reason. Manufacturing that depends upon supply lines around the world will no longer work either. This means that manufacturing of computers, phones and today’s cars will likely no longer be possible. Products built locally will need to depend almost exclusively on local resources.

Pretty much everything that is debt today can be expected to default. Shares of stock will have little value. To try to save parts of the system, governments will need to take over assets that seem to have value such as farm land, mines, oil and gas wells, and electricity transmission lines. They will also likely need to take over banks, insurance companies and pension plans.

If oil products are available, governments may also need to make certain that farms, trucking companies and other essential users are able to get the fuel they need so that people can be fed. Water and sanitation are other systems that may need assistance so that they can continue to operate.

Gail goes on to say:

• There will be a shake-out of governmental organizations and intergovernmental organizations. Most intergovernmental organizations, such as the United Nations and European Union, will disappear. Many governments of countries may disappear, as well. Some may be overthrown. Others may collapse, in a manner similar to the collapse of the central government of the Soviet Union in 1991. Governmental organizations take energy; if energy is scarce, they are dispensable.
• Some countries seem to have a sufficient range of resources that at least the core portion of them may be able to go forward, for a while, in a fairly modern state: a) the United States, b) Canada, c) Russia, d) China and e) Iran.
• Big cities will likely become problematic in each of these locations, and populations will fall. Alaska and other very cold places may not be able to continue as part of the core, either.
• Countries, or even smaller units, will want to continue to limit trade and travel to other areas, for fear of contracting illnesses.
• Europe, especially, looks ripe for a big step back. Its fossil fuel resources tend to be depleted. There may be parts that can continue with the use of animal labor, if such animal labor can be found. Big protests and failing debt are likely by this summer in some areas, including Italy.
• Governments of the Middle Eastern countries and of Venezuela cannot continue long with very low oil prices. These countries are likely to see their governments overthrown, with a concurrent reduction in exports. Population will also fall, perhaps to the level before oil exploration.
• The making of physical goods will experience a major setback, starting immediately. Many supply chains are already broken. Medicines made in India and China are likely to start disappearing. Automobile manufacturing will depend on individual countries setting up their own manufacturing supply chains if the making of automobiles is to continue.
• The medical system will suffer a major setback from COVID-19 because no one will want to come to see their regular physician any more, for fear of catching the disease. Education will likely become primarily the responsibility of families, with television or the internet perhaps providing some support. Universities will wither away. Music may continue, but drama (on television or elsewhere) will tend to disappear. Restaurants will never regain their popularity.
• It is possible that Quantitative Easing by many countries can temporarily prop up the prices of shares of stock and homes for several months, but eventually physical shortages of many goods can be expected. Food in particular is likely to be in short supply by spring a year from now. India and Africa may start seeing starvation much sooner, perhaps within weeks.
•  History shows that when energy resources are not growing rapidly (see discussion of Figure 3), there tend to be wars and other conflicts. We should not be surprised if this happens again.

U.S. Shale Faces Largest Ever Drop in Fracking Activity

The Covid-19 crisis combined with the oil price war is about to trigger the largest ever monthly drop in U.S. fracking activity.

By Rystad Energy, Apr 22, 2020 via Oilprice.com:

The Covid-19 pandemic has ravaged global oil demand and, coupled with the extremely low price levels brought on by the wide supply surplus, is likely to cause the largest monthly drop in fracking activity ever recorded in the US, a Rystad Energy analysis shows.

We estimate that the total number of started frac operations will end up below 300 wells in April 2020; close to 200 in the Permian and less than 50 wells each in Bakken and Eagle Ford. This translates into a 60% decline in started frac operations between the peak level seen in January to February 2020 and April 2020, as the majority of public and private operators implement widespread frac holidays.

In March we observed an extreme 30% monthly decline in the number of started frac jobs in these three major oil basins, a fall from 807 in February to just 550. Also, nationwide fracking activity, on a completed jobs basis, might have already declined by around 20% in March 2020, according to our estimates.

“With such a rapid decline in fracking already visible, very little activity will be happening in the oil basins during the remainder of the second quarter of 2020. The natural base production decline, which we have seen as an absolute floor for production, therefore becomes an increasingly relevant production scenario,“ says Rystad Energy Head of Shale Research Artem Abramov.



If we assume that no new horizontal wells are put on production from April 2020 onwards, total LTO production will decline by 1 million barrels per day (bpd) by May, 2 million bpd by July and by 3 million bpd by October to November, with the Permian Basin accounting for more than half of nationwide base decline.

US light oil operators, which are now announcing voluntary production curtailments, will try to deliver on these cuts as much as possible from the natural production decline, as opposed to shut-ins of producing wells (though some of the marginal, least economic volumes are being shut in, too).

The magnitude of the base decline for US LTO sounds extreme in the context of what we see for other supply sources globally. But ironically, the steep decline is actually too late to save prices; despite the oversupply issue, standard operation patterns prevent operators from simply turning the faucet off. These days Permian wells require about two months from the moment frac operations start until they produce first oil, and require about three months before they reach peak output.

Hence, the decline in started jobs which began in March will result in a lower number of wells put on production in May, which ultimately will lead to a drop in peak production in June if normal operational patterns are maintained.

“On the demand and storage side, the market is already moving through its toughest challenge yet, and the WTI front-month sell-off emphasized how broken the physical market might be already. We are therefore concerned that significant production shut-ins will be required in the next few weeks to bring the market into the balance in a brutal manner,“ adds Abramov.

By Rystad Energy, via Oilprice.com

Rising Potential for a Financial System Collapse

From Tuomas Malinen on 2020-04-08, from GnS Economics

Country after country has reported extremely dark economic numbers. The gigantic jobless claims, 6.6 million from the U.S. last week, are just the tip of the iceberg (Doug here, and another 6.3 million for the most recent week). For example, the service sector PMIs have been simply ghastly across the globe. We are now in a crisis of epic proportions.

But, how massive can the crisis eventually get? Since our inception, in 2012, we have contemplated three scenarios as a part of our quarterly forecasts. While we have not referred to them in each report, we have repeated them periodically. They are: the optimistic, the most probable and the pessimistic.

But at this point our main worry is the approaching realization of the pessimistic, or the worst, scenario. It’s likelihood, while still low, is increasing fast in our estimate.

Underpinning its severity is not the virus, but the fragility of the global economy.

Breeding chaos: failed clean-ups and bad policies

The Global Financial Crisis (GFC) was considered a Black Swan event to many. However, it was no such thing. It was a massive failure of hedging and diversification within the global banking system, most notably in the U.S., and a number of prominent analysts saw it coming. See our blog, 10 years from Lehman. And nothing has been fixed, for an insight view on that crisis.

While banks were wound down and recapitalized in the U.S. after the GFC, an equivalent restructuring did not happen in Europe. Stricken European banks were left to linger in a state of permanent financial distress.

“Outright Monetary Transactions” or “OMT”, negative interest rates, and ECB’s QE program all aggravated the predicament of European banks. The failure to resolve the 2008 crisis ‘zombified’ the European banking sector, a situation which persists today. (See Q-Review 3/2019 for a detailed account).

Another pivotal moment for the world economy came in March of 2009, when the Fed vastly expanded its asset purchase program of U.S. Treasuries and mortgage-backed securities. This became known as the notorious Quantitative Easing or “QE” program, and has persisted in one form or another ever since. (See Q-Review 1/2018 for a detailed explanation.)

Central banks quickly assumed the role of “lender of first resort” in the capital markets, and their balance sheets ballooned. Asset prices rose to never-before-seen heights. Continuous market bailouts, culminating in the ‘pivot’ of the Fed in early January 2019 and its repo-bailout in September, removed all market discipline and incentivized investors to wild speculation (see Q-Review 4/2019 for details).\

The giant with (debt) clay feet

Chinese leaders also reacted quickly when the financial crash of 2008 precipitated a global recession.

China initiated a massive infrastructure programs that jump-started the world economy to a renewed upward trajectory. These programs were financed by credit issued by state-controlled banks, which Beijing can compel to lend, and the banks responded by doubling the volume of loans YoY. Between 2007 and 2015, 63% of all new money created globally came from China, and most of this increase was created by commercial banks.

During 2016, China unleashed a never-before-seen credit bonanza, tripling the size of the “shadow banking sector” as a response to a slump in the Chinese housing market, which had become the backbone of the Chinese economy over the past two decades.

By the end of 2017, the assets of the shadow banking sector stood at a mind-boggling 367% of GDP. The commercial banking sector has also become extremely levered, posting over 500% growth in credit since 2008.

Alas, the Chinese banking sector is now totally incapable of coping with any significant shock, and these Chinese economy became riddled with unprofitable investments.

Into the Abyss

These fragilities, combined with the massive economic impact of the coronavirus, leads us to our most pessimistic scenario.

In it we assume that

• Many governments will not be prudent enough in suppression measures, which will lead to severe global pandemic peaking in summer.
• Due to the worsening outbreak and delays in containment, suppression measures will eventually be prolonged and they become draconian (“Wuhan style”).
• The massive stimulus measures enacted by governments and central banks will be ineffective in providing support for the economy, as the tardy application of draconian suppression measures lock people at home in several key countries of the global economy for a prolonged period of time.
• Global economic activity plunges to never-before-seen lows.
• European banking sector breaks.
• Eurozone unravels violently.
• China ‘lands hard’.
• Global financial system collapses.
• A systemic crisis engulfs the world.

A systemic crisis simply means that the banking sector and financial markets collapse. In practice, this implies that most banking services will stop and funding through financial markets will cease. This also means that the monetary system is likely to collapse (see Q-Review 4/2019 for a detailed explanation).

It should be acknowledged that we have never faced such a scenario on a global scale (though the collapse of the Soviet Union could certainly be classified as “systemic meltdown”). That is why the sheer scale of such an apocalyptic scenario will be horrifying. They are presented in the Figure below.

Figure. The forecasted (Y-to-Y) GDP growth rates in the U.S. and in the Eurozone in 2020 – 2023. Source: GnS Economics, OECD

Fragilities laid bare

The Covid-19 pandemic will reveal all the fragilities of the world economy. The near collapse of the U.S. capital markets in mid-March was averted only through unprecedented socialization of the financial markets. However, when the Flood of corporate bankruptcies begins, central banks will not be able to withstand the onslaught. Then we will face only extreme economic options.

The global collapse scenario, presented above, would bring in its wake massive unemployment, poverty, misery and the eventual re-structuring of our whole social and economic order. The world would be utterly and permanently changed as a result.

This is something we absolutely need to be prepared for, even though its likelihood is still relatively low.

But it is increasing fast, and that should worry us all.