Tag Archives: credit

Setting the Stage for the Next Collapse

Guest Post by Steve Saville

When the central bank pumps money into the economy and suppresses interest rates it creates incentives to speculate and invest in ways that would not otherwise be viable. At a superficial level the central bank’s strategy will often seem valid, because the increased speculating and investing prompted by the monetary stimulus will temporarily boost economic activity and could lead to lower unemployment. The problem is that the diversion of resources into projects and other investments that are only justified by the stream of new money and artificially low interest rates will destroy wealth at the same time as it is boosting activity. In effect, the central bank’s efforts cause the economy to feast on its seed corn, temporarily creating full bellies while setting the stage for severe hunger in the future.

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Credit Allocation

Guest Post by Doug Noland

Signs of an upside dislocation

Total (financial and non-financial) Credit jumped $484bn during Q1 to a record $59.399 TN, or 347% of GDP. Although economic growth faltered during the period, Q1 2014 Total Non-Financial Debt (NFD) expanded at a 5.0% rate. Corporate borrowings grew at a robust 9.3% pace, up from Q4’s 7.7% and Q1 2013’s 7.2%. Federal government debt mounted at a 7.1% rate, down from Q4’s 11.6% and Q1 2013’s 10.1%. Consumer Credit accelerated from Q4’s 5.3% rate to 6.6% – the strongest increase in borrowings since Q2 2012. Consumer Credit expanded 4.1% in 2011, 6.2% in 2012 and 5.9% in 2013. If Q1 consumer borrowing is sustained, 2014 will post the strongest consumer (non-mortgage) debt growth since 2001 (8.6%).

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Serial Booms and Busts

Guest Post by Doug Noland

[ed:  Once again, much like with Prechter’s gold-bearish stance last decade, I must disagree with another influence of mine, Doug Noland, in his assertion that Ukraine is material to the US financial markets.  But there is much more to Noland’s views that I find of value.]

How long can the markets ignore Ukraine, Russia and China?

After beginning 1987 near 104, the U.S. dollar index dropped almost 10% in nine months. From 7.5% in late-March 1987, 30-year Treasury yields surged more than 270 bps in seven months to trade as high as 10.22% in early October. During this period of currency and bond market instability, stocks set off on a fateful speculative run. At record highs in late-August 1987, the S&P500 enjoyed a year-to-date gain of 39%. This spectacular rise was more than wiped out over a two-week self-off that culminated on “Black Monday,” October 19, 1987.

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Money and Credit and the Current Backdrop

Guest Post by Doug Noland

Trouble brewing.

Over the years, money and the “moneyness” of Credit have remained focal points of my Macro Credit Analytical Framework. From my perspective, money is fundamentally defined by perceptions. “Money” is a financial claim perceived as a safe and a liquid store of nominal value. Understandably, this definition is troubling to monetary purists. Yet in the spirit of Ludwig von Mises and his notion of broad money/“fiduciary media,” my view of contemporary “money” is focused on an array of financial claims and their functionality.

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US Monetary Inflation Slowdown

Guest Post by Steve Saville

Below is an excerpt  from a commentary originally posted at www.speculative-investor.com on 13th April 2014.

On the US monetary inflation front, the news is that there isn’t much in the way of news. As depicted below, the year-over-year rate of TMS (True Money Supply) growth hit a 5-year low of around 7% at the end of last year and has since edged a little higher.

saville1

There are only two ways that money can be added to the US money supply. The first is via Fed asset monetisation, which is how most new US dollars have come into existence since September of 2008 and how almost all new US dollars came into existence last year. The second is via commercial-bank credit expansion. This is how almost all new US dollars came into existence for decades prior to September of 2008.

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Financial Stability

Guest Post by Doug Noland

Selling is starting to get serious.

“Each Spring, thousands of government officials, journalists, civil society organizations, and invited participants from the academia and private sectors, gather in Washington, DC for the Spring Meetings of the IMF and the World Bank Group. At the heart of the gathering are meetings of the IMF’s International Monetary and Financial Committee and the joint World Bank-IMF Development Committee…”

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Household Debt Shrinking

Guest Post by Tom McClellan

Household debt versus income
April 11, 2014

Debt is bad, at least for you and me.  But debt held by others can be a wonderful thing, as long as it is increasing. Debt is only a problem at the point somebody decides to do something about it.

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HFT, Rigged Markets and the Man

Guest Post by Doug Noland

Initial indications of greed giving way to fear.

April 3 – Bloomberg (Silla Brush): “The U.S. Commodity Futures Trading Commission is reviewing futures markets to ensure high-speed trading isn’t violating the law, acting CFTC Chairman Mark P. Wetjen told reporters… ‘I don’t have the impression at the moment that futures markets are rigged,’ Wetjen said… He was responding to comments by Michael Lewis, author of the book ‘Flash Boys,’ that investors are being robbed by traders using advanced computers to jump ahead of their trades.”

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Q4 2013 “Flow of Funds” & Geopolitical

Guest Post by Doug Noland

Ominous geopolitical meets exuberant markets.

During Q4 2013, Total System Credit increased (nominal) $840bn to a record $58.991 TN, or 345% of GDP. On a percentage basis, total Credit expanded at a 5.8% rate during the quarter, up from Q3’s 3.8% but still below Q4 2012’s 6.2% pace. For all of 2013, system Credit expanded $2.139 TN, compared to 2012’s $1.613 TN increase. Total Corporate debt expanded $915bn, or 7.2%, to $13.622 TN. Non-financial Corporate debt expanded $783bn, or 9.0%, second only to 2007’s $856bn.

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Credit is Gold #1 and Icebergs

Guest Post by Doug Noland

The evolving EM crisis took a turn for the worse.

Backdrops conductive to crises can drag on for so long – sometimes seemingly forever – as if they’re moving in ultra-slow motion. Invariably, they lull most to sleep. Better yet, such environments even work to embolden the optimists. This is especially the case when policy measures are aggressively employed along the way, repeatedly holding the forces of crisis at bay. In the face of mounting risk, heightened risk-taking and leveraging often work only to exacerbate underlying fragilities. But eventually a critical juncture arrives where newfound momentum has things unwinding at a more frenetic pace. It is the nature of such things that most everyone gets caught totally unprepared.

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2013 in Review

Guest Post by Doug Noland

Quite a year.

All 2013 year-to-date price changes are as of the December 27th , but will be updated after the close on December 31st.

In a CBB titled “Do Whatever it Takes” back in August 2012, I discussed a television program I had viewed (sometime back) that provided an intellectual framework for better understanding the escalation of aerial attacks against civilians during World War II.

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