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It’s impossible to overstate the importance of China’s $1TN credit expansion in the first quarter even it its almost impossible to comprehend it. Stockman must surely be right that a good portion of it went to old borrowers so as to keep their repayments current.
As I have mentioned before we can’t let the Chinese beat us at this capitalism stuff. With the ECB now buying and thus monetizing corporate debt one can now imagine that no major corporation ever has to go bankrupt again, or even make any money. They can borrow to pay off old debt and even borrow to buy stocks that the ECB will buy.
If it seems this has to come to an end soon I ask why? Who wins if the game ends? Nobody and those who profit most stand the most to loose and that includes governments.
I struggle to try and place the extreme Salafi Islam movements like ISIS and Boko Haram and their early progenitor al Queda in some context that applies to AE’s and alt economic ideas in general. They do represent or say they do the complete rejection of modernism which is ultimately economic and materialistic. While their means are certainly anathema to us all their goal sort of looks like what we expect the future to look like in material terms.
Of course we all hate the idea of living in a place ruled by religious extremists. I am starting to wonder if the ISIS of the world and their rejection of today’s world is ultimately a reaction to and/or a result of system breakdown, at the margin.
I’ve awaited the rise of of anarchists in the West but so far they have not appeared. In some sense the Salafi jihadis are anarchists and I am tending to think of them in those terms. Strip away the quasi religious underpinnings of al Qudea or Boko Haram and I see anarchism.
I’m not sure where to go with this train of thought. Just saying.
Also for what it is worth last weeks close of the S&P index broke a chart downtrend channel dating back to last May. So by old fashioned chart technical analysis this signals a new multi year uptrend. It should be noted this old timey sort of analysis doesn’t mean prices will rise much or even a new bull market. It could mean a range bound market or it could just mean nothing at all but I’ve found it’s always best not to dismiss the charts out of hand. Just saying.
This articles new stage of capitalism is properly called neoliberalism. A word the author didn’t use I don’t think which is surprising because the existence of neoliberalism the ideology has leapt into the consciousness of our commentators. Where a year ago most never even thought of the word now it is popping up everywhere. Before most refused to even believe it existed despite having no idea what it meant. Now many acknowledge its existence if still a bit sketchy about its meaning.
In brief neoliberalism means that markets are super information processing entities which by definition produce the proper outcome. It’s sort of like the old invisible hand on steroids. The market being assigned God like powers or probably more accurately markets being made God.
It’s true that economics and politics are reaching new levels off integration but it gets pretty dodgy to call the result capitalism. Capitalism, the ism, the system, was theorized into existence in Europe in the 1800’s and by 1880 or so Classical economics based upon the idea of capitalism was formalized. The biggest opponent of Capitalism, Marx, probably gave the theory of capitalism and big ‘E’ Economics its biggest boost by simply identifing it. In the formation stage it was understood that politics and economics were entwined but in the US lead by the University of Chicago, that idea was pushed aside and Economics was declared a thing of its own. Best left unfettered by government which should be read politics.
Well I’ve gone on too long. I should add that the acceptance of ‘money printing’ represents the flowering of Modern Monetary Theory which unknowingly overthrows the basic underpinning or our debt based money and thus rejects the stored value basis of money, Leaving only its transaction function. I say unknowingly because most don’t know that debt is what gives money its value now. That has been forgotten so MMT is already half way home. If a system with a money with no fixed value can endure I’ll leave to the future to find out. I am certain the planet won’t.
Addendum to the above. Americans and the West have always mocked Russia for being poor. Even AE’rs probably dabble in gloating about it. Perhaps one should consider that it is poor because they have mostly eschewed the ‘wealth’ created by debt.
On Russia Putin is no friend of the oligarchs who flourished after the collapse of the USSR, with our help and advisement. The transfer of wealth to the top in the west dwarfs Russia’s in the same period. At any rate Russia is poor. It’s just that we want to bring it into the neoliberal world order so we can own what’s worth owing. That is why we hate them and have always hated them and why we will continue to hate them and work to keep them poor.
I am no apologist for Putin nor Russia but what is coming into focus is that part of the Russian character at least as far as the countries political character is that it distrusts debt. Alone among all other nations in the world. As should be apparant to all AE followers this is a virtue. It may serve them very very well going forward. If we and they can avoid blowing the world up.
How bad is China’s debt problem or anyone else’s for that matter? Anyone who is large bank or powerful nation that is. Look at it this way. Who suffers if loan losses are never recognized? The answer is nobody. Nobody as long as somebody doesn’t demand the losses be recognized and who would that be? The government and so imperil huge deflationary economic consequences. Given the choice to follow regulation and law or imperil the system what member of any elite, government or otherwise who has it so very good is going to choose peril?
Which gets around to anyone else of significance or power who might demand banks take their losses. Why when the short term answer is simply more money via more loans and some central bank printing on the side along with some help now and then with the equity prices of said banks and all other corporations?
I’m hardly talking just about China and besides they are leading the way in burying and printing and market intervention. Is the Dollar world going to let China win this ‘capitalism’ thing? I think not by choice.
If you can follow my nonsensical line of thinking, doubtful I suppose, then you can imagine that the zany and surreal world of money and finance doesn’t necessarily have to end any time soon. As long as default can simply not be declared or just rolled over again and again then it will be. I cannot imagine anyone in power saying stop nor any mechanism which would make it stop. Events may call a halt, war or environmental but a stop by choice of the powerful, I think not. Sure, expect a dislocation, someday, but that day may keep receeding for another year or two or four.
Take this under advisement. That being Zero Hedge is a disinformation machine. Some things are true, some things are not. (in my opinion ZH is an arm of the powers that be to engage in ‘modified limited hangout’ (look it up), to stir up alt economics fans in the direction of the right, and to disclose policy moves in a non official way)
At any rate who needs helicopters for helicopter money and to boot why have currency at all.
As a general reminder, the US economy since the end of WWII has always grown via the expansion of auto sales and new home sales. Those were the great wellsprings of consumer debt growth. After the last crisis autos have recovered spectacularly but new home sales linger at 50 year lows.
Home improvement and HELOC, home equity line of credit, are a weak substitute for new home sales. New home sales will never rocket up again so the American economy will from now on have one hand tied behind its back. It should be noted the fracking thing was advanced with the intent of replacing new home sales as an engine of credit expansion and GDP growth. Fracking was the thing that made the US ‘recovery’ stronger than the ROW. With that now over 1% growth, all things being equal which they aren’t of course, should be the expected baseline.
The economic consensus that bubbles can’t occur is based on more general concepts then things like investors are making rational decisions. Rather it is based upon the core neoliberal idea that markets are all knowing super information processing entities that are emergent phenomena so that markets can never be wrong.
I keep harping on this but until one starts to get a grasp of the theoretical foundations of Neoliberalism one is bound to miss the big picture. I recommend this as a starting point. It should be noted the godfather of neoliberalism was Friedrich Hayek, the much worshiped supposed defender of free market by so much of the right.
Brazil is now all set up for the military to take over, along with the plutocrats, to make it safe for neoliberalism. It’s Pinochet, 2016 style. It isn’t that the ruling party isn’t corrupt it is that most everything is corrupt but the so called Car Wash investigation is concentrating on it.
Neoliberalism is marching from victory to victory. The ferocious 5 week world stock market and oil rally a blaring example as both are now on the cusp of ending their bear markets based upon traditional technical analysis. Remember this, asset markets don’t have anything to do with the economy. Every possible reason you can think of why markets should go down because of the economy are wrong. As long as the financial markets are liquid they will rise.
Faber’s proposition that central banks and governments will buy all financial assets is pretty silly. The reason being what assets are the rich then going to own? I will agree because I’ve been pounding the same idea, “they will do anything not to let asset prices go down,”
Governments and central banks don’t have to buy all stocks and bonds they just have to be a marginal buyer, always keeping a bid under the market via direct purchases but more commonly it will be in futures and other derivatives. I don’t doubt we are in a bear market but I doubt it will be a severe one in terms of asset prices because of the above.
It must be remembered that the Fed allowed and essentially orchestrated the crash of 08 by shrinking its balance sheet and thus starving the Primary Dealers. It’s hard to imagine this was done out of ignorance. The Fed will never never never ever shrink its balance sheet again
We will have an answer quickly on this oil price thing. I believe it is possible that the published price for oil, as opposed to discounted oil at the terminals for specific buyers, can be maintained well above $30 and of course $19 by managing the futures market price.
I would be more than happy to be proven wrong.
RE “China’s central bank is preparing regulations that would allow commercial banks to swap non-performing loans of companies for stakes in those firms, ”
As I was saying the other day China will not recognize loan losses. If swapping for equity seems to make no sense because there is no way to figure the ‘worth’ of said equity remember the government can buy equities to support them so others will buy, and there is your price.
We certainly can’t let China win this ‘capitalism’ thing now can we. So we sure as hell aren’t going to recognize losses either. The PPT can always buy futures to manage prices. Besides it’s better to think of equity and even corporate debt not in terms of what it is worth but what money is worth in relation to said assets. I know that’s a mind twister but try and think that the store of value function of money is being superseded by the assets, mostly financial held by the very top, as being the ultimate store of value.
There is a monetary reset going on before our eyes but it’s hard to see. Well that’s my crackpot idea and I had this idea, that corporate assets would become money, the store of value a dozen years ago. I didn’t know how and don’t really know now but heaven and earth will be moved to try and make it so.
There is no such thing as ‘International Law’. Or rather to the extent that there is it used only at the whim of the US. Post WWII some very upstanding people, mostly Americans,worked on behalf of the US government to put in place the laws and frameworks of law which would serve traditional American and Western values based upon well tenents of moral philosophy.
However the deep state, the spooks and ‘global strategic thinkers’ were not on board. So the levers or power pushed ‘international law’ when it suited them. To count on such law to mean a thing is a fools errand. The world doesn’t work that way. America is just as capable of doing anything possible to serve the interests of the self declared defenders of The Nation, and enhance their own wealth and power.
It’s funny that occasionally the Chinese government is still called communist and I guess it still calls itself that. Of course what it is or at least what the leaders are is neoliberal. Pretty much the leaders of every functioning government in the world, except Russia, is neoliberal. (little wonder the universal hatred of Russia) Buying into the basic precepts of orthodox economics and why not, that’s how you get rich personally. Not to mention it helps other rich powerful people get more rich and more powerful. A seemingly perfect virtuous circle.
China will simply not recognize the defaulted debt, and neither will we. Problem solved. I know the hows are vexing but that is how I think it will come down. Then remember, China very publicly bought equities to prop the market last summer and did so again last week. To me it is all but certain our Plunge Protection Team is in the futures markets the last three weeks. With theses two things assets don’t deflate. What about oil? The oil rally is futures driven so one can posit the Saudis doing the buying. Iron ore rocketed up Monday morning in Shanghai.
Can we, the US that is allow China to win this capitalism thing? Hell no. Of course it isn’t capitalism but why nit pick. The great monetary shift is happening right before our eyes. The ‘money’ no longer has any real store of value function. It’s an odd thing but asset while admittedly denominated in money are the actual store of value, since their price can be managed.
I think many bears and alt economic thinkers have a naive belief in markets.
Pepe Escobar connecting dots as few do. Indispensable.
The story about Ukraine by a Patrick Smith was published on Salon, a self identified ‘liberal’ site. They publish a story by him every few weeks and the few comments they get compared to their normal stories are overwhelmingly negative. Inevitably accusing him of being a Putin apologist or worse. While some of these comments are surely from trolls it’s fair to assume that most American ‘liberals’ are all in on the ‘Putin invaded Ukraine’ story because among other reasons the NY Times for over a year published an anti Putin article every few days and put it on top of their online site. So most ‘liberals’ and ‘conservatives’ and every politician I know of support the process which has brought war with heavy weapons to the edge of Europe for the first time since the end of WWII. (with the possible exception of the Greek civil war 1946-1949 which come to think of it has a forgotten part of what has happened to Greece now and Americas continued hatred of Russia)
As opposed to the very occasional push back story about the dominant Ukraine narrative, there is no narrative about Greece at all in the ‘liberal’ US media, online or otherwise. Liberals just don’t think of Greece at all, its impoverishment or the refugee crisis there. The rest of the world has become a big blank space for American liberals. American ‘liberals’ have been reduced to supporting LGBT rights, vaguely supporting lower class non whites and bashing ‘Wall Street’, but loving the Fed except for the suspicion the Fed has not done enough. American liberals are the biggest fans of Fed ease and activism after all and thus helpers in their own demise. While today’s so called monetary policy is not specifically neoliberal it serves neoliberals perfectly while our Ukraine and Greek, Syrian and Libyan policies were picture book neoconservative in both cases American ‘liberal’ Democratic politicians have been all in. Hillary leading the pack.
I guess the point being that liberal politics isn’t going to change a thing. Sadly, just as in Europe, change is rising on the right. It’s all so very depressing.
Could someone tell me how money leaving China is being exchanged for dollars or Euros or whatever? In any case much of it is being used to buy assets, real Estate and financial which is great for those markets but only adds to the main disfunction of our age, asset inflation.
The EU may break down but the European Monetary Union will march on, which was probably always the point. As Greece showed there is no alternative to the EMU because the unknowns are too much for politicians to bear.
DO’s technosphere is a well fleshed out idea and even a movement. Usually called the Singularity but more properly called the technological singularity.
https://en.wikipedia.org/wiki/Technological_singularity
It even has its own ‘university’.
https://singularityu.org/The basic idea goes back to an idea attributed to John von Neuman one of the founders of computing. The basic idea is of self replicating machines. Dismiss the idea that such will come to be but be aware that in a way most everything we see in the ‘economy’ is directed towards such a goal and the elites are, consciously or not, all in. As I put it the arrow of history is pointing in such a direction.
It seems likely however that economic and political dislocation will turn that arrow away short of its goal. I sort of assume that anarchy will play a part. I hesitate to say this but In an odd way ISIS is the first full flowering of absolute total rejection of technological progress.
It’s a mistake to expect a crash in US stocks anytime soon. It could happen but probably won’t. Stock market direction is determined by liquidity and while that is barely moving up, and flat is really tight and thus the current bear market, it does not portend crash. The ace in the hole and its strategy is for chaos in the rest of the world to attract money into the US and US markets. Thus even with falling liquidity globally US financial market liquidity could still rise.
Chaos in the rest of the world is good for US asset markets and the US is only about its asset markets. Everything else is just noise. Sure waves of risk off by the wealthy could bring a crash but it will most likely evidence itself as a secular bear market.
Never mentioned about Japan is that its population is shrinking. Population increase is a fundamental driver of economic growth. That problematical ‘growth’ that so bedevils us but that everyone seems to want. Here in the US it is safe to say that every city or town or region that has a stagnant or falling population is gripped by deflation in all its many forms.
Every estimate of world population assumes continued increases but we know better.
The kindly mild mannered Bernanke’s goal was always to inflate assets, stop. That is what makes Americas elites strong which in turn makes America strong. That’s all there is.
Greeks and Turks are like oil and water. The article however misses the point. Greece was expendable and is now a meaningless place with some nice coastal areas the 1% can buy. Meanwhile Turkey is our partner in the long term goals of rendering Russia meaningless and poor, Iran the same, while trying to get some kind of grasp on the shattering Middle East and the Levant. It”s all part the fluid strategies to have another American century.
Of all the stupid central bank ideas the dumbest is that confidence increases spending and consumption. No, money leads to spending and consumption and thus confidence. Money leads confidence not the other way around, confidence leading money.
I love the brilliant ‘new’ “cold fusion” idea, increase deficits. That can’t happen by choice in the US since it is political heresy. Every single working Republican politician in America supports a balanced budget or at least has to say they do. Now it is true that persistent tax cuts for almost 40 years have raised deficits but the increases have been incremental and almost never tied to overt fiscal expansion, ie. more spending. In the US anyway tax cuts can always appear but every trick in the book will be used to keep the deficit from rising.
Has this Stephen Englander been on Mars the last 40 years? Well his whole message is just pro forma BS with cutting taxes and more QE being the point and the fiscal expansion stuff thrown in just for the hell of it.
Deficit expansion in the US is never the actual or stated intention of policy. It always occurs because or revenue decline because of lower tax rate or lower tax revenues because of economic slow down. The latter is where we are this instant. Rising year over year tax receipts which have been strong for several years have now turned to YOY declines so the deficit is increasing already which translates into more Treasury borrowing. The Treasury is going to be pounding the market with supply for the next 6 weeks because of the seasonal factor of tax refunds but the amounts are going to be higher than anticipated just 2 months ago. This is an important factor in market liquidity and bodes ill for any stock market recovery in the short term. All of which really messes up the entire fiscal expansion road to growth thing.
What strikes me is the complete absence of signs of panic. In July 07 when the Bear Stearns funds collapsed I envisioned Bernanke needing to go home and assume the fetal position every night. But no, he was as calm and confident as a man can be. On the international front as the world flies into WWIII in Syria the front of the NY Times online edition is dominated by our ridiculous presidential candidates and of course the daily report of $20 something million dollar NY apartment deal. Well today is no less surreal than any other day over the last few months, or is it years.
One take from the 08 panic or 9/11 for that matter is that the confidence up to the very moments of disaster was based upon the certainty that the disasters would bring only more power and wealth to those at the top. We spend our time imagining that the next disaster will be the death knell of those elites, but will it be? Or will it be the next disaster after this?
The Monerey story is 3 years old at least. That’s when if you were paying attention the naysayers were saying that fracking simply would not work in that formation. Yet here we are years later and it only becomes ‘news’ when a government agency finally comes around to announcing the facts.
This in a nutshell describes just about everything you can think of. Unless the very important people say it and it appears in the NY Times almost nobody hears or even listens. What passes as ‘news’ in relation to large events is always a story that is several years old.
It’s not so much that it’s complex but rather it is impossible. Impossible within the confines of the existing laws and existing so called markets. It is impossible for the system to reform itself. It’s a fools errand to think those in power will interpret and enforce laws against themselves or make laws so that such enforcement becomes practical.
The world complex could be used in regard to overturning the system but that is hardly a good word to use. Revolution is a better one and revolution is terrible in every case. It’s necessarily violence. Or perhaps the financial system and then the political system dislocates. Whatever moves in to fill the void will be a revolution of sorts.
For those with a taste for the philosophical, historical and intellectual I recommend anything you can find by Philip Mirowski. I discovered him from his can’t miss book ‘Never Let a Serious Crisis Go to Waste: How Neoliberalism Survived the Financial Meltdown’.
His project is no less than dismantling Economics. A good place to start might be here
For a brief glimpse of philosophical depth of his criticism of Economics see this.
Ezra Pound got lost in politics and ended up supporting fascism. Screw politics and ideology for there is no wisdom to be found there. The ‘debt money system’ is as flawed as any possible system created by humans. All systems can and will be corrupted. No system is perfect nor perfectible nor are any people.
So say I, a nobody, an armchair dilettante moral philosopher.
PS2 answer. Bob Dylan of course. From his best sounding album of all time, produced by Mark Knopfler and including his great guitar work. (not best album, best sounding)
Now I want to address something I regret I have to. Baked into the cake that is the AE view of the future is, to use a certain term, a culling of human beings. When it isn’t starvation, now looming its ugly head in Yemen, or war including nuclear, it will happen via all sorts of means under many political guises.
Illargi’s effort in Greece with his food efforts and raging against the situation of the boat people with his words, but in light of what he thinks will come they amount to several orders of magnitude less than a finger in the dike. Like a little fence before a tsunami. I’ve yet to commit very much to what are Quixotic stands against the things to come. I don’t intend to disparage IM’s rhetorical efforts or material ones I applaud them. I just hope he and others keep a clear view and suggest that perhaps it will be best to spend a little less mental and emotional energy in imagining some solution or turning can happen by dint of effort. Accept and embrace your inner Don Quixote.
One good lens through which to view events is that the monetary system is breaking down. Correct me if I am wrong but this is dead center in AE’s view of where we are in history.
Update on Izvestia’s, oops I mean the NY Times, coverage of the markets fall. So far this year it has said almost nothing. So yesterday evening they chimed not with a solid new story but a little almost blog post that appears under the title ‘Update’.
The gist of the story is they have no clue why markets are falling. There is no facts that can explain it they say. It’s just a puzzle. They go on for a few hundred words saying it can’t be made sense of because it makes no sense. They do allow that perhaps it’s just herd behavior, “the moves in market prices reflect more the psychology of money managers than fundamental information about the state of the global economy” they opine.
Behind paywall so this may or may not work for you.
There has been a notable lack of media interest or even comment about the market break. For this assessment I simply browse the front page of the NY Times online a few times a day. What the Times talks about is where all other media gets its signals about what to talk about.
On the topic of what it doesn’t talk about it doesn’t talk about Putin anymore or Ukraine for that matter. As opposed to the year and a half it reliably had an anti Putin article linked on its front page at least 3 times a week.
Something is being done about the vast wealth inequality. It’s called a bear market. Much of the ‘wealth’ of the 1% is fictitious wealth based upon the mark to market price of financial assets. Much of that wealth is illusory. The deflation of assets will be a crude tool to reduce inequality however. The absolute numbers held by the top will crater but the percent of the total will probably not adjust all that much. In the end it is the relative wealth which drives the seekers or wealth so that’s what counts to them. Being on top is the most important thing in human competitiveness. The size of the hill or how high above the rest is secondary. It’s just being on top which counts.
On the US economy, weekly tax withholding’s have been falling on a year over year basis recently and last week dipped into negative territory. These numbers are volatile but if they persist it means the US is in recession.
Doug Noland’s 2015 year end review provides a handy summary of global financial conditions that all here should understand.
“Important pillars of the bull case evaporated throughout 2015. Global price pressures weakened, the global Credit backdrop deteriorated and the global economy decelerated. Indeed, a global bear market commenced yet most remain bullish. Serious and objective analysts would view this ominously.”
https://creditbubblebulletin.blogspot.com/2016/01/weekly-commentary-2015-year-in-review.html
However if somehow 2016 sees anything more than nominal growth in the face of credit barely expanding at all or contracting then the whole of Credit Bubble analysis, which I think it fair to say that AE subscribes to, will suffer a blow.
For those not familiar with Credit Bubble analysis, the archive. https://creditbubblebulletin.blogspot.com/2016/01/weekly-commentary-2015-year-in-review.html
Not apropos of anything in today’s summary but it should be noted.
State Department Says It Brought Peace and Security to Syria in 2015; Pretty Pumped for 2016
https://www.slate.com/blogs/the_slatest/2015/12/28/state_department_declares_it_brought_peace_and_security_to_syria_in_2015.htmlIn Slate, the semi mainstream web magazine. The article disappeared from the front page today in 10 hours or less. Nobody cares at all.
