Anyone who wants to see a final end to globalization can thank dunced policy-makers for doing everything possible to accelerate its collapse. The de facto policy of "Extend and Pretend" is doing serious underlying damage to the world economy, even as global policy-makers fiddle fuck around rearranging the deck chairs on the Titanic. The ultimate meltdown will merely bring acknowledgement that the status quo already buried the economy. I'm trying to think of what else they could do to hasten its demise, but nothing comes to mind...
"Prepare for Landing..."
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More Free Rope To Wrap Around Their Necks
This week's Detroit bankruptcy was the largest municipal bankruptcy in U.S. history. As we would fully expect following 2008, the debt accumulation burden was shifted from the private sector to the public sector. This occurred in some cases directly via governmental bailouts of banks, however, more insidiously it occurred via the numerous ways that the events of 2008 weakened the underlying economy and hence tax base. The major issue I cite over and over again is corporate outsourcing which went into overdrive in 2009. Those millions of jobs are gone and never coming back. And how about all of the people who took advantage of ultra-low interest rates these past four years to ratchet up their debt level and otherwise tighten the bankruptcy noose? My grandparents lived through the Great Depression when they were young, and never touched debt for the rest of their lives. This current generation thinks nothing of leveraging itself to the absolute maximum extent possible, especially for the bigger house and fancier car. Central Banks of course have given them overwhelming incentive to do so. Also this week we saw the biggest flow of funds into stocks since June 2008. These people sat out a 150% rally in the S&P off of the lows, but now they are deciding is a good time to get back into stocks. Just one more way to position the masses for maximum economic damage now that they have finally gotten over 2008.
Borrowing Our Way Out of a Debt Crisis
Moreover, as I wrote previously, an estimated $33 trillion in global stimulus has been applied in the past four years in some ludicrously vain attempt to dig the economy out of a hole. Our stooged thought dealers never stopped to think that maybe instead of fixing the problem, they were only making it far worse. Therefore, the post-2008 meltdown won't be as much about banks and private entities (although most banks will be obliterated no doubt), it will be about municipalities, states, provinces and entire nations. Given the Darwinian nature of currency markets, not every country gets to monetize budget deficits (to say nothing of state and local governments) - and long-term, no country will. Therefore, as we see with Detroit, when tax receipts no longer cover the budget, the wheels simply come off the bus. Extrapolate that scenario to almost every other tax jurisdiction in the developed world where ever-increasing legacy costs such as retirement benefits and jobless benefits collide with ever-dwindling tax receipts. There is no way to predict in advance where the next shoe will drop and hence where the dominoes will start falling as panicked investors flee the credit markets. There are simply too many governmental jurisdictions that rely upon ongoing access to the credit markets, to even guess in advance.
The Costs of 2008
From the Bank of International Settlements (BIS), the distribution of the $33 trillion of additional borrowings as % of GDP. In sum, it amounts to 20% of global GDP. Yet some apologists still say that the bailouts didn't cost taxpayers anything...
This article on ZH cites the above BIS report and states that the worst kept secret is that debt levels have increased dramatically since 2008. Actually, the worst kept secret is that not only have debts increased massively, but most if not all of the above countries are now ponzi borrowers and can't stop borrowing without putting their economies in recession i.e. debt is the economy. All of which means that the only solution is debt liquidation via bankruptcy - a massive reset.
The Safest Havens
Given all of the above, it may seem ridiculous to even talk about safe havens at this juncture, however, one must attempt a way of "threading the needle" through this crisis, as difficult as that may be in reality. Therefore, we know that the weakest constituents - whether state, local or national will fail first and the strongest will fail the last. So for those who want to know which countries have the safest debt, can read this ZH article. Or for a full list, go to this DB site - you need to look at the "CDS spread" column which is a market-based indicator of default risk. I noticed that Canada is not listed under either of the two sites i.e. the presumed 51st U.S. state, as always. I would assume that Canada's risk would be on par with Australia since they both have a AAA bond rating and similar economies. I have all of my parent's money in Gov't of Canada bonds. Also, I just read this article on the effects of QE on the stock of quality collateral i.e. it has taken collateral out of the market. Therefore, the shortage of Treasuries would be measured up to $11 trillion in the event of another major meltdown - almost the entire stock of U.S. debt ! Further supporting my view that Treasuries are the ultimate safe haven if only due to the massive unwinding of carry trades and mass failure of unsecured derivatives.
The Boy Who Cried Meltdown
Meanwhile, the other aspect of this ongoing fiasco, is that Central Banks have co-opted the markets to such an extent that they have made hedging financially impossible; therefore, they've made all valuation and technical risk metrics stop working. Anyone who is the least bit cautious in this environment looks like an idiot, even as the masses at large remain massively complacent.
Remember Tom DeMark? One of the best market prognosticators out there - his prediction in March for a top came and went over a hundred S&P points ago.
Meanwhile, the other aspect of this ongoing fiasco, is that Central Banks have co-opted the markets to such an extent that they have made hedging financially impossible; therefore, they've made all valuation and technical risk metrics stop working. Anyone who is the least bit cautious in this environment looks like an idiot, even as the masses at large remain massively complacent.
Which is all another way of saying that when the inevitable meltdown comes it will be far worse and catch far more people by surprise, than it would have otherwise...
Remember Tom DeMark? One of the best market prognosticators out there - his prediction in March for a top came and went over a hundred S&P points ago.
Remember the fiscal cliff that had markets bunged up at the end of 2012? Only the tax side of the equation was resolved, which means that the spending side was merely kicked down the road to this fall...
"In 40 years of watching markets closely, I have never seen more dangerous conditions than exist in the stock market today"Remember the unprecedented cluster of seven Hindenburg Omens recently? All ignored.
Remember, also in March, David Stockman, former budget director to Reagan, warned that another meltdown was inevitable if not imminent.
Remember the European debt crisis? Once Mario Draghi invented the OMT bond buying program which gave license for speculators to buy-up European debt using cheap dollars issued by the Fed, that fiscal crisis seemingly went away. Except, the problem is that it didn't go away, it has only gotten worse in the meantime. Now with Europe sliding back into recession, which way do we think budget deficits will go? In other words it's only a matter of time before Wall Street shows up at Draghi's door expecting him to make good on his promise i.e. to step into the European bond markets and start buying Greece, Cyprus, Spain and Italy's debt.
Lastly, remember, that even though the Boy Who Cried Wolf was wrong at first, when the wolf ultimately came, it ate everyone. Because they had all convinced themselves that it couldn't happen.
