Global Authorities Aren’t Waiting for a Crisis to Move Toward More Debt

Here’s the latest. US corporations are about to report more grim news.

The Financial Times has the story:

Wall Street analysts are bracing for a third consecutive quarter of falling earnings, the longest streak in more than three years, with the energy and tech sectors expected to be worst hit. […]

S&P 500 companies are expected to report around a 4.1 percent fall in earnings per share, according to FactSet[…] That follows a 0.4 per cent drop in the second quarter and a 0.3 per cent slide in the first.

Strange world

Warren Buffett says you can never go right by betting against US business. But guess what? So far this century, that bet has been a winner. Charlie Bilello, a former hedge fund analyst, tweets:

Total Returns, last 20 years…

International Stocks: +110%

US Stocks (S&P 500): +221%

Long-Term US Bonds: +329%

Gold: +365%

In what kind of economy does gold — which produces nothing, invents nothing, sells nothing, issues no reports, makes no sales or profits, pays no dividends, and has no CEO, no staff, no office, no parking lot, no coffee machine, no PR firm, and nobody to lie about the numbers — outperform the MBAs, capitalists, and people of ‘great and unmatched wisdom’ who run its major corporations?

It is a strange world, you will say.

But last week, we laid out our guesswork about the future…and it did not seem strange at all.

Instead, we saw the familiar haggard and desperate faces of deflation, inflation, then insurrection — a bit like a tour of well-known failed economies…beginning in Greece…then Argentina…and finally, Venezuela.

And if we’re right, you will take this cruise, without ever leaving home, whether you want to or not.

Out the window

All over the world, the authorities are moving toward more inflation and more debt, without even waiting for a deflationary crisis to set it off. Yes, the bar is open…!

We don’t follow the news in Sweden, for example, but that country seems to be a party pooper. Here’s Bloomberg:

Sweden needs to toss its budget surplus regime out the window and “borrow like crazy” to ease the pain of an economic slowdown and to prevent political upheaval.

That’s the view of one of Sweden’s most influential fund managers, Simon Blecher, a former newspaper columnist who now manages equities and bonds at Carnegie Fonder with about 70 billion kronor ($7.6 billion) under management.

In the US, the feds are already borrowing like crazy, with spending rising at twice the Obama rate…and debt piling up at $1 trillion per year.

The Federal Reserve, meanwhile, has undertaken a programme of closet quantitative easing, in which it buys $60 billion of T-bills per month. It is also pumping money into the overnight ‘repo’ market.

At the present rate, by the end of next year, it will have inflated the economy by an additional $1 trillion.

And here’s that old scalawag, former US Treasury Secretary Larry Summers, in the Financial Times. He argues that ‘new thinking and new policies’ are in order. But then he offers the same old claptrap:

‘Government debt or government support for private debt is needed to absorb savings flows. With real rates near zero or even negative, the cost of debt service is very low and low rates can be locked in for decades. That means that the debt levels that were prudent when rates were at 5 per cent no longer apply in today’s zero interest rate world. Governments that run chronic surpluses are failing to do their part to support the global economy…

Scam economy

Whoa…Larry, you’re going too fast there.

Haven’t savings rates actually gone down to their lowest levels in history — all over the world? So, those ‘savings’ you’re talking about…isn’t that really the fake money that central banks are issuing?

And if you ‘lock in’ loads of debt for decades, won’t you still have it when the economy tanks and you can’t pay it?

And don’t governments that run deficits have to get the money from somewhere — from their own citizens, for example, who may have had plans for it themselves?

And aren’t governments that run surpluses actually better able to weather a crisis?

And, Larry, isn’t this whole strange economy thing just a scam…? It’s really just the ol’ false shuffle, isn’t it? You borrow too much…and then you need to borrow more just to keep up with it. Until you go broke.

And it doesn’t really need ‘new thinking,’ does it? What it needs is very old-fashioned thinking — and honest money, balanced budgets, and public officials with enough dignity and integrity to respect the old rules.

Stay tuned…


Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance.

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