The Looming Economic Collapse: The $250 Trillion Dollar Worldwide Debt Crisis

Authored by Mac Slavo via SHTFplan.com,

As governments raise taxes to cope with their unending spending habits, people are increasingly being forced to supplement their own income with loans. And according to most financial experts, this debt problem is so big that it will usher in a global economic collapse of epic proportions.

According to the Institute of International Finance’s latest Global Debt Monitor, the amount of debt held in the world rose by the biggest amount in two years during the first quarter of 2018.It grew by $8 trillion to hit a new all-time high of $247 trillion, up from $238 trillion as of December 31, 2017.  And that’s up by $30 trillion from the end of 2016.

Global debt is staggering to the point most of it will never be repaid and as governments continue their spending sprees and the debts keep mounting, the future of the economy looks bleak. There is more than enough economic data out there to show there could be an economic collapse and stock market crash in 2018. Bill Gross stated in 2017 that “our highly levered financial system is like a truckload of nitroglycerin on a bumpy road”. One wrong move and the whole thing could blow sky high, wrote the Epic Economist. Once this bubble pops, it will fling the globe into a financial crisis of epic proportions never before seen.

According to Financial Times, it is becoming clear that the global monetary policy is now caught in a debt trap of its own making. Continuing on the current monetary path is ineffective and increasingly dangerous. But any reversal also involves great risks. It stands to reason that the odds of another crisis blowing up will continue to rise. –Ready Nutrition

The Epic Economist also has a video out detailing how all of this came to pass.  It’s easy enough to understand, yet most still can’t get past their own preconceived notions and biases to comprehend that this will be the fault of governments and those who continue to look to rulers or masters to solve their problems.

“It is all about taking money from us and transferring it into government pockets.And then, taking money from government pockets, and transferring it into the hands of the elite. It’s a game that’s been going on for generations and its time for the humanity to say that ‘enough is enough’.” -Epic Economist

The future of the global economy doesn’t look promising based on the vast amount of debt and wealth being transferred from people to their masters.  We are living in economic slavery and until humanity understands that, the only other option is an economic crisis.

It comes as a bit of a surprise the infamous Keynesian economist Bernanke would express concerns over the government’s inability to decrease spending.  But now that he has, will Americans heed the warning and protect themselves against the next financial crisis? –SHTFPlan

There are ways to prepare for a financial crisis, although an ongoing and global crash could complicate things for preppers. But there are still ways to prepare and an open and educated mind is step one.  If you still believe the government and global elites have your best interests in mind, you probably also don’t anticipate a global economic crash, and therefore, are not going to prepare.  For the rest of us, taking on a “prepper’s mindset” will give you the upper hand in any financial crisis.

“If we have learned one thing studying the history of disasters, it is this: those who are prepared have a better chance at survival than those who are not.” -Tess Pennington, author of The Prepper’s Blueprint

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Canada

Canada reports a huge rise in consumer prices of 3.% year over year and these numbers are really higher as they disguise the true inflation rate.  Strangely the loonie spiked higher on the news because the Bank of Canada governor mist raise rates fast against a slowing economy

(courtesy zerohedge)

Loonie Spikes As Canadian Consumer Prices Soar Most Since 2011

Canadian Consumer Prices soared 3.0% YoY in July – well above 2.5% expectations – and the highest inflation rate since 2011.

  • Inflation for services in July was 3.2%, the fastest pace since 2008.
  • Goods inflation was 2.8%.

Gasoline prices – up 0.8% in July and 25.4% from a year earlier – have also been a main contributor to the recent acceleration in prices. Excluding gasoline, inflation would be 2.2 percent in July.

Monthly inflation was up 0.5 percent in July, versus analyst expectations for a 0.1 percent gain. On a seasonally adjusted basis, inflation was also up 0.5 percent, the biggest increase since January.

As Bloomberg notes, the faster-than-expected gains will test Bank of Canada Governor Stephen Poloz’s resolve to raise interest rates gradually over the next year to avoid a disruption to the economy. Price gains have now reached the upper end of the central bank’s 1 percent to 3 percent inflation range.

And that has prompted an immediate reaction in the loonie – instant buying…

Finally, we note that there was little discernable effect of higher tariffs on consumer prices in July. Statistics Canada released a report on the estimated impacts of Canada’s tariffs on U.S. metal and consumer products and found there would only be a small overall increase — with no more than a decimal point increase to inflation over a limited period of time.

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Richard Breslow, is one smart cookie:  he points out the huge problems facing the globe this morning which is basically totally ignored e.g. the German bund at .30%, the huge fall in the Turkish lira and other emerging nation currencies

(courtesy Richard Breslow/zerohedge)

One Trader Rages “If Your Blood Isn’t Boiling” You’re Not Paying Attention

“If your blood is not boiling,” begins former fund manager and FX trader Richard Breslow, “it’s fine to cut out” he threatens as it seems market participant ‘centrally-planned conditioning-biased’ ignorance or perhaps just blind faith in BTFD because of PPT and Midterms has left the US equity market the lone pretender in a world of de-risking.

Via Bloomberg,

 

Or perhaps we just sleep-walk until a proper blow-up forces some sort of response.

Of course, if we are confronted with the accusation that we should have acted differently, we can always claim

I understand it’s a Friday in August. I get that people are claiming they’ve had a hard week and want to call it a day. It’s no surprise that weekend-position-aversion remains a problem for risk takers. But with so much going on, if traders can’t be inspired to trade and challenge the status quo, it is safe to conclude that markets remain well and truly broken…Maybe forever.

  • the Turkish lira dropped as much as 7%,
  • the Shanghai Composite closed at its lowest level since January 2016
  • and German bunds are trading back below 30 basis points.
  • The Governor of the RBA just said what every central banker wishes they could — that he encourages a weaker currency.
  • The Malaysian ringgit is the latest Asian currency to experience the effects of slowing growth, sliding to the lowest in nine months.
  • BTPs remain at levels the Italian government can’t afford as their equity markets continue to noticeably underperform their brethren.
  • And U.S. equities are impervious to it all.

There’s a lot going on and traders need to ditch their base case that monetary policy will, at the end of the day, save all.

And the really dumb one, that calmer heads will ultimately prevail causing geopolitical and trade tensions to ease.

Did you ever think there would be such a systemic need for a new generation of aggressive hedge funds?

Another fatality of quantitative easing. Why stay up at night selling currency when you can just roll into the office at a decent hour and buy whatever the sovereign wealth funds are currently feasting on?

Incidentally, “base case” is now joining my list of banned expressions and words. It’s just commentator speak for I could be totally wrong but hope to be right somewhere down the line. And I’ll get back to you when it happens. While I’m at it, Purchasing Power Parity and the ground meat version of it are also out. It’s just a useless way into a misguided mean-reversion argument.

How appropriate as next week brings the 20th anniversary of when LTCM went hat-in-hand to banks. Make money, make money, lose it all. Sadly, another word in exile, “existential”, is due to return with great fanfare when the Italian government negotiates its budget with the EU.

Strictly off the record, bullies get their way until someone proves they can be stood up to. It may turn out that Erdogan is the unlikely bearer of that message.

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Turkey

Fitch states that Turkey’s action are insufficient to restore their credibility.  In essence they want the country to raise rates, something that they will not do

(courtesy zerohedge)

Fitch: Turkey’s Actions Are Insufficient To Restore Policy Credibility

To contain the historic plunge of its currency, this week Turkey unleashed an unprecedented barrage of interventions in its market, if not the economy, mostly focusing on crushing short sellers and making shorting the Lira by speculators prohibitively expensive.  In fact just moments ago, the Turkish banking regulator launched yet another intervention:

  • *TURKEY EXPANDS LIMITS ON FX SWAPS TO SOME LIRA FORWARDS

The one thing Turkey did not do, is despite vague promises of fiscal reform and monetary stabilization, it continues to refuse to do the one thing investors across the globe demand: raise rates and tighten financial conditions.

Confirming that this is the missing link, in a report this morning, Fitch said that Turkey’s incomplete policy response to the lira’s depreciation “is unlikely on its own to sustainably stabilize the currency and the economy.”

The rating agency, which one month ago downgraded Turkey to BB outlook “negative’ with more downgrades set to come, said that it believes “this would require an increase in the policy credibility and independence of the central bank, tolerance of weaker growth by policymakers, and a reduction in macroeconomic and financial imbalances.”

None of those are forthcoming as a result of Erdogan’s stongman tactics.

Meanwhile, in further pain for the Turkish economy, today the lira resumed its slide after a Turkish court rejected an American pastor’s appeal for release, drawing a stiff rebuke from President Donald Trump who said the United States would not take the detention “sitting down”.

“They should have given him back a long time ago, and Turkey has in my opinion acted very, very badly,” Trump told reporters at the White House, referring to Brunson. “So, we haven’t seen the last of that. We are not going to take it sitting down. They can’t take our people.”

It was not immediately clear what additional measures, if any, Trump could be considering. U.S. Treasury Secretary Steven Mnuchin told Trump at a cabinet meeting on Thursday that more sanctions were ready to be put in place if Brunson were not freed.

And as traders once again sold off the Lira, they pushed the return on the Turkish currency down to 37%, making it tied with the Argentine Peso for worst performing currency of 2018.

 

What happens next? Well, as Fitch explained in its detailed note, absent Erdogan folding and conceding his “new economics” have been wrong, the Lira will continue to suffer until eventually Fitch – as well as S&P and Moody’s – all downgrade Turkey to junk and below as its economic unraveling becomes unfixable.

Below is the full Fitch text (link):

Turkey Moves Insufficient to Restore Policy Credibility

The Turkish lira recovered somewhat this week after falling below TRY7 to the dollar, but is still down around 35% against the dollar in the year to date. Foreign exchange reserves (including gold) dropped to USD96.8 billion at end-June from USD110.4 billion at end-April.

The Central Bank of the Republic of Turkey raised the effective interest rate by 150bp through providing liquidity at the overnight interest rate of 19.25% rather than the main one-week repo rate of 17.75% and reduced reserve requirements to provide an additional USD10.7 billion of liquidity for domestic banks. The banking regulator has also restricted lira short-selling. On Thursday, Treasury and Finance Minister Berat Albayrak reiterated the goals of reducing inflation and the current account deficit, maintaining fiscal discipline and structural economic reform.

Efforts to fill the initial policy vacuum have helped stabilise the lira, as has a pledge from Qatar to invest USD15 billion in Turkey, although details and timing of the investment have not been disclosed. Albayrak ruled out capital controls on Thursday, and we do not believe these are likely as Turkey needs to attract large capital inflows. Nor do we believe Turkey will seek an IMF programme, unless the situation worsens materially, as this would be politically unpalatable.

However, an ad hoc and incomplete policy response cannot fully address the underlying causes of the lira’s fall, namely the large current account deficit and external financing requirements, the jump in inflation (to 15.9% in July), the build-up in foreign currency debt, and deterioration in economic policymaking credibility. These expose Turkey to a more challenging global financing environment, including a stronger US dollar, rising US interest rates and trade tensions, and a deteriorating political relationship with the US. Heightened risks to macroeconomic stability and the challenges of engineering an economic soft landing were key reasons why Fitch downgraded Turkey’s sovereign rating to ‘BB’ from ‘BB+’ and assigned a Negative Outlook on 13 July.

Bilateral support such as that pledged by Qatar is unlikely to meet Turkey’s external financing requirements without a sustainable policy adjustment. We estimate Turkey’s gross external financing requirement at USD229 billion in 2018 (including short-term debt), well in excess of official foreign exchange reserves.

In Fitch’s view, evidence of an appreciation of and genuine commitment to orthodox monetary policy from the top of the Turkish administration, and greater detail on policy measures in the new administration’s economic agenda, plus a track record of implementation, are likely to be required to restore lasting market confidence. Markets appear to believe that only a further increase in the main policy interest rate (which has already been raised by 500bp since April) would establish a sufficient real rate reflective of the risk premium, demonstrate policy credibility, support disinflation, re-establish a nominal anchor and attract capital inflows.

The abrupt tightening in financial conditions will sharpen the slowdown in GDP growth already under way. A slowdown from 2017’s unsustainable 7.4% growth and some depreciation of the real exchange rate were inevitable to reduce imbalances. Turkey’s vibrant economy and favourable medium-term growth potential support sovereign creditworthiness, as does low government debt (28% of GDP at end-2017, of which foreign-currency debt was only 11% of GDP). But the absence of an orthodox monetary policy response to the lira’s fall, and the rhetoric of the Turkish authorities have increased the difficulty of restoring economic stability and sustainability.