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Tag Archives: eurozone

  • Insider

    Off The Cuff: Into The Abyss

    The Fed's actions are quickly becoming the trigger that will blow up the system
    by Adam Taggart

    Thursday, June 13, 2019, 6:56 PM

    4

    In this week’s Off The Cuff podcast, Chris and John Rubino discuss:

    • The Fed’s Desperation
      • It’s just playing for time at this point
    • Why Lower Rates Will Blow Up The System
      • ZIRP/Negative rates create all sort of perversities
    • Italy Threatens To Revert To The Lira
      • Is the Eurozone about to break up?
    • Bad Corporate Debt Is The Ticking Time Bomb
      • There’s simply way too much of it now

    In this excellent analysis, John does an exceptional job clarifying the unique point in economic history in which we live. The Federal Reserve is truly out of ideas at this point; it is simply playing for time until the system breaks:

    The point in the cycle where we are now is a really unusual time to talk about lowering interest rates. Normally when the labor markets are this tight, and wage inflation is running around 3% which it is right now, the Fed is usually tightening. Wage inflation is a kind of inflation they understand. This is as opposed to stock prices going up, bond prices, or house prices going up. That is inflation, but they do not count it as inflation. When wages go up, they usually start raising interest rates. It is really telling that they are seeing things that lead them to maybe start easing again even with the economy, in theory at least, still growing ten years into the beginning of an expansion.

    I think they are recognizing the fact that the world – not just the US, but the whole global financial system – is so highly leveraged that any kind of downturn becomes systemically risky. In other words, a 20% drop in stock prices which is the definition of a bear market is something that happens all the time at least historically. This time around, it might knock down other dominos in a way that is uncontrollable. This is just because there is so much bad debt out there.

    When you take on huge amounts of debt, by definition a lot of it has to be bad debt. Usually the good credits have already done their borrowing. If you are going to expand that beyond that point, you are going to have to work your way down into the barrel to the bottom of the barrel. That is where we are now. A lot of people who have borrowed money cannot pay it back. They are only hanging on because the economy is growing and because their paychecks are there. If you take that away, then Boom!. The system starts to fall apart.

    These guys know that at the Fed. They are trying to delay the inevitable easing because they know that interest rates are already so low. The European Central Bank and the Bank of Japan never did get to raise interest rates. The Fed only got to raise interest rates a little bit, which means they have no ammo going into the next recession. Normally the Fed will cut interest rates by about 5 percentage points from peak to trough. This is as a way of reinvigorating the economy during a recession. If they were going to do that now, we would be at negative 2 or 3% on the Fed funds rate. It would be more deeply negative for Europe and Japan. That is uncharted territory.

    What the Fed is doing now is using words. They are trying to talk the market up. It works (for now). Whenever they announce the possibility of easing or the cessation of tightening, you get a nice pop in the stock market. They are hoping that they can elevate asset prices until the China trade deal gets signed and until the turmoil in the Middle East has settled. That will also give the markets a pop, and that will keep the economy growing for a while. It will allow them to raise interest rates another couple of percentage points at the short end of the spectrum to give them ammo for the next recession.

    They really do not want to start cutting right now. From here, they really do not have much room to cut. I think it is highly unlikely that they are going to get what they want. In other words, it is an economy that grows for the next three years and allows them to raise the Fed funds rate to 5 or 6%. That is really, really unlikely in the scheme of things. They are going to be forced in the recession that is probably imminent just because the expansion has been going on for way longer than a normal expansion. It is going to run out of steam pretty soon. They are going to be forced to cut interest rates to zero and beyond.

    That is why Powell was talking about that. Now he is talking about the effective lower bound of interest rates which is below 0%, we found out in this last cycle. We do not know how far below zero it is. That is what we are going to find out this time around. In other words, how negative can you make interest rates before it becomes the problem rather than the solution? From an economic theory standpoint, that is fascinating. That is the kind of experiment you never expect to see in the real world. We are going to do it this time.

    We are going to find out what the absolute lowest level interest rates can go to before it blows up the system. I do not use the words “blow up” lightly. That is what could really happen when interest rates get down to that point, and it turns out they do not work. Then it is game over.

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  • Insider
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    Off The Cuff: Trouble Returns To Europe

    The end of the Eurozone experiment may be nigh
    by Adam Taggart

    Saturday, February 4, 2017, 4:51 AM

    5

    In this week's Off The Cuff podcast, Chris and Mish Shedlock discuss:

    • Trouble In Europe
      • The end of the Eurozone experiment may be nigh
    • Our Justice System
      • Where to the Supreme Court?
    • Trump's Shake Up
      • Will he make it 4 full years?
    • Gold Strength
      • The metal and the miners are looking better

    Mish returns this week to discuss the brewing stormclouds in Europe. As nationalist candidates gain popularity, growth slows, refugee challenges persist, and friction with the US builds, the binds between the countries in the Eurozone are weakening quickly.

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  • Podcast

    Axel Merk: Making Sense Of The Impact Of Brexit

    A special edition podcast
    by Adam Taggart

    Tuesday, June 28, 2016, 12:22 AM

    29

    A very sleep-deprived Axel Merk joins us for this special edition podcast. Axel and his team have pulled late nights over the past few days following the Brexit vote results in real-time and the ensuing aftermath.

    Axel, CEO and founder of the Merk Funds, is originally from Europe and one of the best experts we know on the currency markets, as well as monetary policy. In this podcast, he explains why he sees the Brexit as a sea-change in sentiment that will have far-reaching implications for Britain, Europe, and the rest of the world — though it may take years before they are fully recognized and expressed. He expects the post-Brexit future to more market volatility, more populism as political stability weakens, more (ineffectual) fiscal spending to goose economic growth, and likely more armed conflict around the world.

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  • Blog
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    Why Greece Is The Precursor To The Next Global Debt Crisis

    The Eurozone fantasy will be one of the early casualties
    by charleshughsmith

    Friday, July 10, 2015, 3:48 PM

    51

    There is no way for Greece to fix its debt problem if it keeps the euro as its currency.  Every purported solution that doesn’t address the core cause of the debt is mere theater.

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  • Blog
    Netfalls - Remy Musser/Shuttestock

    Greece Exposes The Global Economy’s Achilles Heel

    Countries that can't repay their debts -- won't
    by Chris Martenson

    Thursday, February 5, 2015, 8:54 PM

    15

    The new Greek political party, known as Syriza, the Coalition of the Radical Left, has done the unthinkable: they've dared to speak the truth.

    Such honest assessments are not supposed to be uttered in politics, no matter how true they may be. And so, as you can imagine, the machinery of the defenders of the status quo is in quite a lather over the whole affair. And it's doing everything it can to minimize and marginalize the new Greek government.

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  • Insider
    Africa Studio/Shutterstock

    Off the Cuff: The Biggest Bubble

    a.k.a.: Life as we now know it
    by Adam Taggart

    Friday, May 30, 2014, 3:31 AM

    3

    In this week's Off the Cuff podcast, Chris and Mish discuss:

    • The Beginning of the End of the Eurozone?
      • The disgruntled citizenry is voting its mind
    • Mal-investment Everywhere
      • But the bond market is likely to crack first
    • No Exit
      • After 5+ years, the Fed is as stuck as ever
    • The Biggest Bubble
      • A.k.a: Life as we know it
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  • Blog
    Bruce Rolff/Shutterstock

    When Every Country Wants to Sell, Who Buys?

    The world is trapped in a quest for 'Demand'
    by Gregor Macdonald

    Tuesday, April 22, 2014, 5:14 PM

    25

    Understandably for the US, which sustained a consumption supercycle for several decades, the post-financial crisis period has kicked off a new trend: Americans want to consume less, and make more.

    Americans want to own less stuff, use less energy, and produce their own goods. In short, Americans want to sell

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  • Insider
    MedillDC | flickr Creative Commons

    Bernanke’s Suspicious Remarks on Gold

    His dismissal of its importance is not very credible
    by Chris Martenson

    Friday, July 26, 2013, 12:33 AM

    33

    Recently, on July 18, 2013, Federal Reserve Chairman Ben Bernanke told Congress a number of things about gold that make us wonder which one of two interpretations is correct: Is he really that out of touch? Or is he telling us lies with the bumbling skill of a four-year-old?

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  • Blog
    © Mopic | Dreamstime.com

    Europe’s Precarious Banks Will Determine the Future

    Ticking time bombs
    by Alasdair Macleod

    Tuesday, June 25, 2013, 9:09 PM

    6

    Crying Wolf?

    It is easy to get the impression that the naysayers are wrong about Europe. After all of the predictions of Armageddon, ten-year government bond yields for Spain and Italy fell to the 4% level, France (which is retreating into old-fashioned socialism) was able to borrow at about 2%, and one of the best-performing bond investments has been until recently – wait for it – Greek government bonds! Admittedly, bond yields have risen from those lows, but so have they everywhere. It is clear, when one stands back from all the usual euro-rhetoric, that, as a threat to the global financial system, it is a case of "panic over."

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  • Daily Digest
    Image by eutrophication&hypoxia, Flickr Creative Commons

    Daily Digest 3/26 – Eurozone Faces Tough Bank Regime, China’s Toxic Water

    by DailyDigest

    Tuesday, March 26, 2013, 3:47 AM

    5
    • After Cyprus, eurozone faces tough bank regime – Eurogroup head
    • What all investors can learn from Cyprus
    • Russian Oligarchs to (Involuntarily) Fund Cyprus Bailout
    • The Broken Euro
    • Creating Renewable Energy Farms that Double as Wildlife Reserves
    • Why such a fuss about extinction?
    • China's Toxic Water

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