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TMBS - 49 - Postgame ft. Crew (Patreon)

Published:
2018-07-25 01:01:27
Imported:
2026-06
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TMBS - 49 - Postgame ft. Crew

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Comments

EarthQuaeck

Mandela speeding up like Shapiro had me in stitches. Great show.

Kevin Labelle

<a href="https://www.bloomberg.com/graphics/2018-corporate-debt/" rel="nofollow noopener" target="_blank">https://www.bloomberg.com/graphics/2018-corporate-debt/</a> I believe this is what was mentioned regarding corporate bond ETFs being on track for becoming a major culprit behind the next recession — and it’s probably going to be a really, really big one. I also think it may become the decisive crisis that will decide remainder of the 21st century’s balance-of-power. This article doesn’t go into everything David Griscom identified over the past few shows, but bond ETFs are more than relevant. Basically, because wage growth has been nonexistent in the U.S., corporate revenue flows have not really increased all that much as U.S. consumer spending has — instead — become a smaller proportion of global consumerism, especially over the past 10 years. That is also why these tariffs won’t work — the incentives to tap into the overseas demand for goods, are far more lucrative than those favoring reinvestment into the U.S. wherein consumer demand has stagnated. The alternative would be to increase wages, but global and historical capitalism says otherwise: wages are rising in emerging economies (with minimal personal debt), all while the costs of production remain tiny relative to the West — and thus corporations would rather tap into overseas markets rather than expand in the U.S. In turn, however, those stagnant domestic revenues allowed for mediocre stock buybacks. And without investors, you can’t muster the cash flow to expand overseas or buyback more stocks. So, corporations began borrowing in droves to fuel buybacks — which, with the tax cuts, became insanely reckless. They are now using most of their post-tax cut profits, along with more loans, to purchase their own stocks — during the stock market bubble’s peak, mind you — all while the sell volume, from investors, is extremely high. I think that over 30% of the S&P 500’s companies are over-leveraged with debt, and much of that debt constitutes “junk bonds.” But the S&P is “supposed to be” the index where the most responsible publicly traded companies — those most worried about long-term growth — are listed. So the DOW and NASDAQ companies are probably in similar — if not worse — predicaments. Nonetheless, Wall Street turned these junk bonds into lucrative ETFs, and as people and institutions invested in them — corporate borrowing increased. Now, we are talking about corporate debt that equals — or even surpasses — that of our national student loan debt. Furthermore, with interest rates rising and revenue stagnating — coupled with a trade war that will guarantee no “Real Wage Growth” (wage increases - cost increases) will occur — those corporations are eventually going to default on that debt. And while their tax-cuts may not trickle-down onto us, the peasantry, their insolvencies most definitely will. In addition, these ridiculous increases to our yearly deficits — which have mostly gone to the supply, and not the the demand, side of the equation — and historically low interest rates, the potential for alleviating that economic pain will be small, if not nonexistent. Thus, the Fed is most likely racing against the recession as it increases those rates. If rates are too low when it happens, very little economic relief can be created by lowering them — while the inflation would only worsen the situation. Concurrently, if our Legislators decide to pass massive bailout packages on top of lowering interest rates, that level of inflation would lead to global disinvestment out of the U.S. — meaning Treasury Bonds and domestic markets — and thus a gradual, albeit highly consequential, weakening of the USD (with a decline in its global relevance). As emerging economies' currencies strengthen, relative to the USD, they would need to inflate their own currencies and dump much of their USD reserves since too much growth in their currencies' values — relative to the USD and the EUR — would lead to a drastic decline in exports in addition to the drop in US demand, followed by an unemployment crisis that would lead to even more inflation as their governments attempt to increase their own domestic social programs. Meanwhile, too much inflation — for export-reliant countries — would make their share of foreign debts unmanageable, and much of these countries' situation would worsen beyond developed economies' — causing their debts to increase as their currencies' value declines relative to that of their lenders. Then, more borrowing would ensue for their interest payments to be met (as Argentina was recently did, and if these institutions can even afford to lend-out money to dozens of countries, within a short time-frame). Should the Fed raise rates after the recession, however, the inflation would be minimal but defaults would surge as debt payments became larger amidst rises in unemployment and declines in wages — so bailouts would have to go to suppliers and consumers, as interest rates rise exponentially to combat the inflation this would cause. Accordingly, emerging countries would be devastated by a rise in interest rates occurring simultaneously with a decline in exports and a rise in unemployment. Should this occur, they will most likely dump USD reserves, and we would witness a global realignment towards the PRC and the Renminbi as the USD continues to decline, and China spends its $3+ trillion in reserves to expand OBOR while strengthening its currency and lowering the weight of its debts. So yea, corporate ETFs really contribute to the possibility of a worse global financial collapse — but I’m sure China saw this coming, which is why it reined-in its private companies’ and further expanded its SOEs' domestic and international presence over the past two years — so its economy and currency would be in a position to attract investors after a outflow U.S. investments. Currently, our debt doesn’t matter, largely because the USD is the principal currency for contemporary global capitalism. As David Griscom said, this gives the U.S. enormous power, but its relevance only persists so long as international relations operates under a unipolar economic order. Should we lose that leverage though, China’s debt would become much lighter while ours would weigh far more than we have ever experienced in the past. I think that Modern Monetary Theorists are correct in thinking that domestic public debts do not matter — but only for so long as the “supply=demand” equilibrium remains slightly preferable to demands, and that the U.S. remains at the center wherein every nation prioritizes access to American markets. But — in my opinion — MMT could only be applicable to the single-largest economy, with the only “valid” global currency. A major part of the theory’s premise is that U.S. consumer demand has been the main driver behind the post-war global capitalist order. But if/once that changes, more public debt will only lead to more risks — effectively establishing a need for countries and global investors/suppliers to diversify elsewhere, a place where: the demand is greater than in the U.S., consumption possesses more potential for growth than in the U.S., where household savings are extremely high relative to personal debts, and where public sector investments established assurances that there will be no significant shortage of skilled labor or wage-growth. In my opinion, the only reason the JFK tax cuts worked because U.S. savings per household were at their peak — creating demand that could not be matched by the supply, at the time. Once we entered debt-induced consumerism, however, the tax-cuts needed to go in the opposite direction. A massive chunk of China’s population currently possesses record-high household savings, for that country. As such, their risks are far lower and their potential far greater than in the West, especially in the aftermath of another global financial crisis that would annihilate any faith left in the United States' capitalistic and imperial model.