The Economy Is Suffocating, Major Adjustment Period Coming

Wolf Richter on the X22 Report.

“The debt needs to blow up. It needs to go way. There is too much debt.”

The comforting news in the results from the Federal Reserve’s stress test is that the largest 34 US banks – not counting the 4,997 other US banks – would survive a recession. The less comforting news in the stress test is that credit card debt, the most expensive debt for consumers, has now moved to the top of the Fed’s worry list in the “severely adverse scenario.” Read…  Credit-Card Debt Slaves Move to Top of Fed’s Bank Worries




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  75 comments for “The Economy Is Suffocating, Major Adjustment Period Coming

  1. John
    Jun 25, 2017 at 3:07 pm

    Blow up? Go away? why? I’ve yet to see any debt of mine go away. In fact I have to repay it to the last dime with interest too. And you’re saying that debt for banks and big players should all be forgiven? I say fuck that.

    • Tibbi
      Jun 25, 2017 at 3:13 pm

      I think he means Federal debt

      • John
        Jun 25, 2017 at 3:24 pm

        Same difference Tibbi. The feds are really nothing but big business with armed force behind them anyway. Who was it that stuck a gun in their face and told them to borrow and spend all they could? Actually throwing it down ratholes may have been more productive. And they should be forgiven? lol.

        All the federal government has done is choose who to make winners and losers. Divide people along lines, rip some off and shovel it to others. Kill those who get in their way and take resources from others. Best for the world if they just go away. Bankrupt or not.

        • Wilbur58
          Jun 25, 2017 at 4:34 pm

          John,

          The federal government doesn’t pick any of that. It’s wholly owned by the major banks and other monopolies / oligarchs.

          In my opinion, at this time we need stronger government, not weaker or more limited. We need a government that will fight for and protect the people from major corporate and warring interests. That doesn’t happen through “free markets” or whatever other fantasies are out there.

          The history of the world is monarchy and total rule. It’s only stronger and stronger democratic governments that have done better for people at large. See the New Deal.

        • LBJ
          Jun 25, 2017 at 4:39 pm

          Sorta makes you realize it is time to overthrow the Constitution, don’t it?

        • chip javert
          Jun 25, 2017 at 5:26 pm

          John

          You ask: “Who was it that stuck a gun in their face and told them to borrow and spend all they could?”

          Uhhh…that’d be us, the taxpayers. We want to be safe from ISIS, almost-voters what “free” college loans, old folks what Social Security, sick folks want health care. out of work (or don’t want to work) folks want food stamps. Do I need to go on?

          Run for public office on a platform of cutting even some of this stuff, and you’ll be able to count your votes on one hand.

        • RangerOne
          Jun 26, 2017 at 9:12 am

          There is an eas fix to that problem though. Lie. Tell the voters to their face you won’t touch a program like medicaid. Then get elected and do the opposite. If repubs are able to ram through any version of their health care bill they will have succeeded in doing just that.

      • Jun 25, 2017 at 3:28 pm

        Actually no, US federal debt will never “blow up” because the Fed will buy it to keep it from blowing up. The Fed can create unlimited amounts of money to do so. A primary job of a central bank is to act as lender of last resort to the government.

        That’s why Japan’s debt will never blow up.

        However, when central banks fund governments in this manner, it eventually shows up in the currency: currencies can lose much of their value in no time.

        • Jon
          Jun 25, 2017 at 3:55 pm

          But the usd is the reserved currency of the world and is in better standing in comparison with others

          This gives us fed power to keep
          Printing as much as they can without consequences unless something happens and usd loses it position

        • Rates
          Jun 25, 2017 at 4:06 pm

          Then the solution is easy. Issue more Federal Debt to buy ALL private debts. In fact, since Single Payer is a hot topic nowadays, we’ll go forward and have Single Issuer as well. UTOPIA!!!

          I think the slaves will agree to bacon at 50 dollars. At least they’ll be “debt” free.

          No doubt they’ll be telling their children that it’s all done out of “love” and here’s my favorite ….. “the greater good”.

          USA, USA, USA, USA

        • John M
          Jun 25, 2017 at 4:36 pm

          Wolf

          I respectfully agree to disagree, with your view point. http://www.zerohedge.com/news/2016-05-23/wheelbarrow-economics The pictures of the wheelbarrows show that even recently people can be forced to move currencies around on a wheelbarrow. As is the case in the country where they have the largest known reserve of oil as in Venezuela. Bad money will drive good money out. So if my thinking is correct the price of a real asset, like gold and silver should rise over the long term vis a vis the US dollar. See Gresham’s law
          https://en.wikipedia.org/wiki/Gresham%27s_law

          If you look at the Venezuelan Stock market its a straight up parabolic curve (when priced in the local currency) but when priced against a hard currency as a Swiss Franc then not so much.

          Effectively one can always get paid by US Fiat, but the end game will come about when US institutions will refuse to accept their own USD Script. That’s when it will all implode. I could be completely mistaken in my thinking but do feel free to pick my logic apart, I want to know if my thinking is flawed too..

        • Jun 25, 2017 at 5:13 pm

          We don’t disagree. I think you just didn’t get around to reading the last paragraph in my comment (the first two paragraphs dealt with debt, the third with currency), which said this:

          “However, when central banks fund governments in this manner, it eventually shows up in the currency: currencies can lose much of their value in no time.”

          So I think we’re on the same page.

          :-]

        • Lee
          Jun 25, 2017 at 4:51 pm

          Most of Japan’s debt is owed internally and thus unlike those other basket cases around the world such as Greece, Italy, Mexico, Venezuela, Argentina, and even the USA, there is a ‘safety net’ for the rest of the world and for for Japan too.

          Unlike those other currencies the Yen has so far failed to reflect the huge QE that has been undertaken in Japan.

          Why – I have not idea anymore. People keep calling the Yen a safe haven currency. IMO with the NK problem, a looming China Problem, and huge government debt it is not.

          Furthermore, the fall in the value of Yen would solve one of the main problems in Japan: the increase in external income and asset values in Yen terms and thus all them to continue to service the debt.

          All those billions of dollars of US debt and assets bought with Yen at under 100 Yen per dollar during the boom period are worth a whole lot more in Yen terms as it falls.

          That is why Japan needs to have positive ‘cash flow’ into the country. Once that changes, it will have some effect and one reason for the previous period of weakness in the Yen which reflected the huge impact of increased energy imports as a result of the Fukushima disaster and nuke shutdown.

          IMO the Japanese economy is in much better shape than many others around the world and offers lots of relatively good companies at cheap prices which if one can hedge the currency risk, offer good investment opportunities.

        • Jun 25, 2017 at 5:05 pm

          Agree with most of what you say…. except in your comparison, you didn’t mention the most important difference between Japanese government debt and that of Greece, Italy, Mexico, Venezuela, and Argentina. Those countries got in trouble with their debts because they issued debt in a currency they do not control and cannot “print.”

          Greece’s case is a little different than the other three since the ECB did buy much of its bonds. But the other three issued debt in dollars and other foreign currencies, and that got them into trouble because they can neither devalue nor print those foreign currencies – the classic methods of dealing with overpowering debt.

          Japan doesn’t have that problem. It will always have 100% control over its debt because all of that debt was issued in its own currency.

        • Maximus Minimus
          Jun 25, 2017 at 4:57 pm

          It is not going to show up in the currency because all currencies are being debased in lockstep. There is no safe harbour currency on this planet.

        • Gershon
          Jun 25, 2017 at 7:09 pm

          We need a government that will fight for and protect the people from major corporate and warring interests.

          Your innocence is touching, Pollyanna. The corporations and Wall Street have completely captured “our” institutions of governance. You think it’s any accident that no a single Wall Street banker went to jail despite the massive fraud and criminality that caused the 2008 financial meltdown? You think Obama’s campaign bundler and former Goldman Sachs CEO could rip off $1.6 BILLION from MF Global account holders and not face a single criminal charge without top cover from the likes of Erick Holder and Loretta Lynch?

          Go to YouTube and check out George Carlin’s “It’s a big club and you ain’t in it.” He nailed it.

        • Debt is deadly
          Jun 26, 2017 at 3:47 am

          New Deal was as a failure.

        • two beers
          Jun 26, 2017 at 11:31 am

          “New Deal was as a failure.”

          Yeah, ending the Depression was a big mistake. Tens of millions of people should have just been left to starve, unemployed and homeless…The nerve of big gummint trying to mollify the social devastation that unfettered capitalism always wreaks…

    • Jun 25, 2017 at 3:24 pm

      For businesses, consumers, and municipal entities (but not US states and not countries), debt “blows up” in bankruptcy proceedings or “restructurings” – at the expense of equity holders, who often get wiped out, and creditors who take losses of varying degrees. That’s the standard and legal way in the US to shed debts.

      In the interview I explain that, and I also explain what the role of the Fed is in preventing it from happening.

      • Kevin
        Jun 25, 2017 at 6:01 pm

        Hey Wolf

        I just wanted to thank you for all the time and work you put in here.

        You help clear up so much of what is happening for people like myself that just don’t have the training, education and experience to put it together for ourselves.

        Hats off.

        • THawk
          Jun 26, 2017 at 6:16 am

          Hear! Hear!

    • George McDuffee
      Jun 25, 2017 at 6:19 pm

      It is a well established legal precedent that you can’t get blood out of a turnip.

      • BradK
        Jun 25, 2017 at 10:18 pm

        No, though you can attach a lien on its assets.

    • Mike
      Jun 25, 2017 at 8:01 pm

      He is talking about the total liabilities of the banks, which include deposits of Americans, versus the available assets.

      TO ANY REMAINING HONEST PUBLIC OFFICIALS, IF ANY HONEST ONES REMAIN:
      Unfortunately, the banks’ stress tests are a joke. The banks still have enormous, undisclosed derivatives liabilities. Moreover, since the current administration proposes to get rid of regulation, e.g., the Volcker Rule, and replace it with a fake “Glass Steagal Act” that contains none of the provisions of the actual Glass Steagal act that B. Clinton foolishly repealed, expect the banksters to soon be insolvent again and demanding more bail outs.

      Given the special terms under which the largest banks exist, it is amazing that they are still so reckless that their survival is at issue: they borrow trillions from the “Federal” Reserve, which is actually a private, bankster cartel, at .2% to 2% then lend it to Americans at 25% to 8%. The amazing thing is that, given their enormous employee bonuses, enormous salaries, enormous dividends, and enormous share buy backs they manage to distribute their loot so rapidly that their survival of the banks (left with what capital remains after the distributions) is at issue.

      It must take a true idiot to not be able to make money under those circumstances. However, the banksters manage to lose billions. I guess that is why they are the “best” and deserve those gigantic bonuses, as the banksters and their allies argued to congress.

      Given the enormous bad car loans and derivatives gambling, etc., that the banksters engage in, when the coming collapse comes, they will again be demanding that the U.S. tax payers (and probably, EU tax payers as well) bail them out and guarantee the continuation of their enormous bonuses. It must be nice to be able to say that if you are fired the economy will collapse.

      It is amazing that junior Bush and the Obama administration (thanks to the snake Paulson and the weasel Geithner respectively) believed that ridiculous claim and had the U.S. tax payer had to ensure that the INDIVIDUALS in charge of the banks and controlling shareholders had to have the U.S. government’s bail out and later protection. That is what was done: to bail out not just the banks but the individuals

      When a regular business goes into bankruptcy, e.g., the bankruptcy of GM, the controlling shareholders lose everything and the guilty officers get fired by the new owners. With the banks, the banksters got gigantic bonuses after driving their banks into insolvency and were not fired. The controlling shareholders were given “recapitalization” protection, so that they did not lose their interests in the banks (i.e., free money from the “Federal” reserve via low interest loans, transaction fees, and TARP guarantees/bail outs.)

      A special prosecutor should be appointed to determine if former congressmen or administration officials were promised bribes/employment in exchange for the sweetheart deal given to the banksters in 2008 to the present. We should not have former attorneys/lobbyists for the banks like Eric Holder supposedly decide whether to prosecute their former and not present clients. Holder should also be investigated.

      • Frederick
        Jun 26, 2017 at 2:33 am

        Mike You know what makes me furious? You are 100 percent correct about all the weasels and snakes infesting the banking cabal in the world The problem is as I see it they are just laughing off all the insults and continuing in their criminal behavior When are the little guys going to say ” NO MORE” Until that day you had better get the Vaseline in bulk

      • Wilbur58
        Jun 26, 2017 at 3:58 pm

        Amen, Mike. Preach.

        But, but… free markets and stuff! Liquidity for uh, buybacks or something!

  2. Flying Monkey
    Jun 25, 2017 at 4:06 pm

    Wolf, I believe the real job of the FED is to create inflation to counter the natural deflation from innovation and productivity growth.

    Before the FED was created, there were many bank panics. I find that attributable to fractional reserve lending. Lending money in a deflationary environment is even more difficult since the debtors must over come the deflation, let alone the interest. There will be more defaults in a deflationary environment. The banks got together and and created the FED at first to be the lender of last resort, but they don’t have as much need for a lender of last resort when the FED just counteracts the natural deflation with active inflation.

    Von Mises wrote the falling prices due to innovation is caused be an ever greater share of capital and wages would have to fall as the marginal value of labor fell. This would be ok since prices would fall faster than wagers. But people could not be convinced to take less. The government has to usurp the effects of the productivity increases and falling prices to maintain its revenue. Government revenue would in theory fall in a deflationary environment if taxes are keep as a percentage of revenue.

    The main culprit in my mind is fractional reserve lending. It creates money out of thin air. It creates more “claim checks” on the economy than there are things to claim. It will cause temporary inflation and they cause crashes. To use a systems engineering term, it gives the system “gain”. With a fractional reserve ration of 10% the economy has a gain of 10. Systems with high gain are always unstable and subject to wide osculations.

    Even under a regime of honest money (Gold) there were still panics and that is only because the system of leveraged with the fractional reserve lending system. If you loan more money that you actually don’t have and it suffers the effects of deflation you are more likely to experience repayment problems and have resulting panics.

    The FED’s purpose is two fold today in my opinion. 1. Created a positive inflation and 2. slowly devalue the real value of Federal debt

    • Wilbur58
      Jun 25, 2017 at 4:41 pm

      Flying Monkey,

      I think you may not have considered another alternative… state money creation instead of banks/The Fed. The Fed is a private institution run by the banks. Yeah, it’s supposedly a hybrid of public and private because the chairman is appointed by the Executive Branch. But give me a break. The Fed does whatever Goldman, Chase, Citi, etc., want them to do.

      Every time money is created by a bank, (not really the Fed per se), there’s interest associated with it. A huge majority of the time, this money is created via a mortgage obligation. Yes, most money gets created by banks buying real estate. That’s why we have such huge asset inflation.

      I’d prefer that money be create by the state and go straight towards project such as infrastructure, medical, defense (when not reckless), etc. There’s still ‘debt’ associated with this money, but it’s not the type of debt that’s associated with interest. In this instance, the word debt means that the government is obliged to accepted these created dollars for tax payments. Nothing more, nothing less. It doesn’t mean a person actually owes money. It only means that money created by our government must be accepted as a form of payment for taxes.

      There’s apparently some nutcase who delivers his personal income tax payments in pennies every year because of this ‘debt’. The IRS has no choice but to accept the form of payment.

      This debt is far more preferable to me than all money being born with interest due to banks.

      • George McDuffee
        Jun 25, 2017 at 6:26 pm

        RE:…I think you may not have considered another alternative… state money creation instead of banks/The Fed…
        —–
        Sounds like the “tally stick” system that was used in the UK for centuries.
        http://unusualhistoricals.blogspot.com/2010/10/money-matter-tally-stick-system.html

        Still not a bad idea though. Why pay the bankers anything for manufacturing money?

      • Mike
        Jun 25, 2017 at 8:09 pm

        I agree: abolish the “Federal” reserve and investigate or incarcerate the banksters.

      • Flying Monkey
        Jun 26, 2017 at 12:32 am

        The State will have no discipline at issuing money either. The problem it is too easy to make the script like today.

        Who say an elected body of some 500 odds representatives who can use that printed money to buy votes will be able to be more disciplined that 12 people that work for the banks?

        Money has to independent from the state and the state must act by the rules of independent money. With the dollar as the reserve currency, the USA can print it own gold.

        When your Uncle Sam has a credit card with an unlimited balance he never need to pay off his citizen will not have to work. Just say “charge it”. Under honest money there would never be the approximately 10tr balance of payments deficit the US has. Honest money provides a balancing mechanism for that.

        Free trade is just that “free” for the US…well until the dollars flow back to the US like the Chinese are using all their dollars to snap up real estate and inflate all the prices. The backside is the flashback of those dollars when they come home and buy assets instead of goods. I read in the paper tonight how some Germans are complaint there rent is going up 15% because some Chinese company bought the housing complex they live it.

        LBJ: I never heard of Sraffa. I am open minded enough I will search him out. It would have been a neat conversation if you could have provided a little debate whey Von Mises is wrong than making a snide comment. It would show more humility in my opinion.

        All those dollars and Euros printed up in thin air are finally coming back as inflation to hit the consumer in the pocket book. I always tell everyone there is no sense trying to have honest savings to compete with dishonest savings. Honest savings are claim checks and dishonest savings are claim check on claim check.

        Maybe there is no workable system and the system must be designed with unreasonable “gain” (amplifiers) and we have to then live with the resulting oscillations but as an engineer the economy will take care of itself as people look to provide goods and services for themselves and their family. One only needs “stimulation” because other interventions have resulted in eventual numbing of the patient.

        • Hiho
          Jun 26, 2017 at 12:55 am

          As long as there is some kind of unused productive capacity inflation should not kick in.

          Someone is always going to control the money supply, either an elected accountable government (however utopic it might be) or a private cartel looking forward to crush you.

          Gold standard would only benefit those who hold the money. What they fear is not the inflationary consequences of fiat but its power to redistribute wealth. Now this power is used to redistribute from the bottom to the top, precisely because it is out of control of the ordinary people. But there are alternatives.

          And yeah damn it, I prefer the money supply being controlled by 500 politicians looking forward to be reelected than by bunch of greedy and sociopathic corporations.

          The answer is not to castrate your gov, but to make it more accountable and democratic. You guy have been brainwashed by decades of anti gov bullshit.

          By the way, healthcare is free in europe and we do not pay 50 $ for a piece of bacon. In fact, having public services provided by an strong state is sine qua non condition to have a healhy and competitive economy. Your model of toolbooth, rent—extracting economy not only has priced you out of the markets but delivers far worse results at far higher costs.

          Bacon here costs 1$ or 2. I have studied in university for less than 500 $ per year. Enjoy your corporate dystopia.

        • Debt is deadly
          Jun 26, 2017 at 3:45 am

          The problem is all that Chinese money is borrowed. China is the greater fool.

          One thing everyone here misses is demand. Demand is collapsing.

        • Mike
          Jun 26, 2017 at 1:00 pm

          The Federal reserve itself has no discipline: it has given bank trillions of dollars in low interest loans while they were insolvent. It keeps financing the huge deficit indirectly by buying treasuries. It gives congressmen a fig leaf behind which they hide their reckless spending, while they give tax breaks to the richest 11% of Americans that own over 76% of its assets per recent studies– not counting their funds in secret foreign bank accounts and secretly held with complex trusts and foreign companies. Abolish the banksters misleadingly named “Federal” reserve bankster cartel, which is as ‘federal” express.

    • LBJ
      Jun 25, 2017 at 4:42 pm

      Any one quoting Mises should have his head examined. At least read Sraffa–then at least you would be in the twentieth century.

    • Thor's Hammer
      Jun 25, 2017 at 5:09 pm

      The real purpose of the FED (and its member banks) is to create debt slaves who will spend their lifetimes transferring the fruits of their labor and creativity to their master’s bank accounts.

      It certainly isn’t to allocate capital for wise and efficient use to build a better and more sustainable society.

    • jb
      Jun 26, 2017 at 2:03 pm

      the only bank that “creates” money is the federal reserve system . Non central banks can only lend money from depositors OR what they have borrowed. Additional deposits allow banks to “free up ” more from their reserve accounts to lend. imho

      anyways Wolf great piece of macro financial journalism and the pitfalls of current monetary policy. The feds will have trouble bringing long term yields up to steepen the yield curve when other low yielding currencies bid bond prices down.

      • George McDuffee
        Jun 26, 2017 at 2:56 pm

        RE: …the only bank that “creates” money is the federal reserve system…
        —–
        Indeed, but most [>90%] of what currently circulates as “money/currency” in the economy is not “money” at all but bank credit, created out of nothing by the magic of fractional reserve banking.

  3. andy
    Jun 25, 2017 at 5:32 pm

    Wolf, I propose that the Fed, after years of leading everyone to believe that the dollar is only paper, will spend the next so many years proving everyone that the dollar is still the real deal. It’s either that or we’re in real trouble.

  4. John M
    Jun 25, 2017 at 5:46 pm

    Wolf

    “However, when central banks fund governments in this manner, it eventually shows up in the currency: currencies can lose much of their value in no time.”

    So I think we’re on the same page.”

    We maybe on the same page. I accept that your final paragraph does kind of cover it, but glosses over the real problem with seeing it, in that every currency is a basket case. So like the Battle of Midway many ships will sink simultaneously.

    The value then of a hard portable asset should hold its own.. Japan should already been sunk especially against the Suisse Franc. The players have started truly looking for the exits. As Hemmingway once penned “How did you go bankrupt? answer slowly at first then very quickly”

  5. Barry Garlow
    Jun 25, 2017 at 5:58 pm

    Deflate the debt.

    One way or another the £$€¥ in your pocket is becoming increasingly worthless.

    Stealth inflation and massaged figures have left people thinking their salaries haven’t become so bad.
    But if you remeasure incomes against property and stocks then salaries are a long way back vs 2008 and the beginnings of QE.

    I see salaries booming to make debts easily serviceable and tax levels to sustain them viable.

    Maybe even helicopter money.

    But it’ll just be another short can kick because the fundamental issue is a ponzi pushed to 11 on a finite globalised world hasn’t got far to run.

    At that point it’ll be full on socialism in the western world.
    And best of all, you get to keep your crony capitalists, they just ‘morph’ into your inner party member cronies instead! Yay!

    • Hiho
      Jun 26, 2017 at 1:37 am

      You see socialism everywhere. In Sweden there is some kind of socialdemocracy. In the US not, and it is neither the path you are taking.

      Neofeudalism, that is your destiny. Far worse than socialism. At least under socialism you would have housing.

  6. Mike R.
    Jun 25, 2017 at 6:01 pm

    Wilbur 58 has his head screwed on straight. Those that think the Fed is conspiring to bondage us all in debt are lunatic.

    Look. Productivity gains cause deflation. If you have alot of debt in your monetary system, deflation is bad. Do I need to explain?
    So inflation is needed to counter the deflation. Now, if all this was done without much debt….then a whole different ballgame.

    In the 40’s, 50’s, and early 60’s, IT was done without alot of debt (for a variety of reasons). So inflation wasn’t needed. QED.

    • Debt is deadly
      Jun 26, 2017 at 3:51 am

      Falling prices to dramatically lower and more affordable levels is the only way forward.

  7. raxadian
    Jun 25, 2017 at 8:23 pm

    And the fed reaches the same conclusion anyone sane has got since at least twenty years ago. Who knows? Maybe they will decide to stop this whole “Too big to fall” nosence in twenty years more.

    But I dunno if the dollar will be the “World currency” in twenty years more.

    • Frederick
      Jun 26, 2017 at 12:42 am

      Raxadian I don’t think you will have to wait that long for the dethroning on the mighty greenback

  8. Sporkfed
    Jun 25, 2017 at 8:30 pm
  9. Tyronius
    Jun 25, 2017 at 9:24 pm

    Just taking a step back from all this to look at the bigger picture;

    A. Is another Great Crash unavoidable?

    B. If I have assets, how do I allocate them effectively in such a scenario?

    • raxadian
      Jun 26, 2017 at 2:25 am

      A, Yes.

      B. Gold seems the safest bet.

      • Tyronius
        Jun 26, 2017 at 2:35 am

        You read my mind.

        So big time inflation is coming, you think?

        Should I dump my home and go long on gold options on the CBOT?

        I don’t have nearly enough saved up for retirement. A well timed move might make all the difference.

        • Debt is deadly
          Jun 26, 2017 at 3:53 am

          I would say if you’re on the hook for any real estate, find a way out fast.

        • Frederick
          Jun 26, 2017 at 4:18 am

          Gold ” options” very bad idea IMO I’m bullish on physical in your possession only as per my previous post but it’s your wealth

    • Wilbur58
      Jun 26, 2017 at 6:44 pm

      Folks,

      As much as I’d like to see a big crash personally, I don’t think it’s going to happen. I think we’re repeating Rome wherein the creditors were protected and the economy stalled for ages.

      “This time is different”, but not in a positive way. TPTB have the whole thing rigged. They control the money supply, the legislature, and the stock market. Through the fed, they can pump up assets to oblivion making living costs miserable for labor. Through congress, they can keep themselves legal. And any time the stock market starts crashing, the great ‘Plunge Protection Team’ just comes in and hits the Power button.

      I we do see another significant crash, I’m guessing it’ll be manufactured so that the wealthy can come in and buy up even more of the asset base at a discount. 2008 wasn’t enough.

      I still like cash though. You can’t go broke with the stuff.

  10. Shane
    Jun 25, 2017 at 11:57 pm

    Something has the BIS spooked. That banking mafia doesn’t normally like to draw attention to itself….

  11. Sound of the Suburbs
    Jun 26, 2017 at 5:35 am

    2008 was the wake up call, but we carried on with the same idiots that didn’t see 2008 coming.

    Twelve people were officially recognised by Bezemer in 2009 as having seen 2008 coming, announcing it publicly beforehand and having good reasoning behind their predictions.

    They all saw the problem being excessive debt with debt being used to inflate asset prices (US housing and mortgage backed securities).

    They all think you can’t use debt to solve a debt problem.

    They all think that as we have used debt to solve a debt problem a
    bigger crash is coming in the future.

    • George McDuffee
      Jun 26, 2017 at 11:31 am

      RE: They all think you can’t use debt to solve a debt problem.

      Not entirely correct. For example paying off old short term high interest rate debt with new lower rate longer term debt (and then paying that down ASAP) or investing in an activity that is cost avoiding, if not profit making. However this requires basic honesty (no rent seeking / kickbacks), and iron determination and self discipline, which is missing in almost all of our current crop of politicians.

      Far easier to promote grandiose prestige projects (e. g. sports arenas), and/or grant tax breaks and subsidies to one elite group, while screwing everybody else, and borrowing the money to cover any resulting deficits, e. g. Illinois and Porto Rico.

  12. Alessio
    Jun 26, 2017 at 7:33 am

    Hi Wolf, how I can protect myself? I am one of the last savers from Europe with all my money in Euros.
    In the next recession, do you see a 1) debt write-down or 2) monetization of debt?

    • Jun 26, 2017 at 8:47 am

      To 1): In terms of government debt, Greece will likely get another debt write-down. It already got one in 2012. I don’t think there will be another debt “write-down” for other countries.

      To 2): This is already happening (QE)

  13. Meme Imfurst
    Jun 26, 2017 at 7:53 am

    Distraction, gosh darn it, where is the distraction, the big event. War, earthquake, volcano, EMP blast, the Russians (not working out so well), something….we need a workable distraction to get folk’s minds off the FED, the banks, the (failed) last 16 years of government, all this debt, over population, cascading unemployment, opioids, excessive greed, dishonest media, Amazon, sky high rents, failed schools, do nothing politics, homelessness, faithlessness, crime, inflation, asset rigging, failed pensions, bankrupt states, growing ghettos, drug lords, rampant surveillance by corporations and by who knows who in government, illegal immigration, Sharia law, gun control, Donna Reed,….did I mention the FED. The economy suffocating doesn’t seem to be getting the attention it needs.

    When the ‘event’ happens, your memories will be just that, and we will all wait to be rescued from harm. I am betting on earthquake….hum well may be Korea, or hold on…EMP…or

    • TJ Martin
      Jun 26, 2017 at 8:43 am

      16 years . Hmmm .. Meme . So are you like myself looking at the mishandling of the economy and financial world post 9/11 trying to prop up a temporary glitch in the economy due to a catastrophic event that we and the economy eventually would of recovered from ?

      Or are you simply ignoring the previous decades of mishandling the economy such as the debacle known as Reaganomics .. one futile never ending war after another .. tax breaks for the wealthy while sticking it to the middle and lower classes .. decades and billions spent on an enemy that could barely get out of its own way .. sleeping with the Devil expecting it all to work out .. ” Manufacturing the Enemy ( Jacques Ellul ) when non existed etc – et al – ad nauseam ?

      Fact Meme . The US economy has been on the decline.. some of it gradual .. some of it dramatic ..since around 1965 when we lost all the advantage we had gained by being the last man standing [ our infrastructure not damaged or destroyed ] post WWII yet choosing to over expand beyond any sustainable capacity regardless .

      Ahh …the errors made thru out history .. oft times forgotten only to be repeated … usually to an increased factor of ten

    • IdahoPotato
      Jun 26, 2017 at 9:53 am

      “Faithlessness” … faith is the problem. Blind faith in neo-liberal capitalism.

  14. TJ Martin
    Jun 26, 2017 at 8:28 am

    ” The comforting news in the results from the Federal Reserve’s stress test is that the largest 34 US banks – not counting the 4,997 other US banks – would survive a recession ”

    Ahhh .. but the genuine irony is those Italian banks that just hit the wall ‘ bigly ‘ ( sarc. ) passed multiple EU ‘ so called ‘ stress tests saying they’d survive .. till they didn’t .

    As a former academic ( by choice ) I’m starting to look at all these ‘ so called ‘ banking and financial stress tests in the same light as Peer Reviews in Academia . A whole lot of : You scratch my back – I’ll scratch your’s … and to hell with what the truth/facts may be

    Any truth to that burgeoning opinion Wolf .. or am I just being my usual cynical self ?

    • Jun 26, 2017 at 8:54 am

      Stress tests of this type are always in part a PR program to present the banks to the public as confidence inspiring, which is what banks need to stay upright. In Europe, a number of banks that passed stress tests failed immediately thereafter, starting with Dexia in 2011.

      The new US stress tests are much more rigorous than the old stress tests in the Eurozone. The new set of stress tests in the Eurozone are more rigorous than the old ones and they have pointed out some of the Italian banks. And they have pushed banks to raise more capital. So that’s an improvement. But they’re still not rigorous enough.

      • TJ Martin
        Jun 26, 2017 at 11:38 am

        So it seems my cynicism is not entirely unfounded . Thanks … thats good to hear . FYI I had some business with my bank this morning after reading/ posting here and asked the manager point blank … ” How did you fare in the current round of stress tests ? ”

        Her reply was ” With flying colors ” Which is no surprise in light of them taking zero TARP funds in 2008 and being very conservative with their loans / assets etc. which is why we stay put with our local banking .

  15. KiwiinCanada
    Jun 26, 2017 at 10:51 am

    A very good opportunity here for the US Government to start issuing more long term debt rather than crowding into the short end of the market. I believe there is only about 1.8 T Of US treasuries o/s with a 10 year plus duration. The Fed owns about a third of it which would disappear in about one year with the planned balance sheet unwind assuming they dumped all their long term stuff first. With these negative interest rates in Europe the demand at the long end of the market seems far to robust for this small float. This is creating an inverted yield curve situation which has implications in the real economy.

  16. RD Blakeslee
    Jun 26, 2017 at 11:41 am

    Most of the commentary supra treats wealth in terms of money, abstracted from one’s “possessions in use”, so to speak.

    Wealth can be the USEFUL underpinnings of your life, independently of the “price” of your assets.

    A block of mountain land, some pasture with livestock, a large garden (and/or other ways to create food) woodland for firewood and lumber, etc.

    My particular way of going has been published here already.

    If one was interested in “pricing” it (I’m not) it has slowly but surely produced a satisfying net worth.

    • SwissChard
      Jun 26, 2017 at 12:25 pm

      Seems someone has never had to actually raise livestock or stay warm solely by wood.

      • RD Blakeslee
        Jun 26, 2017 at 7:40 pm

        If you are referring to me SwissChard, I have heated my house with firewood for 40 years and continue to do so.

        You can find references to my cow-calf cattle herd, Agobrite Angus, in the Journal of the American Angus Association.

        As I have imprinted on my children from their earliest days, I never ask anybody to do anything I have not done myself.

  17. Jessie
    Jun 26, 2017 at 3:33 pm

    Love the persistently bearish outlook in an incredible bull market! Makes me hopeful The party will continue.

    • Jun 26, 2017 at 3:54 pm

      You conflate economic fundamentals and the stock market. They have been surgically separated a long time ago. Keep your eyes focused on the stock market, and you have no clue what is happening with the economy, corporate earnings, corporate revenues, consumers, business in general…. You’re just betting on the greater-fool theory. Which works great, until it doesn’t.

      We here don’t waste a lot of time speculating on future stock price movements, as you might have noticed. It’s useless. But we spend a lot of time on economic and business fundamentals.

      • Willy2
        Jun 27, 2017 at 2:56 pm

        – The stockmarket and the economy are NOT “Surgically Separated long ago”. A good gauge for economy is the amount of credit (growth) and (related to that) the amount of e.g. bankruptcies (as reported here on Wolfstreet).
        – It may take a while for the stockmarket to recognize it but in the end the stockmarket will bow to the economy.
        – And I do think we’re seeing a number of signs that don’t bode well for the stockmarket(s).

        • Sound of the Suburbs
          Jul 1, 2017 at 5:25 am

          All the Central Banks are talking of tightening, this is the thing to watch.

          What has the real economy got to do with it?

          (You are absolutely right)

        • Sound of the Suburbs
          Jul 1, 2017 at 5:28 am

          I didn’t read your comment very well, sorry.

          There will be a reconnection when the excess liquidity starts draining.

      • Johnno
        Jun 27, 2017 at 3:00 pm

        Well said!!

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