Announcement

Collapse

Economics 301 Guidelines

This is the area where economic theories and trends are discussed.

Balance your checkbook before participating.

Forum Rules: Here
See more
See less

Looming debt bubble crisis watch

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • #31
    Originally posted by Thoughtful Monk View Post

    Yup. I don't have a plan for if the entire financial system collapses or runaway inflation (although I think that is unlikely). I don't think anyone really has an idea of how we'll deal with that until it happens. Probably lots of martial law and government handouts would be my guess.

    I'm just planning that the market is going down and someday it will start back up.
    We had mass civil unrest in 2020 when the market was booming for most of the year. The wealthy class had a wealth bonanza during that time as a result of the what the Fed did. The market is inconsequential to the majority of Americans. You should be planning of mass civil unrest, in spite of what the market does.

    Comment


    • #32
      If you want a sign of a debt bubble, I had an article on my work newsfeed this morning that seven major companies declared bankruptcy in the last 48 hours. Apparently, the last time that happened was in 2008.

      The one making most of the news is Vice Media. The others were health-care firm Envision, biotech Athenex, oil producer Cox Operating, fire protection company Kidde-Fenwal, home security provider Monitronics International, and chemical company Venator Materials. I think I have a Kidde fire extinguisher around the house.

      If you want a sign that the debt crisis has begun, here you are. I'm expecting to see more major bankruptcies soon followed by an increase in personnel bankruptcies.
      "For I desire mercy, not sacrifice, and acknowledgment of God rather than burnt offerings." Hosea 6:6

      "Theology can be an intellectual entertainment." Metropolitan Anthony Bloom

      Comment


      • #33
        I am thinking that the stock market and economy might be going up over the next year. Mostly because I think Biden will want to have as much good news to point to as possible during his campaign. So I think whatever influence his admin has over the economy and stock market will be used to make things appear better, even if it collapses after the election.

        Comment


        • #34
          Originally posted by Sparko View Post
          I am thinking that the stock market and economy might be going up over the next year. Mostly because I think Biden will want to have as much good news to point to as possible during his campaign. So I think whatever influence his admin has over the economy and stock market will be used to make things appear better, even if it collapses after the election.
          Stock buy backs do a good job making things look better. We already know Biden will mislead about job growth.
          P1) If , then I win.

          P2)

          C) I win.

          Comment


          • #35
            Originally posted by Sparko View Post
            I am thinking that the stock market and economy might be going up over the next year. Mostly because I think Biden will want to have as much good news to point to as possible during his campaign. So I think whatever influence his admin has over the economy and stock market will be used to make things appear better, even if it collapses after the election.
            I have no idea what this economy is doing. Every place I go read comes out with a different answer.

            I think the next economic issue will be when Student Loans repayments begin in October. That's going to cause a lot of household budget issues and then banking delinquency issues. The Biden administration will try to alleviate it but that causes other economic issues. There will never be a good time to resume student loan payments so let's get it over with.

            Also, it sure looks like the Fed is not done raising interest rates. I'm beginning to think expecting any rate declines in 2024 is too optimistic.

            On the other hand, barring a black swan event, I don't see any crashes coming in the next year to two years.
            "For I desire mercy, not sacrifice, and acknowledgment of God rather than burnt offerings." Hosea 6:6

            "Theology can be an intellectual entertainment." Metropolitan Anthony Bloom

            Comment


            • #36
              Why does the Fitch downgrade matter?

              While the MSM, Yellen, and bankers like Jamie Dimon downplay the rating downgrade and act all surprised it happened to those who don't know any better, let me tell you what it actually means.

              It matters because the downgrade is directly related to the bond (debt) market. It's not so much the effect the downgrade will have in the short term, it's a matter of WHY the downgrade happened in the first place.

              Essentially when the US is faced with debt and deficit problems, they don't have enough tax revenue to cover their spending, so they have to print treasury bonds (IOUs) and borrow the money. Lenders (this includes US corporations, banks, private funds, foreign governments) buy these bonds in exchange of an interest yield on those bonds. This is known as the debt market.

              When there aren't enough buyers, yields on the bonds have to rise to attract more buyers, which automatically makes the bonds risky because the debtor (the US) has to pay more money to cover the interest. The general principle is that the higher the yield on a bond, the riskier it is. It's not rocket science and most people understand this concept. When you invest in a higher risk asset, generally speaking the higher the yield you're going to get.

              Because of a barrage of US treasury bonds spilling onto the market, you obviously need more and more buyers, but you can't force buyers to buy these bonds, even though confidence in US bonds in the past has been taken for granted as the least risky assets to buy. As a result, everyone, including most economists, have developed a remarkable hubris about how safe these assets are. But yields are skyrocketing anyway because the buyers know the debt is now too risky. It has to do with the fact that the buyers know the debt is much greater than there are enough buyers in the market for the debt they're creating.

              The fact many people are expecting a recession doesn't help the problem, but this is not an essential part of the problem, so don't be distracted by this.

              Coupled with this flood of treasuries because of crazy government spending, you have both foreign elements also dumping bonds onto the market, as well as the Fed (Federal Reserve) itself dumping bonds by offloading its balance sheet...


              • Foreign buyers shed $140 billion in holdings in April compared to a year earlier, according to the Treasury Department’s TIC data.
              • US banks shed $210 billion in Treasury securities and $332 billion in government-backed MBS in May compared to a year ago, according to Federal Reserve data. They’re struggling with unrealized losses from holdings that they’d bought when yields were ultra-low.
              • The Fed has been unloading Treasury securities at a rate of $60 billion a month, month after month, as planned (its holdings of MBS are rolling off at a much slower pace):
              The key factor in this dilemma is the Federal Reserve (Fed).


              The market knows that the only thing that can prevent this debt market implosion of skyrocketing yields from bond saturation is for the Fed to completely reverse course and step in (like it typically did in the past) to buy the treasuries (monetize the debt), which is inflationary because they have to print money to do this.

              IOW, buyers know the US is now between a rock and a hard place. The Fed in the past has always offered stability to the debt market by at least implying they would buy up the treasuries in the event there's instability, and the buyers knew this fact, which kept yields low and buyers more confident. But now the buyers know the Fed can't print money like they used to while they're in the midst of tightening (as well as offloading even more bonds onto the market from their own balance sheet), which means no one else will buy the bonds, so yields will keep skyrocketing (as well as interest rates across the board) out of control.

              Essentially it's either total debt market implosion or more inflation. Either the Fed ignores everything and refuses to offer any sort of backstop for the excess of bonds on the market, and keeps offloading more bonds off their balance sheet, or they stop all this, ignore inflation and start a new round of QE (debt monetization) again to bring back confidence and stability and lower yields.

              This dilemma was absolutely inevitable and unavoidable, whether there's recession or not.

              This is basically similar to the same sort of dilemma the UK faced with their pension funds a year ago, when government tried to cut taxes and increase spending at the same time, and BoE central bank had to reverse their tightening and step in to offer stability.

              In short, the Fitch downgrade happened simply because of this instability and the fact US debt is now more risky because of these unusual circumstances.

              Comment


              • #37
                For those under the false impression that the banking crisis is over because things have been quiet for awhile, a couple of quick headlines to consider...

                Moody's cuts ratings of 10 U.S. banks and puts some big names on downgrade watch

                Not just regional banks, but the bigguns too...

                Fitch warns it may be forced to downgrade dozens of banks, including JPMorgan Chase

                Keep in mind that both government debt and corporate debt are often correlated in the sense that the former will always affect the latter.

                Comment


                • #38
                  Originally posted by seanD View Post
                  For those under the false impression that the banking crisis is over because things have been quiet for awhile, a couple of quick headlines to consider...

                  Moody's cuts ratings of 10 U.S. banks and puts some big names on downgrade watch

                  Not just regional banks, but the bigguns too...

                  Fitch warns it may be forced to downgrade dozens of banks, including JPMorgan Chase

                  Keep in mind that both government debt and corporate debt are often correlated in the sense that the former will always affect the latter.
                  What is it they say?

                  "Economists have predicted every single financial disaster that has ever occured. And three hundred that never occured"

                  I'm sure you'll be right eventually.

                  Comment


                  • #39
                    Originally posted by Leonhard View Post

                    What is it they say?

                    "Economists have predicted every single financial disaster that has ever occured. And three hundred that never occured"

                    I'm sure you'll be right eventually.
                    I'm not perfect, but I'd be interested in knowing what I've been wrong about. Perhaps you can tell me.

                    Comment


                    • #40
                      Originally posted by seanD View Post

                      I'm not perfect, but I'd be interested in knowing what I've been wrong about. Perhaps you can tell me.
                      It was more a general expression of all predictions about the economy. I read about doom and gloom all the time. I'm sure its going to happen, I mean I've lived through one recession, and my parents remembered a time in the eighties that we in Denmark called "the potato diet". I'm ready for it, and others. But I've given up on tracking individual predictions, there's just so many of them.

                      Comment


                      • #41
                        Originally posted by Leonhard View Post

                        It was more a general expression of all predictions about the economy. I read about doom and gloom all the time. I'm sure its going to happen, I mean I've lived through one recession, and my parents remembered a time in the eighties that we in Denmark called "the potato diet". I'm ready for it, and others. But I've given up on tracking individual predictions, there's just so many of them.
                        We just had Fitch downgrade US debt because of its deficit problem, an event that is extremely rare. We had multiple rating agencies downgrade or threaten to downgrade multiple banks, including JPM. We had multiple bank failures this year with depositors that needed to be rescued by the federal government. The federal reserve bank had to initiate a special loan program to keep banks solvent and other banks from potentially going under (which is still in effect to this day). How is any of that not a crisis, and where was I wrong in the OP?

                        Comment


                        • #42
                          Originally posted by seanD View Post
                          We just had Fitch downgrade US debt because of its deficit problem, an event that is extremely rare. We had multiple rating agencies downgrade or threaten to downgrade multiple banks, including JPM. We had multiple bank failures this year with depositors that needed to be rescued by the federal government. The federal reserve bank had to initiate a special loan program to keep banks solvent and other banks from potentially going under (which is still in effect to this day). How is any of that not a crisis, and where was I wrong in the OP?
                          I never said anything about you being wrong. Just making a broad comment about predictions, the economy and crashes in general.

                          Comment


                          • #43
                            Originally posted by Leonhard View Post

                            I never said anything about you being wrong. Just making a broad comment about predictions, the economy and crashes in general.
                            You said I'd eventually be right, which implies that I've been wrong. I predicted a debt market crisis and that's exactly what we got, and I believe it will get worse over time.

                            As far as economic crash... that's definitely coming. But we first need to define what an "economic crash" is. A "crash" can have several meanings to different people.

                            Once that's settled, then we need to realize that these things take a lot of time, especially when you're dealing with a multiple trillion dollar economy like ours. It's like a snowball that starts out slow, and then picks up speed while it gets bigger and bigger. This could take months or it could take years, with different crisis events in between.

                            Comment


                            • #44
                              Originally posted by seanD View Post

                              You said I'd eventually be right, which implies that I've been wrong. I predicted a debt market crisis and that's exactly what we got, and I believe it will get worse over time.

                              As far as economic crash... that's definitely coming. But we first need to define what an "economic crash" is. A "crash" can have several meanings to different people. Once that's settled, then we need to realize that these things take a lot of time, especially when you're dealing with a multiple trillion dollar economy like ours. It's like a snowball that starts out slow, and then picks up speed while it gets bigger and bigger. This could take months or it could take years, with different crisis events in between.
                              To me if its not something of the same size as the 2008 House Market Collapse its not really on my radar.

                              Comment


                              • #45
                                Originally posted by Leonhard View Post

                                To me if its not something of the same size as the 2008 House Market Collapse its not really on my radar.
                                From what I understand, you don't live here in the states, correct? Either that or you're wealthy, and so you're unaffected by inflation and debt burdens.

                                Try talking to common folks who live here that are struggling right now, and I bet you'd get a different opinion. And it's going to get worse for them. This subject sort of takes us to this thread, where I talked about the have-nots becoming angry and desperate, thus is why we're having these unusual looting crime sprees here in the states. All of that stems from economic conditions.

                                Comment

                                widgetinstance 221 (Related Threads) skipped due to lack of content & hide_module_if_empty option.
                                Working...
                                X