Debt | - Part 3

Debt: The First Five Thousand Years

Long-time favorite of this blog former BIS head William White (see William White Channels His Inner-Austrian along with the embedded links) shares some thoughts about central bank policies in a financial world that increasingly looks like it’s about to become unhinged.

At about the 2:20 mark, the discussion turns to a subject that few other economists ever mention in public – that combating economic difficulties that were fueled by a reckless expansion of debt with even more debt might not be a good approach:

As debts become too large to be serviced, then they have to be restructured or forgiven because the alternative … the longer you put this whole thing off, the smaller the proportion of the money you’re going to recover.

So, the question is, do you want 50 cents on the dollar or do you want nothing, because one dollar on the dollar is not on the table.

White has similarly grim news for anyone thinking negative interest rates will save us.

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Ray Dalio on Downside Risks

Ray Dalio, head of Bridgewater Associates and their $155+ billion in assets under management, shares a few thoughts in Davos about the state of the global financial system and the Federal Reserve’s next move.

To wit:

…the risks are asymmetric on the downside, because asset prices are comparatively high at the same time there’s not an ability to ease. That asymmetric risk exists all around the world. So every country in the world needs an easier monetary policy … I think the next major move in Fed policy will be toward quantitative easing, not toward a tightening.

Global QE on a Grand Scale

Among the many other interesting (and, to varying degrees, alarming) graphics in Jeff Gundlach’s monthly commentary at Doubleline Capital is the chart below depicting the global, multi-year money printing extravaganza offered up by the world’s central banks.

Of course, the headlines this report is generating involve the predicted “real carnage” in junk bonds per Reuters and a holiday metaphor for the Fed getting cold feet next week, “It’s possible the Fed pulls another Lucy and the football,” Gundlach said, referring to Peanuts character Lucy yanking a football away from Charlie Brown (as shown below).


Ahead of today’s big Federal Reserve meeting minutes that will, absent a major market temper tantrum between now and then, seal the deal for a December rate hike, David Stockman shares some thoughts on this and related subjects at CNBC.

The former Reagan budget director, current proprietor of the Contra Corner website, and author of The Great Deformation: The Corruption of Capitalism in America was busy yesterday as evidenced by the six segments appearing after a quick CNBC video search.

More evidence that the giant student loan bubble will someday wreak havoc on the U.S. economy in one enormous delayed reaction comes from two charts that go a long way in explaining why and how the labor force participation rate is so low.

First, it’s not retirees that are causing more people to not work or look for work – the 16-24 age group accounts for all of the net decline in participation rate per the St. Louis Fed.

What are these 16-24 year-olds doing if they’re not working or looking for work?


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