Rate hike?

[macdon02]

KC Fed reserve president had a speech today stating that the 2019 cuts might need to be reversed. Here's from the minutes.....

This'll be a face ripper if she's forewarning. Bullish USD. Bearish commods. Wait and see.

[macdon02]

LONDON*(Reuters) - Global debt is expected to climb to a new all-time high of more than $257 trillion in the coming months, the Institute of International Finance estimated on Monday, adding there was no sign of it retreating either.

The amount works out at around $32,500 for each of the 7.7 billion people on planet and more than 3.2 times the world's annual economic output, but the staggering numbers don't stop there.

Total debt across the household, government, financial and non-financial corporate sectors surged by some $9 trillion in the first three quarters of 2019 alone.

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In mature markets total debt now tops $180 trillion or 383% of these countries' combined GDP, while in emerging markets it is double what it was in 2010 at $72 trillion, driven mainly by a $20 trillion surge in corporate debt.

"Spurred by low interest rates and loose financial conditions, we estimate that total global debt will exceed $257 trillion in Q1 2020," the IIF said, adding non-financial sector debt was now approaching $200 trillion.

Global government debt alone is set to break above $70 trillion.

China's debt is fast approaching 310% of its GDP — one of the highest in emerging markets - and following a marked slowdown in 2017/18 when Beijing made a big push for deleveraging, there has been a pick-up again in corporate debt.

China's government debt also grew at its fastest annual pace last year since 2009, the IIF said, and household debt and general government debt are now at all-time highs of 55% of GDP.

All parts are the world are loading up however. Household debt-to-GDP have reached a record high in Belgium, Finland, France, Lebanon, New Zealand, Nigeria, Norway, Sweden and Switzerland.

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Non-financial corporate debt to GDP topped in Canada, France, Singapore, Sweden, Switzerland and the United States. Government debt-to-GDP has also hit an all-time high in Australia and the United States.

The IIF's data is based on Bank for International Settlements and International Monetary Fund figures as well as its own.

Another potentially risky trend is that the amount of emerging market 'hard currency' debt - debt sold in a major currency like the dollar that can become hard to pay back if a crisis hits a local currency's value - reached $8.3 trillion in Q3 2019, $4 trillion higher than a decade ago.

Dollar debt accounts for over 85% of this increase.

End quote


If the fed reverses trend and starts with the rate hikes(long term rates), the cost of servicing this USD denominated debt will explode. They need to raise rates somewhere and this is as good a spot as any, if you reside in USA. Short term rates are being suppressed at the moment with the liquidity injections, Fed pumping $82 billion~, i believe at last count,(not the cumulative total) into the overnight rate(repo). So they are thinking they can increase long term rates to get capital out of short term by paying more long term. I don't work for a central bank, my formal education would get me laughed out of a job interview as janitor at a CB. But if they raise rates, every govt and private entity is going to have to start paying more to attract bond buyers. If they don't it'll create a vacuum causing a 1985 esk super cycle in USD. This is what "repo" is alluring to, the demand for dollars. The banks and funds will not lend out dollars to anyone. This is creating a lack of credit that's going to migrate from the riskiest countries, right up to the USA. The Japanese and European central banks are trapped, they are all in on ZIRP and their politicians can't think any other way. Billy Morneau is a little late to the party but he's a link to his thoughts.


"Finance Minister Bill Morneau says fiscal policy such as increased government spending will need to play a larger role in the event of an economic downturn because central banks can do little with global interest rates near historic lows."

https://www.theglobeandmail.com/amp/politics/article-morneau-says-government-spending-will-play-a-bigger-role-in-the-event/?__twitter_impression=true

This guy is dumber then phucking dogshit. He's seeing low rates as a greenlight to load up on spending. What he doesn't realize, is if he's paying a lower return, GDP drops, relative to US, nobody other then a Canadian pension fund is gonna buy his debt, forcing him to pay up either through currency or rates. Which is going to force a higher loonie on this country AND we will need a $200/mt carbon tax just to pay interest on our debt(that the GST was supposed to eliminate). The US is done looking out for the rest of the world, if that view is wrong they would not have implemented tarrifs just about everywhere and be pushing against NATO, the UN, and every trade agreement they had previously signed. Canada, Mexico, Korea, Japan, China, and idk how many other minor countries have no backbone and been rolled over by Lighthizer, Bolton and Mnuchin.





This is a what a credit contraction looks like and why Billy can't go to the well.


https://hoisingtonmgt.com/pdf/HIM2019Q4NP.pdf

"Each additional dollar of total nonfinancial debt outstanding over the first two quarters of 2019 generated 40 cents of GDP in the U.S., a contribution to growth that was 25% lower than twenty years ago. The contribution of each. additional dollar of debt was far worse in the other major economies. In the euro area and Japan, debt generated only 38 and 26 cents of GDP growth, respectively. In the first two quarters of last year, each dollar of debt generated only 37 cents in the U.K. In China, the number was 38 cents for 2019, a decline of 57.5% from twenty years ago"

There's so much debt in the world, a gold standard currency isn't even fathomable without defaulting on every govt promise ever made. So forget about that idea. We are way past 1930s. This is a bloody mess and the US FED is about to tip the applecart. End of rant.

[Crestliner]

Excellent essay.

Question....who is all the World debt owed to? Are the lenders the same as the borrowers and what is the net position of each Country? Is it a “left pocket/right pocket” situation? I don’t know.

A lot of Government debt is unfunded future liabilities. Maybe those don’t get paid in the future. The wife’s Government pension in 10 years might be worth the same as a bankrupt GM worker’s pension in 2009......ZERO!

All I do know is the Government makes many bad investment decisions that have zero return....money lost forever....and then to cover it up...makes stupid tax laws that take my hard earned return on investment dollars from me to pay for their bad decisions....and my money is lost forever to them.

Vicious circle that’s spotlights what having a mindless stupid left wing retard leader and Government that dose not know his ass from a hole in the ground.

Be prepared to continue to pay the consequences of our poor quality Government as we already are.....ie: CARBON TAX.

I fear it’s just the beginning.

[ajl]

Short term rates being too low is what caused the whole repo problem in the first place. There was a huge incentive to borrow short and invest in long term assets for more yield. This of course leads to liquidity problems. Back in the 80's farmers still had fixed rate long term loans on land. Today it is all variable rate lines of credit. If the FED stayed out, short term rates would have risen and corrected the problem. Many farmers would have seen there operating loans shrink this spring which would have dealt this the grain surplus problem and high cost of inputs problem at the same time. With rates being suppressed around the globe, nobody has any incentive to deleverage before it is too late. How long will this go before it blows up?

[beaverdam]

First part of China - U.S.A. trade agreement.

DOW up, over 29,100 Record high???

[FarmJunkie]

This started over 10 years ago. To big to fail and xeroxing dollar bills. We as humans find a way to phuck up a good thing every time. We deserve everything we get!

[handful]

What if...the central banking system is about to collapse(war was the usual remedy,not this time),replaced by a new system based on real value rather than debt? What if... Trump set up the Fed(privately owned/cartel)to fail by pumping up the economy using that same debt,money created out of thin air(fiat). What if...the Fed was audited,the result showed criminal activity? What if... the debt countries continue to accumulate was used to steal wealth from their citizens(taxes/inflation).What if...proceeds of a crime have to be returned to the rightful owner(taxpayer)? What if...money created out of thin air is worthless,would that make the debt worthless? What if...the best person to oversee bankruptcy is someone who has experience with bankruptcy? What if...the central banks own the politicians(bribes/blackmail),would said politicians add more debt? Why is credit so easy to get? Are we suckers(sheep)? Hang on we are in for a fun ride. Great time to be alive! The creature from Jekyl island is about to have his @ss handed to him.

[helmsdale]

There's so much debt in the world, a gold standard currency isn't even fathomable without defaulting on every govt promise ever made. So forget about that idea. We are way past 1930s. This is a bloody mess and the US FED is about to tip the applecart. End of rant.

Hold up... you mean a precious pet rock won't save the world?

That aside, I see no way the world can return to a gold standard. The past is the past and even those holding PHYSICAL precious metals are in little better position than those with Benjamins stuffed in between their wall studs!

What occupies my brain, is trying to game out the logical endpoint of this disaster. If mass amounts of corporate, personal, and government debt reset, what the hell does the apocolyptic outcome look like? How does one successfully weather it? If the outcome is uncertain, the strategy is most certainly undefinable.

Time frame is certainly relevant. For those in their sunset years, its going to be all about timing. How long to hold on to maximize earning potential as well as asset prices. But what about the guys like me? Im a 34 year old NINJA. I rent 100% of my farmland because ownership is completely out of the realm of possibility, so realistically I have NO income, No job (that pays anything worth writing home about), and NO assets.

If debt resets, then perhaps i'm being to prudent in assessing what I can afford? Would being debt free really be of any significant value in the event SHTF?

[malleefarmer]

Anyone with high debt levels be it farmers, butchers bakers candlestick makers small business big business, if rates are cut further actually can encourage more debt, which isn’t the idea meant to encourage growth by borrowing.

Some seemingly are borrowing to cover borrowings.

I’m not as eloquent or as good as explains things like McDon Errol and tech.

[macdon02]

Hold up... you mean a precious pet rock won't save the world?

That aside, I see no way the world can return to a gold standard. The past is the past and even those holding PHYSICAL precious metals are in little better position than those with Benjamins stuffed in between their wall studs!

What occupies my brain, is trying to game out the logical endpoint of this disaster. If mass amounts of corporate, personal, and government debt reset, what the hell does the apocolyptic outcome look like? How does one successfully weather it? If the outcome is uncertain, the strategy is most certainly undefinable.

Time frame is certainly relevant. For those in their sunset years, its going to be all about timing. How long to hold on to maximize earning potential as well as asset prices. But what about the guys like me? Im a 34 year old NINJA. I rent 100% of my farmland because ownership is completely out of the realm of possibility, so realistically I have NO income, No job (that pays anything worth writing home about), and NO assets.

If debt resets, then perhaps i'm being to prudent in assessing what I can afford? Would being debt free really be of any significant value in the event SHTF?

You're gonna be ok, as long as you can produce commodities. Everything is for no lack of a better term, boiling at present. If equities close this week lower then last, it's my suspicions we will start seeing a commodity bid. Looking for a gap higher on open, corn. Wait and see but the big picture is shifting, like a liquid to a gas. Trends change. Everything has its time and place. As the boomer generation inches towards retirement, the slightest pullback in the value of their assets will have them testing their resolve which can produce a stampede for the tiny exit door. If they've had retirement as an end game, they'll want to maximize the beer fund. Even a 5% pullback in land prices will provide you with opportunity. You might need to be creative as I just don't believe credit will be as available as it has been. Lol don't get too far ahead of yourself for the ending, it might not be what you had in mind. Demand destruction events cause a shift in supply chains.

[jazz]

Demographics is destiny and likely in a few short years once mass retirements start hitting their peaks and that cohort become a net taker from the system, you will see the cost of capital rise significantly.

There will be a chance to lock in sub 3% here in canada in the next 18 months. I wouldnt miss that window if you have debt beause you will likely never see it again.