en No Need For Yield Curve Inversion (There Is Already Much Worse Indicated) <p><a href=""><em>Submitted by Jeffrey Snider via Alhambra Investment Partners, </em></a></p> <p><span style="color: #000000;"><strong>Though I highly doubt he will admit it, he&rsquo;s just <a href="">not the type</a>, even Ben Bernanke knows on some level that bond market is decidedly against him, or at least his legacy.</strong> Economists have a funny way of looking at bonds, decomposing interest rates into Fisherian strata. To monetary policy, interest rates break down into three parts: expected inflation over the term of the security; the expected path of real short-term rates; and the residual term premium. Policymakers love to focus on the last one even as (or especially because) it is the most esoteric.</span></p> <p><span style="color: #000000;"><strong>To gain monetary &ldquo;stimulus&rdquo;, officials believe that they must arrest and reduce term premiums.</strong> What is a &ldquo;term premium?&rdquo; It is what economists believe is the extra return a bondholder demands in order to hold a longer range fixed income instrument. In other words, all else being equal (as economists like to surmise) where the path of real short-term rates is the same as are inflation expectations, the term premium determines where an investor will buy a bond in maturity versus something shorter or longer. Economists like Bernanke argue that term premiums are high where risk is perceived to be high; in other words, you have to be compensated that much more for holding a bond for that much longer.</span></p> <p><span style="color: #000000;">From that perspective, term premiums make sense in a monetary policy setting, as does the surface considerations for QE. <strong>If QE can affect long-term rates while holding the others equal or better, that suggests lower risk of investing overall.</strong></span></p> <p><span style="color: #000000;"><u><strong>The trouble for policymakers is that on this side of the Great &ldquo;Recession&rdquo; we don&rsquo;t even need to account for the academic posturing.</strong></u> On March 20, 2006, new Federal Reserve Chairman Ben Bernanke discussed the unusual nature of low interest rates of that time. Alan Greenspan had <strong>left Bernanke <a href="">his &ldquo;conundrum&rdquo;</a> where he raised short-term rates considerably (in his view) but longer rates failed very conspicuously to follow</strong>. In a speech to the Economic Club of New York, Bernanke noted <a href="">this disparity</a>:</span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span style="color: #000000;">For example, since June 2004, the one-year forward rate for the period two to three years in the future has risen almost 1-1/2 percentage points. As the ten-year yield is about unchanged even as its near-term components have risen appreciably, it follows as a matter of arithmetic that its components representing returns that are more distant in time must have fallen. In fact, the one-year forward rate nine years ahead has declined 1-1/2 percentage points over this tightening cycle.</span></p> </blockquote> <p><span style="color: #000000;"><strong>The question was about how to interpret the apparent inconsistency. </strong>To Bernanke, it was a matter of breaking down the constituent parts of rates:</span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span style="color: #000000;">To the extent that the decline in forward rates can be traced to a decline in the term premium, perhaps for one or more of the reasons I have just suggested, the effect is financially stimulative and argues for greater monetary policy restraint, all else being equal. Specifically, if spending depends on long-term interest rates, special factors that lower the spread between short-term and long-term rates will stimulate aggregate demand. Thus, when the term premium declines, a higher short-term rate is required to obtain the long-term rate and the overall mix of financial conditions consistent with maximum sustainable employment and stable prices.</span></p> </blockquote> <p><span style="color: #000000;">This was not the only possibility (and again there are serious doubts as to just how realistic this view actually is). Juxtaposing that more hopeful condition against another scenario, Bernanke gives us his own answer to the current predicament delivered long before its appearance.</span></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><span style="color: #000000;">However, if the behavior of long-term yields reflects current or prospective economic conditions, the implications for policy may be quite different&ndash;indeed, quite the opposite. The simplest case in point is when low or falling long-term yields reflect investor expectations of future economic weakness. Suppose, for example, that investors expect economic activity to slow at some point in the future. If investors expect that weakness to require policy easing in the medium term, they will mark down their projected path of future spot interest rates, lowering far-forward rates and causing the yield curve to flatten or even to invert.</span></p> </blockquote> <p><span style="color: #000000;">In terms of Fisherian decomposition of longer term interest rates, this means that where the expected path of short run real rates is low and gets lower then reduction in long-term rates is not helpful via lower term premiums but increased (perceived) risk accompanying that mark down. <strong>Typically we see this behavior where the UST curve inverts, but that <em>is not the only way to observe it</em>; and I would argue, given the state of short end activity, it is not the correct way.</strong></span></p> <p><span style="color: #000000;"><u><strong>In fact, there is an alternate method to derive what might be the expected path of short run rates, real or otherwise &ndash; the eurodollar futures curve.</strong></u> In the last nearly three years of this &ldquo;rising dollar&rdquo; and its preceding months, the eurodollar curve has not just flattened but done so in remarkable fashion. What it suggests about both the time value of money and overall risk/opportunity is nothing short of alarming. It qualifies in every way for Bernanke&rsquo;s definition of &ldquo;if investors expect that weakness to require policy easing in the medium term, they will mark down their projected path of future spot interest rates.&rdquo; <em><strong>In the case of eurodollar futures, though they are not connected to spot rates but 3-month LIBOR, it is perhaps a more appropriate substitute (we could also use the OIS curve, as <a href="">its history</a> accomplishes the same result).</strong></em></span></p> <p><img alt="abook-sept-2016-eurodollar-futures-curve-rising-dollar" class="aligncenter size-full wp-image-40748" src="" style="width: 601px; height: 328px;" /></p> <p><span style="color: #000000;"><strong>What was once a curve is now not. It has become a straight line that serves as a reminder of the death of money and time value, two key components that more than suggest risks and (lack of) opportunity.</strong> The yield curve doesn&rsquo;t invert because current short rates are already near zero, so the decomposition of far forward expectations of spot rates indicates a huge increase in risk perceptions. From that view, falling longer-term rates simply confirm the worst regardless of inversion.</span></p> <p><span style="color: #000000;"><strong>We don&rsquo;t find declining term premiums leading to &ldquo;stimulus&rdquo; as the media presumes, rather we see a yield curve increasingly comfortable with the idea that there has been and likely will be no such thing.</strong> In other words, short-term rates get stuck around where they are now and the consequences are increasingly no economic opportunity for it. Even as the eurodollar futures market reacts to expectations of perhaps another &ldquo;rate hike&rdquo; in the near future, the only potential effect on the full futures curve is to further flatten it out beyond its already massively distorted condition.</span></p> <p><span style="color: #000000;"><strong>The bond market selloff of the past month or so, which has apparently fizzled just as Alan Greenspan was assuring the world it was <a href="">only getting started</a></strong> (once more preserving for posterity how little he knows about bonds, interest rates, and money, as if knowing anything about any of those would be useful to a central banker), has been, I believe, a microcosm of these forces at work if in reality as opposed to the academic manner in which policy and orthodox views take them. <strong>In other words, as the UST market was selling off and nominal rates turned slightly higher and the curve steeper, the eurodollar futures curve <em>moved in sympathy</em>.</strong></span></p> <p><span style="color: #000000;">From Bernanke&rsquo;s own formula, that meant <strong>as rates were rising one significant view (I would argue the only view) of the expected path of future short-term rates was also rising</strong>. The eurodollar futures curve was decompressing into higher calendar spreads, suggesting that the appearance of higher nominal rates for UST&rsquo;s <strong>was not an increased view of risk but rather a decreased view of it</strong>.</span></p> <p><img alt="abook-sept-2016-eurodollar-futures-calendar-spread" class="aligncenter size-full wp-image-40747" src="" style="width: 600px; height: 585px;" /></p> <p><span style="color: #000000;"><strong>Conversely, since Greenspan&rsquo;s appearance, nominal rates have fallen back as have calendar spreads of eurodollar futures</strong>. Before the selloff had completed, it was thought that the Federal Reserve might undertake a second &ldquo;rate hike&rdquo; which would confirm the judgment of lower risk (an eventual higher anticipated path of short-term rates) whereas since<strong> the bond selloff has reversed without any Fed action at all (&ldquo;chickening out&rdquo; and once more endorsing the prior negative view that all is not well &ndash; Bernanke&rsquo;s second option).</strong></span></p> <p><img alt="abook-sept-2016-eurodollar-10s-ust-cmt" class="aligncenter size-full wp-image-40749" src="" style="width: 599px; height: 336px;" /></p> <p><span style="color: #000000;"><strong>It isn&rsquo;t quite the interest rate fallacy but it is perhaps as close as an academic economist may ever come to describing it.</strong> People focus entirely too much on yield curve inversion in this context as the only definitive signal, but by Bernanke&rsquo;s own formulaic approach we again see that what is important is the potential difference between expected short-term rates and how that reflects upon current levels of long-term interest &ndash; and really how changes in each reflect upon one another. From that harmonized view, where long-term nominal rates have fallen but so have expectations for short rates, it adds up even in the orthodox terms to a very negative outlook entirely devoid of &ldquo;stimulus.&rdquo;</span></p> <p><span style="color: #000000;"><strong>There is no bond market riddle. </strong>As each curve gets squashed by righteous pessimism, they together indicate nothing good about the near-term future, even more so than what their past corroboration has already been proved as valid. Each constituent part of the financial picture increasingly confirms there is no money in monetary policy. We truly don&rsquo;t need the UST curve to invert, especially since the highly negative real money scenario at this moment&nbsp;<a href="">no longer involves recession</a> and the regular business cycle and has more than enough <a href="">corroboration</a> about economic and financial risk. </span></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="583" height="308" alt="" src="" /> </div> </div> </div> Alan Greenspan Ben Bernanke Ben Bernanke Bond EuroDollar Federal Reserve fixed Futures market LIBOR Monetary Policy Reality Recession Yield Curve Thu, 29 Sep 2016 00:35:00 +0000 Tyler Durden 573502 at China's Richest Man Says Mainland Real Estate Is The "Biggest Bubble In History" <p>The richest man in China, Wang Jianlin, made his ~$30 billion fortune by developed huge malls and office complexes across China but he now says Chinese real estate is the <strong>"biggest bubble in history." </strong></p> <p>Certainly, one has to look no further than our post from yesterday entitled "<a href="">Viral Surveillance Video Reveals A Shocking Scene From China's Housing Bubble</a>" to get a sense of just how "bubblicious" the China property market has become.&nbsp; Below is footage from a surveillance camera that <strong>caught the moment a new real estate development in east Hangzhou opened for sale</strong> on September 24th.&nbsp; </p> <p><iframe src="" width="600" height="337" frameborder="0"></iframe></p> <p>&nbsp;</p> <p>The big problem, according to Jianlin, is that prices keep rising in major Chinese cities like Shanghai but are collapsing in thousands of smaller cities where huge numbers of properties lie vacant.&nbsp; Per an interview with <a href="">CNN</a>, Jianlin notes that<strong> rising household debt is a major issue fueling the bubble but Chinese officials have been reluctant to restrict leverage due to the fear of the economic consequences.</strong>&nbsp; </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"<strong>I don't see a good solution to this problem,</strong>" he said. "The government has come up with all sorts of measures -- limiting purchase or credit -- but none have worked."</p> <p>&nbsp;</p> <p>It's a serious worry in China, where the economy is slowing at the same time as high debt levels continue to increase rapidly. There are massive sums at stake in the real estate market:<strong> direct loans to the sector stood at roughly 24 trillion yuan ($3.6 trillion) at the end of June</strong>, according to Capital Economics.</p> <p>&nbsp;</p> <p>"The problem is the economy hasn't bottomed out," Wang said. "<strong>If we remove leverage too fast, the economy may suffer further.</strong> So we'll have to wait until the economy is back on the track of rebounding -- that's when we gradually reduce leverage and debts."</p> </blockquote> <p>Jianlin has been warning of a bubble in Chinese real estate for a while which has prompted his recent<strong> buying spree of international assets</strong>.&nbsp; So far in 2016, Jianlin has been gobbling up U.S. based media companies including the Hollywood studio Legendary Entertainment, the movie theater business Carmike Cinemas and he is currently in talks to buy Dick Clark Productions.</p> <p>Meanwhile <strong>UBS China Economist, Tao Wang, says the China real estate bubble isn't a concern because it hasn't yet pushed household debt to alarming levels</strong>...</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Not yet a bubble that's about to significantly damage the economy.&nbsp; The recent property market frenzy has not yet spread to a great many cities, pushed household debt up to alarming levels, or led to strong construction growth.</p> </blockquote> <p>...<strong>Even though her charts seem to paint a slightly different picture</strong>.&nbsp; </p> <p>Property prices seem to be surging across the board...</p> <p><img src="" alt="China Real Estate Bubble" width="600" height="638" /></p> <p>&nbsp;</p> <p>...while buyers are relying on a <strong>record amount of leverage to fund purchases</strong>...</p> <p><img src="" alt="China Real Estate Bubble" width="600" height="645" /></p> <p>&nbsp;</p> <p>...pushing <strong>household consumer debt closer to 250% of disposable income</strong>...</p> <p><img src="" alt="China Real Estate Bubble" width="600" height="642" /></p> <p>&nbsp;</p> <p>...all while there is seemingly <strong>4-5 years worth of incremental residential supply under construction</strong>.</p> <p><img src="" alt="China Real Estate Bubble" width="600" height="649" /></p> <p>&nbsp;</p> <p>But we'll take Wang's word for it...probably nothing to see here.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1200" height="630" alt="" src="" /> </div> </div> </div> China Housing Bubble None Real estate Yuan Thu, 29 Sep 2016 00:10:00 +0000 Tyler Durden 573480 at Why Garbagemen Should Earn More Than Bankers <p><a href=""><em>Submitted by Mike Krieger via Liberty Blitzkrieg blog,</em></a></p> <p><strong>Of course our world is in shambles</strong>. The best salaries are paid to the people whose professions add the least value to society.</p> <p>&nbsp;</p> <blockquote class="twitter-video" data-lang="en"><p dir="ltr" lang="en">Why Garbagemen Should Earn More Than Bankers by <a href="">@rcbregman</a> <a href=""></a> <a href=""></a></p> <p>&mdash; Evonomics (@EvonomicsMag) <a href="">September 28, 2016</a></p></blockquote> <script async src="//" charset="utf-8"></script><p>&nbsp;</p> <p>I know, I know. <strong>Lots of people are capable of being garbagemen, but not everyone has the skills to be a parasitic financial criminal</strong>.</p> <p><strong>I agree.</strong></p> <p>*&nbsp; *&nbsp; *</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>...Imagine, for instance, that all of Washington&rsquo;s 100,000 lobbyists were to go on strike tomorrow.</strong> Or that every tax accountant in Manhattan decided to stay home. It seems unlikely the mayor would announce a state of emergency. In fact, it&rsquo;s unlikely that either of these scenarios would do much damage.<strong> A strike by, say, social media consultants, telemarketers, or high-frequency traders might never even make the news at all.</strong></p> <p>&nbsp;</p> <p><strong>When it comes to garbage collectors, though, it&rsquo;s different. </strong>Any way you look at it, they do a job we can&rsquo;t do without. And the harsh truth is that an increasing number of people do jobs that we can do just fine without. Were they to suddenly stop working the world wouldn&rsquo;t get any poorer, uglier, or in any way worse. Take the slick Wall Street traders who line their pockets at the expense of another retirement fund. Take the shrewd lawyers who can draw a corporate lawsuit out until the end of days. Or take the brilliant ad writer who pens the slogan of the year and puts the competition right out of business.</p> <p>&nbsp;</p> <p><strong>Instead of creating wealth, these jobs mostly just shift it around...</strong></p> </blockquote> <p><strong>Read the entire article (it is excellent):&nbsp;<a href="" target="_blank">Why Garbagemen Should Earn More Than Bankers</a>.</strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="332" height="186" alt="" src="" /> </div> </div> </div> Twitter Twitter Wed, 28 Sep 2016 23:45:00 +0000 Tyler Durden 573514 at "It’s A Lot More Negative Than People Think" - China Beige Book Issues Stark Warning About The Economy <p>While China's excess debt problems have been extensively documented, the overall economy appears to also be slowing substantially as a result of the decline in the most recent credit impulse, noted as recently as one week ago when we reported that "<a href="">Chinese Loan Demand Dropped To All Time Low</a>." Overnight, the latest warning about China's economy came from the authors of the <a href="">China Beige Book</a>, a quarterly survey that tracks the world’s second-largest economy, who said that recent stability in the Chinese economy masks deep-seated problems that threaten to rattle global markets in advance of a leadership change next year, and added that ignoring these risks is shortsighted. </p> <p>As <a href="">reported by the WSJ</a>, data from the group’s Q3 survey of 3,100 Chinese firms and 160 bankers point to some potential problems. New growth engines intended to shift the economy away from investment toward consumption-led growth are increasingly wobbly as corporate cash flow is squeezed and Beijing doubles down on traditional engines to stabilize output, the China Beige Book says.</p> <p><strong>“I’d find it earth-shatteringly surprising if we don’t have a significant problem between now and China’s leadership change” </strong>in the fall of 2017 when the 19th Party Congress convenes, said Leland Miller, China Beige Book’s president. “This is not a stable economy. It’s one that twists and turns and happens to end up at the same spot. There are real problems below the surface.”</p> <p>More troubling, the report notes, growth in China’s service industry, a cornerstone of its planned transition to a new and more sustainable economic model, weakened during the third quarter as financial services, private healthcare, telecommunications, media and other subsectors flagged. In retail, the apparel, luxury goods and food sectors slowed, it said, as online retailers continued to cannibalize brick-and-mortar sales. </p> <p>Despite Beijing’s pledge to reduce excess Industrial capacity and pare debt, China remains heavily dependent on government spending to power traditional debt-fueled growth engines, the group said. Much of the economic momentum during the third quarter came from infrastructure, manufacturing, commodities and real estate and many of these sectors are in danger of losing momentum, it said.</p> <p>As the WSJ further notes, while property sales remained strong in major cities, cash flow in the sector tightened and borrowing increased, a sign that investors should <strong>“think about getting off this train sooner rather than later,” </strong>the China Beige Book said.“ Deteriorating corporate finances and a rebalancing reversal seem a high price to pay for a quarter’s worth of stability,” the group added. </p> <p>When China reports Q3 GDP next month, it is expected to goalseek a number around 6.7%, the level it posted in both the first and second quarters. Gauges such as industrial production and fixed-asset investment have been surprisingly robust over the past month. However, the trigger for another potential market jolt in the next few quarters could be the release of particularly weak Chinese service or retail data coinciding with a Federal Reserve interest rate rise or another global event, Miller said. “Right now, the markets are lulled to sleep,” he said. “<strong>People become used to the stable China narrative until they start looking more closely into the data</strong>.”</p> <p>For now, however, most are unwilling to look more closely into the data. </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Economists say they expect the Chinese economy to remain relative stable through the once-in-five-year leadership change, which is expected to be in October or November of 2017, as long as Beijing continues stimulating the economy enough to avoid a drop in growth. “I don’t think there’s going to be a crisis next year,” said Julian Evans-Pritchard, an economist with Capital Economics Pte. “<strong>But they often take their foot off the pedal too much, then tend to panic again and put it back on, creating a lag.” </strong></p> <p>&nbsp;</p> <p>The Bank for International Settlements warned last week that mounting leverage raises the risk of a financial crisis in China. The nation’s total debt, led by rising corporate obligations, is on target to reach 253% of gross domestic product by the end of 2016, a doubling over the past eight years, according to credit ratings agency Fitch Ratings Inc.</p> </blockquote> <p>It wasn't all bad news however: courtesy of the recent wave to preserve zombie enterprises and near-insolvent corporations, the Chinese job market remains strong. The manufacturing outlook improved with new domestic and international factory orders picking up and deflationary pressure on industry ebbing. “It was not a disaster of a quarter,” Mr. Miller said. </p> <p>“But it’s a lot more negative than people think.”</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1280" height="853" alt="" src="" /> </div> </div> </div> Beige Book China Evans-Pritchard Federal Reserve Fitch Gross Domestic Product ratings Real estate Wed, 28 Sep 2016 23:18:21 +0000 Tyler Durden 573463 at Peak Debt Complacency: Carmen "Different This Time" Reinhart Urges Debt Restructuring <p><a href=""><em>Authored by Carmen Reinhart, originally posted at Project Syndicate,</em></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><em><strong>&ldquo;What a government spends the public pays for. There is no such thing as an uncovered deficit.&rdquo;</strong></em></p> <p>&nbsp;</p> <p>So said John Maynard Keynes in <a href="" target="_blank"><em>A Tract on Monetary Reform</em></a>.</p> </blockquote> <p><strong>But Robert Skidelsky, the author of a magisterial three-volume biography of Keynes, disagrees.</strong> In a recent commentary entitled &ldquo;<a href="">The Scarecrow of National Debt</a>,&rdquo; Skidelsky offered a rather patronizing narrative, in a tone usually reserved for young children and pets, about his aged, old-fashioned, and financially illiterate friend&rsquo;s baseless anxiety about the burden placed on future generations by the rising level of government debt.</p> <p>If Skidelsky&rsquo;s point had been that some economies, including the United States, would benefit from higher infrastructure spending, even at the cost of more debt, I would agree wholeheartedly. Compelling reasons for boosting US public investment include deteriorating infrastructure, tepid growth, low interest rates, and limited scope for further monetary stimulus. For the US, such an impetus might be especially welcome as the Federal Reserve raises interest rates (albeit gradually) while other countries ease further or hold rates steady and the <a href="">dollar likely strengthens</a>.</p> <p>But that was not the route Skidelsky took. Instead, in his critique of a <a href="">commentary by Kenneth Rogoff</a>, he <strong>argued that it is silly and passé for a country that can issue debt in its own currency to fret over medium-term debt levels.</strong> <u><strong>Call me old-fashioned, but that argument smacks of complacency and is not supported by evidence.</strong></u> On this score, Skidelsky confuses two different papers on debt and growth, a <a href="" target="_blank">2012 paper</a> of mine, in which there were some alleged data concerns, with one that I co-authored with Rogoff and Vincent Reinhart, in which there were none.</p> <p>Coming from an author who knows Keynes so well, such complacency disappoints. I cannot read <em><a href="" target="_blank">How to Pay For the War</a> </em>and conclude that Keynes thought that high war debts were a &ldquo;scarecrow&rdquo; for the United Kingdom. In fact, the apparatus of the Bretton Woods arrangements that Keynes subsequently helped to craft were designed to ease a difficult transition out of debt.</p> <p><u><em><strong>The case for near-term fiscal stimulus, even if in the form of increased infrastructure outlays, cannot ignore the medium-term outlook for economies with already large debt obligations, major entitlement burdens, aging populations, and what appears to be a steady downward drift in potential output growth.</strong></em></u></p> <p>As Skidelsky notes, debts have risen significantly in the UK and the US (among others) since 2008, while interest rates have remained low or declined. Should we therefore conclude that high debt is not linked to low growth via high interest rates (which crowd out private spending)?</p> <p>Reading a little further into my study with Rogoff and Reinhart, one would find that there was &lsquo;&lsquo;little to suggest a systematic mapping between the largest increases in average interest rates and the largest (negative) differences in growth during the individual debt overhang episodes.&rdquo;</p> <p>Our research considered 26 high-debt episodes between 1800 and 2011, looking both at growth rates and at levels of real (inflation-adjusted) interest rates. <strong>In 23 of these high-debt episodes, growth was lower, and in eight growth slowed even as real interest rates remained about the same or edged lower. Japan&rsquo;s debt overhang (entirely domestic currency debt), which we trace back to 1995, illustrates this pattern.</strong></p> <p><u><strong>Why do high debt and slow growth coexist, despite cheap financing?</strong></u></p> <p><strong>High debt levels can and do constrain a country&rsquo;s abilities to cope with adverse events.</strong> For example, some of Italy&rsquo;s largest banks have been diagnosed as approaching insolvency and requiring substantial recapitalization. Not surprisingly, the confidence of Italian households and firms has been shaken, and capital flight has ensued. If Italy&rsquo;s debt were not already 130% of GDP, might its government have been better positioned to provide the resources to tackle decisively its lingering banking and confidence problems?</p> <p>Our 2012 study identified three ongoing public-debt overhangs that began in the mid-1990s &ndash; Greece, Italy, and Japan. Relative to other advanced economies, these three economies are the worst growth performers (see chart). To be sure, a country&rsquo;s economic performance depends on many factors. But the view that it is low growth that causes debt to rise, though important when assessing the cyclical feedback effects, can hardly explain the two-decade experience of these three countries.</p> <p><a href=""><img alt="" src="" style="width: 600px; height: 331px;" /></a></p> <p><em>It is difficult to imagine a sustained revival of Greek growth without another round of haircuts and debt forgiveness from Greece&rsquo;s official creditors, which now hold most of its debt. Italy depends critically on the continued large-scale purchases of its bonds by the European Central Bank (its Target 2 balances have recently climbed, reflecting capital flight). The Bank of Japan is going to greater and greater lengths to orchestrate an increase in inflation expectations and price growth, which can help erode the value of outstanding debts. (&ldquo;For inflation is a mighty tax-gatherer,&rdquo; as Keynes observed.) Other countries, like Portugal, are also struggling with low growth and weak fiscal positions.</em></p> <p><strong>Concerns about debt levels (public and private) have now extended beyond the advanced economies to many emerging markets</strong>. I cannot recall an instance of a government that is concerned about having too low a level of debt. Perhaps, it is because the debt scarecrow has teeth.</p> <p>Skidelsky needs no reminder of the historical record, but it bears noting that more than a dozen advanced economies received <a href="" target="_blank">debt relief</a> in one form or another during the depression of the 1930s. The approach to unwinding current debts is likely to vary considerably across countries, but <strong>it is time to place greater emphasis on debt restructuring </strong>(which comes with a menu of options) <strong>than on accumulating more debt.</strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="1552" height="857" alt="" src="" /> </div> </div> </div> Bank of Japan Creditors European Central Bank Federal Reserve Greece Italy Japan John Maynard Keynes Maynard Keynes National Debt None Portugal Real Interest Rates United Kingdom Wed, 28 Sep 2016 22:55:00 +0000 Tyler Durden 573510 at Pay Attention to How Oil Reacts the Day After OPEC News (Video) <p>By <a href=""><span style="text-decoration: underline;"><span style="color: #0066cc;">EconMatters</span></span></a> </p> <p><em><br /></em> </p> <div class="separator" style="clear: both; text-align: center;"><a title="Open in new window" class="external" href="" style="margin-left: 1em; margin-right: 1em;" target="_blank"><img src="" border="0" width="400" height="300" /></a></div> <p> We discuss the oil market, and the recent OPEC news regarding potential production cuts in November, and its effects on the market. A likely test of the $48 level seems in the cards this week.</p> <p></p> <div class="separator" style="clear: both; text-align: center;"><iframe src="" width="320" height="266" frameborder="0"></iframe></div> <p>&nbsp;</p> <div class="separator" style="clear: both; text-align: center;"><a title="Open in new window" class="external" href="" style="margin-left: 1em; margin-right: 1em;" target="_blank"><img src="" border="0" width="640" height="362" /></a></div> <div class="separator" style="clear: both; text-align: center;"><a title="Open in new window" class="external" href="" style="margin-left: 1em; margin-right: 1em;" target="_blank"><img src="" border="0" width="640" height="362" /></a></div> <div class="separator" style="clear: both; text-align: center;"><a title="Open in new window" class="external" href="" style="margin-left: 1em; margin-right: 1em;" target="_blank"><img src="" border="0" width="640" height="362" /></a></div> <p> © <a href="" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">EconMatters</span></span></a> All Rights Reserved | <a title="Open in new window" class="external" href="" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">Facebook</span></span></a> | <a title="Open in new window" class="external" href="!/EconMatters" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">Twitter</span></span></a> | <a title="Open in new window" class="external" href="" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">YouTube</span></span></a> | <a title="Open in new window" class="external" href="" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">Email Digest</span></span></a> | <a title="Open in new window" class="external" href=";node=80" target="_blank"><span style="text-decoration: underline;"><span style="color: #0066cc;">Kindle</span></span></a><strong>&nbsp;</strong><em>&nbsp;</em><span style="text-decoration: underline;">&nbsp;</span><span style="text-decoration: line-through;">&nbsp;</span></p> OPEC Twitter Twitter Wed, 28 Sep 2016 22:40:24 +0000 EconMatters 573523 at Caught On Tape: Chaos Erupts As Trump-Haters Crash UMich Conservatives' Debate <p>A debate-watching party at the University of Michigan, hosted by the conservative Young Americans for Freedom, turned violent on Monday as five anti-Trump protesters invaded the campus auditorium shouting “<strong>Donald Trump is racist!</strong>”&nbsp; </p> <p>Another female protester held a sign stating “<strong>Hitler: Make Germany great again, Trump’s America</strong>” while another, dressed as Jesus, walked around the room banging on a drum to disrupt the event.</p> <p>Below is the full video courtesy of <a href="">The College Fix</a>:</p> <p><iframe src="" width="600" height="361" frameborder="0"></iframe></p> <p>&nbsp;</p> <p>According to <a href="">The College Fix</a>, one of the conservative debate watchers was later <strong>"roughed up outside the venue" after ripping up an anti-Trump sign</strong>. </p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Student co-organizer Grant Strobl, in a statement Monday to The College Fix, said audience members had a variety of viewpoints on the candidates, and it was unfortunate protesters interrupted a “bipartisan event.”</p> <p>&nbsp;</p> <p>“I think it is important to protect the freedom of speech of the protestors, and I encourage them to protest outside of the event so that students can exercise their freedom to listen to the debate,” he said.</p> <p>&nbsp;</p> <p>Responding to <strong>allegations that the male who ripped up the anti-Trump sign was roughed up outside the venue</strong> after the event, Strobl added: “I don’t know the full details of the fighting outside of the event, but it is <strong>dangerous when difference in opinion translates into assault</strong>. However, all of the attendees of our event were respectful and engaged.”</p> </blockquote> <p>So many "trigger warnings" and "micro-aggressions" here...these kids are going to need a lot of psychological support over the coming months/years.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="500" height="296" alt="" src="" /> </div> </div> </div> Germany Michigan University Of Michigan Wed, 28 Sep 2016 22:30:00 +0000 Tyler Durden 573457 at The Bickering Begins: Iraq Disagrees With OPEC's Method Of Oil Production Estimates <p>The ink on the OPEC "deal" is not dry yet, and in fact it won't be until November when the actual deal which breaks down the oil production quota for every OPEC member is ratified - if that ever happens - and already the bickering has begun. As Reuters reported moments ago, Iraq questioned one of the two methods OPEC is using to estimate the oil production of its members, signalling the issue could be a problem for the country to join output limits that the group agreed to start implementing this year.</p> <p>The reason for Iraq's displeasure is that OPEC uses two sets of figures for output estimates - submissions by the countries themselves and estimates by secondary sources, which are usually lower but are seen as better reflecting real output.</p> <p>Think of its as GAAP vs non-GAAP production, with OPEC's number strategically lower for one simple reason: OPEC's member nations have and always will cheat when it comes to oil production numbers and quotas. The difference, which in Iraq's case <a href="">amounts to 284,000 bpd </a>(or the difference between its own estimate of 4.638mmbpd and the OPEC estimate of 4.354mmbd) for the month of August, is substantial.</p> <p><a href=""><img src="" width="500" height="563" /></a></p> <p>"These figures (secondary sources) do not represent our actual production," Iraqi Oil Minister Jabar Ali al-Luaibi said. He said Iraq's current production could be as high as 4.7 million barrels per day. </p> <p>And since Iraq, as well as every other OPEC member who is not given an Iran-like exemption to keep producing more, will try to be pegged to the highest possible exiting production number, the negotiation now shifts to just what is the actual production number. </p> <p>Incidentally, the nearly 300kbpd delta in August production estimates for Iraq alone is within the threshold of the upper range of the proposed cut which as noted before would be between 32.5 and 33.0mmbpd relative to the existing peak OPEC output of 33.2mmbpds - a spread which is as small as 200kbpd. In other words, unless <em><strong>just Iraq </strong></em>agrees to use the OPEC production estimate and demands that the quota be set on its own number, it means that there is possibility there will be no production cuts at all as Saudi will have to accmomodate Iraq's greater production estimate. </p> <p>Incidentally, Iraq is not alone, and if it is given a green light to peg production to its own production estimate, then similar demands will arise from Venezuela, UAE and Kuwait, all of whose self-reported crude oil output is far higher than the official OPEC number and amounts to a grand total of just under 1 million barrels daily. In other words, if OPEC decides to use the self-reported numbers at which to freeze production, the entire cut is automatically eliminated. </p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="620" height="372" alt="" src="" /> </div> </div> </div> Crude Crude Oil GAAP Iraq Kuwait OPEC Reuters Wed, 28 Sep 2016 22:07:28 +0000 Tyler Durden 573518 at Hillary Campaign In "Full Panic Mode" Over Black Voter Turnout In Florida <p><strong>Unprecedented black voter turnout was a huge component of Obama's victories in 2008 and 2012</strong>.&nbsp; Per the chart below from the <a href="">New York Times</a>, after running in the low-to-mid 50% range for decades, <strong>black voter participation surged to over 60% for Obama in 2008 and 2012, the highest ever recorded</strong>.&nbsp; </p> <p>Meanwhile, black voter turnout in the midterm elections remained fairly constant through 2012 indicating that people were really just showing up to vote for Obama and not necessarily because of a new level of political engagement overall.&nbsp; </p> <p>So, the question is, <strong>should Hillary expect the same level of unprecedented black voter turnout that Obama was able to garner</strong>?&nbsp; Apparently, <strong>her campaign is not convinced</strong> and that's why, according to Leslie Wimes, President of the Democratic African-American Women Caucus, they're in "<strong>full panic mode</strong>."</p> <p><a href=""><img src="" alt="Black Voter Turnout" width="600" height="421" /></a></p> <p>&nbsp;</p> <p>According to the numbers, Hillary has every reason for concern.&nbsp; Per <a href="">Politico</a>, in 2008 and 2012, <strong>Obama received 95% of the 1.7mm votes cast by black voters in Florida</strong>.&nbsp; Unfortunately for Hillary, a recent poll from <a href="">Florida Atlantic University</a> found that <strong>she is only polling at 68% among black voters </strong>while Trump is polling at 20%.&nbsp; Now, if you assume that<strong> black voter turnout drops just 5% in 2016 <span style="text-decoration: underline;">and </span></strong>that <strong>Hillary's support drops from 95% to 70% that could cost her over 500,000 votes in a state that Obama only won by roughly 75,000</strong>.&nbsp; When factoring in the higher support for Trump this <strong><span style="text-decoration: underline;">could swing the overall Florida race by 7 points...not a good sign when Obama narrowly won the state by less than 1%</span>.</strong></p> <p>And, at least according to the president of the Democratic African-American Women Caucus, this math has the Clinton campaign in <strong>"full panic mode."</strong>&nbsp; Per <a href="">Politico</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>"<strong>Hillary Clinton's campaign is in panic mode. Full panic mode</strong>," said Leslie Wimes, a South Florida-based president of the Democratic African-American Women Caucus.</p> <p>&nbsp;</p> <p>"They have a big problem because <strong>they thought Obama and Michelle saying, 'Hey, go vote for Hillary' would do it. But it's not enough</strong>," Wimes said, explaining that too much of the black vote in Florida is anti-Trump, rather than pro-Clinton. <strong>"In the end, we don't vote against somebody. We vote for somebody."</strong></p> </blockquote> <p>All of which has left the Clinton campaign scrambling to garner support from African-American voters who are uninspired by her candidacy.&nbsp; As such, her campaign has called in the big guns to help rally support in Florida.&nbsp; Bill Clinton, once nicknamed the “first black president,” has been enlisted to conduct a North Florida bus tour on Friday.&nbsp; Meanwhile, Barack and Michelle Obama are also expected to campaign in Florida at least twice before Election Day.&nbsp; Michelle has even recorded an ad that’s currently airing on Florida radio.</p> <p>But it may not be enough as black Tallahassee Mayor (and Clinton supporter) Andrew Gillum admitted that "it's hard to recapture" the level of support that Obama received from black voters in 2012.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Tallahassee Mayor Andrew Gillum, one of Clinton’s highest-profile black leaders in the state, <strong>acknowledged that he saw “varying levels of enthusiasm”</strong> for Clinton at a recent event. Though he said <strong>“it’s hard to recapture that level of enthusiasm”</strong> Obama enjoyed in 2008, he’s confident young black voters will show up to the polls for Clinton.</p> <p>&nbsp;</p> <p>“While I’d love for them to be excited when they show up to the polls,” citing his own excitement about what Clinton’s policy agenda can offer the black community, “my first job is to make sure they get there,” Gillum said.</p> </blockquote> <p>Meanwhile, the lack of excitement is "worrying" Henry Crespo, president of the Miami-based Florida Democratic Black Caucus, who said that <strong>“No one is writing songs for Hillary. Obama had Hillary has nobody.”</strong></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="637" height="408" alt="" src="" /> </div> </div> </div> Florida New York Times Wed, 28 Sep 2016 21:45:00 +0000 Tyler Durden 573467 at Who Really Lost This Week's Presidential Debate? America Did! <p><a href=""><em>Submitted by Nick Bernabe via,</em></a></p> <p>Trump&rsquo;s supporters and conservative media say he won. Hillary&rsquo;s supporters and the liberal media say she won. <strong><em>But who lost the presidential debate last night?</em></strong> Well, America did.</p> <p><u><strong>America lost</strong></u> because Donald Trump and Hillary Clinton are among the most unliked candidates in American political history. We lost because Trump is a billionaire who spent his entire career <a href="" target="_blank">benefiting</a> from politicians to make his fortune. We lost because Hillary is a politician who spent her entire political career <a href="" target="_blank">benefiting</a> from billionaires to make her powerful (and rich).</p> <p><u><strong>America lost </strong></u>because corporate politicians make promises they never deliver on. We lost because both candidates say they are going to change things, but we already know they won&rsquo;t. We lost because both candidates stood in front of 100 million Americans last night and <a href="" target="_blank">lied to us</a> with straight faces. We lost because <a href="" target="_blank">the main reason</a> people are voting for Trump is he&rsquo;s not Clinton, and&nbsp;<a href="" target="_blank">the main reason</a>&nbsp;people are voting for Clinton is she&rsquo;s not Trump.</p> <p><u><strong>America lost</strong></u> because the debate was just a highly publicized reality show episode that seemed to focus more on personality wars than policies or ideas. We lost because the few ideas that these candidates <em>do</em> propose are simply stale, old philosophies that have been proven to fail the majority of working Americans for decades. We lost because the two mainstream political parties are <a href="" target="_blank">almost indistinguishable</a> when it comes to their top priorities (save for wedge social issues, which continue to divide the populace).</p> <p><u><strong>America lost</strong></u> because only <a href="" target="_blank">9 percent</a> of the population voted for Hillary and Trump in the primaries. We lost because over <a href="" target="_blank">40 percent</a> of Americans&nbsp;<em>don&rsquo;t&nbsp;</em>identify as Democrat or Republican.</p> <p><u><strong>America lost</strong></u> because the political discussion has been limited to these two (very unlikable) choices. We lost because Republicans and Democrats have a duopoly over our political system. We lost because the media refuses to give fair coverage to third-party candidates. We lost because 50 percent of us wanted third-party candidates in the debate, but the <a href="" target="_blank">private corporation</a>&nbsp;that runs the debates refused. We lost because this corporation is <a href="" target="_blank">deeply entrenched</a> with the two-party system&nbsp;it protects.</p> <p><iframe allowfullscreen="true" allowtransparency="true" frameborder="0" height="315" scrolling="no" src=";show_text=0&amp;width=560" style="border:none;overflow:hidden" width="560"></iframe></p> <p><u><strong>America lost </strong></u>because despite the overwhelming unpopularity of Trump and Clinton, paired with Congress&rsquo; approval rating, which can <a href="" target="_blank">hardly out-poll cockroaches</a>&nbsp;(or Nickleback), we continue to vote for these people thinking something will somehow change. We lost because career politicians continue to be reelected at an overwhelming rate despite being completely unrepresentative of their constituents.</p> <p><u><strong>America lost </strong></u>because this country has <a href="" target="_blank">become an oligarchy</a>. We lost because both Trump and Clinton have been longtime members of this ruling class. America will continue to lose the debates. America will also lose the 2016 election because one of these candidates will win. Our only hope is for some kind of drastic change by the time the next election rolls around.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="246" height="161" alt="" src="" /> </div> </div> </div> Donald Trump Fail Reality Wed, 28 Sep 2016 21:25:00 +0000 Tyler Durden 573507 at