John Mauldin Warns "Prepare For Turbulence"

Tyler Durden's picture

Authored by John Mauldin via MauldinEconomics.com,

“The job of the central bank is to worry.”

– Alice Rivlin

“The central bank needs to be able to make policy without short-term political concerns.”

– Ben Bernanke

“… from the standpoint of the overall economy, my bottom line is we’re watching it closely but it appears to be contained.

– Ben Bernanke, repeatedly, in 2007

“Would I say there will never, ever be another financial crisis? You know, probably that would be going too far, but I do think we’re much safer, and I hope that it will not be in our lifetimes, and I don’t believe it will be.”

– Janet Yellen, June 27, 2017

“My good friends, for the second time in our history, a British Prime Minister has returned from Germany bringing peace with honor. I believe it is ‘peace for our time.’ Go home and get a nice quiet sleep.”

– Neville Chamberlain, September 30, 1938


Photo: Monica Muller via Flickr

The way we assess problems depends on our perspective. People can look at the same set of facts and reach quite different conclusions based simply on their circumstances. This is why it’s good at times to get away from your normal environment. Listen to a wide variety of opinions. Read books outside of your comfort zone. You’ll see things differently when you return.

I had that feeling on returning to the US from Shane’s and my honeymoon in St. Thomas. We’re now officially married, and we thank everyone for the congratulations and kind wishes. I saw a little bit of news while we were there but spent more time just relaxing with my bride and reading books.

Re-entering the news flow was a jolt, and not in a good way. Looking with fresh eyes at the economic numbers and central bankers’ statements convinced me that we will soon be in deep trouble. I now feel that it's highly likely we will face a major financial crisis, if not later this year, then by the end of 2018 at the latest. Just a few months ago, I thought we could avoid a crisis and muddle through. Now I think we’re past that point. The key decision-makers have (1) done nothing, (2) done the wrong thing, or (3) done the right thing too late.

Having realized this, I’m adjusting my research efforts. I believe a major crisis is coming. The questions now are, how severe will it be, and how will we get through it? With the election of President Trump and a Republican Congress, your naïve analyst was hopeful that we would get significant tax reform, in addition to reform of a healthcare system that is simply devastating to so many people and small businesses. I thought maybe we’d see this administration cutting through some bureaucratic red tape quickly. With such reforms in mind I was hopeful we could avoid a recession even if a crisis developed in China or Europe.

Six months in, the Republican Congress that promised to repeal and replace Obamacare, cannot even agree on the process. For six years they discussed what to do, and you would think they might at least have a clue.

Tax reform? I’ve been talking with several of the Congressional leaders about tax reform, pointing out that without major tax reform this country is in danger of falling into a recession. No tinkering around the edges. Real change requires real change. There is now talk of having a tax bill of some kind ready to discuss in September and possibly pass in November, which, with this Congress, means that the process is likely to drift into next year sans a major push by the leadership. There is no consensus. No less an authority on the actual political process than Newt Gingrich wrote a very sharply worded column this week, declaring, “That legislative schedule is a recipe for disaster.” As Newt points out, if we are going to see any positive economic effect from tax reform, a bill has to be passed soon and implemented. Newt’s column was actually fairly discouraging to me. Knowing him as I do, I can tell you he wasn’t happy to have to write it. While I disagree with him on some of his tax-reform proposals, I agree that we need something significant and soon.

There has been some progress on the bureaucratic and regulatory fronts, but nowhere near what I’d expected. Appointments haven’t been made, and the bureaucracy is still in control of most of the levers of the economy.

I’d love to be wrong. Nothing would make me happier than having to eat all these words. But without significant changes, and soon, the economy will drift sideways and down. While second-quarter GDP growth will come in above 2%, the figure for the first six months of this year will remain below 2%. A host of indicators show a softening of the economy. For instance, , with a glut of more than 7 million previously leased cars clogging the auto market, new-car production is projected to continue to fall. Consumers are financially stretched, and credit card and student loan defaults have begun to rise. While there are bright spots, without major reforms the economy will drift lower, toward stall speed. Any outside shock – and several may be in the offing – could push us into recession.

And then we come to central banks.

Afraid of the Truth

One news item I didn’t miss on St. Thomas – and rather wish I had – was Janet Yellen’s reassurance regarding the likelihood of another financial crisis. Here is the full quote.

Would I say there will never, ever be another financial crisis? You know probably that would be going too far, but I do think we’re much safer, and I hope that it will not be in our lifetimes and I don’t believe it will be. [emphasis added]

I disagree with almost every word in those two sentences, but my belief is less important than Chair Yellen’s. If she really believes this, then she is oblivious to major instabilities that still riddle the financial system. That’s not good.

She may be right in that the future financial crisis will not look like the last financial crisis, at least in the United States. We have repealed the law passed under George W. Bush that allowed major banks to lever up 30 to 1. (What were they thinking?) We have required banks to recapitalize and to reduce their market-making activities in the bond market, theoretically reducing their risk of insolvency. And we have put in place all sorts of profitability- and productivity-reducing regulations. While these may be appropriate for larger financial institutions, they are choking the life out of smaller community banks, and thereby reducing the availability of capital to small businesses. Is it any wonder that we are seeing more businesses failing than being launched?

But like generals fighting the last war, central bankers will find that the next financial crisis will be fought on different fronts, with entirely different components and opponents. There is an appalling lack of liquidity and market-making available in the major fixed-income markets, something the banks used to provide, and now by regulatory statute they can’t. Oh, everything is just fine right now, but the moment we hit a speed bump, the liquidity and market-making capability that is left will simply dry up.

In theory, the Fed probably can’t provide liquidity for that type of market, but I will bet you a dollar to 47 doughnuts that they will find some loophole that authorizes them to step in somehow; otherwise there will be a spiral downward in the debt markets. Some markets will spiral up, and some will spiral down. We have once again created all kinds of new debt instruments as investors reach for yield in this low-rate environment, and there will simply be no market liquidity for them in a crisis. A flight to safety will ensure that long-term Treasury rates will plunge to levels that we have not yet seen.

I could list other imbalances in the financial markets, but you get the picture.

Financial politicians (which is what central bankers really are) have a long history of saying the wrong things at the wrong time. Far worse, they simply fail to tell the truth. Former Eurogroup leader Jean-Claude Juncker admitted as much: “When it becomes serious, you have to lie,” he said in the throes of Europe’s 2011 debt crisis.

They lie because they’re afraid of the impact the truth will have. This is a problem, because markets can’t function on false information, at least not indefinitely. The best thing for everyone is to let markets adjust naturally, even though confronting reality can mean short-term pain for some participants. And sometimes it does make sense to cushion the blow. It doesn’t make sense to cover over a problem for years, let it get bigger and bigger, and postpone acknowledging it until the worst possible time. Yet that’s what usually happens.

In fairness to the financial politicians, they often deal with situations where all the choices are bad. More often than not, that’s because their predecessors made similarly bad choices under similarly difficult conditions. The string of mistakes goes back decades. That is our situation today. We think governments and central banks are powerful, and they are in some ways, but they aren’t omnipotent. They don’t have monetary magic wands.

They also face enormous pressure to “do something,” even when the right thing is to do nothing and just let the market clear.

We Couldn’t Take the Chance

To understand what will be the mindset of central bankers all over the world during the next financial crisis, I can think of no better illustration than a debate that was conducted at the annual gathering of economists that David Kotok convenes in Maine in August. This debate provided an “aha!” moment, one that has been fundamental to my understanding of how central banks work in the midst of a crisis. Let’s rewind the tape to four years ago, when I wrote about that moment while it was still fresh in my mind.

On Saturday night David scheduled a formal debate between bond maven Jim Bianco and former Bank of England Monetary Policy Committee member David Blanchflower  (everyone at the camp called him Danny)….

The format for the debate between Bianco and Blanchflower was simple. The question revolved around Federal Reserve policy and what the Fed should do today. To taper or not to taper? In fact, should they even entertain further quantitative easing? Bianco made the case that quantitative easing has become the problem rather than the solution. Blanchflower argued that quantitative easing is the correct policy. Fairly standard arguments from both sides but well-reasoned and well-presented.

It was during the question-and-answer period that my interest was piqued. Bianco had made a forceful argument that big banks should have been allowed to fail rather than being bailed out. The question from the floor to Danny was, in essence, “What if the Bianco is right? Wouldn’t it have been better to let banks fail and then restructure them in bankruptcy? Wouldn’t we have recovered faster, rather than suffering in the slow-growth, high-unemployment world where we find ourselves now?”

Blanchflower pointed his finger right at Jim and spoke forcefully. “It wasn’t the possibility that he was right that preoccupied us. We couldn’t take the chance that he was wrong. If he was wrong and we did nothing, the world would’ve ended, and it would’ve been our fault. We had to act.”

Blanchflower’s explanation made me realize that central bankers are quite human and so are their reactions in the middle of a crisis. They feel that they have to do something.

Policy Brick Wall  

The present challenge arises because our central bank monetary heroes allowed QE, ZIRP, and in some places NIRP to persist far longer than was wise. You can make the case that these measures were necessary in 2008 and for a short period thereafter; but these policies should not have remained in place, much less been expanded, for 7-–9 more years. Yet they were. That this was a mistake is now clear to almost everyone. Iin hindsight. What to do about it is less clear.

On the positive side, our central bankers are talking about the problem. The kool kids’ new buzzword is policy normalization. Everyone (except the Bank of Japan) agrees that abnormality has outlived its usefulness. That’s important: Admitting your problem is the first step to solving it.

However, solutions are difficult when that first timid step runs you smack into a brick wall that you yourself built because you waited too long to act.

It was mid-2013 when Ben Bernanke first suggested the Fed might “taper” down its bond purchases. The Taper Tantrum ensued and stopped him from implementing the policy he clearly thought was right. It fell to Janet Yellen to implement the taper and then make one very tiny rate hike in December 2015. Another tantrum followed, this one centered in China. Plans to raise rates further were again postponed. As I noted in “Mad Hawk Disease” two weeks ago,  Fed governors were clearly mindful of what would happen to the then-current Democratic administration if a policy error precipitated a recession. “We couldn’t take the chance.” They ignored Ben Bernanke’s admonition that “The central bank needs to be able to make policy without short-term political concerns.”

Now, with a Republican administration and Congress, the FOMC apparently feels no such concern about the potential for a policy error. We will never know, but I wonder if they would now be raising rates under a Clinton administration. It’s actually a serious question.

Having waited four years too long, the Fed, the ECB, and the Bank of England are finally tightening in a strange combination of caution and boldness. You may have heard public officials talk of being “cautiously optimistic.” The central bank version of that is “cautiously aggressive.” Each passing month makes them less cautious and more aggressive, it seems. Like kittens, they venture out from their mother gingerly at first but soon are romping underfoot and destroying furniture.


Source: Financial Times

That may be an amusing analogy, but reality is not amusing at all. The four largest central banks together have about $13 trillion on their balance sheets, a large portion of which they believe needs to roll off. Removing it without breaking something important will not be easy.

Least-Bad at Best

The central bankers are not unaware of this challenge. They have a conscience of sorts in the Bank of International Settlements, and it is whispering in their ears as loudly as it can. BIS economist Claudio Borio, in the institution’s annual report last month: “The end may come to resemble more closely a financial boom gone wrong, just as the latest recession showed, with a vengeance.”

The report’s monetary policy section was even more direct (emphasis mine):

Policy normalisation presents unprecedented challenges, given the current high debt levels and unusual uncertainty. A strategy of gradualism and transparency has clear benefits but is no panacea, as it may also encourage further risk-taking and slow down the build-up of policymakers’ room for manoeuvre.

That’s obvious, but it’s important that BIS said it. “Unprecedented challenges” may even understate the magnitude of what the Fed and other central banks are up against.

More from BIS:

In determining the pace of normalisation, central banks must indeed strike a delicate balance. On the one hand, there is a risk of acting too early and too rapidly. After a series of false dawns in the global economy, questions linger about the durability of this upswing. And the unprecedented period of ultra-low rates heightens uncertainty about reactions in financial markets and the economy.

On the other hand, there is a risk of acting too late and too gradually. If central banks fall behind the curve, they may at some point need to tighten more abruptly and intensively to keep the economy from overheating and inflation from overshooting. And even if inflation does not rise, keeping interest rates too low for long could raise financial stability and macroeconomic risks further down the road, as debt continues to pile up and risk-taking in financial markets gathers steam. How policymakers address these trade-offs will be critical for the prospects of a sustainable expansion.

I think that last part is too gentle. Financial-stability and macroeconomic risks are already elevated. Debt isn’t simply piling up; it’s up to the ceiling and pouring out the windows. Risk-taking in financial markets can hardly gather any more steam without blowing its top.

So yes, how policymakers address these trade-offs is indeed critical. But even if we assume our central bankers will act calmly and professionally – which perhaps we should not – the fact remains that they have no good options because they waited too long. “Least bad” is the best we can hope for, and I doubt we will get even that. The brick wall of bad decisions looms.

Getting Out of Dodge

“Get out of Dodge” was a phrase made popular by Marshall Matt Dillon on the TV show Gunsmoke in the ’60s. The phrase slipped into the youth culture and endures as a shorthand way of saying that you’d better leave town before the stuff hits the fan.

I believe the Fed is aware that they should have been raising rates earlier. They also understand the present risks. While I believe it is appropriate to raise rates slowly, I simply cannot understand why they would want to reduce their balance sheet at this late date, at the same time that they jack up rates. They could have been letting the balance sheet roll off for four years, but to do so now in conjunction with raising rates simply increases the risk of a policy error. But I don’t think they will see that as their problem.

Chair Yellen and I both believe the majority of the current governors will be gone by the second quarter of next year. It would not surprise me at all if Vice-Chair Fischer offers to resign before his term is up in June 2018. This Fed is going to raise rates a few more times, start reducing the balance sheet, and then get the hell out of Dodge.

Federal Reserve governors basically have a 14-year term, which reduces the ability of any one president to appoint a majority of the FOMC within a four-year term. Of course, resignations affect the balance.

Trump is going to have the unusual opportunity to appoint at least six, and more likely seven, governors by the middle of next year, if not sooner. Whether he wants it to be or not, this will be the Trump Fed. Without major reforms in place, the Trump Fed will face a recession, serious global economic issues, and a resulting major equity bear market. Think they will continue to raise rates? How long before they start to talk about supplying a little more QE to appease the markets?

The current FOMC simply hopes that everything holds together until they can slip out the back way from Dodge. Who do you think will get the blame for the next crisis? It should be this FOMC, but that’s not the way the real world works.

The Trump Fed will be politicized and stigmatized by its Democratic opponents no matter what they do. Howls for outside controls and oversight will rise in the night.

Global Contagion

The parlous state of the economy is not just an American problem, or a European or UK or Japanese or Chinese one. It is global.

I wonder whether Janet Yellen truly appreciates the degree to which Federal Reserve policy affects the entire world. Like it or not, the US dollar is the entire planet’s ultimate medium of exchange. One way or another, almost every financial transaction eventually settles in dollars. China and others would like to change that. Maybe they’ll succeed someday, but it won’t be this year or next.

That being the case, the way Fed policy impacts the dollar could make the inevitable crisis much worse. Looking only at the US, there’s a strong case for raising – oops, I mean “normalizing” – rates. Going to even 2% or 3% won’t kill our economy. But hiking rates will likely create other victims whose problems will soon become our problems, too.

Think of all the dollar-denominated debt owed by various emerging-market governments and businesses. Higher US rates will strengthen the dollar and make that debt costlier to service, almost certainly causing some defaults. In today’s highly leveraged markets, the pain caused by those defaults will quickly spread to lenders in Europe, Japan, and the US.

You might respond that more stringent capital requirements mean today’s banks are better able to withstand such scenarios. That’s partly true. It’s also true that the bank executives hate those requirements and are working assiduously to loosen them. These banks are also far larger than they were in 2008. Yes, they pass the Fed’s stress tests, but the Fed can’t test every possible adverse scenario. Generals always fight the last war. The next crisis probably won’t originate in residential mortgage loans. It will come from somewhere else, and we have no idea whether the banks are actually ready for it.

You and I can’t control whether banks are ready, but we can control whether we are ready. I am working on a number of fronts to help you. My brief time away convinced me beyond any doubt that a crisis of historic proportions is once again bearing down on us. We may have little time to prepare. We definitely have no time to waste.

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Tallest Skil's picture

Either this crash happens SOON or my guns will have to be pointed at my own head rather than the heads of the bankers. CRASH FUCKING WHEN. And why aren't we making it happen ourselves? Why aren't we demanding the Fed be shut down?

bamawatson's picture

demand to who ? what form ? what venue ?

Tallest Skil's picture

Government. Peacefully, but with guns on our persons at the time of demand. As a mass of 10 million armed citizens on the National Mall.

Respectively.

ExplodingEntropy's picture

Mr. Jackson, your sentiment is shared. 

Mr. Universe's picture

I agree and I stand right behind you (at a safe distance) all the way.

The truth is there is no there there. You can't even talk about the Federal Reserve on talk radio, it's protected all the way. In fact we on on hot rails to hell to being totally dependent on digital currency in order to do any business. Using anything else, like gold, silver, bit coins or even fiat FRN's will have you branded as a child molesting, drug dealing, terrorist, to be shot on sight. Tough to combat that mentality along with majority still in the Matrix.

Wood_Vlogs's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do. www.jobproplan.com

tribune's picture

scam scam scam!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!

Hector the Beagle's picture

another desperate Herbalifer at the bottom of the biggest pyramid outside of Giza. 

 

when's that stock going to zero? when Icahn dies?

troubadourcapital's picture

Maudlin has a pretty poor track record.

1. Time cannot be used to predict bear markets. There's a big difference between a top right now and a top in 2020. The stock market can go up a lot in 3 years
2. A lot of people are saying "this is the worst GDP growth we've seen in ages!" GDP growth isn't that low at all once you take into account 2 factors

http://bearmarket.net/why-u-s-gdp-growth-is-so-low/

Antifaschistische's picture

all fun and games until someone gets their EYE poked out!!

so..CBs have 13 Trillion...and they need to "reduce"

but wait...the pension funds will soon begin their sell momentum to cover the wave of pensioners...which will put downward pressure on stock/bond prices.

so...who will be the buyer?  melinials? (or however you spell it!!)  lol, those with 1.4 trillion in student loan debt and a new 8 year car payment?  lol

hang on for the ride!!

Jimmy Jimmereeno's picture

John Mauldin is an establishmentarian.  As such he has been a shill for the status quo for literally decades.  He has never contributed an iota of original or critical thinking about the financial world.  Don't believe me?  Dredge up some of his maudlin meanderings since 2000; going back further is just more of the same.  Did he have anything meaningful, let alone prescient, to say prior to the 2008 crisis? No. 

I'll tell you about John.  He's sixty-something and has either discovered or rediscovered sex.  He brags about being able to do 60 push-ups and is living that physical rebirth with a womon who probably is still pre-menopausal but he doesn't have the balls, literally, to hitch up with a killer tropy woman.

For whatever the reason, his whole perception of himself versus his physical reality has undergone a major change.  John has found, unsurprisingly, that his fund of funds scam doesn't pay the bills anymore because his concept didn't deliver the bottom line.  Therefore, he's come up with a new "product" that will surely extract its pound of flesh from the unsophisticated.The result is exemplified in his recent writings:  suddenly no more establishmentarianism; suddenly a wake-up call to prospects for a reality other than what he has experienced for more than half of his life.  Suddenly, John thinks the world as he knew it is going to end.  I call bullshit to that.

Good luck, John.  And Shane, too.

 

In Stasis's picture

Time can't be used, but there are at least half a dozen solid indicators that identify when a bear market is close, even if the top isn't quite in yet. The P/E schiller is a solid indicator, and that is flashing like crazy right now.

As for GDP growth, it is in fact the worst GDP we have seen consistently in history, not only based on the official figures, but more importantly on the real figures which shadowstats outlines with a far greater degree of certainty (without manipulation).

Look at the graph below, and what do you see? You see a slow and steady death march downward. After each crash, the economy picks up a little, but has lower highs than it had previously. We are nearing the swan song event, the death of the petro-dollar. History has shown time and time again that you can't have an economy running on negative GDP without it eventually breaking apart, especially after massive de-valuation of currency. We are Rome 2.0.

http://www.shadowstats.com/alternate_data/gross-domestic-product-charts

FredGSanford.'s picture

'If not this year then 2018. And if not 2018 then 2019. And if not 2019 then 2020'.

Lol

XqWretch's picture

yeah this shit is getting old

Rick Cerone's picture

What do you think Trump International is going to do in a hyper-inflationary period?

What would any real estate company do in that environment?

But Trump would never let that happen?

Trump is just a victim of circumstance?

Poor Donald.

Sonny Brakes's picture

Once upon a time, every little one horse town had a reason for its existence, be it a saw mill, a mine, a paper mill, a textile mill. Today, there's really no reason for many of these towns. Where I'm from whenever it snows too much in the winter they just close the highway and wait it out. When we had industries the Ministry of Transportation were on the job around the clock maintaining the roads. Today it has become a contract for local jobbers to fight over.

zzzz88's picture

mauldin cried wolf couple of years.

central banks will be forced to eat their own shit before they get ready.

they plan to increase rate to prepare next down turn. but crisis will combe much earlier than that.

that is why rigging the market only makes next crisis much bigger and longer.

central banks feels so high now, because they believe they are the god of universe

The Duke of New York A No.1's picture

The Federal Reserve has rated this article as; Fake News.

 

 

 

Savyindallas's picture

I used to know Mauldin pretty well  -for a couple of years maybe 20 years ago-from a very close connection when we were involved in a common political campaign.  Saw him at a conference last year. I like John. He is honest. A man of integrity. But any prediction he makes is still a crap shoot. He was a bear for several years after the rally began in 2009. Eventually he will be right. He is probably right this time. Who would have thought the Banksters could have continued this rally for so long. 

seataka's picture

Why the crash has not yet occurred - Alternate title: Who could have concieved that we would have

1. QE Infinity +
2. NSA Data surveillance & collection + active countermeasures +
3. the CIA's MIGHTY WURLITZER (& Control of Academia and MSM) +
4. nearly two generations DUMBED DOWN and unable to even think due to Common Core
5. Automation driving manufacturing costs down towards zero
6. Gadgets and glistening rubbish (Pokemon, spinners,whatever) consuming excess middle class cash +
6a. Instead of a chicken, a car in every pot...
7. Billionaires hoarding cash +
8. Those WITH massive debt seeking to move their debt INTO Dollars in anticipation of inevitable devaluation
7. Deep State Stealing the GOLD from Ukraine, IRAQ, Libya + & not a peep in MSM
8. re-Hypothecation-ness-ness and strategic social manipulations " to the moon Alice "+
9. AI / SkyNet running 8
10. ISIS is USA/ISrael/MI6/Saudi + CAPTAGON
11. And that most Americans would just as effectively be mind controlled as those in a cult, and done using the same methods as Hubbard used to make Tom Cruise believe in XENU.+ psychoactive Brave New World drugs, vaccines, Monsanto's toxins, and microwave radiation...

Then again maybe Yellen is telling the truth, and they will try to kill us all before the big one..

“Truth would quickly cease to be stranger than fiction, once we got as used to it.” –H.L. Mencken.

fattail's picture

12.  Religion.  Most of my religious friends don't want to believe any of this, or that every asset market is overvalued.  They ride it up and then down and back up.

seataka's picture

"normal" people with a conscience must learn to treat themselves as mentally disabled..
as in UNABLE to concieve the depths of evil that those without a conscience, without a 'stress response to wrongdoing' are capable of, including fooling a lie detector effortlessly...The latter leads me to believe that those organizations who use such devices, using the ;'shore story' of security, actually use them so that the psychopaths can rise to the top...

 

The Wizard's picture

They have a conscience of sorts in the Bank of International Settlements, and it is whispering in their ears as loudly as it can.

The BIS and central banks are one big happy family. The money changers need to go away with a new monetary structure in place. Russia has a target on their back because they are doing their best to accomplish such a task.

 

Horseless Headsman's picture

Maybe I didn't get the whole picture, but this whole article seems to be about what the Fed and the banks can do to ensure their safe transit into the future, and if it helps you and me, well, that's OK. What I would like is to see the big banks all fail. Split them into 100 small state-level institutions that cannot create "financial instruments", and force them to hold all the debt they issue. I don't want them to survive another financial crisis.

zzzz88's picture

big banks earnings are out, 

we can see

1. auto loan down

2,credit card loan down

3.home loan down or flat

4, trading revenue down significantly

government data is a fraud, but banks revenue is more reliable.

as i mentioned before, now big banks get hurt from low valitity and market rig.

what will happen next if rate increased? remember, interest rate is still very low now, 

be patient.

Rick Cerone's picture

Get ready to party like it's 1987 Japan!!!

30 years baby!

Birth rates down!

Suicides up!

Ya, baby!!!

Slow death to oblivion, ouch.

Sudden Debt's picture

Who has the FED's back when they get into trouble?

to big to fail... to hughe to fail... but nobody can stop it.

just the tip's picture

bush let banks leverage 30 to 1.

clinton let LTCM leverage to what ratio?

the HNIC  doubled the nat'l debt.

learned much yet?

Ban KKiller's picture

Welllll....I said 7-17-17. Total crapshoot, yes, I'm doubling down. 

JailBanksters's picture

The problem has absolutely nothing to do with John &  Jane Doe

It is purely a Banking Problem, but they are going to blame John & Jane Doe for the Problem the Banksters Created.

And John & Jane Doe will be paying for the mess they made one way and the other, the Banksters will NOT be paying for it, and that's the Law. Seriously that's the Law, the Bail-In Laws allows them to Legally steal your Money to pay for their Mistakes so they can Loan your Money back to you.

 

Enceladus's picture

John Maudlin :"It's the end of the world!! Now let me charge you tell you how to trade it"

When this hit the fan good luck with the hungry hoards JM. 

GooseShtepping Moron's picture

I am predicting recession by the 4th quarter of 2017. The retail numbers are horrible, and the oil consumption numbers are signalling a complete collapse of demand.

zzzz88's picture

yes, this is the reality-

1-increase interest rate--- recession

2- lower rate---------------recession

central banks will be forced to eat their own shit.

many people thinks the hyperinflation will be here. not necessarily

look at venerila, if the similar thing happens in usa, just image what people with lots guns will do

pocomotion's picture

Fed will start printing faster than they Already are. Ink will be wet for years...

junkyard dog's picture

What is the reason for this post? We have read it all for the past to years. 50% of the population is already living hand to mouth. A complete collapse of the market will have no effect on them. They have no clue that the market is over bought and over priced. There is no transfer of wealth from them. 30% of the population is making a living because both partners work, they are trying to raise children, their parents are beginning to feel the ravages of dementia and they are the ones with the 3 trillion dollars waiting to be gifted to the vultures that will show up at their funerals. People born after 1972 cannot take of themselves, much less parents born between 1950 and 1959. We have an entire generation born between 1972 and 1990 who read at the 3rd grade level, and can only do math at the 4th grade level as long as it is not a word problem. I can assure you of this, no one in the healthcare field is afraid of the future; from LPN to PA.

A person who was born in 1997 was 10 years old in 2007 and is now 20 years old. They have absolutely no clue what happened in 2008 and, they never even heard of Russia until 2016.

Swamp Yankee's picture

"Turbulance~!"

  LOL when 'it' finally gets here (no bets as to when) are these chuds going to look fondly back when it was only 'turbulance'.

Cordeezy's picture

so it is basically the job of the central banker to say that everything is going great even when it is not.  Then when the public figures out what the bank already knew, the bank acts like it has a solution which is only either A. printing more money or B. lowering interest rates.

 

www.escapeamazon.com

 

Ben A Drill's picture

Moar food stamps or else.

My company's workman's compensation insurance co. Has to be the worst. Guy at work got his foot smashed between a wooden pallet and a forklift.

The insurance company made him work at a good will branch while he is recovering from his accident.

Point is: corporations have to much power, heck they write the workman's comp laws. They could care less about anything but profits.

Herdee's picture

The federal government can't afford more interest on the debt ( 2-3% ), tax revenues just aren't there. They'll bust all the pension funds with any market correction because most are in trouble already along with a lot of States being broke as well. Mauldin's another economist afraid to talk Velocity of Money. She's going tits-up Mauldin and that's without any more increases.

Melgibsonyellsfreedom's picture

I never knew what the word verbose meant until I read this article.

rejected's picture

Six months in, the Republican Congress that promised to repeal and replace Obamacare, cannot even agree on the process. For six years they discussed what to do, and you would think they might at least have a clue.

This Repeal AND REPLACE narrative everyone incudling this author is pushing does not exist prior to 2016. All I can find is a Repeal bill only. Even this author tries to insinuate its always been a Repeal and Replace by cleverly adding the last part without reference to the first part.

I can only find references to a repeal only.  For example I submit:

http://www.nbcnews.com/news/us-news/congress-send-obamacare-repeal-presi...

Nowhere is 'replace' mentioned.  Everywhere, including the Tylers now use the Repeal and Replace meme as if it has always been that way.

Only Trump has come up with that and I do not think the Trump voters wanted a replace package. Trump has always said that but the impression I got was everyone posting here and other sites wants a full repeal. 

Okay, Trump voters,,, Did you want a Repeal only or did you want a repeal and replace? 

Iskiab's picture

Interest rates will go up even if there's weak economic data, governments can't afford the interest on their debt, the millennials can't afford the increase in carrying costs of their debt, or whatever.

The net spread for the banks is too tight so rates will go up. The fed isn't a government institution, it's an extension of the banking industry and will do what's in banks best interests.

https://fred.stlouisfed.org/series/USNIM

Errors of raising rates causing recessions my ass. They were only mistakes if you look at the economy.

MrNoItAll's picture

I believe that the FED and CBs are truly fucked, stuck with only bad and really bad choices and a host of dire issues that have their origin in decisions made before the current crop of FED/CB officers assumed their roles. It is clear to me that all the financial manipulation, money printing and lies are ALL part of a desperate ongoing plan to keep the global economy from crashing and burning. Mauldin talks about just letting the market correct without interference or support from the FED -- just take away the punch bowl and let natural forces clear out the dead wood. Problem is, it is almost all dead wood these days with debt propping everything up. The next bust is going to be the mother of all busts. There is no telling where the bottom of that bust will leave us. I'm pretty sure the FED and CB executives and all the top level government and military personnel are aware of the bottomless pit that human civilization is stumbling toward. The breaking point is probably closer than most people think, maybe a lot closer.

Batman11's picture

The underlying problem.

Releasing the power of a poorly understood force, finance.

If people knew how finance worked they would be able to curtail its excesses.

It is important for the financial sector that people don’t understand it.

It is probably no accident that the understanding of money and debt has been regressing for one hundred years.

 “A lost century in economics: Three theories of banking and the conclusive evidence” Richard A. Werner 

http://www.sciencedirect.com/science/article/pii/S1057521915001477

In our current state of ignorance we thought 2008 was a black swan.

https://cdn.opendemocracy.net/neweconomics/wp-content/uploads/sites/5/2017/04/Screen-Shot-2017-04-21-at-13.52.41.png

1929 and 2008 stick out like sore thumbs; bank credit going into financial speculation and stocks (1929) or real estate (2008).

Leveraged financial speculation with bank credit.

You can even see the sharp rise in non-productive debt in the 1980s as the S&L crisis takes hold. 

There is too much money to be made by people not understanding finance.

Batman11's picture

The historical record is now there for all to see, the tragedy that was financial liberalisation.

The early experiments in 1970s South America revealed the inequality, pension fund raiding, other financial raiding and the legacy of debt that it leaves behind.

The early 1980s see the beginnings of financial liberalisation and the late 1980s sees the following crises, e.g. US S&L crisis; UK, Japan, Australia, Canada and Scandinavia real estate busts.

More financial deregulation leads to 2008; the Euro-zone crisis; Irish, Greek and Spanish real estate crashes.

2008 is just another real estate bust, leveraged up and transmitted internationally by complex financial instruments. As the global bust hits the Euro-zone, it crumbles.

Australia, Canada and Scandinavia are queuing up for their second real estate busts.

If this unknown force of finance had been understood and a close eye kept on the debt-to-GDP ratio, all these crises could have been nipped in the bud.

The debt-to-GDP ratio highlights the amount of unproductive lending going into the economy, e.g. real estate and financial speculation.

You don’t want too much unproductive lending going into your economy, but no one knew (who could do anything about it).

Totally_Disillusioned's picture

All indicators are pointing to dollar collapse, credit/debt bubble bursting, housing bubble bursting, etc.  retail sector...it's merely a matter of a short time before its all over.