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The most recent issue of National Review was dedicated to stopping Trump. “Against Trump” was emblazoned on the cover.
But, writes John Tamny:
Trump prominently shares the magazine’s increasingly open opposition to immigration. Though its editors would almost surely disagree, a possible reason the very much at odds National Review (NR) and Trump are both anti-immigration is because such a stance is itself anti-conservative.
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Submitted by Michael Snyder via The End of The American Dream blog,
Major retailers in the United States are shutting down hundreds of stores, and shoppers are reporting alarmingly bare shelves in many retail locations that are still open all over the country. It appears that the retail apocalypse that made so many headlines in 2015 has gone to an entirely new level as we enter 2016.
As economic activity slows down and Internet retailers capture more of the market, brick and mortar retailers are cutting their losses. This is especially true in areas that are on the lower portion of the income scale. In impoverished urban centers all over the nation, it is not uncommon to find entire malls that have now been completely abandoned. It has been estimated that there is about a billion square feet of retail space sitting empty in this country, and this crisis is only going to get worse as the retail apocalypse accelerates.
We always get a wave of store closings after the holiday shopping season, but this year has been particularly active. The following are just a few of the big retailers that have already made major announcements…
-Wal-Mart is closing 269 stores, including 154 inside the United States.
-K-Mart is closing down more than two dozen stores over the next several months.
-J.C. Penney will be permanently shutting down 47 more stores after closing a total of 40 stores in 2015.
-Macy’s has decided that it needs to shutter 36 stores and lay off approximately 2,500 employees.
-The Gap is in the process of closing 175 stores in North America.
-Aeropostale is in the process of closing 84 stores all across America.
-Finish Line has announced that 150 stores will be shutting down over the next few years.
-Sears has shut down about 600 stores over the past year or so, but sales at the stores that remain open continue to fall precipitously.
But these store closings are only part of the story.
All over the country, shoppers are noticing bare shelves and alarmingly low inventory levels. This is happening even at the largest and most prominent retailers.
I want to share with you an excerpt from a recent article by Jeremiah Johnson. The anecdotes that he shares definitely set off alarm bells with me. Read them for yourself and see what you think…
*****
I came across two excellent comments upon Steve Quayle’s website that bear reading, as these are two people with experience in retail marketing, inventory, ordering, and purchases. Take a look at these:
#1 (From DJ, January 24, 2016)
“Steve-
[Regarding the] alerts about the current state of the RR industry. This is in line with what I’ve been noticing as I visited our local/regional grocery store, Walmart, and Target this week in WI. I worked in big box retail for 20 years specializing in Inventory Management. These stores are all using computerized inventory management systems that monitor and automatically replenish inventory when levels/shelf stock get low. This prevents “out of stocks” and lost sales. These companies rely on the ability to replenish inventory quickly from regional warehouses.
As I shopped this week and looked at inventory levels I was shocked. There were numerous (above and beyond acceptable levels) out of stocks across category lines at all three retailers.
And even where inventory was on the shelf, the overall levels were noticeably reduced. Based on my experience, working for two of these three organizations in store management, they have drastically/intentionally reduced their inventory levels. This is either due to financial stresses/poor sales effecting their ability to acquire new inventory, or it could be the result of what was mentioned earlier regarding the transporting of goods to these regional warehouses. Either way this doesn’t bode well for the what’s to come. Stock up now while you can!”
#2 (From a Commenter following up #1 who didn’t provide a name, January 26, 2016)
“I’d like to tailgate on the SQ Alert “based on my experience…” regarding stock levels in big box stores. This weekend we were in two such stores, each in fairly isolated communities which are easily the communities’ best source for acquiring grocery items in quantity.
I myself worked in retail (meat) for thirty years so I know exactly what a well-stocked store looks like, understand the key categories and category drivers, and how shelves are stocked and displays are built to drive sales and profits. I also understand supply chain and distribution methodologies quite well.
Each of the stores we were in were woefully under-stocked. This time of year-the few weeks following the holidays-is usually big business in groceries and low stock levels suggest either poor ordering at the store level, poor purchasing at the distribution level or a purposeful desire to be under-stocked.
Anyone familiar with the retail grocery industry is also familiar with how highly touted “the big box store’s” infrastructure is. They know exactly when demand is high and for what items and in what quantities. It is very unlikely that both stores somehow got “surprised” by unusually high demand. It is reasonable then to imagine that low stock levels in rural areas with few options is a purposed endeavor to assure that both the budget conscious and the folks in more remote areas are not fully able to load up their pantries.
Simply put I believe the major retailer in question is doing their part to limit the ability of rural America to be sufficiently prepared. Nevertheless, we are wise to do our best to keep ahead of the curve. God bless your efforts, Steve.”
*****
Yes, this is just anecdotal evidence, but it lines up perfectly with hard numbers that we have been discussing.
Exports are plummeting all over the globe, and the Baltic Dry Index just plunged to another new all-time record low. The amount of stuff being shipped around by air, truck and rail inside this country has been dropping significantly, and this tells us that real economic activity is really slowing down.
If you currently work in the retail industry, your job is not secure, and you may want to start evaluating your options.
We have entered the initial phases of a major economic downturn, and it is going to be especially cruel to those on the low end of the income spectrum. Do what you can to get prepared now, because the economy is not going to be getting better any time soon.
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Last summer, China unleashed an unprecedented array of measures – up to and including the arrest of “malicious short sellers” and prominent hedge fund mangers – to prevent its stock market bubble from bursting. It failed. A few months later, the chaos has spilled over from the relative containment of the capital markets and has engulfed not only the country’s FX reserves, and capital account, but also the entire economy.
As a result, China’s government has gone all in, and as Bloomberg reports, is stepping up efforts to ward off a potential financial crisis, warning bank executives that their jobs are on the line unless they control risks and putting restrictions on an increasingly popular way of evading capital controls. These moves come in response to China’s slowest economic growth in a quarter century fueled concerns that bad debts will cripple the banking system and a catalyst for why virtually every hedge fund is now short the Yuan.
As Bloomberg puts it politely, these actions “add to evidence that President Xi Jinping’s government is moving with increased urgency to rein in financial-system risks.”
We disagree: these are the same panicked, “after the fact” reactions that only a government on the verge of losing control will engage in. As for their ultimate success, just compare the current price of the Shanghai Composite and its recent all time highs.
Here is a quick summary of the Chinese actions to if not prevent, then at least delay, financial and economic collapse.
First, in January, China aggressively stepped up measures to halt and slow down capital outflows that hit $1 trillion last year by boosting capital controls first described here last September. The tightening marked a reversal after years of easing that spurred global use of the yuan, a trend that turned on China when speculative bets against the currency offshore jumped.
Some of the primary measures have included:
However, a recent estimate by Goldman Sachs put the total January FX interventions (and thus capital flight) at $185 billion, well above the December total and the second highest since August. This would means that whatever China has done so far has failed to stem the tide of capital outflows.
Which explains the latest, second round of interventions. Once again, courtesy of Bloomberg, these are as follows:
Expect many more actions and interventions over the coming months, all of which like last year, will be self-defeating as the harder China presses on its porous “capital” firewall, the more holes that will emerge.
Ultimately, what will happen is that the “Shanghai Accord” idea, in which China announces a dramatic one-off devaluation, is implemented which is perhaps the only shock-approach that could possibly stem the capital flight even if it comes at the expense of a global deflationary wave.
The only question is whether China will have any FX reserves left by then, and just how widespread public anger and civil discontent and disobedience will be as a result of mass layoffs and plant shutdowns as China, courtesy of mean reversion, finds itself in the same depression which its epic debt-creation engine in the period 2009-2014, and since shut down, saved the rest of the world from.
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Another “no brainer” bites the dust. Ferrari is halted limit down in Milan trading and is crashing in US trading – now down over 40% from its “successful” IPO day highs…
Carnage…
Or Carnage…
Down 40% from IPO day highs…
Blame The Chinese –
So The Chinese are no longer expatriating their devaluing cash into Ferraris (because the government is cracking down on graft and conspicuous consumption is never a good thing when corruption means death)… but it appears The Japanese elites know full well the utility of transferring a collapsing Yen into “Hard Italian Assets” which are relatively easy to transport out of the country?
The silent bank run accelerates.
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Last night Arkansas governor turned cancer-cure pitchman Mike Huckabee suspended his presidential campaign. Most of Huckabee’s press coverage stressed the candidate’s socially conservative views, but he was more than just another Christian conservative. On issues like trade and entitlements—and even more than that, with the endorsements he sought and the rhetoric he used—Huckabee aimed for voters who didn’t mix their social conservatism with Club for Growth economics.
Last May I started telling people that Huckabee was trying to tap into the populist currents described in Donald Warren’s 1976 book The Radical Center: Middle Americans and the Politics of Alienation. Warren, a sociologist at the University of Michigan, sketched the views of the group he called “Middle American Radicals,” or MARs:
On some issues, MARs are likely to take a “liberal” stand, on others a “conservative” one. For example, the MAR expresses a desire for more police power. He feels that granting the police a heavier hand will help control crime, i.e., [George] Wallace’s Law and Order program. However, MARs are adamant about keeping many social reforms, often wrought by the left, such as medicare, aid to education and social security.
Often MARs feel their problems stem from the rich and the government working together to defraud the rest of the country. They blame the situation on defects in the system such as bad taxes.
Warren’s book has been getting more attention than usual lately, thanks to an October article about it by John Judis in the National Journal. But the Judis piece didn’t mention Huckabee—and why should it? Huckabee’s campaign was going nowhere. The candidate collecting most of the MAR vote was Donald Trump.
That makes a sort of ideological sense. The “social conservatism” embraced by MARs tends to give more weight to resenting the underclass than to quoting the Bible. And while Huckabee cast himself as a law-and-order candidate this time around, his record in that area is relatively liberal by Republican standards. Not so with Trump, who was spouting Wallace-worthy rhetoric way back in 1989: “How can our great society tolerate the continued brutalization of its citizens by crazed misfits? Criminals must be told that their CIVIL LIBERTIES END WHEN AN ATTACK ON OUR SAFETY BEGINS!”
But you never know where the MAR vote is going to end up, or even if it’s going to show up at all. One theme of Warren’s book is that MARs don’t tend to be big on voting—they don’t trust most politicians, they doubt they can have much impact on the system, and they generally prefer to act on a local level. Another is that when they do vote, their mix of ideas can lead them in all sorts of directions. In a survey at the outset of the 1975-76 presidential campaign, Warren found that the two Democratic candidates who were most popular with MARs were George Wallace and Ted Kennedy, a couple even odder than Mike Huckabee and Donald Trump.
Last night Ted Cruz finished first in Iowa, thanks in large part to the Christian conservatives who had handed the state to Huckabee back in 2008; Trump finished second, with a big boost no doubt from the MAR vote. Mike Huckabee was ninth, with just 2 percent. Huckabee is not going to become president—not next year and probably not ever. But Huckabeeism seems to be doing rather well.
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Sure, Hillary Clinton and Ted Cruz won in yesterday’s Iowa caucuses, the first actual votes cast in Election 2016. Each candidate has problems within their parties but each is unmistakably part and parcel of the Democratic and Republican operations (Clinton, at the very least, may be even more “establishment” than Jeb Bush, the son and brother of former presidents).
Which makes it easy to forget something that’s truly amazing about last night’s tallies, regardless of how you feel about either party or any of the individual candidates: The second-place finishers aren’t even real members of the parties for whose nominations they are running.
Bernie Sanders, an avowed “democratic socialist,” won his Senate seat as an independent. Sure, he caucuses with the Democrats and many of this policy positions fit easily within the Donkey Party’s tent, but it’s nothing short of amazing that he’s the one given Clinton the scare of her lifetime.
Similarly, Donald Trump, who has registered to vote with both Dems and Reps in the past and is a proud supporter of universal healthcare, is nobody’s idea of a rock-ribbed Republican. Just ask the bully boys at the party organ National Review, who burned an entire issue explicating the case “Against Trump” (for starters, they noted, he is a “menace to American conservativism” who inherited his money!).
If you ever wondered whether the wheels were coming off the traditional parties, take a second to survey the wreckage in Iowa, where two interlopers won silver medals and are leading handily in next week’s New Hampshire primary. This may all change, but the damage has been done. Not only are these guys forcing party folks to break a sweat in the primaries, they are chiefly responsible for record and near-record turnouts. Last night, the number of GOP voters increased by 50 percent over 2012 and the Democrats will come close to equaling the outcome seen in 2008 when Clinton, powerhouse herself, faced two rock stars, Barack Obama and John Edwards. About 45 percent of each party’s voters last night were attending their first caucuses.
This is all to the good. As Matt Welch and I argued in The Declaration of Independents: How Libertarian Politics Can Fix What’s Wrong with America, the two major parties are pretty much played out. In just the 21st century alone, each has wielded power and wielded it poorly, often delivering something very different than what their rhetoric suggests they believe in. Republicans delivered massive deficits and nation-building after carping about the value of limited government forever. Democrats brushed aside civil liberties concerns here and abroad while also prosecuting wars without even a fig leaf of constitutional approval. Obamacare is the only major entitlement that had essentially zero votes from the opposition party, undercutting any pretense to centrism and compromise.
As Matthew J. Dowd, a political consultant and analyst who has worked both sides of the aisle, writes in The Wall Street Journal:
A majority of Americans are frustrated at our current political system and the duopoly of our parties, and the fastest-growing segment of voters is people registering as independents. Yet many commentators still argue that all voters predominantly choose between the two parties and that there is no room for independent candidates. The much-discussed anger among voters–of all stripes–stems in part from feeling made to choose between two unsatisfactory options, with no real alternatives. For years, with each election, voters seem to throw one party out to try the other and see if it works differently. So far, nothing has really changed….
Two independents are not just doing extremely well. They are major players creating havoc for the establishment in the nomination process. This shows the broken nature of the two political parties and the depth of the desire for change from the status quo. It is an incredible development that Mr. Sanders and Mr. Trump, men who have very little party allegiance, are creating the most energy in their respective campaigns for party leader.
Dowd likes what he sees: “The power of independents across the United States, outside the electoral college, cannot be underestimated…. This cycle is likely to be an accelerator for the success of independents locally and at the state level–developments that can only be good for our democracy.”
Read the whole thing (including discussion of a possible third-party run by former New York City Mayor Mike Bloomberg) here.
The Democrats and Republicans were parties before the Civil War. While America’s first-past-the-post system essentially guarantees there will always only be two major parties, the respective ideologies of those parties have changed many times. In the late 19th century, for instance, “Grover Cleveland Democrats” were very much like today’s libertarian-leaning Republicans. Currently, neither party is truly a national party in that it has broad support among voters. As Dowd notes, the fastest-growing designation in politics is independent and even when you strip away voters who lean R or D, there’s a growing number of people who just can’t be bothered to affiliate with one tribe or another.
The nation is, as a whole, socially liberal and fiscally conservative. We want a government that’s out of the bedroom and the boardroom, one that spends less and does less. And until we get a party—or two!—that speaks to that great and growing group of crypto-libertarians who just want to get on with a life that will mostly be lived beyong politics, you can expect more independent candidates at all levels making life difficult for traditional party types.
CNN has been tracking what it calls an index of libertarianism that is keyed to two questions:
Back in 1992, only about 50 percent agreed that “government was doing too much.” In 2014, that figure was at 58 percent (down slightly from a 2011 peak of 63 percent). In 1993 (the first year the question was asked), only 42 percent said that government should not favor one set of values. In 2014, that figure was 55 percent, an all-time high.
So in the early 1990s, the composite score for libertarian beliefs was around 92 points. It’s currently at 113 points.
As Trump’s unmasked xenophobia and Sanders’ idiotic economics show, those independents will likely speak to the fears and anxieties of voters rather than their aspirations. All the more reason for Democrats and Republicans to start recalibrating their party’s identities so they are more fully in touch with the plurality, if not majority, of Americans.
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Bernie Sanders is hoping his quasi-tie with Hillary Clinton at last night’s Iowa caucuses will put significant wind at his back in his quest to win the Democratic presidential nomination from the long-time presumptive front-runner. But even if Sanders keeps the race close while amassing delegates in upcoming primaries, Clinton’s advantage with superdelegates is formidable and much larger than the early lead she held over her competitors in 2008.
Superdelegates are party elites who comprise about 20 percent of the delegates required to secure a nomination, and are free to vote for whomever they wish regardless of primary results. During the bruising Democratic primary eight years ago, Clinton insisted to the bitter end that with the support of superdelegates she had the math on her side to defeat Barack Obama.
The Associated Press noted that in December 2007, Clinton enjoyed the support of 163 superdelegates, ahead of Obama’s 63, former Senator John Edwards’ 34, and 54 superdelegates pledged to other candidates.
This time around, Clinton has the pledged support of 359 superdelegates, while Sanders has only 8, an advantage of 45 to 1. On rare occasions, superdelegates have changed their minds before the convention, but Bernie’s deliberately outsider candidacy makes this a much less likely proposition.
NPR‘s Domenico Montanaro explains:
The Clintons have a deep history with Democratic Party politics — Bill, of course, being a former president.
Sanders, on the other hand, has never been a registered Democrat and does not have the kind of party roots that the Clintons have. That has made it very difficult for Sanders to break through with the party elite.
Sanders would argue that the elites and the “status quo” are what’s wrong with Washington.
It’s their party — and they’ll pick the nominee they want. But Sanders hopes to overcome the elite with grass-roots energy.
These numbers show just how much of a hole he starts in.
Even though Obama was a first-term senator when he began his presidential run in 2007, he already had the private support of then-Senate Majority Leader Harry Reid and would win the coveted endorsement of “liberal lion” Sen. Ted Kennedy before the 2008 Iowa Caucuses. The upstart candidate had a long way to go to chisel into Clinton’s establishment advantage, but he already had amassed some big guns.
It remains to be seen if the democratic socialist senator from Vermont, who takes great pride in being the longest-serving independent in the history of Congress, can get Democratic party bigwigs to believe in his “revolution.”
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Late last month, we noted that Austrian Foreign Minister Sebastian Kurz was set to cut social benefits for refugees who failed to attend “special integration training courses.”
Austria, like Germany and multiple other countries in the Schengen zone, is struggling to cope with the influx of asylum seekers fleeing the war-torn Mid-East. Of particular concern is the “integration” process whereby those hailing from “different cultures” are having a decidedly difficult time blending into polite Western society.
Austria has sought to ameliorate the problem by providing helpful flyers featuring cartoons that depict acceptable and unacceptable behavior and by offering classes designed to teach migrants “laws and social norms.”
Still, policymakers are skeptical. “Let’s not delude ourselves,” Kurz said in January. “We have an intensive long lasting integration process ahead of us.”
That “intensive, long lasting process” will be mitigated by a plan to deport some 50,000 refugees. “Last year Austria had 90,000 asylum applications,” Kurz told Aargauer Zeitung. “This number is too high for a small country, and measured in terms of population, it is the second highest in Europe after Sweden.”
Yes, “the second highest after Sweden” – and we all know how things are going in Sweden.
“We have reached the limit of feasibility,” Kurz explained, in an interview with APA. “I think 50,000 is realistic [in terms of a number to deport].”
As a reminder, Austria has already suspended Schengen, so the deportation announcement doesn’t exactly come as a surprise, especially in light of similar announcements from Sweden and Finland.
What was surprising (not to mention sadly amusing) is Austria’s plan to boost voluntary repatriations. According to a summary of an agreement between the interior, defense and integration ministries published on Sunday, the country will now pay migrants €500 to leave. “Now the government has decided to carry out at least 50,000 deportations over the next four years,” Reuters reports. “It will also offer up to 500 euros ($542) to migrants whose asylum applications have been turned down if they agree to be deported.”
“We are already among the countries with the most deportations,” said Interior Minister Johanna Mikl-Leitner. “But we will increase the rate further.”
As for how the deportations will be carried out, Austria will reportedly load migrants up on C-130 Hercules military aircraft and drop them off in their home countries. Hopefully after landing.
Kurz also says Austria will place an upper limit on the number of asylum seekers it accepts. The cap will amount to no more than 1.5% of the population. “Anything else would overwhelm our country,” Kurz says.
Meanwhile, Angela Merkel is proposing a modified Marshall Plan in an attempt to cope with the problem. “German Chancellor Angela Merkel seeks to raise money for refugee camps in Syria’s neighboring states to add jobs in strategy similar to the Marshall Plan that helped rebuild Germany after World War II,” Bloomberg reports, citing Handelsblatt. “Refugees would get cash for work in camps.”
Countries bordering Syria “like the plan,” Handelsblatt says.
Clearly, the desperation is kicking in. Even if viable, Merkel’s idea will take months (at best) to implement and Austria’s plan to give migrants €500 to take a voluntary C-130 trip back where they came from reeks of desperation.
There was no immediate word on whether refugees could negotiate for larger sums in exchange for an agreement to go back home.
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Submitted by Jeffrey Snider via Alhambra Investment Partners,
To an economist, the economy can bear no recession. In times of heavy central bank activity, an economy can never be in recession. Those appear to be the only dynamic factors that drive economic interpretation in the mainstream. And they become circular in the trap of just these kinds of circumstances – the economy looks like it might fall into recession, therefore a central bank acts, meaning the economy will avoid recession; thus there will never be recession. It requires that both the central bank will identify the recession correctly and then invent and apply the requisite “acts.”
It was never really that simple to begin with, but what happens, like now, when central banks remain in the act (monetary policy, we are told, remains “highly accommodative”) but the economy appears more and more like recession? The result is increasing nonsense and absurdity. Such as:
But Deutsche Bank AG Chief International Economist Torsten Slok has some counterintuitive advice for his most pessimistic clients: Buy.
“I frequently hear clients express very negative comments about the U.S. economic outlook, including the statement that that economy is already in a recession,” he wrote. “The irony is that if you have the view that things are really bad at the moment and we are currently in a recession, then it is actually a good idea to buy risky assets today.”
If there is “blood in the streets”, etc. The problem with that saying is that nobody ever tells you how much blood must be in the streets to actualize those sentiments; even if there appears a lot of carnage there might still be room for a lot more. In fact, this happens far more than you think. For economists, they will first tell you that such blood-letting is impossible before being forced to admit it’s there only to suggest there will be no more.
That makes past denial relevant as if in court admissibility of prior bad acts. In Mr. Slok’s case, you can go back to the summer of 2014 when he suggested that stocks would go up until there was recession (ironically, the title of that post in 2014 was Deutsche Bank Economist: ‘Buy Equities’):
I believe the stock market will continue to go up until we get a recession. And we are nowhere near entering a recession. Recessions happen because of a bubble bursting in capex (as we saw on 2000) or because of a bubble bursting in consumption (as in 2008) or when monetary policy is too tight, i.e. when the fed funds rate is well above its neutral level. None of this is happening at the moment. If anything, we are seeing too little capex and consumption.
It’s safe to say it has been all downhill since that moment, ironically as the “dollar” has only “risen”; or what economists like Mr. Thok would claim, if they were aware of wholesale banking, as money being too tight. The problem with holding outside the financial paradigm is that it is impossible to recognize the relevant circumstances. The primary reason Thorsten Slok is so sanguine is either intentional obtuseness or great miscalculation. Back to his proclamation today:
Put simply, the U.S. leverage problem of today is peanuts compared with the Great Recession. The key factor informing Slok’s position that fallout from crashing oil prices won’t be a repeat of the subprime meltdown is the yawning gap between credit outstanding tied to mortgages circa 2006 and high-yield debt in 2016. [emphasis added]
The chart accompanying that claim shows that mortgages as a whole were a much higher percentage of overall credit than high yield is now; it’s not even close. But that is highly disingenuous. It wasn’t overall mortgages that were the problem then, it was and started in subprime. Thus, the correct scaling and comparison is not all mortgages then to just junk bonds now, but junk bonds now to subprime mortgages then or even all corporate debt now to all mortgage debt then. As noted here, if there is a problem in junk bonds, it won’t remain solely a junk bond problem as if magically “contained.” The basis of wholesale liquidity and the structures that perform on the way up and then disintermediate on the way down destroy the idea of “contained.”
This isn’t, however, the first instance Mr. Slok has downplayed the potential reversal of banking leverage and the economic potential of that. In this presentation given in June 2008, Slok and Deutsche Bank were also quite positive on the outlook even at that late date:
Aggressive easing of fiscal and monetary policy could build a bridge in Q2 [2008] and Q3 [2008] over a potential recession.
Worse, he presented among his “often-ignore facts” that, “Banks have so far raised capital to cover an impressive 75% of their losses.” That was only “impressive” in that apparently Deutsche Bank didn’t, like now, expect it to get any worse. A good part of the reason for that was, “Stimulus provided by economic policy is significant.”
Then, like now, there were conflicting market accounts about where the economy was headed. That is the case for every recession or depression ever presented; there are no clear signals from markets or otherwise for the onset of economic dislocation, nor will there ever be. Slok instead took that as being inconsistent and thus defaulted to the standard monetary policy setting:
Mr. Slok is nothing if not consistent – and that is the problem. It’s not that he doesn’t think there will be a recession this year (or that there might have started one last year) like he thought the same as late as June 2008, recessions are always arguable when they start even to the point after they start. Instead, my contention is the manner in which he downplays the risks of it on two accounts. First, that monetary policy will save us all somehow now even though it did nothing on that count then. The monetary efforts that he believed would avoid a recession at that time not only failed to do so they were no mitigation whatsoever into a devolving panic and then economic catastrophe that we still seven and a half years later have not yet erased.
Worse, however, is this misreading of leverage and banking in his highly duplicitous manner. The comparison of junk bonds to overall mortgages is just plain wrong; the only question is whether it was intentional. On relatively comparative terms the current scale is much closer than anyone seems to recognize, but in raw, absolute numbers by the type of distribution it may be even worse than the subprime meltdown.
In the mania portion of the housing bubble, covering the six years 2002 through and including 2007, there was about $15.9 trillion in mortgage-related debt gross issuance according to current SIFMA estimates. That includes only a fraction in subprime. In the past six years, from 2010 though and including 2015 (with preliminary figures through December), there was $7.8 trillion in gross corporate debt issuance. That may have been a little less than half in terms of overall volume, but the proportion in junk was far, far higher than the relative containment of subprime. And I haven’t even included leveraged loans in that figure.
In net terms, there was about $9.4 trillion in MBS debt outstanding at the end of 2007; $8.3 trillion in corporate debt (again, not including leveraged loans) at the end of Q3 2015. To suggest there is no comparison of leverage or risk exposure then to now just isn’t in any way correct. There might have been more raw mortgage volume in the housing bubble, but not so much more as to preclude any risks at all in 2016 and certainly nowhere near the “yawning gap” Mr. Slok tries to claim. Instead, the proportion of junk within the latter corporate bubble might in many ways mean a much more precarious station as the junk bubble is just now starting to crack up.
Where there is even more common ground is that true monetary condition that seems to be far too similar to 2008. The Fed believed itself “aggressively” accommodative in terms of monetary policy but the results prove, inarguably, it was no such thing at least not in the method that would matter. The eurodollar system imploded and thus removed all support for asset prices which were liquidated in general fashion as it occurred; often swiftly. The eurodollar system now is in the same position if not yet with the same sustained intensity; however, we have seen glimpses of that already in general, global liquidations if only in acute, discrete outbreaks to this point. But that is as much a warning of the similar type of general monetary instability; a warning not heeded by economists that never see these things coming because they remain fixed to a central bank-centric monetary system that ceased to exist as early as the 1960’s.
In other words, there remains the potential for a great deal more blood to flow – into the streets or just contained within the realm of wholesale finance. In the end it may not matter which, as the imbalances then and now are in some ways just the same if expressed slightly differently. The risks are all still there, and economists are still determined to downplay if not miss them entirely.
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