*** denotes well-worth reading in full at source (even if excerpted extensively here)
Economic and Market Fare:
Kelton: The Debt Ceiling Limit is Destructive, Duplicative, and Dumb
If you’ve been reading or watching the news, then you know that the US hit its self-imposed debt ceiling limit of $3.381 trillion on Thursday, January 19. It’s a pity it didn’t happen on February 2, because Groundhog Day is pretty much the perfect way to mark the occasion. Here we go again! ......
.......... Today, the US is one of only two countries in the world with a debt ceiling. The other is Denmark, but they don’t weaponize it the way we do in the United States. And even if they did, a default on Danish government bonds wouldn’t wreak the kind of havoc on the global financial system that a default on the world’s most important financial instrument—US Treasuries—would bring.
..................... Going forward, unless there is a repeat of the central-government-based money creation experiment under Covid, the demand for credit, and thus the growth of money creation, will remain low, as private sector debt levels remain too high. This does not bide well for economic growth and is disinflationary by default. At the same time, however, the effects of the negative supply shock are likely to be longer lasting given that the reorganization of the global supply chains is still an ongoing process. This is inflationary by default – if that means also lower private sector profits, thus lower capital surpluses, then interest rates should continue to be elevated.
When it comes to the developed world the black swan here is an eventual outright debt reduction (debt jubilee) – the will have a corresponding effect of an artificial capital surplus reduction as well. Maybe this is counterintuitive, but if you have followed my reasoning up to here, that would mean higher interest rates going forward.
An alternative black swan is a direct capital surplus reduction, caused by either lower corporate profitability, lower asset prices, or indeed an artificial or natural calamity, like war or a natural disaster, which have the unfortunate ability to destroy capital. In that sense, it is uncanny that our present circumstances are characterised by a war in Europe, a potential war in Asia and the looming threat of climate change[iii].
Howard Marks certainly did not mean literal ‘sea change’ in his latest missive, but this might ironically be one of the main determinants of higher interest rates in the future. ......
"Widespread Weakness" Across US Leading Economic Indicators "Signal Recession In The Near-Term"
Roberts: China: zig zagging
China is in deep trouble. Its zero-COVID policy has failed; the economy has slowed to halt; it now has a falling and fast-ageing population; it is in the midst of a property and debt crisis; so it is heading for a permanent, low productivity growth stagnation like Japan. Xi’s leadership is in crisis as he flails about swinging from one policy to another. And the risk is that the ‘aggressive nationalism’ of the CPC will lead to military action against ‘democratic’ Taiwan, just as Russia did with Ukraine.
That’s the line of the Western economic experts and the media on a daily basis. All these arguments have been raised before and for that matter for the last 20-plus years: namely, that China is about to implode and the CP-control is about to collapse. ......
... The answer to the demographic decline is a rise in the productivity of the existing workforce. And China is taking steps to ensure just that. .........
Bubble Fare:
Banking Institutions Quietly Admit To Inevitable Recession Implosion In 2023
...... The St. Louis Fed has quietly published data indicating that the US is now entering a recession. This admission was posted right before the new year, clearly as a means to avoid wider media attention. The news also comes not long after the Philadelphia Fed revised their 2nd Quarter labor growth numbers, erasing a whopping 1 million jobs from their original estimates.
The implication is that the Fed may have deliberately misreported jobs growth. Why? Because the central bank wants to continue tightening and they need positive numbers in order to justify rate hikes. The question we need to ask ourselves is why, after over a decade of easy money and QE, is the establishment now so insistent on popping the bubble now?
I can’t say exactly why the timing for the crash has been scheduled for 2023 – What I can say is that the crash will be dramatic and, as I noted in December, this event will probably start accelerating in March/April not long after the Fed hits a 5% interest rate. ....
......... What investors "learned" from the central bank assisted v-bottom in 2008 and again in 2020 is that as long as they never panic sell, they will eventually make up their losses. The 2020 losses were particularly short-lived because after March 2020, the Nasdaq entered its blow-off top, over a decade in the making. All of which explains why we are now witnessing mass complacency in the face of economic meltdown. Because that is how central bank moral hazard was ALWAYS going to end. Bulls loading up on stocks going into a depression. .........
Hussman: Pushing Your Luck
...... The distortions in the financial markets are different today than they were in 2007. This time around, the Fed starved investors of yield for a decade, and much more aggressively. Looking in the rear-view mirror, the effects of relentless yield-seeking speculation look glorious. But the unwind may be breathtaking. The distortions in the stock market are far beyond those of 2007, more closely resembling 1929 and 2000. That remains true, even though the bubble peaked a year ago. Since then, the S&P 500 has lost a modest -15.7%, including dividends.
I continue to expect that the unwinding of this bubble will drive the S&P 500 to just one-third of the level it set at its January 2022 peak. I know – that seems preposterous. That’s why I present statements like that with data, as I did before the global financial crisis in 2007, and as I did when I projected an 83% loss in technology stocks in March 2000. Preposterous, yet also unfortunately correct. ...................
Quotes [and Tweets] of the Week:
Pettis, in response to Zoltan Pozsar's thesis: Since the 1960s few arguments in international finance have been as exciting as "the coming demise of the dollar", but these arguments seem always to founder on the same set of mistakes.
Charts:
1:
(not just) for the ESG crowd:
Temperatures in One of Earth’s Coldest Corners Are the Highest in 1,000 Years
Climate Change Is Now Coming for the Elite
An aborted ski season in Switzerland is likely to do more to drive climate politics than a heat wave in India, even if the latter causes immensely more human suffering.
NRC Certifies First U.S. Small Modular Reactor Design
Study shows advantages of charging electric heavy-duty vehicles with small modular nuclear reactors
Sci Fare:
We Need a Revolution in Clean Indoor Air
Why it will take re-engineering, not just medicine, to close the door on COVID.
Other Fare:
All you need to know about the Year of the Rabbit
The Lunar New Year, or Spring Festival, marks the transition of the Chinese zodiac sign from one animal to the next. 2023 sees in the Year of the Rabbit, which begins on January 22. In Chinese culture, the Rabbit is a symbol of longevity, peace and prosperity. 2023 is predicted to be a year of hope. People born in the Year of the Rabbit are believed to be vigilant, witty, quick-minded and ingenious.
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