It could be a long winter… How have we let things get so bad? The greatest financial crime of the 21st century
By Selva Freigedo in Albert Park If Australia entered into a recession tomorrow, what would you do? Would you sell in case prices collapsed? Or would you try to ride the crisis out? There is a reason why I ask this. Let me explain. In 2008 the property bubble collapsed here in Spain. I wrote about this, and the similarities between Spain’s 2008 property market and our current property market, here. In case you missed it, Spain experienced a property boom between 2002 and 2007. The country saw property values rise six times higher than the average salary during that time. Getting credit was easy. Easy credit coupled with high immigration combined to inflate property values. The aftermath of the bubble was...well, brutal. ..............................Advertisement.............................. In the last five years the ASX’s ‘10X Market’ has spun off some massive winners. Like… Bellamy’s 789%, Afterpay 232%, A2 Milk 1,788%, Kogan 326% Click here for three new stocks that could take this untapped ‘10X Market’ by storm…in the NEXT five years. | ..........................................................................
Credit tightened and unemployment soared. High unemployment meant that salaries dropped and consumption slowed. Many businesses failed...and, with the credit slowdown, only a handful could access loans to start up new businesses. While things are somewhat better now, things are nowhere near as good as they were back in 2007. Here, in southern Spain, summer is pretty much over now. The tourists are back in their home countries, the kids back in school. After the hot and frenzied month of August — a time when the population almost triples — September is a welcome respite. The weather cools down and things quieten. September’s historically an uphill economic battle, so people are slowly getting back to work to deal their recent summer vacations and back to school expenses. And, once that´s done and dusted, Christmas is right around the corner. For business owners on the other hand, September is high time to take stock of how summer has been. It is also the last chance to get some cashflow before winter hits. You see, winters can be a long affair here. And tourism is down this year. Brexit has meant that less British nationals are travelling to the Southern country. Plus Spain is competing against cheaper destinations like Turkey and Tunisia. Tourism is big business in Spain, it accounts for about 16% of the country´s GDP. With tourism slowing, we could be in for a harsh winter. The fact that we have been suffering from the aftermath of the crisis for 10 years means that some businesses have gotten into a lot of debt waiting for the economy to boom again. You could argue that some have held on for too long. What businesses will survive the winter? And, which ones will be gone by summer? In the last 10 years, I have seen many businesses fail, some are still holding on, but just a handful thriving. The thing is, much like waiting for a booming market to crash, timing the end of a crisis is also impossible. You see, back in 2008, many thought the slowdown was only temporary, a short blip in a rising economy. After years of euphoria, nobody realised the hang-over would be this bad, nor that it would last this long. At first, the expectation was that the crisis would only last a year...so people held on, waiting for things to pick up. Yet 2009 came and went without much change. ‘Experts’ then predicted the crisis would last three years. But things only got worse. Struggling businesses closed in masses all over Spain. According to the Spanish newspaper 20 Minutos (20 Minutes), by 2011, 500,000 companies had shut their doors. In 2013, unemployment soared to over 25%, and youth unemployment to 55%. In 2013, unemployment soared to over 25%, and youth unemployment to 55%. No work and no help from the banks meant no money, no consumption and more business closures. Three years turned into five...seven...10. As I say, things have gotten slightly better since, but they are still much worse than 2007. While official unemployment has dropped to 15%, I suspect the actual number is much higher. Many have given up looking for jobs, are underemployed or have left the country all together. Costs of living have increased, and salaries have decreased since. In Australia, we have had a record 27 years of uninterrupted growth, but they have come at a price. Asset prices have been running wild. Household debt is at a record highs. Interest rates have remained low for a long time, but now interest rates around the world are starting to increase, which could make debt more expensive. There are increasing questions of how long we can sustain this record growth. But to me, more importantly than the question of when a crisis could hit, is how long and how severe it will be. My point is, predicting how long a crisis will last is an impossible feat. As impossible as predicting when the bust will come. Best, Selva Freigedo, Editor, Markets & Money PS: Author and economist Harry Dent thinks the next big crisis is at our door step and Australia could be facing an economic winter. If you want to learn more about Harry’s worrying forecasts, click here. ..............................Advertisement.............................. The Chileans HATE this Tasmanian Salmon | Our South American friends do NOT want you to enjoy this delicious Tassie fish. They would probably prefer the entire Australian fishing industry to disappear. | Source: Deposit Photos | Find out why this bizarre sea-skirmish is driving the most unlikely investment boom of 2018... |
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How Have We Let Things Get So Bad? By Vern Gowdie in Gold Coast, Australia Serena Williams’ tantrum at the US Open was an embarrassment. If it was one of my daughters who carried on like that, they would have been told by me, in no uncertain terms, to take a good hard look at themselves. Grow up and show some respect for yourself, your family, the officials and the game that’s been so good to you. But judging by the noise coming from the empty vessels on social media, my views are not universally held. There is a bubble out there. One that’s inhabited by (a growing band of) people who see the world through an entirely different lens…blame others, play the victim, avoid personal responsibility and the world owes you a living. Imagine if Margaret Court had acted that way in her day? Boy oh boy, behaviour of that kind would never have been tolerated…let alone championed by a chorus line of ‘virtue signallers’. And just to balance the scales. For the record, I have no time for Nick Kyrgios or Bernard Tomic. Their ‘on and off’ court antics make them an embarrassment to Australian sport. Another Australian embarrassment is being played out in the arena of the Banking Royal Commission. In the era when Margaret Court and Rod Laver where doing us proud on the international stage, our banks were regarded as the pillars of society. The bank manager was a well-respected member of the community…invited along to all social events. Back in those days, when you went to see the bank manager, you dressed in your ‘Sunday best’. These pillars are now being pilloried…subjects of scorn and ridicule…and rightly so. Ripping off dead people. Skimming from superannuation accounts. Denying legitimate insurance claims. Flogging worthless products to the unsuspecting. The word ‘greed’ is too mild to describe the actions of our once-trusted institutions. Rapacious. Mercenary. Mean spirited. These words come closer to describing the culture that’s infected our financial institutions. Be it in sport or commerce or personal lives, there’s been a gradual deterioration in society values…those older than me, the generation that tipped a hat to a stranger, would say, ‘there’s been a decay’. Personal responsibility. Humility. Respect. Manners. Chivalry. Tolerance of another opinion. These qualities, unfortunately, are becoming the exception rather than rule in society. When you witness or experience them, it’s like a breath of fresh air. Hope springs eternal that all is not lost. How have things drifted so far off course? Money. It’s said that ‘money is the root of all evil’. I disagree. Money, in itself, is just colourful paper with numbers on it. Throw money on the floor and your pet will just walk by it…there’s absolutely no value in it for them. It’s the human response to money that’s the root of good or evil. Never before in history has there been so much money on offer to bring out the good and bad in human nature. Tennis players — people who hit rubber balls over a net — are paid tens of millions of dollars. Is what they do really worth that money? You may recall Tomic saying ‘I just count my money, that’s all I do. I count my millions.’ Such arrogance. Talentless egotistical social media ‘stars’ — you know who I’m talking about — make it on the celebrity rich lists. Why? Because people with too much time on their hands afford them an adulation they do not warrant. Therefore, TV networks dish out millions to buy the rights to syndicate this banal ‘entertainment’ to an audience that needs to get a life. Bankers — in charge of institutions peddling products to the gullible — take home seven and eight figure ‘bonuses’ for their less-than-honourable efforts. These are but some of the examples of people being too richly rewarded for adding too little value. And, good luck to them. That’s the system we’ve created and they’re smart enough to be getting their slice of the global debt pie. It’s no coincidence that sporting stars and social media celebs are paid millions of dollars for product endorsements at a time when consumer credit is at an all-time high. If consumers suddenly decided to live within their means, you can be assured the endorsement income would dry up. Insurance call centres pressure people into signing up for products they don’t need with money they don’t have. How do they sign them up over the phone? ‘Can I please have your credit card details?’ Thanks to fractional banking, obscene bonuses are paid to bankers for the simple act of converting one dollar of savings into ten dollars of debt. Nice work if you can get it. The following chart is of the total debt in the US. The US debt experience is illustrative of what’s transpired across the Western World over the past 50 years. Back in the 1960’s — when Margaret Court graciously dominated world tennis — total US debt was a touch over US$1 trillion. Today, the figure is just shy of US$70 trillion. Granted, some of that 70-fold increase can be explained away by population growth and inflation. However, the majority is due to banks being unleashed from the Gold Standard followed by a three-decade long reduction in interest rates. Official estimates put the global debt pile around US$250 trillion. This figure does NOT include the debts lurking in the shadow banking system…the unknown unknowns. Global debt — official and unofficial — could be anywhere north of US$300 trillion. Global GDP is about US$80 trillion…which means global debt to GDP could be in the range of 375%. This is beyond madness. Debt is money we have NOT earned. Global debt is a pile of promissory notes that are (in theory) going to be serviced and paid off with future earnings. But with earnings stagnating, there’s a massive question mark over whether some of this debt will ever be repaid. When defaults start to occur in sufficient numbers, that’s when the next credit crisis is likely going to hit…and hit hard. The sound of popping bubbles won’t just be coming from overly-inflated asset prices finding their pin. Those who live in the bubble world of inflated self-worth and an over-estimation of their contribution to society, may find they return to earth with a very heavy thud. The more I see of our society adopting, accepting and justifying these entitlements and ‘airs and graces’, the more convinced I am that we’re closer to the tipping point. The next Great Depression, whenever it arrives, as I believe it must, will have many repercussions. One of those, I hope, will be the return of gratitude, humility and the acceptance of personal responsibility. 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The Greatest Financial Crime of the 21st Century By Bill Bonner in Donegal, Ireland ‘The trees are in their autumn beauty, The woodland paths are dry, Under the October twilight the water Mirrors a still sky; Upon the brimming water among the stones Are nine-and-fifty swans. ‘The nineteenth autumn has come upon me Since I first made my count; I saw, before I had well finished, All suddenly mount And scatter wheeling in great broken rings Upon their clamorous wings.’ ‘The Wild Swans at Coole,’ William Butler Yeats On the table today is a question of character. Is former Fed chief Ben Bernanke witless…or ruthless? The tenth autumn of his debt-soaked world has come upon us. The trees are once again in their autumn beauty…and the financial markets are once again ready to scatter upon their clamorous wings… But first… Hill of Tara Yesterday, we drove from Dublin to Donegal, stopping to climb the Hill of Tara, where Ireland’s ancient peoples buried their dead, honoured their kings, and did whatever strange and wondrous things people got up to back then. Ireland has been inhabited for about as long as the Americas. Bones found in a cave showed that the first hunters ate bear and deer here as early as 10,400 BC. Before that, the island was covered with ice, and therefore, uninhabitable. Who the first residents were, we don’t know. The Celts came fairly recently, around 1,000 BC. Then came the invasions of the Vikings, the Normans, and the English, in that order. Along our path yesterday was the River Boyne — site of the battle that left English Protestants in control of the island. But the Battle of the Boyne might never have happened. Instead, the English, Dutch, Danish, and French Huguenot forces under William of Orange might have merely crossed the river and slaughtered some of the local Catholic farmers. Also along our route was the southwest corner of Ulster, Northern Ireland. There were no border checks. We only knew we were in another country because we noticed that the car license plates had changed in Enniskillen. This relaxed border may be a problem. The UK has decided to leave the European Union. The Republic of Ireland remains a part of the EU. Meanwhile, Northern Ireland remains a part of the UK. And that means they cannot have an open border between North and South. But the Irish have gotten used to an invisible frontier. It gives the island a sense of unity and peace. Putting hard border checks in place — passports, goods, services — will be awkward. Still a hero Meanwhile, this week marks the tenth anniversary of the collapse of Lehman Brothers. The papers are full of remembrances and lies. Ben Bernanke, for example, is still hailed as a hero. We wonder…is it a mistake…or a fraud? In a discussion last week, he admits to having made mistakes. From Bloomberg: ‘Former Federal Reserve Chairman Ben Bernanke acknowledged that policymakers made two critical errors fighting the financial crisis a decade ago: They failed to see it coming with such force, then underestimated how much economic damage it would cause later. ‘“Nobody saw how widespread and devastating the crisis itself would be,” he said in a short video discussing the results of a 90-page paper on the subject released on Thursday.’ Nobody? We — along with dozens of others — thought a crisis was inevitable. The Dow-to-Gold ratio was over 20. Debt had reached 325% of GDP. Houses were selling for crazy prices…with mortgages available even to welfare recipients and household pets. We warned that surely some rough beast was slouching toward Wall Street. Then, using a technical term rarely employed by our fellow financial Cassandras, we predicted that the reckoning would be a ‘doozy’. But Bernanke told the world that the mortgage debt problem (too much debt in the housing sector) was ‘contained’. A few weeks later, Lehman went bust and stocks were roughly cut in half. Later, more than 8 million people lost their jobs, and 5 million lost their homes. Bernanke also says he failed to adequately explain why he, New York Fed president Timothy Geithner, and Treasury Secretary Hank Paulson were using billions’ worth of public money to bail out AIG, Goldman Sachs, and other rich Wall Street players. Of course, he couldn’t explain it. To do so would be to admit that the whole thing was a scam. The big money flowed to the big players. And when those same big players got too greedy and made too many big mistakes, they were bailed out with the little players’ money. Who would want to explain that? Real mistake But Bernanke’s real ‘mistakes’ were much more serious than economic ignorance and public relations mendacity. The obvious one was Mistake #3: cutting rates in a panic. He should have let the correction do its work. If he had, the economy would have eliminated the bad debts, bad businesses, and bad investors (such as AIG and Goldman) that had been caused by the financial flimflam of the preceding 20 years. Today, most likely, we would be in much better shape — with less debt, lower equity prices, and a more stable economy. But he couldn’t do that. Because the big mistakes were made by the same people who still controlled Washington and Wall Street…and him. There was no way they were going to sit back and watch their ill-gotten wealth disappear. Instead, Bernanke committed the biggest financial crime of the 21st century (thus far) by sending Congress and the whole country into a fit of hysteria with his claim that ‘If we don’t do this tomorrow [Friday], we might not have an economy on Monday.’ By ‘this,’ Bernanke meant spending $700 billion on a boondoggle program and coming to the rescue of Wall Street with billions of dollars the feds didn’t have. Bernanke is either a fool or a knave…a naïve Deep State stooge or a scoundrel. Did he know what was really going on and intentionally collude to rob the public in order to protect the cronies, the feds, and the elite? Probably not; we give him the benefit of the doubt. Most likely, he never understood how economies and markets work. And why should he? He was an academic economist in a lame school…a minor actor in a bad genre, like a second-rate star in professional wrestling. Either way, instead of allowing the correction to drain the fetid swamp of its foolish malinvestments, speculations, and financial grotesqueries, he pumped in more liquidity — $3.6 trillion from the Fed. All around the world, other central banks joined in, trying to keep up. Together, they flushed some $12 trillion into the financial markets…which has sent world debt up to a record $250 trillion…and set up another huge debt disaster, coming up soon. We watch. We wait. We see Mr Bernanke in the news…the trees in their autumn beauty. And we wonder… How and when will the next crisis arrive? We don’t know. But it will be the major financial story of the next 10 years. Regards, Bill Bonner ..............................Advertisement.............................. THIS strange 10 second clip could be the genesis of a medical revolution. One cancer expert has already dubbed it: ‘...the Holy Grail we're looking for’. | |
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