Friday, July 21, 2017

Bill Gross Warns: Central Banks Could Lead Us into a Global Recession


Bond guru Bill Gross is warning about looming interest rate increases and the damage they can do to a debt-laden global economy.

In his monthly investor outlook, the Janus Henderson Advisors fund manager said the course of global central banks toward tightening policy could be perilous for the economic recovery. Raising interest rates will increase the cost of short-term debt that corporations and individuals hold.

In the U.S. alone, households have $14.9 trillion in debt while businesses owe $13.7 trillion, according to the Federal Reserve.

"While governments and the U.S. Treasury can afford the additional expense, levered corporations and individuals in many cases cannot," Gross said.

The Fed is on a course of gradual rate increases, with financial markets expecting it to approve one more rate hike this year. In addition, other central banks are pulling the reins on bond-buying and other liquidity programs aimed at injecting cash into their respective economies.

Gross charged that the adherence of central bankers to hard-and-fast rules that govern when they should tighten policy has "distorted capitalism as we once knew it, with unknown consequences lurking in the shadows of future years."

For instance, he cast doubt on the belief it takes short-term interest rates exceeding longer-term rates — a condition known in economist as an inverted yield curve — to produce a recession.

- Source, CNBC

Monday, July 17, 2017

False Silver Flash Crash vs True Banking Risks


Did you catch silver's recent flash spike, where the world's silver market cap lost over 6% in seconds, before eventually recovering? Ever wonder how the entire free world's silver market can be so shockingly volatile - far beyond what could possibly be caused by the actual metal volume that changes hands? 

Craig Hemke, former stock pro and founder of TFMetalsReport, returns to Reluctant Preppers to update us on: Gold & Silver market action & fundamentals, cryptocurrencies, and geopolitical risks we need to be aware of. Hemke spells out preparedness priorities and offers insight on how to resist herd mentality & discouragement as you take care of insuring and protecting your family.


Friday, July 14, 2017

Kevin Lawton – Cryptos Are Speculation Not Currency?


Kevin Lawton recently wrote a Kindle short titled “Beyond the Bitcoin Trap: A Crypto Currency for Human 2.0” and predicts, “This year is going to be the year of volatility in Bitcoin price. I expect liquidations, but it’s like a tug of war. There are reasons for people to tug the price up . . . then on the regulatory side, for example, prices could go down. Then someone could legitimize Bitcoin and you could get the price up. So, you got this tug of war going on. 

My big message is volatility, and know what’s going on so you can protect yourself. . . There is really not utility in using Bitcoin as a currency at the moment because of transaction speed and because of the price volatility. . .Bitcoin is still not very usable as a currency. . . . At this moment in history, crypto currencies are not really currencies. They’re a speculative bet. There are a lot of reasons for them to go up big, but there are reasons you could get completely monkey hammered.”


Monday, July 10, 2017

Bob Moriarty: Who, What and Here’s Why


Bob Moriarty, the founder of 321gold and 321energy, sits down with Maurice Jackson of Proven and Probable to share his thoughts on politics, geopolitics, junior mining companies and precious metals. Bob is legendary in the industry for sharing his no nonsense approach and acumen for identifying deep value propositions overlooked by the speculators. Highlights: Geopolitics, Global Debt, Gold, Silver, Platinum, Palladium, Rhodium, and 3 Exclusive Issuers that have Bob’s attention.

- Source, Sprott Money

Thursday, July 6, 2017

The Broken States of the Union

For the first time in US history a handful of US states is teetering on the edge of bankruptcy. Illinois is about to be downgraded to junk bond status, which will turn its financial problems catastrophic overnight. Illinois cannot possibly pay its accumulated debt, its unpaid medicaid expenses and its future retirement obligations, so bankruptcy almost certainly will be its only way out.

Main, Connecticut, Kentucky and California are also caught in chronic budget deadlocks that may lead to bankruptcy as a solution for dodging their entitlement obligations. Bear in mind they’re called “entitlements” because it’s money promised to you that you already put in the work to earn. It’s your retirement. Illinois, for example, has over $200 billion in pension obligations that will never be paid or that can only be paid at a greatly diminished level worked out in some form of effective bankruptcy.

That’s a problem that is only solved by turning it into a worse problem for others. Illinois will end its problems by making certain that for the next quarter century, a good portion of the now retiring baby-boom population is dirt poor and must be carried by the younger population as dead wait (if not exterminated) because the retirement they planned in order to responsibly carry themselves through their final years isn’t there.

Instead of the state not being able to pay its bills, bankruptcy means that hundreds of thousands of retirees won’t be paying theirs, which means the people they owe money to will be going broke, and so the problem trickles down. State bankruptcy merely shifts the burden so that legislators don’t have to deal with it but you do. And it’s inevitable because the alternative is that you pay for it through much higher taxes. The state is you.

The Federal government won’t be solving the state budget problems either because it plans on dumping heavier medicaid expenses back on all states as it repeals Obamacare to help solve its own budget problems amid its own deadlock. Like the states, its own Social Security funds are going broke, so it faces its own massive entitlement problems. And, if it bails out one failing state, it will be expected to bail out all others that face such problems.

With Illinois effectively reaching bankruptcy and a likely catastrophic credit downgrade this summer, the problem finally starts coming to a head where everyone is forced to see how decades of government debt accumulation end, and that end looks something like this in real terms:

Illinois, as the bellwether example, has already stopped paying the contractors who fix roads and other infrastructure. That means the contractors will now stop fixing the roads and won’t be paying their employees, and broken roads don’t get corn and beef to market. Illinois has stopped paying doctors. That means the doctors will stop fixing people. Illinois has refused to pay its lottery winners (even though it took the money from all the suckered ticket buyers). That means there will no more lottery to raise state money because there will be no more ticket buyers. That means the state’s budget problems just got worse, so Illinois soon won’t be paying state employees or pensioners.

It sucks when your entire state goes broke. You see, you can keep kidding yourself — as our entire nation has for the decades that I’ve been complaining about this — that you’re going to take care of everyone on welfare with endless debt spending or that you’re going to maintain huge military power to control the world with debt spending; but eventually you pile up state or federal debts so high that you wind up not paying anyone, including the welfare recipients or the soldiers in your military.

Like the US government, the State of Illinois has been operating without a real budget for more than two years, operating dysfunctionally during that time by court-ordered stop-gap measures because the legislature is deadlocked as politicians refuse to accept reality; so, Illinois has now reached the same financial status as Puerto Rico.

Illinois is grappling with a full-fledged financial crisis and not even the lottery is safe – with Republican Gov. Bruce Rauner warning the state is entering “banana republic” territory…. Reports have suggested the state could be the first to attempt to declare Chapter 9 bankruptcy — but under the law, that’s impossible unless Congress gets involved….. “Illinois is the fiscal model of what not to do,” Rep. Peter Roskam, R-Ill., told Fox News, while not commenting on the bankruptcy question. “This avoidance in behavior toward dealing with our challenges is what leads to the devastating impacts we are seeing today.” (Fox News)

And, for Illinois, the problem is that they cannot kick the can down the road any further because the next credit downgrade will make it impossible for them afford their current debt, which is really already impossible. Creditors will become much fewer and more expensive when Illinois becomes the first state of the union to hit junk-bond status and maybe the first to declare bankruptcy since the Great Depression, when Arkansas found itself “plain flat broke” and became the only state to ever default on its bonds (showing it can happen), effectively declaring its own bankruptcy, even if not sorted out through the federal courts. (Eventually, years later, Arkansas paid their bond holders.) Already, the Illinois ten-year bond yields are at 5.2%; but the world becomes exponentially worse when you hit junk-bond status and entire large institutions become outlawed from financing you.

“We have a very real deadline looming,” Senate Republican Leader Christine Radogno told Fox News. “The alternative to not finding a compromise will be devastating to Illinois.”

With or without bankruptcy, the state is already badly defaulting on its obligations. Bankruptcy is just a more orderly way of deciding who is not going to get paid and by how much. But the not getting paid part? Already here, and nearly a dozen states are falling into this kind of severe condition. The issue with state bankruptcy is that bankruptcy court is federal, putting state budgetary sovereignty under state’s rights under federal determination; but it can be done:

David Skeel, a law professor at the University of Pennsylvania wrote outright that, “The constitutionality of bankruptcy-for-states is beyond serious dispute.” The key, as he sees it, is that bankruptcy would be entirely voluntary, which should eliminate any concerns about Federal intrusion on state sovereignty. (Zero Hedge)

And it has been done long ago and is now here again.

Economic denial is about to square up to economic reality, and reality always wins! Eventually, economic reality forces your hand in a catastrophic solution because of your profligate ways. Eventually, you end up as a truly cashless society. This summer, we get to watch that play out in Illinois to get a sense of what it will look like elsewhere.

At the end of the day, a broken state is a broken you.

The motto of the State of Illinois, Land of Lincoln, who held this great national union together, is “”State Sovereignty, National Union.”

Illinois is all of us.


Monday, July 3, 2017

Welcome To The Third World: Illinois About To Default?

The train wreck that is the state of Illinois has generated a lot of questions lately, including “Will its government ever pass a budget?”, “Will it ever pay its overdue bills?”, and “Is it possible for a state to go bankrupt?”

Looks like we’re about to get some answers to these questions, along with one more: “What happens to the financial markets when people finally realize that Illinois is far from the only impending bankruptcy?”

Today’s Wall Street Journal has an anecdote-filled article illustrating what certainly looks like a case of terminal financial mismanagement ( How Bad Is the Crisis in Illinois? It Has $14.6 Billion in Unpaid Bills):

Among the many, many data points:

  • The state comptroller predicts unpaid bills will soon top $16 billion. “It is almost hard to say those numbers out loud because they seem so insane, but that’s where we are right now.”
  • Unfunded pension liabilities now total $250 billion. That’s about one-third of state GDP, and is in addition the myriad other debts taken on in recent years.
  • S&P Global Ratings has warned that it could lower the state’s rating to junk as early as this week if a budget isn’t passed.
  • Peoria-based OSF Healthcare, a network with 10 Illinois hospitals, is owed about $115 million for bills over four months old, the equivalent of 18 days of operating expenses.
  • The state owes Illinois dentists $225 million. Some dentists with lots of state workers are selling receivables to keep the lights on. Others are asking state employees to pay in cash.
  • The state owes two Springfield hospital systems more than $200 million.
  • The Coliseum building at the state fairgrounds closed indefinitely earlier this year after the state failed to fund needed repairs.
  • Eastern Illinois University has received $53 million less in state funding in the past five years than the previous five. Professors in the chemistry department haven’t been able to print in color since the department’s printer ran out of yellow ink a year ago. Enrollment has fallen from 12,000 to 7,000 in the past decade.
  • If the state doesn’t pass a budget in the current special legislative session or allocate emergency funding, about 700 road projects under way across the state—worth $2.3 billion and employing 20,000 people—will come to a stop.
  • Some social-services agencies are operating without state help while others have closed entirely, leaving some rural communities without mental-health clinics, domestic-violence shelters and drug-treatment clinics, despite a raging opioid crisis.
  • Illinois has lost more residents than any other American state for the third year in a row, with 90% of the state’s counties seeing a drop in population, shrinking the state’s tax base. In 2016, a net of 37,508 people left, according to census data, putting the population at its lowest in nearly a decade.

The impending downgrade to junk status might be the final push off the cliff, since Illinois – despite a constitution that kind-of-sort-of requires a balanced budget – still borrows a lot of money each year, mainly to fund its out of control pension system. As a junk-rated borrower, its interest costs will be much higher, making its financial imbalances that much worse. Assuming that anyone will lend money to the state on any terms.

Here’s a chart from CNBC showing how swift the fall from investment-grade has been:


Soon the junk line will be crossed, at which point it will become clear to everyone that the problem is unfixable and one or another doomsday scenario is imminent.

- Source, Sprott Money