“Debt is the crux of the matter. If you want to understand what makes the world vulnerable to a global recession or, possibly, something much worse, you’ve got to come to grips with the worldwide debt buildup.
“It’s not the only candidate for calamity, but it ranks first among the possibilities.
“At the end of March, worldwide debt totaled $246.5 trillion, reports the Institute of International Finance (IIF), an industry research and advocacy organization. That was nearly 320% of world gross domestic product (GDP), up about 20 percentage points since 2012…
“President Trump surely grasps the political implications. Little wonder that he so single-mindedly pressures the Federal Reserve to cut short-term interest rates. As it turns out, debt is a double-edged sword. Borrowing may initially quicken economic growth, as funds are disbursed and spent. But if borrowers can’t repay or struggle to repay, economic growth may suffer.
“…since at least 2012, the economic recovery has depended heavily on the assumption of more and more debt.
“In some countries, the stimulus has come from added government debt. In others, business and household borrowing have taken the lead.
“But regardless of the sources of borrowing, the questions it raises are similar. How much longer can the borrowing boom continue?”
“With the stimulus from the late 2017 tax cuts fading, the direct impact of the global economy has shown up in slowing U.S. growth.
““This downdraft and trade tensions are now dampening U.S. growth, especially in the more internationally exposed segments of trade and manufacturing, while weighing on corporate sentiment and business investment as well,” the analysts say. International developments, they point out, are not encouraging.”
“Americans burned through a lot less gasoline and diesel fuel than expected last week, feeding into investor angst over oil demand…
““We’re at the heart of summer driving season, so you would expect demand to be at it’s highest right now,” said Brian Kessens, a portfolio manager and managing director at Tortoise in Leawood, Kansas. The big build in fuel supplies is “a little bit concerning, especially if we see this continue in future reports.””
“…overall, the world is borrowing more than it is producing. It is living beyond its means, so to speak.
“Such a massive pile of it puts the world — and emerging markets in particular — at risk to sudden shifts in market conditions. If conditions change quickly, it could be harder for countries with lesser credit quality to refinance outstanding debt.”
““The IMF has finally reached the same consensus as everyone else in Argentina: that inflation cannot be lower than 40 percent when we reach December,” he said…
“…adding that most consultancy firms and economists agree that if there is a “run to the dollar” or another sharp devaluation of the peso, inflation will come in even higher than 40 percent.”
“Turkey’s economy is expected to contract in 2019 for the first time in a decade…
“The poll of more than 40 economists showed the Turkish economy shrinking 1.5% this year, according to the median forecast.”
“Turkish authorities have begun to remove Arabic shop signs across the country in a bid to quiet popular resentment over Syrian refugees. This measure — stoked by Turkey’s economic crisis — has raised the political costs for the government.”
“The plunge in dollar bonds of two Indonesian speculative-grade issuers is raising the risk of contagion for other lower-rated borrowers from the nation.
“Securities from Indonesian property firms such as Jababeka International, Alam Sutera and Modernland Overseas Pte slid on Thursday morning, data compiled by Bloomberg show.”
“A key gauge of China’s debt has topped 300% of gross domestic product, according to the Institute of International Finance (IIF), as Beijing steps up support for the cooling economy while trying to contain financial risks.
“China’s total corporate, household and government debt rose to 303% of GDP in the first quarter of 2019, from 297% in the same period a year earlier…”
“House prices in London fell at the fastest pace in almost 10 years in May, according to official data that also showed inflation hitting the Bank of England’s 2% target for a second month running in June.”
“European car sales look set for a second annual decline after new car registrations fell sharply last month. Sales dropped 7.8% to 1.49 million cars, according to the European Automobile Manufacturers’ Association (ACEA), the worst drop since December.”
“Global device shipments, including PCs, tablets and mobile phones, will fall this year by 3.3 percent to 2.2 billion units, pulled down by the mobile phone market, according to the latest study from Gartner. The smartphone market alone is expected to decline by 2.5 percent this year, its worst fall ever.”
“The equity bubble will burst. I can even tell you when.
“Unfortunately, my answer is useless: The equity bubble will pop when the junk bond bubble pops. When is that? I don’t know.
“Several years ago I thought we were in the 9th-inning. If we we were, then it’s the 12th inning now with all eyes on Powell.
“But what Powell does now is irrelevant. The bubbles will pop and one rate cut or even four will not make a damn bit of difference.
“Another very destructive asset bubble deflationary collapse is baked in cake.”
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