The days of borrowing from Third World wage slaves to enrich billionaires are coming to an end...
The stock market casino is merely a circus side show. The real action, similar to 2008 is in the credit markets. That's where billionaires stash their trillions flowing from the ongoing East/West industrial arbitrage aka. globalization.
Since 2008 global debt has grown by $33 trillion, meaning it was uninterrupted. There was barely a hiccup in the status quo debt accumulation after the malfeasance of the global credit crisis.
Developed Nations Are Already Bankrupt
The status quo is merely supported by ongoing debt accumulation and hence the confidence of investors. Total debt now stands at ~$200 trillion globally, most of which is wholly unsecured debt backed by nothing.
Total Debt @350% of GDP
Japan: Locus of the Next Crisis?
The epicenter of the coming meltdown could well be Japan where on a GDP-adjusted basis, debt monetization is occurring on a pace far greater than the U.S. or Europe. All of that hot money goes somewhere, and the most likely destinations are the surrounding Asian nations having bond yields above those of Japan. A weak yen - the byproduct of Abenomics is driving the carry trades and also fuelling global risk appetite.
Dollar/Yen (red) (inverted) with S&P 500
Dollar Yen (red) with the Japanese Nikkei (stock market) (black)
One and the same
Municipal Bonds Locus of Risk in U.S. Credit
Here in the U.S., municipal bonds are likely to be the epicenter of the coming credit crisis:
Liquidity, Solvency, and the Unavoidable Minsky Moment
The past five year rally in global credit was driven by liquidity flows and carry trades. Zero percent interest rates subsidized highly leveraged lending to the riskiest of sovereign borrowers. As long as the liquidity flows continued, the underlying solvency was never put into question. When liquidity flows inevitably reverse due to risk aversion, pricing of debt/credit/bonds will be based solely upon ongoing solvency of the underlying borrower. At that point in time, the Minksy Moment will arrive seemingly out of nowhere.
History's Largest Circle Jerk
Third World wage slaves produce the goods. Over-leveraged Western consumers borrow from the wage slaves (via recurring trade deficits) to buy the goods, billionaires capture the arbitrage profits between rich and poor which they then lend to sovereign governments to service non-amortizing debts. Central Banks provide 0% liquidity to paper over the latent insolvency. All while policy-makers and the dunces at large pretend that this can go on indefinitely.
Borrowed Time and Money
The past five year rally in global credit was driven by liquidity flows and carry trades. Zero percent interest rates subsidized highly leveraged lending to the riskiest of sovereign borrowers. As long as the liquidity flows continued, the underlying solvency was never put into question. When liquidity flows inevitably reverse due to risk aversion, pricing of debt/credit/bonds will be based solely upon ongoing solvency of the underlying borrower. At that point in time, the Minksy Moment will arrive seemingly out of nowhere.
History's Largest Circle Jerk
Third World wage slaves produce the goods. Over-leveraged Western consumers borrow from the wage slaves (via recurring trade deficits) to buy the goods, billionaires capture the arbitrage profits between rich and poor which they then lend to sovereign governments to service non-amortizing debts. Central Banks provide 0% liquidity to paper over the latent insolvency. All while policy-makers and the dunces at large pretend that this can go on indefinitely.
Borrowed Time and Money
The bottom line is that the status quo is running on the fumes of borrowed time and money. The collapse will be sudden and extremely violent and will bring about an end to the fakest era in human history.
