A New Global Recession

[marmar]

[font size="3"][font color="blue"]A New Global Recession[/font][/font]

By Bill Bonner, Chairman, Bonner & Partners:


Yes, it seems to be coming. Our friend and longtime Bonner & Partners Family Office member Hense Ellis summarizes:

A new global recession has begun. The collapse in commodity prices and the slump in the emerging market economies will inevitably lead to a sharp drop in global investment and a new surge in unemployment. Moreover, the recent stock market selloff is making matters much worse by creating a negative wealth effect that will cause consumption to fall.

Another friend, economist and author Richard Duncan, adds detail via his advisory, Macro Watch:

• China’s economy is slowing rapidly.
• India’s economy is more fragile than generally understood.
• The plunge in commodity prices is taking a heavy toll.
• The sharp drop in emerging market currencies is destabilizing.
• The slump in global trade is a blow to corporate profits.
• Excess industrial capacity is worsening.
• Credit quality is deteriorating rapidly.
• Credit availability has begun to dry up and will become much tighter.

Duncan has a theory about why these things are happening – a lack of “excess liquidity.”

As he puts it, “It’s liquidity that moves the markets. When liquidity is plentiful, asset prices tend to rise, and when it is scarce, asset prices tend to fall.” What investors need, therefore, is some way of measuring and forecasting liquidity. Duncan’s answer is something he calls a “liquidity gauge.”

.....(snip).....

[font size="3"][font color="blue"]Broken Pumps[/font][/font]

Yesterday, we showed how excess liquidity bubbled up in the mortgage finance market. As money was easier to come by – thanks to low rates and rampant securitization of mortgage debt – people bought more houses at higher and higher prices. This pushed up the value of the collateral – houses – which enabled people to borrow even more… and it drove the industry to build more houses and sell them to increasingly marginal (subprime) buyers. Debt and equity raced each other higher and higher until both collapsed in 2007-08. Home prices plunged. And the value of mortgage debt plunged along with them.

Today, thanks largely to the Fed’s bubble, homeownership levels are back to where they were nearly half a century ago.

Now, we see the same phenomenon happening in other sectors. As we reported yesterday, student debt, auto debt, and corporate debt are all headed for trouble. And the bigger picture is that the pumps just aren’t working the way they used to. The growth of the last 20 or 30 years came largely – maybe entirely – from expanding credit. .....................(more)

http://wolfstreet.com/2015/09/11/a-worrying-development-for-stock-market-bulls/

[PatrickforO]

1. The corporate oligarchs cannot have it both ways.

This group, which probably is trying to sell investment newsletters, says our problem is we lack 'excess liquidity.'

OK. The lack of excess liquidity is due to wealth inequality. When the top eighty billionaires have more wealth than 50% people of world, that's a problem.

We've gone through decades of 'trickle down' which history has proven time and again does not work. Tax cuts at the top do NOT stimulate the economy, and people who have no extra money to spend because they can barely make ends meet don't buy lots of stuff. The answer, of course, is to raise taxes on the wealthy, including taxing capital gains as regular income, removing the Social Security tax cap, and making the large corporations who have 'offshored' trillions of dollars in untaxed profits pay their fair share would be a start.

A $15 minimum wage would help, as would more government support for labor organizations. It should also be illegal to 'flatten' pensions.

Changing corporate charters so that the interests of shareholders are balanced with the interests of labor, the customer and the environment would help.

Do these things and maybe we'd have some 'excess liquidity' and prosperity would be more general.

[jwirr]

2. So what are we supposed to do? Take our money out

of the banks and hide it under our mattress? Buy a new house or sell our rental? Or just let her fly?

That we are on the road to another crash is not surprising as we did not change anything about the way banks do business since 2008.

Oh yes we have the Frank-Dodd bill but all that does is make sure that when the crash comes we do not have to bail out the banks. It did not stop the banks from using depositors money to gamble with. So who is going to bail out the depositors? That is all of us, you know.

[PowerToThePeople]

3. "Take our money out of the banks and hide it under our mattress?"

If I would have done this for the past 15 years, I would be in much better financial shape than I am today.

[jwirr]

5. I think a lot of people would be better off. Pensions

have all but disappeared and savings are all but the last place any one can afford to put their money and if they do and the banks crash that savings is the first thing gone.

[scarletwoman]

4. Broken Pumps? Well, gosh, when 0.01% of the population is hoarding all the wealth they can get their

greedy hands on, what is left to "pump"?

It's like a circulatory system in which one organ is just hoarding all the blood and not sending it back through the system. The rest of the organs are going to fail, the body is going to die.

[Eleanors38]

7. Well, this 3-figure SS recipient is hoarding like hell, too.

[Eleanors38]

6. I heard half of used car loans are now bundled, NINJA-style...

since there is virtual!y no regulation on that gaseous bubble.