Global Debt - Central Banks And The Rise Of Extremism

Global Debt – Central Banks And The Rise Of Extremism by Danielle DiMartino Booth – Money Strong “Those who honor me I will honor.” So read the scripture on a piece of paper slipped into the hand of 1924 gold medal runner Eric Liddell. Liddell’s refusal to run on the Sabbath catapulted him into a jeering…

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"As The Credit Strategist’s Michael Lewitt recently noted, “Debt drains away vital resources from economic growth. Fighting a debt crisis with more debt is doomed to failure, yet that is not only what global central banks did during the crisis but long after markets stabilized (though the crisis never truly ended, just slowed). This was an epic policy failure that continues today.”

Failure or not, odds are that today’s central bankers will double down on their failed philosophy. If you don’t believe me, ask any German life insurer buckling under the strain of running their business. It’s no wonder regulators estimate that insurers will begin to fail after 2018 due to the impossibility of operating in a negative interest environment with over 80 percent of said insurers’ investments in fixed income. These dire circumstances almost make U.S. pensions’ plight pale in comparison as managers come to grips with the fact that there can be no Prexit, as in a Puerto Rican exit. The haircuts on the damaged bond holdings will be withstood.

The real tragedy is that the smoke and mirrors perpetuating the veneer of calm in world markets can continue for a while longer. The U.S. consumer remains the world economy’s mightiest source of growth. Cheerleading economists were no doubt levitated by news that U.S. household borrowing exploded in March at a breakneck speed that hasn’t been clocked since 2001. The $29.7 billion one-month gain works out to a 10-percent annualized pace.

The usual suspects of the current recovery remained hard at work – student debt and auto loans continued their journey into the stratosphere. But the most record smashing category was credit card debt, which spiked by $11.1 billion, or at a blistering 14-percent pace.

In all, household debt rose at a 6.4-percent pace in the first quarter, just shy of three times the pace at which average hourly earnings grew. Looked at through a slightly different prism, personal income grew by $57.4 billion in March, the same month in which American households tacked on about half that in fresh debt. This is good news how?

The very absence of a full scale global conflict is without a doubt a huge blessing. At this juncture, it’s difficult to fathom how the world’s super-creditors could finance a war. History, however, suggests that times exactly such as the ones in which we find ourselves are fraught with risks. Unprecedented levels of income inequality combined with profoundly threatened developed world pensions make for a frightening recipe for social unrest that can and has been known to boil over into something grave on the world stage.

It is therefore of little surprise that voters worldwide are protesting at their ballot boxes. Debt spirals upwards even as the masses struggle to get by on less and less knowing there will be a dearer price yet to pay.

On June 28, 1914 Archduke Franz Ferdinand was infamously assassinated marking the beginning of a time in world history rife with bloody conflict. Though extremism in Austria today is clearly on the rise, history never repeats itself to a tee. Though impossible to know, history may mark May 9, 2016 a turning point of a different sort, the day a Slovak border guard fired the first shot at a car of migrants crossing into his country.

The migrant crisis promises to exact its own costs, at first political and inevitably economic. It is then that the past 30 years’ bad habit of borrowing from Peter to pay Paul will be tested. What happens, one most ask, when Peter himself runs out of money?

Perhaps the world will have to wait it out to finally be graced with leaders who are willing to stand by their convictions and make hard, maybe even unpopular, choices. Such leaders might have to risk sacrificing everything political to be crowned the next true champions of conviction, giving us all a shot at a once again storied fate." (Source: Danielle DiMartino Booth via Value Walk)

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