Societe Generale’s Albert Edwards discusses “Monetary Schizophrenia” in his latest email alert. Here are a few interesting snips.
In the wake of the 2008 GFC, the UK and US household sectors went through a heavy bout of de-leveraging. The dominant source of household credit in both countries is via mortgages, the growth of which has only recently recovered into the low single digits (around 3%). The problem instead now lies in unsecured credit, the growth of which has exploded above 10% in both countries.
The simple fact is monetary policy is way too loose in the UK as well as in the US, and let us not forget the BoE cut rates in the immediate aftermath of last Julys Brexit vote. Bubbles are appearing in areas like consumer credit because interest rates are far too low and need to be raised. And yes, when interest rates are excessively low, both borrowers and lenders do stupid things. But to ignore their own role in creating debt misery for millions, the BoE can only deal with its own cognitive dissonance by blaming someone else. When this debt bubble blows, I suspect citizens’ rage will be directed where it belongs.
I’ve heard stories of credit card loan search engines spewing out money on 4 year, 0% teaser loans. What really shocked me is that after having been offered a credit card loan facility via a search engine, one is able to make multiple further self-certified applications and be offered similarly large amounts! Amazingly there was no question about existing debts!
I agree with all of the above except on who gets the blame.
The media will blame Trump, greedy CEOs, hurricanes and my deceased mother before placing blame where it belongs.
The sheep will follow the media.
Mike “Mish” Shedlock
“when interest rates are excessively low, both borrowers and lenders do stupid things”
False logic, or faulty premise. Stupidity is endemic and independent of interest rates. I do stupid investments on a regular basis, independently from interest rates; fortunately bailed out by good investments. People commonly invest because they get greedy and expect asset prices to increase to absurd levels (something only known in retrospect). Similarly, people disinvest at market bottoms, irrespective of interest rates. Interest rates are a red herring. Printing absurd amounts of “money” to bid up nominal prices is closer to the root cause. Money printing by central banks can proceed independently of interest rates, as is the case in countries with hyper-inflation.
“Bubbles are appearing in areas like consumer credit because interest rates are far too low and need to be raised.”
An absurd statement, when consumers are commonly paying almost 20% annual interest rates on credit cards and likely over 6%-12% for other purchases. The consumer interest rates are completely detached from central bank interest rates which are in the 1% range. Confusing consumer interest rates and central bank interest rates reflects sloppy thinking, and leads to bad analysis and bad policy recommendations. If anything, lower consumer interest rates would be like a tax cut in effects. To cut things finer, home loan, auto loan, student loan are longer term, and might be considered separately from the absurdly high consumer credit card interest rates.
Stuki Moi said:
“…consumers are commonly paying almost 20% annual interest rates on credit cards and likely over 6%-12% for other purchases. The consumer interest rates are completely detached from central bank interest rates which are in the 1% range. ”
That’s the whole point. With 20% spreads between what the bank pays, and what the consumer pays, plus yield starved about-to-retires willing to take almost any risk off your hands in exchange for a few basis points; banks will lend to virtually anyone, whether they can fog a mirror or not.
Carl R said:
Agreed. People do stupid things, regardless of interest rates. I also believe that blame will never go where it truly belongs, which is on the debtors. There is nothing tricky, here. If you borrow money, you have to pay it back, and you should have a plan to do so. I recall, in higher interest rate days, reading about a person who had gotten in over their head with credit card debt, and now was having to live at a very basic living standard as they paid it back, and their comment was “If I had realized I would have to pay it all back, I never would have borrowed it”. Umm, duh.
The Red Shield agenda:
l. control the mass media to properly “educate” the masses
2. Direct their puppet politicians to produce dumbed down education policy….. which insures that those students that are produced will be moronically compliant.
3. Debt enslave due to the cognitive dissonance about basic math.
Voila! a nation of sheep, fully compliant to all of Big Brother’s wishes
Stuki Moi said:
If money to invest costs more and is scarcer, you’ll make fewer stupid investments before you run out of money to squander.
The way investments, and all else, work; is that the low hanging fruit get picked first. Meaning, the “good” investments will be made regardless. Then, the cheaper and more plentiful money gets, investments further and further out the “bad” curve, will get made as well.
Until one ends up in today’s state, where people “invest” $2million into $50K to produce condos in San Francisco. On the expectation that money will get even more plentiful, so that even that sort of singular, wanton value destruction ends up looking like a “good” investment.
“I’ve heard stories of credit card loan search engines spewing out money on 4 year, 0% teaser loans”
Everybody would be refinancing credit card debt and consumer loans if that were true on a meaningful scale. Hearing “stories” is flimsy evidence supporting a faulty thesis that does not correspond to real world 20% consumer credit card interest rates being closer to the norm. What is the author’s real agenda? Economy has problems, but boosting consumer interest rates is not the solution. Unless promoting consumer bankruptcies is seen as a cleansing action. The schizophrenia is in the author’s approach.
Toni Marino said:
Boosting consumer interest rates is not the solution.
Stupid is as stupid does. I don’t need low interest rates to anything stupid. I manage my stupid without anyone’s help.
Stuki Moi said:
By bailing out and facilitating the stupid, at the expense of the competent; regimes get to transfer resources that could otherwise be used to oppose them; from those with the aptitude to conceivably be able to pose effective opposition; to stupid sycophants who owe their very livelihood and privileged socioeconomic status to noting more than the regime and it’s manipulations.
Central Banks are Teflon.
Example – substantial pick- up in Europe. Everyone applauds.
No one mentions it’s because there’s extraordinary ECB intervention with NIRP and €60Bn- €80Bn per MONTH intervention.
When stuff hits the fan no one will point to the CBs.
They are Teflon and invisible to the masses who don’t care to pin blame except where they are told to by politicians and the media.
I love idiots.In this day and age of instant credit reporting no one is able to make “self-certified” applications for more credit cards. I can tell that Mr Edwards has not applied for any credit cards in the recent past. As for paying off present credit card debt with new card interest free for x number of months offers, check that new credit limit again. Even if your past credit limit was $30,000 on the old card it will only be $3,000 on the new one. I can only assume that incomes of hundreds of thousands of dollars must project one into an alternate universe where the reality is different from that of the “Little People”.
Andrew Anderson said:
Whether it’s at the central bank or the National Treasury, citizens should be able to have demand accounts in fiat and all other special privileges for the banks abolished too.
And one of those special privileges is fiat creation by the central bank for any thing but the purchase of its own Nation’s sovereign debt DIRECTLY FROM THE TREASURY (or equally for all citizens) to avoid violating equal protection under the law.
So the central bank does need to be stripped of its fiat creation power except for its monetary sovereign but simply eliminating a central bank without providing citizens fiat accounts at the National Treasury or equivalent (e.g. a limited* Postal Bank) has been tried before (e.g. during times when the US had no central bank) and does not work well – not that the current system works well either.
*I.e. unable to lend or otherwise create fiat.
Party on said:
The borrowing and spending binge by Canadian households, businesses and governments (all levels) continues unabated. Growing the debt in the economy significantly faster than the economy itself grows seems to have developed into a way of life in Canada.
Canadian total (household, business, and all levels of government) debt numbers as of the end of June, 2017
What is supposed to happen? Consumers fall behind in payments, perhaps due to a recession related job loss and they default. This is happening now. The risk is built into the securitized debt instruments. As risk changes so will price.
The banks must spew out credit cards to promote growth, false growth but growth just the same. Imagine growth if everyone just bought what they could afford. This is a vicious cycle that will not end well. It is not just the banks doing this, the entire financial sector along with government are also complicit.
FlyOver Country said:
Hey, if the banks want to hand out free money, I’m game. I recently purchased a new car with 0% interest. I could have paid cash but decided that I can get a better return on my savings by making the 0% interest payments for 4 years. I did the same for a recent new cell phone, I could have paid cash but decided to take the 24 month 0% interest rout. I now have a lot of savings that were going to a new car and cell phone but are now free to earn me money by investing.
“The media will blame Trump, greedy CEOs, hurricanes and my deceased mother before placing blame where it belongs. The sheep will follow the media.”
John Smith said:
There is not a more stupid population on earth than Americans. Almost no one even knows what the Federal Reserve is or does. The idea that this nation of idiots is going to take out their rage on central bankers is completely preposterous.
Tony Bennett said:
It would be a great bit to get Leno out of retirement for a special edition Jay Walking on who is the Chair of FOMC? … or who is Janet Yellen?
What the Federal Reserve is: A central node in a worldwide private banking cartel.
What the Federal Reserve appears to do: Fund bank and government Ponzi schemes worldwide, collect rent from all those who use its currency, pick winners and losers using monetary policy.
What, “John Smith,” do you propose we US “idiots” do about it?
John Smith said:
Stop being distracted with media nonsense.
Educate oneself on how the financial system operates and who benefits from the status quo. Stop falling prey to bait designed to foment ethnic and racial divisions in America.
Support candidates who will reform the system.
Stop using the TBTF financial institutions for anything.
That’s just a start.
As Mark Twain observed, ““If you don’t read the newspaper, you’re uninformed. If you read the newspaper, you’re mis-informed.” You comment as though identifying propaganda is easy. It’s not. For all you know, most people in the news “fomenting ethnic and racial divisions” are professional political demonstrators being paid to do so.
I observe that reform candidates only slow the speed at which the system moves, they generally do not reverse the direction. Trump ran on a platform of reform. His prospects are not looking good.
Stop using TBTF financial institutions (and anything connected to them)? That’s like saying stop using electricity. It’s damn difficult to do.
Tony Bennett said:
“The media will blame Trump, greedy CEOs, hurricanes and my deceased mother before placing blame where it belongs.”
Most of the media owned by large corporations who have benefited from the Federal Reserve.
(an example: During the last recession GE was able to tap the FR Discount Window via TALF … GE owned NBC at the time).
And don’t ever expect Lester Holt ($12 million/yr) or Matt Lauer ($20+ million/yr) to ask tough questions … no doubt their substantial personal portfolios have done great with Wall Street bending Main Street over.
Ambrose Bierce said:
They want your business and they want to lock you up for four years. New purchases do not accrue to the old balance, so anything you buy from here on out you pay the front rate. It falls short of offering consumers a kiting scheme, four years is a bit long to say the checks in the mail. A house flipper maxed out on their HD, Lowes CC accounts can transfer balances and consolidate. The Fed raises slowly, the consumer keeps his zero APR, what’s not to like?
I have paid my credit card statements in full every month since the 80’s.
But what’s really great is that if I don’t pay in full for just ONE month, I will be paying +25% interest rate on the unpaid balance.
“WE THE PEOPLE” is a fantasy. It should read “WE THE GOYIM”.
“The media will blame Trump, greedy CEOs, hurricanes and my deceased mother before placing blame where it belongs.
The sheep will follow the media.”
Yup, the charlatans seem to not only do not get the blame for having brought about the crisis, but also get away without getting punished even though they had been sleeping at the wheel before the onset of the crisis and become more powerful by usurping power. The 2 tools that are at their disposal — ability to cut/increase interest rates and print any amount of money have been used to cement their position as gods.
That said, I am also hopeful that the more this game goes on, the more likely people will start finding out that this emperor is really naked. I expect it to happen as Hemingway said, slowly at first then all of a sudden. The awakening will change monetary policy (may be I am the foolish optimist- but then I cannot fathom how this game can be played forever) once and for all.
In fact I strongly feel there is no way the existing system can continue for the next few decades and thus change will come one way or the other. See the amount of money the CBs have spent, how coordinated the effort has been, how they have bought up everything that has not been nailed down. Do you think it is sustainable without any change. May be it may go on for some more time but forever is Not gonna happen!
Jon Sellers said:
The Germanic tribes that concurred the western Roman empire and eventually most of Europe became the nobility. They owned everything for about 1000 years. Odd things can go on for a long, long time, as long as the people believe there is no alternative (TINA).
Slowly but surely, the world’s consumers are shifting to cryptocurrencies. The $USD will be succeeded not by some BIS frankenschekel, but rather by a thousand competing cryptocurrencies.
Americans will be the last group on the bandwagon, having passively watched the dollar lose it’s de facto reserve currency status as the rest of the world shifts to distributed ledger transactions/currencies. Americans won’t blame the Fed/central bank… but they will passively watch the Fed fade into irrelevance just as they watched their dollar fade into irrelevance…
The $USD end game will not be driven/motivated by americans/US consumers… the $USD end game will be motivated by non-americans who have been involuntarily forced to use the $USD for decades (for lack of a viable alternative).
Well, viable alternatives (cryptos) are here, and the true end game has begun… watch as more & more of the world’s economy is facilitated anonymously via cryptos… kinda hard to regulate & tax when an ever increasing volume of economic activity is happening OUTSIDE the NWO dollar-based banking system.
And to those just waiting for “government” to “crack down” on cryptos… keep waiting. All efforts to stop/control/regulate cryptos will only ensure their autonomous/independent success in the global marketplace. Governements lack both the technical accumen & the jurisdiction to achieve any practical regulation of cryptocurrencies. The US gov’t. (for example) can barely govern their own citizens… yet the big bad Guv+Fed are gonna “crack down” on cryptos? LOL.
Jon Sellers said:
If I’m the big bad gov, this is how I would handle cryptos.
1. Kill the guy who manages the code repository and take it over. Fake being him.
2. embed my own code which would allow me to take over every system using it.
3. Wait for everybody to upgrade.
4. If someone finds the bad code, kill him and release a fake patch.
5. Steal everyone’s crypto coins and crash the system.
Lot’s of fun you can have if you can gain access to the source code.
Alternatively, keep releasing hundreds of new versions of crypto-coins. Flood the market and drive down value.
Stuki Moi said:
You have to find out who Satoshi is (or are……), first……..
The ultimate, game altering, beauty of truly anonymous crypto currencies; is that anyone, anywhere, can, in full anonymity, put public contracts on the heads of anyone else. And then, anyone else can pile in and pledge, if they, too, don’t particularly like the guy being targeted.
Hence, anyone offending enough people, will have a billion dollar pricetag on his head. Which will be paid, entirely anonymously, to the first guy who simply reports anonymously, accurately enough, how the kill was made; to convince an, again entirely anonymous, jury that he did the deed; hence deserves the payout.
Good luck trying to run an oppressive government in that environment. Want to trust your bodyguard not to take an opportunity to make a few billion in full anonymity, instead of risking his life for a pittance to save your sorry ass every day? Your entire staff? Heck, your gold digging wife and the poolboy she’s left with, when you’re out running around pretending to be important?
Andrew Anderson said:
kinda hard to regulate & tax when an ever increasing volume of economic activity is happening OUTSIDE the NWO dollar-based banking system.
Taxes can AND SHOULD BE made unavoidable, e.g. land taxes, in order to prevent unequal protection under the law in favor of tax cheats.
So crypto currencies are good (assuming people will voluntarily accept them) as far as tax reform is concerned.
And the advertising media does an excellent job of convincing people to purchase garbage they don’t need. a suicidal culture or as the French would say: apres moi le deluge!
Reblogged this on John Barleycorn and commented:
Medex Man said:
The media will blame Trump, but the sheep are cutting cable. I have noticed fewer and fewer people (both sides of the aisle) trust media outlets anymore
Without the ‘Sheep’ trading is not possible.