Flirting with debt default

It’s going to happen sooner or later. Might as well get it over with; if repeated defaults didn’t destroy Argentina, it won’t destroy the USA.

The Treasury Department will begin conducting emergency cash-conservation steps on Monday to avoid busting the federal borrowing limit after a two-year suspension of the debt ceiling expired at the end of July.

Economists say those so-called extraordinary measures will allow Treasury to pay off the government’s bills without floating new debt for two to three months. After that, Congress will need to either raise or suspend the borrowing limit or risk the U.S. defaulting on its obligations.

The limit, a facet of American politics for over a century, prevents the Treasury from issuing new bonds to fund government activities once a certain debt level is reached. That level reached $22 trillion in August 2019 and was suspended until Saturday. 

The new debt limit will include Washington’s additional borrowing since summer 2019. The Congressional Budget Office estimated in July that the new cap will likely come in just north of $28.5 trillion.

Remember, debts that can’t be paid, won’t be paid. 

Banks not tanks

People often accuse China of being imitative rather than creative, and stealing techniques and technology rather than inventing it. Well, it looks like they learned a rather nasty new trick from the West’s globalist bankers and are applying it effectively with vigor around the world:

Perched atop massive cement pillars that tower above Montenegro’s picturesque Moraca river canyon is an incomplete highway that threatens to bankrupt the little Balkan nation. 

China Road and Bridge Corporation, the state-owned company which is building the bridge with imported Chinese workers, has not yet finished constructing the first section of the 270-mile highway to the Serbian capital Belgrade. 

The first instalment on a $1 billion loan from China’s state bank is due this month but it’s unclear whether Montenegro, whose debt has soared to more than double its GDP because of the project, will be able to pay it back.  

A copy of the loan contract reviewed by NPR shows that if Montenegro misses the deadline, Beijing has the right to seize land inside the country – as long as it doesn’t belong to the military or is used for diplomatic purposes. 

Furthermore, the country’s former government green-lighted for a Chinese court of arbitration to have the final say on any contractual disputes.  

The World Bank and the International Monetary Fund have been engaging in debt-trap diplomacy for decades. The Chinese offer is actually less burdensome and less controlling… unless the country defaults. Which is how China is going to snap up very inexpensive property all around the world and there is literally nothing that the globalists – who invented the scheme – can do to stop it.

Nationalism and the ability to default has been the only answer to this sort of financial predation, but even nationalism won’t help much when the lender holding the collateral has a massive military to back up his legal claims.

It’s always more efficient to invade-and-occupy using banks rather than tanks.

The numbers leak

 As I mentioned previously, it’s going to be increasingly hard for the governments to hide the evidence of vaccine injuries as the monetary costs of them become evident through everything from flight cancellations to unemployment claims.

What if the injury rate — significant injury — is closer to 1 in 50 or 1 in 100 than the one in a hundred thousand we have been told?

What if that means that for anyone who isn’t old and infirm the math doesn’t pencil out and the very real financial and personal consequences are hammering people?

What if the insurance companies know this, and the Obamacare premium proposals being submitted right now for next year are up 30{cc08d85cfa54367952ab9c6bd910a003a6c2c0c101231e44cdffb103f39b73a6}?  Because, from what I’m hearing, they are.  Of course that’s an opening bid from the insurance companies but that sure isn’t all roses and rainbows, is it?

What if the labor department published a jobs report that shows a wildly rising — and at an accelerating rate — disability rate among all people 16+ in the workforce, totaling close to 3 million newly disabled people since January?  Because just Friday, they did!

There are 2.8 million more disabled workers than there were six months ago. The very reasonable question that Karl Denninger is asking is: what started happening in January that could have rendered that many workers unable to work? 

The role of debt

Yesterday, we launched Steve Keen’s EconComics on Arktoons. If you’re inspired to dig a little deeper in order to understand the very important role that debt plays in the economy, I would encourage you to read this extended essay on the subject written by the greatest living economist.

You may wish to keep in mind that Steve is a Man of the Left, whereas I am a Man of the Right, to the extent those labels even apply to economics anymore. What that means, in practical terms, is that while our perspective on the optimal solutions tend to differ, our perspective on the current state of things tends to not only be very similar, but to have far more in common than either of us do with the average Neo-Keynesian economist like Paul Krugman or Neo-Classical economist like Thomas Sowell, neither of whose models even begin to take debt into any account at all.

Regardless, Steve is on the very, very short list of people whose opinions I always take seriously and seek to understand, no matter how extraordinary or unlikely they may strike me at first glance.

Below is a selection from his interview with GQ Spain, so read the whole thing there.

GQ SPAIN: What is the role of public debt and private debt in the next great financial crisis?

STEVE KEEN: If conventional economics were correct, then there shouldn’t have been a crisis at all in 2007—and this is exactly what mainstream economists said at the time. In June 2007, two months before the crisis began, the Chief Economist of the OECD predicted that “sustained growth in OECD economies would be underpinned by strong job creation and falling unemployment” (Cotis 2007 , p. 7).

Since there was a crisis—the worst since the Great Depression before Covid hit—there must be something wrong with conventional economic thought. And there is, because it asserts that the actual details of money don’t matter to macroeconomics—that the macroeconomy can best be understood by ignoring money, and treating the economy as a barter system. To quote a Neoclassical economist on Twitter:

Most people who teach macro do it by leading people through simple models without money …You can even do banks without money [yes!]. And it’s better to start there. Then later, study money as it superimposes itself and complicates things, giving rise to inflation, exchange rates, business cycles.

With this belief, they have never built a framework for analysing how money is actually created. Instead, they developed a “supply and demand” model of lending called “Loanable Funds”, where savers lend more when interest rates are high, and borrowers demand more when interest rates are low, and the market sets both the quantity lent and the interest rate. In this model, banks act as “intermediaries”, taking in deposits from savers and lending them out to borrowers. In their model, if the government enters the market as a borrower, then it adds to the demand for money, thus driving up interest rates and “crowding out” private investment, which lowers the rate of economic growth.

In 2014, the Bank of England categorically declared that this model was wrong: banks do not take in deposits from some customers and lend them out to others, but instead, “Rather than banks receiving deposits when households save and then lending them out, bank lending creates deposits” (McLeay et al. 2014, p. 1). This means that private lending doesn’t cancel out, as the mainstream still believes. Instead, rising bank debt creates new money and causes a rising amount of spending, while falling bank debt destroys money and contracts spending. This is obvious in the data: when credit is positive and rising, unemployment falls; when credit is negative and falling, unemployment rises.

America shows the same pattern: rising credit, falling unemployment; falling credit, rising unemployment.

It’s also obvious when you look at the actual way in which money is created: I invented a software program to enable that, called Minsky. It very easily shows that mainstream economics have things backwards: rather than bank loans shuffling existing money between savers and borrowers, bank lending increases the money supply; and rather than government deficits adding to the demand for money, they add to the supply of money.

The process of money creation is actually very simple, as the Bank of England pointed out. Most money today is in the form of bank deposits. To create money therefore, you have to do something that adds to bank deposits. Both bank lending and government deficits qualify, but in different ways.

Bank lending increases deposits while repaying debt reduces deposits, so if net lending is positive, bank deposits increase, and hence so does the money supply.

Since people borrow in order to spend, rising private debt stimulates aggregate demand and asset prices, making the economy—and the government—look great to conventional eyes. The economy booms, unemployment falls, and booming tax receipts make the government look like it is responsible by running a surplus. But if the rate of growth of private debt—otherwise known as credit—turns negative, then everything unravels. The economy goes into a recession, unemployment rises, asset prices fall, and government debt increases—and if it didn’t, the recession would be far deeper.

This is because, as well as being wrong about what banks do, the mainstream is also wrong about government deficits and government debt. Rather than deficits meaning that the government has to take money away from the private sector—which is what the mainstream thinks the government does when it sells bonds to cover a deficit—the deficit creates money by increasing the bank deposits of the private sector.

In simple terms, by not studying the accounting involved in government deficits, they have wrongly classified them as increasing the demand for money, when in fact they increase the supply of money. So all the arguments they make have it back the front: deficits crowd in private spending and investment by increasing the supply of money and, if anything, they drive down the interest rate, rather than driving it up.

Monday PM Arktoons

GUN GHOUL Episode 9: Take Him Down!

ECONCOMICS Episode 1: The Truth about Economics

Arktoons is not only about entertainment, but education too! We’re very pleased to introduce a comic written by the greatest living economics, Steve Keen. And yes, I absolutely do plan to talk to him about a related comic based on that famous champion of free trade, Ricardo Retardo.

Sanctions cut both ways

China calls the trade bluff of the neo-liberal world order:

There should be little doubt that the timing is intentional: China on Thursday passed its sweeping new law to ‘safeguard’ Chinese businesses and entities from Western and especially US sanctions, just hours ahead of President Joe Biden sitting down with G-7 leaders in Cornwall to argue for a common stance on curtailing China’s influence. AFP observes: “China’s quick rollout of a law against foreign sanctions has left European and American companies shocked and facing ‘irreconcilable’ compliance issues, two top business groups said Friday, despite Beijing saying the move would unlikely impact investment.”
The Anti-Foreign Sanctions Law, as we described earlier, is designed shield Chinese entities and institutions from “the unilateral and discriminatory measures imposed by foreign countries” and ultimately the “long arm jurisdiction” of the United States.  
It effectively enables the Chinese government to sanction all who comply with US/EU sanctions by drawing a bright red line, forcing entities to choose whether to comply to Washington’s side or Beijing’s side. Upon its introduction early this week in the National People’s Congress there were few details given, other than vowing that “if Chinese entities are hit with unjustified sanctions, the proposed law is supposed to crystallize actionable countermeasures against the foreign governments and institutions…expecting the legal effort to make up for losses that Chinese entities would suffer.”
With the law’s passage, details have been revealed as follows:
Countermeasures in the Chinese law include “refusal to issue visas, denial of entry, deportation… and sealing, seizing, and freezing property of individuals or businesses that adhere to foreign sanctions against Chinese businesses or officials,” according to the text published by the standing committee of the National People’s Congress, China’s top legislature.
Thus it “answers” current US tactics in a serious escalation: whereas Washington currently often seeks to punish third party entities or countries for direct or even indirect dealings with a sanctioned regime (the cases of Venezuela and Iran are clear examples, or even European companies which worked on the Russia-to-Germany Nord Stream 2 pipeline), Beijing has now given itself the ‘legal authority’ to do the same. 

This is a very smart and timely move by the Chinese government, and counteracts the US ability to put pressure on foreign firms and governments. Comply with a US-imposed sanction and you’re locked out of China.

What part of “unrestricted” is hard to understand? It wouldn’t surprise me if China expands this law to include sanctions against other nations as well, which would go a long way toward convincing countries that normally comply with US sanctions to ignore them.

Ben Shapiro hates middle class America

The Littlest Chickenhawk has always hated America, Americans, and Western Civilization, he just didn’t make it so obvious to everyone before now.

I see many people are enraged at Blackrock. Blackrock is buying homes from people willing to sell them. If you don’t like what they’re doing, target the loose governmental policy incentivizing this sort of investment.

Seriously, Blackrock isn’t going to stop investing in single-family homes because you’re mad on Twitter. But you could direct your energies toward stopping the Fed’s insane monetary policy, which is driving down the cost of loans and creating a massive bubble.

If Blackrock is willing to take the risk of leveraging up to buy single-family housing at above-market prices, that their prerogative. So long as they own the downside risk. No bailouts. Ever.

And if you’re mad at Blackrock and want to artificially prevent them from buying single-family homes, I’d like for you to explain to those who currently own the homes why you’re taking money out of their pocket.

And just to underline what a moron the little monster is, note that his advice to Americans watching the elimination of the housing stock and the destruction of the middle class is not to oppose the guilty party, but to oppose the Federal Reserve, a private corporation massively more rich, powerful, and politically influential than Blackrock.

As Lauren Witzke explains: THIS is why Ben Shapiro is promoted on all platforms. Little Ben is the official damage-control spokesman for the wicked Globalist Oligarchy.

Once I understood that debt was the center of the modern economy, I wondered how long it would take for the favored borrowers to own literally everything. Apparently we’ve now entered the accelerationist phase, that will only be stopped by a) Satan’s little servants owning everything, or b) revolution and mass deportations.

Of course, it always ends in (b), the only question is whether there is an (a) phase first.

The end of contract law

A seller’s experience being ripped off by a buyer with the full legal assistance of the payment processor shows how the Internet economy is increasingly post-contractual.

So I went back to court today with the impression that I would have a quick and simple trial with the buyer. A couple of amateurs. It was before the same judge as my trial with PayPal. So the judge consolidated the two cases. So I was again met by a high-priced attorney representing PayPal. We end up in the court room for another 2 1/2 hr trial in what can only be described as a legal menage a trois between myself, Paypal, and the buyer. Three different parties, three different interests. To open, PayPal‘s attorney presents about an inch thick file with all of the research and case law as he sees pertains to the previous trial that is still under consideration. At one point, the judge made a comment that PayPal has to have spent more than $14,000 to defend a small claims case. I suspect that PayPal is taking this so seriously because for $70 and no experience, I think I have made a worthy case to punch holes in their user agreement. I suspect this may have much larger implications and consequences on the line for them.

I found it somewhat awkward and put me at a disadvantage to first have to argue that I fulfilled all of my obligations to the buyer as a seller. There are many unnecessary details to this case that I won’t go into detail here, but in our communication, the buyer was offered insurance and declined and agreed to be responsible for the risk of shipping. So I had to argue that he was responsible for any potential loss. At the same time, I had to argue that the transaction between the buyer and myself was complete. It was PayPal who came in after the fact to reverse those charges and take the money from me. And I argued that this was done in breach of their contract as it specifically does not cover financial product or investment of any type. The buyer argued that since he paid with PayPal, he believed he was under the terms of PayPal which required confirmation of shipping, signature confirmation, etc. The judge also made the comment that the buyer could say he completed his obligation by making payment. It was PayPal that took the money from me, not the buyer. This was something he would have to consider. PayPal argued that because we were both in breach of contract and had a dispute between us, that it is their right to arbitrarily decide.

In short, it is a triangular mess but with some important points to consider for the judge and PayPal as a whole that could have much wider ranging implications. The judge states that he will have to research the decision and it would be 3 to 4 weeks, at a minimum, before he would have a written decision….

I received a 24 page verdict from the judge.  I have honestly not read it in its entirety as it has many references to previous case law and legal minutia that does not interest me.  In summary, unfortunately things did not break my way.  My first case against the buyer was dismissed for the small claims court lacking jurisdiction over a Canadian citizen.  There are many pages of explanation, but basically I can file in a Canadian court, if desired.  In reading the judge’s commentary and perhaps reading between the lines, I believe I would win the case.  The question is would it be worth the hassle.  I will consider whether or not to refile in a Candian small claims court, or their equivalent.  I do not believe I will be shipping to Canada again in the future.  Not worth the hassle. 

As for the case against Paypal, again the verdict did not break in my favor.  While I was successful in showing precious metals are in fact not covered under the Buyer’s Protection Program, ultimately the judgement states I can not say Paypal was in breach of contract while I myself was also in breach of the same contract.  By failing to acquire pre-approval for shipping of precious metals, I breached the contract.  This breach, in essence, gave Paypal the right to decide at their discretion.  In summary, I do not plan to accept or utilize Paypal for any transactions involving precious metals in the future.  I see posts that others view this as a “red flag” and they would not enter into a transaction with a seller who does not accept Paypal.  I suppose I am more than willing to pass on those buyers.

Hope this can help someone else in the future.

One thing that is now eminently clear is that both judges and arbitrators only give lip service to the idea that the consumer cannot reasonably be expected to be aware of all the legal fine print. Arbitrators in particular will absolutely hold the consumer responsible for every jot and tittle they know perfectly well that he hasn’t read, and they will do so despite being completely unfamiliar with their own arbitration rules. And by “completely unfamiliar”, I mean literally not knowing what the actual Rule 1 says. This is why the California legislature is regularly passing stronger and stronger protections for consumers, because both the legal system and the private judging system refuse to accept the reality of the corporate deck being stacked completely against the consumer.

Thus, they will readily ignore the contract, the law, and even their own rules in order to let the corporation off the hook if they can find any excuse to do so. Fortunately, the law, especially in California, is considerably harsher on corporate misbehavior than people commonly believe, so it is very far from impossible to beat them in court, so long as no obvious mistakes are made. For example, it is obvious that a state court has no jurisdiction over a Canadian, although of course if the seller had originally filed in Canada, Paypal’s lawyers would probably have argued that the seller had no standing in Canada and who knows what a Canadian judge would have to say about that.

Anyhow, this post-contractual legal environment spells eventual disaster for the neo-liberal global economy, and is another indication of the shift to nationalism and localism.

The market meltdown is coming

And it’s probably going to make 2008 look like a walk in the park, if these valuations are any guide:

Hedge fund manager David Einhorn warned of dangers for retail investors that he sees in the market, and one of his main examples was a tiny New Jersey deli with a market capitalization of more than $100 million.

The Paulsboro, New Jersey-based Your Hometown Deli is the sole location for Hometown International, which has an eye-popping market value despite totaling $35,748 in sales in the last two years combined, according to securities filings.

“Someone pointed us to Hometown International (HWIN), which owns a single deli in rural New Jersey … HWIN reached a market cap of $113 million on February 8. The largest shareholder is also the CEO/CFO/Treasurer and a Director, who also happens to be the wrestling coach of the high school next door to the deli. The pastrami must be amazing,” Einhorn said in a letter to clients published Thursday.

Hometown, which appears to have begun trading in 2019, according to FactSet, has shares that trade over the counter and rarely has more than a few hundred shares change hands per day. Often, there are no trades logged in an entire trading day.

Still, the company’s market cap is just over $100 million, according to FactSet.

If $18k in annual sales is worth $100 million, then I’m a multibillionaire. On paper. In Clownworld. Sadly, what passes for Clownworld’s money is observably less legitimate than Zimbabwe’s. And there are already numerous TV ads for stock-investing apps, which should send shivers down the spine of anyone even vaguely familiar with socionomic theory.

UPDATE: It appears a credit crunch is already underway. If the banks aren’t extending consumer credit, particularly to consumers with excellent credit scores, it’s usually because they are having trouble selling or servicing their own debts.

Outraged customers have hit out at Barclaycard after thousands had their credit card limits slashed – some by as much as 99 per cent.  One longstanding customer, who has never missed a payment, said his credit limit was cut from £11,000 to £300, another saw theirs drop from £11,800 to £250, and in the biggest cut seen yet a 62-year-old said his limit dived from £25,000 to £300.

Burning Wall Street

Thanks to the GameStop defense, hedge fund short sellers have lost nearly 27x more in the last month alone than all short sellers combined did in the average month last year.

Wall Street investors are sitting on estimated year-to-date losses of $70.87 billion on their bets against U.S. companies following massive surges in some of the heavily shorted shares, data from analytics firm Ortex showed on Thursday.

Some shares such as in video game retailer GameStop have jumped more than 1,000{3549d4179a0cbfd35266a886b325f66920645bb4445f165578a9e086cbc22d08} in the past week, driven primarily by retail investors trading on online apps and sharing tips on social media messaging boards

Such gains have forced short-sellers to buy back stock to cover potential losses in what is dubbed a short-squeeze. Moves were exacerbated by more retail investors piling into the stock.

Ortex data showed that as of Wednesday, there were loss-making short positions on more than 5,000 U.S. firms.

Shorting GameStop may have cost $1.03 billion year-to-date, Ortex estimates, while those shorting Bed, Bath & Beyond were looking at a $600 million loss.

Its short interest data, sourced from submissions by agent lenders, prime brokers, and broker-dealers, showed that around 62 million GameStop shares with a value of $2.2 billion were out on loan as of Wednesday.

To put this in perspective, the average monthly profit/loss for short sellers in 2020 was $2.7 billion. Now you know why Wall Street is shrieking like little girls for the government to stop the public from being able to do what they do.

One thing is clear from all of this. The America public is not going to support another bank bailout once the next financial crisis begins. They’d rather see Wall Street burn, and rightly so.