ONCE IT WAS THE BANKS THAT WERE TOO BIG TO FAIL, NOW IT IS THE FINANCIAL BUBBLE.
December 24, 2019 5 Comments
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December 24, 2019 5 Comments
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Dallas Fed Kaplan said warns about the “excesses and imbalances”:
“What gets my attention more is that single-B and double-B credit spreads are so tight, triple-B spread are very tight,” “If I see evidence that the market is sort of distinguishing between lower quality credits and better credits, I actually think that’s an encouraging sign”. But now spreads between BB and BBB at historic lows.
“My bigger worry is that you’ve got increasing PEs, you’ve got historically low cap rates, you’ve got very tight credit spreads…”
But despite all of that he has been part of the cabal that cut rates three times and bails out the repo market in order to inflate those very excesses and imbalances even further.
The horror they are facing is if the bursting of this bubble having done everything from ZIRP and NIRP to money printing. Are they praying and hoping for a miracle? What can they do when it does crash? The FED is indirectly participating in the stock market. Japanese and Swiss central banks participate both directly and indirectly. The crash has become unthinkable for them. Defy gravity as long as they can hoping gravity would vanish. That’s what it looks like.
I have a question. Where can I find the data for “the USA, the top 10% spend as much as the bottom 80% on personal consumption”. Thanks.
Hi Cameron, it appears that my reply using my phone did not make it to the site. The original source was the first Obama administration. Obama set in motion a process via the President’s Council of Economic Advisers to evaluate the effect of introducing a Federal Unitary Sales Tax, similar to VAT in Britain. Part of their remit was to estimate how much tax it would yield from different income groups. They found that the top 25% of tax payers would pay at least 50% of the tax with the bottom 75% paying around 50%. That was the basis for the subsequent 10% spending as much as the bottom 80% on personal consumption expenditures other than housing and health. The latter takes into account the subsequent rise in inequality. Thank you for your detailed comment. Yes it is a powder keg. Let us see what January brings. The latest data indicates a further deterioration in the industrial economy with some big names like McDermott heading for bankruptcy.
Thank you.
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