Money and Finance
- John Mauldin: You Can’t Be Serious
I admit to being surprised by Cyprus. Oh, not the banking crisis or the sovereign debt crisis or the fact that its banks were eight times larger than the country itself or even the fact that the banks were bloated with Greek debt that had been written...
- Hussman Weekly Market Comment: Leap Of Faith
Economists know that there are three ways to deleverage an economy: austerity – where debt growth is held below the rate of economic growth; restructuring – where bad debts are written down or renegotiated; and monetization – where money is printed...
- Hussman Weekly Market Comment: No Such Thing As Risk?
The enthusiasm of investors about central-bank interventions has reached a pitch that is already well-reflected in market prices, and a level of confidence that with little doubt, investors will ultimately regret. In the face of this enthusiasm, one almost...
- Hussman Weekly Market Comment: A Brief Primer On The European Crisis
With regard to the problems in Europe, investors have taken a great deal of hope from the promise of coordinated central bank "liquidity" operations in the event of deterioration. The problem here, in my view, is that whatever amount of liquidity central...
- John Mauldin: There Will Be Contagion
… (December 11, 2009) – Greece's prime minister, George Papandreou, told reporters in Brussels on Friday that European Central Bank President Jean-Claude Trichet and Luxembourg Prime Minister Jean-Claude Juncker see "no possibility" of a Greek...
Money and Finance
Hussman Weekly Market Comment: What if the Fed Throws a QE3 and Nobody Comes?
In short, the effect of quantitative easing has diminished substantially since 2009, when risk-premiums were elevated and amenable to being pressed significantly lower. At present, risk-premiums are thin, and the S&P 500 has retreated very little from its April 2012 peak. My impression is that QE3 would (will) be unable to pluck the U.S. out of an unfolding global recession, and that even the ability to provoke a speculative advance in risky assets will be dependent on those assets first declining substantially in value.
Our economic problems run far deeper than what can be healed by more reckless bubble-blowing by the Federal Reserve. At the center of global economic turmoil is a mountain of bad debt that was extended on easy terms by weakly regulated lenders with a government safety net. Global leaders have done all they can to protect the lenders at the expense of the public – to make good on the bond contracts of mismanaged financial institutions by breaking the social contracts with their own citizens. The limit of this unprincipled madness is being reached.
The way out is to restructure bad debt instead of rescuing it. Particularly in Europe, this will require numerous financial institutions to go into receivership, where stock will be wiped out, unsecured bonds will experience losses, senior bondholders will get a haircut on the value of their obligations, and loan balances will be written down. Bank depositors, meanwhile, will not lose a dime, except in countries where the sovereign is also at risk of default. Even there, depositors will probably not lose any more than they would if they held sovereign debt directly. In the U.S., the pressing need continues to be mortgage restructuring, and an emerging recession is likely to bring that issue back to the forefront, as roughly one-third of U.S. mortgages exceed the value of the home itself.
Liquidity does not produce solvency. Bailouts from one insolvent entity to another insolvent entity do not produce solvency. Efforts to stimulate growth will not produce solvency if a large fraction of the economy is overburdened with debt obligations that cannot be repaid. What will produce solvency is debt restructuring. The best hope is that global leaders will recognize the necessity and move ahead with debt restructuring in an orderly way, particularly in the European banking system. The worst nightmare is that global leaders will deny the necessity and belatedly discover that they have squandered the last opportunity to avoid a disorderly finale.
- John Mauldin: You Can’t Be Serious
I admit to being surprised by Cyprus. Oh, not the banking crisis or the sovereign debt crisis or the fact that its banks were eight times larger than the country itself or even the fact that the banks were bloated with Greek debt that had been written...
- Hussman Weekly Market Comment: Leap Of Faith
Economists know that there are three ways to deleverage an economy: austerity – where debt growth is held below the rate of economic growth; restructuring – where bad debts are written down or renegotiated; and monetization – where money is printed...
- Hussman Weekly Market Comment: No Such Thing As Risk?
The enthusiasm of investors about central-bank interventions has reached a pitch that is already well-reflected in market prices, and a level of confidence that with little doubt, investors will ultimately regret. In the face of this enthusiasm, one almost...
- Hussman Weekly Market Comment: A Brief Primer On The European Crisis
With regard to the problems in Europe, investors have taken a great deal of hope from the promise of coordinated central bank "liquidity" operations in the event of deterioration. The problem here, in my view, is that whatever amount of liquidity central...
- John Mauldin: There Will Be Contagion
… (December 11, 2009) – Greece's prime minister, George Papandreou, told reporters in Brussels on Friday that European Central Bank President Jean-Claude Trichet and Luxembourg Prime Minister Jean-Claude Juncker see "no possibility" of a Greek...