Student debt becoming a larger albatross for economic growth: $1.2 trillion in student debt is outstanding and many college graduates working in jobs that don’t require their degree.

There was a time when going to college made sense in every feasible way. It made sense professionally, economically, and many college graduates have a wonderful time in the process of completing their degrees. Most would argue that learning is vital in growing and moving forward. Yet students need to ask whether their return on investment is really worth it? Many people go to college in a compulsory fashion. This is simply the next step after high school. This was an easy decision to make during a time when the costs of going to college were affordable. Today, many schools charge $40,000 and $50,000 per year for a basic undergraduate degree. That is problematic. A large number of recent graduates are now working in positions that don’t require their specific field of study. In other words, they are employed in a field different from their undergraduate degree but still carry forward with mounds of debt. The total student debt market is now well over $1.2 trillion. It might be worth it to take a course in Student Debt 101.
Growing student debt
There are no signs or smells that the student debt bubble is likely to slow down in formation. To the contrary total student debt has been on a mission upwards in the last decade or so. When you saddle a nation of young people with mountains of debt don’t be surprised when first time home buying reverses or discretionary spending slows down. That seems to be another problem for another day in debt world.
Student loan debt used to be a smaller part of non-housing related debt. Today it is now the largest consumer debt being held outside of mortgages. Take a look at the growth:

This post was published at MyBudget360 on September 1, 2014.

“One Of The Defining Investment Moments Of The Next Few Years”

Some very spot on observations (which contain the amusing line: “inflation has been a modern day (last 100 years) phenomenon tied to the evolution of central banks (the Fed started in 1913) and the gradual demise of precious metal currency systems“) of what will be the biggest trouble with the credit bubble, from Deutsche Bank’s Jim Reid:
One of the more interesting stories of yesterday was a 1bn 50 year private placement bond issued by the Spanish Government with a 4% coupon. It’s a measure of how far things have come in a couple of years that such a deal could be launched. It was also a day when 2 year French yields traded below zero for the first time ever. We still live in remarkable financial times. Back to the Spanish deal, although current low levels of inflation make this deal look optically attractive on a real yield basis we thought we’d look at the rolling average 50 year level of inflation in Spain to highlight what real returns might potentially be over the lifetime of the bond. I hope I survive to see it mature but I hope I won’t be writing about it then. Anyway the average annual inflation over the last 50 years in Spain is 7.0% and as the graph in today’s pdf shows the last time the 50-year rolling average was below 4% was in 1956. Clearly prior to this the average rate of inflation was constantly below this level as inflation has been a modern day (last 100 years) phenomenon tied to the evolution of central banks (the Fed started in 1913) and the gradual demise of precious metal currency systems. So it’s a measure of how buoyant fixed income markets are that investors are prepared to ignore that last half century’s inflation record and the current fiat currency world when pricing long-term bonds. This is not a Spain-specific issue but on a slow news day the story stood out. The same would be true for most countries issuing similar long-dated debt today. Indeed yields elsewhere would likely be even lower.

This post was published at Zero Hedge on 09/02/2014.

The Underbelly of Corporate America: Insider Selling, Stock Buy-Backs, Dodgy Profits

The hollowing out of corporate strengths to enable short-term profiteering by the handful at the top leads to systemic fragility.
Anonymous comments on message boards must be taken with a grain of salt, but this comment succinctly captures the underbelly of Corporate America: massive insider selling, borrowing billions to buy back their own stocks to push valuations to the moon so shares granted as compensation can be sold for a fortune, and dodgy accounting strategies that boost headline profits and hide the gutting of investments in long-term growth. Here’s the comment: “I’m occupying a vantage point that allows me to see what is going on inside the top Fortune 50 companies. I have never seen such rot before. Of the 50, at least 30 have debt at 120% of cash. Most have cut capex, R&D and maintenance by 80%. Most have been borrowing money to do stock buy-backs, while simultaneously selling off business units and doing layoffs.
Of the 50, at least 20 have 100% insider selling. For some, you would have to go back decades to find a point where all of the acting board of directors are selling. In essence, they are paying the mortgage with their credit cards. Without bookkeeping games, there are no solid earnings. There will be no earnings growth. ‘Executive compensation based on stock performance’ is killing corporate America.

This post was published at Charles Hugh Smith on MONDAY, SEPTEMBER 01, 2014.

The morning after: What happens when a government destroys its currency

Dallas, Texas
Imagine this scene:
‘Everyone in the country was in shock. People’s net worth had devalued more than 53% overnight.’
‘The value in savings accounts dropped in half and neither merchants nor consumers knew how to react because they had never been through something like it before…’
This is how an American business executive described living through Mexico’s devaluation of the peso exactly 38 years ago on September 1, 1976.
Looking back, it was so obvious.
Mexico had a mounting debt, destructive policies, and a woefully unsustainable fixed exchange rate with the US dollar. All the writing was on the wall.
But most people ignored the warning signs and kept their money in pesos.
Mexican President Luis Echevarria even went out on the radio to reassure people that the currency was safe.
Finally, under intense fiscal pressure, the government reached its breaking point. And on August 31, 1976, they made the decision to devalue the peso.
People woke up the next morning on September 1st to a 50% decline. Subscribe to Sovereign Man

This post was published at Sovereign Man on September 1, 2014.

Europe Fantastic Bond Bubble: How The Central Banks Have Unleashed Monumental Speculation

Capitalism gets into deep trouble when the price of financial assets becomes completely disconnected from economic reality and common sense. What ensues is rampant speculation in which financial gamblers careen from one hot money play to the next, leaving the financial system distorted and unstable – a proverbial train wreck waiting to happen.
That’s where we are now. And nowhere is this more evident than in the absurd run-up in the price of European sovereign debt since the Euro-crisis peaked in mid-2012. In that regard, perhaps Portugal is the poster-boy. It’s fiscal, financial and economic indicators are still deep in the soup, yet its government bond prices have soared in a triumphal arc skyward.
Unfortunately, the recent crash landing of its largest conglomerate and financial group (Espirito Santo Group) is a stark remainder that its cartel-ridden, import-addicted, debt-besotted economy is not even close to being fixed. Notwithstanding the false claims of Brussels and Lisbon that it has successfully ‘graduated’ from its EC bailout, the truth is that the risk of default embedded in its sovereign debt has not been reduced by an iota.

This post was published at David Stockmans Contra Corner on September 1, 2014.

Europe’s Fantastic Bond Bubble: How Central Banks Have Unleashed Mindless Speculation

Capitalism gets into deep trouble when the price of financial assets becomes completely disconnected from economic reality and common sense. What ensues is rampant speculation in which financial gamblers careen from one hot money play to the next, leaving the financial system distorted and unstable – a proverbial train wreck waiting to happen.
That’s where we are now. And nowhere is this more evident than in the absurd run-up in the price of European sovereign debt since the Euro-crisis peaked in mid-2012. In that regard, perhaps Portugal is the poster-boy. It’s fiscal, financial and economic indicators are still deep in the soup, yet its government bond prices have soared in a triumphal arc skyward.
Unfortunately, the recent crashing landing of its largest conglomerate and financial group (Espirito Santo Group) is a stark remainder that its cartel-ridden, import-addicted, debt-besotted economy is not even close to being fixed. Notwithstanding the false claims of Brussels and Lisbon that it has successfully ‘graduated’ from its EC bailout, the truth is that the risk of default embedded in its sovereign debt has not been reduced by an iota.
At the time of the 2011-2012 crisis, its central government was already sliding rapidly into a debt trap with a ratio of just under 100%. Self-evidently, the nation’s so-called EC bailout has only made its public debt burden dramatically worse. Today Portugal’s debt to GDP ratio is 129% and there is no sign of a turnaround.
But that has not deterred the rambunctious speculators in peripheral sovereign debt. Since mid-2012 and Draghi’s ‘whatever it takes’ ukase, the price of Portugal’s public debt has soared. This means that leveraged speculators – -and they are all leveraged on repo or similar forms of hypothecated borrowings – -have made a killing, harvesting triple-digit gains on the thin slice of non-borrowed capital they actually have at risk in these carry trades.

This post was published at David Stockmans Contra Corner on September 1, 2014.

The Ultimate Demise Of The Euro Union

The European Union (EU) was created by the Maastricht Treaty on November 1st 1993. It is a political and economic union between European countries which makes its own policies concerning the members’ economies, societies, laws and to some extent security. To some, the EU is an overblown bureaucracy which drains money…and compromises the power of sovereign states. For others, the EU is the best way to meet challenges smaller nations might struggle with – such as economic growth or negotiations with larger nations – and worth surrendering some sovereignty to achieve. Despite many years of integration, opposition remains strong.
ACCORDINGLY, there are signs the EU is teetering on implosion.
Indeed the Euro zone break up is inevitable for numerous reasons.
Unpayable government debts and the massive bailouts in Greece, Portugal, Spain and Ireland logically pave the road to an eventual EU break up.
While it’s convenient to have the one currency for 17 different nations, the nature of those national economies and their strength is quite different and problematic. Indeed and fact it favors wealthy countries like Germany and France at the expense of the PIIGS (i.e. Portugal, Italy, Ireland, Greece and Spain).
Another issue is that while the 17 nations share the same Central Bank, they do not have a central control on government budgets, nor central political control.
Paul Griffiths, Colonial First State chief investment officer does not want to put a time frame on the euro zone being shrunk, but says it will eventually be very different from what it is today.

This post was published at Gold-Eagle on September 1, 2014.

Labor Day 2014: Economic solutions already here for full employment, zero public deficits and debts

Labor Day is an Orwellian holiday: US ‘leaders’ psychopathically pretend to care about American labor while lying about a real unemployment rate of close to 25% (the so-called ‘official’ rate excludes under-employed and discouraged workers).
Along with unemployment, Americans receive policy enabling oligarchs to ‘legally’ hide $20 to $30 trillion in offshore tax havens in a rigged-casino economy designed for ‘peak inequality.’ For comparison, $1 to $3 trillion ends global poverty forever, saving a million children’s lives every month from slow and gruesome death (here, here). And, as always, US ‘leaders’ lie-begat Americans intounlawful Wars of Aggression (in comparison, 11 days of US war cost would pay for all tuition of US college students).
Americans could have full-employment and zero public deficits and debt with monetary and credit reform.
These solutions are obvious upon a few moments of your attention. See for yourself:
What is monetary and credit reform?
Since the 1913 legislation of the Federal Reserve, the US has had a national ‘debt system;’ the Orwellian opposite of a monetary system. What we use for money is created as a debt, with the consequence of unpayable and increasing aggregate debt. This is a description of the simple mechanics of adding negative numbers. Although it’s taught in every macroeconomics course in structure, the consequences of increasing and unpayable debt are omitted (unpayable because it destroys what is used for money, and eventually the debt becomes tragic-comic in amount).

This post was published at Washingtons Blog on August 30, 2014.

Gold And Silver – Elite’s NWO Losing Traction. Expect [More] War

The lies and deceit coming from Western governments continue unabated, whether it is [Pollyanna] economic news that is non-reflective of existing reality or more false flag ‘war’ news that is also non-reflective of existing reality. Whether it be Obama, Cameron, or Merkel, supposed leaders of their countries but totally failing to provide leadership, each can best be described as pimps for the banking elites.
No one, not even [non-existing] Weapons-of-Mass-Destruction Bush Jr, has been more hell-bent on starting wars throughout the world than Nobel Peace Prize winner, [cough, cough], Obama. Cameron has nothing positive to contribute, coming from a country that produces nothing, just running on spent debt fumes. He just announced his idea of more sanctions against Russia by kicking them out of the SWIFT program, the elite banker’s Society for Worldwide Interbank Financial Telecommunication.
How have all of those other sanctions been working, David? There simply is no right way for doing stupid things, but he and Obama continue to try to disprove stupidity with the same proven results.
Merkel, the one who has the best opportunity to defy the elites and take Germany forward into the new world’s developing economic order, primarily China and Russia, leaders of BRICS and its fast-growing associated countries, [new members not currently allowed] Instead, Merkel keeps Germany rooted as the step-child satellite country of the federal United States.

This post was published at Edge Trader Plus on August 30, 2014.

CFR Recommends Policy Shift that is Very Bullish for Gold

The ‘Foreign Affaird’ publication of the influential and policy-setting Council of Foreign Relations made an announcement that could have huge ramifications for monetary policy going forward. In an article titled ‘Print Less but Transfer More: Why Central Banks Should Give Money Directly to the People,’ the authors argue that the current quantitative easing and debt monetization is not generating broad-based stimulus to the economy.
To some extent, low inflation reflects intense competition in an increasingly globalized economy. But it also occurs when people and businesses are too hesitant to spend their money, which keeps unemployment high and wage growth low. In the eurozone, inflation has recently dropped perilously close to zero. And some countries, such as Portugal and Spain, may already be experiencing deflation. At best, the current policies are not working; at worst, they will lead to further instability and prolonged stagnation.
Governments must do better. Rather than trying to spur private-sector spending through asset purchases or interest-rate changes, central banks, such as the Fed, should hand consumers cash directly. In practice, this policy could take the form of giving central banks the ability to hand their countries’ tax-paying households a certain amount of money. The government could distribute cash equally to all households or, even better, aim for the bottom 80 percent of households in terms of income. Targeting those who earn the least would have two primary benefits. For one thing, lower-income households are more prone to consume, so they would provide a greater boost to spending. For another, the policy would offset rising income inequality.
This is a huge announcement because it would lead to a major increase in the velocity of money. While a tremendous amount of money was created following the financing crisis, it has yet to result in significant inflation as a good amount of it remains parked in excess reserves and in corporate accounts. This has brought the velocity of money to the lowest levels in decades.

This post was published at GoldStockBull on August 27th, 2014.

The Paper Armageddon Portfolio, One Year Later

As some of you may recall, I published an article here at TFMR one year ago in August of 2013 titled The Paper Armageddon Portfolio. In this piece I outlined a rationale for investing in certain sectors from a ‘hard assets/tangible value’ perspective that would reflect the TFMR understanding of the ongoing Keynesian process of QE, artificially low interest rates, market manipulation, and dollar devaluation. Within those sectors, I selected multiple stocks from companies I felt would outperform the sector as a whole. The general idea was to come up with a list of companies who were poised to not only survive the current debt creation/paper ponzi economy, but would potentially offer solid returns in the coming paradigm where tangible and productive assets will be worth far more than today’s paper promises. So one year later I thought it would be worthwhile to check back in on this investing thesis to see how these picks and sectors fared and to discuss what we might learn from their performance over the last year.
The article I originally posted is here, but to summarize, I outlined four sectors oriented around hard assets and/or the real-world production of tangible goods. The four I chose were 1. Farmland, 2. Timber and grazing, 3. Energy and commodities, and 4. Railroads (which I surmised would be poised to grow in a high fuel costs/post-Petrodollar environment, and to take market share from the currently dominant but fuel inefficient trucking industry).
Let’s assume that, as I recommended in the article, Turdites looked at this list and spent a few weeks doing their own research and due diligence on these companies, then chose to invest a few weeks later. Here is a breakdown of the 1 year performance of these individual stocks I chose within these sectors in my original list. Each entry shows ticker symbol, price change over the last year, % gain, dividend yield, then what a $10,000 investment in that stock would be worth today, and finally how much dividend one would have been paid:

This post was published at TF Metals Report on August 29, 2014.

MUST READ: A Fraud By Any Other Name Is Still A Fraud

Once upon a time, there was a thing called a ‘free-market’ and for a time nations strove toward this ideal. To wit, a free market economy was a market-based economy where prices for goods and services would be set freely by the forces of supply and demand and allowed to reach their point of equilibrium without intervention by government policy, and it typically entailed support for highly competitive markets and private ownership of productive enterprises.
But power and belief shifted and faith now resides in governmental fiscal policy (spend more, tax less) and central banker interest rate policy (make money ever cheaper) to avoid the free markets down-cycles and extend its up-cycles infinitely. The central bank high priests have determined free markets are better replaced by command economies and further the priests’ purport they know appropriate levels of demand and supply…and absent the achievement of these levels, they will enforce their will even if the Fed’s programs are the likely cause that retards the Fed’s from achieving their stated goals!
But this has gone so far that now all we have is fiscal imbalances (the true nature is hidden by accounting fraud) and central bank centralized command of financial valuations. And I’m not being dramatic… I truly mean the Fed and central bankers are controlling the pricing of nearly everything financial (including sovereign debt / bonds, stocks, real estate, commodity prices, etc.) via interest rate targets and bond purchasing programs. The politicization and centralized control has turned the economic indexes into the central banks gauges which they actively ‘manage’.

This post was published at SRSrocco Report on August 29, 2014.

6 Reasons Why ECB Will Avoid QE As Long As Possible (And Why The Fed Did It)

Yields on European sovereign debt have collapsed in recent months as investors piled into these ‘riskless’ investments following hints that the ECB will unleash QE (at some point “we promise”) and the economic situation collapses. However, Mario Draghi has made it clear that any QE would be privately-focused (because policy transmission channels were clogged) and the appointment of Blackrock to run an ABS-purchase plan confirms that those buying bonds to front-run the ECB may have done so in error. As Rabobank’s Elwin de Groot notes in six simple comments that he expects continued “procrastination” by the ECB over sovereign QE even after dismal economic data – and in doing so, exposes the entire facade behind The Fed’s QE.

This post was published at Zero Hedge on 08/28/2014.

German Finance Minister Tells EU Leaders: Free Money Party’s Over

Has Germany had enough? Hot on the heels of Mario Draghi’s ‘demands’ that EU leaders undertake “structural reforms” to boost competitiveness and overcome the legacy of Europe’s debt crisis, German Finance Minister Wolfgang Schaeuble unleashed perhaps the most worrisome statement tonight for all the free-money-party-goers – the music is about to stop. In an interview with Bloomberg TV, Schaeuble blasted “Europe needs to find ways to foster growth,” adding that “the ECB has reached the limit in helping the Euro Area.” In a clear shot across the bow of his ‘core’ cohort, Schaeuble said he “understood” Hollande’s demands but shot back that “monetary policy can only buy time.”
As WSJ notes, the French are seeking aid…

This post was published at Zero Hedge on 08/28/2014.

Margin Debt & Trends

The debate over the pending crash in the stock market seems endless. Whether or not margin debt as reported by the NYSE has relevance any more is an interesting question in a world in which the retail investor has abandoned investing (decline in liquidity). The real marginal buyers are hedge funds and some banks while the cash buyers remain central banks. The make-up of the market has changed and the interest rates are well below even many dividends. So talking about total margin debt nearing $500 billion cannot be compared just on a nominal basis.

This post was published at Armstrong Economics on August 27, 2014.

I Blame The Central Banks

The current bubbles in financial assets — in equities and bonds of all grades and quality — raging in every major market across the globe are no accident.
They are a deliberate creation. The intentional results of policy.
Therefore, when they burst, we shouldn’t regard the resulting damage as some freak act of nature or other such outcome outside of our control. To reiterate, the carnage will be the very predictable result of some terribly shortsighted decision-making and defective logic.
The Root of Evil Blame can and should be laid where it belongs: with the central banks.
They were the “experts” who decided to confront the excesses of decades past (which saw borrowing running at roughly 2x the rate of real economic growth) with even easier monetary policies designed to spur even moreborrowing.
Rather than take stock of the simple fact that nobody can forever borrow at a faster rate than their income is growing (no matter how large that entity may be), the Fed, the ECB, the BoJ and the BoE have conveniently overlooked that simple fact and then boldly claimed that the cure is identical to the disease. If the problem is debt then the solution is even more debt.
If the Fed, et al. were doctors, they would prescribe alcohol to the alcoholic. They would administer more lead to the lead-poisoned patient. They would call for more water to put in the pool where a drowning individual is floundering.
The bottom line is that the Fed and its ilk made the disastrous decisions that gave us the first two burst bubbles of the new millennium. And the wonder of it all is that, instead of being met at the gates with torches and pitchforks and held to account for their errors, they have instead been granted even greater powers, less oversight, and practically zero blame.
And now they’ve given us a third and, I suspect, final bubble. By which I mean I think the effects of this bursting bubble will be so horrendous that a hundred years might pass before people will again be in the mood to speculate on fantasy wealth.

This post was published at PeakProsperity on August 27, 2014.

Will There Be a ‘New Gold Rush?’ — Ian Gordon, Longwave Analytics

Ian Gordon created Longwave Analytics, which studies the Longwave principle, by which economies obey long-term cyclical trends of expansion and contraction. Eric Sprott is an avid reader — he suggested I interview Ian Gordon for his take on the role of Kondratiev’s ‘long wave cycle’ in explaining the economic environment we are seeing today.
Ian said ‘winter’ was coming for the world economy, though it has been staved off by the flexibility provided by paper money. As a result, a depression will be very different today than in 1929 or 1873, he believes. But now, as then, we could see a massive push for new gold discoveries.
Mr. Gordon explained how he got to know Eric Sprott over 10 years ago:
‘I was writing about long-term economic cycles, referred to as ‘Kondratiev’ cycles. In 1998, I realized that we were close to the top of a bull market; we were somewhere akin to 1928 – immediately preceding the Great Depression. Eric appreciated my work, because it helped explain an imminent bull market for gold, which he saw as well.’
I asked: Do these ‘long wave’ economic patterns explain today’s bear market for gold – and the recent rally in general stocks?
‘Well, they didn’t predict this – but they can help explain why it’s happening. Over the course of one entire ‘long wave’ economic cycle, covering a full expansion and subsequent contraction, you have what I call four ‘seasons.’ Winter is the period where debt is wiped out of the economy. It happened after 1929, which caused the US banking system to collapse. During the 1920′s, there had been a big build-up in consumer and corporate debt, as well as sovereign debt.
‘During the Great Depression and the previous depression of 1873, we were on a gold standard system, so the ability to create money was limited. This time around, we are in a pure credit-based system, so the ability to create money withstands the ravages of the winter. Effectively, governments have been creating more debt. This will ultimately cause a more horrendous economic decline than in either 1929 or 1873, as debt levels are far greater today – and because the world is much more inter-connected financially.’
What about your prediction of a ‘new gold rush’ similar to the late 19th century?

This post was published at GoldSeek on 27 August 2014.

Europe: Stagnation, Default, Or Devaluation

Last week’s Jackson Hole meeting helped to highlight a simple reality: unlike other parts of the world, the eurozone remains mired in a deflationary bust six years after the 2008 financial crisis. The only official solutions to this bust seem to be a) to print more money and b) to expand government debt. Meanwhile, Europe’s already high (and rising) government debt levels and large budget deficits raise the question whether we should worry about ‘debt thresholds’, past which increasing deficits, and hence growing sovereign debt, no longer add to growth? Such a constraint could come from one of at least two sources:

This post was published at Zero Hedge on 08/26/2014.

Argentine Peso Collapses on Top of Rogue Regime

Adeptly managed by the central bank and the government, the Argentine peso has been plunging in perfect form, an activity it is very, very good at. And so on Thursday, it plunged 4.1% on the black market, hitting 14 ARS/USD for the first time. With the official rate at 8.39 ARS/USD, the gap between the two soared to a record of 5.61 pesos. A sign that any remaining trace-amounts of confidence in the peso were evaporating.
It was the steepest plunge since January 24, when the central bank devalued the peso by 15%.
‘Expect the government to take action to bring this rate down – fast,’ wrote Bianca Fernet, stilettos-on-the-ground American economist in Buenos Aires and contributor to Wolf Street. This ‘Argentine monetary policy,’ as she explained in The Bubble, would include:
Forcing state-owned agencies to sell dollar bonds locally Closing the cambios and other currency dealers for a few days Raising interbank lending rates, forcing banks to sell assets locally. On Friday, the peso recovered a smidgen, and the reported ‘blue dollar’ rate dipped below 14 ARS/USD, after the central bank had reportedly blown $10 million of its foreign exchange reserves to prop it up. But it desperately needs those reserves – now below $29 billion – to service its foreign-currency debt, part of which it defaulted on once again on July 31.
‘They are reporting a lower rate than the real rate; reporting a rate above 14 is evidently not permitted,’ Bianca told me, perhaps tongue in cheek because that’s the only way to take Argentina. Then she added, ‘The brokers are trading at 14.35 right now.’
On Monday, brokers were selling the dollar at 14.1 ARS/USD, illegal and un-permitted as that may be.

This post was published at Wolf Street on August 25, 2014