It Won’t be the Coming Crash that Kills the World Economy

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It won’t be the coming financial crisis that kills the world economy. It will be the response to the crisis by the nitwits in the White House that will plunge the globe into deflationary collapse. Donald Trump, Larry Kudlow and Peter Navarro are about as prepared as Moe, Larry and Curly to deal with a financial crisis at this level. Trump has been like a wrecking ball in a global economy already teetering on the precipice of recession.

Since Trump took office he has done everything possible to make things worse and amplify the damage when the inevitable happens and the already very long in the tooth expansion ends. He has encouraged corporations and financial firms to increase leverage and engage in riskier behavior.

U.S. corporate debt is now at an all-time high of over 45% of GDP, which is even worse than the levels reached during the Dot-com bubble and U.S. housing and credit bubble

But the most important part of the story is that U.S. corporations are cannibalizing themselves and using debt to cook the corpus. For years, corporations have been the largest buyers of U.S. equities through M&A (including leveraged buyouts which I have long considered a long-term economic disaster for America – more on this below) and stock buybacks. They effectively conducted a massive leveraged buyout of Corporate America and left the private sector’s balance sheet far more leveraged than a decade ago.

Remember synthetic CDOs, the villain of the 2008 crisis?

It was the proliferation of sub-prime mortgage CDOs that transmitted and amplified losses in the US housing market throughout the financial system. Well they are back but with twist:

Rather than referencing mortgages as many deals did in the run up to the crisis, the new generation of synthetic CDOs now see investors taking a leveraged bet on whether corporate defaults will rise, using tranched portfolios of credit default swaps.

So the geniuses that brought you 2008 have decided that stuffing synthetic CDOs with toxic corporate debt instead of toxic mortgages will make it all totally fine. Just as they transmitted and amplified losses in the US housing market throughout the financial system. They are now doing the same with toxic corporate debt.

There are alarm bells ringing throughout the financial system. An inverted yield curve, declining copper and FedEx stock prices, are all early warning signs of recession. The UK and German economy have already contracted and a no deal Brexit has not yet hit the European/UK economy. The financial data from China is awful and China has its own gargantuan toxic debt problem. There is now a long list of events across the globe that could trigger the next 2008.

Now imagine Trump and his band of nitwits having to deal with that scale of crisis.

There was a scene in the movie To Big to Fail where a Chinese official confided to Treasury Secretary Henry Paulson that the Russians had approached them and wanted to work with the Chinese to collapse the U.S. financial system. They proposed dumping massive amounts of Fannie and Freddie bonds during the financial crisis.

The Chinese declined to conspire with the Russians to tank the US economy at a point when it was vulnerable. They opted for cooperation and stability instead. What do you suppose they would tell the Russians today? How many friends does Trump have that he can work within an International crisis?

Let a pea-brained grifter and his band of corrupt morons run the worlds largest economy. What could go wrong? We are about to find out.

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5 Comments on "It Won’t be the Coming Crash that Kills the World Economy"

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Independent
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Independent

Lordy I wish I understood all this but luckily my house is paid for. We did have a fannie mae loan in the 70s when house prices were fair and we actually were able to pay it off early. I feel bad for people who are trying to buy a house now. They are so expensive and there are not enough of them. To think a person who bankrupted his business 3 times has a say on all this is scary, scary, scary
PS. I am stocking my food pantry.

Dick Panico
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Dick Panico

6 Time bankruptcies . And more we don’t know. about . And the worst , is Trumps moral bankruptcy . We’ve become “sick “by him !!

DHG
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Not going to happen in just the US as it goes down to its destruction fully functional as the world power at the hands of the Kingdom of God. What all this should be telling you is the impending change in rulership on this Earth is imminent.

Dick Panico
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Dick Panico
While we as a nation , have become sick of Trump , we’ve become sick , because of Trump. ..He’s like a “fiendish cancer”, that has burrowed inside our souls. We didn’t know it was there because ,we were able to logically reject it . Much like a healthy body , rejects many dangerous diseases. …But when a body becomes ill or over stressed, we become susceptible to all kinds of “normally rejected “diseases . And Trump has become “our disease “. ..While we didn’t ( always )see it coming, we are now in its clutches . We’ve become very… Read more »
Independent
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Independent
I understand your thoughts but as a single mother who raised three children alone I learned never give up. There were many challenges and we met them head on and won all the important battles. You don’t argue with a bully especially one as mean spirited, illiterate, and self absorbed as him. Something happened in his childhood that put him off the rails and he will never be what most people call normal. That does. not mean give up. We continue to push back, support our real leaders and as group large or small continue to challenge him. Eventually most… Read more »