News

Emerging Market Debt Defaults on the Horizon? | Armstrong Economics

Posted on by johnbarleycorn12

QUESTION: Mr. Armstrong; You said that the emerging markets are a huge problem that will lead to a Sovereign Debt Default. Can you elaborate on that statement? Thank you for your insight VU ANSWER: The emerging markets are in far worse shape today than they were even back in 2008. They have issued heaps of dollar-denominated debt to sell particularly to US pension funds seeking higher yield. Some of the buyers have been state-run pension funds. The outstanding Emerging Market debt has exploded by 50%. The majority of the increase in emerging market indebtedness has been in local currency, which was more than $48.5 trillion as of the end of 2016 from around $43 trillion in 2015 and is pressing $50 trillion for 2017. We passed $200 trillion in global sovereign debt back in 2016. All of these dollar bears that yell about the USA at $20 trillion, ignore where the world stands at and the fact the USA is still the only economy holding everything up. Both the Emerging Market and EU countries have used the cheap interest rates to just pile on more debt – not reform. This is why central banks have lost all capability of manipulating interest rates to direct the economy. All of those theories are entirely dependent upon DEMAND management. They may, in theory, be able to manage the “demand” of the consumer, but they have zero influence over government spending. They lower rates to stimulate private demand and simply underwrite government debt. The world comes unglued ONLY with a dollar rally – not a decline. A drop in the dollar would be cheered by governments who would then issue even more debt. A dollar rally will cause the Sovereign Debt Crisis – not a dollar decline. Emerging Market defaults are once again on the timeline. They are economically in far worse shape today than they were in 2008. As interest rates rise, they will blow their budget out and they do NOT have the economies to support the debt repayments (excluding China).
— Read on www.armstrongeconomics.com/world-news/sovereign-debt-crisis/emerging-market-debt-defaults-on-the-horizon/

It will be like Venezuela 🇻🇪 for many

Draghi Calls for Consolidation of Debts? | Armstrong Economics

Posted on by johnbarleycorn12

COMMENT: You were here in Brussels a few weeks ago. Suddenly, the ECB is talking about the need to merge the debts to prevent a crisis. So your lobbying here seems to work. RGV, Brussels REPLY: I do not lobby. It is rather common knowledge I have made those proposals since the EU commission attended our World Economic Conference held back in 1998 in London. I focused on the reason the Euro would fail if the debts were not consolidated. So it is not a fair statement to say I meet in Brussels to lobby for anything. I meet with people who call me in because of a crisis brewing. So everyone else understands what this is about, the ECB President Mario Draghi has come out and proposed interlocking the euro countries to create a “stronger” and “new vehicle” as a “crisis instrument” to save Europe. He is arguing that this should prevent countries from drifting apart in the event of severe economic shocks. Draghi has said it provides “an extra layer of stabilization” which is a code phrase for the coming bond crash. He has conceded that the legal structure is difficult because what he is really talking about is the consolidation of national debts into a single Eurobond market. There is no bond market that is viable in Europe after the end of Quantitative Easing. There will be NO BID. There is no viable bond market left in Europe. The worst debt is below US rates only because the ECB is the buyer. Stop the buying and the ceiling comes crashing down. This is why what he is saying is just using a different label. He is not calling it debt consolidation, just an extra layer of stabilization to bind the members closer together. It will be a hard sell and it may take the crisis before anyone looks at this. You have “bail-in” policies because of the same problem. If the banks in Italy need a bailout from Brussels, then other members will look at it as a subsidization for Italy which is unfair. There is no real EU unity behind the curtain which is when the debt was NEVER consolidated from day one. They wanted a single currency, but not a single responsibility for the debt.
— Read on www.armstrongeconomics.com/international-news/europes-current-economy/draghi-calls-for-consolidation-of-debts/

The kill shot for responsible governance