Debt causes Deflation!


Rosengren Likely Mistaken About Hiking Rates

by Lance Roberts | May, 23, 2016

… the hope of higher personal consumption and stronger GDP has been the ever evolving “wish” of the Federal Reserve since the “financial crisis.” Of course, with each passing year, these “hopes” have turned to dust as consumers have struggled to make ends meet as wages have failed to grow, employment has been in primarily lower wage paying jobs …As has repeatedly been the case, consumers have continued to fall short of expectations as the difference between disposable incomes and costs of living has been reflected by increases in consumer credit. …

Debt-Consumer-Wages-PCE-051216

Forget a Dollar Collapse…This Is a Much Bigger Threat to Your Wealth Right Now

Casey Daily Dispatch
May 24, 2016

Over the past eight years, the Fed’s pumped $3.5 trillion into our financial system. And our national debt has more than doubled. … E.B. Tucker, editor of The Casey Report, agrees that the dollar will collapse eventually. But he says there’s a more immediate threat … .” Deflation. “While deflation can be good for consumers, it’s terrible for many businesses. It’s especially bad for businesses that have borrowed too much money. After all, deflation in the U.S. makes the dollar stronger, which makes it harder to pay back loans. …

In 2008–2009, … the Fed printed massive sums of money and cut rates to zero, in hopes that it would jumpstart spending. It backfired. The chart below shows the “velocity” of the U.S. money supply, which measures how fast money changes hands. As you can see, velocity is at its lowest point since 1959. …

U.S. corporations have borrowed almost $10 trillion in the bond market since 2008… Last year, they borrowed a record $1.5 trillion. But like consumers, companies didn’t use the borrowed money to buy real, tangible things. They didn’t buy machinery, equipment, or anything else that would grow their businesses. Instead, they borrowed to buy other companies and their own stock on the open market, also known as a share buyback.

• Companies in the S&P 500 spent nearly $1 trillion on acquisitions and buybacks last year…

(Also)  You can see in the chart below that U.S. capacity utilization is below 75% for the first time since 2008. This means nearly three out of every ten machines in the U.S. are sitting idle right now. …

E.B. explains:

You see, if demand picks up, there’s an idle machine nearby whose owner is willing to put it to use. He’s just glad it’s being used. He’s definitely not in a position to charge more since there are several idle machines to choose from. In fact, it’s more likely he’ll undercut his competition just to have the work.

As we mentioned, deflation will hurt deeply indebted companies the most…

(This credit bubble, overcapacity deflation is happening in China, too, on a massive scale and the implosion is more advanced there.)

 

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About icliks

Biding my time in central ms ... yours too, if ur reading this.
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