With the dollar moving higher along with most global stock markets, today a legend in the business sent King World News a powerful piece that discussing a $200 trillion problem and global economic repercussions.
October 16 (King World News) – From Art Cashin’s note: Not What They Appear To Be – We all have heard the Rubric that folks are using their gas savings to pay down debt or deleveraging. In fact, we have been told that all across the globe people are deleveraging to pare down the huge debt load that helped cause the meltdown of 2008 and 2009.
With that in mind you can understand how surprised I was to read this in the latest Aden Forecast:
As you know, interest rates have been near zero in the U.S. for the past seven years. This is totally unprecedented, and it’s not just in the U.S.
In Japan, interest rates have been zero for more than a decade. They’re zero in the Eurozone, and in some cases they’re below zero. That is, you’d have to pay the bank to keep your money there.
The bottom line is… nearly 90% of the developed world is dealing with interest rates at zero. And almost half of all the bonds in the world are now paying less than 1%.
The end result is that there’s no incentive to save money. On the contrary, these low interest rates entice people and corporations to borrow, in many cases much more than they should.
So even though too much bad debt triggered the 2008 financial crisis, this mountain of debt has not been reduced. There has been no deleveraging.
In fact, the opposite has occurred. Total world debt is now more than $200 trillion. Amazingly, that’s 40% greater than it was before the financial crisis hit.
In other words, the debt keeps growing and growing, and nothing is being done about it, which only makes matters worse. This has put the global economy on thin ice, making the environment more vulnerable to a shock.
All of this debt is also very deflationary. And if you have any doubt about this, look no further than Japan. As we’ve often pointed out, they have the highest debt to GDP ratio in the developed world and they’ve been struggling with deflation, recessions, slow growth, and QE programs to keep things afloat for nearly 20 years. (During QE a central bank creates cash and puts it into the financial system.)
The rest of the world is following in Japan’s footsteps. And aside from the possible global economic repercussions, it’s also resulted in big changes in the investment world.
We will do a little more research on these figures but, if true, they do not bode well if another spell of illiquidity hits.
Overnight And Overseas – The global rally continued for another day. Shanghai was up as were Hong Kong, Tokyo, India and the emerging markets. The rally rolled over into all the European markets.
The yield on the ten year is a smidge lower. Crude is up while gold and the Euro are lower. U.S. futures are a bit more uncertain and are mixed as daylight hits New York City.
Consensus – Expiration Day so assume some surprises. Crude appears to be firming, which may help stocks if the recent pattern holds. Earnings will kick in big next week. Stick with the drill – stay wary, alert and very, very nimble. Have a wonderful weekend! ***KWN will be releasing interview all day today.
ALSO RELEASED: Top Analyst Warns Gold May Now Be Set For Spectacular Surge To $1,400 CLICK HERE.
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