Ian Welsh

The horizon is not so far as we can see, but as far as we can imagine

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Closer to the End of Credit Cycle Phase Two

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On May 29, 2026

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~by Sean Paul Kelley

For the first time in this Credit Cycle more money is leaving private credit than is going in.

In Q1 2026, $7 billion left non-publicly traded BDCs (business development companies, ie. private credit shops) while they only raised about $5 billion. Total redemption requests from investors to private credit shops topped $15 billion.

Okay class, a little math. If $7 billion was cashed out, only $5 billion was raised then $8 billion of redemption demands were denied investors. That means investors were denied 53% of their redemption requests. (One might call that a run on the bank.)

Systemic Deterioration

We’re talking about the entire private credit industry, here. Not just a bad loan or failing borrower. It’s becoming systemic.

“If there were no war,” as Herr Tarman at Deutschbank said, “in the Persian Gulf this would be dominating the news cycle.”

What makes this very, very bad is when more money leaves the private credit system, sales are forced.

These are not voluntary sales or trades. They are forced, essentially they are margin calls, except, as Bloomberg pointed out, some sales sell for .98¢ on the $1, others sell for .90¢, but one forced sale went real bad for the private credit firm. They got .65¢ on the $1.

That’s a 35% loss. I can recover from a 15% loss but losing 35%? Nope. That’s a busted investment I’m never getting my principal back on. This activity has a name, one rarely uttered on Wall Street, as it is the market equivalent of screaming, “Voldemort,” on the floor of the NYSE.

This is what we in the business call “Accelerating Downside Price Discovery.” (Honestly, last time this happened was in 2008 and I got giddy. I love seeing fools lose boatloads of money. The schadenfreude works like an aphrodisiac on me!)

Accelerating downside price discovery creates a vicious downward cycle in credit markets and later in equity markets. Assets devalue. Private credit shops announce bankruptcy. Lots of people lose jobs.

Then equities decline, soon the investment (Morgan Stanley and Goldman Sachs) and commercial (JPM Morgan Chase, BoA and Wells Fargo) banks crater. In February 2009 I bought an enormous amount of Bank of America at $6 a share. A month later it was trading at $3.50-ish. I was biting my fingernails for sure. But, ten years later I sold it for almost $30 a share. But for ten years the stock traded sideways. So did the equity markets. The Fed’s QE–quantitative easing–made money virtually free and no one paid a price for the sub-prime fiasco.

This time will be different. No one understands what private credit does, except buy up empty houses and make the housing crisis worse.

Petroleum And Economywide Demand Destruction

Another consequence: This credit cycle is ending and oil futures are flashing a clear deflationary spiral. This is why I keep pointing out the long end of the WTI Oil futures price contracts going out a year. Here is why oil matters:

In Mid-August US petroleum reserves (non SPR) will fall to 390 million barrels. Today that number is 440mln barrels.

For refineries, pipelines, storage tanks, and terminals to function the system needs a minimum of 380mln barrels in reserve. If reserves fall below that level getting petrol from point A to B is like pushing a string, instead of pumping a viscous liquid.

Let’s do some simple math. We export 5mln barrels a week, plus or minus a million. The US uses 120million barrels a week. Subtract our exports over the next ten weeks. That’s 5×10=50 mln barrels pulled out of the reserve. Subtract 50 mln barrels from present reservers (non SPR) gets us within the margin of error at 390mln barrels. At this rate US petroleum and gasoline reserves will be at crisis levels in mid-August. 

And herein lies the big rub, the dilemma of dilemmas, caught between Scylla and Charybdis: how can the Fed backstop a credit crisis with easy credit (because only easy credit solves a credit crisis) when its fighting phantom inflation with high rates, ie. tight credit? It cannot do both. Picture clearing up now?

I’ve been explaining the imminent unraveling of this credit crisis here at Ian’s for at least two months now. Today we’re closer to the end of Phase Two of the Credit Cycle now than we are to its start. When Phase Two unravels fully, that’s when the AI bubble goes pop.

When will that be?

Sooner than we want, but not as quickly as we fear.

“Cowboy up,” folks, as we say down here in Texas, “you’re going to need a raincoat.”

America Exports Record 6.4 Million Barrels of Crude

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On May 5, 2026

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Today’s headline news chronicles our triumphant, record-breaking petroleum exports: 6.4 million barrels a day. The highest weekly figure ever recorded. On the surface, it appears America may just make up in exports what the closure of the Straits of Hormuz prevents.

On the surface.

The reality of our domestic petroleum situation is more dire. The same week America exported record amounts of crude it quietly drew down its strategic reserve to the tune of 7.1 million barrels a day same week ending April 24. This represents the largest drawdown since 2022.

Let’s do some simmple arithmetic: drawdown strategic reserves by 7.1 mln and export 6.4 mln. Subtract and you get a net loss of 700,000 barrels a week. That’s the burn rate of crude oil. Not slack. Vanishing.

Adding insult to injury, Morgan Stanley reports that gasoline inventories are at their lowest level since well, ever. Yes, ever. By August gasoline reserves will freefall to 198 million barrels. 

In reality, America is facing an unsustainable crude oil burn rate coupled with a completely unsustainable draw down in gasoline reserves. These drawdowns are occurring in the face of perilously high petroleum prices, including gasoline.

But domestic petroleum production, and refining capacity will make up the difference!

What part of unsustainable did you not understand?

For example, the oil refinery on Corpus Christi Bay here in South Texas is effectively off-line because it has no water source. Lake Corpus Christi is dry. No water, no refinery, no gasoline.

To make matters worse, domestic crude production is trending flat to down, even as WTI spot prices are in the $102 range.

Permian Basin rig counts, a leading indicator of what future crude production will look like, are down 15.33% YoY. Oklahoma rig counts are down from 55 last April to 43 today. That’s a -21% decline YoY. New Mexico dropped 3 rigs and Wyoming dumped 1. What about Eagle Ford shale oil you ask? At $102 a barrel shale has to be profitable. True, but there hasn’t been a drilling permit issued in the Eagle Ford basin in three years. None have been filed with the state since the crisis with Iran began. There’s a reason for this. WTI spot prices are $102 a barrel, as I previously noted. Those are spot prices for oil deliverable right this minute. If you go 12 months out on the contract curve to May 2027, the price of WTI Falls to $73 a barrel. At that price shale oil isn’t in the sweet spot. 

Moreover, what the prices in May 2027 are telling policy makers, factory owners, grocery store managers, freight shippers and the like in bright red flashing lights are that a deflationary spiral is a very real possibility.

Here’s where the rubber hits the road: the petroleum and gasoline burn rate will force the Fed’s hand and compel a rate increase to prevent a massive inflationary spike.

But what is the Fed to do six months to a year from now when the looming credit crisis, and housing collapse reach critical mass and unravel, popping the AI bubble the blowoff?

We’re literally exporting our seed corn.

You can’t reap what you don’t sow.

Is A Famine Baked In For 2027?

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On May 4, 2026

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Now let’s be clear, I don’t expect a famine in America, though I do expect a lot more people to die from hunger because food prices are going to be a lot higher.

Fertilizer in America:

Note that in addition to the war, this is a policy failure at the domestic level. Farmers should be subsidized and prices should be limited to whatever is actually reasonable based on increased non-domestic costs. The first thing you do is make sure your farmers can grow food, because without food, you’ve got nothing, and as Lenin said, every country is three missed meals away from revolution. (It’s actually more than that, but the rhetorical point remains.)

Most farmers use tractors. Most tractors use diesel, and those prices are rising too. They will continue to rise because the oil which is being restricted is the best oil for creating distillates like diesel, bunker fuel (ships) and jet fuel.

In Pakistan we have the following:

Growers have expressed serious concern over the worsening condition of the agriculture sector, stating that it is already on the brink of collapse due to low returns on crops, while continuous increases in diesel and fertilizer prices are delivering a severe blow.

They pointed out that despite urea being locally produced, its prices are rising every other day, which they termed beyond understanding. The growers criticized the government for increasing levies on petroleum products, particularly diesel, allegedly to cover tax shortfalls due to inefficiencies of the Federal Board of Revenue (FBR).

India continues to impress, not only do they have increasing diesel prices, but they’ve increased taxes on diesel to make the problem worse. (This sort of thing is why, no, India is not the next China. China has massive reserves, controls prices when necessary and disallows export when needed.)

Of course, if your country is already in trouble, you’re going to get in the neck:

The new report, From Hormuz to the Frontlines of Hunger, traces how disruption to the Strait of Hormuz and uncertainty around commercial shipping are affecting six crisis-affected countries: Sudan, Somalia, Ethiopia, Pakistan, Myanmar, and Lebanon…

Key findings include:

  • Global urea prices, a key fertilizer benchmark, rose 85% between December 2025 and March 2026. 
  • In Somalia, fuel prices more than doubled, adding pressure on food, transport and water costs. 
  • In Myanmar, diesel prices rose 160% since the start of the war, affecting irrigation, milling and transport. 
  • In Sudan, gasoline costs in Khartoum rose 66% in a single week in early April, making moving food delivery to market commercially unviable. 

Pakistan is almost certain to have a famine as well. Australian farmers are completely screwed as the country only has two refineries (down from eight 20 years ago because it was cheaper to buy from China, y’know. Too bad China won’t sell to Australia when they’re shortages, which a five year old could have predicted, but hey, max profit is all we are allowed to take into account.)

So far what we’ve seen is mostly higher prices for fuel and fertilizer, though some countries already have shortages. This is the logistics overhang — tankers already full and on route, storage facilities already full, etc, etc… But that’s coming to an end right about NOW. And what will start happening is actual shortages. (Jet fuel is supposedly down to 14 days in the US, though that’s not important for agriculture.)

Rich countries will outbid poor countries, but high prices mean farmer simply can’t afford all the diesel and fertilizer they need. They can’t ship their animals to slaughterhouses, etc, etc.

The next year is going to be ugly. Even if the war ended today, which can only happen if the US declares victory and lets Iran, in fact, win, it’d be ugly. But if the closure of the Strait continues, multiple countries will have famines and almost everyone is going to have significantly increased food prices, which means a lot of poor people will go hungry and some will die. It’s great Congress has cut food stamps every few years for the past 30 odd years.

If the war does go kinetic again, Iran will destroy vast amounts of oil infrastructure, and the crisis will go on for years.

The only sane response is to end the war, but that would mean de-facto acknowledging Iran is a great power and the US is no longer a global hegemonic power. Oh, and Israel might be more restricted in its ability to mass murder civilians, with their extra special emphasis on children, doctors, nurses, paramedics and firefighters.

What good is life if Israel and America can’t commit war crimes with complete immunity? This would be a complete violation of American and Israeli values, and Trump and Congress just cannot abide the idea that they don’t get to rape, murder and/or torture anyone they want. (Which is why Trump keeps shoving Cuba around. If you can’t bully the big kid, find a small kid to beat the shit out of.)

Anyway, on a personal level, if you can, stock up on shelf-stable staples. Today is the cheapest they’re going to be for at least a couple years.

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American Profits Are One Of The Causes of American Decline

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On April 9, 2026

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Stumbled upon this chart of US corporate profits vs. corporate taxes. The important part isn’t the taxes, it’s the profits. (Note that this is nominal and doesn’t include inflation adjustment, not that American inflation numbers mean anything anyway.)

Now let’s look at another chart. This one of his how much profit companies that produce actual products (aka. not finance, insurance and so on) make per dollar of GDP added.

Notice that the long term rate through the “good” period of American prosperity (where there was a huge middle class and wages rose at the same rate as productivity) is pretty steady, and never goes above about 13cents to a dollar. It starts rising around 76 (Carter, who was very neoliberal)and continues a sustained rise, with a huge spike after Covid.

What you see in America are constant fears of inflation. Every single BLS adjustment to inflation rate measures that I am aware of since 1980 has had the net effect of reducing stated inflation. The real inflation rate in America is massive.

Meanwhile, in China, the constant fear is deflation.

Why? Because China has competitive markets and America does not. Barriers to entry are high, and everyone is looking for high profits thru barriers to competition. American firms took economic studies that showed that in competitive markets profits were low and spent all their time trying to make markets un-competative so they could have high profits. This mostly meant capturing government, because it is government regulation and enforcement which keeps markets competitive.

China wants competitive markets in most sectors, except those which provide public goods. They are aggressive about it. Chinese firms compete on quality and price and often engage in price wars, so much so that sometimes the government steps in to stop them from driving themselves bankrupt. Last time I checked the the EV manufacturing market I found over a hundred companies. The competition is savage.

So Chinese companies have low prices, “over production” and constantly introduce new models and products to try and either increase quality or price. Tesla goes years between new models, Chinese companies sometimes introduce multiple new models a year.

Everyone wants to get a share of high US profits, that’s one reason why money floods into the US. But US companies have become uncompetitive. They keep effectively shrinking: more profits, sure, but only by slowly, then quickly, destroying the companies. This is why the US has 100% tariffs on Chinese EVs, if they let them in at all. And now they’re losing their foreign markets, as Europeans and Canada start letting in Chinese EVs.

The story is similar in most industries. America and Europe can’t compete. Period. Because instead of trying to be competitive, they’ve tried to create non-competitive markets and then soaked their customers as hard as possible. This works, till there isn’t any competition, or until you destroy your customers, who are also your employees, because US companies have also been keeping wage increases for everyone except executives and a few key employees (used to be programmers, but they’re about to get it in the neck) below price increases.

And this is how you wind up with 50% of all spending being done by 10% of the population, making most of America’s population economic cripples. It’s why you can’t afford tickets to a rock concert or a sports game, even though those were once solidly middle class pursuits and affordable to the poor.

This is a specific example of a general rule that you can always extract more profit if you’re willing to drive your company or your country into the ground.

About 20 years ago I wrote an article titled “there was a class war. The rich won.”

They’re still winning, but by doing so they have destroyed America’s place in the world, and indeed, the entire West’s. Hundreds of years of Western dominance are coming to an end because these greedy bastards wanted high profits for fifty years, and didn’t care what they did their country or most of their fellow citizens.

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The Twin Pillars of the Interregnum of Unreality Are Under Stress

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On April 8, 2026

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Guest Post by Nat Wilson Turner

Last Fall, I posited that the US and greater West are in the grips of an Interregnum of Unreality that began when Barack Obama successfully papered over the Great Financial Crisis while addressing none of the causes and leaving the very same banksters whose antics caused the crisis in place.

The Interregnum of Unreality is the legacy of Barack Obama who achieved near-total information dominance via traditional and social media and used that power to promulgate a message that everything was fine, nothing ever happens, the neo-liberal order will never end because it rests on two indestructible pillars:

  1. The perception of American prosperity
  2. The perception of global American military dominance

Thanks to Trump’s impericidal decision to attack Iran in February, kicking off a war he can’t TACO out of, the reputation of American invincibility has taken a beating.

The estimable Aurelian writes in his latest missive of the global political implications of the ass-whipping the American military has taken in the Ramadan War:

That hit is going to be all the larger because of the massive, orchestrated PR campaign that has been going on for more than a generation, presenting the US as the Empire and the Hegemon, its military the unstoppable colossus trampling small countries underfoot. But the test of a hegemon is not how loudly you shout, but whether you can in fact do what you claim. In spite of defeats in Iraq and in Afghanistan, and the ignominious scuttle from the Red Sea, both boosters and critics of the US have been prepared to believe the US had that much power until the last month or so. But now we have price discovery, and it turns out that the US has large and quite capable forces, but it’s not the unstoppable giant ogre that it claimed to be, and never was. The whole “hegemon” thesis, people are beginning to realise, was smoke and mirrors all along: it’s just that now it’s obvious. It’s not just how it is now, it’s how it always was: a traditional result of wars, after all, is to reveal the truth about militaries. No doubt even as I write, pundits are busy composing apologias along the lines of “well, of course by hegemony we just meant Quite a Powerful Nation with a Large Military, actually.” But overselling and underperforming will have their usual political consequences.

He also brings in the second pillar of our interregnum of unreality, the markets:

There’s an interesting comparison to be made with the “Artificial Intelligence” racket, which was similarly hyped, and also expected to somehow guarantee world-dominating status for the US. But in quiet corners away from the hysteria, people who know what they are talking about have been pointing out for several years now that “AI” is a scam, that as an industry it will never be profitable, and that the money, and even more the power and the infrastructure needed, will never be available. And just in the last few weeks, the media are discovering that that’s how it is, and indeed that’s how it always was, if you had bothered to do a few sums. We can add the interesting rider, however, that in a world where generating power is going to have to be rationed, and silicon chips may be scarce, the “AI” scam may come to a swifter and more brutal end than even its worst critics supposed. Exactly what that will do to the US economy I’m not qualified to say, but I imagine it won’t be pretty.

And the damage will not just be financial. Most of the big names of international business, the Musks, the Zuckerbergs, the Altmans and the rest of that lot, treated with fawning reverence by the media and governments of the world, and who have persuaded us that what they think is actually important, will turn out to have empires built on not very much. How badly the poisonous mixture of world depression, financial crisis, and shortage of power and chips will hit them I don’t think anybody knows, but if they survive, their image, and that of the US as a technological leader, will have suffered as badly as the image of its military.

Earlier this week I posted at Naked Capitalism about the deep ties between OpenAI, Oracle and the UAE and that there are indications they are deepening those ties even as the foundations of their partnership are being lit on fire.

The weak links in the AI boom and the Middle East — OpenAI, Oracle, and the United Arab Emirates (UAE) — are strengthening their ties even as the Ramadan War exposes their increasing vulnerabilities.

Spoiler alert: Despite OpenAI’s jarring strategic shifts last week, the UAE is still pouring money down that hole.

Is reality finally intruding on our generation-long delirium?

When Trump failed to calm the markets last week with his ridiculous address to the nation, it seemed that a little reality was peeking through the veils.

But when Iran joined Trump yesterday in claiming that the basic terms of a ceasefire and ensuing negotiations had been reached, the markets roared their approval, with American equities markets posting huge gains.

This despite the ceasefire never taking place and the Strait of Hormuz only being open for a few hours.

As I attempted to document in a post earlier today at Naked Capitalism, “cognitive dissonance and conflicting agendas among key players” has allowed the western media to engage in an orgy of chatter about this ceasefire that never was even as Israel, Iran, and reportedly the UAE all launched strikes at civilians and industrial infrastructure.

One hopes that Trump realizes he went too far in his genocidal threats to destroy Iranian civilization and will at least refrain from implicitly threatening to nuke Iran going forward.

However it’s almost certain he will attempt more attacks on Iran involving US ground forces and equally certain that those attempts will end as disastrously as his first.

We’re seeing a full-on anti-Trump mutiny from leading MAGA media figures and even 70 of the senescent US House Democrats are calling for Trump to be removed from office because Trump’s rhetoric freaked the American mainstream the fuck out.

Democratic 2028 aspirants Rep. Ro Khanna and Sen. Chris Murphy both capitalized on the Trump-triggered panic and ensuing TACO to raise their profiles. Most of rest of the Dem 2028 aspirants have been caught flat footed, trapped by their zionist obligations and inability to recognize the political moment.

The freakouts and cognitive dissonance will continue until they can’t.

And as Aurelian pointed out, the consequences of the Interregnum Ending will be serioius:

For the US, as I’ve indicated, the shock is likely to be existential: Americans have been so misled for so long by their governments and media about their economic and military strength that the sudden discovery of its limits will be brutal and de-stabilising. Above all, a political culture of entitlement, which is used to issuing demands and threats to try to get what it wants, will suddenly have to cope with the US becoming the demandeur, as it is over the current “ceasefire,” obliged to make compromises and sacrifices to get what it needs to keep the country going, and seeing others expand into the strategic space it has vacated. Whether the current political system will survive the shock, and whether it will be capable of actually making the concessions necessary for survival, are very open questions.

Meanwhile the majority of Americans are getting their faces vigorously rubbed in the litter box of reality every time they pump gas and soon the inflationary impact of Trump’s war will resonate throughout the economy.

The longer it takes for the official narrative to adjust to new circumstances, the longer the Interregnum of Unreality continues, the worse the impact will be and the bigger the looming revolutionary moment will seem to be and the more forceful the ensuing crackdown will need to be to snuff it.

Monday Morning Econ Blues

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On April 6, 2026

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~by Sean Paul Kelley

The looming financial crisis and the news that keeps emerging is getting so bad that it’s growing harder for me to set aside my rage and discuss it coherently.

But I’m going to try.

I’ll continue to use the framework of the credit cycle, as I hope y’all have been able to digest it. That said there are some events that are happening outside of a normal cycle, not unpredictable, but defintely wild cards and spoilers; chief among them would be the closure of the Straits of Hormuz and its cascading effects on the by-products from gasoline refining. This will lead to a commodity price spike everywhere.

I noted nearly two weeks ago, “The end of this credit cycle is going to include the following macro events: a credit crisis, a housing crisis, an energy shock, with the potential for . . . famine on a biblical scale [in the developing world], at least one Too Big To Fail failing, as Lehman Bros and AIG did in 2008, and the AI bubble bust.”

We are very deep into phase 2 of the credit cycle. We are closer to the end than we are the beginning.

By way of not so new but newly disclosed developments FDIC insured banks are exposed to private credit and/or equity to the tune of $1.4 trillion.

That makes up 11% of total FDIC insured bank lending. This is why I call private credit, shadow credit. And that shadow credit is money that you, dear taxpayer, are on the hook for when the excrement hits the fan.

Moreover, the private credit/equity crisis is much, much worse than I initially thought. I went full Alice down the rabbit hole this weekend. Never in my wildest dreams might I envision the inept deployment of so much capital in so many catastrophically stupid ways.

Here’s that canary, Blue Owl, I’ve been talking about. It’s getting worse for them. Much, much worse: there is a term for 41% redemption demands: a run on the mother-fucking bank. Blue Owl–as I have mentioned many times before–is linked at the hip with Oracle and its hyperscaling of datacenters. Oracle is trying to back door a Federal backstop, justifying it as a necessary AI upgrade to Fed databases, which is bullshit, but it might work.

Fun fact: all planned data-centers for 2026 are either delayed or cancelled. But we’ll get to that later.

The real problem right now is the dilemma, of which I already spoke, facing central bankers from the ECB, Japan and the Fed. I’ll spell it out again.

First, they are facing an inflationary energy shock. They are staring at commodity prices rising coupled with higher inflation expectations from consumers. Inflation is likely to jump. This places enormous pressure on central bankers to tighten credit by raising interest rates.

On the other side of the dilemma is the growing realization, at least I hope they are aware, of just how bad a credit crisis we’re waltzing into.

Housing is in free-fall, too.

The employment numbers are a joke. Sure, the BLS reported 178,000 non-farm payroll jobs added in March. Unemployment fell a bit as well. Except, the way the BLS calculates unemployment is a farce. Consider that 400,000 people exited the labor force during the same month. How does that translate into job growth? (Hint: it doesn’t.)

Unemployment is calculated using U3, meaning people who are actively seeking work and have done so in the past four weeks. A more meaningful, but politically inexpedient measure is U6. U6 “includes U-3, plus discouraged workers, those marginally attached to the workforce, and people working part-time who want full-time work.”

See where I’m going with this?

At the same time BLS was championing these great numbers, they issued an under-the-table revision of the February numbers downwards -133,000. Yup, you read that correctly. Add all the downward revisions over the last two years and employment numbers have cratered downwards to the tune of millions.

Millions.

All this data gives the Fed a bad case of whiplash: raise rates in fear of inflation or lower them, anticipating a credit crisis?

Should I stay or should I go?

Here’s the kicker that magnifies this dilemma: the signal WTI long-term futures (and treasuries and TIPS) are giving off. Take a look at this chart of WTI:

You can clearly see the near term spike. That’s the inflationary pressure central bankers are worrying about. Brent Crude is even uglier at $140. So, at present WTI is at $111 for April 2026 contracts. But take a look at the futures a year later. The chart doesn’t go that low, but the futures are priced at below $60 a barrel. That’s a $51 spread.

WTI long term futures are predicting serious oil demand destruction over the next 12-months and longer.

What, say you, is demand destruction?

Demand destruction happens when shrinking economic activity across the board globally reduces the need for energy. US Treasuries and TIPS are signaling identical developments.

Shorter version: less economic activity globally means less demand for oil. But my bet is that central bankers will raise rates at first, only to realize the trap they fell into.

Anyone want to take the over/under?

So what does this all mean? Well, EndGameMacro succinctly describes how bad it will probably get: “Unemployment rises roughly 5.5 points to a peak near 10%, equities fall roughly 55% to 58%, home prices drop about 30%, and commercial real estate takes a 39% to 40% hit.”

Personally, I think it’ll get worse. The size of the private equity/credit catastrophe has me questioning whether the Fed can really backstop a crisis this time around, especially when you add the massively irresponsible budget just proposed by Trump.

Finally, a quick word on AI: this post just confirmed my hunch that the AI craze is nothing more than a huge ponzi-scheme and will never truly amound to a hill of beans. Here is a taste of the post:

“So it is with great regret that I announce that the next person to talk about rolling out AI is going to receive a complimentary chiropractic adjustment in the style of Dr. Bourne, i.e, I am going to fucking break your neck. I am truly, deeply, sorry.“

Give it a read. You’ll enjoy it and learn a lot.

What’s it all mean?

Easy, our elites are strip-mining our economy while we’re too busy fucking around on Tik-Tok to care.

You Better Start Swimming, Because Drowning Is Bad For Your Health

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On March 31, 2026

42 Comments

~by Sean Paul Kelley

Headwinds: “a headwind blows against the direction of travel of an object . . . decreases the object’s speed and increases the time required to reach its destination.”

Rip Tide: “A rip is a strong, localized, and narrow current of water that moves directly away from the shore, cutting through the lines of breaking waves, like a river flowing out to sea. The force of the current in a rip is strongest and fastest next to the surface of the water. . . Swimmers who are caught in a rip current and who do not understand what is happening, or who may not have the necessary water skills, may panic, or they may exhaust themselves by trying to swim directly against the flow of water.”

Last week I wrote this about our current credit cycle:

The end of this credit cycle is going to include the following macro events: a credit crisis, a housing crisis, an energy shock, with the potential for massive failed deliveries necessary to third world nations creating famine on a biblical scale, at least one Too Big To Fail failing, as Lehman Bros and AIG did in 2008, and the AI bubble bust. All of these will happen. Locked in. Fixed. No way out.

Since then there, as is the way of the world, some things have changed. When facts change, I re-assess ideas and opinions.

First, the Fed, and the ECB, are caught between Scylla and Charybdis (I should not have to explain that reference to this readership, should I?): an imminent credit crisis necessitates monetary easing, whereas a looming energy shock necessitates rate hikes to forestall inflation. Right?

It’s the mother of all dilemmas for a Central Banker.

I think the Fed and ECB as per their dual remits—price stability— will hike rates fearing inflation more (and with some cogent reasons to do so, e.g., the ripple effects of skyrocketing diesel prices) and ignore the massive and imminent credit destruction—the notional value of all global private/shadow credit is about $4 trillion, yes, you read that right—that will force insurers and pensions funds into severe liquidity/solvency crisises that are both overexposed to the private credit shops and locked out of redemptions. That freeze in liquidity will cause morphine-necessary levels of pain on Wall Street, but Main Street won’t even get a Tylenol, granny won’t get her annuity payment and uncle Joe won’t get his county pension, auntie-Mae might even miss her teacher’s pension.

Meanwhile, diesel driven costs will surge through the real economy like a tsunami, destroying purchasing power more forcefully than we have ever seen. We could be looking at a real decline in economic order of 4-7% YoY.

BTW: doesn’t just in time delivery look like an idiot’s fucking fever dream right now?

Bond rates rolled over yesterday. Oil prices remain sticky. Repo fails are surging: $379 billion week as of March 18. Repos, repurchase agreements are the highest quality, safest corporate invetments in existence. Rising repo failures are a clear indicator that, although systemic liquidity exists, confidence is collapsing. Repo failures often have cascading effects on other corporate parties who cannot find the necessary funding for short-term obligations their cash flow is unable to support. Moreover, private credit redemption halts are increasing exponentially. Employment is cratering. Diesel prices are skyrocketing. Housing is in a nationwide free-fall. Systemic liquidity is perilously close to freezing up.

Folks, I hate to say it, but our economy isn’t facing headwinds, it’s facing riptides.

Headwinds are manageable. Riptides kill.

The domestic shocks are enough to call it plain: we’re in a recession. Of course, do not expect accurate or honest economic numbers from Trump’s government. The damage could be limited domestically except for the exogenous shocks resulting from Trump’s Iranian catastrophe.

The global effects are almost incomprehensible.

Consider the damage done to Gulf petrol infrastructure. When refineries get blown-up AVGAS, diesel, helium, urea and fertilizer become impossible to buy. Who cares if it can or cannot make it out of the Straits of Hormuz? If they don’t exist, whatcha going to do? These products are known as petroleum distillates. They are by-products of gasoline refining.

I can’t even begin to comprehend how deleterious and long-term this destruction will be and what kind of follow-on, cascading effects it will have. Consider that helium is essential in making chips. No one, and I mean not a single fucking Wall Street analyst I know of, is factoring in the loss of distillates from destroyed refineries yet. That it bodes very, very ill for the entire world economy is an understatement. It’s not hyperbole to say the economies of the Rules Based Order are in deep peril. Japan and South Korea are in deep kimchi too.

And India’s Green Revolution? Oh man, the carnage might be biblical in scale without access to Persian Gulf fertilizer. It could be like the impact of two failed monsoons. The human exodus? Of all that is holy, it makes me want to curl up in the fetal position.

Not a one of us–including myself–has any true inkling how dependent the modern industrialized and developing world is on petroleum and its by-products. Nor do we have any idea of the catastrophe unfolding in places like South East Asia in regards to food. For example, gas for cooking shortages have lead many people in South East Asia’s mega-cities to abandon the cities for rural home regions where cooking with biomass, primarily animal dung and wood, is practicable. Ponder that for a moment. Then consider the deforestation cascading consequences of those mega-populations reverting to 13th century feeding practices?

If you need it spelled out for you in brutal detail read this utterly demoralizing essay. We are well along the road to ruin.

I’m an historian and confess to a complete lack of a historical framework/reference to analyze and/or opine in any meaningful manner on how epic the shitstorm Trump’s war on Iran will turn out, except I know bone-deep that the Rules Based Order will collapse. The remainder of the world?

Gotterdammerung. Google it if you need explication. I’m too tired, too fucking sick with grief and too enraged to continue.

What Phase Three of the Credit Cycle Looks Like: the Ponzi Scheme Visualized

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On March 25, 2026

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~by Sean Paul Kelley

Courtest my alma mater Morgan Stanley, we have this graphic that perfectly depicts what the AI-Ponzi scheme looks like and just how incestuous it truly is:

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