Category: Economics Page 1 of 97

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

By Nat Wilson Turner

On April 8, 2026

29 Comments

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:

The perception of American prosperity
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

By Sean Paul Kelley

On April 6, 2026

7 Comments

~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

By Sean Paul Kelley

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

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:

Is any other comment necessary?

Shockwaves From The Second Iranian American War

By Ian Welsh

On March 24, 2026

30 Comments

Some of the issues from the Iranian war are obvious: everyone’s talking about oil and natural gas, for example. Many have mentioned fertilizer. But I think it’s worth going into in a bit more depth.

First is that in addition to gasoline, oil is used to make bunker fuel (98% of freighters and tankers), jet fuel, and diesel (heavy machinery, large trucks.) The prices for all three are rising faster than gasoline prices and there will be a worldwide shortage. Production of semiconductors, phones and so on will shut down some time after that, depending on how the small reserves available are shared out. Taiwan is particularly vulnerable and production can be expected shut down in a couple weeks.

The chart below is from six days ago:

Don’t take the above chart too seriously, I’ve heard different numbers from different sources, and the type of oil in reserve matters a LOT.

This will, of course, hit the AI Bros hard. They have significant stockpiles of some of what they need, but not everything. Worried about that data center coming to where you live? If you’re lucky, Iran has just saved you from an AI driven spike in your energy prices, but not an oil shortage spike!

Airlines are already reducing flights. Expect prices for travel to spike significantly. If you don’t already have tickets for a trip get them now. Even so, it wouldn’t surprise me if many already booked flights are cancelled without recourse, citing forece majeur. Diesel and bunker oil shortages will mean supply line disruptions, and primary processing disruptions. Fertilizer shortages are already changing planting decisions, farmers in Australia are planning on planting much less wheat, for example.

Oil goes into a lot of things. Here are a couple of graphics showing some of them:

And,

To oversimplify, pretty much everything has some oil in it. For example I’m stocking up on NSAIDs and Tylenol 2s (legal in Canada.) I saw one person saying they went out and bought about a year’s supply of pretty much everything which can be stored. One side benefit may be that insane levels of plastic packaging might, at least, be reduced.

China’s bunkering up. No refined oil products are being allowed for export. Fortunately for China, they, unlike apparently almost every other nation in the world, are not run by retards, so they have massive petroleum reserves and they bought about 50% of the world’s grain production for the last four years and stored much of it. But this goes far beyond petrochem: they produce, for example, almost all of the world’s tungsten, and no more exports of that.

Stockpiles in the the West are essentially at zero, right now, and yes, most advanced weapons cannot be made without Tungsten.

There’s been a crash in silver prices recently. You may have read about it. But here’s the thing, there’s an actual physical shortage of it because it’s used in essentially all electronics, including semiconductors and even more importantly, solar panels. Everyone’s going to want solar panels now.

China, not being fools, are no longer allowing export of silver because they know it’s the physical shortage that matters, not the paper price on paper exchanges where delivery isn’t expected to happen.

I spent years railing that just-in-time logistics was sheer fucking insanity and should be outlawed. In addition every country who isn’t a net producer should have at least year’s stockpile of fuel and even net producers should have three years of food stored (because things like droughts and fertilizer shortages happen.) Medication and key medical goods should also be stockpiled. A lot of people are going to suffer and die when key drugs hit shortage and many cancer drugs, for example, are produced in India and on top of the factories not being able to operate without energy, many drugs use petrochemical derivatives directly.

This war should never have happened. Even if it ended now there would be serious shortages for about four to five months, and it would be three to four years before full production could be resumed, if it can be. (Shutting down oil and gas well production often damages the underlying fields.)

Oh, and which major nations will suffer the least? Russia and China. It is to laugh.

I know this is the second article on this subject in a few days, but the impacts of the war are important for you to understand.

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America’s Economic Future: Imminent Pain and Dislocation Not Seen Since the ’30s

By Sean Paul Kelley

On March 23, 2026

20 Comments

~by Sean Paul Kelley

In a previous post I outlined the order in which the financial catastrophe barreling down on us like oncoming freight will occur. I’ve simply included one new variable: the energy shock.

Here’s how it’ll go down.

First, there is an expansion. Stocks rise. At some point the rise becomes divorced from realistic earnings expectations. This is when intense speculation drives equities into bubble territory. After all, Nvidia’s market cap is just shy of ($4.2trillion) the annual GDP of India ($4.4trillion) as of Monday March 23, 2026. Simultaneously, US Treasury buyers, ‘prudent’ investors, qualified investors (people with more than $5 million in net worth), pension funds, insurance and re-insurance companies and good old orphans and widows, as they always do, got a bit jealous and so reached for yield. They wanted safety with high returns. But in this world you can have safe or you can have high returns. You’re a fool to think you can get both at the same time; alas we have a superabundance of fools these days.

So just like in 2007-08, the shadow banking system, ie. the issuers of supposedly safe and high yielding assets, called subprime loans, experienced serious losses, that lead to the unwinding phase of the financial crisis. The 2008 fin crisis started on a lovely summer day in NYC, June 22 2007—I think the Yankees won that day—when two Bear Stearns subprime hedge funs went belly up. This was 2008’s canary in the coal mine.

This time around it isn’t subprime that has precipitated the unwind but the dominance of private equity/private credit shadow banks, such as Blue Owl, Blackstone, Blackrock, and others.

As previously noted, the current crisis’ canary in the coal mine was Blue Owl. Their very rude wake up call arrived in the form of $1.4 bn in redemption demands, which forced Blue Owl to sell assets to meet redemption needs. It was a catastrophe for Blue Owl, in every way a fire sale in which every Wall Street trader exacted his pound of flesh. It also led to a very ugly unravelling of contracts with Oracle. Oracle’ stock plummeted.

Many others have followed in the weeks since Blue Owl burped up a massive fur ball. The specifics can be found in this post and are beyond the scope of this discussion. They are pertinent, but listing them would make this a Tolstoyian endeavor. The upshot is this: normally, an enormous amount of credit destruction (read, debt) has to happen until we get to phase three of the credit cycle. One counterintuitive effect: a stronger dollar. We’re already seeing this versus the other major fiat currencies.

Moving on to one of the other developments I outlined in the first paragraph: a housing crisis. Home building has long been the foundation of the American economy. It’s in serious stress right now. As I mentioned before, last month saw a full -17.6% collapse in the purchase of new homes. In the Northeast it was an epic cow patty catastrophe: -44%. In my hometown, sellers outstrip buyers buy a full 114%. This in the heart of the ‘Texas miracle.’ I honestly don’t know how a collapse in homebuilding will effect this economy coupled with the headwinds it’s facing. I know it won’t be salutary and will exacerbate already dangerous liquidity and solvency issues caused by the private credit/private debt unwind. What else? “Cannot say. Saying, I would know. Do not know, so cannot say.” Five bucks to whoever gets that reference.

Will the Fed be able to contain both? FuckifIknow?

Adding to fierce headwinds, Trump’s war against Iran has had a similar effect on the global economy as Odysseus ill-timed opening of Aeolus’s wind bag: it’s blown us on a completely fucktarded vector, beyond any rational goal, that will take five years-at a minimum-to recover from if we stop now. Plenty of us predicted this but we’re just dipshits sitting in the basement wearing our jammies. If the Israeli’s continue their wanton destruction of everything, there is no telling how Iran will respond. And I’m not even pondering nukes here.

The effects the closure of the Straits of Hormuz are and will continue to have on the global economy, rather the effects faced by the Rules Based Order the West imposed on much of the globe will be make the European energy crisis look like a night out with Sidney Sweeney.

One effect: potential famine in those third world countries-on a biblical scale-unable to import desperately needed fertilizer from the Persian Gulf at reasonable prices.

Second, no helium. Helium is a gas essential to modern industrial life, everywhere.

Third, my best friend in Denmark joked, “hell, we might soon be back on bikes eating only porridge for dinner.” He also rued the demise of Nordstream and said, unequivocally that Danish renewables won’t be enough. This from the one European nation with the largest sector of renewables. Imagine the second order effects cascading out across the globe?

And what about the cost of transport? Not just everywhere, but especially here in the US? Anyone given any thought to just how super human stupid just in time delivery looks now? I’ve always warned about this. You know: chickens, roosting; shit like that.

Fuck it. I’ve got more than ten years of Wall Street experience so what the hell do I know?

Well, I know this as I know the sun rises in the East and sets in the West: the exogenous shock waves rippling towards the US economy are bad. Vewwy, vewwy bad. And there is no double-slilt experiement available to cancel out the oncoming waves.

What next?

Oh yeah: Too Big To Fail. Nope. Stress test? Are you Dave Chapelle?

Just ask Lehman Bros or AIG. This time around one of the Too Big To Fail institutions will fail. Maybe more than one. If I had my choice it would be Goldman, but if I am being realistic I’d put odds on Wells Fargo and/or Citigroup. Why? Well, Wells Fargo has a history of laundering tons of cartel cash, so no real culture of compliance/risk management. Citigroup has brazenly challenged the SEC to regulate them on multiple occasions. Those would be my two choices.

Finally, I’ll recap phase three of the credit cycle: the Ponzi unwind. As I wrote here,

“Crypto will be the first big Ponzi unwind. And it will take a lot of suckers with it. Plus, a damn lot of fools who worked for investment, commercial banks and private credit/equity shops. Crypto is bullshit, wrapped in dead fish skin that’s been perfumed by Chanel. No matter how good it smells, it’s rotten to the core. Crypto is to this financial crisis as CDOs and synthetic CDOs were to 2008.”

Moroever,

“The AI-hyperscalers will suffer as well, during the Ponzi unwind. Why? They are in essence engaging in a similar sort of vendor financing like CISCO and Juniper Networks did in the dot-com bubble. Nvidia is giving chips to AI-hyperscalers as collateral for loans. Never mind the chips will depreciate long before the earnings are solid enough for the AI-hyperscalers to payback the “loans.”

It’s accounting legerdemain in extremis.

So, to be clear: multiple endogenous-domestic-headwinds coupled with very ugly exogenous-international-shocks, real and potential, increase the odds, hourly, that we’re nearing financial armageddon.

To recount what to expect: a housing crisis, a credit crisis, an energy-shock, fertilizer shortages leading to potential famine, one or two Too Big To Fail, failing and the AI bubble bursting. All at the same time. Same time. Boom. Boom. Boom.

This ain’t gonna resemble your daddy’s financial crisis. In the words of Grunge’s greatest lyricist, Chris Cornell, “I’m feeling California, but looking Minnesota.”

The Credit Cycle: Phase Two Accelerating

Here are today’s Phase Two developments. Many are ominous. Things not looky so goody.

The smartest guys in the room, i.e., Goldman Sachs had this to say about AI: “Massive investment in AI contributed basically zero to US economic growth last year.” What will they predict next? An oil price spike if we go to war with Iran? Oh wait.

Dario notes that the liquidity crisis is going global: “Middle East liquidity crisis in the financial system is surfacing.”

He cites Rashid ben Saeed who elaborates: “Citi and Standard Chartered literally evacuated their offices this week. Told staff go home, work remote. HSBC closed their Qatar branches. Hedge funds are in “contingency mode.” That’s a polite way of saying they’re bricking it. Analysts are saying customers could pull out $307 BILLION if this goes on another month.”

First Squawk writes that both JP Morgan and Goldman are offering Hedge Funds ways to short private credit. That’s just weird.

Ripplebrain conveys just how devastating the attack on QatarEnergy’s LNG production is: “17% of QatarEnergy’s production is 3.4% of the world’s LNG production.” Ending ominously saying, that it’s “gone in the blink of an eye, perhaps for years.”

The irrepressible Matt Stoller highlights a video that highlights “straightforward market manipulation.” He also points our attention to the #2 story at the Wall Street Journal: “U.S. Regulators Propose More Lenient Capital Rules for Big Banks.” This kind of proposal is in direct contravention to the ‘stress test’ rules put in place after the 2008 Financial Crisis. It also clearly foreshadows liquidity and/or solvency issues that the commericial banks will soon face.

In another clear phase two clusterfuck is this story from the WSJ, cited by Unicus Research. The upshot: “Stone Ridge’s LENDX fund just told investors it would honor only 11% of redemption requests.” The post on X also includes what kind of garbage is in the fund. Go take a look. It’ll engender a ton of schadenfruede. Enjoy!

As pending crises morph into full blown disasters investment banks often prepare by enacting the following policies. First, they raise production quotas for their employees while simultaneously cutting their commission payouts. It’s a cut-throat business. Payout cuts are painful. I’ve lived it. And they always cut payouts right before or during bear markets. I endured this twice at Morgan Stanley. Guess what: Goldman has begun that process, as First Squawk reports: “Goldman plans performance-based job cuts in late April.” This we can infer two important factoids from this: Goldman is worried about cash-flow. You don’t plan to run employees off if you’re flush with cash. Two: timing, Goldman clearly sees this credit cycle accelerating rapidly with an April inflection point.

Shashank Joshi catches an excellent highlight from the Economist: “Average prices of petrol and diesel have reached $3.88 and $5.09 a gallon, compared with $3.11 and $3.72 at Mr Trump’s inauguration. Republican support for the war is strong, but softening.”

More Perfect Union informs us “the cost of vegetables jumped 49% last month as inflation hit hard and companies raised prices.” Its source is BLS data. Now I know, some will dispute how the CPI is computed. I thinks it full of balderdash and male bovine excrement. So does Ian. So I post and you decide.

Sohrab Ahmari notes, unconfirmed but entirely plausible, that “force majeur [has been declared] on Qatari LNG contracts for up to five years.” Five years? That’s going to pile Pelion atop the already messa Ossa of the energy markets globaly.

CORRECTION: according to EarlyGray the video below does not say anything about Japan buying Russian oil. Mea culpa. I regret the error. SPK

~~Richard posts a video and apparently translates it.~~ If true, it’s a bombshell: “Japan is now openly buying Russian oil with the yuan.” Why not with JPY? I would imagine that China has already set up a Yuan based transaction system for buying and selling oil to steadily chip, chip, chip away at dollar hegemony. Yeah, Japan has said it publically and officialy. That’s pretty much like pissing on the petrodollar. Our closest North East Asian Ally. That’s fuckery on an hitherto unseen level.

Meanwhile, to Japan’s northwest, South Korea is considering resuming imports of Russian oil.

And I make the observation, in utterly obscene Russian fashion that “with these high oil prices the Russian Treasury has certainly Как бога за яйца поймал.” Translated idiomatically: Russia is in the catbird seat. Translated directly:they got God by the balls.

Rory Johnston notes just how high Dubai crude prices have risen: “Cash Dubai crude (balance of the month) just broke above $170 per barrel.”

Here’s what I’ve previously written on this credit cycle. I stand by it all. The only comment I’ll add at present is this: if the exogenous shocks to the US economy continue and the energy shock intensifies, all bets are off on the proximate cause of the end of dollar hegemony.

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

Category: Economics Page 1 of 97

American Profits Are One Of The Causes of American Decline

The Twin Pillars of the Interregnum of Unreality Are Under Stress

Monday Morning Econ Blues

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

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

Shockwaves From The Second Iranian American War

America’s Economic Future: Imminent Pain and Dislocation Not Seen Since the ’30s

The Credit Cycle: Phase Two Accelerating