Here's an evergreen introduction from a post-GFC (2009) offering:
Unlike his fellow gloomster David Rosenberg, Société Générale's Albert Edwards amuses* as he forecasts gloom, doom and despair. They both bow to the master, the Telegraph's international business editor, Ambrose Evans-Pritchard whose writing I once described as a "continuum that ranges from morose to suicidal.
Here he is at his despondent best...
And from A.E-P at the Telegraph, October 6, 2023:
A very slow-burning fuse has finally, and suddenly, reached the powder keg
The US economic expansion is being kept afloat only by extreme fiscal stimulus and war-time deficits, an astonishing state of affairs at the top of the cycle.
The federal government is unable to fund this scale of borrowing from US domestic savings, and global creditors are no longer willing to fund it either at bearable cost.
The violent spike in US Treasury yields over the last two months has nothing to do with inflation, which has been falling faster than markets expected.
Real rates are rocketing, driven by a sudden jump in the “term premium”. Think of it as a credit crunch being imposed upon a feckless political class in Washington by global bond vigilantes.
A very slow-burning fuse has finally, and suddenly, reached the powder keg, confirming the Dornbusch adage that financial crises always take longer than you think, but then unfold much faster than you expected.
Bernard Connolly, the world’s foremost Wicksellian economist, says the US fiscal bubble is the latest in a long string of bubbles required to keep Western economies above water. “If the fiscal deficit is reduced, the Federal Reserve will have to collapse interest rates,” he said.
As the international capital markets pull the plug on US fiscal incontinence, the Fed will again have to come to the rescue. It will have to restore negative real rates and blanket the debt markets with quantitative easing à outrance, or risk an economic depression. This in turn will launch the next QE bubble.Much the same process will unfold in Europe, although the ideology and North-South politics of EMU almost guarantee that the European Central Bank will respond too late and allow another deep slump to metastasize.
For all the talk of permanently higher rates and bond yields, Mr Connolly says the West is still on the same conveyor belt towards “ever-lower real interest rates” requiring “ever-bigger bubbles”, whether in stocks, credit and property, or in fiscal excess, or all together.
It is a trend “incompatible with the maintenance of a democratic capitalist society, and thus with the maintenance of prosperity and freedom,” he warns in his brilliant magnum opus, You Always Hurt the One You Love: Central Banks and the Murder of Capitalism.
It is sobering to think that the US federal government was running a large budget surplus in 2000 and the gross debt ratio was 54pc of GDP.A quarter of a century later the ratio is 120pc and vaulting past the 1945 peak. This is partly due to two big recessions and Covid, to be sure, but mostly due to three sets of unfunded tax cuts, two unfunded 21st-century wars and no serious effort to control ballooning middle-class entitlements.
David Kelly from JP Morgan says the US is looking at annual fiscal deficits of $2 trillion this year, next year, and as far as the eye can see. This is at a time of effectively full employment and what should be bumper tax revenues. The deficit could hit $3.5 trillion in the next downturn.
The US Treasury must roll over $8 trillion of existing debt and raise $2 trillion of fresh debt this fiscal year, even as the Fed tosses another $1 trillion onto the heap under its QT programme.
Investors have belatedly, and suddenly, woken up to the shocking implications of a structural budget deficit heading for 8pc of GDP even before any trouble starts. It is this that has driven up yields on US Treasuries by 100 basis points since July....
....MUCH MORE
*Back to Albert Edwards, some of our collected Albertisms (and our translations where needed):
“Investors think this is a sweet spot, but it is in fact a putrid boil that has not been properly lanced”
Société Générale's Albert Edwards' 2022 Outlook: Four Big Surprises... And Lots Of Pain
Société Générale's Albert Edwards: "I Have Been Wrong – I’ve Been Too Bullish"
Société Générale's Albert Edwards: Cry Havoc and Let Slip the...Ah Screw it
"Société Générale's Albert Edwards: 'Equity Investors Are In A Vulcan Death Grip And Are About To Fall Unconscious"'
Season's Greetings From Société Générale's Albert Edwards (Nov. 14, 2012)
"Expect the New Year to bring nothing but disappointment...."
Société Générale's Albert Edwards: "And I looked, and behold a pale horse: and his name that sat on him was Death, and Hell followed with him"
In other news...
Albert wasn't actually quoting Revelation 6:8, just analogizing.
Société Générale's Albert Edwards Sees Blue Skies, Sunshine, the Lame Shall Walk Again
Of course it's possible I have misinterpreted the meaning of
"the US economy is on crutches, and they are about to be kicked away"
It might be that the business attracts a pessimistic, borderline despondent slice of the business community, exemplified by Eeyore the Actuary:
"It's snowing still," said Eeyore gloomily.
"So it is."
"And freezing."
"Is it?"
"Yes," said Eeyore. "However," he said, brightening up a little, "we haven't had an earthquake lately."
-The House at Pooh Corner
And that's the weather. Now back to Eeyore for some weekend fun:
"Good morning, Pooh Bear," said Eeyore gloomily. "If it is a good morning," he said. "Which I doubt," said he."Why, what's the matter?" "Nothing, Pooh Bear, nothing. We can't all, and some of us don't. That's all there is to it." "Can't all what?" said Pooh, rubbing his nose. "Gaiety. Song-and-dance. Here we go round the mulberry bush."
