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Alternative Visions – The Debt-Deflation-Default Nexus

Dr. Rasmus continues discussion of last week’s topic of the causal relationships between debt and financial bubbles, financial asset crashes, and recessions. How defaults (i.e. failure to pay principal and interest on debt as prices and cash flow collapse) play an integrative role in the debt-deflation dynamic as well. Rasmus explains how, when financial markets start contracting, defaults begin to play a role—further exacerbating the downward spiral of all three: debt, deflation, and further defaults. Recapping the main points of last week’s show, emerging potential defaults in the system are reviewed: Sears, JC Penney, and now Macys in the retail sector; General Electric and Ford: UK retailers: EU banks (Deutsche, Commerz, Danske, Italian, Greek banks) and others. Weak points in the US and global real economy (housing, manufacturing, business inventory overbuild), and in the global economy (Germany, France, Italy PMIs), UK, Australia, China slowdown, commodity producing emerging markets, Japan, So. Korea. US stock market’s worst December since 1931. US Junk bond & BBB bonds, leveraged loans, hedge funds, EU banks nonperforming loans. Why central bank monetary policy subsidization of the system failed to generate sustained real growth 2010-16 and why fiscal policy (Trump tax cuts and defense spending) is now having a similar temporary and insufficient effect. The fiction of central bank independence.

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