The Subprime U.S. Economy: Disintegrating Due To Subprime Auto, Housing, Bond & Energy Debt

The U.S. financial system continues to disintegrate even though most Americans hardly notice.  The system is being gutted from the inside out… much the same way a chronic disease weakens a patience even before any symptoms are felt.  However, we are already experiencing painful symptoms as U.S. economic indicators continue to weaken.

Here are just a few of the recent headlines:

Energy Giant Schlumberger Fires Another 8,000 As “Market Conditions Worsen” in Q2

The Financial System Is Breaking Down At An Unimaginable Pace

Potential Crisis Triggers Continue To Pile Up In 2016

Just In Time—–Big Wall Street Housing Investors Cashing-Out On Housing Bubble 2.0

Corporate Bond Defaults Hit Highest Rate Since Financial Crisis

These are just some of the recent headlines pointing to BIG TROUBLE AHEAD.  However, the U.S. financial system is in dire shape due to the SUBPRIMING of the entire economy.  Today, anyone can purchase a car for little or nothing down and finance it for 84 months.  The U.S. housing market is also in the same predicament.

According to the article, Are We Heading for Another Housing Crisis?, published on May 12th this year:

While the economy and home prices have both rebounded, some people have expressed concern we are headed for a repeat housing bubble. As of January 2016, home prices were rising at a rate twice that of inflation, according to the S&P/Case-Shiller U.S. National Home Price Index.

What’s more, Fannie Mae and Freddie Mac have unveiled programs to allow first-time homebuyers to make a purchase with only 3 percent down. Plus, some lenders are using alternate credit scores, which may make loans available to those who can’t get one under conventional credit scoring methods.

So, here we are heading down the same path as we did prior to the 2008 U.S. Investment Banking and Housing collapse.  However, this time around its both a Subprime Auto & Housing problem.  But, that is just part of the Subprime mess.

As most of you already know, many of the world’s sovereign bonds have negative yields.  According to the article, The Financial System Is Breaking Down At An Unimaginable Pace:

In February 2015, the total amount of negative-yielding debt in the world was ‘only’ $3.6 trillion.

A year later in February 2016 it had nearly doubled to $7 trillion.

Now, just five months later, it has nearly doubled again to $13 trillion, up from $11.7 trillion just over two weeks ago.

Think about that: the total sum of negative-yielding debt in the world has increased in the last sixteen days alone by an amount that’s larger than the entire GDP of Russia.

Just like subprime mortgage bonds from ten years ago, these bonds are also toxic securities, since many of are issued by bankrupt governments (like Japan).

Instead of paying subprime home buyers to borrow money, investors are now paying subprime governments.

And just like the build-up to the 2008 subprime crisis, investors are snapping up today’s subprime bonds with frightening enthusiasm.

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Gary Anderson 4 years ago Contributor's comment

I think you have to have a little cash to buy new cars. And there is still massive demand for negative debt. It is pretty clever when you can get investors to pay down government debt. Of course, the upside is that governments can stimulate a little bit with the wiggle room. Strange system and very hurtful to main street except for this potential stimulus, but they are muddling through. Government bonds are like gold, a collateral for derivatives: www.talkmarkets.com/.../central-bank-victory-and-negative-bond-rates

Steve St. Angelo 4 years ago Author's comment

Gary... interesting comment. However, I would not use surplus funds to buy a new car. When the system finally cracks, there will be a huge glut of new and semi-new cars at a huge discount.

How are investors paying down debt?? U.S. debt is now $19.4 trillion. How is that heading lower? Maybe you can clarify what you mean.

Lastly, Government #Bonds are like gold until expensive oil production declines. Cheap #oil production peaked several years ago, now we are waiting for the peak of expensive oil. Actually, if we don't see tens of trillions of Helicopter money dumped on the market shortly, expensive oil production may have already peaked.

Government bonds are #DEBT. The world is full of debt up to their eyeballs. Without growing energy production, this debt will not be paid back. #Gold and #silver are two of the best assets to own going forward.

Steve

Gary Anderson 4 years ago Contributor's comment

Hi Steve. Thanks for responding to my comment. You may be right about the cars.

Investors are paying down debt in Europe and Japan. As even you said, we have not turned negative yet.

As far as government bonds relationship with energy, I confess I am not an expert about that at all. I do think that energy is not the only game in town, and wasn't it funded by junk instead of pristine treasuries? I think the demand for bonds is more in the interest rate derivatives market, which is much larger than the energy derivatives market. That is why I don't think energy can destroy everything. But I could be wrong.

Yes, government bonds are debt, but they are gold. They are, in fact, of higher rating than gold itself when used as collateral for interest rate derivatives. In fact, they are in short supply, and demand exceeds supply. Just FYI.

I wrote about that a couple of times. Here is one showing a lot of bond hoarding, new gold hoarding, going on: www.talkmarkets.com/.../a-whole-lot-of-gold-hoarding-going-on

Steve St. Angelo 4 years ago Author's comment

Gary,

I appreciate the thoughtful reply. While bonds presently have a higher rating than gold, I don't believe this will be true several years down the road. Furthermore, there are a shortage of bonds, because of the massive #liquidity injections by #CentralBanks. Bonds can be in short supply when Central Banks print money to buy them.

Actually, the #Fed and Central Banks are running out of assets to buy. This is why several analysts believe the next Central Bank BULLET will be outright #HelicopterMoney.

Lastly, the production of energy is different than comparing outstanding #EnergyDerivatives to the Interest Rate Derivative Market. While it's true that the Interest Rate Derivative Market totally overwhelms anything else by several orders of magnitude, I would like to kindly remind you financial instruments are worthless without the burning of energy. Burning #energy translates to economic activity. Profitable economic activity translates to a functioning financial system.

When U.S. and global expensive oil production declines in earnest, this will cause a serious dislocation in the Financial System that will result in collapse. Unfortunately, this will be a depressionary collapse we never come out of.

Of course.. this is my humble opinion.

Steve

Gary Anderson 4 years ago Contributor's comment

Thanks Steve. I just think there are trillions of dollars of bonds committed as collateral for derivatives. Even without #QE, bond yields have gone down. Seriously, this is the new normal and it presents problems. We will be in low rate territory for decades unless some other factor comes into play.