The Economy

At the "height of their powers" they were 6-foot-4 and full of muscles.

 

FYI, the problems in the Eurozone have been contained because of all the quantitative easing the European Central Bank has done. But same as the mess the Fed is dealing with, inflation is a big problem in Europe and as a result the ECB is being forced to end its bond buying program which blew up the size of its balance sheet and effectively kicked the can down the road (while creating a bigger reckoning later on).

Spreads between German bonds and the peripheral European economies whose debt is beyond anything that will be ever be able to be paid back are widening. Greece, Italy, Spain. ... The ECB hasn't done anything yet to stop propping them up, but just the threat of it (to deal with the inflation problem they have created) is starting to create stress and drive up their yields.

As I said in the post above a month ago, nothing changed in Greece. It is still running up massive debt and should have been in default, it's just that a central bank destroyed price discovery in the lending markets to enable it to skate for several years. When they can no longer do that -- and runaway inflation is the consequence of them propping up all of the bad debt with a mountain of new debt -- you all will be reading about Greece and Italy and Spain all over again and how fiscally screwed they are (while their populations suffer).

None of it should be surprising to anyone who understands that nothing had actually changed.

Here's a story from yesterday talking around the fact that the Euro has always been a flawed construct that has a lot of different countries acting recklessly fiscally to varying degrees, but their funding costs being tied to each other by a price-fixing czar.

ECB Policymakers Will Ask Lagarde to Be Tough on Fragmentation

 

The Fed - Consumer Credit - G.19

In April, consumer credit increased at a seasonally adjusted annual rate of 10.1 percent. Revolving credit increased at an annual rate of 19.6 percent, while nonrevolving credit increased at an annual rate of 7.1 percent.

They are starting to push up rates just as a weak, inflation-riddled economy has caused the amount of borrowing to start taking off again.

But no worries about people drowning in interest at some point and defaulting, right?

Here's the reality: They have had real rates so far negative for so long, essentially punishing savers to enable increasing amounts of debt, and it has indebted so much of our economy, that we can't afford anything except their price-fixed negative real rates. The problem is that has finally taken the asset price inflation they caused for a decade with their "policy," and turned it into a rampant consumer price inflation problem. If they deal with it by letting the market take rates higher, there will be a cascade of credit defaults and it will tank our economy. If they don't deal with it, people are not going to be able to afford milk. Or, most likely, we get the worst of both worlds, stagflation, and it drags on because they take mealy, half-assed measures.

We are reaping what we sowed.