Juggling Dynamite

I have long noted that the leverage, securitization and off-book accounting gimmicks that imploded enery-giant-ENRON in the early 2000s were adopted far and wide over the last 20 years.  Bailouts to those instrumental in the 2008 implosion, along with central bank liquidity-pumping globally, enabled a continuation of similar antics in the last decade, and particularly in China.

Beneath the deadpan delivery in the segment below the numbers are truly startling:  twenty to twenty-five percent bad debt in the Chinese banking system amounts to some U$ 10 trillion that could be written off and/or down to a fraction of its face value.  Meanwhile owners of the paper have made the classic error of presuming it was ‘risk-free’ on the assumption that the government would hold so called ‘investors’ harmless.  As the Ponzi monstrosity grows however, making participants whole becomes less possible.

The story, actors, destructive-incentives and behaviours at play here are all reminiscent of previous episodes including the 1997 Asian, and 2008 subprime, financial crises.

Charlene Chu, senior analyst at Autonomous and former senior director at Fitch Ratings, discusses liquidity pressures in China, non-performing loans, and shadow credit. Here is a direct video link.

In terms of relative household debt levels, Canadians measured as more financially prudent than US households heading into the 2008 recession–that was then.

Today, as shown beside, Canadians are world leaders in financial imprudence with both record high debt and near-zero saving rates (in red below, versus US savings rate in black).

Being worse money managers than Americans is saying something because Americans have been notoriously profligate.  (See:  Why the next recession will hit Canadians harder than Americans.)

As shown below, in the early 1980s, when interest rates were in the teens and the economy struggling through a double-dip recession, Canadians were saving more than 15% of their disposable income.  Today, after 20 years of saving less than 5%, we are plagued by capital deficits in most institutions and households.

Getting saving rates back above 10% is an essential part of rebuilding financial strength and resilience.  But to achieve this we need to spend less than we earn and get out of debt via less consumption and higher efficiency.   Excersise cannot outrun destructive food choices, and large incomes or lump sums cannot outrun destructive financial management.  The facts speak volumes:   70% of people who receive large amounts of money go through it all in just a few years (National Endowment for Financial Education).

In a conference speech last week I summarized the ‘tricks’ or foundations of financial health in the slide above. Definitely not rocket science, and yet, evidently little understood or implemented.

Now that poorer countries are rejecting incoming garbage shipments from wealthier nations and waste is mounding and washing up all around the world, awareness is finally spreading that less than 10% of the plastic generated each year is actually ever recycled, with the rest sent to landfill, burned, and dumped into lakes, rivers and oceans.

Not surprisingly, mental health experts are reporting spreading ‘eco-anxiety’ stemming from worry about the future as well as trauma for those experiencing climate catastrophes like flooding and hurricanes.  See How the mental health community is bracing for the impact of climate change:

A Yale survey in December found nearly 70 percent of Americans are “worried” about climate change, 29 percent are “very worried” — up eight percentage points from just six months earlier — and 51 percent said they felt “helpless.”

Grieving is one thing, but giving up is another. “In order to productively be with this information, someone has to feel as though they can do something about it,” Lewis says. She’s concerned the deluge of media coverage on the climate has people focusing so much on impending doom that they may become paralyzed, in-denial or cynical. “It’s easy for someone to think that by giving up they’re being realistic, but that’s the opposite of what’s true,” she says. “Giving up is denying the reality of one’s own agency and one’s ability to affect change.” Instead, she wants patients to take action, and to do it with other people. “A group can hold that anxiety better,” she says. “It’s too big for an individual to hold on their own.”

Solutions include individual awareness and responsibility, including rejection of non-biodegradable packaging by consumers, along with government bans and transferring the financial burden for collecting and reusing non-biodegradable packaging onto its producers.

Corporate profits have enjoyed a record boom in the past decade largely due to massive government subsidies (funded by taxpayers and public debt) and a lack of corporate responsibility for the catastrophic harm their operations are inflicting on our air and water systems. This must change now, of necessity.  See Ontario moves to transfer recycling costs from cities to waste-producing companies.

With consumers already heavily indebted and cash strapped today, there is a natural movement toward less consumption, less waste and more efficiency.  See:  Shoppers seek out green alternatives to single-use food packaging but are not prepared to pay a premium, study finds.  For more ideas on the multi-faceted initiatives needed see:  Canada’s recycling system is trash, but it’s not too late to fix it.

Today, Canada’s federal government stepped up its commitment at last.

Prime Minister Justin Trudeau announced Monday that the government is looking at different options to limit the use of single-use plastics and make plastic producers responsible for the collection and recycling of their products under new regulations. Here is a direct video link.

Many municipalities are also finally in motion.  We are all the change needed.

The tourist destinations of Tofino and Ucluelet are outlawing single-use plastics, making them the first B.C. communities to get rid of plastic straws and the latest to ban plastic shopping bags. Here is a direct video link.