Juggling Dynamite

We cannot sustain debt and asset bubbles and make the intergenerational books balance. It’s that simple, the center cannot hold.  The evidence is everywhere.  See:  Millennial housing crisis engulfs Britain:

Analysis conducted as part of a two-year investigation into intergenerational fairness in Britain, chaired by a former Tory minister, found that millennials are being forced into increasingly cramped and expensive rented properties that leave them with a longer commute and little chance of saving for a home. It also finds an increasing proportion of the young living in overcrowded housing….

Millennials, classed as those born between 1981 and 2000, are half as likely to own a home at the age of 30 as baby boomers because of higher prices, low earnings growth and tighter credit rules. In the 1980s it would have taken a typical household in their late 20s around three years to save for an average-sized deposit. It would now take 19 years, the analysis shows.

Almost two-fifths of millennials rent privately at 30, double the rate for Generation X, born between 1966 and 1980, and four times the rate for baby boomers – born after the war until 1965 – at the same age.

Millennials are now spending an average of nearly a quarter of their net income on housing, three times more than the pre-war generation, now aged 70 and over.

Interest and tax rates fell from 1980 to 2016 and levered asset prices went along for the ride in a series of boom/bust cycles as the boomers aged and debt levels skyrocketed worldwide.  That magic is now over and the secular payback period is arriving in the form of deflating asset prices, higher savings rates, less consumption, weaker economic growth and higher property and consumption taxes.  We cannot have cake and eat it too, never could.

 The commission…is expected to conclude that new taxes on property wealth may be the only way to restore fairness and prepare the country to pay the care and support costs of an ageing population.

It is typical that late in every financial cycle, central banks are raising rates as demand and global growth are falling until finally central bankers blink and move to cutting rates once more.  Different this time:  globalization is in a secular retreat while global debt is at record highs and policy rates are less than 2% in North America, Europe, the UK and Japan.  All of these factors make it likely that the next recession will be deeper and longer than the last two, despite monetary efforts to intervene.

Ecri co-founder and COO Lakshman Achuthan discusses Fed policy, Treasuries and globalization.  Here is a direct video link.

Building on our earlier slowdown call, the incoming data has made the market begin to acknowledge that the economy is not as strong as expected – that’s the critical backdrop for the market jitters. See:  Deglobalization and the Fed.

Finally got to this one last night. Now on iTunes and Netflix, everyone should watch it because–consumers, workers, retirees, taxpayers, investors and savers–it affects all of us.  The Forbes’ review is here:  ‘The China Hustle’ is the most important film of 2018.

From the producers of ENRON: THE SMARTEST GUYS IN THE ROOM comes a Wall Street heist story about a still-unfolding financial crime so big, it has the power to affect all of our wallets. Investors on the fringes of the financial world feverishly seek new alternatives for high-return investments in the global markets, and have found a goldmine in China. But when one investor discovers a massive web of fraud, everything else is called into question. Jed Rothstein’s documentary rings the alarm on the need for transparency in an increasingly deregulated financial world by following those working to uncover the biggest heist you’ve never heard of. Here is a direct video link.