Harlan Ullman comments on the potential pitfalls of the future and Big Al opines with an audio.

 Here are a few potentially ticking time bombs that may not have caught your eye: Beware the hides of April.

In Roman times, the midpoint of the month was called “the ides,” hence the ides of April. Famously, according to Shakespeare, Julius Caesar was warned to beware the ides of March. He did not and was assassinated. Today, we need to beware the ides of April and for more profound reasons than this is tax day.

The economy we are told by the White House is strong, so strong that adding former presidential candidate Herman Cain and talking head Stephen Moore to the Federal Reserve Board can do no harm. Unemployment remains below 4 percent. The Dow Jones flirts with 26,000 and the NASDAQ 8,000. While annual growth has slowed, corporate earnings remain high. So the story goes

Hidden, however, on this ides of April are several potential flaws that could fracture both the economy and financial markets as occurred in 2008. For those who may not remember or simply were too young then, the crash was caused by enormous leveraged debt in the housing and mortgage markets. This bubble was based on the erroneous belief that housing prices could only go in one direction — up.

Decades of what would turn out to be catastrophic policy errors induced millions of Americans to buy homes they could only afford at initially low adjustable interest rates. This allowed banks to manufacture credit default swaps and mortgage-backed securities that produced huge fees predicated on the seemingly permanent cash flows accruing from monthly home mortgage payments. These securities were “sliced and diced” into investment vehicles that combined both solid and risky loans — except no one knew how much of each was covered in a particular offering.

Minorities were able to buy homes — a goal of Americans to own their own residences — incentivized by a series of administrations. All was well until the music stopped. Housing prices declined. Interest rates went up. For a large segment of new home owners with adjustable interest rates, the increases became unaffordable. Cash flow stagnated. Defaults exploded as home prices dropped below the outstanding mortgage balances. The consequence was the great crash of 2008.

Do we learn? Today, banks are rushing to make “leveraged loans” to troubled corporations and businesses. Not quite “junk bonds,” these loans produce high fees and interest rates well above prime. Packaged into financial instruments and “sliced and diced,” these vehicles are highly attractive to investors seeking high rates of return especially as alternative investments for hedge funds.

The New York Times reported that about $1 trillion of these leveraged loans are on the books so far. Given the net worth of the nation that is well in excess of $100 trillion and a national debt that is about $22 trillion, $1 trillion seems a small number. But what happens if a recession breaks out, interest rates increase or a number of the corporations fail? This could be 2008 on steroids.

At the same time, pension fund liabilities, that is money owed against present assets, are estimated at about $1 trillion. This does not include Social Security and other government-backed programs. One can readily see how this situation can take a nasty turn, especially with annual budget deficits approaching $1 trillion.

A further potentially explosive ingredient as the Financial Times reported last week is that while corporate earnings have soared in large part because of the capital gains cut to 15 percent, so too is corporate borrowing in the ascent due to low interest rates. This adds to the leveraged loans condition. Hence, several conditions are present that could make for some very unpleasant economic trends.

In testimony before Congress, the big banks claimed that their balance sheets and financial stability are healthy. One hopes. Still, Congress has not addressed the combination of leveraged loans and pension fund shortfalls, let alone taking steps to rein in growing annual deficits.

The White House continues to sing it siren-like song of a strong economy persisting certainly through Donald Trump‘s second term, making it a central plank in the 2020 election. Meanwhile, the more left- leaning Democrats call for public education and Medicare for all and a Green New Deal without any reference to whether this is affordable, even if the so-called rich are forced to pay the bill with higher taxes.

We have been here before. But in 2008, Henry Paulson was at Treasury and Ben Bernanke at the Fed. With due deference to current Fed Chairman Jerome Powell, Treasury Secretary Steve Mnuchin is no Paulson, even though both were Goldman Sachs alumni.

Someone needs to start worrying or at least examining these hides of April. If not, should a new 2008-like financial crisis break out, do not be surprised.

Harlan Ullman is UPI’s Arnaud de Borchgrave Distinguished Columnist. His latest book is “Anatomy of Failure: Why America Has Lost Every War It

Starts.” Follow him@harlankullman.


Comments:
  1. On April 16, 2019 at 6:27 pm,
    Dick Tracy says:

    All of this is unnecessary if they would just bring back the gold standard, without it money is worthless. With all the hedge funds out there which are dependent on each other because of overlapping investments, it’s a real honeycombed mess. Only a crash can stop all this nonsense. 2008 didn’t work because it wasn’t 1929, the system never got cleansed.

    • On April 16, 2019 at 7:28 pm,
      CFS says:

      Should there be any doubt that our government is being run with fiscal irresponsibility, by a Congress containing highly vocal buffoons?
      I understand some reasons why this is so. I do not agree with your rigidity over no debt, Big Al, but because of other obligations I must defer my full comments to later today.

      • On April 16, 2019 at 8:34 pm,
        Al Korelin says:

        When you say “no debt” I assume that you mean on a personal level.

      • On April 17, 2019 at 12:15 am,
        CFS says:

        For those that can afford to store a reserve or stockpile of food or other necessities of life, I consider it a good idea, for one never can truly predict or anticipate a guaranteed supply for every need. This makes all the more sense for food acquired more cheaply when on sale or by bulk purchasing. Of course provided it will be consumed within its use-by date.
        With regard to indebtedness, it makes good economical sense to use debt, on lower fixed interest rates for purchases that are self-financing, or for purchase of items that may be expected to increase in monetary value at a rate commensurate with the interest being paid. It also can make sense for endebtedness for items of high necessity.
        Examples of good debt might be:
        Purchase of a rental property that under reasonable constraints and provisions might be self-financed by rental income (providing maintenance, insurance, real estate taxes, etc, are all covered) using a safe (fixed or constrained interest) loan.
        The cost of a car, purchased on debt, even though an ever decreasing value item, might still be most reasonable if such a purchase allows more flexibility or free time in which to earn extra income or do other vital priorities.
        Of course, each situation and individual circumstance is different, but a blanket statement of “try to reduce one’s endebtedness” I find much too broad, and, indeed, not even generally advisable.
        The US is strange in that a history of well-managed debt, in fact, often increases the probability of obtaining a loan; just as much as the specifics involved in the loan.

        Obviously the real problem with indebtedness is the possibility of changes to the conditions of the loan; the fine print. Is the interest rate fixed, or adjustable by how much. Is the loan callable, under what circumstances, etc. all considerations to be calculated carefully.

        Finally, it is my expectation, while no one can accurately predict the future, by virtue of the fact that the US seems to be following the economic path of Japan, it seems highly probable that interest rates will be kept low much longer than most people think, and that despite every attempt by government to induce inflation, there is a good probability that government will not succeed in this endeavor before the economy eventually collapses under the weight of its debt and reduction of liquidity.

        • On April 17, 2019 at 10:06 am,
          Al B Korelin says:

          I generally agree with your comment concerning personal debt, CFS. My comment related strictly to debt used to purchase items that were not necessary other than to immediately increase personal unnecessary gratification. A good example is the purchase of an otherwise unaffordable car. Or, the purchase of a vacation the cost of which was way above the means of the creditor.

          I must say that I am talking from personal experience.

  2. On April 16, 2019 at 6:57 pm,
    Al Korelin says:

    No,Mr. Tracy, the system never did get “cleaned” as you put it. As far as 2008 is concerned, I would ask you to look at the huge amount of abject poverty that we have in America. Take a drive through some of the towns on the West Coast. Even little Bellingham, Washington has abject poverty. I see many homeless people every day that I take Kathy to Dialysis in the morning. Some of it brings tears to my eyes.

    I am trying to help a guy who I met at the Dialysis Center who is poverty stricken as is exemplified by the fact that they (both he and his wife) have to live at the local Mission in separate quarters.

    • On April 16, 2019 at 8:18 pm,
      Dick Tracy says:

      Poverty is making tragic inroads among American people. You can be an able leader of men in crises but to lead the country out of an economic crisis requires cooperation and that will only come when the political squabbling ends by a forced crash. America has helped Europe and Japan (The Marshall Plan) in the past but they won’t get the same in return. America must get it’s own house in order. DT

  3. On April 16, 2019 at 7:11 pm,
    CFS says:

    (Slightly off topic)
    We do not live in a democracy.
    We live in a Democratic Republic.
    Our Founding Fathers were scared of the power of Government and set up numerous ckecks and balances that we should never be ruled by the “Mob”: a full democracy wherein the majority have control over the minorirty. Neither, according to our Founding Fathers, should our Government become centralized, remote from the people, capable of ruling with an Iron Fist.
    However, by politicians seeking to enrich themselves, grabbing more and more central power, the safeguards of our Founding Fathers have been eroded.
    In times such as these, where laws that run counter to the mandates of the Constitution are negotiated in secret, passed without debate, and upheld sometimes in secret courts our goverment has gone a step too far.
    When acts of indivuals within government become hardly distinguishable from the evil it claims to be fighting; whether that evil takes the form of war, drug trafficking, sex trafficking, murder, violence, theft, pornography, terrorism, torture or some other means of inflicting pain, suffering and servitude on humanity, then that government has lost its claim to legitimacy.
    When exposing a crime is treated as committing a crime, one is being ruled by criminals.

    I wait to see the outcome of judgment against those criminals who usurped power in an attempt to unseat a duly-elected President; just as I wait to see the outcome of charges against a whistleblower who acted according to his conscience and exposed the heinous crimes of an out-of-control state, irresponsibly the cause of thousands of civilian deaths.
    For those who do not remember, among the leaked materials was gunsight video footage from two U.S. AH-64 Apache helicopters engaged in a series of unconscionable air-to-ground attacks, killing innocent civilians. Much exposure via wikileaks of illegal activities within government has followed.

    • On April 16, 2019 at 8:41 pm,
      Al Korelin says:

      “When exposing a crime is treated as committing a crime, one is being ruled by criminals.”

      That is so very true, CFS!

  4. On April 16, 2019 at 7:58 pm,
    Dick Tracy says:

    All of these stock buy backs, I’m not sure if it was Jerry who was talking about General Electric. Nobody wants their stock they are a zombie corporation. If money wasn’t so cheap they wouldn’t be able to buy back all that stock, and it would be sitting on shelves listed as unsold securities. They would be bankrupt today instead of $40 billion in debt. Worthless money is propping up the system wherever you look. DT

    • On April 16, 2019 at 8:37 pm,
      Al Korelin says:

      Depending on your definition of “worthless money” I would agree with you,Mr.Tracy.

  5. On April 16, 2019 at 8:41 pm,
    OOTB Jerry says:

    On April 16, 2019 at 6:34 am,
    OOTB Jerry says:
    TRoubling…………
    https://www.zerohedge.com/news/2019-04-15/weve-seen-happen-last-3-recessionsand-now-it-worst-it-has-ever-been
    Instead of spending the money to build factories, hire workers and expand their businesses, our big corporations have been spending more money on stock buybacks than anything else.

    Reply to this comment
    On April 16, 2019 at 6:37 am,
    OOTB Jerry says:
    And that number certainly sounds quite impressive until you learn that General Electric has spent a whopping 40 billion dollars on stock buybacks.

    Sadly, both corporate behemoths are now absolutely drowning in debt as a result of their foolishness.

    Reply to this comment
    On April 16, 2019 at 6:39 am,
    OOTB Jerry says:
    Corporate debt has more than doubled since then, and it is now sitting at a grand total of more than 9 trillion dollars.
    Since the last recession, nonfinancial corporate debt has ballooned to more than $9 trillion as of November 2018, which is nearly half of U.S. GDP.

  6. On April 16, 2019 at 8:43 pm,
    OOTB Jerry says:

    Thanks for the reminder DT…………
    I Thought the CORPORATE DEBT WAS way out of wack……at $9 TRILLION…being HALF of US GDP

    • On April 16, 2019 at 9:21 pm,
      OOTB Jerry says:

      From Jesus Christ To Julian Assange: When Dissidents Become Enemies Of The State

      When exposing a crime is treated as committing a crime, you are being ruled by criminals.
      There is nothing defensible about crimes such as these perpetrated by the government.

      When any government becomes almost indistinguishable from the evil it claims to be fighting—whether that evil takes the form of war, terrorism, torture, drug trafficking, sex trafficking, murder, violence, theft, pornography, scientific experimentations or some other diabolical means of inflicting pain, suffering and servitude on humanity—that government has lost its claim to legitimacy.

      These are hard words, but hard times require straight-talking.

      It is easy to remain silent in the face of evil.

      • On April 16, 2019 at 9:23 pm,
        OOTB Jerry says:

        Much like the American Empire today, the Roman Empire of Jesus’ day had all of the characteristics of a police state: secrecy, surveillance, a widespread police presence, a citizenry treated like suspects with little recourse against the police state, perpetual wars, a military empire, martial law, and political retribution against those who dared to challenge the power of the state.

        For all the accolades poured out upon Jesus, little is said about the harsh realities of the police state in which he lived and its similarities to modern-day America, and yet they are striking.

        Secrecy, surveillance and rule by the elite. As the chasm between the wealthy and poor grew wider in the Roman Empire, the ruling class and the wealthy class became synonymous, while the lower classes, increasingly deprived of their political freedoms, grew disinterested in the government and easily distracted by “bread and circuses.” Much like America today, with its lack of government transparency, overt domestic surveillance, and rule by the rich, the inner workings of the Roman Empire were shrouded in secrecy, while its leaders were constantly on the watch for any potential threats to its power. The resulting state-wide surveillance was primarily carried out by the military, which acted as investigators, enforcers, torturers, policemen, executioners and jailers. Today that role is fulfilled by the NSA, the FBI, the Department of Homeland Security and the increasingly militarized police forces across the country.

  7. On April 17, 2019 at 12:50 am,
    CFS says:

    OOTB, you have an interesting take on Roman history.
    In Judaea, the Hebrews revolted against Roman rule 66-70 CE until they were forced to retreat into the City of Jerusalem, which was held under seige, and then sacked. This was the first Jewish revolt and culminated in the destruction of the Temple. I don’t think there was really anything that could be described as peaceful rule by the Romans
    from the time of the birth of Christ onwards. After the end of the first revolt, it took only another two generations before there was outright war, with ended in the death of millions of Jews and expulsion from Judaea until 1948. Incidently the Gospels were not written even close to contemporaneously with the lifetime of Christ and there is good reason to believe they were adjusted (probably under the direction of Josephus) in the time of Constantine to produce a more passive monotheistic religion close to that which is known as Christianity today.

    • On April 17, 2019 at 5:15 am,
      OOTB Jerry says:

      Hello CFS…….This is NOT MY TAKE…….IT is from the article……. 🙂
      Which I provided at the Very TOP……

      • On April 17, 2019 at 6:23 am,
        OOTB Jerry says:

        Professor, can you tell me what you think the Gospel is?
        BTW…..Not everyone is a catholic, nor followings the teaching of a Man(POPE) under the teachings of WORKS…which… I would agree with your statement of:
        “”there is good reason to believe they were adjusted “

        • On April 17, 2019 at 12:37 pm,
          Al B Korelin says:

          Yes, of course not everyone is a Catholic. Jerry, I don’t understand your comment “under the teaching of works”.

          Are you saying that “works” don’t matter as long as within the universe of the bad ones if you confess them as sins you are okay.

          This makes for a very interesting discussion that we should have. I am happy to do it within this forum if your like or you can send me an email and I call you.

          Best,

          Al

          • On April 17, 2019 at 1:36 pm,
            OOTB Jerry says:

            Hello OWL…………
            If, you read Paul’s writings..he.says..you will not be saved by works.
            Ephesians 2
            7That in the ages to come he might shew the exceeding riches of his grace in his kindness toward us through Christ Jesus. 8For by grace are ye saved through faith; and that not of yourselves: it is the gift of God: 9Not of works, lest any man should boast.
            Let’s define works. So, no man can boast, by man’s works.. Works negates what Jesus Christ already did on the cross., you can not work your way into heaven. Grace which was given on the cross, saved anyone that believes , and accepts Jesus Christ as their Savior. The believing in the death, burial and resurrection, which also happens to be the gospel.

          • On April 17, 2019 at 2:15 pm,
            OOTB Jerry says:

            Owl…….I have no problem , with discussing it on the blog….
            Besides, might be a great topic……since, this weekend….is RESURRECTION SUNDAY.
            We have talked about this in the past.

          • On April 18, 2019 at 5:08 am,
            OOTB Jerry says:

            Galatians 2
            20I am crucified with Christ: nevertheless I live; yet not I, but Christ liveth in me: and the life which I now live in the flesh I live by the faith of the Son of God, who loved me, and gave himself for me.
            21I do not frustrate the grace of God: for if righteousness come by the law, then Christ is dead in vain.

          • On April 18, 2019 at 5:13 am,
            OOTB Jerry says:

            Grace + Faith+ Nothing…………is the message

    • On April 17, 2019 at 12:23 pm,
      Al B Korelin says:

      That is an interesting observation, Thanks

    • On April 17, 2019 at 12:33 pm,
      Al B Korelin says:

      I am going to look into the concept of a more passive monotheistic religion.

      Thanks for making me think, Professor

    • On April 17, 2019 at 2:03 pm,
      OOTB Jerry says:

      History.
      Constantine I, was a Roman Emperor who ruled between 306 and 337 AD.
      Constantine was the first Roman emperor to convert to Christianity.
      he joined the Christian faith on his deathbed,(talk about cutting it short, but, just in time)
      He played an influential role in the proclamation of the Edict of Milan in 313, which declared religious tolerance for Christianity in the Roman empire.
      Some modern scholars, however, debate his beliefs and even his comprehension of the Christian faith itself.

      • On April 17, 2019 at 2:09 pm,
        OOTB Jerry says:

        sorry, the post is in the wrong area…….

        • On April 17, 2019 at 2:40 pm,
          Al B Korelin says:

          Please email (alkorelin@gmail.com) Would like to chat.

          Thanks

          • On April 17, 2019 at 2:55 pm,
            OOTB Jerry says:

            Owl………sent you an emai……

    • On April 17, 2019 at 6:22 pm,
      Cfs says:

      Sorry not t get back into the discussion, but I posted my last comment late at night with limited time and I’m not at home at the moment. I would like to elaborate on my comments, but am not able to do so at this point, until I get home.
      My understanding of religion in the few hundred years after Christ, in light of discovery of scrolls and texts not discovered until the last century will, perhaps, partially explain my religious beliefs.

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