Every Asset That Depends on Cheap, Abundant Credit (Housing, Bonds, Stocks) Is Doomed

Four words: financialization, debtocracy, diminishing returns. The entire global economy, developed and developing nations alike, is now dependent on cheap, abundant credit for everything: for "growth," for asset inflation, and ultimately for central state deficit spending, which props up all the cartels, rentier arrangements, fiefdoms and armies of toadies, lackeys, apparatchiks and embezzlers that suck off the Status Quo.

I have long endeavored to explain the harsh reality of neofeudal, neocolonial financialization: Neofeudalism and the Neocolonial-Financialization Model (May 24, 2012) and the neofeudal debtocracy that depends on low yields (interest rates) to enable enormous deficit spending: Why Krugman and the Keynesians Are Lackeys for the Neofeudal Debtocracy (April 24, 2013).

The wheels fall off the entire financialized debtocracy wagon once yields rise.There's nothing mysterious about this:

1. As interest rates/yields rise, all the existing bonds paying next to nothing plummet in market value

2. As mortgage rates rise, there's nobody left who can afford Housing Bubble 2.0 prices, so home prices fall off a cliff

3. Once you can get 5+% yield on cash again, few people are willing to risk capital in the equities markets in the hopes that they can earn more than 5% yield before the next crash wipes out 40% of their equity

4. As asset classes decline, lenders are wary of loaning money against these assets; if the collateral for the loan (real estate, bonds, stocks, etc.) are in a waterfall decline, no sane lender will risk capital on a bet that the collateral will be sufficient to cover losses should the borrower default.

Let's take a look at four charts about housing and household net worth. ------->>>

Gallup: Underemployment In The U.S. Rises to 20.3% in March

By Dian L. Chu, Economic Forecasts and Opinions
The number of long-term unemployed (more than 27 weeks) in March rose to more than 6.5 million. The percentage of people unemployed for 27 weeks or more also rose to a record 44.1% of all jobless.

The Labor Dept. figures also showed average earnings per hour dropped last month and the number of people working part-time because they couldn’t find full-time work increased.

A Rise in The Underemployed
The underemployment rate -- which includes the part-timers and people who want work but have given up looking - - increased to 16.9% from 16.8%, based on government data, seasonally adjusted.

However, the latest Gallup Daily tracking finds that 20.3% of the U.S. workforce was underemployed in March-- a slight uptick from the relatively flat January and February numbers. Gallup employment data are not seasonally adjusted. (See chart)

Gallop concludes its findings as follows:

As unemployed Americans find part-time, temporary, and seasonal work, the official unemployment rate could decline. However, this does not necessarily mean more Americans are working at their desired capacity. It will continue to be important to track underemployment -- to shed light on the true state of the U.S. workforce."

Meaningful Job Creation = More Budget Deficits
So what can be done?

Congress has extended unemployment benefits for longer periods to help workers cope. A jobs bill Congress recently passed gives employers a tax credit for hiring workers unemployed for two months or more.

Such credits don't actually create jobs. A new infrastructure program, for example, would certainly help the 24.9% unemployed Americans in the construction sector.

Unfortunately, any meaningful job creation programs would require more deficit spending on a new stimulus bill, which is politically impossible in an election year.

So, we are pretty much in the predicament as described by Secretary Geithner in a recent inteview at NBC’s "Today" show,

"[The unemployment rate] is still terribly high and is going to stay unacceptably high for a very long time,"

Overly Optimistic Markets?
Meanwhile, markets have turned increasingly bullish on economic growth sending the S&P 500 Index and the Dow Jones Industrial Average to their highest closes in 18 months.

Although the course of the economy and markets is generally heading towards the positive direction, the grim labor market outlook could come into play sooner rather than later, among some other downside risk factors. From that perspective, stocks may have been fully priced or even gotten ahead of themselves.