31 min
Doug Noland: A Core Crises (from the Periphery) PodCasts Archives - McAlvany Weekly Commentary
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- Investing
Can China survive when the debts cannot be paid?
Interest rates spike worldwide while Japan fights against hope to keep rates down
Dollar and gold rise as currencies fall
Doug Noland: A Core Crisis (from the Periphery)
July 27, 2022
“The world has never seen anything like what we’ve witnessed for the past 13 years. I mean, we talk about China; it’s the emerging markets; what’s happened here in the US; the debt growth in Japan has been just crazy. So from my standpoint, David, this has been the worst-case scenario. As an analyst of bubbles for three decades, I never thought it would get to this point, and I hope things are not as dire as I suspect they are.” — Doug Noland
Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.
Well, I always love this time, Dave, when Doug is in the studio—Doug Noland. Of course, for decades we’ve read his work, but I just pinch myself that he actually works with the team here at McAlvany. I love it when you two talk.
David: Last week, we gathered with clients and interested parties and our Tactical Short offering to review the last quarter. I encourage all our Commentary listeners to take the time to read the transcript or give it a listen. The content is so critical. I wanted to have my friend and colleague Doug Noland on to candidly talk about the markets here in what is a vital week inside a vital quarter and a really intriguing year. There are some key transitions we need to unpack. Doug, is there anything that we absolutely can’t miss in our conversation today?
Doug Noland: Well, David, thanks for having me on. It’s great to be back with you. I would just say a lot of my focus is on international developments that don’t get a lot of attention these days. We talk about these things throughout the week, David, so I’ll just follow your direction.
David: Well, you followed the evolution of the credit markets for decades now. First, the nature of money shifted and fiat was born. Then credit became a near-money equivalent. Finally, all sorts of financial assets became “money-like.” So this evolution—maybe it’s a devolution—of money and credit has promoted a unique form of growth. Let’s talk about its flaws. Let’s talk about its sustainability.
Doug: David, as you know, I’ve been following this now for— it’s been three decades. It was back in the early 1990s that I saw these fundamental shifts in finance where we started to gravitate away from traditional bank lending as the focus of credit growth to market-based credit. I watched the evolution of policymaking to bolster this market-based credit. I’ve always been concerned about this because the history of credit— Credit can be very unstable. It tends to be very unstable. Then if you make it market based, you don’t have hedge funds speculating in bank loans. They speculate in marketable securities. You don’t have leverage like that if bank loans are your credit. We changed this into all these market-based instruments that we leverage, we speculate. And the credit bubble kind of took on a life of its own through this evolution to more market-based credit. Then the Fed, of course, anytime this market-based credit turned unstable or a crisis, then they would act to perpetuate the growth of this credit. Unfortunately, I think we’re kind of at the end of the road for the great credit bubble.
David: So the bubbles have been created, and then they somewhat resolve themselves only to be propped up through policymaking and central bank interventions so that we don’t end up with something the equivalent of Armageddon. So there’s an interventionism, and it seems like that causes a migration. So we had the technology bubble, and then it moves to the mortgage-backed securities and housing bubble, which, of course, gave us the global financial crisis.
Can China survive when the debts cannot be paid?
Interest rates spike worldwide while Japan fights against hope to keep rates down
Dollar and gold rise as currencies fall
Doug Noland: A Core Crisis (from the Periphery)
July 27, 2022
“The world has never seen anything like what we’ve witnessed for the past 13 years. I mean, we talk about China; it’s the emerging markets; what’s happened here in the US; the debt growth in Japan has been just crazy. So from my standpoint, David, this has been the worst-case scenario. As an analyst of bubbles for three decades, I never thought it would get to this point, and I hope things are not as dire as I suspect they are.” — Doug Noland
Kevin: Welcome to the McAlvany Weekly Commentary. I’m Kevin Orrick, along with David McAlvany.
Well, I always love this time, Dave, when Doug is in the studio—Doug Noland. Of course, for decades we’ve read his work, but I just pinch myself that he actually works with the team here at McAlvany. I love it when you two talk.
David: Last week, we gathered with clients and interested parties and our Tactical Short offering to review the last quarter. I encourage all our Commentary listeners to take the time to read the transcript or give it a listen. The content is so critical. I wanted to have my friend and colleague Doug Noland on to candidly talk about the markets here in what is a vital week inside a vital quarter and a really intriguing year. There are some key transitions we need to unpack. Doug, is there anything that we absolutely can’t miss in our conversation today?
Doug Noland: Well, David, thanks for having me on. It’s great to be back with you. I would just say a lot of my focus is on international developments that don’t get a lot of attention these days. We talk about these things throughout the week, David, so I’ll just follow your direction.
David: Well, you followed the evolution of the credit markets for decades now. First, the nature of money shifted and fiat was born. Then credit became a near-money equivalent. Finally, all sorts of financial assets became “money-like.” So this evolution—maybe it’s a devolution—of money and credit has promoted a unique form of growth. Let’s talk about its flaws. Let’s talk about its sustainability.
Doug: David, as you know, I’ve been following this now for— it’s been three decades. It was back in the early 1990s that I saw these fundamental shifts in finance where we started to gravitate away from traditional bank lending as the focus of credit growth to market-based credit. I watched the evolution of policymaking to bolster this market-based credit. I’ve always been concerned about this because the history of credit— Credit can be very unstable. It tends to be very unstable. Then if you make it market based, you don’t have hedge funds speculating in bank loans. They speculate in marketable securities. You don’t have leverage like that if bank loans are your credit. We changed this into all these market-based instruments that we leverage, we speculate. And the credit bubble kind of took on a life of its own through this evolution to more market-based credit. Then the Fed, of course, anytime this market-based credit turned unstable or a crisis, then they would act to perpetuate the growth of this credit. Unfortunately, I think we’re kind of at the end of the road for the great credit bubble.
David: So the bubbles have been created, and then they somewhat resolve themselves only to be propped up through policymaking and central bank interventions so that we don’t end up with something the equivalent of Armageddon. So there’s an interventionism, and it seems like that causes a migration. So we had the technology bubble, and then it moves to the mortgage-backed securities and housing bubble, which, of course, gave us the global financial crisis.
31 min