Bankers Betting on Recovery?

The 'it's all good' meme got another boost at Reuters, which has published an article entitled “Looking up! Top bankers see rosier view of economy”. The biggest too-big-to-fail whale of them all chimed in as follows:


Loans to businesses have risen to a record high and bank executives say they are increasingly optimistic about the U.S. economy.

Increasing demand for bank loans often is a prelude to higher economic growth. With the U.S. government budget crisis fixed for now and Europe showing signs of economic recovery, companies feel more comfortable borrowing to invest in machinery, factories, and buildings.

JPMorgan Chase Chief Executive Jamie Dimon, who has long described himself as "cautiously optimistic" about the economy, recently dropped the modifier "cautiously," he said on a conference call with investors last week.

"We're using the word optimistic because we are actually optimistic," he added. "The sun and moon and stars are lined up for a very successful year" in the U.S., he said the next day at a conference in San Francisco.


(emphasis added)

The sun, the moon and the stars are aligned! What could possibly go wrong? The article goes on to list a plethora of lesser bankers expressing similar feelings. However, things are not always what they seem.

So allegedly bankers think everything is looking up and their opinion is even supported by the proper alignment of various celestial bodies – and presumably, a favorable reading from the Tarot deck (we end the year on a magical high note!). If that's the case, one might be wondering about certain statistics. For instance, how come that total bank credit growth is exhibiting the lowest year-on-year rate of change of at least the past four decades, with the sole exception of the period immediately following the 2008-2009 financial system crash?

So the banks are not lending, but everything is going swimmingly? Something doesn't compute here. We should also point out that it is true that corporations are more indebted than ever before, but that is a reason for grave concern rather than a reason to be optimistic (and it partly reflects that fact that many big corporations drew down promised credit lines after the crash because they feared they might be cut off if they didn't act fast).

In the German language the statements of the bankers interviewed in the article would be referred to as 'gesundbeten' – which means literally 'to pray for the health of something'. However, the term conveys much more than that, namely that  1. it won't work, because the something that is being prayed for has actually long transmogrified into an irretrievable state close to or akin to death, and 2. that the act of 'gesundbeten' is a senseless act of motivational self-deception, precisely because there is obviously no point to it.



total bank credit 12 month growthThe banks are 'optimistic' – or maybe they aren't – click to enlarge.



Anyway, it seems to us this is a case where it might be better to watch what they are doing instead of listening to what they are saying.


Hoping for a Capital Expenditure Boom?

Zerohedge recently reported on an analysis by SocGen that should be required reading for all economic faith healers.

A summary of the important points: 1. corporate cash piles may be high, but debt has been piled even higher – the result: unprecedented leverage (i.e., a record high in net corporate debt).

2. operational profit growth has completely stalled out over the past year (listed corporations are boosting EPS with share buybacks – which are partly funded with the growing debt pile mentioned in point 1), while sales growth has been in decline since 2010.

3. while growth in capital expenditures has been in a sharply declining trend for more than two years and looks like it may dip into negative territory soon, it has recently reached almost a historic high relative to sales and has exceeded free cash flow growth for three years running.

None of this is particularly surprising if one is convinced – as we are – that monetary pumping and the artificially low interest rates it produces falsifies economic calculation and spurs malinvestment. There may be little 'inflation' reflected in aggregate prices indexes such as CPI or PPI, but there can be no doubt that the valuation of capital goods changes relative to that of consumer goods when interest rates decline. This distortion in relative prices is the most harmful effect on the economy at large created by inflationary monetary policy. For instance, the depreciation of capital goods is still based on the prices that obtained prior to the distortion in prices, which makes profits appear larger than they really are (in other words, accounting profits do not reflect the price revolution and are therefore illusory). When the time comes to maintain worn out capital it turns out it costs more than expected and it would have been more accurate to depreciate it at different rates. By that time, the illusory profits may already have been distributed, i.e., capital will actually have been consumed.

In addition, contrary to a decline in interest rates based on a genuine increase in savings, the artificially lowered rate transmits the distorted information that savings are larger than they really are. Longer and theoretically more profitable production processes appear feasible, and investment activities are set into motion that later turn out to have been misguided because consumer time preferences have actually not changed. As Mises put it in a famous conceptual analogy:


“The whole entrepreneurial class is, as it were, in the position of a master-builder whose task it is to erect a building out of a limited supply of building materials. If this man overestimates the quantity of the available supply, he drafts a plan for the execution of which the means at his disposal are not sufficient. He oversizes the groundwork and the foundations and only discovers later in the progress of the construction that he lacks the material needed for the completion of the structure.”


The 'later discovery' expresses itself as an economic bust. As our regular readers know, we like to keep an eye on changes in the capital structure via a ratio of production indexes, as imprecise as they probably are. Note here that the  long term trend partly reflects the increase in global trade and the growing global division of labor, but the noticeable medium term volatility in the ratio suggest that the approach is sound:



cap vs. consumer goods, 1947 to 2013-annThe ratio of capital to consumer goods production. In boom times spurred by declining interest rates it tends to rise, while it decreases during the subsequent bust periods – click to enlarge.



While we cannot state with certainty when and where exactly the recent trend will turn, the current height of the ratio suggests that a negative inflection point is probably fairly close (or may have occurred already). If so, then the record high in net corporate indebtedness is likely to end up creating great difficulties – not only for the debtors, but also their recently officially optimistic creditors.



Charts by: St. Louis Federal Reserve Research



Emigrate While You Can... Learn More



Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!


Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke


2 Responses to “Bankers Pronounce the Recovery Sound”

  • SavvyGuy:

    Banksters are peddlers of cheap dreams, and cannot be solely blamed for the lack of willpower in their customers. Who wants to buy a reliable used car at a reasonable price when you can drive off the lot in that overpriced shiny new model with easy financing?

    Debt is probably more addictive than nicotine, and that begs the question…who is at fault? Are the tobacco companies at fault or are smokers equally to blame? In the same vein, are lenders at fault or should spineless borrowers also look themselves in the mirror and have an honest conversation with their temptations?

  • No6:

    Jamie Dimon has presided over the greatest private company fraud and theft organisation in the history of human kind. The shear amount of theft in dollar terms makes the great railway robbers look like pick-pockets, and the misery JPM have left in their wake is mind boggling.

    How this man is free to be cautiously optimistic is a disgrace and a blight upon American justice. He should be studying his Astrology from a very deep dungeon.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • 5-cotmmrangegc03Ganging Up on Gold
      So Far a Normal Correction In last week's update on the gold sector, we mentioned that there was a lot of negative sentiment detectable on an anecdotal basis. From a positioning perspective only the commitments of traders still appeared a bit stretched though, while from a technical perspective we felt that a pullback to the 200-day moving average in both gold and gold stocks shouldn't be regarded as anything but a normal - and in this case actually long overdue -...
  • gold_bullionGold Sector Correction – Where Do Things Stand?
      Sentiment and Positioning When we last discussed the gold sector correction (which had only just begun at the time), we mentioned we would update sentiment and positioning data on occasion. For a while, not much changed in these indicators, but as one would expect, last week's sharp sell-off did in fact move the needle a bit.   Gold - just as nice to look at as it always is, but slightly cheaper since last week. Photo via The Times Of India   The commitments of...
  • wryAustralian property bubble on a scale like no other
      Australian property bubble on a scale like no other Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs:   Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included:    the record run up in commodity prices and subsequent correction;  the associated...
  • urban_ii_croppedPope Francis: Traitor to Western Civilization
      Disqualified There has been no greater advocate of mass Muslim migration into Europe than the purported head of the Catholic Church, Pope Francis.  At a recent conference, he urged that “asylum seekers” be accepted, “through the acts of mercy that promote their integration into the European context and beyond.”*   Before we let Antonius continue with his refreshingly politically incorrect disquisition, we want to remind readers of two previous articles that have...
  • 9-market-internalsBubble Dissection
      The Long Term Outlook for the Asset Bubble Due to strong internals, John Hussman has given the stock market rally since the February low the benefit of the doubt for a while. Lately he has returned to issuing warnings about the market's potential to deliver a big negative surprise once it runs out of greater fools. In his weekly market missive published on Monday (entitled “Sizing Up the Bubble” - we highly recommend reading it), he presents inter alia the following eye-popping...
  • spankinggoodtimeUS Stock Market - a Spanking May be on its Way
      Iffy Looking Charts The stock market has held up quite well this year in the face of numerous developments that are usually regarded as negative (from declining earnings, to the Brexit, to a US presidential election that leaves a lot to be desired, to put it mildly). Of course, the market is never driven by the news – it is exactly the other way around. It is the market that actually writes the news. It may finally be time for a spanking though.   Time for some old-fashioned...
  • andy-duncan-and-claudio-grassA Looming Banking Crisis – Is a Perfect Storm About to Hit?
      Andy Duncan Interviews Claudio Grass Andy Duncan of has interviewed our friend Claudio Grass, managing director of Global Gold in Switzerland. Below is a transcript excerpting the main parts of the first section of the interview on the problems in the European banking system and what measures might be taken if push were to come to shove.   Andy Duncan of (left) and Claudio Grass of Global Gold (right)   Andy Duncan: How do you see the...
  • fischersDoomed to Failure
      Larded Up and Larded Over We’ve been waiting for the U.S. economy to reach escape velocity for the last six years.  What we mean is we’ve been waiting for the economy to finally become self-stimulating and no longer require monetary or fiscal stimulus to keep it from stalling out.  Unfortunately, this may not be possible the way things are going.   As Milton Jones once revealed: “A month before he died, my grandfather covered his back in lard. After that, he went...
  • state_police_980_600_s_c1_t_c_0_0_1Are the Deep State’s Drones Coming for You?
      What’s Aleppo?   Look out kid Don’t matter what you did Walk on your tip toes Don’t try "No Doz" Better stay away from those That carry around a fire hose Keep a clean nose Watch the plain clothes You don’t need a weather man To know which way the wind blows – “Subterranean Homesick Blues,” Bob Dylan   The entrance to Baghdad's “Green Zone”. Photo credit: Karim Kadim / AP   DELRAY BEACH, Florida – Biggest foreign policy blunder...
  • larry-1Meet Your New Stimulus Allocation Czar
      March Towards Midnight The march towards midnight is both stirring and foreboding.  Like a death row inmate sitting down to savor his last meal, a grim excitement greets the reality of impending doom.  Thoughts of imminent mortality haunt each bite.   Tic-toc, tic-toc...   As far as the economy’s concerned, there’s no stopping its march towards midnight.  The witching hour’s rapidly approaching.  We intend to savor each moment and make the best of...
  • speculatorInterview with Doug Casey
      Natalie Vein of BFI speaks with Doug Casey   Our friend Natalie Vein recently had the opportunity to conduct an extensive interview with Doug Casey for BFI, the  parent company of Global Gold. Based on his decades-long experience in investing and his many travels, he shares his views on the state of the world economy, his outlook on critical political developments in the US and in Europe, as well as his investment insights and his approach to gold, as part of a viable strategy for...
  • walmart-st-augustine-flaEvacuate or Die...
      Escaping the Hurricane BALTIMORE – Last week, we got a peek at the End of the World. As Hurricane Matthew approached the coast of Florida, a panic set in. Gas stations ran out of fuel. Stores ran out of food. Banks ran out of cash.   A satellite image of hurricane Matthew taken on October 4. He didn't look very friendly. Image via   “Evacuate or die,” we were told. Not wanting to do either, we rented a car and drove to Maryland. “We’ll just...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank




Realtime Charts


Gold in USD:

[Most Recent Quotes from]



Gold in EUR:

[Most Recent Quotes from]



Silver in USD:

[Most Recent Quotes from]



Platinum in USD:

[Most Recent Quotes from]



USD - Index:

[Most Recent USD from]


THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Buy Silver Now!
Buy Gold Now!