The Next Big Short
US national debt is not a rounding error but rather the cause of a social-economic catastrophe that has already begun, and a bubble soon to pop.
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Good Morning - Arrogance and leverage are the killers of markets and economies, and nowhere are those descriptors more pronounced than in US Debt, the next Big Short.
The Big Short was a film (2010 book) released in 2015 about a group of contrarian investors who concluded that housing was not a special asset. Housing was and remains a financialized asset like everything else, subject to gravitational forces of supply, demand, speculation and mal-investment.
Perhaps above all these contrarians discovered that what held the housing market together was arrogance (housing is "special" - prices only rise) and leverage (betting on housing being "special"). One of the most outspoken of contrarians was Steve Eisman (Mark Baum in the movie).
Today, Steve Eisman is on the opposite side of the next Big Short, one far more lethal and destructive than the housing bubble in 2008. Eisman has said consistently in recent years that anyone concerned about US National Debt should be dismissed or humbled since fears of US Government (USG) debt levels have been raised since the 1980s most memorably by Ross Perot's Presidential Campaign in 1992 without result.
Since 1980 USG (and private) debt has exploded from $914B to $34T+ and climbing rapidly. However, according to Eisman it is of zero concern. Of course, what he is missing is the tremendous damage that has ALREADY been done as USG debt has swallowed up the liquidity desperately needed by the real economy to nourish productivity.
What Eisman fails spectacularly to comprehend is that financing such massive debts has made DC contractors, Fortune 500 CEOs, and Wall Street Bankers extremely rich while making the rest poor or destitute. Take a trip to TriBeCa or Georgetown and you will see Lambos, Teslas, Porsches, there are big mansions in Chevy Chase and Darien, and all manner of luxuriant life. What you will see across the rest of America is the rot of decay.
Large swaths of what was once fertile land for prosperity in SoCal, the PacWest, Appalachia, the Rust Belt of the Midwest, and inside the bowls of major cities like Chicago, Philadelphia, Houston, and yes NYC is a social catastrophe.
Why? Because the capital needed to grow the body of America's economy has been siphoned off and concentrated in the head (or the derriere). As pension funds, investment houses, commercial banks and countless other sources of capital buy USTs the USG has "crowded out" or starved the body of productive nutrients.
So egregious is the situation that today even minor swings in US Treasury yields, which benchmark mortgage rates, CD rates, and credit spreads threatens to collapse the entire system in one fell swoop. Ironically, Eisman knows this, as do most inside DC and NYC who run institutions. However, they, like Eisman, are arrogant, they believe that the USG is sacrosanct and are leveraged accordingly.
The Next Big Short is the USG and for the same reasons.
Stay liquid, stay alert.