Wall Street watched the 2008 bank bailout very carefully. They took careful notes on how to stay “within” the law and yet push the financial envelope way beyond reasonable risk. The entire purpose of ridiculously low Fed interest rates was to give corporations the ability to borrow money on the cheap and use it to expand production, increase the size of productive departments and help to grow the GDP. But instead, Wall Street saw it as an opportunity to borrow on the cheap and buy back stock, thereby pushing up stock prices, dividends, and especially executive bonuses. But now that the ploy’s been exhausted and the Fed has nothing to show for years of QE, it’s time to bite the bullet.
The number of companies defaulting on their debt so far in 2016 has already equaled last year’s total. The last time defaults were this high was in 2009 and we’re almost on course to match it. There is no doubt that lower oil prices have contributed significantly to this default dilemma, but energy companies only accounted for a little over half of the defaults for the fiscal year ending June 30, 2016. The remainder of companies conspired to create the false impression of company improvement and stock market growth, while lining their own pockets with untold company benefits and bonuses.
Meanwhile, the Fed utilizes these artificial numbers to constantly threaten an increase in interest rates, which is sorely needed, but way past time for any possibility of successful implementation. While having been rewarded for previous transgressions, Deutsche Bank now stands ready for a cataclysmic collapse, just another domino on a long list of tentative disasters waiting to happen. And October 1, 2016 is the date the International Monetary Fund (IMF) welcomes the Chinese Yuan to the Global Reserve Currency basket, opening the door widely for the dollar’s exit.
In 2013, Leong Sing Chiong was appointed Assistant Managing Director at the Monetary Authority of Singapore and charged with overseeing the Development and International Group. In a recent release, when queried about the Yuan’s induction by the IMF, Mr. Chiong stated that this dollar alternative “is likely to transform the financial landscape in the next 5-10 years.” I might be tempted to agree with that timeline, if not for the large number of additional dominoes ready to add to the dollar’s demise, in very short order. Stay tuned for additional updates.