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They will never fix anything no matter how sternly they are warned about “the consequences next time”. After the last round of bailouts, all they did was double down on what they were doing prior to 2008 and continue their financial rapine without restraint. All the paper wealth everyone “has” is nonexistent, it’s just multiple claims on the same underlying property that allows the financial elite to skim off the incessant churn and turn it into stronger property claims. And that is why every debt-based system always collapses over time, as the current financial system is in the process of doing.

Before sunrise this morning, a normally calm and very senior Wall Street banker texted me: “All hell is about to break loose. No safe havens.” His text could not be ignored, coming as it did on the morning after hedge fund manager Bill Ackman’s 28-minute cri de coeur to CNBC yesterday, during which he essentially demanded that the U.S. immediately shut down for 30 days to stop the spread of the coronavirus. What was he talking about, I asked….

Now, apparently, the scourge of interconnectivity is back. Companies are drawing down their lines of credit with abandon. The senior banker seemed to be especially concerned about the portfolios of private equity companies, which are by definition mostly piled with debt and therefore at higher risk of default as the economy contracts. The big worry now among private equity types is that the $1.5 trillion or so of so-called “dry powder”—money that is sitting unused in their coffers or on-call from their limited partners—will now be needed to shore up existing portfolio companies with acute cash needs, rather than for new investments, which would be the preferred course of action in a more normal time, especially with stock prices down around 35{de336c7190f620554615b98f51c6a13b1cc922a472176e2638084251692035b3} from their February highs. The big worry currently is that the limited partners of private equity funds have enough of their own problems that now they won’t be able to honor their capital calls as they start coming in from the general partners.

That’s yet another scary thought: the domino effect of one private equity portfolio company after another getting into trouble could well be a further negative catalyst to an economy already on the brink of collapse. If one private equity portfolio company after another slips into bankruptcy because limited partners don’t make good on their capital calls, that could mean hundreds of billions more of creditor and shareholder losses.

This is why usury was banned by Christendom and is prohibited by the Bible. I warned everyone back in 2008-2009 that if the banks were not permitted to fail, the next failure was going to be more difficult. It’s really not hard to see these things coming, as the patterns of the crisis developing are easily recognizable. And the bigger the bank, the more internationally interconnected it is, the more likely it is to be taken down by the “unexpected” collapse of the system which will likely begin with the failure or bailout of a massive, well-respected institution like Deutsche Bank.

Another financial crash will likely begin later this year, and for much the same reason as 2008

It might sound like a risky strategy at a time when millions of Americans are drowning in debt: keep raising the limit on people’s credit cards, even if they don’t ask. But that’s exactly what big banks have been doing lately to turbocharge their profits, leaving customers with the potential to rack up even bigger monthly bills.

For years after the financial crisis, Capital One Financial Corp. resisted that step for customers who looked vulnerable to getting in over their heads. In internal conversations, Chief Executive Officer Richard Fairbank characterized the restraint as a radical theology, in part because it went beyond post-crisis requirements, according to a person with direct knowledge of the discussions.

But then Capital One — known for its “What’s in Your Wallet?” slogan — reversed course in 2018, after the bank came under pressure to keep revenue growing. The company’s revenue reached a record last year.

The same reversal is playing out across U.S. banking, as more customers get unsolicited access to additional credit, in what’s becoming a new golden age of plastic. The goal: to get consumers to borrow more. The question, just like in the heady 2000s, is how it will end for lenders and borrowers alike. Research shows many consumers turn higher limits into debt. And the greater the debt, the harder it is to dig out…. Outstanding card borrowing has surpassed its pre-crisis peak, reaching a record of $880 billion at the end of September, according to the latest data from the New York Fed’s consumer credit panel. 

Unfortunately, it’s not possible to correctly compare the amount of total debt to the situation in 2008, because the series that dated back to WWII and proved so informative was significantly modified and rendered considerably less useful by serious revisions to the state and local government sector.

Even so, the modified version shows that total credit market debt outstanding is now at the same level that it was in the third quarter of 2007. The intervening 12 years have been a period of debt disinflation, essentially a period of treading water with debt growing too slowly to artificially grow the economy but also not being cleared. For the inflationistas, this was the attempt to print their way out of the situation.

As I said back in 2008, it didn’t work because it can’t work. You can print paper, but you cannot print debtors or debt. Sooner or later, a lot of the debt will be written off, because mathematics dictates that the interest payments will eventually become unsupportable.