Sunday, September 25, 2016

$8 Trillion in Corporate Bond Junk

When you "buy debt" in the form of bonds, you ostensibly give your money to a company, with the view they will pay it back in time with interest.

Once upon a time, such deals were made with companies that actually make things, and they used the money to upgrade factories, or make products more efficiently, or perhaps buy a company from which they bought 100% of what a company made, like a shoe company that bought 100% of the shoelaces a shoelace company made.  Well, they might as well buy the shoelace company.

Today people are buying debt from companies that make nothing, but there is a symmetry here, they are paying for the debt with ex nihilo credit, so nothing is actually happening except people are blowing up bubbles and making claims on the productive capacity for themselves..

Now the problem is some of these buyers are using ex nihilo credit allied to your pension account.  So?
But it's important to keep an eye on the growing influence of tech companies over U.S. debt markets. While many of the borrowers will likely stick around and repay investors, some inevitably will not. And this will have a bigger effect on anyone who owns a piece of the $8 trillion U.S. corporate-debt market, which is more investors than ever before. 
Well, do you see $8 trillion in productivity and manufacturing advances in the last few years?  No?  Well, neither did I or anyone else.  What you did see was bond traders who made commissions on $8 trillion in placements.  And they are set, who cares what happens after that.  When most of that goes "poof" so does your tally of ex nihilo credit to your account.  You no longer can draw on the tally of your ex nihilo credit to make a house payment, or buy food for that matter, because it no longer exists.  Since the obligation to you is gone, country got more wealthy, under an ex nihilo credit regime, because nobody owes you a pension any more.

Best to get self employed.

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