Can a bankrupt country finance a global war?

GEOPOLITICS

Blinken said that Ukraine will be joining NATO, which under article 5, means that an attack on Ukraine will be considered an attack on the United States.

Now, an attack on Eastern Ukraine would be considered an attack on Russia by Russia. This is a red line Putin warned about, and like all warnings before and led to the situation in Ukraine, this warning will be ignored, too.

You vote in November will be about World War III.

Israel-Iran tensions are building up again.

Last week was filled with rumors about Iran attacking Israel, Israel attacking Iran. The CIA 'warns Iran will attack Israel within 48 hours' as revenge for consulate strike. Fortunately nothing happening within these 48 hours.

Iran's rhetoric promotes an enemy to address issues/protests with its own population. When a regime wants to survive, always ready to take the risk of falling and start a new war.

However, they also know that an actual war would be the end of their theocratic regime.

In other news around the world:

• A series of earthquakes: 5.5 magnitude earthquake in Greater NY area + an earthquake in Taiwan that was 400 times bigger and released 8000 times energy + 4.8 magnitude earthquake strikes off the coast of Maranh?o, Brazil?
• Australia starts a full digital idea program. Covid was only a practice session
• 75 Years ago, NATO was born. 25 years ago, NATO attacked a sovereign nation for the first time

ECONOMY

The talk of the week was the jobs report on Friday.

To put things in context, the Philly Fed had mentioned that payrolls are overestimating jobs by 800,000, which would mean jobs growth is half what official statistics say.

Friday headlines were cheerful (WSJ), but this remains ugly under the hood, considering the current stream of layoffs.

The solution is simple: part-time work !

This job market is made of:

* insecurity: less full time, jump in part time

* socialization: govt jobs on the rise (direct or indirect/health care)

* foreign workers surged, while American workers barely recovered from pandemic levels

And of course the previous numbers revised lower ... which leads to one of my preferred quote: "Never trust numbers you haven't doctored yourself" - Churchill.

Is it still worth talking about it any more? Yes, not because they are meaningful, but only because markets participants still react to this information (most still knowing they're fake though ...)

The PMI, as well as 2 regional Fed banks pointed to slow growth in manufacturing for March. Other indicators show the manufacturing sector contracting faster than in February, and the average across all surveys shows contraction for the 21st month in a row.

Not to mention again that 16 of the last 21 months seen new orders for manufactured goods revised down (see quote above).

Adjusting for inflation shows how bad the situation is: the nominal increase since January 2021 is 17.8% but the real inflation-adjusted change is -0.1%: no progress in 3 years !!!

The debt and interests payments, as usual: go bankrupt slowly, then rapidly.

The US just added three decades of debt in under two years with a new $320B of recurring obligations added in just 7 quarters.

Debt issuance at covid levels, without Covid

The big picture and issue is that most of the spending is on autopilot and will continue to grow out of control, whatever Congress does.

Always worse, much of that mandatory spending is indexed to inflation, meaning we can't inflate our way out of this by devaluing the dollar further.

The collapse looks more certain every week, with every Croissant Files (soundtrack: "Highway to Hell" of bankruptcy by AC/DC - there is DC in AC/DC ??)

Green energy, welfare, Ukraine, Israel, a new war, ..., the US just don't have the money for it, and this is what the bonds market compared to gold is telling us at the moment:

The fiscal collapse and Weimar Republic are upon us.

The regional bank crisis seems to be far from over: so far in 2024, the regional bank stock index is down roughly 13%.

The banking sector as a whole is growing slightly though, with large banks getting larger. The start of a new banking crisis, remember SVB, will trigger a new wave of consolidation into the Big 4, especially JPM-Chase.

Banks unrealized losses are still at very significant levels that won’t improve if inflation continues, unless the Fed decides to cut rates anyway: this is a choice between the banking sector and the average American.

And we know the choice already.

And this is why Satoshi Nakamoto decided to create Bitcoin in the aftermath of the great financial crisis of 2008.

MARKETS

Everything was going well under the sun of expected interest rate cuts, until an unexpected eclipse occurred with Fed Kashkari saying: “If we continue to see inflation moving sideways, then that would make me question whether we needed to do those rate cuts at all”.

It was at this moment he knew, ..., and this happened:

Again, there is nothing more to this market than anticipation of interest rate cuts. It will make or crash the markets.

This is what Gold pushing all time highs is telling us:

1/ it may not happen

2/ things are getting serious and US Treasuries won't cut it this time

Finally, a word on Bitcoin that is closing in on its ATH

The upcoming Bitcoin halving appears to be priced in already, at least for the short term. The price action is consistent with what happened in previous halvings.

I'm thinking about little changes again to the format of the Croissant Files LIVE.

I'm trying to make it more interactive, and I'm thinking about defining three topics to discuss each week, and going back and forth with your questions.

We'll try and see how that goes !

I hope to see you at the end of this week as I'll be in Wyoming !

I'll tell you more soon.

And of course I can't leave you without a humorous note.

I hope ALL of you had a happy transgender visibility day, uhh, I mean Easter.

Ok, provocations are not always funny, don't you think Joe?