Tensions with North Korea Grow, Mnuchin Warns about Debt Ceiling, Fed on Course to Wind Down Balance Sheet, more…

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North Korea have been high up on the news agenda this week after their latest launch of an ICBM missile. It comes three weeks after their last test which took place in the run up to the G20 summit in Germany. The narrative then was that the country had the capability to strike Alaska. Now they are said to have the technology to target the U.S. mainland. As the tension between North Korea and America is ratcheted up, US secretary of state Rex Tillerson took the opportunity to apportion blame to China and Russia by saying that, ‘They bear unique and special responsibility for this growing threat to regional and global stability‘. It appears that North Korea is primarily a vehicle for advancing geopolitical conflict with China and Russia, with the goal of exacerbating the false East / West paradigm to a point of crisis under Donald Trump’s presidency.

Whilst this plays out, Treasury secretary Steve Mnuchin has been warning about the upcoming September 29th deadline for the U.S. debt ceiling. An interesting observation over the next few weeks will be how the trouble between North Korea and the U.S. develops relative to the debt ceiling, and whether it acts as a distraction from the realisation that debt is becoming ever more unsustainable as the Federal Reserve prepare to wind down their balance sheet whilst continuing to raise interest rates.


Bloomberg: Mnuchin Heaps Pressure on Congress Before Sept. 29 Debt Deadline

  • U.S. Treasury Secretary Steven Mnuchin stepped up pressure on lawmakers to raise the government’s borrowing limit, even as House members left town for their five-week recess.
  • In a letter Friday to legislators in both chambers, Mnuchin urged Congress to increase the debt ceiling before Sept. 29 when he estimates the government will no longer have the cash flow to pay its bills. With Republicans facing a stalled legislative agenda, the Senate is scheduled to stay in session two more weeks before their summer break.
  • “It is critical that Congress act,” he wrote.
  • The Congressional Budget Office estimates the Treasury can fund the government through early- to mid-October under the current borrowing limit. Treasury has been relying on special accounting maneuvers since March to stay under the nearly $20 trillion debt cap.

Zero Hedge: Q2 GDP Misses, Q3 2016 – Q1 2017 All Revised Lower, Core PCE Tumbles

  • In the latest double negative whammy for the economy, not only did Q2 GDP print fractionally less than expected, at 2.6% vs consensus expectations of 2.7%, but Q1 GDP of 1.4% was also revised slightly lower, from 1.4% to 1.2%, while the Fed’s favorite inflationary metric, core PCE, tumbled from a downward revised 1.8% to 0.9%.

CNBC: Fed says stimulus wind down to begin ‘relatively soon,’ leaves rates unchanged

  • The Federal Reserve laid the groundwork Wednesday to begin winding down shortly the massive stimulus program it embarked on to rescue the economy from the financial crisis. As expected, the Fed also unanimously declined to raise interest rates this month.
  • After its two-day policy meeting, the Federal Open Market Committee released a statement containing key language that points to starting the move in September. At that time, the central bank will begin rolling off the $4.5 trillion portfolio of bonds it has accrued on its balance sheet, mostly in the years following the crisis and the Great Recession it generated.
  • “The committee expects to begin implementing its balance sheet normalization program relatively soon, provided that the economy evolves broadly as anticipated,” the post-meeting statement said.

BBC: Car production falls almost 14% as UK sales dip

  • UK car production fell by 13.7% in June compared to a year earlier – the third month in a row that output has fallen.
  • The Society of Motor Manufacturers and Traders (SMMT) said the UK market was cooling in line with forecasts, following a long period of record growth.
  • The industry is likely to fall short of its ambition to produce more than two million cars a year by 2020, it said.
  • The SMMT said uncertainty over Brexit was an added cause for concern.

Gold Core: Why Surging UK Household Debt Will Cause The Next Crisis

  • Easy credit offered by UK banks is endangering “everyone else in the economy”
  • UK banks are “dicing with the spiral of complacency” again
  • Bank of England official believes household debt is good in moderation
  • Household debt now equals 135% of household income
  • Now costs half of average income to raise a child
  • Real incomes not keeping up with real inflation
  • 41% of those in debt are in full-time work
  • £1.537 trillion owed by the end of May 2017

Independent: One in four people want to borrow half their annual income

  • The average loan request has increased by more than £300 in the past two years as households struggle with the cost of living as well as big events, the latest research has revealed, with the total outstanding balance now standing at £12.4bn.
  • More than one in four Brits want to borrow an amount equal to at least half of their annual income, according to data from MoneySuperMarket.
  • One in 10 hope for more than a year’s salary, an average of £5,000 more than their typical £16,360 salary the comparison site has found, in a bid to cover expenses including car purchases, consolidating personal debts, home improvements, holidays and weddings.

Sky News: GDP grows 0.3% as sluggish start to 2017 continues

  • The UK economy grew by 0.3% in the three months to June – up from 0.2% in the previous quarter, official figures show.
  • The Office for National Statistics said the slight improved performance was underpinned by the dominant services sector – which represents more than three-quarters of output.
  • The services sector’s brighter performance was largely driven by the film and retail industries.
  • But the economy was held back by slides of 0.9% in construction and 0.5% in manufacturing.

Daily Reckoning: The Elites Are Privately Warning About a Crash

  • Many everyday citizens assume powerful global financial elites operate behind closed doors in secret conclaves, like the scene of a Spectre board meeting in the recent James Bond film.
  • Actually, the opposite is true. Most of what the power elite does is hidden in plain sight in speeches, seminars, webcasts and technical papers. These are readily available from institutional websites and media channels.
  • It’s true that private meetings occur on the sidelines of Davos, the IMF annual meeting and G-20 summits of the kind just concluded. But the results of even those secret meetings are typically announced or leaked or can be reasonably inferred based on subsequent policy coordination.
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