From Reader George:

C'mon folks.

Deutsche Bank is on the verge of collapse. Let me remind you that back at the time of the financial crisis in 2007/08 I wrote specifically about them, calling the firm repeatedly DoucheBank as they had an utterly ridiculous derivative exposure compared against their capital. In fact they made US bank exposure in this regard look like the work of pikers.

Not only has nobody done a thing about that in our markets Germany, I remind you, urged them to expand their exposure -- and they have. In addition total credit market debt has expanded by $57 trillion since 2007, a close to 40% increase! GDP, on the other hand, has gone up nowhere near as much. Indeed, global government debt has roughly doubled since 2008 -- to $59 trillion.

One of the largest increases has been in college student loans, which are up a staggering 130% since 2007 in the United States alone.

The problem is that economic expansion -- that is, the common output of the economy, has not matched debt expansion. Not even close. This is an unsustainable practice since without output expanding at a rate that exceeds expansion of debt you must eventually stop or the economy will contract even though debt is expanding, and once that begins to occur it is a black-hole event horizon from which you cannot escape until virtually everyone who is in debt has been liquidated and those who hold that debt will take monstrous losses -- in many cases 100% losses!

When Donald Trump said in the debate that we were in a huge bubble he was exactly correct -- we are. We are in a bubble where market prices for stocks have risen dramatically, housing has gone up to a material (and unsustainable) degree, and the embedded but not measured in inflation statistical data cost of living (e.g. medical) has risen at a ridiculous rate as well. Trump has repeatedly charged that policy from The Fed, which is largely responsible for this bubble, is political in nature; whether that's the case or it has simply resulted from Fed hubris (which Greenspan and Bernanke both displayed in abundance and only Greenspan has admitted to) is immaterial to the outcome.
This deterioration has been reflected in labor productivity, which has now gone negative. But that's just one small place that we can measure; the other places are not measured but have far more impact. Nonetheless, that the impact has managed to filter into unit labor productivity and costs is especially troubling.

Remember that bank leverage in the form of derivative exposure is what made the crash in 2008 happen. Lehman, alone, blowing up was no big deal -- companies fail all the time and Lehman, in terms of size, employee count and economic impact was a literal non-event.

It was the threat of cross-default on derivatives that took down the markets and the economy, and we now have it happening again but nobody is talking about it.

If you think Germany can bail out Deutsche Bank you're delusional. Their total derivative exposure grossly exceeds the entire net value of everything in Germany! Not just the government's resources, all private resources as well! In other words even if the government wanted to bail them out, even if they'd survive bailing them out politically they can't, even if they attempted to confiscate everything of value within the nation.

Beware.

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