Simone Wapler – La Chronique Agora (France) –
Markets did not appreciate Elon Musk’s joke. More expensive credit makes mistakes more difficult to hide, including in public finance management.
Equity markets are not what they used to be. They almost all fell in the first quarter of 2018.
|S & P 500:||-1.22%|
Until now the Nasdaq, propelled by its technological values, resisted. However, the Market did not really appreciate an April Fool of Elon Musk, the Tesla driver, and the Nasdaq lost 1.90% during the first April trading session.
When he joked about the bankruptcy of his company, was Elon Musk unaware that Tesla bonds had already fallen sharply, that his credit rating had been downgraded and that short sellers were becoming more numerous? [Editor’s note: Do you want to stay active in these volatile markets? Increase your responsiveness and test our SMS Cash Alert service . Everything is explained here .]
Certainly not. He thought his joke was going to lighten the atmosphere of heavy clouds piling up on Tesla’s big credit machine.
But Mr. Market does not have a sense of humor.
Mr. the Market may be absurd for a while, intoxicated by the effects of fashion and counterfeit money, but in the long run he always ends up knowing how to count. Count on him.
Tesla lives almost free credit but the credit will become more expensive. The free credit reserved for some makes it possible to disguise the errors and the lack of profitability but the more expensive credit makes quickly appear the weaknesses of a business plan .
The entire junk bond sub-fund , the bonds of badly rated companies, fell by 0.97%. Never seen since 2008!
With a slight tension on long rates, which are under 3% to 10 years in the United States which is historically very low – the magic of free credit would begin to dissipate.
The adverse effects of credit more expensive
Bill Bonner calculates the effect of higher rates on the US budget:
” The payment of quarterly interest on the US national debt now exceeds $ 500 billion.
The yield on a 10-year US Treasury bond is still less than 3%. But every time you add another 100 basis points (1%), it’s about $ 200 billion that adds to the annual burden of interest – which has to be borrowed to get paid.
From there, it would take a few basic points to exceed $ 1 trillion.
As authorities raise interest rates, they also take up the available credit. ”
The circle of credit without savings
Since 1981 in the United States and since 1986 in France, credit granted by banks no longer needs to be backed by real savings.
A quasi-free credit system reserved for states, big banks, nationalized zombie companies or feeding on aid and subsidies, has replaced the call for savings or taxes.
For example, middle-class savers do not see their efforts rewarded, and borrowers in the productive economy who take real risks struggle to raise money.
Credit replaced savings in the private sector while deficits and debt replaced the tax on public finance.
The public accounts are no longer criticized by the representatives of the people. As long as the state can go into debt and practice “social justice” and redistribution to silence the masses, all is well.
Look no further for the famous enrichment of the richest 10% and the impoverishment of the middle class …