American Consequences - October 2017

Not only does this plan allow countries to skirt U.S. trade regulations... But they don’t have to take any yuan risk, either. They will have the ability to settle all trades in gold. It’s a simple solution to the risk of a yuan-priced futures market. More important, it could be the first step toward China’s yuan competing with the U.S. dollar as the world’s reserve currency. Toys “R” Us files for bankruptcy, burning bondholders... For years, the well-known toy store made struggling position in retail, crushing debt burden, or mounting losses. That information was readily available for all to see... And yet, investors in the company’s bonds were somehow caught off guard. As recently as June, Toys “R” Us bonds due in October 2018 were trading above par. That means that bond investors were willing to pay more than the face value of the bonds to “lock in” the bonds’ 7.3% yield. In fact, the bonds traded for 98% of their $100 face value as recently as August. Weeks later, the first group of investors started to realize the risk, and Toys “R” Us bonds began to sell off... The bonds fell from $98 to $70. A week later, they traded for around $40. When the company announced its bankruptcy in September, the bonds collapsed to $20. What happened with Toys “R” Us represents the current state of financial markets... Investors are ignoring risk and chasing yield . This has been a successful strategy efforts to improve its operations, but management never hid the company’s

in recent years with all the “cheap” money sloshing around... But it can’t last forever. More than $1.3 trillion in speculative debt like this is coming due between now and 2020. We can’t know when the carnage will begin. But we just got an important confirmation that it’s looming... And the wave of credit defaults could come sooner than most expect. The IRS hires Equifax to prevent tax fraud... This month, Equifax leaked data on more than 140 million U.S. consumers... A breach that occurred after a software update was released to address the vulnerability in Equifax’s website. Shortly after the leak, the IRS hired the company for several million dollars to provide taxpayer identification and fraud prevention services to help it recover from two separate attacks that exposed 700,000 Social Security numbers and allowed hackers to steal tax refunds worth millions of dollars. What could go wrong? The contract was awarded to Equifax as a “no bid” contract, meaning that no other company could compete due to the IRS’ claim that only Equifax is able to provide the security and services requested. As we go to press, the IRS temporarily suspended the contract after it was revealed Equifax’s site may have been compromised a second time. At this point it is unlikely that the IRS will replace Equifax before the 2017 tax season, and suspension or not, the real damage is already done. Your government at work...

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