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Over the years, we have repeatedly poked fun at the transformation of Venezuela into a “socialist utopia” – an economy in a state of terminal collapse, where the destruction of the currency (one black market Bolivaris now worth 107 times less than the official currency’s exchange rate) and the resulting hyperinflation is only matched be barren wasteland that local stores have transformed into now that conventional supply chains are irreparably broken.

Just this past Wednesday we showed a clip of what is currently taking place inside Venezuela supermarkets, noting that “the hyperinflationary collapse in Venezuela is reaching its terminal phase. With inflation soaring at least 65%, murder rates the 2nd highest in the world, and chronic food (and toilet paper shortages), the following disturbing clip shows what is rapidly becoming major social unrest in the Maduro’s socialist paradise… and perhaps more importantly, Venezuela shows us what the end game for every fiat money system looks like (and perhaps Janet and her colleagues should remember that).”

Unfortunately, while mocking socialist paradises everywhere is a recurring theme especially once they have completely run out of other people’s money to burn through, what always follows next is far less amusing – completely social collapse, with riots, civil war and deaths not far behind.

That is precisely what the video shown below has captured. In the clip, a demonstration against Venezuela’s poor transportation services quickly turned violent. End result: one person dead from a gunshot wound, more than 80 arrested and four shops looted on the Manuel Piar Avenue in San Felix.

What is most distrubing is how comparable to an open war zone what was once a vibrant, rich and beautiful Latin American country has become.

…click on the above link to read the rest of the article…

Paying in a Broken World

July 31, 2015

Paying in a Broken World

It is a common reaction to ask, how much is that, when we see something we want or need. The question is answered with some monetary figure that people will recognize and use to determine if they can afford it. But what happens when the monetary system we know becomes so dysfunctional that common monetary values mean little.

This could happen due to massive inflation, currency collapse or a frozen banking system that prevents you from accessing your funds. If you have no way to pay for something, it does not matter how much or little it costs. It will be out of your reach unless you have some means to pay.

Some people keep cash on hand for just such a problem. They know they will be able to pay cash when everything else stops working. That will work for a time but eventually paper currency will be looked on as a diminishing asset as physical goods become more valuable to those that need them. Paper currency is not much different than a check you write on your account. If the account is empty your check is no good.

The same can be said for those entities that issue paper money. If they are bankrupt or shut down, the value of their printed certificates will be worth the same as the bad check. Nobody will want to accept it after they realize it may not be honored for the value it supposedly holds. While a local store may accept it out of habit, eventually businesses will figure out the truth.

In times like this alternative forms of money may become more viable to local individuals such as gold and silver. But, that may take some time and most people will not own any of these precious metals for trade.

…click on the above link to read the rest of the article…

Mexican Peso Dives, Fretting Begins About Peso Crisis

July 30, 2015

Mexican Peso Dives, Fretting Begins About Peso Crisis

“Everyone got used to playing with free, easy money. Now it’s going to cost us.”

On July 1, the Financial Times wondered just how low the Mexican peso could go, likening the ill-fated currency to a limbo dance: “Every month, it gets just that little bit lower.”

In the 20 trading days since, the peso has experienced eight record daily lows, in itself a record, even for Mexico. Not since the peso-dollar floating exchange rate system was established, on December 21, 1994, at the height of Mexico’s Tequila Crisis, has the currency notched up so many new lows in one single month. And there are still three days left to go!

At 16.25 pesos to the dollar currently, the peso has lost roughly 20% of its value against the dollar within a year. In December last year, with the exchange rate dropping to 14 pesos to the dollar, the country’s Exchange Rate Commission launched a currency intervention program in a bid to prop up the peso, or at least stymie its slide.

Like so many central bank interventions these days, it failed: by March, it took 15 pesos to buy a dollar. The Commission upped the ante, announcing it would conduct daily auctions of $52 million, without setting a minimum price requirement. That was four months ago. Since then, the peso’s value has continued to slide against the dollar, and the pain is beginning to show.

As El Financiero reports, although inflation, at around 3% , remains at historically low levels, pressures are beginning to rise. Some imported goods, including medical appliances, plastics and petrochemicals have registered price increases of between 10% and 15% over the last couple of months. With external trade accounting for 63% of the national economy, the impact is unavoidable. Particularly hard hit are companies with heavy debt loads denominated in dollars.

…click on the above link to read the rest of the article…

Currency Devaluation: The Crushing Vice of Price

July 29, 2015

Currency Devaluation: The Crushing Vice of Price

Devaluation has a negative consequence few mention: the cost of imports skyrockets.

When stagnation grabs exporting nations by the throat, the universal solution offered is devalue your currency to boost exports. As a currency loses purchasing power relative to the currencies of trading partners, exported goods and services become cheaper to those buying the products with competing currencies.

For example, a few years ago, before Japanese authorities moved to devalue the yen, the U.S. dollar bought 78 yen. Now it buys 123 yen–an astonishing 57% increase.

Devaluation is a bonanza for exporters’ bottom lines. Back in late 2012, when a Japanese corporation sold a product in the U.S. for $1, the company received 78 yen when the sale was reported in yen.

Now the same sale of $1 reaps 123 yen. Same product, same price in dollars, but a 57% increase in revenues when stated in yen.

No wonder depreciation is widely viewed as the magic panacea for stagnant revenues and profits. There’s just one tiny little problem with devaluation, which we’ll cover in a moment.

One exporter’s depreciation becomes an immediate problem for other exporters: when Japan devalued its currency, the yen, its products became cheaper to those buying Japanese goods with U.S. dollars, Chinese yuan, euros, etc.

That negatively impacts other exporters selling into the same markets–for example, South Korea.

To remain competitive, South Korea would have to devalue its currency, the won. This is known as competitive devaluation, a.k.a. currency war. As a result of currency wars, the advantages of devaluation are often temporary.

But as correspondent Mark G. recently observed, devaluation has a negative consequence few mention: the cost of imports skyrockets. When imports are essential, such as energy and food, the benefits of devaluation (boosting exports) may well be considerably less than the pain caused by rising import costs.

…click on the above link to read the rest of the article…

Now Is The Time – Fear Rises As Financial Markets All Over The Planet Start To Crash

July 28, 2015

Now Is The Time – Fear Rises As Financial Markets All Over The Planet Start To Crash

Can you feel the panic in the air? CNN Money’s Fear & Greed Index measures the amount of fear in the financial world on a scale from 0 to 100. The closer it is to zero, the higher the level of fear. Last Monday, the index was sitting at a reading of 36. As I write this article, it has fallen to 7. The financial turmoilwhich began last week is threatening to turn into an avalanche. On Sunday night, we witnessed the second largest one day stock market collapse in China ever, and this pushed stocks all over the planet into the red. Meanwhile, the twin blades of an emerging market currency crisis and a commodity price crash are chewing up economies that are dependent on the export of natural resources all over the globe. For a long time, I have been warning about what would happen in the second half of 2015, and now it is here. The following is a summary of the financial carnage that we have seen over the past 24 hours…

-On Sunday night, the Shanghai Composite Index plunged 8.5 percent. It was the largest one day stock market crash in China since 2007, and it was the second largest in history. The Chinese government is promising to directly intervene in order to prevent Chinese stocks from going down even more.

-Over 1,500 stocks in China fell by their 10 percent daily maximum. This list includes giants such as China Unicom, Bank of Communications and PetroChina.

-Ever since peaking in June, the Shanghai Composite Index has dropped by a total of 28 percent.

-Even Chinese stocks that are listed on U.S. stock exchanges are being absolutely hammered. The following comes from USA Today…

…click on the above link to read the rest of the article…

Gold’s Two Stories: Paper Markets Collapse… While The Retail Public Buys At A Record Pace

July 26, 2015

Gold’s Two Stories: Paper Markets Collapse… While The Retail Public Buys At A Record Pace

paper-and-real-gold We’ve seen some significant swings in precious metals over the last several years and if we are to believe the paper spot prices and recent value of mining shares, one would think that gold and silver are on their last leg. Last weekend precious metals took a massive hit to the downside, sending shock waves throughout the industry. But was the move really representative of what’s happening in precious metals markets around the world? Or, is there an effort by large financial institutions to keep prices suppressed? In an open letter to the Commodity Futures Trading Commission First Mining FinanceCEO Keith Neumeyer argues that real producers and consumers don’t appear to be represented by the purported billion dollar moves on paper trading exchanges.

With China recently revealing that they have added some 600 tons of gold to their stockpiles and the U.S. mint having suspended sales of Silver Eagles due to extremely high demand in early July, how is it possible that prices are crashing?

As noted in Mike Gleason’s Weekly Market Wrap at Money Metals Exchange, while it appears that gold is currently one of the world’s most hated assets, the retail public continues to buy at a record pace:

The paper market is telling one story. But the actual physical bullion market is telling quite another.

The U.S. Mint has sold over 100,000 ounces of American Eagle gold coins so far in July. That’s the highest monthly demand volume registered since April 2013. And that’s just as of this week. There’s still another week left to go before the final sales tally for Gold Eagles comes in for the month of July. It could be one for the record books with 109,000 1-ounce Gold Eagles sold — with bargain hunters purchasing 6% of the U.S. Mint’s production from Money Metals Exchange.

…click on the above link to read the rest of the article…

Local Currency–Money For Us, Not the Bankers

July 24, 2015

Local Currency–Money For Us, Not the Bankers

“Back in the 1930s on the Olympic peninsula, people were paying their taxes in alternative money…The banks shut them down. This is an example of the monopoly the banks have, and the level of control they have over peoples’ economic lives… People need to know [local currency] is a possibility, an option, a realistic tactical and powerful way to take back your economic power from the bankers.

” Fourth Corner Exchange co-founder Francis Ayley says the current debt-based global money system is an unsustainable Ponzi-scheme that will crash. By contrast, local currencies are unlimited, based on whatever members want to exchange. He and director Lia Ayley share the nuts and bolts for new members starting to exchange, how values are set, and exchanges involving both Life Dollars and US dollars. The biggest challenge, they say, is changing our mindset from the scarcity built into the existing monetary system to one based on relationships, cooperation and plenty. [fourthcornerexchange.org]

Watch our 2006 interview of Francis Ayley: Local Currencies – Replacing Scarcity with Trust (episode 49).

– See more at: http://peakmoment.tv/videos/local-currency-money-for-us-not-the-bankers-292/#sthash.tdRFH7VS.dpuf

Greece crisis: Banks reopen as government eyes return to normalcy

July 20, 2015

Greece crisis: Banks reopen as government eyes return to normalcy

Stock market remains closed

Greek banks opened their doors Monday for the first time in over three weeks, a move that the government hopes will help the economy get back to normal following a period dominated by fears over the country’s future in the euro.

Still, strict controls on the amounts individuals can withdraw remain and new austerity taxes demanded by the country’s European creditors mean that most everyday items are more expensive — from coffee to taxis to cooking oil.

In downtown Athens, people queued up in an orderly fashion as the banks unlocked their doors at 8 a.m., but restrictions on most transactions remained.

Though the daily cash withdrawal limit stayed at 60 euros, the government has given individuals a new weekly limit of 420 euros from this coming Sunday so they don’t need to trudge to the ATM every day.

Ready cash is something Greeks will need as new taxes also came into effect on a wide array of goods and services Monday.

Sales taxes have risen from 13 per cent to 23 per cent on many basic goods — including some meats, cooking oils, coffee, tea, cocoa, vinegar, salt, flowers, firewood, fertilizer, insecticides, sanitary towels and condoms.

Popular services were also hit by the new taxes: restaurants and cafes, funeral homes, taxis, ferries, cram schools and language schools.

The new taxes are part of a package of confidence-building measures that the Greek government had to introduce in order for negotiations on a third bailout to begin.

Since the Greek parliament passed the measures, creditors have sought to relieve the pressure on Greece. The European Central Bank has raised the amount of liquidity assistance on offer to Greek banks while Greece’s partners in the 19-country eurozone agreed to give Athens a short-term loan so it wouldn’t default on a 4.2 billion-euro debt due to the ECB on Monday.

…click on the above link to read the rest of the article…

What’s Wrong with Our Monetary System and How to Fix It

July 14, 2015

What’s Wrong with Our Monetary System and How to Fix It

Something’s profoundly wrong with our global financial system. Pope Francis is only the latest to raise the alarm:

“Human beings and nature must not be at the service of money. Let us say no to an economy of exclusion and inequality, where money rules, rather than service. That economy kills. That economy excludes. That economy destroys Mother Earth.”

What the Pope calls “an economy of exclusion and inequality, where money rules” is widely evident. What is not so clear is how we got into this situation, and what to do about it.

Most people take our monetary system for granted, and are shocked to learn that the government doesn’t issue our money. Almost all of it is created by loans made “out of thin air” as bookkeeping entries by private banks. For this sleight-of-hand, they charge interest, making a tidy profit for doing essentially nothing. The currency printed by the government – coins and bills – is a negligible amount by comparison.

The idea of giving private banks a monopoly over money creation goes back to seventeenth century England. The British government, in a Faustian bargain, agreed to allow a group of private bankers to assume the national debt as collateral for the issuance of loans, confident that the state would be able to service the debt on the backs of taxpayers.

And so it has been ever since. Alexander Hamilton much admired this scheme, which he called “the English system,” and he and his successors were finally able to establish it in the United States, and subsequently most of the world.

…click on the above link to read the rest of the article…

Cashtration

July 13, 2015

Cashtration

Recently, we’ve witnessed the bank holiday in Greece, the limitation as to how much the Greek people can withdraw from their accounts each day.

Not surprisingly, the mainstream press have focused on images such as the one above – a queue at an ATM – and discussed the difficulty of the Greek people in trying to run their lives on the €50-€60 that they’re allowed to withdraw each day.

The press then comment poignantly that “Something needs to be done.” The implication is that “someone”, either the banks or the government, need to find a way to deliver these people more money, so that they can continue to function economically.

Of course, the problem, and the very reason for the bank holiday in the first place, is that the money simply doesn’t exist.

For many years, governments have been attempting to expand the economy by encouraging debt. Governments (most notably the EU and US) have borrowed far more than they ever have in history, to the point that they’re now facing insolvency.

Further, the average citizen has been programmed to think that he can get ahead through increased debt. As a result, personal debt has risen to an unprecedented level.

But in order for someone to borrow, someone must offer to lend, and, of course, the banks have been the lenders. Banks typically make their profits by taking in deposits, then loaning out that money to others, making their profits on the interest.

This is a system that began in Europe hundreds of years ago and, although it has repeatedly resulted in disaster, continues to be the standard by which banks operate.

Theoretically, it’s a workable idea.

…click on the above link to read the rest of the article…

Greek Businesses Accept Lira, Lev As Grexit Looms

July 10, 2015

Greek Businesses Accept Lira, Lev As Grexit Looms

With the Greek drama headed into its final act and Alexis Tsipras stuck between an obstinate Germany and a recalcitrant Left Platform, many wonder if the introduction of an alternative currency in Greece is now a foregone conclusion.

Even if Athens and Brussels manage to strike a deal over the weekend, the country still faces an acute cash shortage and a severe credit crunch that threatens to create a scarcity of critical imported goods.

Amid the chaos, the Greek Drachma has made two mysterious appearances this week (see here and here), suggesting that the EU is on the verge of forcing the Greek economy into the adoption of a parallel currency andwhile this week’s Drachma “sightings” might properly be called anecdotal, a report from Kathimerini and comments from deposed FinMin Yanis Varoufakis suggest redenomination rumors are not entirely unfounded.

Now, with the ECB set to cut Greek banks off from the ELA lifeline on Monday morning in the absence of a deal, some businesses are mitigating the liquidity shortage by accepting foreign currency. FT has more:

Like many Bulgarians, Kostadin Dobrev, is a regular visitor to the beaches and bars of northern Greece. But this week, the holidaying firefighter immediately noticed things were different. First, the shops were half-empty. Then, even more surprising, he found Greek hotels and restaurants were happy to accept the Bulgarian lev.

As Europe’s politicians prepare for a weekend summit to decide whether Greece can stay in the eurozone, Mr Dobrev’s experience highlights how the old certainties are collapsing. By early next week Greeks could be preparing for life outside the euro and a possible return to the drachma.

…click on the above link to read the rest of the article…

As the Eurozone Teeters, the IMF Does Something Weird

July 5, 2015

As the Eurozone Teeters, the IMF Does Something Weird

Wolf here: the IMF’s job is to bail out holders of sovereign bonds issued in a currency the issuer doesn’t control and can’t devalue (Mexico issuing bonds in dollars, Greece issuing bonds in euros). These bondholders are mostly banks. In a debt crisis, the IMF bails out these banks by buying their troubled bonds and then tightens the belts around the little guys so that the country can service the debt it now owes the IMF.

What happened in Greece? The banks that used to hold Greek debt have sold most of it to the European institutions, and some of it to the IMF; they have been bailed out years ago. The IMF has done its insidious job. Now mostly taxpayers are on the hook. But the IMF doesn’t give a crap about taxpayers.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

As Europe teeters on a precipice of its own making, some people are beginning to wonder whether the IMF might have somehow discovered it has a conscience. Strange as it may sound, rumors of the IMF’s do-gooding began spreading on Friday after the Fund published a damning report on the sustainability of Greece’s finances and the Troika’s woeful mismanagement of the country’s debt crisis.

Granted, the report was deeply critical of Syriza’s negotiation strategies and governance of Greece. But the report’s real victims were the IMF’s two Troika partners, the European Central Bank (ECB) and the European Commission, both of whom had fought to prevent its publication.

The latest developments confirm what I argued four months ago in “Is the IMF About to Make Greece an Offer It Can’t Refuse?”: namely that the IMF could well prove to be an unlikely, albeit temporary, ally for Syriza. Now, by publishing its Debt Sustainability Analysis at the best/worst possible time, the Fund has massively improved Syriza’s chances of achieving a no-vote on Sunday.

…click on the above link to read the rest of the article…

Who Will Be the Last to Crash?

July 2, 2015

Who Will Be the Last to Crash?

This is the question that astute investors are forced to ask themselves these days. No reasonable person believes that a system of ever-expanding debt can resolve painlessly. It simply cannot happen… not, at least, until 2+2 stops equaling four.

But the international money system, while deeply interconnected, can implode in sections. In fact, it’s highly unlikely that it will crash as a single unit.

So, if you have significant moneys to invest, you end up coming back to our question: Who will be the last to crash? Once you decide that, you can concentrate your assets in that place, hoping to come through the crash with at least most of your value intact.

Let’s look at several aspects of this:

#1: Background statistics:

World debt is upwards of $200 trillion, and growing steadily. World GDP is $70-some trillion, only about a third of the debt. This debt will not be paid back. Massive amounts of debt will have to be written off in losses.
US debt is north of $18 trillion. (Amazingly, *cough*, it hasn’t changed in months *cough*.) Forward promises are north of $200 trillion, meaning that a child born today is responsible to repay $625,000. And since roughly half the US population pays no income tax… and presuming that this newborn will be a member of the productive half… he or she is born $1.25 million in debt. Such repayments will never happen. Most of those debts will not be repaid.
Japan is worse off than the US. The UK is bad. Many EU countries are worse.

These numbers, by the way, are ignoring more than a quadrillion dollars of derivatives and lots of other monkey business. (Rehypothecation, *cough*, *cough*.)

…click on the above link to read the rest of the article…

Why Greeks Still Want to Keep the Euro, in One Chart

July 1, 2015

Why Greeks Still Want to Keep the Euro, in One Chart

As of midnight European time, Greece has become the first developed country in history to fall into arrears on payments to the IMF. It’s not that much money, by today’s standards: €1.6 billion. But for Greece, which is totally out of money, it’s an unreachable amount. The last time a country did such a thing was in 2001: Zimbabwe.

However the IMF ends up calling it in its institutional mumbo-jumbo, Greece has now defaulted on part of its debt. No one knows what’s going to happen next. Another emergency meeting is planned for Wednesday, so maybe….

Greeks have seen this coming months ago. So they yanked their money out of Greek banks with increasing determination, while they still could, starting last year. They have every reason in the world not to trust their banks. The withdrawals morphed into a “jog on the banks” last week.

When the central-bank spigot that had funded these withdrawals was turned off over the weekend, it brought the banks to their knees. The government, afraid of what would happen next, closed the banks for six working days. But re-opening the banks on day seven is going to be tough, unless new funding arrives in the interim. And Greeks now can’t get their money out, except in small amounts at the ATMs.

Whatever money they have left in the banks is now largely stuck there. All they can do is hope that they’ll get it back someday, in euros, not in drachmas, and not in form of equity in the banks.

But despite the deprivations, they still trust the euro and want to keep it. In the latest poll, done over the weekend during perhaps the greatest financial chaos Greece has seen in recent years, 57% of the respondents wanted to keep the euro and wanted their government to make a deal with the creditors; only 29% wanted a rupture from the Eurozone.

…click on the above link to read the rest of the article…

In Gold We Trust 2015

June 26, 2015

In Gold We Trust 2015

The Gold Standard of Gold Reports is Back

As every year around this time, our good friends Ronald Stoeferle and Mark Valek, the managers of the Incrementum Fund, have published their annual “In Gold We Trust” report, the extended version of which can be downloaded below.

Untitled-1

This year’s report is slightly longer than the 2014 report and discusses practically the entire breadth of gold-related topics, including highly instructive excursions into economic theory, monetary history and an extensive discussion of current political and economic trends.

For the past few years, gold investors certainly had little to write home about. In dollar terms, gold has essentially been going nowhere, with a slight downward bias. Actually, the past three years in the USD gold price look a bit like the past 18 years of “global warming”.

And yet, a lot depends on one’s home currency. Gold’s sideways trend in dollar terms actually represents a small victory, given the strong rally in the dollar in 2014. As a result, gold price charts actually look quite encouraging in terms of most non-dollar currencies. In fact, its performance in euro and yen terms over the past 18 months has been none too shabby.

Moreover, as Ronnie and Mark point out, gold has held up extremely well in a disinflationary environment in which many commodities such as crude oil have been obliterated. As our readers know, we believe that the underlying bid that is supporting gold is from people who are looking at the third huge asset bubble blown by loose monetary policy within the past two decades and are feeling increasingly queasy. It can’t hurt to hold some insurance – and sooner or later it will be essential.

…click on the above link to read the rest of the article…

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