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It seems increasingly likely the next Global Financial Meltdown will arise in the FX/currency markets.

Central banks are like generals: they tend to fight the last war. The Great Financial meltdown of 2008 was centered in too big to fail, too big to jailtransnational banks and other financial entities with enormous exposure to collateral risk (such as subprime mortgages), highly leveraged bets and counterparty risk (the guys who were supposed to pay off your portfolio insurance vanish in a puff of digital smoke, leaving you to absorb the loss).

In response, the central banks and treasuries of the major economies “did whatever it took” to save the private banking sector from insolvency and collapse. In effect, central banks launched a multi-pronged bailout of banks and other financial heavyweights (such as AIG) and hastily constructed a clumsy and costly Maginot Line to protect the now-indispensable private banks from a similar meltdown.

The problem with preparing to fight the last war is that crises arise not from what is visible to all but from what is largely invisible to the mainstream.

The other factor is what’s within the power of central banks to fix and what’s beyond their power to fix. Correspondent Mark G. and I refer to this as the set of problems that can be solved by printing a trillion dollars. It’s widely assumed that virtually any problem can be fixed by printing a trillion dollars (or multiple trillions) and throwing it at the problem.

Yes, the looming student-loan debacle can be fixed by printing a trillion dollars and paying down a majority of the existing student debt.

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

Cash Withdrawal Limits and “Bank Holidays” Coming

September 13, 2015

Cash Withdrawal Limits and “Bank Holidays” Coming

Concerns that next crisis may be imminent
Bail-ins, withdrawal limits and negative interest rates may be imposed
FT proposes a ban on “barbarous relic” cash
Central banks would have people “completely under their control” – Bonner
Gold in safe jurisdictions will again protect wealth

Collapsing commodities prices, erratic market turmoil and the bursting of Chinese bubbles are leading to a crisis in confidence in the economic system across the globe. The long-expected crisis to which the global financial and systemic crisis in 2008 may have been a mere prelude may be upon us.

Governments have no appetite for further bailouts. The EU states have passed legislation which will make the banks or rather unfortunate and unsuspecting depositors liable for the bank’s lending and speculative profligacy.

It is claimed that this is to “protect” the taxpayer. In reality it will likely lead to bail-ins – the confiscation of deposits. It is likely that that in a crisis within the banking system this bail-in mechanism would be imposed on an impromptu “bank holiday” followed by limits on cash withdrawals as were applied in Cyprus and more recently to depositors in Greece.

As has been pointed out by many other analysts, the unelected powers-that-be have used all their conventional weaponry to stave off the consequences of their irresponsible ultra loose monetary policies and massive buildup of debt globally – the largest ever seen in the history of the world.

The typical response to a crisis has been to slash rates from somewhere around 6% – the historic post war norm in the west – to between 0% and 1%. This has stored up an even crisis in the future – the question is not if we have another crisis but when.

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

Today Is the Last Day of Trading on Wall Street Before Shemitah Ends… What Will Happen This Time?

September 12, 2015

Today Is the Last Day of Trading on Wall Street Before Shemitah Ends… What Will Happen This Time?

This isn’t meant to be another one of those scary September 2015 stories, but we can’t just completely ignore history either.

Today isn’t just the 14th anniversary of the September 11, 2001 attacks. It also happens to be the last day of trading on Wall Street before this Shemitah cycle — a seven-year period on the Jewish calendar — ends on Sunday.

Why should that matter, you might ask?

Look at how the end of each Shemitah cycle has played out in the past (via The Times of India):

See what I mean? Some immense financial disaster has occurred after each Shemitah has ended in recent history.

Not featured on that graphic are 1980 and 1973. In 1980, the Savings and Loan crisis was going on and the Fed raised interest rates (which they are currently discussing doing right now actually) and we ended up in a really deep recession. Ten days after Shemitah ended in 1973, the Yom Kippur War started which resulted in the 1973 oil crisis.

Think about it. It’s kind of like a totally manipulated, self-fulfilling prophecy, isn’t it?

So… What do you think will happen this time?

Is the Justice Department Finally Ready to Jail Corporate Criminals?

September 11, 2015

Is the Justice Department Finally Ready to Jail Corporate Criminals?

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The single greatest travesty to afflict American society in the 21st century has been the abandonment of the rule of law and accountability. It’s worse than the attacks of 9/11 and the subsequent loss of privacy and civil liberties. It’s even worse than the economic devastation unleashed by the financial crisis.

The reason it’s worse is because dynamic, complex and diverse cultures such as these United States will always be flawed and some of its leaders, both corporate and political, will always fall to the temptation of corruption and criminality. The key to preventing such bad behavior from multiplying and ultimately destroying the entire civilization, is the rule of law.

Edward Snowden leaked the information he did in order to inform the American public of what its government was doing in cahoots with large tech companies. He saw Constitutional violations and he held up his oath to protect the founding document from “enemies foreign and domestic.” Nevertheless, no one in a position of power has been held accountable.

Similarly, the financial crisis came and went (for now), and what’s the biggest lesson learned? Crime pays. Tremendously. We learned that rich and powerful members of society are suddenly somehow above the law. That their corporations merely have to pay a slap on the wrist fine and the perpetrators get to keep their ill gotten gains. That oligarchs are untouchable, and a group of people Larry Summers called “insiders,” never go to jail.

Restoring the rule of law and accountability for the wealthiest and most powerful amongst us is of the upmost importance. It is far more important to hold the powerful accountable than the weak. The weak commit small scale crimes, while big players have the capacity to destroy entire nations with their unethical behavior. And they are well on their way to achieving that here in the U.S., earning billions along the way.

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

Global Economy Nearing a “Structural Recession”

September 10, 2015

Global Economy Nearing a “Structural Recession”

And monetary policies will be “ineffective”

To the never-ending astonishment of our economists, global growth has been much weaker since the Financial Crisis than before it, despite enormous global stimulus from years of extreme central-bank monetary policies and record amounts of government deficit spending.

This should not have happened, according to our economists. Fiscal stimulus and expansionary monetary policies beget economic growth, which beget even more economic growth. That’s the theory. And that’s precisely what hasn’t happened. All it did was inflate asset prices. But the global economy has been a dud.

“If we calculated global growth with China’s true growth rate and not the official rate, global growth in the second quarter of 2015 would be only 2%,” figured Natixis, the investment bank of France’s second largest megabank, Groupe BPCE.

This “sluggish growth, close to a recession, is due to persistent, structural causes; we therefore use the term ‘structural recession’ to show that it does not have a cyclical origin,” the report explained. It’s not caused by normal cyclical fluctuations, but by “persistent structural problems that are specific to each region.”

China loses its cost-competitiveness

The problem dogging China is the soaring cost of labor, in an economy that is still too centered on low-end products and exposed to “a very high level of the price elasticity of exports.” Thus, if Bangladesh or Vietnam can produce it a little more cheaply, China loses those exports.

Labor costs have soared in the double digits year after year. Even per-unit labor cost, which compensates for productivity gains, has jumped year over year: in 2015, by 4.5%, which is at the low end; and by over 10% at the high end in 2000-2001 and 2007-2008.

Hence a decline in exports of those products, a weakening of investments, and a sharp weakening of what Natixis calls China’s “true growth.”

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

This Is EXACTLY What The Early Phases Of A Market Meltdown Look Like

September 9, 2015

This Is EXACTLY What The Early Phases Of A Market Meltdown Look Like

There is so much confusion out there. On the days when the Dow goes down by several hundred points, lots of people pat me on the back and tell me that I “nailed” my call for the second half of this year. But on the days when the Dow goes up by several hundred points, I get lots of people contacting me and telling me that they are confused because they thought the stock market was supposed to go down. Well, the truth is that if there is going to be a full-blown market meltdown, we would expect for there to be wildly dramatic swings in the market both up and down. A perfect example of this is what we experienced during the financial crisis of 2008. 9 of the 20 largest single day declines in stock market history happened that year, but 9 of the 20 largest single day increases in stock market history also happened that year. If we are moving into another great financial crisis, there should be massive ups and massive downs, and that is precisely what we are witnessing right now.

On Tuesday, the Dow surged several hundred points. There was much celebrating in the mainstream media over this, but what they failed to realize was that this was another big red flag. And we saw this volatility carry over into Wednesday. The Dow was up 171 points early in the day before ending down 239 points.

By themselves, those two days don’t mean a whole lot. The key is to look at them in context. And in context, we have already witnessed the most dramatic stock market crash since the last financial crisis.

There will be more days when the stock market absolutely plummets and there will be more days when it absolutely soars. No stock market crash in U.S. history has ever gone in just one direction continually.

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

“Liars Loans” are Back…but with a Twist

September 9, 2015

“Liars Loans” are Back…but with a Twist

Screen Shot 2015-09-08 at 1.18.59 PM

Most of you will be intimately familiar with the roll “liars loans” played in last decade’s financial crisis. In a nutshell, these were loans in which the borrower was encouraged to lie about his or her income in order to qualify for a mortgage they couldn’t actually handle. In the aftermath of the crisis, regulations have been put in place to ensure lenders verify income and the ability of the borrower to service the mortgage. As is always the case, there’s a loophole, and Wall Street is already exploiting it.

The loophole pertains to loans for homes that will be used for business purposes. Unsurprisingly, people are lying about the true use of their homes to avoid regulations. Some of these are then being packaged in AAA rated bond issuances.

From Bloomberg:

The pitch arrived with an iconic image of the American Dream: a neat house with a white picket fence.

But behind that picture of a $2.95 million home in Manhattan Beach, California, were hints of something darker: liar loans, those toxic mortgages of the subprime era.

Years after the great American housing bust, mortgages akin to the so-called liar loans — which were made without verifying people’s finances — are creeping back into the market. And, like last time, they’re spreading risks far and wide via Wall Street.

Today’s versions bear only passing resemblance to the ones that proliferated in the mid-2000s, and they’re by no means as widespread. Still, they reflect how the business is starting to join in the frenzy that’s been creating booms in everything from subprime car loans to junk-rated company bonds.

Just in case you aren’t up to speed on the subprime auto bubble:

Subprime Auto Loan “Titan” Foolishly Proclaims There’s Nothing to Worry About

Gotta Keep Dancing – Honda Executive Laments “Stupid” Auto Loans Driving U.S. Sales Higher

Chinese Homebuilders Expand in America as U.S. Auto Loans Hit Record Levels

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

Globalized Crisis

September 7, 2015

Globalized Crisis

If there is a bright side to the turmoil that has roiled the global economy since 2008, it is that not every part of the world has erupted simultaneously. The first blow was the subprime mortgage crisis in the United States, to which Europeans responded with self-satisfied reflections on the superior resilience of their social model. Then, in 2010, with the outbreak of the European debt crises, it was America’s turn for schadenfreude, while Asian countries pointed to the over-extended welfare state as the root of the problem.

Today, the world is obsessed with the slowdown in China and the woes of its stock market. Indeed, to some, what is happening in China may be a modern version of the American stock-market crash in 1929 – a shock that shakes the world. And it is not only the Chinese economy that has hit turbulence; Russia and Brazil are in much worse shape.

As globalization connects far-flung people and economies, the consequences are not always what was expected – or welcome. And, with the economic crisis becoming ever more global in nature, the next challenge for policymakers will be to try to mitigate its effects at home – and to contain their constituents’ impulse to reduce engagement with the rest of the world.

By now, it has become clear that every success story has its dark side, and that no economy is likely to continue to rocket upward indefinitely. But, to paraphrase Leo Tolstoy, it is important to remember that every unhappy economy is unhappy in its own way, and that a fix for one country’s problems might not work for another’s.

Europe’s problems, for example, cannot be attributed to a simple, single cause – such as the adoption of a common currency. In the run-up to the euro crisis, Italy had undergone a long period of stagnation, while Spain had experienced an American-style housing bubble and Greece was suffering from too much government-fueled growth. The uniting factor was that each had adopted unsustainable policies that required corrective action.

Read more at http://www.project-syndicate.org/commentary/globalized-economic-crisis-by-harold-james-2015-09#f5oBvDqv7Zb9mM5A.99

Inflation, the Fed, and the Big Picture

September 6, 2015

Inflation, the Fed, and the Big Picture

CAMBRIDGE – Inflation – its causes and its connection to monetary policy and financial crises – was the theme of this year’s international conference of central bankers and academics in Jackson Hole, Wyoming. But, while policymakers’ desire to be prepared for potential future risks to price stability is understandable, they did not place these concerns in the context of recent inflation developments at the global level – or within historical perspective.

For the 189 countries for which data are available, median inflation for 2015 is running just below 2%, slightly lower than in 2014 and, in most cases, below the International Monetary Fund’s projections in its April World Economic Outlook. As the figure below shows, inflation in nearly half of all countries (advanced and emerging, large and small) is now at or below 2% (which is how most central bankers define price stability).

Most of the other half are not doing badly, either. In the period following the oil shocks of the 1970s until the early 1980s, almost two-thirds of the countries recorded inflation rates above 10%. According to the latest data, which runs through July or August for most countries, there are “only” 14 cases of high inflation (the red line in the figure). Venezuela (which has not published official inflation statistics this year) and Argentina (which has not released reliable inflation data for several years) figure prominently in this group. Iran, Russia, Syria, Ukraine, and a handful of African countries comprise the rest.

The share of countries recording outright deflation in consumer prices (the green line) is higher in 2015 than that of countries experiencing double-digit inflation (7% of the total). Whatever nasty surprises may lurk in the future, the global inflation environment is the tamest since the early 1960s.

Read more at http://www.project-syndicate.org/commentary/jackson-hole-banking-conference-inflation-by-carmen-reinhart-2015-09#T1r408ZIPrXMqX7L.99

The Concept Of Money And The Money Illusion

September 6, 2015

The Concept Of Money And The Money Illusion

Awareness about the concept of money is making a comeback. Gone are the decades in which the global citizenry was fooled to leave this subject to economists, governments and banks – a setup that has proven to end in disaster. The crisis in 2008 has spawned debate about what money is, where it comes from and where it should come from. These developments inspired me to write a post on the concept of money and the money illusion. (All examples in this post are simplified.) The Concept Of Money

Money is a collective human inventionFirst, let us have a look at the fundamentals of money. How did Money evolve? Thousand and thousands of years ago before any trade occurred homo sapiens use to be self-sufficient; families or small communities grew that their own crops, fished the seas, raised cattle and made their own tools.When barter emerged the necessity to be self-sufficient ceased to exist. A farmer that grew tomatoes and carrots could exchange some of his production output for bananas or oranges if he wished to do so. There was no necessity for the farmer to grow all crops he wished to consume, when there was an option to trade.Farmers participating in a barter economy were incentivized to specialize in production, because they could escalate their wealth (gain more goods) by producing fewer crops on a greater scale. Through trade increased productivity (efficiency of production) could be converted into wealth, as the more efficient commodities were produced, the higher the exchange value of the labor put in to produce them. Consequently, barter economized production among its participants.

By exchanging, human beings discovered ‘the division of labor’, the specialization of efforts and talents for mutual gain… Exchange is to cultural evolution as sex is to biological evolution.

From Matt Ridley.

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

September 2015 Sure Started Off With Quite A Bang, Eh?

September 2, 2015

September 2015 Sure Started Off With Quite A Bang, Eh?

After enduring their worst August in 17 years, U.S. stocks are off to their worst start to a September in 13 years. Just yesterday, I declared that we would be entering the “danger zone” this month, and it didn’t take long for the action to begin. Historically, this month is the worst month of the year for stocks, and most of the biggest stock market crashes throughout our history have come in the fall. On Tuesday, the Dow plunged another 469 points, and it is now down more than 10 percent from the peak of the market back in May. That means that we have officially entered “correction” territory. Asian stocks also crashed hard on Tuesday, so did European stocks, and the price of oil plummeted about 8 percent. For a long time, there have been a lot of people out there that have been warning that a financial crisis would happen in the second half of 2015, and they are being proven right. It is actually happening.

Of course there will be plenty of ups and downs still to come. I cannot emphasize enough that we should fully expect waves of panic selling and waves of panic buying. This always happens during any market crash.

For instance, just consider what happened when the tech bubble crashed. The following analysis comes from Graham Summers…

In a six month period, investors moved stocks down 19%, up 8%, then down 27%, then up 21%, then down 22%, then up 34%, then down 17%, then up 16%, then down 28%, then up 16%, and finally down 17%. Only at that point did stocks break their trendline for the bubble (the blue line) and it became obvious that the bubble had burst.

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

Why we need to lie to ourselves about the state of the economy

August 30, 2015

Why we need to lie to ourselves about the state of the economy

Since 2007, global debt has grown by US$57 trillion, or 17 per cent of the world’s gross domestic product. Photo: Louie Douvis

Like the characters in Samuel Beckett’s Waiting for Godot, the world awaits the return of wealth and prosperity. But the global economy may be entering a period of stagnation.

Over the last 35 years, the economic growth necessary to increase living standards, increase wealth and manage growing inequality has been based increasingly on rising borrowings and financial rather than real engineering. There was reliance on debt-driven consumption. It resulted in global trade and investment imbalances, such as that between China and the US or Germany and the rest of Europe.

Everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road.

Citizens demanded and governments allowed the build-up of retirement and healthcare entitlements as well as public services to win or maintain office. The commitments were rarely fully funded by taxes or other provisions.

The 2008 global financial crisis was a warning of the unstable nature of these arrangements. But there has been no meaningful change. Since 2007, global debt has grown by US$57 trillion, or 17 per cent of the world’s gross domestic product. In many countries, debt has reached unsustainable levels, and it is unclear how or when it is to be reduced without defaults that would wipe out large amounts of savings.

Imbalances remain. Entitlement reform has proved politically difficult. Financial institutions and activity dominate many economies.

The official policy is “extend and pretend”, whereby everybody conspires to ignore the underlying problem, cover it up, or devise deferral strategies to kick the can down the road. The assumption was that government spending, lower interest rates and supplying abundant cash to the money markets would create growth. While the measures did stabilise the economy, they did not lead to a full recovery. Instead, they set off dangerous asset price bubbles in shares, bonds, real estate and even fine arts and collectibles.

Lies You Will Hear As The Economic Collapse Progresses

August 27, 2015

Lies You Will Hear As The Economic Collapse Progresses

It is undeniable; the final collapse triggers are upon us, triggers alternative economists have been warning about since the initial implosion of 2008. In the years since the derivatives disaster, there has been no end to the absurd and ludicrous propaganda coming out of mainstream financial outlets and as the situation in markets becomes worse, the propaganda will only increase. This might seem counter-intuitive to many. You would think that the more obvious the economic collapse becomes, the more alternative analysts will be vindicated and the more awake and aware the average person will be. Not necessarily…

In fact, the mainstream spin machine is going into high speed the more negative data is exposed and absorbed into the markets. If you know your history, then you know that this is a common tactic by the establishment elite to string the public along with false hopes so that they do not prepare or take alternative measures while the system crumbles around their ears. At the onset of the Great Depression the same strategies were used. Consider if you’ve heard similar quotes to these in the mainstream news over the past couple months:

John Maynard Keynes in 1927: “We will not have any more crashes in our time.”

H.H. Simmons, president of the New York Stock Exchange, Jan. 12, 1928: “I cannot help but raise a dissenting voice to statements that we are living in a fool’s paradise, and that prosperity in this country must necessarily diminish and recede in the near future.”

Irving Fisher, leading U.S. economist, The New York Times, Sept. 5, 1929: “There may be a recession in stock prices, but not anything in the nature of a crash.” And on 17, 1929:“Stock prices have reached what looks like a permanently high plateau. I do not feel there will be soon if ever a 50 or 60 point break from present levels, such as (bears) have predicted. I expect to see the stock market a good deal higher within a few months.”

The Real Long Term Threat To The Oil & Gas Industry

August 26, 2015

The Real Long Term Threat To The Oil & Gas Industry

As oil prices continue their downward slide, most investors and firms are understandably eyeing prices, revenues, and exploration costs nervously. All that makes sense, as there is a good chance some oil firms will face liquidity crunches and restructuring over the next year. In the longer term though, there is another specter that could be equally damaging to O&G firms – a shortage of skilled labor.

During the 2008 Recession, many manufacturing firms cut way back on labor and costs everywhere they could, as demand plummeted and customers started asking for lower prices. Fast forward a few years though, and demand has returned. What has not returned are many of the skilled laborers that were instrumental to the manufacturing industry’s success. Many of the industry’s best workers moved on to other fields or retired in the intervening years since the Recession. As a result, manufactures complain frequently about a lack of available skilled labor. The same thing could happen in the O&G industry.

Oil and gas executives already lament the lack of proper training being done by colleges and universities for entry level employees. The exodus from the industry is only going to exacerbate that problem. Every field in the O&G space from geologists on down, is seeing layoffs and cut-backs. In the short term, these actions might be unavoidable. But if the downturn continues for more than a year or so, many of these workers may move on to new fields. If that happens, the industry could find that those workers are lost for good.

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

During Every Market Crash There Are Big Ups, Big Downs And Giant Waves Of Momentum

August 26, 2015

During Every Market Crash There Are Big Ups, Big Downs And Giant Waves Of MomentumThis is exactly the type of market behavior that we would expect to see during the early stages of a major financial crisis. In every major market downturn throughout history there were big ups, big downs and giant waves of momentum, and this time around will not be any different. As I have explained repeatedly, markets tend to go up when things are calm, and they tend to go down when things get really choppy. During a market meltdown, we fully expect to see days when the stock market absolutely soars. Waves of panic selling are often followed by waves of panic buying. As you will see below, six of the ten best single day gains for the Dow Jones Industrial Average happened during the financial crisis of 2008 and 2009. So don’t be fooled for a moment by a very positive day for stocks like we are seeing on Tuesday. It is all part of the dance.

At one point on Tuesday, the Dow was up over 400 points, and many of the talking heads on television were proclaiming that the stock market had “recovered”. This is something that I predicted would happen yesterday…

And if stocks go up tomorrow (which they probably should), all of those same “experts” will be proclaiming that the “correction” is over and that everything is now fine.

No, everything is not “fine” now. The extreme volatility that we are witnessing just tells us that more trouble is coming. Early on Tuesday the market was “burning up energy” as short-term investors sought to “buy the dip”. But now that wave of panic buying is subsiding and the Dow is only up 240 points as I write this.

Overall, the Dow is still down more than 2,200 points from the peak of the market. Even though I specifically warned that a market crash was coming, I didn’t expect the Dow to be down this far in late August. Even after the “rally” we witnessed today, we are still way ahead of schedule.

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

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