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Why This Market Needs To Crash

March 25, 2017

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Why This Market Needs To Crash

And likely will

Like an old vinyl record with a well-worn groove, the needle skipping merrily back to the same track over and over again, we repeat: Today’s markets are dangerously overpriced.

Being market fundamentalists who don’t believe it’s possible to simply print prosperity out of thin air, we’ve been deeply skeptical of the financial markets ever since the central banks began their highly interventionist policies. Since 2009, they have unleashed over $12 Trillion in new money into the world, concentrating wealth into the hands of an elite few, while blowing asset price bubbles everywhere in the process (see our recent report The Mother Of All Financial Bubbles).

Our consistent view is that price bubbles always burst. Which is why we predict the world’s financial markets will implode spectacularly from today’s heights — destroying jobs, dreams, hopes, economies and political careers alike.

When this happens, it will frighten the central bankers enough (or merely embarrass them enough, being the egotists that they are) that they will respond with even more aggressive money printing — and that will then cause the entire money system to blow up. Ka-Poom! First inwards in a compressed ball of deflation, then exploding outwards in a final hyperinflationary fireball (see our recent report When This All Blows Up…).

It really cannot end any other way. Money is not wealth; it is merely a claim on wealth. Debt is a claim on future money. The only way to have faith in our current monetary policies is if one believes that we can always grow our debts at roughly twice the rate of GDP — forever. That is, compound the claims at twice the rate of income year after year from here on out.

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

Banks Are Evil

March 19, 2017

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Banks Are Evil

It’s time to get painfully honest about this

I don’t talk to my classmates from business school anymore, many of whom went to work in the financial industry.

Why?

Because, through the lens we use here at PeakProsperity.com to look at the world, I’ve increasingly come to see the financial industry — with the big banks at its core — as the root cause of injustice in today’s society. I can no longer separate any personal affections I might have for my fellow alumni from the evil that their companies perpetrate.

And I’m choosing that word deliberately: Evil.

In my opinion, it’s long past time we be brutally honest about the banks. Their influence and reach has metastasized to the point where we now live under a captive system. From our retirement accounts, to our homes, to the laws we live under — the banks control it all. And they run the system for their benefit, not ours.

While the banks spent much of the past century consolidating their power, the repeal of the Glass-Steagall Actin 1999 emboldened them to accelerate their efforts. Since then, the key trends in the financial industry have been to dismantle regulation and defang those responsible for enforcing it, to manipulate market prices (an ambition tremendously helped by the rise of high-frequency trading algorithms), and to push downside risk onto “muppets” and taxpayers.

Oh, and of course, this hasn’t hurt either: having the ability to print up trillions in thin-air money and then get first-at-the-trough access to it. Don’t forget, the Federal Reserve is made up of and run by — drum roll, please — the banks.

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

When This All Blows Up…

March 11, 2017

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When This All Blows Up…

Understanding the how & when of the next economic crash

This report marks the end of a series of three big trains of thought. The first explained how we’re living through the Mother Of All Financial Bubbles. The next detailed the Great Wealth Transfer that is now underway, siphoning our wealth into the pockets of an elite few.

This concluding report predicts how these deleterious and unsustainable trends will inevitably ‘resolve’ (which is a pleasant way of saying ‘blow up’.)

The Ka-POOM Theory

In terms how this will all end, we favor the scenario put forth by Eric Janszen in 1998 called the Ka-POOM theory.

This theory rests on the belief that the Federal Reserve along with the other world central banks looked at Japan’s several decades of economic stagnation and decided that deflationary recessions are to be avoided at all costs — even if that means blowing asset bubbles and then cleaning up the destruction left behind in their aftermath.

Because the Fed, et al. have a limited playbook (which is: print, and then print some more), the Ka-POOM model calls for limited periods of disinflation, followed by massive money printing sprees that then produce high inflation.

Despite the trillions and trillions in thin-air money printed by the world’s central banks over the past 8 years, a common rebuttal we hear is “But there’s been no inflation so far!” To which I reply, “Yes, that’s what we’re being told. But that’s not actually true.”

Remember: inflation is simply “too much money chasing too few goods.” We can detect today’s excess of money in the rising prices in our cost of living — but those higher prices are symptoms, not causes. Inflation is not “higher prices”. Inflation is “too much money”.

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

Whatever Happened to Inflation after All This Money Printing? It Has Arrived!

February 17, 2017

Whatever Happened to Inflation after All This Money Printing? It Has Arrived!

Workers, bondholders, savers get sacked. So what would Yellen do?

Consumer prices surged 0.6% in January from December, double the consensus forecast of a 0.3% rise. The sharpest monthly increase since February 2013, according to the Bureau of Labor Statistics.

Energy prices jumped 4% month over month, including gasoline which jumped 7.8%. Food prices edged up 0.1%. Within this group, “food at home” was unchanged, but prices for “food away from home” – restaurants, taco trucks, and the like – rose 0.4%. In just one month, the prices of apparel rose 1.4%, of new vehicles 0.9%, of auto insurance 0.8%, of airline fares 2.0%. Shelter rose “only” 0.2%, as the national numbers are now feeling the downward pressure on rents in some of the most expensive rental markets in the US.

This chart shows just how sharp that jump in monthly price increases is, compared to recent years:

Compared to January a year ago, consumer prices as measured by CPI-U surged 2.5%, after having already jumped 2.1% in December. The rate of inflation has now accelerated for the sixth month in a row. It has surged one full percentage point over the past four months and hit the highest rate since March 2012:

So-called core inflation – which excludes food and energy – jumped 2.3% in January from a year ago. The consensus expected 2.1%. So you can’t just blame the rising costs of energy. This “core” measure of price increases has been above 2% since November 2015. Even during the Financial Crisis, when overall year-over-year CPI dipped briefly into the negative, core CPI remained in positive territory.

However much these inflation measures may understate actual increases in the costs of living that people experience in their daily lives, even those understated measures are now beginning to exude a lot of heat. And afterwards, the consensus will say that no one saw this coming.

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

Our uncomfortable ride with central bankers who can’t take us home again: Neil Macdonald

September 24, 2016

Our uncomfortable ride with central bankers who can’t take us home again: Neil Macdonald

The great post-Great Recession money-printing bonanza was supposed to be temporary

Chair Janet Yellen decided this week to keep the U.S. Federal Reserve's interest rate where it is, saying the U.S. economy isn't yet ready to withstand a modest increase.

Chair Janet Yellen decided this week to keep the U.S. Federal Reserve’s interest rate where it is, saying the U.S. economy isn’t yet ready to withstand a modest increase. (Gary Cameron/Reuters)

We can all, more or less, put a dollar amount to what we’re worth.

The value of that money is another question.

Money is the ultimate confidence game; $10 is worth $10 because we all agree it is worth $10, and for no other reason.

Common sense would seem to dictate that creating unimaginable amounts of new money, the way central banks have been doing since the Great Recession, would erode the value of a dollar, or a euro, or a yen.

The U.S. Federal Reserve alone has printed about $3.8 trillion since 2009. That’s enough to buy 38 million million-dollar homes.

The U.S. Federal Reserve has printed about $3.8 trillion since 2009. (Reuters)

Put another way, the American central bank has printed more money than the entire Canadian economy generates in two years. Most of it was spent buying U.S. government treasury bonds — basically creating money with one hand of government and handing it to the other to spend.

Of course, the money printing distorted everything. As intended, it drove down interest rates to nearly zero, punishing old-fashioned, “virtuous” behaviour, robbing savers of return on their investments, while rewarding those who live beyond their means and bailing out scoundrels.

Risky behaviour

As intended, the creation of that money encouraged even more risky behaviour. Stock markets set new records, floating on all that cash. People bought homes they probably couldn’t afford (to a point that has scared the government of Canada; our central bank has pursued low interest rates, too).

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

Will Japan Be the First to Test the Limits of Quantitative Easing?

June 25, 2016

WILL JAPAN BE THE FIRST TO TEST THE LIMITS OF QUANTITATIVE EASING?

The Japanese stock market peaked in December 1989, marking the end of a period of economic expansion which briefly saw Japan eclipse the USA to become the world’s largest economy. Since its zenith, Japan has struggled. I wrote about this topic, in relation to the economic reform package dubbed Abenomics, in my first Macro Letter – Japan: the coming rise back in December 2013:-

As the US withdrew from Japan the political landscape became dominated by the LDP who were elected in 1955 and remained in power until 1993; they remain the incumbent and most powerful party in the Diet to this day. Under the LDP a virtuous triangle emerged between the Kieretsu (big business) the bureaucracy and the LDP. Brian Reading (Lombard Street Research) wrote an excellent, and impeccably timed, book entitled Japan: The Coming Collapse in 1989. By this time the virtuous triangle had become, what he coined the “Iron Triangle”.

Nearly twenty five years after the publication of Brian’s book, the” Iron Triangle” is weaker but alas unbroken. However, the election of Shinzo Abe, with his plan for competitive devaluation, fiscal stimulus and structural reform has given the electorate hope.

In the last two years Abenomics has delivered some transitory benefits but, as this Japan Forum on International Relations – No. 101: Has Abenomics Lost Its Initial Objective?describes, it may have lost its way:-

The key objective of Abenomics is a departure from 20 year deflation. For this purpose, the Bank of Japan supplied a huge amount of base money to cause inflation, and carried out quantitative and qualitative monetary easing so that consumers and businesses have inflationary mindsets.

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

The Fed’s Doomsday Device

June 21, 2016

The Fed’s Doomsday Device

Bezzle

BALTIMORE – Barron’s, in a lather, says the market is facing the “Two Horsemen of the Apocalypse.” Huh?

Apocalypse_vasnetsov Only two? There were four last time!

Supposedly, the so-called Brexit – the vote in Britain this Thursday on whether to leave or remain in the European Union (EU) – and uncertainty over where the Fed will take U.S. interest rates are cutting down stocks faster than a Z-turn mower.

But Brexit is a side show. As our contacts in London explained in last week’s issue of Bonner & Partners Inner Circle, Britain will do just fine outside of the EU. It will even thrive.

As for the Fed’s fumbling, it is a consequence, not a cause, of falling stock prices. The real threat to this market is more basic, more dangerous… and completely unavoidable. It is a “doomsday device” – hidden in plain view – in the feds’ fiat money system.

It took us a long time to understand how this works. For many years, we referred to the Fed’s EZ money policies as “printing money.” Finally, we realized that this metaphoric description of the Fed’s role probably hides more than it reveals.

The Fed is not printing money. If it were printing money, we’d have more money around and higher consumer prices. Instead, when the feds went to a “paper” money system in 1971, they did it very cleverly.

Yes, their new system is totally fraudulent and absolutely ruinous – just like an old fashioned money-printing scheme. But the fraud takes much longer to uncover, and the ruin is only obvious at the end. It is a “bezzle”… where you only become aware that you’ve been had when it blows up.

Unlimited Credit

Here’s the deal…Instead of printing money itself, the Fed allows banks to create an almost unlimited amount of credit (providing they meet certain capital requirements).

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

“Print the Money”: Trump’s “Reckless” Proposal Echoes Franklin and Lincoln

May 16, 2016

“Print the Money”: Trump’s “Reckless” Proposal Echoes Franklin and Lincoln

“Print the money” has been called crazy talk, but it may be the only sane solution to a $19 trillion federal debt that has doubled in the last 10 years. The solution of Abraham Lincoln and the American colonists can still work today.

“Reckless,” “alarming,” “disastrous,” “swashbuckling,” “playing with fire,” “crazy talk,” “lost in a forest of nonsense”: these are a few of the labels applied by media commentators to Donald Trump’s latest proposal for dealing with the federal debt. On Monday, May 9th, the presumptive Republican presidential candidate said on CNN, “You print the money.”

The remark was in response to a firestorm created the previous week, when Trump was asked if the US should pay its debt in full or possibly negotiate partial repayment. He replied, “I would borrow, knowing that if the economy crashed, you could make a deal.” Commentators took this to mean a default. On May 9, Trump countered that he was misquoted:

People said I want to go and buy debt and default on debt – these people are crazy. This is the United States government. First of all, you never have to default because you print the money, I hate to tell you, okay? So there’s never a default.

That remark wasn’t exactly crazy. It echoed one by former Federal Reserve Chairman Alan Greenspan, who said in 2011:

The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default.

Paying the government’s debts by just issuing the money is as American as apple pie – if you go back far enough. Benjamin Franklin attributed the remarkable growth of the American colonies to this innovative funding solution.

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

In 20 Words The ECB Explains The Business Model Of Every Central Bank

April 5, 2016

In 20 Words The ECB Explains The Business Model Of Every Central Bank

There were two notable things about a report released by the ECB this morning as part of its Occasional Paper Series titled “Profit distribution and loss coverage rules for central banks“, which purportedly analyzes “how profit distribution rules can affect the amounts distributed and the financial strength of central banks.”

The first highlight, was the very basic asymmetry at the core of the actual analysis – how can one talk of profit of there is no possibility of loss? Printing money to fill “loss” gaps by definition obviates any calculation of profit since the whole premise of risk/return does not exist.

The second highlight comes from footnote 7, which tells you all you need to know about the “business model” of all central banks, and specifically why they can never go “insolvent” – they can and will just print their way out. To wit:

“Central banks are protected from insolvency due to their ability to create money and can therefore operate with negative equity.”

And that, for those curious why every commercial bank in the world is now backstopped by central banks, is all you need to know.

Source: ECB

New Rules for the Monetary Game

March 21, 2016

New Rules for the Monetary Game

NEW DELHI – Our world is facing an increasingly dangerous situation. Both advanced and emerging economies need to grow in order to ease domestic political tensions. And yet few are. If governments respond by enacting policies that divert growth from other countries, this “beggar my neighbor” tactic will simply foster instability elsewhere. What we need, therefore, are new rules of the game.

Why is it proving to be so hard to restore pre-Great Recession growth rates? The immediate answer is that the boom preceding the global financial crisis of 2008 left advanced economies with an overhang of growth-inhibiting debt. While the remedy may be to write down debt to revive demand, it is uncertain whether write-downs are politically feasible or the resulting demand sustainable. Moreover, structural factors like population aging and low productivity growth – which were previously masked by debt-fueled demand – may be hampering the recovery.

Politicians know that structural reforms – to increase competition, foster innovation, and drive institutional change – are the way to tackle structural impediments to growth. But they know that, while the pain from reform is immediate, gains are typically delayed and their beneficiaries uncertain. As Jean-Claude Juncker, then Luxembourg’s prime minister, said at the height of the euro crisis, “We all know what to do; we just don’t know how to get re-elected after we’ve done it!”

Central bankers face a different problem: inflation that is flirting with the lower bound of their mandate. With interest rates already very low, advanced economies’ central bankers know that they must go beyond ordinary monetary policy – or lose credibility on inflation. They feel that they cannot claim to be out of tools.

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

The Inevitability of Dramatic Inflation

February 15, 2016

The Inevitability of Dramatic Inflation

No one is very concerned about inflation right now and that’s understandable.

Although inflation exists in some sectors of the economy, the present subject of discussion is deflation. Any depression is inherently deflationary since spending is curtailed, which drives prices down.

Since 2008, despite all the fudged reports emanating from governments, much of the world has been in a depression since 2008 and remains in one. This will continue until such time as there is a true cleansing of the system – a step the leaders of each jurisdiction have avoided as much as possible, choosing instead to extend the party as long as possible before the inevitable collapse occurs.

Since deflation is the problem that’s staring us in the face now, most economic discussion deals with it. But, historically, when deflation occurs, governments do everything they can do reverse the problem and return to inflation.

To the average person, one type of ‘flation is as bad as another type of ‘flation – he merely hopes for economic stability. And so the effort by governments to not only accept inflation but to recommend its existence as policy seems odd. But then, governments (and banks) benefit from inflation.

People can only be taxed so much before they rebel, but inflation acts as a hidden tax and most people don’t recognise that it’s not the number of currency units one possesses that matters, but what level of purchasing power they have. Inflation allows the individual to retain his currency notes, but devalues them so they buy him less in goods and services. Inflation is the unperceived tax.

The US Federal Reserve has done a sterling job of exacting wealth from US citizens. Since it was created in 1913, it has devalued the dollar by roughly 97% and the dollar is now due for replacement.

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

Legendary Investor Jim Rogers Warns: “Most People Are Going To Suffer The Next Time Around”

February 8, 2016

Legendary Investor Jim Rogers Warns: “Most People Are Going To Suffer The Next Time Around”

Back in the 1970’s as recession gripped the world for a decade, stocks stagnated and commodities crashed, investor Jim Rogers made a fortune. His understanding of markets, capital flows and timing is legendary.

As crisis struck in late 2008, he did it again, often recommending gold and silver to those looking for wealth preservation strategies – move that would have paid of multi-fold when precious metals hit all time highs in 2011. He warned that the crash would lead to massive job losses, dependence on government bailouts, and unprecedented central bank printing on a global scale.

Now, Rogers says that investors around the world are realizing that the jig is up. Stocks are over bloated and central banks will have little choice but to take action again. But this time, says Rogers in his latest interview with CrushTheStreet.com, there will be no stopping it and people all over the world are going to feel the pain, including in China and the United States.

We’re all going to suffer… I can think of very few places that won’t suffer. But most people are going to suffer the next time around.

(Watch at Youtube)

Central banks will panic. They will do whatever they can to save the markets.

It’s artificial… it won’t work… there comes a time when no matter how much money you have, the market has more money.

…

I don’t know if they’ll even call it QE (Quantitative Easing) in the future… who knows what they’ll call it to disguise it… they’re going to try whatever they can… printing more money or lowering interest rates or buying more assets… but unfortunately, no matter how much P.R. or whitewashing they use, the market knows this is over and we’re not going to play this game anymore.

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

The Powers That Be Have Lost Control: “Everything Is Falling Apart Everywhere”

January 22, 2016

The Powers That Be Have Lost Control: “Everything Is Falling Apart Everywhere”

The entire system has been revealed for the sham it really is since the start of the New Year. Stock markets are crashing, the global economy has stalled, and the powers that be appear to have lost control.

As Andy Hoffman of Miles Franklin notes in his most recent interview with Future Money Trends, the only thing they are able to manipulate now are a few markets that include the Dow Jones and the gold and silver trade.

2011 is when the, let’s call them, The Powers That Be realized they were losing… they were three years into their post-2008 money printing frenzy and they were failing… Europe was failing… The U.S. had been stripped of its triple-A credit rating… all the markets were falling apart… and they were worried about Greece and all this…

They have lost control of everything… there is nothing that the Powers That Be haven’t lost control of… except the Dow Jones propaganda average and related major stock averages… and paper gold and silver.

Watch this extremely informative interview with Andy Hoffman:

Money printing is going off the charts… these things are really starting to get out of their control… the inventories are vanishing everywhere… and then of course you have stock markets around the world are falling… and now the stock market itself here in the United States has been falling…

When you talk about commodities and currencies and everything else… we’re talking about the worst economy of our lifetimes… of our parents’ lifetimes… of our grandparents’ lifetimes… and it’s only going to get worse right now.

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

What’s the last dollar they can print before financial crisis?

January 11, 2016

What’s the last dollar they can print before financial crisis?

In the field of mathematics, chaos theory studies the behavior of systems that are highly sensitive to initial conditions.

The idea in chaos is that, like life itself, where you start today has tremendous influence on what happens next.

In chaos, even very tiny changes to initial conditions can lead to wildly divergent outcomes further down the line.

Again, think about life: how different would your outcome be if you’d been born in the next town over? Or to different parents?

The film ‘Jurassic Park’, adapted from Michael Crighton’s novel, brought chaos theory into the popular realm.

A wealthy scientist, John Hammond (played by Richard Attenborough), uses DNA derived from fossilized mosquitoes to recreate dinosaurs on a remote island.

But once brought back to life, won’t they breed?

No, says Hammond. Because all the dinosaurs on the island are engineered to be female, by way of chromosome control.

Dr. Ian Malcolm, a chaos expert played by Jeff Goldblum, has been brought along to assess the project. His assessment is skeptical to the point of hostility:

“[T]he kind of control you’re attempting is not possible. If there’s one thing the history of evolution has taught us, it’s that life will not be contained. Life breaks free. It expands to new territories. It crashes through barriers. Painfully, maybe even… dangerously…

“I’m simply saying that life… finds a way.”

Life -nature- does indeed find a way, and Malcolm barely survives into the inevitable sequel.

Jurassic Park is, of course, a work of fiction.

That central banks that exist today, on the other hand, are fact.

And it is fact that for several years they have been attempting to artificially manipulate the market.

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

The Government Must Stop Printing Phony Money

January 10, 2016

THE GOVERNMENT MUST STOP PRINTING PHONY MONEY

If advocates of freedom were to make up a list of New Year’s resolutions for 2016, one of the most important items should be ending government’s monopoly control over money. In a free society, people in the marketplace should decide what they wish to use as money, not the government.

For more than two hundred years, practically all of even the most free market advocates have assumed that money and banking were different from other types of goods and markets. From Adam Smith to Milton Friedman, the presumption has been that competitive markets and free consumer choice are far better than government control and planning – except in the realm of money and financial intermediation.

This belief has been taken to the extreme over the last one hundred years, during which governments have claimed virtually absolute and unlimited authority over national monetary systems through the institution of paper money.

At least before the First World War (1914-1918) the general consensus among economists, many political leaders, and the vast majority of the citizenry was that governments could not be completely trusted with management of the monetary system. Abuse of the monetary printing press would always be too tempting for demagogues, special interest groups, and shortsighted politicians looking for easy ways to fund their way to power, privilege, and political advantage.

The Gold Standard and the Monetary “Rules of the Game”

Thus, before 1914 the national currencies of practically all the major countries of what used to be called the “civilized world” were anchored to market-based commodities, either gold or silver. This was meant to place money outside the immediate and arbitrary manipulation of governments.

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

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