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Last Wednesday we noted there is something rotten in the state of Denmark, meaning that the world’s great potemkin village of Bubble Finance is unraveling. The evidence piles up by the day.

To wit, now comes still another story about the Red Paddy Wagons rolling out in China. This time they are rounding-up the proprietors of a $7.6 billion peer-to-peer (P2P) lending Ponzi called Ezubao Ltd.

The particulars of this story are worth more than a week of bloviating by the Wall Street economists, strategists and other shills who visit bubblevision the whole day long. That’s because it exposes the rotten foundation on which the entire Red Ponzi and the related world central bank regime of Bubble Finance is based.

Needless to say, these dangerous, unstable and incendiary deformations are not even visible to the Keynesian commentariat and policy apparatchiks. They blithely assume that what makes modern economies go is the deft monetary, fiscal and regulatory interventions of the state. By their lights, not much else matters——and most certainly not the condition of household, business and public balance sheets or the level of speculation and leveraged gambling prevalent in financial markets and corporate C-suites.

As that pompous fool and #2 apparatchik at the Fed, Stanley Fischer, is wont to say—–such putative bubbles are just second order foot faults. These prosaic nuisances are not the fault of monetary policy in any event, and can be readily minimized through a risible scheme called “macro-prudential” regulation.

After all, if the Keynesians had any inkling that debt was a problem they wouldn’t have attempted to radically subsidize it with 84 straight months of ZIRP.

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

Square Holes and Currency Pegs

January 24, 2016

Square Holes and Currency Pegs

When David Bowie died, everybody, in what they wrote and said, seemed to feel they owned him, and owned his death, even if they hadn’t thought about him, or listened to him, for years. In the same vein, though the Automatic Earth has been talking about deflation (for 8 years, it’s our anniversary today) and the looming China Ponzi disaster for a long time, now that these things actually play out, everybody talks as if they own the story, and present it as new (because, for one thing, well, after all for them it is new…).

And that’s alright, it’s how people live, and function, they always have, and no-one’s going to change that. It’s just that for me, I’ve been wondering a little about what to write lately, because I’ve already written the deflation and China stories, many times, before most others tuned into them. But still, it’s strange to now, as markets start plunging, read things like ‘Deflation is Here’, as if deflation is something new on the block.

Deflation has been playing out for years. Central bank largesse has largely kept it at bay in the public eye, but that now seems over. Debt deflation is inevitable when -debt- bubbles burst, and when these bubbles are large enough, there’s nothing that can stop the process, not even miracle growth. But you’re not going to understand this if and when you look only at falling prices as the main sign of deflation; they’re merely a small part of the process, and a lagging one at that.

A much better indicator of deflation is the velocity of money, the speed at which ‘consumers’ spend money. And velocity has been going down for years. That’s where and how you notice deflation, when combined with the money and credit supply.

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

Why This Slump Has Legs

January 19, 2016

Why This Slump Has Legs

We’ve only really been in two weeks of trading in the new year, things are looking pretty bad to say the least, so predictably the press are asking -and often answering- questions about when the slump will be over. Rebound, recovery, the usual terminology. When will we get back to growth?

For me personally, but that’s just me, that last question sounds a bit more stupid every single time I hear and read it. Just a bit, but there’s been a lot of those bits, more than I care to remember. Luckily, the answer is easy. The slump will not be over for a very long time, there will be no rebound or recovery, and please stop talking about a return to growth unless you can explain what you want to grow into.

I’m sorry, I know that’s not what you want to hear, but life’s a bitch and so’s the economy. You’ve lived on pink fumes for a long time, most of you for their whole lives, but reality dictates that real ‘growth’ stopped decades ago, and you never figured that out because, and I quote here (see below), you and the world you’re part of became “addicted to borrowing money, spending it, and passing this off as ‘growth’”.

That you believed this was actual growth, however, is on you. You fell for a scam and you’re going to have to pay the price. If there’s one single thing people are good at, it’s lying. It’s as old as human history, and it happens every day, so you’re no exception to any rule. You’re perhaps just not particularly clever.

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

China, Oil and Markets: It’s All One Story

January 7, 2016

China, Oil and Markets: It’s All One Story

If there’s one thing to take away from this year’s developments in markets and economies so far, it’s that they are all linked, they’re all part of the same thing. If you can’t see that, you’re not going to understand what’s happening.

Looking at falling oil prices as a separate thread is not much use, and neither is doing the same with Chinese stocks, or the yuan, or the millions of Americans who are one paycheck away from poverty, for that matter. It’s all one story.

And the take-away from that, in turn, is that focusing too much on ‘narrow’ conditions in your particular part of the globe has only limited value. We’re very much all in this together. In the UK today, it matters very little what George Osborne says or does, or Mark Carney, because they don’t shape the future of the economy.

The same goes for all finance ministers and central bank governors across the planet, Yellen, Draghi, Koruda, the lot: the influence they exert on their own economies, which was always limited from the start, is running into the boundaries imposed by global developments.

Even if central bankers could ever have ‘lifted’ anything at all (a big question mark), their power to do so is rapidly diminishing. The constraints global developments place on their powers will now be exposed -even more. And of course they’ll try to deny and ignore that, as naked emperors are wont to do.

And with the exposure of the limits to their abilities to make markets and economies do what they want, come the limitations of the mainstream financial press to make their long-promoted recovery narratives appear valid. Before we know it, we might have functioning markets back.

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

Now Comes The Great Unwind—-How Evaporating Commodity Wealth Will Slam The Casino

January 1, 2016

Now Comes The Great Unwind—-How Evaporating Commodity Wealth Will Slam The Casino

The giant credit fueled boom of the last 20 years has deformed the global economy in ways that are both visible and less visible. As to the former, it only needs be pointed out that an economy based on actual savings from real production and income and a modicum of financial market discipline would not build 65 million empty apartment units based on the theory that their price will rise forever as long as they remain unoccupied!

That’s the Red Ponzi at work in China and its replicated all across the land in similar wasteful investments in unused or under-used shopping malls, factories, coal mines, airports, highways, bridges and much, much more.

But the point here is that China is not some kind of one-off aberration. In fact, the less visible aspects of the credit ponzi exist throughout the global economy and they are becoming more visible by the day as the Great Deflation gathers force.

As we have regularly insisted, there is nothing in previous financial history like the $185 trillion of worldwide credit expansion over the last two decades. When this central bank fueled credit bubble finally reached its apogee in the past year or so, global credit had expanded by nearly 4X the gain in worldwide GDP.

Moreover, no small part of the latter was simply the pass-through into the Keynesian-style GDP accounting ledgers of fixed asset investment (spending) that is destined to become a write-off or public sector white elephant (wealth destruction) in the years ahead.

The credit bubble, in turn, led to booming demand for commodities and CapEx. And in these unsustainable eruptions layers and layers of distortion and inefficiency cascaded into the world economy and financial system.

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

2016 Is “Terminal Phase of Most Destructive Ponzi Scheme” in History

December 30, 2015

2016 Is “Terminal Phase of Most Destructive Ponzi Scheme” in History

This article was written by SGT and was first published at SGTreport.com.

Editor’s Comment: Most anyone who follows the economic news already knows that the signs of collapse are all over the wall, but what numbers and statistics on paper can’t convey is the pain that ordinary people are going to feel as a result of the financial decisions being made by central banks, and the actions being taken by indifferent Wall Street players.

The consequences of the 2008 economic collapse have been bad enough, though for the most part they have been subtle and hidden from view. However, the next round may well be bad enough that no one can turn away from the suffering and displacement that more economic chaos will bring. It is obvious enough who has sown the next wave, and even more plain to see who will be paying the price.

2016 Will Be Economically Devastating For Millions of Americans

by SGT Report

As Andy Hoffman from Miles Franklin recently noted there isn’t enough time in a day to cover the runaway train, snowballing avalanche, out-of-control pandemic that is the “terminal phase” of history’s largest, most destructive fiat Ponzi scheme. But we’ll try in this 2015 recap as 2016 comes barreling at us like a freight train Andy says, it will be an economically devastating year for millions of Americans.

Sell The Bonds, Sell The Stocks, Sell The House —–Dread The Fed!

December 18, 2015

Sell The Bonds, Sell The Stocks, Sell The House —–Dread The Fed!

There is going to be carnage in the casino, and the proof lies in the transcript of Janet Yellen’s press conference. She did not say one word about the real world; it was all about the hypothecated world embedded in the Fed’s tinker toy model of the US economy.

Yes, tinker toys are what kids used to play with back in the 1950s and 1960s, and that’s when Janet acquired her school-girl model of the nation’s economy.

But since that model is so frightfully primitive, mechanical, incomplete, stylized and obsolete, it tells almost nothing of relevance about where the markets and economy now stand; or what forces are driving them; or where they are headed in the period just ahead.

In fact, Yellen’s tinker toy model is so deficient as to confirm that she and her posse are essentially flying blind. That alone should give investors pause—-especially because Yellen confessed explicitly that “monetary policy is an exercise in forecasting”.

Accordingly, her answers were riddled with ritualistic reminders about all the dashboards, incoming data and economic system telemetry that the Fed is vigilantly monitoring. But all that minding of everybody else’s business is not a virtue—-its proof that Yellen is the ultimate Keynesian catechumen.

This stupendously naïve old school marm still believes the received Keynesian scriptures as penned by the 1960s-era apostles James(Tobin), John (Galbraith), Paul (Samuelson) and Walter (Heller).

But c’mon.Those ancient texts have no relevance to the debt-saturated, state-dominated, hideously over-capacitated global economy of 2015. They just convey a stupid little paint-by-the-numbers simulacrum of what a purportedly closed domestic economy looked like even back then.

That is, before Richard Nixon had finally destroyed Bretton Woods and turned over the Fed’s printing presses to power aggrandizing PhDs; and before Mr. Deng had thrown out Mao’s little red book in favor of a central bank based credit Ponzi.

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

Fractional-Reserve Banking is Pure Fraud, Part I – Jeff Nielson

November 24, 2015

Fractional-Reserve Banking is Pure Fraud, Part I

This is a commentary which should never have needed to be written. What is euphemistically called “fractional-reserve banking” is obvious fraud, and obvious crime. By its very definition; it transforms the banking sector of an economy into a leveraged Ponzi-scheme, and as with all Ponzi-schemes, there is no possible “happy ending” here.

Mathematically-based principles are often illustrated best through use of an extreme, numerical example. We have no need to construct any hypothetical extremes, however, when we already have real-life insanity, in our current monetary/regulatory framework.

Here it is important to note that in order to conceal the fraud, crime, and insanity of our present system to the greatest degree possible, the bankers hide their dirty deeds within their own convoluted jargon. Thus presenting “fractional-reserve banking” to readers requires some brief investment of time in definition of terms, starting with this term, itself.

Fractional-reserve banking evolved literally based upon the temptation of all bankers to perpetrate fraud. Empirically it has always been observed, down through the centuries, that under normal circumstances, only a tiny percentage of depositors will come to claim their cash/wealth at any one time. Thus the temptation is for bankers to “lend” more funds than they actually possess, i.e. they are “lending” what does not even exist: “fractional-reserve banking” – the ultimate euphemism of banking and fraud.

It goes without saying that anyone or any entity which endeavours to “lend” something which does not exist is perpetrating fraud. But before examining this inherent fraud more closely, it is important to back-up, and look at the Law. Note that even when banks “lend” the money which they actually do hold on deposit (as trustees for the depositors) that this is already wholly/totally illegal. It is the crime known as “conversion”.

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

Low Interest Rates Cannot Save a House of Cards

September 24, 2015

Low Interest Rates Cannot Save a House of Cards

When is the price of some marketable good or service at or near zero? When either the supply of it is so plentiful that virtually any demand, no matter how great, can be satisfied. Or when no matter how large or small the supply of it may be, people’s demand for it is so low that nobody is willing to practically pay anything for it.

On Thursday, September 17, 2015, Federal Reserve Chair, Janet Yellen, announced that, once again, America’s central bank was leaving a key interest rate – the Federal Funds rate at banks lend money to each other overnight – at barely above zero. The Federal Reserve has manipulated and maintained this interest rate near zero for almost seven years, now.

Fed Policy Has Created Zero and Negative Interest Rates

When adjusted for inflation, the Federal Funds rate and the yield on one-year U.S. Treasury securities have been negative for almost all of the time since 2009. In real buying terms borrowed money has been either costless or actually given away with a positive real return to the borrower!

In other words, imagine that you borrowed $100 from someone with the promise that in one year you would return the $100 plus $2, or a two percent return on the lender’s money. But suppose that in a year’s time, you pay back the lender only $98.

That is what a negative real rate of interest means. After adjusting for inflation, the lender has less real buying or purchasing power than he did before with the principle of his loan. If you have lent that $100 but over the year price inflation has been, say, four percent, then when you get back $102 from the borrower (your $100 of principle and $2 of interest), this is not enough to buy at higher prices what the $100 had bought in the market before you lent that sum of money a year earlier.

– See more at: http://www.cobdencentre.org/2015/09/low-interest-rates-cannot-save-a-house-of-cards/#sthash.X8Gd2oBp.dpuf

Fed Cred is Dead

September 22, 2015

Fed Cred is Dead

The economy is a two-headed monster. One head is the trade in real goods and real services. The other head is the financialized traffic in swindles and frauds that surrounds banking. There is some deception and overlap about which is which. For instance so-called health care might be perceived as a real service. In fact, it’s a hostage racket, designed to victimize “patients” at their weakest, with a “protection” premium that easily runs to $12,000-a-year for a married couple, even when they aren’t sick, and vulnerable. Just see what happens if you go to an emergency room with an injury that requires six stitches. Next stop: re-po land.

Most of the remaining on-the-ground economy consists of people merely driving their cars absurd distances, burning gasoline, between exquisitely-tuned giant warehouse store operations that were designed to destroy local Main Street trade — and accomplished that, by the way, to the applause of the local citizens whose towns were destroyed (“We want bargain shopping!”).

Now, of course, even WalMart is looking over its shoulder at the collapse of the complex arrangements that allowed it to metastasize across North America like some cancerous fungus. Globalism is winding down as the gargantuan matrix of Ponzi schemes based on owed money dissolves debt by debt. It isn’t long before nobody is a credit-worthy borrower, and no transaction in real goods can be risked unless cash hits the barrelhead — which turns out to be a very awkward way of doing business.

It’s especially like this these days in the so-called “emerging markets” — e.g. places in the world with large populations of willing factory slaves. The traffic in shipping-out containers full of flat screen TVs (or shipping-in the raw materials to make them) won’t work very well without letters-of-credit, which are promises between banks to make sure that the stuff on the receiving end gets paid for.

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

Gold – Follow the Yellow Brick Road?

September 12, 2015

Gold – Follow the Yellow Brick Road?

The following is a veritable tour de force by Nicole Foss on the value of gold in a crashing economy, for different people in different circumstances.

Nicole Foss: In light of the rapidly-propagating loss of confidence, and consequent shift to deflation, with falling prices across the board as a result, it is appropriate to review our stance on gold. The yellow metal is often perceived as a panacea – a safe haven guarding against all manner of potential financial disruption. It has long been our stance at the Automatic Earth that this is far too simplistic a position to take. We live in a complex world for which there are no simple one-dimensional solutions. It is important to distinguish between the markets for paper gold and for physical gold, and to understand the risks inherent in gold ownership in order to manage them. As we wrote back in 2009:

Firstly, the goldbugs are right that physical gold is real money (unlike paper gold, which is just another Ponzi scheme). It has held its value for thousands of years and will continue to do so over the long term. However, that does not mean that gold prices cannot fall or that purchasing gold now is the right way for everyone to preserve capital….People’s circumstances are different. Those circumstances determine their freedom of action, both now and in the future.

Bubble Dynamics

It is our view that (paper) gold has been in a bubble which peaked in 2011, along with the rest of the commodity complex. It has been subjected to the same dynamic as other commodities, which have collectively lost touch with their own fundamentals as they have become increasingly over-financialized. Financialization moves the dynamics into the virtual world, while simultaneously subjecting them to perverse incentives. Substantial price movements having at best a tenuous connection with actual supply and demand are the result.

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

The Wall Street Ponzi At Work——The Stock Pumping Swindle Behind Four Retail Zombies

August 18, 2015

The Wall Street Ponzi At Work——The Stock Pumping Swindle Behind Four Retail Zombies

In the nearby column Jim Quinn debunks Wall Street’s latest claim that the American consumer is bounding back. He points out that on an inflation-adjusted basis retail sales are barely higher than they were a year ago, and, for that matter, are still only 4% greater in real terms than they were way back in November 2007.

That’s right. Nearly eight years and $3.5 trillion of Fed money printing later, yet the vaunted American consumer is struggling to stay above the flat line, not shopping up a storm.

And there is no mystery as to why. After a 40-year borrowing spree culminating in the final mortgage credit blow-off on the eve of the great financial crisis, the US household sector had reached peak debt. It was tapped out with $13 trillion of mortgages, credit cards, auto, student and other loans —–a colossal financial burden that amounted to nearly 220% of wage and salary income or nearly triple the leverage ratio that had prevailed before 1971.

So, as is evident from the graph above, we are now in a completely different economic ball game than the consumer debt binge cycle that culminated in 2008. Households are deleveraging out of necessity, and that means that consumer spending is tethered to the tepid growth of national output and wage income.

Yet sell side economists and the financial press are so desperate for factoids that confirm the Keynesian “recovery” narrative——that is, the false claim that the US economy has been successfully lifted out of a growth rut by mega-injections of fiscal and monetary “stimulus”—— that they get just plain giddy about Washington’s seasonally maladjusted, endlessly revised monthly data squiggles.

Thus, in response to the 0.6% gain in July retail sales, The Wall Street Journal’s headline proclaimed, “In a Show of Confidence, Americans Boost Spending”.

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

The Great China Ponzi—-An Economic And Financial Trainwreck Which Will Rattle The World

August 14, 2015

The Great China Ponzi—-An Economic And Financial Trainwreck Which Will Rattle The World

There is an economic and financial trainwreck rumbling through the world economy. Namely, the Great China Ponzi. In all of economic history there has never been anything like it. It is only a matter of time before it ends in a spectacular collapse, leaving the global financial bubble of the last two decades in shambles.

But here’s the Wall Street meme that is stupendously wrong and that engenders blind complacency with respect to the impending upheaval. To wit, the same folks who brought you the myth of the BRICs miracle would now have you believe that China is undergoing a difficult but doable transition——-from an economy driven by booming exports and monumental fixed asset investment to one based on steady as she goes US-style consumption and services.

There may well be some bumps and grinds along the way, we are cautioned, such as the recent stock market and currency turmoil. But do not be troubled—–the great locomotive of the world economy will come out the other side better and stronger. That’s because the wise, pragmatic and powerful leaders and economic managers who deftly guide China’s version of capitalism have the capacity to make it all happen.

No they don’t!

China is not a clone-in-the-making of America’s $18 trillion consume till you drop economy—-even if that model were stable and sustainable, which it is not. China is actually sui generis—–a historical freak accident that has no destination other than a crash landing.

It’s leaders are neither wise nor deft economic managers. In fact, they are a bunch of communist party political hacks who have an iron grip on state power because China is a crude dictatorship. But their grasp of the fundamentals of economic law and sound finance can not even be described as negligible; it’s non-existent.

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

It’s Not Just Margin Debt: Presenting The Complete Chinese Stock Market Ponzi Schematic

July 26, 2015

It’s Not Just Margin Debt: Presenting The Complete Chinese Stock Market Ponzi Schematic

Late last month in “The Biggest Threat To Chinese Stocks: Shadow Lending Crackdown“, we suggested that the pressure on Chinese equities – which at that point had only begun to build – was at least partially attributable to an unwind in the country’s CNY1 trillion backdoor margin lending edifice.

As we explained, brokerages were only allowed to facilitate margin trading for investors whose account balances totaled at least CNY500K, and even then, traders could only lever up 2X. Brokerages naturally looked for ways to skirt the rules, leading to the development of multiple off-the-books vehicles and creating a situation wherein the official headline figure for margin lending (around CNY2.2 trillion at the time) woefully underrepresented the actual amount of leverage behind China’s world-beating equity rally.

Put simply, precisely measuring the amount of shadow financing that helped China’s legions of newly-minted retail day traders make leveraged bets on the SHCOMP and Shenzhen is virtually impossible, as is determining how much of that leverage has been unwound and how much remains or has been restored thanks to Beijing’s explicit efforts to reignite the margin madness by pumping PBoC cash into CSF.

For our part, we’ve suggested that regardless of what the actual figure is, the important point is that the unwind has probably just begun. In short: it seems unlikely that all of the leverage has been squeezed out of China’s exceedingly intricate shadow financing system.

As it turns out, BofAML agrees and is out with a valiant attempt to not only identify each shadow lending channel, but to quantify just how much leverage is built into the Chinese market.

…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

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