The Coming Economic Collapse

Ron Paul Answeres Questions on The Fed, ISIS and more.

2015-11-29T09:51:00.002+11:00

Ron Paul answers questions on The Fed, ISIS fear-mongers, catches the terror opportunists red handed, and even throws in some economic wisdom. Don't miss it!

Brazil in Horrific Recession: Sincerely, US Dollar.

2015-11-25T08:37:00.000+11:00

The 7th largest economy on the entire planet, Brazil, has been gripped by a horrifying recession, as has much of the rest of South America. But it isn’t just South America that is experiencing a very serious economic downturn. We have just learned that Japan (the third largest economy in the world) has lapsed into recession. So has Canada. So has Russia. The dominoes are starting to fall, and it looks like the global economic crisis that has already started is going to accelerate as we head into the end of the year. At this point, global trade is already down about 8.4 percent for the year, and last week the Baltic Dry Shipping Index plummeted to a brand new all-time record low. Unfortunately for all of us, the Federal Reserve is about to do something that will make this global economic slowdown even worse.

Throughout 2015, the U.S. dollar has been getting stronger. That sounds like good news, but the truth is that it is not. When the last financial crisis ended, emerging markets went on a debt binge unlike anything we have ever seen before. But much of that debt was denominated in U.S. dollars, and now this is creating a massive problem. As the U.S. dollar has risen, the prices that many of these emerging markets are getting for the commodities that they export have been declining. Meanwhile, it is taking much more of their own local currencies to pay back and service all of the debts that they have accumulated. Similar conditions contributed to the Latin American debt crisis of the 1980s, the Asian currency crisis of the 1990s and the global financial crisis of 2008 and 2009.

Many Americans may be wondering when “the next economic crisis” will arrive, but nobody in Brazil is asking that question. Thanks to the rising U.S. dollar, Brazil has already plunged into a very deep recession…

As Brazilian president Dilma Rousseff combats a slumping economy and corruption accusations, the country’s inflation surged above 10 percent while unemployment jumped to 7.9 percent, according to the latest official data. The dour state of affairs has Barclays forecasting a 4 percent economic contraction this year, followed by 3.3 percent shrinkage next year, the investment bank said in a research note last week.

The political and economic turmoil has recently driven the real, Brazil’s currency, to multiyear lows, a factor helping to stoke price pressures.

And as I mentioned above, Brazil is far from alone. This is something that is happening all over the planet, and the process appears to be accelerating. One of the places where this often first shows up is in the trade numbers. The following comes from an article that was just posted by Zero Hedge…

“This market is looking like a disaster and the rates are a reflection of that,” warns one of the world’s largest shipbrokers, but while The Baltic Dry Freight Index gets all the headlines –having collapsed to all-time record lows this week – it is the spefics below that headline that are truly terrifying. At a time of typical seasonal strength for freight and thus global trade around the world, Reuters reports that spot rates for transporting containers from Asia to Northern Europe have crashed a stunning 70% in the last 3 weeks alone. This almost unprecedented divergence from seasonality has only occurred at this scale once before… 2008! “It is looking scary for the market and it doesn’t look like there is going to be any life in the market in the near term.”

Many “experts” seem mystified by all of this, but the explanation is very simple.

For years, global economic growth was fueled by cheap U.S. dollars. But since the end of QE, the U.S. dollar has been surging, and according to Bloomberg it just hit a 12 year high…

The dollar traded near a seven-month high against the euro before the release of minutes of the Federal Reserve’s October meeting, when policy makers signaled the potential for an interest-rate increase this year.

A trade-weighted gauge of the greenback is at the highest in 12 years as Fed Chair Janet Yellen and other policy makers have made numerous pronouncements in the past month that it may be appropriate to boost rates from near zero at its Dec. 15-16 gathering. The probability the central bank will act next month has risen to 66 percent from 50 percent odds at the end of October.

But even though the wonks at the Federal Reserve supposedly know the damage that a strong dollar is already doing to the global economy, they seem poised to make things even worse by raising interest rates in December…

Most Federal Reserve policymakers agreed last month that the economy “could well” be strong enough in December to withstand the Fed’s first Interest rate hike in nearly a decade, according to minutes of its meeting Oct. 27-28.

The officials said global troubles had eased and a delay could increase market uncertainty and undermine confidence in the economy.

The meeting summary provides the clearest evidence yet that a majority of Fed policymakers are leaning toward raising the central bank’s benchmark rate next month, assuming the economy continues to progress.

Considering the tremendous amount of damage that has already been done to the global economy, this is one of the stupidest things that they could possibly do.

But it looks like they are going to do it anyway.

It has been said that those that refuse to learn from history are doomed to repeat it.

And right now so many of the exact same patterns that we saw just before the great financial crisis of 2008 are playing out once again right in front of our eyes.

A lot of people out there seem to assume that once we got past the September/October time frame that we were officially out of “the danger zone”.

But that is not true at all.

The truth is that we have already entered a new global economic downturn that is rapidly accelerating, and the financial shaking that we witnessed in August was just a foreshock of what is coming next.

Let us hope that common sense prevails and the Fed chooses not to raise interest rates at their next meeting.

Because if they do, it will just make the global crisis that is now emerging much, much worse.

Original Source

Negative interest rates to hit the US

2015-11-25T08:23:00.000+11:00

It started in 1921.

World War I was over. The Treaty of Versailles had been signed two years before.

And Germany, the biggest loser from the war, had been stuck with both the blame and the bill.

Germany’s war debt– which it owed not only for its own war-related expenses, but also for reparations to the victors– was devastating.

They didn’t have the money, so they started printing it.

Not surprisingly, the German mark began to sink. It started slowly at first, but by 1921 hyperinflation had taken hold until prices soared by thousands of percent.

One of my favorite stories from this period, was of the elderly man who went to the police to report a robbery. Thieves had stolen a wheelbarrow of money.

It was common at the time to use wheelbarrows to transport the huge sums of cash that were required to buy even the most simple things like bread and milk.

When the police asked him how much was in the wheelbarrow, the man corrected them saying that the thieves had only stolen the wheelbarrow, and had left the cash behind.

Undoubtedly the entire society was upturned by this hyperinflation. But as history shows, in any situation, there are always winners and losers.

Pensioners and people who responsibly saved their money were wiped out; whereas people who had borrowed to invest in real assets did extremely well.

Owners of residential real estate suffered under government imposed rent controls, whereas owners of farmland thrived.

For people who saw the decline of the mark coming and bet against it, generational fortunes were made in a matter of years.

In the case of Germany in the 1920s, few people probably expected that hyperinflation would ensue.

Even the president of their central bank, Dr. Rudolf Havenstein, firmly believed that there was zero connection between price levels and the amount of money he printed.

Yet it happened, and those who saw the warning signs and took steps to reduce their risk did very well.

Today there is no shortage of risk in the financial system either.

Negative interest rates are becoming more and more common in developed nations and they’re on their way to America as well.

Every time there’s a recession, the government cuts interest rates by easily half a percent to a percent.

So with interest rates already at zero, when the next recession comes (and it absolutely will), you can expect interest rates to go negative.

Meanwhile, Western banking systems are highly illiquid, meaning that they have very low cash equivalents as a percentage of customer deposits.

This isn’t some wild conspiracy theory. You can see it for yourself in the financial statements banks publish every quarter.

Solvency in many Western banking systems is also highly questionable, with many loaded up on the debts of their bankrupt governments.

Banks also play clever accounting games to hide the true nature of their capital inadequacy.

We live in a world where questionably solvent, highly illiquid banks are backed by under capitalized insurance funds like the FDIC, which in turn are backed by insolvent governments and borderline insolvent central banks.

This is hardly a risk-free proposition.

Yet your reward for taking the risk of holding your money in a precarious banking system is a rate of return that is substantially lower than the official rate of inflation.

And in many cases, it’s even negative. Rates are already negative in Europe, and again, it’s coming to the US. Either way, you’re guaranteed to lose money.

Risk is a funny thing. The reason why it’s so frequently misdiagnosed is because there’s often a huge discrepancy between the actual risk and the perceived risk.

You can see that very clearly with banking.

People perceive the risk in their banking system to be zero.

And while I’m not suggesting that there is some imminent collapse, the data clearly indicate that the actual risk is significant.

Given the meager and even negative interest rates, the risk-reward ratio just doesn’t add up.

To address different types of risk in the system, I see four main solutions:

One is to hold physical cash, enabling you to effectively be your own private banker and giving you an excellent short-term hedge against risks in your domestic banking system.

However, this comes with additional physical security risks and potential political risks such as civil asset forfeiture or cash bans.

Another option is to establish a foreign bank account in a jurisdiction where banks are liquid, well-capitalized, and backed by a government with minimal debt.

It’s hard to imagine you’d be worse off for having a portion of your savings in a safe, stable, debt-free jurisdiction.

Then there’s gold and silver, which are excellent long-term hedges, not only against risks in the banking system, but the monetary system at large.

Last but not least, it is 2015, and I would be negligent if I didn’t mention cryptocurrency as a viable option to hedge risk in both the banking and financial system.

Original Source, and Podcast can be found here

Central Banks Snapping Up Gold at Near-Record Pace

2015-11-13T13:01:00.001+11:00

Central banks and other institutions boosted gold purchases to the second-highest level on record in the quarter to September as countries including China and Russia sought to diversify their foreign-exchange reserves.

Net purchases were 175 metric tons, nearing the record 179.5 tons in the same quarter a year earlier, and up from 127.9 tons in the preceding three-month period, the World Gold Council said in a report on Thursday. Still, over the first nine months central banks’ net purchases dropped 6.7 percent to 425.8 tons, according to the council.

Russia, China and Kazakhstan are among states buying bullion this year, helping to support prices that are headed for a third annual loss. Central banks will probably remain net buyers as emerging-market institutions continue to boost their allocation, while developed countries are reluctant to sell, Barclays Plc said in an Oct. 21 report.

“Diversification of reserve assets, especially among developing nations, remains the primary motivation for this increase in official gold reserves, as many recognize that the economic and geopolitical outlook continues to look far from certain,” the council said.

In July, the People’s Bank of China ended six years of mystery surrounding its reserves, revealing a 57 percent jump in gold assets since 2009 to about 1,658 tons. Asia’s largest economy, which rivals India as the biggest gold consumer, has been increasing holdings monthly since then and may have added a further 14 tons in October.

Source

We’re in the Early Stages of Largest Debt Default in US History

2015-11-13T00:30:00.000+11:00

We are in the early stages of a great debt default – the largest in U.S. history.

We know roughly the size and scope of the coming default wave because we know the history of the U.S. corporate debt market. As the sizes of corporate bond deals have grown over time, each wave of defaults has led to bigger and bigger defaults.

Here's the pattern.

Default rates on "speculative" bonds are normally less than 5%. That means less than 5% of noninvestment-grade, U.S. corporate debt defaults in a year. But when the rate breaks above that threshold, it goes through a three- to four-year period of rising, peaking, and then normalizing defaults. This is the normal credit cycle. It's part of a healthy capitalistic economy, where entrepreneurs have access to capital and frequently go bankrupt.

If you'll look back through recent years, you can see this cycle clearly...

In 1990, default rates jumped from around 4% to more than 8%. The next year (1991), default rates peaked at more than 11%. Then default rates began to decline, reaching 6% in 1992. By 1993, the crisis was over and default rates normalized at 2.5%. Around $50 billion in corporate debt went into default during this cycle of distress.

Six years later, in 1999, the distress cycle began to crank up again. Default rates hit 5.5% that year and jumped again in 2000 and 2001 – hitting almost 8.7%. They began to fall in late 2002, reaching normal levels by 2003.

Interestingly, the amount of capital involved in this cycle was much, much larger: Almost $500 billion became embroiled in default. The growth in risky lending was powered by the innovation of the credit default swap (CDS) market. It allowed far riskier loans to be financed. As a result, the size of the bad corporate debts had grown by 10 times in only one credit cycle.

The most recent cycle is the one you're most familiar with – the mortgage crisis.

Six years after default rates normalized in 2003, they suddenly spiked up to almost 10% in 2009. But thanks to a massive and unprecedented government intervention, featuring trillions of dollars in credit protection, default rates immediately returned to normal in 2010. As a result, only about $1 trillion of corporate debt went into default during this cycle.

You should know, however, that the regular market-clearing process of rising, peaking, and normalizing default rates did not occur in the last cycle. A massive, unprecedented intervention in the markets by the Federal Reserve stopped the default cycle in its tracks. As a result, trillions of dollars in risky debt did not enter default and were not written off.

Over the last six years, this "victory" against bankruptcy and the credit cycle has led many government leaders and their economic apologists (like Paul Krugman) to declare victory. What they won't admit is that the lack of a debt-clearing cycle has resulted in a weak recovery, and an economy that's still heavily burdened by unsustainable debts.

What happens next should be obvious to everyone: The big debt-clearing cycle that was "paused" in 2009 will make the next debt-clearing cycle much, much larger – by far the biggest we've ever seen. When will that happen? Six years after default rates last returned to normal. In other words... right now.

The chart above shows the iShares iBoxx High Yield Corporate Bond Fund (HYG), which invests in a broad range of speculative corporate bonds. As the risk of defaults in this market grows, these bonds will begin to trade at much lower prices, causing their yields to increase. Currently, the yield on this basket of bonds is less than 6%. Look for yields to increase to well above 10% before default rates begin to normalize. That implies losses of 30%-40% are still to come in these bonds.

Over the last year, HYG is down about 9%. A negative return is unusual for the corporate-bond market, especially when there isn't a recession.

So far this year, nearly 300 U.S. corporations have seen their bonds downgraded. That's the most downgrades per year since the financial crisis of 2008-2009. The year isn't over yet. Neither are the downgrades. More worrisome, the 12-month default rate on high-yield corporate debt has doubled this year. This suggests we are well into the next major debt-default cycle.

And it will almost surely be a "super" cycle – meaning it will last longer and cause far more losses than most people expect.

Here's another way to time the next debt-clearing cycle.

At the end of 2014, only 1.42% of speculative corporate debt had gone into default for the year – near a record low. The only better year for speculative corporate debt in recent history was the top of the mortgage-debt boom in 2006. As you know, two years later, disaster struck. A new low for defaults in 2014 points to 2016 as the year when corporate debt will begin a new default cycle.

Martin Fridson, the world's foremost expert on the high-yield bond market, says his "base-case scenario" is for between $1.6 trillion and $2 trillion in defaults in high-yield bonds over the next three to four years. We believe default rates will be a lot worse, simply because the market has grown so much, thanks to things like CDS credit protection and the securitization of subprime consumer lending.

Now, before you panic... here's an idea you'll see us repeat again and again over the next three to four years.

What's happening – rising default rates, rising interest rates on corporate debt, and falling stock prices – doesn't need to be a crisis for you, personally.

Instead, this period could be the best opportunity that you will ever get to buy great assets and great businesses at great prices.

You don't need to think of this coming crisis as the "end." Instead, think of what's happening as a badly needed reckoning. It's simply a housecleaning. Nothing much will change. The best assets and best businesses will still be here after the storm. The only real difference will be who owns them.

What's coming is the greatest transfer of wealth in history. Over the next few years, trillions of dollars' worth of businesses, land, resources, and intellectual property are going to exchange hands – legally, but unwillingly.

Investors who have been frugal and cautious will be rewarded. Investors who have been greedy and foolish will be punished.

In tomorrow's final segment, I'll show you the absolute best way to take advantage of this upcoming opportunity.

Source

Greatest (Legal) Wealth Transfer in History

2015-11-12T12:26:00.002+11:00

Have you heard of Jet? It's a new online "marketplace."

I put marketplace in quotes, because Jet isn't really a marketplace at all. It's a facsimile of a marketplace. It purports to compete with Amazon – offering everything imaginable for sale. But unlike Amazon, Jet doesn't really have much to sell... or really any products at all. What it does have, though, is lower prices than other online retailers.

Currently, Jet lists 4.5 million products for sale on its website. But it owns almost none of them. Instead, Jet copies the products and descriptions of other online retailers. It then offers the same products on its website at a lower price.

When a Jet customer orders a product, a Jet employee goes to the actual online retailer's website and orders the product. It's then shipped to the Jet customer's home.

While Jet is losing money – a lot of money – on every sale, it plans to make up for the losses by dealing in huge volume. No, I'm not kidding. The company's business model is to build a huge client list by taking these losses and then, eventually, turn a profit by charging its users a $50 membership fee. A recentWall Street Journal test of the website revealed the company lost more than $200 on the sales of 12 items.

Currently, Jet is valued at $600 million by the geniuses at Goldman Sachs, Google Ventures, and Alibaba.

I doubt Jet would be possible were it not for essentially unlimited amounts of nearly free capital it could borrow, courtesy of the world's investment banks. That much seems obvious...

For the past six years, the Federal Reserve (the central bank of the United States) and its major counterparts around the world have conducted an enormous monetary experiment.

As my research team and I have shown our subscribers again and again... not since World War II has the U.S. created so much paper money. Other nations, like Japan, have created even more "monetary stimulus." All around the world, central banks have been creating money out of thin air and buying trillionsworth of government bonds and other "safe" forms of fixed-income securities, like mortgages.

This has driven down the cost of capital drastically in all developed economies. Academic and popular economists, like Paul Krugman, have endorsed these massive experiments. Politicians clearly believe in the "medicine" of central banks' massive currency printing and bond buying.

On the other hand, we've been fierce critics of these actions. Call us old-fashioned, but we believe in an older, more conservative "brand" of economics. In our experience, the creation of wealth always begins with the act of saving capital.

Interest rates, in our humble opinion, should be set by actual demand for capital. This demand ought to create interest rates that encourage thrift, economy, and savings. These interest rates would act as a brake on reckless speculation, forcing entrepreneurs and large businesses to consider what new projects are worthwhile.

But... what happens when capital is not created by the crucible of careful saving... and what happens when entrepreneurs pay essentially no cost to gamble? You get farces like Jet.

While the Federal Reserve's policies might spur economic activity, we do not see how lower interest rates necessarily create bona fide economic growth or actual wealth. By messing around with the most important price in all of capitalism (the price of capital itself), the Fed deliberately short-circuited the flow of information between consumers and producers and between borrowers and savers. Change the price system and you'll change behavior, because you're changing the information about incentives that people receive. And that rarely works out in the long run.

The Fed's policies have created several obvious bubbles in the financial markets...

One is in student lending. U.S. students have borrowed $1 trillion for college. Most of these loans were used to purchase vastly overpriced "online" educations of highly dubious value. Consider that in 2000 – just 15 years ago – the largest debt-funded college in the U.S. was New York University, a highly credible, long-standing institution that serves smart and ambitious students. At the time, former and current NYU students had $2.2 billion in student loans outstanding.

Today, the leading debt-funded college in the U.S. is the University of Phoenix, where $36 billion (yes, that number is real) has been lent to current and former students, almost all of whom received an online education.

Eight out of the 10 largest debt-funded universities are online schools. I'd estimate the debts used to fund these educations make up around 80% of all outstanding student loans. These debts will never be repaid. And the default tidal wave is starting right now.

Another bubble is in the oil and gas sector... Nearly all the growth in the U.S. high-yield bond market over the last decade is related to oil and gas exploration and production. Since 2010, more than $500 billion worth of new corporate debt was raised for U.S. onshore oil and gas producers. It's this capital that financed the oil boom – which is responsible for all the net job creation in the U.S. since 2009.

These debts cannot be repaid with oil prices at less than $60. And yet they're all coming due between 2016 and 2020.

As these debts go bad, even major oil companies will see their bonds downgraded and their dividends cut. For the banks, insurance companies, private-equity funds, and pension funds that provided this initial capital, there's a tremendous amount of pain ahead.

However... while the end of these bubbles could be painful for many people. It will be a tremendous opportunity for those who know what's coming and are prepared for it. You can be among them...

Investors who are patient and liquid will have an opportunity to buy exceptional assets at great bargains. Over the next two days, I'm going to show you how to be on the right side of what will be the greatest legal transfer of wealth in history.

Source

IMF to include CHINA (RMB) to Reserve currency this month?

2015-11-12T11:50:00.000+11:00

Foreign asset managers are preparing to increase their exposure to yuan-denominated bonds, as the International Monetary Fund (IMF) looks likely this month to approve the inclusion of China's "redback" into its currency basket.
A decision by the IMF to add the currency, also known as the renminbi (RMB), to its $US280 billion ($A396.77 billion) basket of reserves would prompt central banks to follow suit, and fund managers say they, too, would make similar adjustments to their portfolios.
"The endorsement from the IMF raises the RMB's profile as an international reserve currency. We think many official investors will start to allocate to RMB assets," AXA Investment Managers said in a report.
Analysts forecast the IMF would give the yuan an initial weighting of around 14 per cent in the basket, which goes by the official title Special Drawing Rights (SDR), bringing about $US40 billion direct inflows in the next few years.
"Most central banks we've spoken to are supportive of the inclusion and are preparing for it. Several central banks are considering their first allocation and some considering increasing their existing ones," said Jukka Pihlman, head of central banks and sovereign wealth funds at Standard Chartered.
But central bank holdings would be the tip of the iceberg.
"That will trigger a lot of FX reserve managers to rebalance," said Stephen Chang, head of Asian fixed income at JP Morgan Asset Management.
"Global investors are certainly under-invested in Chinese bonds as they just started from pretty much zero," he added.
Together with other reserve managers and investors, a re-allocation annually of about one per cent of global FX reserves outside of China to yuan assets is expected in the short term.
AXA estimates total inflows to be around $US600 billion over the next five years. Fund managers and analysts say the vast bulk of the flow will target fixed-income products, especially high-grade bonds issued by the Chinese government and policy banks, which offer high returns at low risk.
"We are progressively increasing our exposure to yuan bonds, and we are more interested in onshore government bonds compared to (offshore) 'dim sum' bonds," said Bryan Collins, a portfolio manager at Fidelity Worldwide Investment. Foreign participation in China's $US7 trillion onshore bond market is a meagre two per cent at present, and Beijing is keen to broaden the sources of funding as the economy slows.
Bankers say that what the government has done to meet the technical criteria to get included in the SDR should in itself lead to an increase in foreign holdings of yuan assets.
China has scrapped quota limits for foreign central banks and sovereign wealth funds to buy bonds in its interbank market and is planning to extend yuan trading hours to cover the European trading session to attract more investors beyond Asia.
As more investors start to trade yuan bonds, improving market liquidity, that will further boost the appeal, said Sanjiv Shah, Chief Investment Officer at Sun Global Investments in London.
"It will make it easier for us to invest and will definitely lead to an increase of our investment in yuan bonds," said Shah, whose firm has assets under management of around $US500 million, of which about $US12 million is invested in offshore yuan bonds.

Source

Energy Market firms warn they may default at any minute

2015-11-12T11:41:00.000+11:00

The last 3 days have seen the biggest surge in US energy credit risk since December 2014, blasting back above 1000bps. This should not be a total surprise since underlying oil prices continue to languish in "not cash-flow positive" territory for many shale producers, but, as Bloomberg reports, the industry is bracing for a wave of failures as investors that were stung by bets on an improving market earlier this year try to stay away from the sector. "It’s been eerily silent," in energy credit markets, warns one bond manager, "no one is putting up new capital here."

The market is starting to reprice dramatically for a surge in defaults...

Eleven months of depressed oil prices are threatening to topple more companies in the energy industry. As Bloomberg details,

Four firms owing a combined $4.8 billion warned this week that they may be at the brink, with Penn Virginia Corp., Paragon Offshore Plc, Magnum Hunter Resources Corp. and Emerald Oil Inc. saying their auditors have expressed doubts that they can continue as going concerns. Falling oil prices are squeezing access to credit, they said. And everyone from Morgan Stanley to Goldman Sachs Group Inc. is predicting that energy prices won’t rebound anytime soon.

The industry is bracing for a wave of failures as investors that were stung by bets on an improving market earlier this year try to stay away from the sector. Barclays Plc analysts say that will cause the default rate among speculative-grade companies to double in the next year. Marathon Asset Management is predicting default rates among high-yield energy companies will balloon to as high as 25 percent cumulatively in the next two to three years if oil remains below $60 a barrel.

“No one is putting up new capital here,” said Bruce Richards, co-founder of Marathon, which manages $12.5 billion of assets. “It’s been eerily silent in the whole high-yield energy sector, including oil, gas, services and coal.”

That’s partly because investors who plowed about $14 billion into high-yield energy bonds sold in the past six months are sitting on about $2 billion of losses, according to data compiled by Bloomberg.

And the energy sector accounts for more than a quarter of high-yield bonds that are trading at distressed levels, according to data compiled by Bloomberg.

Barclays said in a Nov. 6 research note that the market is anticipating “a near-term wave of defaults” among energy companies. Those can’t be avoided unless commodity prices make “a very large” and “unexpected” resurgence.

“Everybody’s liquidity is worse than it was at this time last year,” said Jason Mudrick, founder of Mudrick Capital Management. “It’s a much more dire situation than it was 12 months ago.”

Charts: Bloomberg
Source

China to devalue the Yuan?

2015-11-11T09:59:00.001+11:00

China’s economic model of export-led and investment-driven growth is in crisis. With no one left to export more to every year, China now finds itself with extraordinary excess capacity across every industry. Product prices are falling, companies are unprofitable and bank loans are going bad. Any further investment will just worsen the situation.

Therefore, China is buying much less raw materials from the rest of the world. As a result, commodity prices have collapsed. Last month China’s imports were 20% less than during the same month last year. So, China is no longer a driver of global growth.

In fact, it is a very significant brake on global growth.

For that reason, many of the emerging market economies around the world have suffered a very sharp economic slowdown or even gone into recession. Many emerging market currencies have dropped substantially in line with the economic growth prospects of the emerging markets.

As many of these countries have borrowed heavily from abroad in recent years, often borrowing U.S. dollars, there is now a growing chance that they will not be able to repay those loans. Many creditors are attempting to withdraw their money from the emerging markets before the debt defaults begin.

The resulting capital outflows are compounding the problems those countries now face by making credit more expensive. All of these problems combined have thrown the global economy into a new recession that seems likely to become considerably worse before it gets better.

The dollar is the principal international reserve currency for one reason: the United States runs massive trade deficits with the rest of the world every year. That means that the rest of the world accumulates hundreds of billions of dollars every year. These they must invest in U.S. dollar-denominated assets, like U.S. government bonds.

The yuan is not an important international reserve currency because China does not have a massive trade deficit. Instead, it has a massive trade surplus every year. For that reason, other countries don’t own a lot of yuan. If China began to run a huge trade deficit with the rest of the world, then other countries would have a lot of yuan and they would be forced to buy yuan-denominated debt instruments.

Then the yuan would be an important reserve currency. But running a large trade deficit would cause tens of millions of Chinese factory worker to lose their jobs, leading to social instability. For this reason, the yuan is unlikely to become an important reserve currency within the foreseeable future — if ever.END Pull Quote Right

China’s economy is now under severe strain. Chinese policymakers would like to devalue the yuan against the dollar to boost China’s exports and economic growth. But China’s trade surplus with the United States was $340 billion last year. That means that, in the absence of intervention by the Chinese central bank, the yuan would appreciate against the dollar, not depreciate.

The value of the yuan relative to the dollar is something that is negotiated between the U.S. and Chinese governments on an ongoing basis. The U.S. government would like the yuan to continue appreciating against the dollar so that China’s trade surplus with the U.S. would stop expanding. The U.S. government certainly does not want the yuan to be devalued.

Not only would that further weaken the competitiveness of U.S. exporters relative to Chinese exporters, it would also export deflation to the United States since the U.S. buys $500 billion worth of goods from China every year. Any yuan devaluation would cause the price of those imports to fall and that would cause the U.S. price level to fall.

China, on the other hand, does not want the dollar to strengthen any further relative to the euro and the yen. That’s because the yuan is closely tied to the U.S. dollar, so when the dollar strengthens against the euro and the yen, so does the yuan. A stronger yuan hurts Chinese exports to Europe and Japan. Therefore, China does not want the Fed to increase interest rates since higher U.S. interest rates would cause the dollar and the yuan to appreciate against other currencies.

If the Fed does increase U.S. interest rates, China may devalue the yuan vs. the dollar so that the yuan does not appreciate against other currencies. One theory suggests that the small yuan devaluation in August was a warning to the Fed not to hike rates or else China would devalue.

A large devaluation of the yuan would be a terrible blow to the Fed because it would push down U.S. inflation (perhaps into negative territory), making it much more difficult for the Fed to reach its 2% inflation target.

So in my assessment, an interest rate hike by the Fed would increase the chance of a yuan devaluation. This “threat” may prevent the Fed from hiking interest rates any time soon.

However, there is still a possibility that China will devalue the yuan further even if the Fed does not hike. If China’s economy continues to deteriorate, Chinese policymakers may resort to currency devaluation as an emergency measure to prevent a serious economic contraction.

If China does devalue, the rest of the world would suffer. Commodity prices would fall further. Emerging market economies and their currencies would weaken further, increasing the chances of a new EM debt crisis. Corporate profits would be hit and global stock markets would sell off.

I expect the Fed to launch a fourth round of Quantitative Easing to keep the United States from falling back into recession.

Since 2008, credit growth has been too weak to drive economic growth in the United States. So the Fed has been driving economic growth by printing money and pushing up asset prices to create a wealth effect that spurs consumption and economic expansion.

After QE 1 and QE 2 ended, US asset prices fell and the U.S. started to go back into recession. Each time, the Fed launched another round of QE to prevent that from happening. I believe the same pattern will be repeated now that QE 3 has ended. The U.S. economy is already weakening very visibly.

I don’t think the Fed will launch QE 4 because it thinks it will be “the right solution for the emerging global economic situation.” I think the Fed will launch QE 4 because it is afraid that the U.S. economy will fall back into a very serious recession if it does not.

Having said that, I do believe that QE 4 will benefit emerging market economies in the same way that the first three rounds of Quantitative Easing did.

Another policy option would be for the United States to run a much larger budget deficit to provide fiscal stimulus to the US and global economy. That, however, will not happen before the 2016 U.S. presidential elections at the earliest, and probably not even after the elections.

Another policy option would be to do nothing. That’s the option policymakers picked in 1930. The result then was a global great depression. If policymakers choose to do nothing now, there is likely to be another global great depression.

The United States has been the driver of global economic growth since World War II. It is no longer growing enough to continue driving the global economy, but there is no other country that can take its place. In order to take over as a new driver of global growth, a country would have to run an even larger trade deficit than the U.S. does. That won’t be possible.

What could Japan have done to accelerate Japanese economic growth in 1990? After the great Japanese bubble economy had taken shape, I really don’t think there was anything Japan could have done to accelerate growth there. China is now in the same place Japan was in 1990. There is a huge economic bubble in China. I don’t see what they can do to “accelerate economic growth going forward.”

They will have a hard enough time just to prevent the bubble from collapsing into a serious depression. It will require very large budget deficits, a great deal of skill and a lot of good luck for China to even achieve 3% annual growth over the next 10 years.

All the government policies since 2008 (trillions of dollars of deficit spending, trillions of dollars of fiat money creation, 0% interest rates, etc.) have prevented a new global great depression thus far.

But now, since the end of QE 3, the policy stimulus is no longer adequate to keep the global bubble inflated. It is now starting to deflate. Our choice now is between more stimulus and a devastating new global depression that could very possibly destroy the world as we know it.

Source

Global Economic Trade Collapse

2015-11-10T15:40:00.000+11:00

If you have been watching for the next major global economic downturn, you can now stop waiting, because it has officially arrived. Never before in history has global trade collapsed this dramatically outside of a major worldwide recession. And this makes perfect sense – when global economic activity is increasing there is more demand for goods and services around the world, and when global economic activity is decreasing there is less demand for goods and services around the world. So far this year, global trade is down about 8.4 percent, and over the past 30 days the Baltic Dry Index has been absolutely plummeting. A month ago it was sitting at a reading of 809, but now it has fallen all the way to 628. However, it is when you look at the trade numbers for specific countries that the numbers become particularly startling.

Just within the last few days, new trade numbers have come out of China. China accounts for approximately one-fifth of all global factory exports, and for many years Chinese export growth has helped fuel the overall global economy.

But now Chinese exports are falling. In October, Chinese exports were down 6.9 percent compared to a year ago. That follows a decline of 3.7 percent in September.

The numbers for Chinese imports are even worse. Chinese imports in October were down 18.8 percent compared to a year ago after falling 20.4 percent in September. China’s growing middle class was supposed to help lead a global economic recovery, but that simply is not happening.

The following chart from Zero Hedge shows just how dramatic these latest numbers are compared to what we are accustomed to witnessing. As you can see, the only time Chinese trade numbers have been this bad for this long was during the major global recession of 2008 and 2009…

Other numbers confirm the magnitude of the economic slowdown in China. I have mentioned the ongoing plunge of the China Containerized Freight Index previously, but now it has just hit a brand new record low…

The weakness in China’s economy and its exports to the rest of the world are showing up in the weekly China Containerized Freight Index (CCFI): On Friday, it dropped to the worst level ever.

The index, operated by the Shanghai Shipping Exchange, tracks how much it costs, based on contractual and spot-market rates, to ship containers from China to 14 major destinations around the world. Unlike a lot of official data from China, the index is an unvarnished reflection of a relentless reality.

It has been cascading lower since February and has since dropped 31%. At 742 currently, it’s down 26% from its inception in 1998 when it was set at 1,000.

Here are some more deeply disturbing global trade numbers that come from my previous article entitled “18 Numbers That Scream That A Crippling Global Recession Has Arrived“…

–Demand for Chinese steel is down 8.9 percent compared to a year ago.

–China’s rail freight volume is down 10.1 percent compared to last year.

–In October, South Korean exports were down 15.8 percent from a year ago.

–According to the Dutch government index, a year ago global trade in primary commodities was sitting at a reading of 150 but now it has fallen all the way down to 114. What this means is that less commodities are being traded around the world, and that is a very clear sign that global economic activity is really slowing down.

Additionally, German export orders were down about 18 percent in September, and U.S. exports are down about 10 percent for the year so far.

Clearly something very big is happening, and it is affecting the entire planet. The CEO of the largest shipping company in the world believes that the explanation for what is taking place is fairly simple…

In fact, according to Maersk CEO, Nils Smedegaard Andersen, the reason why companies that are reliant on global trade, such as his, are flailing is simple: global growth is substantially worse than the official numbers and forecasts. To wit: “The world’s economy is growing at a slower pace than the International Monetary Fund and other large forecasters are predicting.”

Quoted by Bloomberg, Andersen says that “we believe that global growth is slowing down,” he said in a phone interview. “Trade is currently significantly weaker than it normally would be under the growth forecasts we see.“

Global financial markets can run, but they can’t hide from these horrifying trade numbers forever.

One of the big things that is contributing to this new global economic slowdown is the unwinding of the U.S. dollar carry trade. A recent piece from Phoenix Capital Research explained the U.S. dollar carry trade pretty well…

When the Fed cut interest rates to zero in 2008, it flooded the system with US Dollars. The US Dollar is the reserve currency of the world. NO matter what country you’re in (with few exceptions) you can borrow in US Dollars.

And if you can borrow in US Dollars at 0.25%… and put that money into anything yielding more… you could make a killing.

A hedge fund in Hong Kong could borrow $100 million, pay just $250,000 in interest and plow that money into Brazilian Reals which yielded 11%… locking in a $9.75 million return.

This was the strictly financial side of things. On the economics side, Governments both sovereign and local borrowed in US Dollars around the globe to fund various infrastructure and municipal projects.

Simply put, the US Government was practically giving money away and the world took notice, borrowing Dollars at a record pace. Today, the global carry trade (meaning money borrowed in US Dollars and invested in other assets) stands at over $9 TRILLION (larger than the economy of France and Brazil combined).

But now the U.S. dollar carry trade is starting to unwind because the U.S. dollar has been doing very well lately. As the U.S. dollar has surged against other global currencies in 2015, this has put a tremendous amount of stress on emerging markets around the world. All of a sudden oil, other commodities and stock markets in nations such as Brazil began to crash. Meanwhile, those that had taken out loans denominated in U.S. dollars were finding that it was taking far more of their own local currencies to service and repay those loans. This financial crunch in emerging markets is going to take years to fully play out, and it is going to take a tremendous toll on global markets.

Of course we have seen this happen before. A surging dollar helped cause the Latin American debt crisis of the 1980s, the Asian financial crisis of the 1990s andthe major global recession of 2008 and 2009.

If you thought that the financial shaking that happened in late August was bad, the truth is that it was nothing compared to what is now heading our way.

So buckle your seat belts boys and girls, because we are definitely in for a bumpy ride.

Source

China to Allow Direct Conversion Between Yuan and Swiss Franc

2015-11-10T06:48:00.000+11:00

China took another step to boost the yuan’s global usage, saying it will start direct trading with the Swiss franc, as the nation pushes its case for reserve-currency status at the International Monetary Fund.

The link will start on Tuesday, the China Foreign Exchange Trade System said in a statement, making the franc the seventh major currency that can bypass a conversion into the U.S. dollar and be directly exchanged for yuan. The rate will be allowed to fluctuate a maximum 5 percent on either side of a daily fixing, according to CFETS.

“This is an important step in strengthening bilateral economic and trade connections between China and Switzerland,” the People’s Bank of China said in a statement on its website on Monday. The link will help lower conversion costs and facilitate the use of both currencies in bilateral trade, it added.

The announcement, which confirmed an earlier report, comes as the IMF prepares to meet this month to review its Special Drawing Rights. The executive board of the Washington-based institution will gauge whether the Chinese currency has fulfilled the criterion of being "freely usable," after rejecting its bid in 2010. The other major currencies that can be directly converted into yuan are the U.S., Australian and New Zealand dollars, the British pound, the Japanese yen and the euro.

The PBOC this year extended Switzerland a 50 billion yuan ($7.9 billion) quota under the Renminbi Qualified Foreign Institutional Investor program, which allows yuan raised offshore to be used to buy securities in China’s domestic markets. In 2014, the Swiss and Chinese central banks signed a three-year currency-swap agreement that can be used to borrow as much as 150 billion yuan.

Source

WARNING: Record Global Sell-Off of U.S. Debt Could Trigger Economic Collapse

2015-11-09T08:34:00.000+11:00

Foreign governments buy U.S. debt because of the dollar's status as the world's reserve currency – the American economy has long been viewed as a safe place to invest. That's why the amount of U.S. debt held by foreign nations has increased more than six-fold since 2001.

But that's all changing now – events that could spark a U.S. economic collapseare already underway…

The Wall Street Journal revealed this week that China – the largest holder of U.S. investments – is ridding itself of its U.S. government bonds at the fastest rate in history.

In fact, a global sell-off of epic proportion is taking place.

Central banks in China, Russia, Brazil, and Taiwan are selling U.S. government bonds at such a pace that it's caused the most dramatic shift in the $12.8 trillion Treasury market since the 2008-2009 financial crisis.

Foreign official net sales of U.S. Treasury debt maturing in at least one year hit $123 billion in the 12 months ended in July, according to Deutsche Bank Securities Chief International Economist Torsten Slok, reported WSJ. That's the biggest decline since data started to be collected in 1978.

By contrast, foreign central banks purchased $27 billion of U.S. notes and bonds in the prior 12-month period.

Foreign central bankers' massive offloading of U.S. debt sends this dangerous signal…

How Foreign Investors Can Spark a U.S. Economic Collapse

The latest Treasury data (from December 2014) shows that more than one-third of U.S. debt is owned by foreign investors.

China is the biggest foreign U.S. debtholder at 7.2%.

This gives China, along with other major foreign holders of U.S. debt, the power to drastically affect U.S.interest rates.

You see, when foreign governments decide to dump U.S. securities, interest rates go up. That, in turn, makes U.S. debt more risky to buy, which raises rates even higher.

Nonpartisan think tank The Council on Foreign Relations (CFR) explained in June 2010, "A foreign sell-off of U.S. securities could drive up U.S. interest rates and render the nation's formidable stock of debt far more expensive to service…No one knows in advance when the tipping point will be reached, but the damage brought about by higher interest rates and slower economic growth will be readily apparent afterward."

As of November 2013, China held a record $1.317 trillion in U.S. securities. But by the end of July 2015, that amount dipped to $1.241 trillion, according to the latest Treasury data.

Three other of the largest U.S. debt holders are also dumping securities. WSJreports that Russia's holdings of all U.S. Treasury debt fell by $32.8 billion in the year ended in July. Taiwan's holdings fell by $6.8 billion. And Norway reduced its holdings by $18.3 billion.

For now, we haven't seen interest rates shoot up from all this foreign selling because other buyers have stepped in, both in the United States and overseas.

"That buying, driven in large part by worries about the world's economic outlook, has helped keep bond yields at low levels from a historical standpoint," reportedWSJ. "But many investors say the reversal in central-bank Treasury purchases stands to increase price swings in the long run."

"Some analysts have warned for years that persistent fiscal deficits made the U.S. Treasury market vulnerable to a reduction in foreign purchases."

Those analysts include CIA Asymmetric Threat Advisor Jim Rickards. In an August 2014 interview, Rickards told Money Morning that questions over what China will do with U.S. debt is a major concern for Americans.

"The foreigners are now dumping Treasuries and if no one buys it, guess what, interest rates go up," Rickards said. "That'll sink the stock market, that'll sink the housing market. Higher interest rates mean the debt gets higher, so interest rates go up some more."

With these actions, China can take direct aim at the U.S. dollar. And that's just one of the ways China is engaging in financial warfare against the United States.

A global sell-off of U.S. debt is just one of five "flashpoints" that will trigger a U.S. economic collapse. Some of the others are already happening.

Source

It is undeniable; the final collapse is upon us.

2015-11-09T08:24:00.003+11:00

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.”

W. McNeel, market analyst, as quoted in the New York Herald Tribune, Oct. 30, 1929: “This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan… that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years.”

Harvard Economic Society, Nov. 10, 1929: “… a serious depression seems improbable; [we expect] recovery of business next spring, with further improvement in the fall.”

Here is the issue – as I have ALWAYS said, economic collapse is not a singular event, it is a process. The global economy has been in the process of collapse since 2008 and it never left that path. Those who were ignorant took government statistics at face value and the manipulated bull market as legitimate and refused to acknowledge the fundamentals. Now, with markets recently suffering one of the greatest freefalls since the 2008/2009 crash, they are witnessing the folly of their assumptions, but that does not mean they will accept them or apologize for them outright. If there is one lesson I have learned well during my time in the Liberty Movement, it is to never underestimate the power of normalcy bias.

There were plenty of “up days” in the markets during the Great Depression, and this kept the false dream of a quick recovery alive for a large percentage of the American population for many years. Expect numerous “stunning stock reversals” as the collapse of our era progresses, but always remember that it is the overall TREND that matters far more than any one positive or negative trading day (unless you open down 1000 points as we did on Monday), and even more important than the trends are the economic fundamentals.

The establishment has made every effort to hide the fundamentals from the public through far reaching misrepresentations of economic stats. However, the days of effective disinformation in terms of the financial system are coming to an end. As investors and the general public begin to absorb the reality that the global economy is indeed witnessing a vast crisis scenario and acknowledges real numbers over fraudulent numbers, the only recourse of central bankers and the governments they control is to convince the public that the crisis they are witnessing is not really a crisis. That is to say, the establishment will attempt to marginalize the collapse signals they can no longer hide as if such signals are of “minimal” importance.

Just as occurred during the onset of the Great Depression, the lies will be legion the closer we come to zero hour. Here are some of the lies you will likely hear as the collapse accelerates…

The Crisis Was Caused By Chinese Contagion

The hypocrisy inherent in this lie is truly astounding, to say the least, considering it is now being uttered by the same mainstream dirtbags who only months ago were claiming that China’s financial turmoil and stock market upset were inconsequential and would have “little to no effect” on Western markets.

I specifically recall these hilarious quotes from Barbara Rockefeller in July:

“Something else that doesn’t matter much is the Chinese equity meltdown—again. China may be big and powerful, but it lacks a retail base and fund managers experienced in price variations, never mind a true rout…”

“Doom-and-gloom types have been saying for a long time that we will get a stock market rout when the Fed finally does move to raise rates. But as we wrote last week, history doesn’t bear out the thesis, not that you can really count on history when the sample size is one or two data points…”

Yes, that is a bit embarrassing. One or two data points? There have been many central bank interventions in history. When has ANY central bank or any government ever used stimulus to manipulate markets through fiat infusion and zero interest fueled stock buybacks or given government the ability to monetize its own debt, and actually been successful in the endeavor? When has addicting markets to stimulus like a heroin dealer ever led to “recovery”? When has this kind of behavior ever NOT created massive fiscal bubbles, a steady degradation of the host society, or outright calamity?

Suddenly, according to the MSM, China’s economy does affect us. Not only that, but China is to blame for all the ills of the globally interdependent economic structure. And, the mere mention that the Fed might delay the end of near zero interest rates in September by a Federal Reserve stooge recently sent markets up 600 points after a week-long bloodbath; meaning, the potential for any interest rate increase no mater how small also has wider implications for markets.

The truth is, the crash in global stocks which will undoubtedly continue over the next several months despite any delays on ZIRP by the Fed is a product of universal decay in fiscal infrastructure. Nearly every single nation on this planet, every sovereign economy, has allowed central and international banks to poison every aspect of their respective systems with debt and manipulation. This is not a “contagion” problem, it is a systemic problem to every economy across the world.

China’s crash matters not because it is causing all other economies to crash. It matters because China is the largest importer/exporter in the world and it is a litmus test for the financial health of every other country. If China is failing, it means we are not consuming, and if we are not consuming, then we must be broke. China’s crash portends our own far worse economic conditions. THAT is why western markets have been crumbling along with China’s despite the assumptions of the mainstream.

China’s Rate Cuts Will Stop The Crash

No they won’t. China has cut rates five times since last November and this has done nothing to stem the tide of their market collapse. I’m not sure why anyone would think that a new rate cut would accomplish anything besides perhaps a brief respite from the continuing avalanche.

It’s Not A Crash, It’s Just The End Of A “Market Cycle”

This is the most ignorant non-explanation I think I have ever heard. There is no such thing as a “market cycle” when your markets are supported partially or fully by fiat manipulation. Our market is in no way a free market, thus, it cannot behave like a free market, and thus, it is a stunted market with no identifiable cycles.

Swings in markets of up to 5%-6% to the downside or upside (sometimes both in a single day) are not part of a normal cycle. They are a sign of cancerous volatility that comes from an economy on the brink of disaster.

The last few years have been seemingly endless market bliss in which any idiot day trader could not go wrong as long as he “bought the dip” while Fed monetary intervention stayed the course. This is also not normal, even in the so-called “new normal”. Yes, the current equities turmoil is an inevitable result of manipulated markets, false statistics, and misplaced hopes, but it is indeed a tangible crash in the making. It is in no way an example of a predictable and non-threatening “market cycle”, and the fact that mainstream talking heads and the people who parrot them had absolutely no clue it was coming is only further evidence of this.

The Fed Will Never Raise Rates

Don’t count on it. Public statements by globalist entities like the IMF on China, for example, have argued that their current crisis is merely part of the “new normal”; a future in which stagnant growth and reduced living standards is the way things are supposed to be. I expect the Fed will use the same exact argument to support the end of zero interest rates in the U.S., claiming that the decline of American wealth and living standards is a natural part of the new economic world order we are entering.

That’s right, mark my words, one day soon the Fed, the IMF, the BIS and others will attempt to convince the American people that the erosion of the economy and the loss of world reserve status is actually a “good thing”. They will claim that a strong dollar is the cause of all our economic pain and that a loss in value is necessary. In the meantime they will, of course, downplay the tragedies that will result as the shift toward dollar devaluation smashes down on the heads of the populace.

A rate hike may not occur in September. In fact, as I predicted in my last article, the Fed is already hinting at a delay in order to boost markets, or at least slow down the current carnage to a more manageable level. But, they WILL raise rates in the near term, likely before the end of this year after a few high tension meetings in which the financial world will sit anxiously waiting for the word on high. Why would they raise rates? Some people just don’t seem to grasp the fact that the job of the Federal Reserve is to destroy the American economic system, not protect it. Once you understand this dynamic then everything the central bank does makes perfect sense.

A rate increase will occur exactly because that is what is needed to further destabilize U.S. market psychology to make way for the “great economic reset” that the IMF and Christine Lagarde are so fond of promoting. Beyond this, many people seem to be forgetting that ZIRP is still operating, yet, volatility is trending negative anyway. Remember when everyone was ready to put on their ‘Dow 20,000’ hat, certain in the omnipotence of central bank stimulus and QE infinity? Yeah…clearly that was a pipe dream.

ZIRP has run it’s course. It is no longer feeding the markets as it once did and the fundamentals are too obvious to deny.

The globalists at the Bank for International Settlements in spring openly deemed the existence of low interest rate policies a potential trigger for crisis. Their statements correlate with the BIS tendency to “predict” terrible market events they helped to create while at the same time misrepresenting the reasons behind them.

The point is, ZIRP has done the job it was meant to do. There is no longer any reason for the Fed to leave it in place.

Get Ready For QE4

Again, don’t count on it. Or at the very least, don’t expect renewed QE to have any lasting effect on the market if it is initiated.

There is truly no point to the launch of a fourth QE program, but do expect that the Fed will plant the possibility in the media every once in a while to mislead investors. First, the Fed knows that it would be an open admission that the last three QE’s were an utter failure, and while their job is to dismantle the U.S. economy, I don’t think they are looking to take immediate blame for the whole mess. QE4 would be as much a disaster as the ECB’s last stimulus program was in Europe, not to mention the past several stimulus actions by the PBOC in China. I’ll say it one more time – fiat stimulus has a shelf life, and that shelf life is over for the entire globe. The days of artificially supported markets are nearly done and they are never coming back again.

I see little advantage for the Fed to bring QE4 into the picture. If the goal is to derail the dollar, that action is already well underway as the IMF carefully sets the stage for the Yuan to enter the SDR global currency basket next year, threatening the dollar’s world reserve status. China also continues to dump hundreds of billions in U.S. treasuries inevitably leading to a rush to a dump of treasuries by other nations. The dollar is a dead currency walking, and the Fed won’t even have to print Weimar Germany-style in order to kill it.

It’s Not As Bad As It Seems

Yes, it is exactly as bad as it seems if not worse. When the Dow can open 1000 points down on a Monday and China can lose all of its gains for 2015 in the span of a few weeks despite institutionalized stimulus measures lasting years, then something is very wrong. This is not a “hiccup”. This is not a correction which has already hit bottom. This is only the beginning of the end.

Stocks are not a predictive indicator. They do not follow positive or negative fundamentals. Stocks do not crash before or during the development of an ailing economy. Stocks crash after the economy has already gone comatose. Stocks crash when the system is no longer salvageable. Since 2008, nothing in the global financial structure has been salvaged and now the central banking edifice is either unable or unwilling (I believe both) to supply the tools to allow us even to pretend that it can be salvaged. We’re going to feel the hurt now, all while the establishment tells us the whole thing is in our heads.

Source

Faber, Celente, Dent, Maloney, Rogers – What Do They Say Is Coming In 2014?

2013-12-16T07:06:00.000+11:00

Some of the most respected prognosticators in the financial world are warning that what is coming in 2014 and beyond is going to shake America to the core. Many of the quotes that you are about to read are from individuals that actually predicted the subprime mortgage meltdown and the financial crisis of 2008 ahead of time. So they have a track record of being right. Does that guarantee that they will be right about what is coming in 2014? Of course not. In fact, as you will see below, not all of them agree about exactly what is coming next. But without a doubt, all of their forecasts are quite ominous. The following are quotes from Harry Dent, Marc Faber, Gerald Celente, Mike Maloney, Jim Rogers and nine other respected economic experts about what they believe is coming in 2014 and beyond...

-Harry Dent, author of The Great Depression Ahead: "Our best long-term and intermediate cycles suggest another slowdown and stock crash accelerating between very early 2014 and early 2015, and possibly lasting well into 2015 or even 2016. The worst economic trends due to demographics will hit between 2014 and 2019. The U.S. economy is likely to suffer a minor or major crash by early 2015 and another between late 2017 and late 2019 or early 2020 at the latest."

-Marc Faber, editor and publisher of the Gloom, Boom & Doom Report: "You have to say that we are again in a massive financial bubble in bonds, in equities, in [other] asset prices that have gone up dramatically."

-Gerald Celente: "Any self-respecting adult that hears McConnell, Reid, Boehner, Ryan, one after another, and buys this baloney… they deserve what they get.

And as for the international scene… the whole thing is collapsing.

That’s our forecast.

We are saying that by the second quarter of 2014, we expect the bottom to fall out… or something to divert our attention as it falls out."

-Mike Maloney, host of Hidden Secrets of Money: "I think the crash of 2008 was just a speed bump on the way to the main event… the consequences are gonna be horrific… the rest of the decade will bring us the greatest financial calamity in history."

-Jim Rogers: "You saw what happened in 2008-2009, which was worse than the previous economic setback because the debt was so much higher. Well now the debt is staggeringly much higher, and so the next economic problem, whenever it happens and whatever causes it, is going to be worse than in the past, because we have these unbelievable levels of debt, and unbelievable levels of money printing all over the world. Be worried and get prepared. Now it [a collapse] may not happen until 2016 or something, I have no idea when it’s going to happen, but when it comes, be careful."

-Lindsey Williams: "There is going to be a global currency reset."

-CLSA's Russell Napier: "We are on the eve of a deflationary shock which will likely reduce equity valuations from very high to very low levels."

-Oaktree Capital's Howard Marks: "Certainly risk tolerance has been increasing of late; high returns on risky assets have encouraged more of the same; and the markets are becoming more heated. The bottom line varies from sector to sector, but I have no doubt that markets are riskier than at any other time since the depths of the crisis in late 2008 (for credit) or early 2009 (for equities), and they are becoming more so."

-Financial editor Jeff Berwick: "If they allow interest rates to rise, it will effectively make the U.S. government bankrupt and insolvent, and it would make the U.S. government collapse. . . . They are preparing for a major societal collapse. It is obvious and it will happen, and it will be very scary and very dangerous."

-Michael Pento, founder of Pento Portfolio Strategies: "Disappointingly, it is much more probable that the government has brought us out of the Great Recession, only to set us up for the Greater Depression, which lies just on the other side of interest rate normalization."

-Boston University Economics Professor Laurence Kotlikoff:"Eventually somebody recognizes this and starts dumping the bonds, and interest rates go up, and inflation takes off, and were off to the races."

-Mexican Billionaire Hugo Salinas Price: "I think we are going to see a series of bankruptcies. I think the rise in interest rates is the fatal sign which is going to ignite a derivatives crisis. This is going to bring down the derivatives system (and the financial system).

There are (over) one quadrillion dollars of derivatives and most of them are related to interest rates. The spiking of interest rates in the United States may set that off. What is going to happen in the world is eventually we are going to come to a moment where there is going to be massive bankruptcies around the globe."

-Robert Shiller, one of the winners of the 2013 Nobel prize for economics: "I'm not sounding the alarm yet. But in many countries the stock price levels are high, and in many real estate markets prices have risen sharply...that could end badly."

-David Stockman, former Director of the Office of Management and Budget under President Ronald Reagan: "We have a massive bubble everywhere, from Japan, to China, Europe, to the UK. As a result of this, I think world financial markets are extremely dangerous, unstable, and subject to serious trouble and dislocation in the future."

And certainly there are already signs that the U.S. economy is slowing down as we head into the final weeks of 2013. For example, on Thursday we learned that the number of initial claims for unemployment benefits increased by 68,000 last week to a disturbingly high total of368,000. That was the largest increase that we have seen in more than a year.

In addition, as I wrote about the other day, rail traffic is way down right now. In fact, for the week ending November 30th, U.S. rail traffic was down 16.3 percent from the same week one year earlier. That is a very important indicator that economic activity is getting slower.

And we continue to get more evidence that the middle class is being steadily eroded and that poverty in America is rapidly growing. For example, a survey that was just released found that requests for food assistance and the level of homelessness have both risen significantly in major U.S. cities over the past year...

A survey of 25 American cities, including many of the nation's largest, showed yearly increases in food aid and homelessness.

The cities, located throughout 18 states, saw requests for emergency food aid rise by an average of seven percent compared with the previous period a year earlier, according to the US Conference of Mayors study, published Wednesday.

All but four cities reported an increase in demand for assistance between the period of September 2012 through August 2013.

Unfortunately, if the economic experts quoted above are correct, this is just the beginning of our problems.

The next wave of the economic collapse is rapidly approaching, and things are going to get much worse than this.

So what do you think?

Which of the individuals quoted above do you think are right on the money and which ones do you think are way off base?

Please feel free to share what you think by posting a comment below...

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The Money Bubble Gets Its Grand Rationalization

2013-11-25T11:30:00.000+11:00

Late in the life of every financial bubble, when things have gotten so out of hand that the old ways of judging value or ethics or whatever can no longer be honestly applied, a new idea emerges that, if true, would let the bubble keep inflating forever. During the tech bubble of the late 1990s it was the “infinite Internet.” Soon, we were told, China and India’s billions would enter cyberspace. And after they were happily on-line, the Internet would morph into versions 2.0 and 3.0 and so on, growing and evolving without end. So don’t worry about earnings; this is a land rush and “eyeballs” are the way to measure virtual real estate. Earnings will come later, when the dot-com visionaries cash out and hand the reins to boring professional managers.

During the housing bubble the rationalization for the soaring value of inert lumps of wood and Formica was a model of circular logic: Home prices would keep going up because “home prices always go up.”

Now the current bubble – call it the Money Bubble or the sovereign debt bubble or the fiat currency bubble, they all fit – has finally reached the point where no one operating within a historical or commonsensical framework can accept its validity, and so for it to continue a new lens is needed. And right on schedule, here it comes: Governments with printing presses can create as much currency as they want and use it to hold down interest rates for as long as they want. So financial crises are now voluntary. They only happen if a country decides to stop depressing interest rates – and why would they ever do that? Here’s an article out of the UK that expresses this belief perfectly:

Our debt is no Greek tragedy
“The threat of rising interest rates is a Greek tragedy we must avoid.” This was the title of a 2009 Daily Telegraph piece by George Osborne, pushing massive spending cuts as the only solution to a coming debt crisis. It’s tempting to believe anyone who still makes it is either deliberately disingenuous, or hasn’t been paying attention.

The line of reasoning goes as follows: Britain’s high and rising public debt causes investors to take fright and sell government bonds because the UK might default on those bonds.

Interest rates then spike up because as less people want to hold UK debt, the government has to pay them more for the privilege, so that the cost of borrowing becomes more expensive and things become very, very bad for everyone.

This argument didn’t make sense back in 2009, and certainly doesn’t make sense now. Ultimately this whole Britain-as-Greece argument is disturbing because it makes the austerity project of the last three years look deeply duplicitous.

If you go to any bond desk in the City that trades British sovereign debt, money managers care about one thing – what the Bank of England does or doesn’t do. If Governor Mark Carney says interest rates should fall and looks like he believes it, they fall. End of story.

Why? Because the Bank directly controls the interest rate on short-term government debt, so it can vary it at will in line with any given objective. Interest rates on long-term government debt are governed by what markets expect to happen to short term rates, and so are subject to essentially the same considerations.

It doesn’t matter if investors get scared and dump government bonds because this has no implication for interest rates – it is what the Bank of England wants to happen that counts.

If investors do suddenly decide to flee en masse, the Bank can simply use its various tools to bring interest rates back into line.

The simple point is that since countries like the UK have a free-floating currency, the Bank of England doesn’t have to vary interest rates to keep the exchange rate stable. Therefore it, as an independent central bank, can prevent a debt crisis by controlling the cost of government borrowing directly. Investors understand this, and so don’t flee British government debt in the first place.

Greece and the other troubled Eurozone countries are in a totally different situation. They don’t have their own currency, and have a single central bank, the ECB, which tries to juggle the needs of 17 different member states. This is a central bank dominated by Germany, which apparently isn’t bothered by letting the interest rates of other nations spiral out of control. Investors, knowing this, made it happen during the financial crisis.

On these grounds, the case of Britain and those of the Eurozone countries are not remotely comparable – and basic intuition suggests steep interest rate rises are only possible in the latter.

Britain was never going to enter a sovereign debt crisis. It has everything to do with an independent central bank, and nothing to do with the size of government debt. How well does this explanation stand up given the events of the last few years? Almost perfectly. The US, Japan and the UK are the three major economies with supposed debt troubles not in the Eurozone.

The UK released a plan in 2010 to cut back a lot of spending and raise a little bit of tax money. The US did nothing meaningful about its debt until 2012, and has spent much of the time before and since pretending to be about to default on its bonds. Japan’s debt patterns are, to put it bluntly, screwed – Japan’s debt passed 200 per cent of GDP earlier this year and is rising fast.

But the data shows that none of this matters for interest rates whatsoever. Rates have been low, stable and near-identical in all three countries regardless of whatever their political leaders’ actions.These countries have had vastly different responses to their debt, and markets don’t care at all.

By the same token, the problems of spiking interest rates inside the Eurozone have nothing to do with the prudence or spending of the governments in charge.

Spain and Ireland both had debt of less than 50 per cent of GDP before the crisis and were still punished by markets. France and the holier-than-thou Germany had far higher debt in 2007, and are fine.

The takeaway is that problems with spiking interest rates amongst advanced countries are entirely restricted to the Eurozone, where there is a single central bank, and have no obvious relation to the state of public finances.

So what we have, then, is a disturbingly mendacious line of reasoning . Back in 2010 the Conservative party made a perhaps superficially plausible argument about national debt that was wrong then and is doubly wrong now. They then – sort of – won a mandate to govern based on this, and used it to radically alter the size of the state. The likelihood that somehow this was all done in good faith beggars belief.

Britain has had a far higher proportion of austerity in the form of spending cuts than tax rises relative to any comparator nation. On this basis austerity is a way of reshaping the state in the Conservative image, flying under the false flag of debt crisis-prevention.

If the British public had knowingly and willingly voted for the major changes made under the coalition in how the government taxes, spends and borrows, this wouldn’t be such a great problem.

Instead, they were essentially conned into it by the ridiculous story of Britain as the next Greece.

Some thoughts
What’s great about the above article is that it doesn’t beat around the bush. Without the slightest hint of irony or historical sense, it lays out the bubble rationale, which is that central banks are all-powerful: “If you go to any bond desk in the City that trades British sovereign debt, money managers care about one thing – what the Bank of England does or doesn’t do. If Governor Mark Carney says interest rates should fall and looks like he believes it, they fall. End of story.”

So this is the end of history. Interest rates will stay low and stock prices high and governments will keep on piling up debt with impunity – because they control the financial markets and get to decide which things trade at what price. Breathtaking! Why didn’t humanity discover this financial perpetual motion machine earlier? It would have saved thousands of years of turmoil.

At the risk of looking like a bully, let’s consider another peak-bubble gem:

“The simple point is that since countries like the UK have a free-floating currency, the Bank of England doesn’t have to vary interest rates to keep the exchange rate stable. Therefore it, as an independent central bank, can prevent a debt crisis by controlling the cost of government borrowing directly. Investors understand this, and so don’t flee British government debt in the first place.”

The writer is saying, in effect, that the value of the British pound – and by extension any other fiat currency – can fall without consequence, and that the people who might want to use those currencies in trade or for savings will continue to do so no matter how much the issuer of those pieces of paper owes to others in the market. If holders of pounds decide to switch to dollars or euros or gold, that’s no problem for Britain because it can just buy all the paper thus freed up with new pieces of paper.

This illusion of government omnipotence is no crazier than the infinite Internet or home prices always going up, but it is crazy. Governments couldn’t stop tech stocks from imploding or home prices from crashing, and when the time comes, the Bank of England, the US Fed, and the Bank of Japan won’t be able to stop the markets from dumping their currencies. Nor will they be able to stop the price of energy, food, and most of life’s other necessities from soaring when the global markets lose faith in their promises.

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China Announces That It Is Going To Stop Stockpiling U.S. Dollars

2013-11-24T08:15:00.000+11:00

China just dropped an absolute bombshell, but it was almost entirely ignored by the mainstream media in the United States. The central bank of China has decided that it is "no longer in China’s favor to accumulate foreign-exchange reserves". During the third quarter of 2013, China's foreign-exchange reserves were valued at approximately $3.66 trillion. And of course the biggest chunk of that was made up of U.S. dollars. For years, China has been accumulating dollars and working hard to keep the value of the dollar up and the value of the yuan down. One of the goals has been to make Chinese products less expensive in the international marketplace. But now China has announced that the time has come for it to stop stockpiling U.S. dollars. And if that does indeed turn out to be the case, than many U.S. analysts are suggesting that China could also soon stop buying any more U.S. debt. Needless to say, all of this would be very bad for the United States.

For years, China has been systematically propping up the value of the U.S. dollar and keeping the value of the yuan artificially low. This has resulted in a massive flood of super cheap products from across the Pacific that U.S. consumers have been eagerly gobbling up.

For example, have you ever gone into a dollar store and wondered how anyone could possibly make a profit by making those products and selling them for just one dollar?

Well, the truth is that when you flip those products over you will find that almost all of them have been made outside of the United States. In fact, the words "made in China" are probably the most common words in your entire household if you are anything like the typical American.

Thanks to the massively unbalanced trade that we have had with China, tens of thousands of our businesses, millions of our jobs and trillions of our dollars have left this country and gone over to China.

And now China has apparently decided that there is not much gutting of our economy left to do and that it is time to let the dollar collapse. As I mentioned above, China has announced that it is going to stop stockpiling foreign-exchange reserves...

The People’s Bank of China said the country does not benefit any more from increases in its foreign-currency holdings, adding to signs policy makers will rein in dollar purchases that limit the yuan’s appreciation.

“It’s no longer in China’s favor to accumulate foreign-exchange reserves,” Yi Gang, a deputy governor at the central bank, said in a speech organized by China Economists 50 Forum at Tsinghua University yesterday. The monetary authority will “basically” end normal intervention in the currency market and broaden the yuan’s daily trading range, Governor Zhou Xiaochuan wrote in an article in a guidebook explaining reforms outlined last week following a Communist Party meeting. Neither Yi nor Zhou gave a timeframe for any changes.

It isn't going to happen overnight, but the value of the U.S. dollar is going to start to go down, and all of that cheap stuff that you are used to buying at Wal-Mart and the dollar store is going to become a lot more expensive.

But of even more importance is what this latest move by China could mean for U.S. government debt. As most Americans have heard, we are heavily dependent on foreign nations such as China lending us money. Right now, China owns nearly 1.3 trillion dollars of our debt. Unfortunately, as CNBC is noting, if China is going to quit stockpiling our dollars than it is likely that they will stop stockpiling our debt as well...

Analysts see this as the PBoC hinting that it will let its currency fluctuate, without intervention, thus negating the need for holding large reserves of the dollar. And if the dollar is no longer needed, then it could look to curb its purchases of dollar-denominated assets like U.S. Treasurys.

"If they are looking to reduce these purchases going forward then, yes, you'd have to look at who the marginal buyer would be," Richard McGuire, a senior rate strategist at Rabobank told CNBC in an interview.

"Together, with the Federal Reserve tapering its bond purchases, it has the potential to add to the bearish long-term outlook on U.S. Treasurys."

So who is going to buy all of our debt?

That is a very good question.

If the Federal Reserve starts tapering bond purchases and China quits buying our debt, who is going to fill the void?

If there is significantly less demand for government bonds, that will cause interest rates to rise dramatically. And if interest rates rise dramatically from where they are now, that will set off the kind of nightmare scenario that I keep talking about.

In a previous article entitled "How China Can Cause The Death Of The Dollar And The Entire U.S. Financial System", I described how China could single-handedly cause immense devastation to the U.S. economy.

China accounts for more global trade that anyone else does, and they also own more of our debt than any other nation does. If China starts dumping our dollars and our debt, much of the rest of the planet would likely follow suit and we would be in for a world of hurt.

And just this week there was another major announcement which indicates that China is getting ready to make a major move against the U.S. dollar. According to Reuters, crude oil futures may soon be pricedin yuan on the Shanghai Futures Exchange...

The Shanghai Futures Exchange (SHFE) may price its crude oil futures contract in yuan and use medium sour crude as its benchmark, its chairman said on Thursday, adding that the bourse is speeding up preparatory work to secure regulatory approvals.

China, which overtook the United States as the world's top oil importer in September, hopes the contract will become a benchmark in Asia and has said it would allow foreign investors to trade in the contract without setting up a local subsidiary.

If that actually happens, that will be absolutely huge.

China is the number one importer of oil in the world, and it was only a matter of time before they started to openly challenge the petrodollar.

But even I didn't think that we would see anything like this so quickly.

The world is changing, and most Americans have absolutely no idea what this is going to mean for them. As demand for the U.S. dollar and U.S. debt goes down, the things that we buy at the store will cost a lot more, our standard of living will go down and it will become a lot more expensive for everyone (including the U.S. government) to borrow money.

Unfortunately, there isn't much that can be done about any of this at this point. When it comes to economics, China has been playing chess while the United States has been playing checkers. And now decades of very, very foolish decisions are starting to catch up with us.

The false prosperity that most Americans are enjoying today will soon start disappearing, and most of them will have no idea why it is happening.

The years ahead are going to be very challenging, and so I hope that you are getting ready for them.

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Hyperinflation – Are We There Yet?

2013-11-19T08:12:00.000+11:00

Among the alternative financial press (the so-called bloggers of finance) there is a renewed buzz regarding a slowly unfolding crisis. Many believe we are near an inflection point.

The fear is certainly justified. Money or credit creation is now exponential. The US Federal Reserve is on a path toward monetizing anything and everything, while the European Central Bank is about to unleash its own bond buying program.

Japan is equally a basket case. Paving the way for long-discussed direct monetization of equities is becoming evermore a reality. The US central bank, together with its Japanese counterpart, is monetizing an unprecedented $125 billion in direct bond buying.

Despite shrinking deficits, there is no way either central bank can taper these purchases without pricking the latest in yet another series of asset bubbles. Both central banks have morphed into politically controlled arms of their respective Treasuries.

Getting the Inflation Wish

Meanwhile, equities are trading at all time highs. We are back to dot-com IPO's by which well-meaning companies ultimately take all the risk, helping Wall Street make money for nothing without risk of failure.

Home prices have soared back from the lows experienced 5 years ago. At the same time, nearly fifty percent of all home purchases made with cash in the 3rd quarter of 2013 in the US are acquired by private equity and hedge funds.

All the while, inflation is considered tame by mainstream consensus. Basically every major economic data point or indicator is so completely manipulated that there is no wonder that most investors cannot see the true state of risk.

Gold and silver continue to suffer from "painted-tape syndrome". This is a situation in which overnight sell orders have routinely broken the CME trading platform on at least three occasions in the previous 6 months. These moves occur surrounding zero economic or financial developments.

Recently, the US Census Bureau has become embroiled with scandal. Among such scandal is that, as long suspected, the data collected for the all important unemployment rate was found to be grossly manipulated around the last presidential election.

We are at the critical juncture where the population is split mainly between the unknowing and those whose paycheck depends on not knowing. The rest shake their heads and prepare for the worst.

We Have Been Here Before

History repeats in large cycles. The relatively short interval of these cheap credit drive super cycles is evidence that the system is now spinning out of control.

While the alternative media has long pointed out the unsustainability of the current world financial system, we are now witnessing the likes of very carefully orchestrated, albeit political, posturing. Such posturing takes the form of warnings coming from some of the larger investment firms and institutions.

The fact that the larger voices document their positions in this way could be an early sign of the end of confidence.

The Inflection Point

We are going to hit the monetization inflection point at some point soon - if we haven't already. The likely trigger could be indirect; it could even be something small. A bank failure or crisis in China (happening now) or a smaller conflict will be enough to push confidence over the edge.

The conduit for money velocity will be the Treasury, via the Federal Reserve. Government spending on its own will bid up prices for its own economic and political survival.

It is harrowing that modern systems, hopelessly lacking in redundancy and yet working on the surface, are treading on so much fragility.

History Rhymes

All hyperinflations hinged on the budget deficit point of no return, where more than 50% of annual deficits are monetized directly or half spending more than half of what was collected. The Obama administration's recent budget requests contain $2.902 trillion in receipts and $3.803 trillion in outlays for a deficit of $901 billion, or around 24% of government spending.

The closer we get, the more important it is to hold various assets as insurance - precious metals being an obvious choice - high on the list.

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What A Confidential 1974 Memo To Paul Volcker Reveals About America's True Views On Gold, Reserve Currency And "PetroGold"

2013-11-13T13:50:00.000+11:00

Just over four years ago, we highlighted a recently declassified top secret 1968 telegram to the Secretary of State from the American Embassy in Paris, in which the big picture thinking behind the creation of the IMF's Special Drawing Right (rolled out shortly thereafter in 1969), or SDRs, was laid out. In that memo it was revealed that despite what some may think, the fundamental driver behind the promotion of a supranational reserve paper currency had one goal in mind: allowing the US to "remain masters of gold."

Specifically, this is among the top secret paragraphs said on a cold night in March 1968:

If we want to have a chance to remain the masters of gold an international agreement on the rules of the game as outlined above seems to be a matter of urgency. We would fool ourselves in thinking that we have time enough to wait and see how the S.D.R.'s will develop. In fact, the challenge really seems to be to achieve by international agreement within a very short period of time what otherwise could only have been the outcome of a gradual development of many years.

This then puts into question just what the true purpose of the IMF is. Because while its stated role of preserving the stability in developing, and increasingly more so, developed, countries is a noble one, what appears to have been the real motive behind the monetary fund's creation, was to promote and encourage the development of a substitute reserve currency, the SDR, and to ultimately use it as the de facto buffer and intermediary, for conversion of all the outstanding "barbarous relic" hard currency, namely gold, into the fiat of the future: the soon to be newly created SDR. All the while, and increasingly more so as more countries converted their gold into SDR, such remaining hard currency would be almost exclusively under the control of the United States.

Well, in the intervening 44 years, the SDR never managed to take off, the reason being that the dollar's reserve currency status was exponentially cemented courtesy of both the great moderation of the 1980s and the derivative explosion of the 1990s and post Glass Steagall repeal 2000s, when the world was literally flooded with roughly $1 quadrillion in USD-denominated derivatives, inextricably tying the fate of the world to that of the dollar.

However, back in 1974, shortly after Nixon ended the Bretton Woods system, and cemented the dollar's fate as a fiat currency, no longer convertible into gold, the future of the SDR was still bright, especially at a time when the US seemed set to suffer a very unpleasant date with inflationary reality following the 1973 oil crisis, leading to a potential loss of faith in the US dollar.

Which brings us to the topic of today's article: the international monetary system, reserve currency status, SDRs, and, of course, gold... again.

Below is a memo written in 1974 by Sidney Weintraub, Deputy Assistant Secretary of State for International Finance and Development, to Paul Volcker, when he was still just Under Secretary of the Treasury for Monetary Affairs and not yet head of the Federal Reserve. The source of the memo was found in the National Archives, RG 56, Office of the Under Secretary of the Treasury, Files of Under Secretary Volcker, 1969–1974, Accession 56–79–15, Box 1, Gold—8/15/71–2/9/72. No classification marking. A stamped notation on the note reads: "Noted by Mr. Volcker." Another notation, dated March 8, indicates that copies were sent to Bennett and Cross. It currently resides in declassified form in Document 61, Foreign Relations Of The United States, 1973–1976, Volume XXXI Foreign Economic Policy, and is found at the Office of the Historian website.

The memo is a continuation of the US thinking on the issue of the then brand new SDR, the fate of paper currencies, and the preservation of US control over reserve currency status. Most importantly, it addresses several approaches to dominating gold as well as the US' interest of banning gold from monetary system and capping the free market price, contrasted by the opposing demands of various European deficit countries (sound familiar?) on what the fate of gold should be at a time when the common European currency did not exist, and some European countries were willing to fund their deficits with gold: something the US naturally was not happy about.

While we urge readers to read the full memo on their own, here the two punchlines.

First, here is what the S intentions vis-a-vis gold truly are when stripped away of all rhetoric:

U.S. objectives for world monetary system—a durable, stable system, with the SDR [ZH: or USD] as a strong reserve asset at its center — are incompatible with a continued important role for gold as a reserve asset.... It is the U.S. concern that any substantial increase now in the price at which official gold transactions are made would strengthen the position of gold in the system, and cripple the SDR [ZH: or USD].

In other words: gold can not be allowed to dominated a "durable, stable system", and a rising gold price would cripple the reserve currency du jour: well known by most, but always better to see it admitted in official Top Secret correspondence.

We continue:

To encourage and facilitate the eventual demonetization of gold, our position is to keep the present gold price, maintain the present Bretton Woods agreement ban against official gold purchases at above the official price and encourage the gradual disposition of monetary gold through sales in the private market. An alternative route to demonetization could involve a substitution of SDRs for gold with the IMF, with the latter selling the gold gradually on the private market, and allocating the profits on such sales either to the original gold holders, or by other agreement.... Any redefinition of the role of gold must be based on the principle stated above: that SDR must become the center of the system and that there can be no question of introducing a new form of gold– paper and gold–metal bimetallism, in which the SDR and gold would be in competition.

And there, in three sentences, you have all the deep thinking behind the IMF's SDR: simply to use it as a vehicle through which a select few can accumulate gold (namely those who can create fiat SDRs d novo), while handing out paper "profits" to the happy sellers.

And just in case it was not quite clear, here it is again, point blank:

Option 3: Complete short-term demonetization of gold through an IMF substitution facility. Countries could give up their gold holdings to the IMF in exchange for SDRs. The gold could then be sold gradually, over time, by the IMF to the private market. Profits from the gold sales could be distributed in part to the original holders of the gold, allowing them to realize at least part of the capital gains, while part of the profits could be utilized for other purposes, such as aid to LDCs. Advantages: This would achieve our goal of demonetization and relieve the problem of gold immobility, since the SDRs received in exchange could be used for settlement with no fear of foregoing capital gains.Disadvantages: This might be a more rapid demonetization than several countries would accept. There would be no benefit from the viewpoint of financing oil imports with gold sales to Arabs (although it is not necessarily incompatible with such an arrangement).

One wonders just who in the "private market" would be stupid enough to convert their invaluable paper money into worthless, barbaric relics?

And finally, was there the tiniest hint of a proposed alternative system to the PetroDollar. Namely, PetroGold?

There is a belief among certain Europeans that a higher price of gold for settlement purposes would facilitate financing of oil imports... Although mobilization of gold for intra-EC settlement would help in the financing of imbalances among EC countries, it would not, of itself,provide resources for the financing of the anticipated deficit with the oil producers. For this purpose, it would be useful if the oil producers would invest some of their excess revenues in gold purchases from deficit EC countries at close to a market price. This would be an attractive proposal for European countries, and for the U.S., in that it would not involve future interest burdens and would avoid immediate problems arising from increased Arab ownership of European and American industry. (The Arabs could both sell the gold and use the proceeds for direct investment, so that the industry ownership problem would not be completely solved.) From the Arab point of view such an asset would have the advantages of being protected from exchange-rate changes and inflation, and subject to absolute national control.

One wonders if the price of gold is "high enough" now for Arab purposes, and just where the Arabs are now in their thinking of converting oil into gold... or alternatively into a gold-backed renminbi. And if not now, soon, once the pent up inflation in the Fed's $4 trillion, and rising, balance sheet inevitably start to leak out?

The full Volcker memo can be found here.

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The Death of the USD

2013-11-12T19:43:00.000+11:00

The death of the dollar is coming, and it will probably be China that pulls the trigger. What you are about to read is understood by only a very small fraction of all Americans. Right now, the U.S. dollar is the de facto reserve currency of the planet. Most global trade is conducted in U.S. dollars, and almost all oil is sold for U.S. dollars. More than 60 percent of all global foreign exchange reserves are held in U.S. dollars, and far more U.S. dollars are actually used outside of the United States than inside of it. As will be described below, this has given the United States some tremendous economic advantages, and most Americans have no idea how much their current standard of living depends on the dollar remaining the reserve currency of the world. Unfortunately, thanks to reckless money printing by the Federal Reserve and the reckless accumulation of debt by the federal government, the status of the dollar as the reserve currency of the world is now in great jeopardy.

As I mentioned above, nations all over the globe use U.S. dollars to trade with one another. This has created tremendous demand for U.S. dollars and has kept the value of the dollar up. It also means that Americans can import things that they need much more inexpensively than they otherwise would be able to.

The largest exporting nations such as Saudi Arabia (oil) and China (cheap plastic trinkets at Wal-Mart) end up with massive piles of U.S. dollars...

Instead of just sitting on all of that cash, these exporting nations often reinvest much of that cash into low risk securities that can be rapidly turned back into dollars if necessary. For a very long time, U.S. Treasury bonds have been considered to be the perfect way to do this. This has created tremendous demand for U.S. government debt and has helped keep interest rates super low. So every year, massive amounts of money that gets sent out of the country ends up being loaned back to the U.S. Treasury at super low interest rates...

And it has been a very good thing for the U.S. economy that the federal government has been able to borrow money so cheaply, because the interest rate on 10 year U.S. Treasuries affects thousands upon thousands of other interest rates throughout our financial system. For example, as the rate on 10 year U.S. Treasuries has risen in recent months, so have the rates on U.S. home mortgages.

Our entire way of life in the United States depends upon this game continuing. We must have the rest of the world use our currency and loan it back to us at ultra low interest rates. At this point we have painted ourselves into a corner by accumulating so much debt. We simply cannot afford to have rates rise significantly.

For example, if the average rate of interest on U.S. government debt rose to just 6 percent (and it has been much higher than that at various times in the past), we would be paying more than a trillion dollars a year just in interest on the national debt.

But it wouldn't be just the federal government that would suffer. Just consider what higher rates would do to the real estate market.

About a year ago, the rate on 30 year mortgages was sitting at 3.31 percent. The monthly payment on a 30 year, $300,000 mortgage at that rate is $1315.52.

If the 30 year rate rises to 8 percent, the monthly payment on a 30 year, $300,000 mortgage would be $2201.29.

Does 8 percent sound crazy to you?

It shouldn't. 8 percent was considered to be normal back in the year 2000.

Are you starting to get the picture?

We need other countries to use our dollars and buy our debt so that we can have super low interest rates and so that we can afford to buy lots of cheap stuff from them.

Unfortunately, the truly bizarre behavior of the Federal Reserve and the U.S. government over the past several years is causing the rest of the world to lose faith in our currency. In particular, China is leading the call for a "de-Americanized" world. The following is from a recent article posted on the website of France 24...

For decades the US has benefited to the tune of trillions of dollars-worth of free credit from the greenback's role as the default global reserve unit.

But as the global economy trembled before the prospect of a US default last month, only averted when Washington reached a deal to raise its debt ceiling, China's official Xinhua news agency called for a "de-Americanised" world.

It also urged the creation of a "new international reserve currency... to replace the dominant US dollar".

So why should the rest of the planet listen to China?

Well, China now accounts for more global trade than anyone else does, including the United States.

China is also now the number one importer of oil in the world.

At this point, China is even importing more oil from Saudi Arabia than the United States is.

China now has an enormous amount of economic power globally, and the Chinese want the rest of the planet to start using less U.S. dollars and to start using more of their own currency. The following is from a recent article in the Vancouver Sun...

Three years after China allowed the yuan to start trading in Hong Kong’s offshore market, banks and investors around the world are positioning themselves to get involved in what Nomura Holdings Inc. calls the biggest revolution in the $5.3 trillion currency market since the creation of the euro in 1999.

And over the past few years we have seen the global use of the yuanrise dramatically...

International use of the yuan is increasing as the world’s second-largest economy opens up its capital markets. In the first nine months of this year, about 17 percent of China’s global trade was settled in the currency, compared with less than one percent in 2009, according to Deutsche Bank AG.

Of course the U.S. dollar is still king for now, but thanks to a whole host of recent international currency agreements this status is slipping. For example, China just recently signed a major currency agreement with the European Central Bank...

The swap deal will allow more trade and investment between the regions to be conducted in euros and yuan, without having to convert into another currency such as the U.S. dollar first, said Kathleen Brooks, a research director at FOREX.com.

"It's a way of promoting European and Chinese trade, but not doing it with the U.S. dollar," said Brooks. "It's a bit like cutting out the middleman, all of a sudden there's potentially no U.S. dollar risk."

And as I have written about previously, we have seen a bunch of other similar agreements being signed all over the planet in recent years...

1. China and Germany (See Here)

2. China and Russia (See Here)

3. China and Brazil (See Here)

4. China and Australia (See Here)

5. China and Japan (See Here)

6. India and Japan (See Here)

7. Iran and Russia (See Here)

8. China and Chile (See Here)

9. China and the United Arab Emirates (See Here)

10. China, Brazil, Russia, India and South Africa (See Here)

But do you hear about any of this on the mainstream news?

Of course not.

They would rather focus on the latest celebrity scandal.

Right now, the global move away from the U.S. dollar is slow but steady.

At some point, some trigger event will likely cause it to become a stampede.

When that happens, demand for U.S. dollars and U.S. debt will disintegrate and interest rates will absolutely skyrocket.

And if interest rates skyrocket that will throw the entire U.S. financial system into chaos. At the moment, there are about 441 trillion dollars worth of interest rate derivatives sitting out there. It is a financial time bomb unlike anything the world has ever seen before.

There are four "too big to fail" banks in the United States that each have more than 40 trillion dollars worth of total exposure to derivatives. The largest chunk of those derivatives is made up of interest rate derivatives. In case you were wondering , those four banks are JPMorgan Chase, Citibank, Bank of America and Goldman Sachs.

A huge upward surge in interest rates would absolutely devastate those banks and cause a financial crisis that would make 2008 look like a Sunday picnic.

Right now, the leader in global trade seems content to use U.S. dollars for most of their international transactions. China also seems content to hold more than a trillion dollars of U.S. government debt.

If that suddenly changes someday, the consequences for the U.S. economy will be absolutely catastrophic and every single American will feel the pain.

The standard of living that all of us are enjoying today depends largely upon China. They can bring down the hammer at any moment and they know it.

Source

China’s Hunger for Gold Triggers Speculation About Reserves

2013-10-12T07:59:00.002+11:00

China is on pace to consume a record amount of gold this year, which may be partly due to the central bank diversifying its foreign-exchange reserves, analysts say.

China imported around 861.40 metric tons of gold via Hong Kong in the first eight months of the year, more than double the 361.02 tons during the same period last year, new data from Hong Kong Census and Statistics Department showed. Imports from Hong Kong fell in August from the previous month but remained elevated, the data showed.

Gold prices hit a three-year low in June but have since rebounded.

Strong demand in China is driven largely by consumers, and jewelers are restocking following a spike in buying in April, when prices began tumbling. However, analysts say the People’s Bank might also be taking advantage of the lower prices to bulk up its reserves.

“My suspicion is that they [Chinese government] are increasing their gold holdings as part of their foreign reserves,” said Joyce Liu, an investment analyst with Phillip Futures in Singapore.

The Chinese government rarely releases comprehensive data on gold imports or its holdings, but Hong Kong’s data is considered a pretty accurate indicator of demand. The People’s Bank of China, the central bank, last stated its gold holdings in April 2009, when they stood at 1,054 tons.

China has the world’s biggest stockpile of foreign-exchange reserves, at roughly $3.5 trillion, including around $1.3 trillion in U.S. Treasury bonds. Beijing is thought to be keen to diversify its exposure, and the current legislative gridlock in the U.S. and a possible debt default have only deepened concerns about the outlook for the U.S. dollar and Treasurys, analysts said.

The World Gold Council has estimated that Chinese imports this year will top 1,000 tons–believed to be a record amount. China became the world’s biggest gold consumer in the first half of this year, just topping India, which had held the top spot for years, the WGC said in August. Chinese demand totaled 570 tons during the first six months of the year, while India’s was 568 tons, it said.

In India, retailers are now paying as much as $50 a troy ounce more than international prices ahead of the upcoming festive season, a time of strong gold demand. Demand is outpacing supply following government efforts to curb imports

Source

Global bail-ins are now an acceptable standard practice.

2013-09-25T07:02:00.001+10:00

Now that "bail-ins" have become accepted practice all over the planet, no bank account and no pension fund will ever be 100% safe again. In fact, Cyprus-style wealth confiscation is already starting to happen all around the world. As you will read about below, private pension funds were just raided by the government in Poland, and a "bail-in" is being organized for one of the largest banks in Italy. Unfortunately, this is just the beginning. The precedent that was set in Cyprus is being used as a template for establishing bail-in procedures in New-Zealand, Canada and all over Europe. It is only a matter of time before we see this exact same type of thing happen in the United States as well. From now on, anyone that keeps a large amount of money in any single bank account or retirement fund is being incredibly foolish.

Let's take a look at a few of the examples of how Cyprus-style wealth confiscation is now moving forward all over the globe...

Poland

For years, there have been rumors that someday the U.S. government would raid private pension funds.

Well, in Poland it just happened.

According to Reuters, private pension funds were raided in order to reduce the size of the government debt...

Poland said on Wednesday it will transfer to the state many of the assets held by private pension funds, slashing public debt but putting in doubt the future of the multi-billion-euro funds, many of them foreign-owned.

The Polish government is doing the best that it can to make this sound like some sort of complicated legal maneuver, but the truth is that what they have done is stolen private assets without giving any compensation in return...

The Polish pension funds' organisation said the changes may be unconstitutional because the government is taking private assets away from them without offering any compensation.

Announcing the long-awaited overhaul of state-guaranteed pensions, Prime Minister Donald Tusk said private funds within the state-guaranteed system would have their bond holdings transferred to a state pension vehicle, but keep their equity holdings.

He said that what remained in citizens' pension pots in the private funds will be gradually transferred into the state vehicle over the last 10 years before savers hit retirement age.

Iceland

For years, Iceland has been applauded for how they handled the last financial crisis. But now it is being proposed that the "blanket guarantee" that currently applies to all bank accounts should be reduced to 100,000 euros. Will this open the door for "haircuts" to be applied to bank account balances above that amount?...

Following the crisis in October 2008, Iceland's government declared all deposits in domestic financial institutions were 'blanket' guaranteed - an Emergency Act that was reafrmed twice since. However, according to RUV, the finance minister is proposing torestrict this guarantee to only deposits less-than-EUR100,000. While some might see the removal of an 'emergency' measure as a positive, it is of course sadly reminiscent of the European Union "template" to haircut large depositors. This is coincidental (threatening) timing given the current stagnation of talks between Iceland bank creditors and the government over haircuts and lifting capital controls - which have restricted the outflows of around $8 billion.

Europe

European finance ministers have agreed to a plan that would make "bail-ins" the standard procedure for rescuing "too big to fail" banks in the future. The following is how CNN described this plan...

European Union finance ministers approved a plan Thursday for dealing with future bank bailouts, forcing bondholders and shareholders to take the hit for bank rescues ahead of taxpayers.

The new framework requires bondholders, shareholders and large depositors with over 100,000 euros to be first to suffer losses when banks fail. Depositors with less than 100,000 euros will be protected. Taxpayer funds would be used only as a last resort.

What this means is that if you have over 100,000 euros in a bank account in Europe, you could lose every single bit of the unprotected amount if your bank collapses.

Italy

As Zero Hedge reported on Tuesday, a "bail-in" is now being organized for the oldest bank in Italy...

Recall that three weeks ago we warned that "Monti Paschi Faces Bail-In As Capital Needs Point To Nationalization" although we left open the question of "who will get the haircut including senior bondholders and depositors.... given the small size of sub-debt in the capital structures." Today, as many expected on the day following the German elections, the dominos are finally starting to wobble, and as we predicted, Monte Paschi, Italy's oldest and according to many, most insolvent bank, quietly commenced a bondholder "bail in" after it said that it suspended interest payments on three hybrid notes following demands by European authorities that bondholders contribute to the restructuring of the bailed out Italian lender. Remember what Diesel-BOOM said about Cyprus - that it is a template? He wasn't joking.

As Bloomberg reports, Monte Paschi "said in a statement that it won’t pay interest on about 481 million euros ($650 million) of outstanding hybrid notes issued through MPS Capital Trust II and Antonveneta Capital Trusts I and II." Why these notes? Because hybrid bondholders have zero protections and zero recourse. "Under the terms of the undated notes, the Siena, Italy-based lender is allowed to suspend interest without defaulting and doesn’t have to make up the missed coupons when payments resume." Then again hybrids, to quote the Dutchman, are just the template for the balance of the bank's balance sheet.

Why is this happening now? Simple: the Merkel reelection is in the bag, and the EURUSD is too high (recall Adidas' laments from last week). Furthermore, if the ECB proceeds with another LTRO as many believe it will, it will force the EURUSD even higher, surging from even more unwanted liquidity. So what to do? Why stage a small, contained crisis of course. Such as a bail in by a major Italian bank. The good news for now is that depositors are untouched. Unfortunately, with depositor cash on the wrong end of the (un)secured liability continuum it is only a matter of time before those with uninsured deposits share some of the Cypriot pain. After all, in the brave New Normal insolvent world, "it is only fair."

Fortunately, it does not appear that this particular bail-in will hit private bank accounts (at least for now), but it does show that European officials are very serious about applying bail-in procedures when a major bank fails.

New Zealand

The New Zealand government has been discussing implementing a "bail-in" system to deal with any future major bank failures. The following comes from a New Zealand news source...

The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will seesmall depositors lose some of their savings to fund big bank bailouts, the Green Party said today.

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

"Bill English is proposing a Cyprus-style solutionfor managing bank failure here in New Zealand - a solution that will see small depositors lose some of their savings to fund big bank bailouts," said Green Party Co-leader Dr Russel Norman.

"The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.

"Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat."

Canada

Incredibly, even Canada is moving toward adopting these "bank bail-ins". In a previous article, I explained that "bail-ins" were even part of the new Canadian government budget...

Cyprus-style "bail-ins" are actually proposed in the new Canadian government budget. When I first heard about this I was quite skeptical, so I went and looked it up for myself. And guess what? It is right there in black and white on pages 144 and 145 of "Economic Action Plan 2013" which the Harper government has already submitted to the House of Commons. This new budget actually proposes "to implement a 'bail-in' regime for systemically important banks" in Canada. "Economic Action Plan 2013" was submitted on March 21st, which means that this "bail-in regime" was likely being planned long before the crisis in Cyprus ever erupted.

So what does all of this mean for us?

It means that the governments of the world are eyeing our money as part of the solution to any future failures of major banks.

As a result, there is no longer any truly "safe" place to put your money.

One of the best ways to protect yourself is to spread your money around. In other words, don't put all of your eggs in one basket.

If you have your money a bunch of different places, it is going to be much harder for the government to grab it all.

But if you don't listen to the warnings and you continue to keep all of your wealth in one giant pile somewhere, don't be surprised when you get wiped out in a single moment someday.

Source

Who Is Going To Buy Our Debt If This War Causes China, Russia And The Rest Of The World To Turn On Us?

2013-09-07T22:42:00.000+10:00

Can the U.S. really afford to greatly anger the rest of the world when they are the ones that are paying our bills? What is going to happen if China, Russia and many other large nations stop buying our debt and start rapidly dumping U.S. debt that they already own? If the United States is not very careful, it is going to pay a tremendous economic price for taking military action in Syria. At this point, survey after survey has shown that the American people are overwhelmingly against an attack on Syria, people around the globe are overwhelmingly against an attack on Syria, and it looks like the U.S. Congress is even going to reject it. But Barack Obama is not backing down. In fact, ABC News is reporting that plans are now being made for a "significantly larger" strike on Syria than most experts had expected.

If Obama insists on going forward with this, it will be the greatest foreign policy disaster in modern American history.

Right now, both Russia and China are strongly warning Obama not to attack Syria. And Russia is not just warning Obama with words. According to Bloomberg, Russia has sent quite a collection of warships into the region...

Russia is sending three more ships to the eastern Mediterranean to bolster its fleet there as a U.S. Senate panel will consider President Barack Obama’s request for authority to conduct a military strike on Syria.

Russia is sending two destroyers, including the Nastoichivy, the flagship of the Baltic Fleet, and the Moskva missile cruiser to the region, Interfax reported today, citing an unidentified Navy official. That follows last week’s dispatch of a reconnaissance ship to the eastern Mediterranean, four days after the deployment of an anti-submarine ship and a missile cruiser to the area, which were reported by Interfax. Syria hosts Russia’s only military facility outside the former Soviet Union, at the port of Tartus.

China is also letting it be known that they absolutely do not want Obama to hit Syria. On Friday, China issued a warning about what military conflict in the Middle East could do to "the global economy"...

"Military action would have a negative impact on the global economy, especially on the oil price – it will cause a hike in the oil price."

And according to Debka, China has also deployed "a number of warships" to the region...

Western naval sources reported Friday that a Chinese landing craft, the Jinggangshan, with a 1,000-strong marine battalion had reached the Red Sea en route for the Mediterranean off Syria. According to DEBKAfile, Beijing has already deployed a number of warships opposite Syria in secret. If the latest report is confirmed, this will be the largest Chinese deployment in the Middle East in its naval history.

If the U.S. attacks Syria, Russia and China probably will not take immediate military action against us.

But they could choose to hit us where it really hurts.

According to the U.S. Treasury, foreigners now hold approximately 5.6 trillion dollars of our debt. Over the past couple of decades, the proportion of our debt owned by foreigners has grown tremendously, and today we very heavily depend on nations such as China to buy our debt.

At this point, China owns approximately 1.275 trillion dollars of our debt, and Russia owns approximately 138 billion dollars of our debt.

So what would happen if China, Russia and other foreign buyers of our debt all of a sudden quit purchasing our debt and instead started dumping the debt that they already own back on to the market?

In a word, it would be disastrous.

As I have written about previously, the U.S. government will borrowabout 4 trillion dollars this year.

Close to a trillion of that is new borrowing, and about three trillion of that is rolling over existing debt.

If China and other big foreign lenders quit buying our debt and started dumping what they already hold, that would send yields on U.S. Treasuries absolutely soaring.

And we have already seen bond yields rise dramatically in recent weeks. In fact, on Thursday the yield on 10 year U.S. Treasuries briefly broke the 3 percent barrier.

So what is going to happen if the yield on 10 year U.S. Treasuries continues to go up? The following are a few consequences of rising bond yields that I have discussed in previous articles...

-It will cost the federal government more to borrow money.

-It will cost state and local governments more to borrow money.

-As bond yields go up, bond values go down. In the end, rising bond yields could end up costing bond investors trillions of dollars.

-Rising bond yields will cause mortgage rates to skyrocket. In fact, we are already starting to see this happen. This week the average rate on a 30 year mortgage hit 4.57 percent.

-Higher interest rates will mean a slowdown in economic activity at a time when we definitely cannot afford it.

-As economic activity slows down, that will be very bad for stocks. When the next great stock market crash happens (and it is coming), equity investors could end up losing trillions of dollars of wealth.

-Of course the biggest threat of all is the 441 trillion dollar interest rate derivatives time bomb that is sitting out there. Rapidly rising interest rates could potentially bring down several of our "too big to fail" banks in rapid succession and throw us into the greatest financial crisis the nation has ever seen.

Are you starting to get the picture?

And the 3 percent mark is just the beginning. Brent Schutte, a market strategist for BMO Private Bank, told CNBC that he expects the yield on 10 year U.S. Treasuries to eventually go up to 6 or 7 percent...

"4 percent (on 10-year Treasurys) somewhere around the end of the year to early next year would be a good intermediate-term level. And if you look over the longer term, I don't think that 6 or 7 percent is out of the question."

If that happens, we will experience a full blown financial meltdown.

Of course it would greatly help if Obama would back down and not attack Syria. As Vladimir Putin noted at the G20 summit, large nations such as India, Brazil, South Africa and Indonesia are all strongly against the U.S. taking military action...

In reply to the question what other country in the world may theoretically be subjected to aggression similar to that Syria is facing, Putin said, “I do not want to think that any other country will be subjected to any external aggression.”

A military action against Syria will have a highly deplorable impact on international security at large, Putin emphasized.

He said he was surprised to see that ever more participants in the summit, including the leader of India, Brazil, the South African Republic, and Indonesia were speaking vehemently against a possible military operation in Syria.

Putin cited the words of the South African President, Jacob Zuma, who said many countries were feeling unprotected against such actions undertaken by stronger countries.

“Given the conditions as they, how would you convince the North Koreans, for example, to give up their nuclear program,” he said. “Just tell them to put everything into storage today and they’ll be pulled to bits tomorrow.”

He underlined the presence of only one method for maintaining stability - “an unconditional observance of international law norms.”

Can we really afford to have most of the international community turn on us and quit buying our debt?

Of course not.

Sadly, as I noted the other day, Obama appears to be locked into doing the bidding of Arab countries such as Saudi Arabia and Qatar.

In fact, as the Washington Post reported the other day, Secretary of State John Kerry has even admitted that they are even willing to pay all of the costs of a U.S. military campaign that would overthrow Assad...

Secretary of State John Kerry said at Wednesday’s hearing that Arab counties have offered to pay for the entirety of unseating President Bashar al-Assad if the United States took the lead militarily.

"With respect to Arab countries offering to bear costs and to assess, the answer is profoundly yes," Kerry said. "They have. That offer is on the table."

Asked by Rep. Ileana Ros-Lehtinen (R-Fla.) about how much those countries would contribute, Kerry said they have offered to pay for all of a full invasion.

"In fact, some of them have said that if the United States is prepared to go do the whole thing the way we’ve done it previously in other places, they’ll carry that cost," Kerry said. "That’s how dedicated they are at this. That’s not in the cards, and nobody’s talking about it, but they’re talking in serious ways about getting this done."

Why aren't we hearing more about this in the news?

Fortunately, despite the relentless propaganda coming from the mainstream media, a lot of members of Congress are choosing to take a stand against this war. For example, U.S. Representative Tom Marino recently shared the following about why he is voting against military action in Syria...

Secretary Hagel could not tell lawmakers who the U.S. could trust among the Syrian opposition, stating "that’s not my business to trust." Like many Americans, I believe it is our duty as decision makers to be informed and confident when making choices – especially in those choices that could result in sending U.S. troops or money abroad. It is no wonder Secretary Hagel isn’t in the business to trust when more players are added daily to the growing list of ‘Syrian opposition’—many of them jihadist, terrorists, known Al Qaeda affiliates, members of the Muslim Brotherhood and enemies of the U.S. and our allies. To simplify, the Secretary of Defense was unable to tell us, after nearly three years of the Syrian Civil War, who the good guys are or if there are any at all.

And Marino is very right. There are no "good guys" in Syria. The "rebels" are murderous jihadist psychotics that would be even worse than Assad if they took power.

For much more on what the mainstream media is not telling you about the war in Syria, check out a stunning video report from investigative reporter Ben Swann that you can find right here.

The picture above comes from the official Facebook page of one of the "rebel groups" in Syria.

I am sure that you do not need me to point out that the White House is burning in the background of the picture.

These are the people that Obama wants to help?

According to NBC News, the rebels are also displaying images of the black flag of al-Qaeda on Facebook too...

The image is one of eight photos posted on the official Facebook page of the “Al-Aqsa Islamic Brigades,” a small armed Sunni rebel faction fighting with the Free Syrian Army, the main umbrella military organization of the opposition forces. Two other photos posted on the group’s page feature the widely recognized black flag of the al Qaeda in Iraq terrorist group, which operates freely in Syria.

Let's assume for a moment that Obama is successful in Syria and that Assad is overthrown.

That would hand Syria over to al-Qaeda.

Once in power, the "rebels" would slaughter or force the conversion of millions of Christians, Jews and non-Sunni Muslims that have been living peacefully in Syria for centuries.

To those that would support this war, I would ask you this question...

Is that what you want?

Do you want the blood of millions of Christians, Jews and non-Sunni Muslims on your hands?

If you are a Christian that is supporting Obama on this, I would ask you to consider an excerpt from a letter from Christian nuns in Azeir, Syria that I have posted below...

We look at the people around us, our day workers who are all here as if suspended, stunned: “They’ve decided to attack us.” Today we went to Tartous…we felt the anger, the helplessness, the inability to formulate a sense to all this: the people trying their best to work and to live normally. You see the farmers watering their land, parents buying notebooks for the schools that are about to begin, unknowing children asking for a toy or an ice cream…you see the poor, so many of them, trying to scrape together a few coins. The streets are full of the “inner” refugees of Syria, who have come from all over to the only area left that is still relatively liveable…. You see the beauty of these hills, the smile on people’s faces, the good-natured gaze of a boy who is about to join the army and gives us the two or three peanuts he has in his pocket as a token of “togetherness”…. And then you remember that they have decided to bomb us tomorrow. … Just like that. Because “it’s time to do something,” as it is worded in the statements of the important men, who will be sipping their tea tomorrow as they watch TV to see how effective their humanitarian intervention will be….

You can read the rest of that letter right here.

Also consider the following shocking video of Senator John McCain being confronted by a very emotional woman that says that her 18-year-old cousin in Syria was just killed by rebels loyal to al-Qaeda...

Any American that supports this war is aiding al-Qaeda.

Any American that supports this war is choosing to ally themselves withradical jihadist Christian killers that want to conquer the entire Middle East in the name of Sunni Islam.

If Congress votes to approve this war, then we should do what one site has suggested and send those that vote yes to Syria.

They don't even have to fight. We'll just drop them off in the middle of the "rebel forces" and entrust them into the gentle hands of the al-Nusra Front.

But of course they would never go. The ones that will be endangered will be the precious sons and daughters of other Americans.

This is not a war that has a good outcome for America. Conservative voices and liberal voices all over the country are joining together to speak out against this war.

Hopefully Barack Obama will listen and cooler heads will prevail. If not, things could spin wildly out of control very rapidly.

Source

Upward Gold Price Momentum

2013-09-04T09:46:00.000+10:00

Gold prices climbed back above the $1,400 an ounce on Tuesday after Interfax reported that Russia detected a missile launch. A Russian Defence Ministry spokesman quoted by the Interfax news agency said the launch was picked up by an early warning radar station at Armavir, near the Black Sea, which is designed to detect missiles from Europe and Iran.
RIA, another Russian news agency, later quoted a source in Syria’s “state structures” as saying the objects had fallen harmlessly into the sea.
The Russian Defence Ministry declined comment to Reuters.
However, later in the day Israel’s Defence Ministry said that it, along with a Pentagon team, had carried out a test-launch of a Sparrow missile. The Sparrow, which simulates the long-range missiles of Syria and Iran, is used for target practice by Israel’s U.S.-backed ballistic shield Arrow.
“Israel routinely fires missiles or drones off its shores to test its own ballistic defence capabilities,” a U.S. official said in Washington.
Western naval forces have been gathering in the Mediterranean and the Red Sea since President Bashar al-Assad was accused of carrying out an August 21 gas attack in his more than two-year-old conflict with rebels trying to topple him.
Moscow is Assad’s big-power ally and has mobilised its own navy in the face of U.S. military preparations to punish the Syrian government for its alleged killing of more than 1,400 people in the chemical strike in an embattled Damascus suburb.
Russia opposes any outside military intervention in Syria’s civil war and says it suspects the gassings were staged by rebels seeking foreign involvement in the conflict.
The news caused a spike in gold prices which later dropped back below $1400 an ounce only to rise again during the second London gold fix.
In South Africa, more than 120,000 unionized gold miners In South Africa, represented by the National Union of Mineworkers (NUM), are set to go on strike as of today. Yesterday, Reuters reported that South African union leaders warned that mine owners’ handling of pay talks could provoke violence, and bosses said wage hikes would force mine closures and cost thousands of jobs.
Mining companies have already explained that they cannot afford to agree to the demands made by the unions due to soaring costs and depressed prices. The president of South Africa’s Chamber of Mines warned unions against stoking workers’ hopes.
Mark Cutifani, who is also chief executive of mining giant Anglo American said, “Promoting expectations above the capacity of the industry to pay is a dangerous road that may have tragic consequences for employees who do not understand how close we are to economic devastation in certain sectors.”
“If we lose each other in the present discussions, we will count the costs in mines closed and tens of thousands of jobs lost,” he wrote in a commentary in the Business Day newspaper.
According to the Chamber of Mines, the strike could cost South Africa more than $35 million a day in lost output as the sector would stop producing about 760 kg a day.
South Africa’s gold industry, which once accounted for almost 80% of global bullion output, now produces just 6% of the world total.
Companies which will be hit by Tuesday’s strike include main gold producers AngloGold Ashanti, Gold Fields, Harmony Gold and Sibanye Gold.
Last week the price of gold pushed above the $1400 an ounce level for the first time in three and a half months due to increasing geopolitical tensions involving the recent chemical attack that took place in certain suburbs of Damascus, Syria.
Last week UK prime minister, David Cameron, was forced to back down and agreed to delay a military attack on Syria when British politicians rejected a motion urging an international response to the recent chemical weapons strike in Syria.
The Prime Minister has now said he will wait for a report by United Nations weapons inspectors before seeking the approval of MPs for “direct British involvement” in the Syrian intervention.
Downing Street said the decision to wait for the UN was based on the “deep concerns” the country still harbours over the Iraq War.
In a statement the UK government said that it only wanted to proceed on a “consensual basis” and was now wary about becoming embroiled in another divisive conflict in the Middle East in the wake of Iraq.
The parliamentary defeat for David Cameron is a blow to US President Obama. Like nearly all presidents since the Vietnam War, Britain has been the closest ally to the US. And, Obama’s efforts to marshal a unified international front for a short, punitive strike raised concerns about the evidence, reawakening British resentment over false assurances from the American and British governments that Saddam Hussein had weapons of mass destruction.
In a televised speech the U.S. Secretary of State, John Kerry, claimed that there was clear and compelling evidence that proves the Syrian government was behind the recent chemical-weapons strike in Damascus. After citing the protracted military presence of the US in Iraq and Afghanistan Kerry presented his case for intervention. “Fatigue does not absolve us of our responsibility,” Kerry said referring to Iraq and Afghanistan. “Just longing for peace does not necessarily bring it about. And history would judge us all extraordinarily harshly if we turned a blind eye to a dictator’s wanton use of weapons of mass destruction against all warnings [and] against all common understanding of decency.”
President Obama spoke to the nation on Saturday from the White House on the worsening situation in Syria. In a rather defiant note, he insisted the U.S. was prepared to take action against the Syrian government.
“Ten days ago, the world watched in horror as men, women and children were massacred in Syria in the worst chemical weapons attack of the 21st century,” the President said. “In a world with many dangers, this menace must be confronted.’
“Now after careful deliberation, I have decided that the United States should take military action against Syrian regime targets,” Mr. Obama added.
“Our military has positioned assets in the region. The chairman of the Joint Chiefs has informed me that we are prepared to strike whenever we choose,” the President said.
Mr. Obama also said he would seek authorization from Congress before launching a military strike.
“Over the last several days, we have heard from members of Congress who want their voices to be heard. I absolutely agree.
“This morning, I spoke with all four congressional leaders, and they’ve agreed to schedule a debate and then a vote as soon as Congress comes back into session,” the President said.
If one considers all the previous disasters that have followed any US lead military intervention, it is more than likely that such action will have a similar fate and will only escalate tensions in the Middle East. As this will prompt investors to seek safe haven assets such as gold and as we enter the period where prices have tended to increase on a historical basis, I expect to see higher prices in the coming months.
Meanwhile as much of the focus of the global financial markets will be Syria, another unfolding scenario will also continue to have an enormous impact on gold prices. This is the on-going currency war caused in part by the major central banks policy of quantitative easing as well as the expansion of global debt.
The easy money policies of the major central banks in particular the US Federal Reserve, the European Central bank, and the Bank of Japan has caused a devaluation of not only the major global currencies but those of the emerging world including China, India, Brazil, Argentina, Indonesia, South Africa, Russia and Mexico – just to name a few.
During the last few months the Indian Rupee has lost more than 25% of its value versus the US dollar causing demand for gold to soar. And as individuals in India have been buying gold as a way to protect their wealth, the Reserve Bank of India have reacted to the situation by imposing import controls on the metal in an attempt to keep the populace from fleeing the rupee for gold.
It is very conceivable that the recent strength in global gold markets might be attributable more to events such as these than events in Syria — where the mainstream financial media has focused its attention of late.
In its latest move to try and take gold from its citizens, the Indian government is considering a radical plan to direct commercial banks to buy gold from ordinary citizens and divert it to precious metal refiners in an attempt to curb imports and take some pressure off the plunging currency.
A pilot project will be launched soon, a source familiar with the Reserve Bank of India (RBI) told Reuters. India has the world’s third-largest current account deficit, which is approaching nearly $90 billion, driven in a large part by appetite for gold imports in the world’s biggest consumer of the metal.
With 31,000 tons of commercially available gold in the country – worth $1.4 trillion at current prices – diverting even a fraction of that to refiners would satisfy domestic demand for the metal.
“We will start a pilot project among some banks where we will allow them to buy back gold from individual households,” the source, an official familiar with the central bank’s gold policymaking, said. “This will start soon, we have discussed (it) with banks.”
The RBI will ask the banks to buy back jewellery, bars and coins for rupees. Lenders will have to offer better rates than pawn shops and jewellers to lure sellers.
Only last Thursday, India’s Trade Minister Anand Sharma said the central bank should look into the possibility of monetizing gold holdings. However, it was not clear whether Sharma was referring to the 557.7 tons of gold the RBI holds in its own reserves, or gold in private hands. He did not give more details of how the proposal would work.
Earlier this week in comments reported in the national media, Sharma said “even if 500 tons is monetized at today’s value it takes care of your CAD”, or current account deficit.

Technical picture

The momentum in gold prices continues to trade with an upward bias and look set to soon re-test $1450 an ounce.

Source

Obama Has Already Made The Decision To Go To War With Syria

2013-08-28T16:39:00.001+10:00

The Obama administration seems absolutely determined to help radical Islamic jihadists that have beheaded Christians, that have massacred entire Christian villages, and that have pledged loyalty to al-Qaeda topple the Assad regime and take over Syria. Yes, the Assad regime is horrible, but if these jihadist lunatics take control it will destabilize the entire region, make the prospect of a major regional war much more probable, and plunge the entire nation of Syria into a complete and utter nightmare. It has been estimated that somewhere around 100,000 people have already been killed in the civil war in Syria, and now it looks like the U.S. military and the rest of NATO plan to become directly involved in the conflict. The Obama administration is actually considering an attack on Syria even though the American people are overwhelmingly against it, Obama does not have Congressional approval to start a war, and he will never get approval for military action from the UN because it will be blocked by Russia. This is setting up to become a colossal foreign policy disaster for the United States.

A potential war with Syria has been brought to the forefront because of a chemical weapons attack near Damascus last week that killed as many as 1,400 people. The Obama administration and several other western nations are blaming this attack on the Assad regime.

But others are pointing out that it would make absolutely no sense for the Assad regime to do such a thing. They appear to be winning the civil war, and Assad knows that Obama has previously said that the use of chemical weapons in Syria would be a "red line" for the United States.

So why would the Assad regime launch a brutal chemical weapons attack against women and children just miles from where UN inspectors were staying?

Why would Assad risk war with the United States and the rest of NATO?

Assad would have to be extremely stupid or extremely suicidal to do such a thing.

The ones that benefit from this chemical weapons attack are the jihadist rebels. The odds of foreign intervention in the conflict just went way, way up.

We will probably never learn the real truth about who was actually behind that attack. And even if it had not happened, the U.S. and the rest of NATO would have probably come up with another justification to go to war anyway. They appear absolutely obsessed with getting rid of Assad, but they have not really thought through the consequences.

The following are 15 signs that Obama has already made the decision to go to war with Syria...

#1 Syria has agreed to allow UN officials to inspect the site of the recent chemical weapons attack that killed up to 1,400 people, but a "senior U.S. official" says that such an inspection would be "too late to be credible".

#2 According to ABC News, the White House is saying that there is "very little doubt" that the Assad regime was behind the deadly chemical weapons attack last week.

#3 Four U.S. warships with ballistic missiles are moving into positionin the eastern Mediterranean Sea. If the command is given, they will be able to rain Tomahawk cruise missiles down on targets inside Syria within minutes...

U.S. defense officials told The Associated Press that the Navy had sent a fourth warship armed with ballistic missiles into the eastern Mediterranean Sea but without immediate orders for any missile launch into Syria.

U.S. Navy ships are capable of a variety of military actions, including launching Tomahawk cruise missiles, as they did against Libya in 2011 as part of an international action that led to the overthrow of the Libyan government.

#4 CBS News is reporting that "the Pentagon is making the initial preparations for a Cruise missile attack on Syrian government forces".

#5 On Saturday, Barack Obama met with his national security teamto discuss what actions should be taken in Syria.

#6 U.S. Secretary of Defense Chuck Hagel says that Barack Obama has asked him to "prepare options for all contingencies" as far as a conflict with Syria is concerned.

#7 After a phone conversation with British Prime Minister David Cameron about the situation in Syria, the White House announced that both leaders expressed "grave concern" about the chemical weapons attack that took place last week.

#8 Military commanders from the United States, Britain, Saudi Arabia, Qatar, Turkey, France, Italy and Canada are meeting in Amman, Jordan on Sunday to coordinate plans for upcoming attacks on Syria.

#9 According to France’s second largest newspaper, rebel forces that have been trained by the CIA have been pouring toward Damascus "since mid-August"...

According to our information, the regime's opponents, supervised by Jordanian, Israeli and American commandos moving towards Damascus since mid-August. This attack could explain the possible use of the Syrian president to chemical weapons.

According to information obtained by Le Figaro , the first trained in guerrilla warfare by the Americans in Jordan Syrian troops reportedly entered into action since mid-August in southern Syria, in the region of Deraa. A first group of 300 men, probably supported by Israeli and Jordanian commandos, as well as men of the CIA, had crossed the border on August 17. A second would have joined the 19. According to military sources, the Americans, who do not want to put troops on the Syrian soil or arming rebels in part controlled by radical Islamists form quietly for several months in a training camp set up at the border Jordanian- Syrian fighters ASL, the Free Syrian Army, handpicked.

#10 The U.S. military moved a significant number of F-16 fighter jets to Jordan earlier this year for military exercises, and kept them there afterward "at the request of the Jordanian government".

#11 According to a government document that Wikileaks released back in March 2012, NATO personnel have been on the ground inside Syria preparing for regime change since 2011.

#12 The Times of Israel is reporting that an internal military assessment has concluded that "Washington is seriously considering a limited yet effective attack that will make it clear to the regime in Damascus that the international community will not tolerate the use of weapons of mass destruction against Syrian civilians or any other elements".

#13 U.S. Senator John McCain recently said that if the U.S. military does not hit Syria, it will be like "writing a blank check to other brutal dictators around the world if they want to use chemical weapons".

#14 According to the New York Times, "the NATO air war in Kosovo" is being studied "as a possible blueprint for acting without a mandate from the United Nations".

#15 The White House has released a statement that says that the Obama administration has no plans to put "boots on the ground", but it did not rule out any other types of military action.

This is not a conflict that the U.S. military should be involved in.

And we should especially not be on the side of the rabidly anti-Christian, rabidly anti-Israel and rabidly anti-western forces that are attempting to take control of Syria.

The terrorists that the Obama administration is backing are absolutely psychotic. Just check out the following example from a recent article posted on the Blaze...

New video posted on YouTube purports to show the graphic murder – execution style – of three Syrian truck drivers who did nothing more than belong to a minority faith the local Al Qaeda affiliate does not like.

In the video, a small band of Islamist radicals with the Al Qaeda-linked ISIS (Islamic State in Iraq and Syria) group is seen waving the tractor trailers off the side of an Iraqi road and then proceeds to interrogate the unsuspecting drivers about their prayer habits, trying to discover if they are Sunnis or members of the Alawite minority in Syria.

When they “fail” the Sunni jihadis’ pop roadside quiz, the truck drivers are seated in a line in the median of the road and shot in the back of their heads firing squad style by the self-appointed law enforcers, jury, judge and executioner.

Why in the world would the United States want to arm such people?

Why in the world would the United States want to go to war to help such people take power?

It is utter insanity.

And as I mentioned earlier, most Americans are totally against getting involved. According to a stunning new poll, 60 percent of all Americans are against U.S. military intervention in Syria, and only 9 percent are in favor of it.

So in light of all that you have just read, why is the Obama administration so determined to help the rebels in Syria?

7 Countries in 5 years

Source

The Creeping Fear Of The "Great Normalization" Of US Monetary Policy

2013-08-28T16:33:00.003+10:00

There is a recurring nightmare that is playing out once again in many of the most leveraged asset-classes in the world's so-called 'markets'. The theme is that of an improving US economy which is pointing a normalization of US monetary policy. Good news, right? It would seem not; as Chris Wood's Greed and Fear notes, that the practical reality is that the emerging world, including Asia, will remain vulnerable to further selling so long as markets are anticipating normalisation of American monetary policy and a related strengthening in the US dollar. However, there is a conundrum, if the world was so sure of the relative strength of the American economy, surely the yen should be selling off more against the dollar. For CLSA the real test is yet to come when the new fiscal year in America begins on 1 October and the revival of US economic growth that is so hoped-for, does not materialize... and given the correlation in the chart below, it is clear that there is only thing that matters - the US 10Y rate.

Via CLSA's GREED & Fear Report (Chris Wood),

Not so surprisingly, the normalisation scare has picked up momentum over the past week with renewed focus on the ‘panic’ in the emerging market debt space and related equity markets.

...

the practical reality is that the emerging world, including Asia, will remain vulnerable to further selling so long as markets are anticipating normalisation of American monetary policy and a related strengthening in the US dollar. This for now appears to be the case with the further pick up in the 10-year Treasury bond yield over the past week, even if this latest normalisation scare is different from the one that hit in June in that it has not been accompanied as yet by a sell-off in gold.

If the world was so sure of the relative strength of the American economy, surely the yen should be selling off more against the dollar. This suggests to GREED & fear that the normalisation story, which has been driving market action all this year, may be nearer an end than the beginning. Still the real test of it will come when the new fiscal year in America begins on 1 October. For then, based on the Federal Reserve’s forecast, the American economy is meant to accelerate with the end of so-called ‘fiscal drag’.

If this does not happen as anticipated, then the issue will become whether the Fed is really prepared to exit unconventional monetary policy. That seems most unlikely under a Fed led by Billyboy or his deputy Janet Yellen.

But the markets will be less sure under a Fed led by President Obama’s seeming favoured candidate, Larry Summers. This is why the uncertainty posed by an Obama decision to nominate Summers has the potential to trigger more of a normalisation scare in the form of a further back up in Treasury bond yields and a further sell-off in equities, be it Asian equities or American equities.

For now, the ongoing normalisation scare and related back up in sovereign bond yields is causing research departments in Asia to recalculate their valuations based on the increase in the so-called “risk free” rates. Thus, the Indonesian 10-year rupiah government bond yield is up from 5.19% to 8.46% since the beginning of the year.

But the key driver here, for the most part, is the action in the US Treasury market. In this respect CLSA’s technical analyst Lawrence Balanco makes an interesting point in his latest weekly. This is the correlation between the US 10-year Treasury bond price and emerging market assets so far this year. That is 0.93 with emerging market bonds, 0.81 with emerging market equities and 0.71 with emerging market currencies.

Source

The Coming Economic Collapse

Ron Paul Answeres Questions on The Fed, ISIS and more.

Brazil in Horrific Recession: Sincerely, US Dollar.

Negative interest rates to hit the US

Central Banks Snapping Up Gold at Near-Record Pace

We’re in the Early Stages of Largest Debt Default in US History

Greatest (Legal) Wealth Transfer in History

IMF to include CHINA (RMB) to Reserve currency this month?

Energy Market firms warn they may default at any minute

China to devalue the Yuan?

Global Economic Trade Collapse

China to Allow Direct Conversion Between Yuan and Swiss Franc

WARNING: Record Global Sell-Off of U.S. Debt Could Trigger Economic Collapse

(adsbygoogle = window.adsbygoogle || []).push({}); How Foreign Investors Can Spark a U.S. Economic Collapse

It is undeniable; the final collapse is upon us.

Faber, Celente, Dent, Maloney, Rogers – What Do They Say Is Coming In 2014?

The Money Bubble Gets Its Grand Rationalization

Our debt is no Greek tragedy

China Announces That It Is Going To Stop Stockpiling U.S. Dollars

Hyperinflation – Are We There Yet?

Getting the Inflation Wish

We Have Been Here Before

The Inflection Point

History Rhymes

What A Confidential 1974 Memo To Paul Volcker Reveals About America's True Views On Gold, Reserve Currency And "PetroGold"

The Death of the USD

China’s Hunger for Gold Triggers Speculation About Reserves

Global bail-ins are now an acceptable standard practice.

Who Is Going To Buy Our Debt If This War Causes China, Russia And The Rest Of The World To Turn On Us?

Upward Gold Price Momentum

Technical picture

Obama Has Already Made The Decision To Go To War With Syria

The Creeping Fear Of The "Great Normalization" Of US Monetary Policy

How Foreign Investors Can Spark a U.S. Economic Collapse