Desperate, Delusional, Deranged

Most people likely heard that on December 15, the US Federal Reserve raised interest rates for the first time in nine years. Nine years! And by a measly 1/4 of a percent. With high Madison Avenue puffery, they called this “liftoff”!  And why now? Because, they claim, finally, after telling us at the end of every year, for the last six years, that the economy would accelerate in the new year and be able to grow on its own without their “extraordinary measures” (their phrase, not mine) of support, they are declaring, like Bullwinkle, “This time for sure!

Stock markets are, of course, throwing a tantrum, off to their worst start to a new year ever, screaming, “What?! No more free money for the rich?!  You mean we’ll actually have to do something to get money, like–uuuugh–poor people do?”

Worst20160115_EOD1

(Chart source.)

Worst start ever for other countries as well, including Europe as a whole.  The 600 largest European stocks (EuroStoxx 600) are down 21% from their peak in April, officially qualifying them for a bear market. Same with China, their stocks lost 21% in the last four weeks (since the Fed raised rates) and are down 44% since their peak in June:

     China Stocks Enter Bear Market, Erasing Gains From State Rescue

Stocks in emerging market countries (Brazil, Thailand, South Korea, Malaysia, etc.) peaked in Autumn 2014 (!) and are down 36% since then. This was posted in August:

     23 Nations Around The World Where Stock Market Crashes Are Already Happening

Still, many people, especially in the US, believe we are in a global bull market in stocks; despite the fact that US smaller company stocks (Russell 2000 index) are down 22% since their peak in June, 2015. And US Transportation stocks (truckers, airlines, shippers, etc.), which are an excellent barometer of economic activity, are down 28% since their peak.

Even in the midst of this stock market tantrum, a desperate US President said last week that everything is awesome and that “Anyone claiming that America’s economy is in decline is peddling fiction.” Forget about those 45 million US residents on food stamps, and a record number of homeless children, everything is supposedly great. And there was this desperation from the Fed on Friday:

January 15 – Bloomberg (Matthew Boesler): “The U.S. economy should continue to grow faster than its potential this year, supporting further interest-rate increases by the Federal Reserve,” New York Fed President William C. Dudley said. ‘In terms of the economic outlook, the situation does not appear to have changed much since the Fed’s Dec. 15-16 meeting,’ Dudley said, in remarks prepared for a speech Friday… He added that he continues ‘to expect that the economy will expand at a pace slightly above its long-term trend in 2016…’

(Digression: Only someone involved in pseudo-scientific economics is typically deranged enough to try to explain how something can “grow faster than its potential.” Perhaps we should each send our favorite economist a dictionary.)

Why do I call these statements desperation?

For starters, the Federal Reserve’s best computer model for the economy says that the economy is growing at a 0.6% annual rate. That’s less than 1% a year, folks. In other words, stall speed.

JP Morgan says it’s less than that. They expect 0.1%:

     Recession At The Gate: JPM Cuts Q4 GDP From 1.0% To 0.1%

I’ve talked here before about the usefulness of economic statistics that governments don’t publish since the governments can’t fake them. I won’t bore you with a lot of them, but here’s one that will give you an excellent idea of the state of things. It shows, over the last 30 years, the cost to companies to transport bulks goods (wheat, copper, coal, oil, iron ore, etc.) by cargo ship around the planet:

Baltic20160115_BDIY

(Chart source.)

The first thing to notice is that it costs less to ship cargo now than it has at any time in the last 30 years. And it’s cheaper by a wide margin. If the economy were doing well, cargo ships would be in high demand and charging high prices. That’s hardly the case now; quite the opposite.

Next, check that blue oval at the top of the chart. The index was over 10,000 in early 2008. That was a period of high demand for shipping. It’s useful to know that owners of large ocean-going cargo vessels currently break even when the price they can charge for shipping is between 800 and 1,000 on this index. So with shipping costs as high as they were in 2008, the owners of ships were making a LOT of money–they could charge more than 10 times their expenses for fuel, salaries, maintenance, etc. Now the price is below 400. So the ship owners lose money on every shipment. Competing owners of cargo ships continue to ship at these low prices, even though they are losing money, because they hope their competitors will go bankrupt before they do.

Why is it so cheap to ship goods around the world now? Because global trade and the global economy are tanking, and far fewer goods are being shipped than a few years back. Here’s a chart by HSBC of growth of the global economy calculated in US Dollars. Notice that the line is well below zero for 2015, just like it was in 2009:

USDRecession

Credit Suisse expects Brazil’s economy to have its worst downturn since 1901! That’s right, worse than the Great Depression. As shown by the chart at the link, India’s exports and imports both crashed by 25% over the last year. That’s a huge decline.

So the Fed and other cheerleaders might say: Yes, the world economy is down, but the US has “decoupled” from the world and is doing fine on its own. Well, here’s a perfect depiction of the US economy. It’s a chart of US Industrial Production over the last 45 years:


USIP20160115_indprod

(Chart: Welcome To The Recession: Industrial Production Crashes Most In 8 Years)

Industrial Production in the US is down over the last year; there’s 1.8% less of it than a year ago. The red-shaded areas on the chart are past recessions. As the dashed line shows, whenever Industrial Production has been this low in the past, we have always already been in a recession. Always. No exceptions.

Governments (and 99 out of 100 economists) announce recessions with a huge lag time. Leading up to the announcement, just when it would help people to be battening down the hatches, they always claim everything is fine and there won’t be a recession, so we should all hold onto our stocks, hold onto our real estate, spend, borrow, and spend some more. Then the long delay in admitting to the recession allows them to say, “Yes, a recession started 10 months ago, but now it’s either over or almost over, so don’t worry, everything is fine. Spend, borrow, and spend some more.”

The Fed’s Dudley also said this week that, if the economy weakened, they would consider negative interest rates for the US. Canadian central bankers say the same. And it has worked so well in Europe! (Ha!) Europe’s delusional central bankers thought that negative interest rates would spur people and companies to save less and spend more. What actually happened?  Bank of America explained here that as rates went negative and people couldn’t earn interest on their savings, they saved more, not less. In other words, people, unlike the delusional bankers, are being logical: if they can’t earn any interest, then they have to save more for their future plans, not less. Here are the charts showing exactly this relationship (as rates go down, savings go up) for the negative rate champions Switzerland, Denmark, and Sweden:

europe savings vs rates (1)

European business also failed to fall for the negative rates trick. Instead of borrowing and spending more, they have been pulling in their horns and retiring some of their outstanding debt instead of borrowing more.

As Michael Burry of The Big Short said in his speech at UCLA:

The individual can think different and the individual can act different than those that got us all into this mess. No matter how the economic tides may sweep away the majority, an individual can stand clear.

More than ever, it is crucial to understand that “society’s sanctioned suits,” as Burry labels them so well, do not have your best interests in mind. They have their own interests in mind. Period. And their desperation, delusions, and derangements have created an inevitable economic calamity that will be the greatest in history.

Burry is right: Stand clear!

 

Some cycles due in 2015

So you can be prepared, if you wish, here are some cycles due in 2015. One of them is gigantically important to both the political and financial worlds, so I hope my exposition is clear.

The first cycle is very easy to understand: something economically important really hits the fan every seven years. Going in reverse from here, seven years at a time:

  • 2008, start of the Great Recession, first real estate debt bubble pop;
  • 2001, recession begins as part of 2000-2002 internet/tech stock bubble pop;
  • 1994, worst year for bond markets in modern history;
  • 1987, the famed stock market Crash of ’87;
  • 1980, inflation, the “Misery Index”, start of a major recession that doesn’t go away for three years;
  • 1973, Arab Oil embargo, start of a major recession;
  • […] you get the idea.

The article at this link talks more about this cycle, including the note that the years in this seven-year cycle that coincided with an Autumn solar eclipse (1931 and 1987) had particularly strong events; and 2015 does have two solar eclipses. Again, from the article at the link:

In 1931, a solar eclipse took place on Sept. 12…Eight days later, England abandoned the gold standard, setting off market crashes and bank failures around the world. It also ushered in the greatest monthlong stock market percentage crash in Wall Street history.

In 1987, a solar eclipse took place Sept. 23…Less than 30 days later came “Black Monday” the greatest percentage crash in Wall Street history.

Some great forecasters think that March is a strong candidate for significant financial turbulence in 2015, and there is a total solar eclipse on March 20. And there is a partial solar eclipse on September 13, a better calendar correspondence with the events referenced in the quote above. So maybe we’ll get two strong events this year.

For those of you who believe what you read in the US media, perhaps you are wondering how we could get major financial problems when things are allegedly so “awesome.” Well, sorry to tell you, but even Goldman “doing God’s work” Sachs just admitted that the world economy has gone into contraction:

     It’s Official: Global Economy Back In Contraction For First Time Since 2012 According To Goldman 

(As a side note, Al Jazeera did a great video on true nature of Goldman Sachs. The link is here, but, if you are in the USA, the censors won’t allow you to view the video in the “Land of the Free” US, it’s only playable outside the US. A lot of that type of thing is going on these days. It’s a small part of what has dropped the US down to 49th globally in press freedom; see World Press Freedom Index Plunges – USA Now Ranked #49 Globally.)

If this seven-year cycle repeats in 2015, then I think we can easily predict what the authorities will do since it seems to be the only thing they know how to do when there’s trouble: print more money by creating more debt! But as explained in The deflationary wave intensifies, this strategy has become counter-productive and is locking the world economy in a deadly stranglehold.

Some realize all this and some do not. But this brings us to our second cycle: Martin Armstrong’s Sovereign Debt Big Bang. Here is a slide of Armstrong’s forecasts from a conference in early 1998:

Armstrong1998-Forecast

(Source, from Martin Armstrong’s blog)

These major forecasts all came true. The only one left to go (2015.75 = September 30, 2015) is the Sovereign Debt Big Bang. What it says in that the tide will monumentally shift away from confidence in government bonds starting on September 30, 2015. Currently, confidence in government bonds is so high that people are buying them even with negative interest rates. The easiest way to understand interest rates is that they are the rental charge for lending someone money. So you rent someone $100 and you hope to get back maybe $103, the original $100 plus $3 of rent. But people are now buying government bonds even though they get back less money than what they lent to some government in the first place. They are paying governments to lend them money!

     16% Of Global Government Bonds Now Have A Negative Yield: Here Is Who’s Buying It

That was a few weeks back, at which point JP Morgan calculated that $3.6 Trillion worth of government bonds were paying negative interest rates. Some of the countries involved were Germany, Switzerland, Japan, Netherlands, Sweden, and Denmark. In Denmark, because interest rates went negative, some adjustable rate mortgages are now paying interest to the people who took out the mortgage!

     In Denmark You Are Now Paid To Take Out A Mortgage

Now you might say: Why would anyone buy a government bond with a negative interest rate?!?! When I first said we should expect negative interest rates in More shackles readied for deploymentI did get a few e-mails politely suggesting that I might want to get checked for dementia. Here’s what was said:

The policy is that savers will soon be hit with negative interest rates…So people would have to pay the bank interest on their own savings. So if the negative interest rate were -3%, if you had $100 in your account, you’d have to pay the bank $3 in interest.

This is crazy. Most people alive today think governments never default on their debt.  But that’s just plain wrong. Here is a chart showing country debt defaults going back to 1800. And this chart only shows those countries that have defaulted at least four times, the rest are not shown. Note that the list includes supposed stalwarts like Germany:

Sov20140731_default

(Chart sourcefrom The Economist.)

What Armstrong is saying–and he has been saying it since the 1990’s and has strong mathematical/historical models backing up his forecast–is that, near the end of this year, the world at large is finally going to wake up and understand the insanity of all this government borrowing. Not all at once, but relentlessly. They will see that most if not all countries are not going to pay back what they borrowed. They can’t. They don’t have the money. Greece is the first country to forthrightly admit it. One of the pompous Eurocrats threatened Greece last week, saying “If you don’t do what we say, Greece will go bankrupt.”  To which the Greek Finance Minister Yanis Varoufakis replied, “Greece is already bankrupt.”  (Straight truth! From a politician! Finally! Maybe that will become a trend!)

So what will this do to those who own all these government bonds? Who does own them anyway? For one, most of what is called capital at banks is government bonds. So there go the banks: no capital, insolvent. (Watch out for the upcoming bail-ins if you still keep money in banks.) Insurance companies and both government and private pension funds are huge holders of government bonds. So there goes insurance, and pensions. A well-placed German friend says that several European insurance companies are on the verge of bankruptcy. All of the assets of the US Social Security system, for example, are US government bonds: that’s all they own!

And somehow, the financial system has come to accept government bonds as collateral for other loans and bets. The $1 Quadrillion (that’s 1,000 Trillions) world derivatives casino market floats on a thin veneer of government bonds as “collateral” for these bets. Before the US defaulted on its debts in 1971 when Nixon said they were no longer payable in currency backed by gold, as previously promised, but now were backed by promises alone, collateral meant something real. For example, when you have a mortgage, your house is the collateral. A car is the collateral for an auto loan. But now in the financial world, someone’s promise to pay back a loan that they can never repay counts as collateral for even more loans. This is insane. Starting later in the year, a lot more people will start to understand that. That’s the nature of this Big Bang cycle. And there will be major repercussions. We talked about the demise of banks, pensions, and insurance. The derivatives collapse will take down all the brokerages and investment banks. So where will people get money?

Governments love to hide the truth about their historical defaults on their debt. Thus everyone is taught that the “cause of the Great Depression” of the 1930’s was the 1929 stock market crash. Total BS. The stock market crash wiped out stock speculators. That wasn’t a truly big deal. What took down thousands of banks were defaults on government bonds they and their customers were holding. Let’s look at that government bond default chart again. This time there is a red box around the worldwide wave of country debt defaults in the early 1930’s that wiped out thousands of banks and millions of savers:

Sov20140731_defaultBox

Get it? That’s what’s coming up again, only this time it will be worse. Way worse. There’s been far more borrowing, far more leverage, and all of it is floating on paper and electronic currencies and promises. The link to reality–gold–was removed in 1971.

World-Debts

Now some people say all this unpayable debt can be wiped off the books in a debt jubilee, like they used to do in Old Testament times. Well that’s true. It can. The problem is that anyone who put money in a bank account needs to realize that they have loaned that money to the bank. It’s a debt of the bank, they owe you money. And your deposit is backed by government debt, not by actual cash. So, if there were a debt jubilee, no one would have any money in their bank account anymore. Same for businesses, so no business would be able to write a paycheck to anyone. ATM’s would not be able to dispense any cash. Credit cards would no longer work. All of the money in the world is someone’s debt to someone else. So a debt jubilee would mean there was no money.

So now, do you want a debt jubilee? Of course not. But we are going to get one anyway. Not on purpose. By accident. Starting in a big way later this year.

Why can anyone be confident that this is true? Well first, go back and look at the rest of the predictions on Armstrong’s slide from 1998. Second, it’s already starting to happen. Greece, Argentina, Puerto Rico–the dominoes are starting to fall. Japan is a financial basket case, there is no way they can repay their debts, and they have the second largest pile of government debt on the planet. The whole world has gone wild for debt!

Which brings us to a third “cycle of interest’ for 2015. What else floats on a sea of debt? Real estate prices! This cycle was described before here:

As examples, due to his real estate cycle work for the US, he was telling clients–in the 1990’s to give them ample time to act–to be out of all US real estate investments by February, 2007; that real estate prices would then fall from 2007 into 2012, then rise into 2015 in a snapback rally that would sucker a lot of people back into real estate, and then fall again through 2033.

Well here we are in the snapback real estate rally into 2015. So many have forgotten the 9 million US foreclosures and the 7 million US households that are still “under water” on their mortgages. All the signs of a bubble are back, though now some are already starting to dissipate as real estate prices in some of the bubbliest areas roll over:

     Southern California home sale volume for January slowest since 2008: The stalemate accelerates with Orange County seeing a monthly median price drop of $28,500.

The bubble is stronger than ever in countries like Canada, Australia, and the UK. Unless people request it by sending me e-mails saying they want it, I’m not going to do a detailed post on real estate. I doubt it will change anyone’s mind, so it probably isn’t worth it. But when the biggest debt bubble the world–and perhaps the galaxy–has ever known pops, and governments are falling left and right, real estate prices will be hammered. And those falling governments will be desperately raising property taxes to try to stay afloat.

And anyone who agrees with people who say that “debt doesn’t matter,” like Dick Cheney from the right or Paul Krugman from the left, is going to get quite an education over the next few years. Actually, we all will. Which is good, in my view. Humanity badly needs to understand which actions have real value and which do not.

Currency Balloon Madness

Today’s headline from GoldCore:

     Market Chaos as Swiss Franc Surges 30% In 13 Minutes, Gold Rises Sharply

Historians will not look kindly on the financial titans and politicians of this period. They’ll have little trouble understanding the deceptions, but one wonders how they will account for the derangement. As some blame lead in the water for the demise of the Roman Empire, they’ll probably blame it on pharmaceuticals in our water supply, or electromagnetic pollution, or maybe, using the same data set cited here in Your daily dose of poison, they’ll blame it on a pesticide:

     MIT Researcher’s New Warning: At Today’s Rate, Half Of All U.S. Children Will Be Autistic By 2025

But let’s get back to a major world currency, the Swiss Franc, rising 30% in 13 minutes. As pointed out in Currency Balloons, it is best for one’s financial health if they don’t say, “The Franc rose 30% in value in 13 minutes,” but instead say, “The Franc rose 30% in price in 13 minutes.” The concept of value has–for anyone who is not thinking clearly and carefully about it–been distorted beyond all recognition in this world where currency units are tethered to nothing real and Trillions of them can be conjured up (or lost!) with a few keystrokes.

So what happened with the Swiss Franc? Lots of Europeans, foreseeing the inevitable bankruptcy of Eurozone governments, were trading their Euros for Swiss Francs, driving up the price of the Swiss Franc relative to Euros. The Swiss central bank didn’t like this because, whenever a currency rises in price these days, the corporations in the country don’t like it because their products appear more expensive when they export them. So the Swiss central bank printed and spent hundreds of billions of Swiss Francs and sold them to buy Euros to artificially peg the price of the Franc to the price of the Euro.

But they ran into a problem. The price of the Euro has been, let’s put it nicely, diminishing, losing 16% versus the US Dollar in the last several months. So all of their Euro positions keep losing money. So despite saying just last week that they would keep pegging the Franc to the Euro, that they would print unlimited amounts of Swiss Francs to keep going, today they announced that they wouldn’t, that they were throwing in the towel. (By the way, with all currency resets, this has always been the case–they lie about their intentions right up to the last minute. You will never get an advance warning from the authorities about anything like this. You must make decisions about such things in advance on your own; or live with their decisions, which benefit them, not you.)

Such is the world of paper/electronic debt currencies these days, intimations of their inevitable demise. Very few people think through what is happening here. Why do people value money? Because they believe that they, or their descendants, can use it to acquire something real. But what does it mean when those in power (governments and banks) can conjure as much of this “money” as they see fit, Trillions at a time? All who end up with that currency believe that they can use it to acquire what is real.

But emergencies show the reality. When an earthquake or a storm hits, within hours or even minutes, store shelves are empty; what is real is gone, there’s none to be had. Then people realize that what is real is what has value: real actions, real goods, real knowledge; and that the concepts of price and currency-denominated wealth are increasingly unreliable in our money-mad world.

The deflationary wave intensifies

Little darling, I feel that ice is slowly melting
Little darling, it seems like years since it’s been clear
Here comes the sun, here comes the sun
And I say it’s all right
     –George Harrison, The Beatles, Here Comes the Sun

Most people have probably heard by now that world crude oil prices are in a dramatic plunge. In the futures market, the price is down 47% since June, from $107.68 per barrel to $57.49. The scuttlebut is that prices in the cash market are even lower as desperate countries and companies get what prices they can.

And it isn’t just crude oil prices that are crashing. Think stuff that China used for its “economic miracle,” like the price of iron ore (used in making steel), which has been cut in half since 2013.

But this current wave of deflation has taken on a new intensity. ZeroHedge summarized the most recent week quite well in Crude Carnage Contagion: Biggest Stock Bloodbath In 3 Years, Credit Crashes [my explanatory remarks in brackets]:

WTI’s [oil] 2nd worst week in over 3 years (down 10 of last 11 weeks)
Dow’s [stocks] worst worst week in 3 years
Financials [stocks] worst week in 2 months
Materials [stocks] worst week since Sept 2011
VIX’s Biggest week since Sept 2011 [VIX is a fear index, it rises when people are afraid]
Gold’s best week in 6 months [Gold is real money, solidified sunlight 🙂 ]
Silver’s last 2 weeks are best in 6 months [Silver is also real money!]
HY Credit’s worst 2 weeks since May 2012 [HY = High Yield (aka junk) bonds]
IG Credit’s worst week in 2 months [IG= Investment Grade bonds]
10Y Yield’s best week since June 2012 [10Y = US 10 year note]
US Oil Rig Count worst week in 2 years [Rigs are for drilling/fracking]
The USDollar’s worst week since July 2013
USDJPY’s worst week since June 2013 (USDJPY = US$ priced in Japanese Yen]
Portugal Bonds worst week since July 2011
Greek stocks worst week since 1987

So, why the intensifying deflation? Because, as has been explained here on several occasions, the world is groaning under an increasingly fierce debt load. The central banks have printed up $11 trillion in new money in the last 5 years to try to fend off deflation. Why? Because when debt loads get too large, some people and companies can’t pay back their loans, so they default, and the money they owe disappears. If they are companies, their employees lose their jobs. So their households spend less. Putting pressure on more businesses because of lost sales. Leading to more layoffs and more defaults. It’s a vicious cycle, an economy in reverse, and economy that is deflating. Remember, because all of the money in the system is debt, the economy must always grow to pay the interest on that debt. If the economy stops growing, the interest can’t be paid, defaults arise, and the deflationary cycle ensues. People tend to associate deflation with falling prices, but the falling prices are the result of deflation, not its cause.

So the central banks tried to ease the debt load by lowering interest rates to zero or lower. But one of the results was that all that cheap money financed all kinds of projects that would never have been created without this almost-free money because they weren’t very good ideas to begin with, such as the stories we’ve all heard about China having 3,000 companies all basically in the same business–how can they all make money? They can’t. Such overcapacity makes life tough for all of the companies, which all have to lower their prices, which start laying off employees, which can’t pay back their debts, etc. etc. as explained above. So this lowering of rates might seem to work for a short time, but when it’s carried on for years, it’s deflationary!

The second thing the central banks did was create this new $11 trillion to buy more debt! So they are trying to fight a problem of too much debt by creating more debt! Historians will marvel at the lack of logic by an entire academic profession. The reason for this pervasive illogic is that academic economists have for years purged from their ranks anyone who brought up the topic of gold as real money, ridiculing and marginalizing them. So they banished logic from their own ranks.

But let’s get back to the big deal of the last several weeks, the crash in oil prices. Cool, you might say, I’ll be able to pay less when I fill up my car with gas. True. But it might be wise to consider why oil prices are crashing:

     World Oil Demand Outlook Cut Again; Sub-$60 Price Seen Holding

Any hope that global demand would provide a floor for oil’s freefall was dashed as the leading energy forecaster cut its outlook for the fourth time in five months and crude extended its tumble.

Frankly, I don’t think I’ve ever heard of one of these international organizations like the International Energy Agency cutting their forecast four times in five months. So what’s happening is collapsing demand for oil.

Several recent financial statistics that measure changes in the economy are reporting levels of decline “last seen in 2009.” Recall that in 2009, a lot of people thought the world economy was not just staring into the abyss, but was about to fall in.

     PPI Slides, Misses Estimates, After Finished Goods Prices Tumble Most Since July 2009

     Short-Term Inflation Expectations Have Crashed To 5 Year Lows (In The US)

Now how does this relate to yet another “miracle” discovered by the pom-pom and short-skirt-bedecked economic and political cheerleaders, the “US shale miracle”? This is the miracle by which the US will allegedly frack its way to energy independence.

For the last three years, the US shale drillers have been borrowing $1.50 for every $1.00 in oil and gas that they pull from the ground. And that was with oil prices above $100 per barrel. The industry as a whole expected to get to breakeven–instead of losing money hand over fist, which is what they have been doing with oil just above $100–with oil above $120 per barrel. But now the price is under $60, which is less than half of the price needed for them to break even. (Chris Martenson’s group has done a great, clear video on this if you want the details.)

All told since early 2010, these energy producers have borrowed at least $550 billion. Remember that the size of the sub-prime mortgage problem was around $1.1 trillion, and the collapse of that sub-prime mortgage market nearly took down the whole system. These oil frackers have borrowed over a half trillion just since 2010 and now it looks like a lot of that borrowing will not get repaid, that is, they will default.

Now that $550 billion was a lot of spending for purchasing equipment and creating jobs to use that gear. It turns out that 1/3 of business capital spending in the US in recent years has been for energy exploration and production. And some estimate that 90% of new jobs created in the US in the last five years are related to energy production.

But now suddenly, no one wants to lend the frackers cheap money to create more overcapacity in the shale patch (because the lenders know there is a good chance they will never get paid back.) So now there will be a huge drop in equipment purchases and lots of job layoffs, leading to, you guessed it, more deflation!

If you don’t think this will happen, check this headline:

     Exclusive: New U.S. oil and gas well November permits tumble nearly 40 percent

Plunging oil prices sparked a drop of almost 40 percent in new well permits issued across the United States in November, in a sudden pause in the growth of the U.S. shale oil and gas boom that started around 2007.

Data provided exclusively to Reuters on Tuesday by industry data firm Drilling Info Inc showed 4,520 new well permits were approved last month, down from 7,227 in October.

So, the “US shale miracle” will be proven to be another fable, along with the US energy independence it was supposed to engender. It was fueled by a supply of ultra-cheap money that has now dried up. One aspect of fracked wells is that they lose 70% of their production capacity in two years, and 80% to 90% in three years. So to keep more oil flowing, these fracking companies have had to borrow more and more money to drill more and more wells. As described above, it wasn’t a very good business model and would not have existed were it not for the cheap money being provided to Wall St by the central banks.

So while you may be able to buy cheaper gas for your car, the US economy is likley to take a serious hit relating to jobs and business spending from the oil collapse.

And the US is supposed to be the bright spot in the world economy. Japan is in recession yet again. The Eurozone perennially flirts with recession, and is being dragged down by the US-led sanctions against Russia, which itself has fallen back into recession. China claims to still be growing, but the hard evidence of the falling prices mentioned above, falling real estate prices, and stalling growth in the use of electricity in China argues otherwise. From Deutsche Bank:

…the global financial system is still extremely fragile and not sustainable…2015 will be the 9th year of highly unconventional central bank policy and…we’re no nearer to finding a sustainable solution…
–Deutsche Bank

But not to worry: Uber, the emerging ride sharing service, is said to be valued at $40 billion. (Those must be some rides!)  And Jessica Alba’s new diaper-cleaning service company is apparently valued at $1 billion!

     No Bubble At All: Jessica Alba’s Diaper-Delivery Startup Is Valued At $1 Billion, Prepares For IPO

So I guess everyone will get rich (again, like in the year 2000) from internet startups?

Historically, deflation is rather unkind to stock prices. World stock markets are currently being floated by the free money from the central banks, but how long can that last? And this deflationary trend has supports beyond the overload of debt, such as the end of several cycles, including the the 26,000 year precession of the equinoxes, which tends to really clear the decks on this planet.

Now, will this deflation crash the price of gold? Not at all likely. Historically, gold increases in purchasing power during both inflationary and deflationary periods; these are periods during which people start to think that governments are losing control, so people opt for real money over government-issued scrip. Gold loses purchasing power when people think everything is, to put it technically, hunky-dory, and that their government is doing a great job. Most people don’t see it that way during bouts of deflation. Intelligent observers are still stacking real coins:

     Sales Of Silver American Eagles Rise To Record High For Second Consecutive Year

and likely hanging onto their hats to get ready for a very wild ride. Because sometimes, in reaction to deflation, governments really ramp up the money printing presses, and people lose all confidence in government money, which is known as hyper-inflation.

Whatever it is that’s coming, it’s good to know that our bank regulators will be well protected:

     Why Is The US Treasury Quietly Ordering “Surival Kits” For US Bankers?

The Department of Treasury is spending $200,000 on survival kits for all of its employees who oversee the federal banking system, according to a new solicitation. As FreeBeacon reports, survival kits will be delivered to every major bank in the United States and includes a solar blanket, food bar, water-purification tablets, and dust mask (among other things). The question, obviously, is just what do they know that the rest of us don’t?

Saturday morning cartoons

(But) look at these sexagenarian dogs! Their dog-teeth get sharper at every moment. The hairs drop from the fur of an old dog; (but) see these old (human) dogs clad in satin! See how their passionate desire and greed for women and gold, like the progeny of dogs, is increasing continually! Such a life as this, which is Hell’s stock-in-trade, is a shambles for the butchers (executioners) of (the Divine) Wrath; (Yet) when people say to him, “May your life be long!” he is delighted and opens his mouth in laughter.
He thinks a curse like this is a benediction: he never uncloses his (inward) eye or raises his head once (from the slumber of heedlessness). If he had seen (even as much as) a hair’s tip of the future state, he would have said to him (who wished him long life), “May thy life be like this!”
–Rumi, The Mathnawi, Book VI, circa 1270 A.D.

The cartoons at the link below should be required viewing (and understanding!) in school, especially any history or economics class. These cartoons are all from 100 years ago or more. They clearly describe the cementing into law–pending at the time– of the rigged banking, currency, and stock markets that financially enslave almost everyone on the planet to the endless hunger for humongo-profits of the few. They show that at least a some people understood the game then. Sadly, few understand the game even now. How do we get this understanding to everyone so that we can end this vicious travesty? How do we bring in the logic and compassion that clearly show the primitive and self-defeating nature of systematically-enshrined greed? Continue reading

Currency Balloons

Given the state of most media reporting, it’s sometimes tough to know whether to laugh or cry. Here’s a story from last week about a surge in gold bullion purchasing in Germany in August and September:

     German Bullion Dealers Report Major Increase in Sales

Christian Brenner, Chief Executive of Philoro Edelmetalle GmbH: “Already in August we noticed an increase on orders compared to the previous months, but September… September beats it all. From a German viewpoint it’s the strongest month of 2014.”. At their head office in Austria they also register an “overproportional high level” of revenue.

At the end of the article, there is a stumbling attempt to explain the recent surge with no mention of its real reason. Here’s a chart of the Euro showing it losing over 7% of its “value” in August and September, in the context of a 10% loss since May:
Euro2014107

It would seem clear that at least some people in Germany and Austria noticed that someone was letting the air out of their Euros and decided to convert to real money.

It was the same for the Japanese in August and September, but much worse overall since the Japanese government has been hellbent on devaluing the Yen for two years. Here’s a chart showing the loss in “value” of the yen of more than 31% in the last three years:

Yen20141007Since these losses in “value” are measured against the biggest balloon of them all, the US Dollar, this is the source of what you may have been hearing lately about the “strong Dollar”! In other words, the “strong Dollar” is simply the result of other major governments succeeding in intentionally letting air out of the balloons known as their currencies.

They are doing this in an attempt to create inflation! Unlike regular people, who like it when prices drop and they can get good deals, governments, being the largest debtors on the planet, want inflation so that their debts can be repaid in cheaper and cheaper currency as time passes. In case you haven’t noticed, that’s a form of grand theft: I’ll borrow money from you today, and pay it back with cheaper money later.

Well so what, you might say. If they are all doing that, what’s the big deal? Continue reading

A major change, Part 1

A significant change has taken place. A pressure seems to have been lifted from members of the so-called Elites. This can be seen by two effects:

1. Some of these System Controllers are taking a look around and are none too pleased with what they see.

2.  Some of them realize they can now speak more freely.

Here are some examples. The first is a set of quotes from the Chief Investment Officer of Allianz, by some metrics Europe’s largest insurer, and the third largest insurance company in the world:

The fundamental problems are not solved and everybody knows it.

Let’s hear that again:

The fundamental problems are not solved and everybody knows it.

Wow, for the last five years, one had to peruse surly blogs to hear that truth, but this is from Maximilian Zimmerer, the guy in charge of the assets for one of the 20 largest corporations in the world. He also stated that the “euro crisis is not over.” With that latter quote, he just told us that all those Euro-pols running around saying the “euro crisis is over” and “Europe has been fixed” are very mistaken and/or very full of it.

Next, someone let the Wall St Journal know that the US Federal Reserve has been railing about extreme problems at Germany’s top bank, Deutsche Bank:

In a letter to Deutsche Bank executives last December, a senior official with the New York Fed wrote that financial reports produced by some of the bank’s U.S. arms “are of low quality, inaccurate and unreliable.”

It said examiners found “material errors and poor data integrity”…The shortcomings amount to a “systemic breakdown” and “expose the firm to significant operational risk…”

So what’s the US central bank doing castigating Germany’s largest commercial bank? DB has large US operations; we showed here that half of the Fed’s money printing went to European banks, so DB probably has a lot of that cash, that is, from the Fed’s point of view, they had to bail out DB before, they don’t want to have to do it again; and, drumroll please, DB has the largest exposure to derivatives of any bank in the world. Again, what are derivatives? They are highly leveraged bets on every imaginable financial price movement. Here’s what ZeroHedge says about DB and derivatives:

Recall that as we have shown for two years in a row, Deutsche has a total derivative exposure that amounts to €55 trillion or just about $75 trillion. That’s a trillion with a T, and is about 100 times greater than the €522 billion in deposits the bank has. It is also 5x greater than the GDP of Europe and more or less the same as the GDP of… the world.

And here is that text in chart format:

So that’s Germany’s total economy in green on the left; Europe’s economy in blue in the center; and Deutsche Bank’s derivative bets in red on the right. So when it becomes clear that DB has a serious problem, it will be way too big for Germany to handle; probably way to big for Europe to handle; and possibly way too big for anyone to handle, that is, it could be game over, system down, everyone start from scratch. What the US Fed is saying is that DB’s recordkeeping and reporting is so bad that it results in “significant operational risk.” We likely won’t know till after DB goes down the tubes whether this was error or intentional obfuscation on their part. My guess is it’s probably a lot of both: their business is so huge, they have little understanding of many of its parts, some of which likely have twenty-something rogue traders putting on huge derivative bets; and they have plenty to hide.

Next, the Bank for International Settlements (BIS) has overtly questioned the sanity of just about all central banks and just about everyone participating in the financial markets. So why should anyone care? Perhaps you’ve been blessed during this lifetime and have never heard of the BIS. It is the organization that was described as follows on Bloomberg:

It was especially useful to the Nazis.

Though headed by an American during World War II, the BIS adhered to a priestly neutrality…in order to continue dealing with all sides in the conflict. Unfortunately, this put the institution squarely in the position of abetting Nazi terror.

The BIS accepted plundered gold and made it possible for Germany to acquire desperately needed war materiel. It even permitted Germany, once it had invaded Czechoslovakia, to confiscate that nation’s gold reserves.

I can just hear you saying: “Oh that BIS.” Anyway, from such disgusting beginnings, the BIS has continued its traditions and thereby has risen to be the central bank above all other central banks, that is, if you are the head of a major central bank in the world, you get a seat at the table at the BIS. Here it is, what some call the Tower of Basel, such a friendly-looking nuclear plant cooling tower place:

I’m told that if you’ve got a war to finance or a lot of drug money to launder, the BIS is your one-stop-shopping place. But I digress. In this article:

     BIS Slams “Market Euphoria”, Finds “Puzzling Disconnect” Between Economy And Market

you can find the Financial Times summary of the latest BIS Annual Report:

The Bank for International Settlements has warned that “euphoric” financial markets have become detached from the reality of a lingering post-crisis malaise, as it called for governments to ditch policies that risk stoking unsustainable asset booms.

While the global economy is struggling to escape the shadow of the crisis of 2007-09, capital markets are “extraordinarily buoyant”, the Basel-based bank said, in part because of the ultra-low-rate monetary policy being pursued around the world…calling for policy makers to halt the steady rise in debt burdens around the world and embark on reforms to boost productivity.

In its annual report, the BIS also warned of the risks brewing in emerging markets, setting out early warning indicators of possible banking crises in a number of jurisdictions, including most notably China.

So there you have it, the ultimate insider organization saying what the surly blogs have been saying for years: stock and bond markets are wildly detached from economic reality, central banks are keeping interest rates too low and printing too much money, expect banks to fail all over the world, especially in places like China, etc.

Next, speaking of bank failures, the EU, US, and UK (I think an appropriate pronounceable acronym for this particular axis of evil is EUUSUK) have decided to “show us their feelings” about bank bailouts and have come clean about their attempt to get all countries to go along with their scheme to replace bank bailouts with bail-ins, through which, if you have money in a bank that fails, they are going to steal a bunch of your money to save the bank, like they did in the test case, Cyprus:

     Bank Of England Leads Push For Deposit Confiscation – Japan, China, Russia Against Bail-Ins

They are pushing all major countries to go along with this plan for an obvious reason: Let’s say you are a global corporation or a gazillionaire and can place your money in whatever countries you choose. Why would you keep your money in countries where you could lose a lot of money in a bail-in? You wouldn’t be such a fool, of course, you’d move that money to safer countries, or into safer forms such as gold. However, the EUUSUK axis is being brutally honest here about their intent. Perhaps people living within the axis will be helped by the reluctance of the Asians and Russians to go along with this draconian plan to continue saving reckless banks by theft from regular people; but I doubt it.

Let’s call it a day and save more of this new-found realism and truth-telling for Part 2.