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Hell To Pay

The final condition for a market crash is falling into place
Friday, September 23, 2016, 4:23 PM

Sometimes I wonder if I'm ever going to run out of new things to say about the economy. Nothing interesting has happened in a long time.

Our liquidity-drunk “markets” remain over-priced due to the chronic intervention of the global central banking cartel, which has demonstrated over and over again that it won't tolerate even the slightest drop in asset prices. 

Those familiar with my writing know I put the word “markets” in quotes because we no longer have a financial system where legitimate price discovery is a regular -- or even recognizable -- feature.

It's destined to fail. What more can be said about such a flawed system?

Well, a lot as it turns out. 

And failure to pay attention at this stage of economic and ecological history will prove to be exceptionally painful.

The Beginning of the End

It’s been a long 7 years for those of us who believe fundamentals matter.  For quite some time they have not.

So we reality-based fundamentalists have largely been reduced to pointing at the parade of policy failures and ham-fisted market manipulations and saying, essentially, That's just dumb.

But 'dumb' mistakes have become 'stupid', and 'stupid' became 'idiotic', and now 'idiotic' mistakes are piling up, accumulating into a mountain of stored potential energy that will someday topple destructively across the global markets.  We've all known, deep down, that money printing is not the same as capital formation, and that prosperity never truly results from redistributing wealth from one group to another. And yet, far too many have been willing to play along and place their trust in the central banks.

Well, we've finally reached the beginning of the end. 

The global experiment with our current flawed economic and monetary models are drawing to a close. The fetish worship of central banks, bankers, and banking is over.

Belief in central bank omnipotence is being chipped away at daily, as it's becoming increasingly clear that the easing policies of the past seven years have only served to kick a can down the road -- a can that can longer be kicked any further.

Once the illusion of central bank control is fully lost, the financial markets will implode in a deflationary wave that has been held at bay for far too long. Asset prices will collapse, companies will fail, and millions of jobs will be lost. People will re-discover that partying too hard for too long earns a massive hangover.

In short: There will be hell to pay.

I’m still not able to predict whether we’re a week away from this or five years. Such is the uncertain fate of living within a nested set of complex systems run by fallible humans. Complexity complicates prediction.

Though while we cannot predict exactly what will happen, to what degree it will manifest, or precisely when, we can track the ‘fingers of instability’ in the system and note that these are growing longer, and steeper.  For instance, total worldwide debt is more than $60 trillion larger than it was before the 2008 financial crisis. So we can make conclusions like “larger” and “sooner” about the probability of the coming correction.

The final remaining bulwark that needs to give way before we a full-blown correction occurs is central bank credibility.  The public perception of an "all-knowing, all-powerful" entity needs to be replaced by a more realistic view of what central banks actually have done, and realistically ever can do, which is a whole heck of a lot less than most currently ascribe to them.

Drop Dead, Fed

It helps to start by looking at the actual track record of the central banks over the past 20 years.

By the numbers, central banks have been little more than serial bubble blowers, which is not actually a very impressive trick at all.  Dump a bunch of cheap, thin-air money into the markets and that’s pretty much what you get every time: a bubble.  Or bubbles, plural (which is what we're living with now across stocks, bonds, real estate and nearly every other financial asset class)

What the central banks claimed they were after – rapid GDP growth, a set rate of inflation and rising incomes – has not materialized in the way they hoped. After more than tripling their collective balance sheets since 2008 (an increase of nearly $12 trillion) to stimulate the world economy, global GDP growth is still stumbling along at an uninspiring 2.5% -- and showing signs of slowing.

As I said: not an impressive track record. But lots of people still treat the Federal Reserve, and ECB, BoJ, BoE, etc., as if they're doing something terribly sophisticated, important, and worthy of our admiration.

But what have they really done besides flooding the world with cheap and abundant money?

Well, for starters, they’ve created the largest wealth and income gaps on record, over-inflating financial assets and creating conditions ripe for aggressive financial engineering by corporations, both of which reward the top 1% preferentially.

In this first chart we can see the effect of three serial bubbles blown by the Fed on household income broken out by income level.

(Source

The top 1% has gotten all the gains in each of these bubbles.  The only defense the Fed has is to claim that “Well, things would have been even worse for the lower 99% if we had done anything different”. But this rings as hollowly as any prove-a-negative defense.

We cannot know how things would have been different for the bottom 99% if the Fed had done things differently. But we can know, with 100% certainty, that if the Fed had not dumped money into the financial system and had not targeted rising asset prices that the incomes of the top 1% would not have skyrocketed like this.

It’s really simple: when you financialize an economy, those with the most direct access to the money in that system -- which is by definition a tiny elite -- are going to benefit the most. 

This next chart shows the impact of the Fed’s efforts on household wealth. The bubbles are immediately obvious and I’ve labeled them as ‘unfair’ in varying proportions because nearly all of this ‘wealth’ is financial wealth held in wildly disproportionate amounts with super-heavy concentration in the very upper-most wealthy households:

(Source

And it’s not the 1% we’re talking about here, but the 0.1%. The more financialized the system, the more highly concentrated the wealth becomes.

(Source – NYT) 

This is not some mysterious process. Nor is it new to our era. I wrote about it in the Crash Course back in 2008 saying:

Given this tremendous [wealth] disparity, I’m reminded that Plutarch once cautioned that an imbalance between rich and poor is the oldest and most fatal ailment of all republics

More immediately, this helps us understand why the great credit crisis of 2008 worse than expected.  Just as was true of the wealth gap in the late 1920s before the onset of the great depression, the severity of a crisis does not depend on average wealth, but the distribution of the wealth. 

If a large swath of the population lacks the means to weather the storm, then the storm will be longer, and harsher than otherwise would be the case.

So what does it mean that 80% of our population possesses a meager 11% of the total wealth?  For one thing it means that the recent efforts by the Fed to provide massive amounts of liquidity support to the biggest and wealthiest banks at the inflationary expense of the lower classes were not only misguided, but they were cruel and unusual. 

This leads to an easy prediction to make: The wealth gap in the US will hamper our recovery and deepen the downturn.

(Source – Crash Course Chapter 14 Assets and Liabilities

What is mysterious, are the repeated efforts by the central banks to act dumb and pretend as if their reflation efforts have not created the massive, glaring wealth disparities seen so clearly on every chart of income and wealth available to us.

Janet Yellen has played dumb in the past and the most recent poor job of acting dumb has been brought to us by the German Bundesbank:

WSJ: Germany’s Bundesbank Backs ECB on Concerns Over Inequality

Sept 19, 2016

FRANKFURT—The European Central Bank’s massive bond-purchase program and other easy-money policies probably haven’t worsened inequality in the eurozone, Germany’s Bundesbank said on Monday, hitting back at concerns that central banks are taking on an increasingly political role by redistributing wealth.

In a report, the Bundesbank argued that while recent ECB policies have helped bolster stock and property prices, they have also supported economic growth and employment, thereby helping poorer people.

“It seems very doubtful that [the ECB’s] special policy measures of recent years have increased inequality in an overall context,” the Bundesbank wrote.

(Source)

I've never wanted to punch a sentence before, but I do now.  I can't believe how tone-deaf and utterly disconnected from a very obvious and inarguable reality that last statement by the Bundesbank is. I think I was pushed over the edge by the pedantic and meaningless phrase “in an overall context.”  I’ll get over it.

But again, we're supposed to believe that the massive wealth gains of the upper classes are somehow an equal exchange for poor people not losing their jobs?  The contest is not even close. 

I wonder if the Bundesbank's “researchers’ have access to the Internet, like we do:

Wall Street’s 2013 Bonuses Were More Than All Workers Earned Making the Federal Minimum

Mar 12, 2013

New figures show that the bonus bonanza of 2013 didn’t disappoint. According to the New York State Comptroller’s office, Wall Street firms handed out $26.7 billion in bonuses to their 165,200 employees last year, up 15 percent over the previous year. That’s their third-largest haul on record.

The $26.7 billion Wall Streeters pocketed in bonuses would cover the cost of more than doubling the paychecks for all of the 1,085,000 Americans who work full-time at the current federal minimum wage of $7.25 per hour.

(source)

You read that right: just Wall Street’s bonuses alone in 2013 were 2x greater than the entire take home pay (pre-tax of course) of every single person in the US working for minimum wage.

So it’s really rather grotesque and unacceptable for the Bundesbank and Yellen et al to attempt to claim that central bank policies have been equally beneficial to all segments of society when taken in an overall context.  No, they most certainly have not.  They have been massively and disproportionately unfair and the recent populist uprisings across the globe are proving as much.

Central banks, of course, have access to the same wealth charts as everybody else.  There’s no room for debate on the matter.  Financial asset price inflation has preferentially benefitted the very tippy-top of the wealth pyramid and has done so at the expense of the bottom tiers.

Why it has taken this long for the anger to begin appearing  on the political and social landscape is beyond me. But it is finally here, and the central banks are feeling the heat.

As the prior article on the Bundesbank continues:

Monday’s report marks the Bundesbank’s latest effort to defend the ECB and its independence amid concerns voiced by politicians that years of ultralow interest rates are hurting savers and pensioners.

The damage wrought by ZIRP/NIRP extends beyond savers and pensioners to all segments of society in the bottom 99%. This large cohort is increasingly angry, disconnected, and unwilling to simply play along any more.

The fact that the central banks are now “defending” their policy framework from any criticism that their policies have been unfair tells us that we are now at Act Two of this drama.  Act One involved ignoring the problem and pretending it didn’t exist. Act Two is to defend the status quo.  We'll know we're at Act Three when they start acknowledging that the problems are real, and that change is needed.

The current system will do all in its power to delay the arrive of Act Three because it will come with a proper and thorough shredding of central bank credibility, along with a painful downward correction in sky-high asset prices. 

The problem with Act Two stage 2, for the central banks, is that their ridiculously out-of-touch defensive statements accelerate the erosion of their credibility, hence hastening the arrival of Act Three

Which is why we have a "Fed cred" problem. Our central banking high priests and priestesses have been doing their rain dance for an uncomfortably long time, and awkwardly, there's still no rain. Regular people and the cheerleaders in the mainstream media are beginning to take notice. Look for this unease to grow; it won't be long before you attend a cocktail party and someone pulls you aside to complain about the Federal Reserve’s policies.

The Gates Of Hell

All this matters because once faith in central banks is lost, their power to delay the deflationary day of reckoning goes with it. The stupendous amount of debt they have helped heap onto the financial system since 2008 will start going into default and the only question that will matter is: Who is going to eat the losses?

The daisy chain of bubbles in stocks, real estate and the mother of them all -- the bond market -- will pop, adding additional losses to the growing bloodbath.

All this will weigh on the already-sluggish growth in the economy, sending us into deep capital-R Recession, or worse.

In Part 2: Prepare For The Global Deflationary Deluge we track where the carnage is most likely to occur and which risks are most important to protect yourself against. A deflationary downdraft is an extremely scary time in the world, nothing appears safe. It's very important to have come up with a plan to safeguard your capital and taken prudent action beforehand. 

Otherwise there will be hell to pay.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

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36 Comments

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 309
Eating the Losses:

This months jackpot jubilee will be coming to you courtesy of Wells Fargo.How could you be possibly eating the losses?Here is how.Wells was considered to be one of the most valuable banks by market cap.The stock is held by names like Vanguard,Fidelity and  every other large fund in the country.If you have a 401(k) you are indirectly a shareholder.Mom and Pop own the stock off the advice of financial advisors.Warren Buffet owns it-BUY BUY BUY!Every hour,by the hour they are being sued up the yin-yang.Tonights latest suit was brought by former employees forced and fired for not peddling there garbage.Does anyone not believe Calpers will take this lying down?Teachers,firefighters,cops,union workers,trust me you are screwed.The implications are mind boggling.This is no different from sub-prime,boiled down.It was fraud and identity theft.Just on a smaller scale.They have been running this 5 years.Think your money is safe?The lowest level employees were able to perpetrate theft on 2 million innocents!!!Got cash? 

Time2help's picture
Time2help
Status: Diamond Member (Online)
Joined: Jun 9 2011
Posts: 2728
Nice

Fellow colleague peeking over my shoulder this afternoon: "What are you reading about there?"

Me: "Oh, you know, just how we're about to enter "The Gates of Hell"."

Colleague: "Oh, cool. Yeah, we're fucked. Have a good weekend man!"

Me: "You too bud."

*Sigh*

climber99's picture
climber99
Status: Silver Member (Offline)
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Posts: 170
Fundamentally what this

Fundamentally what this credit expansion has done is to bring future GDP forward in time.   As Net extracted fossil fuel energy peaks and begins to fall so will GDP.  Ordinarily you would expect this to follow a Gaussian curve (a symmetrical bell shaped curve).  However because we have brought future GDP forward in time, I would expect a Seneca curve. A Seneca curve resembles a sea wave; the crest of the wave is flattened and slightly higher, and the trailing edge is far more precipitous than the corresponding Gaussian curve would have been.

Why have we done this?  Because the Cornucopeans can't see any danger. They will continue to bring future GDP forward in time by credit expansion until the inevitable happens and we fall over the cliff - the Seneca cliff.  You see,  Cornucopeans from ALL parts of the political spectrum believe that GDP growth and population growth has no limit (or will level off at worst) and that fossil fuel extraction is irrelevant to the point that our industrial civilization can continue for ever, even when all our fossil fuels have been burnt (which by my reckoning will be by the end of this Century).

Personally I have welcomed Central bank intervention.  It has extended the party for 8 years for me while I've been in good health and been able to enjoy it. Another 5 years please by which time I'll be 60.

robie robinson's picture
robie robinson
Status: Diamond Member (Offline)
Joined: Aug 25 2009
Posts: 1135
Pushing electrons

once a means of learning o.chem., now a means of creating money and as long as they have the means and employ them, I do not see how the monetary metric can go down, the value of monetized assets will certainly but the electron ascribed them can increase till the universe runs out.stream of consciousness writing sorry have not milked my cow and she begins to low.

 

Eannao's picture
Eannao
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Posts: 128
Top 0.1% Wealth Share

Chris/Adam,

I was interested to see in the chart of the "Top 0.1% Wealth Share" that the wealth inequality in the US was as high in 1913 as it was in 2013. I have two questions for you on this:

  1. Obviously the Fed wasn't the cause of the inequality in 1913, so what was the cause?
  2. Are we ascribing too much of the blame for the inequality today on the central banks?

Thanks for the piece, E.

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 650
Assistance Requested

I've bought quite a few stocks in both senior and junior metals miners, even some speculative ones,

at decent lower prices.  

HOWEVER, am I better off to sell all these gold/silver stocks NOW and wait for the collapse/crash to rebuy them?  Or, better to HOLD?  Any tips or suggestions.  Thanks.  I need all the help I can get in light of all this info.  Ken

Oliveoilguy's picture
Oliveoilguy
Status: Platinum Member (Offline)
Joined: Jun 29 2012
Posts: 578
"Party time?"
climber99 wrote:

Fundamentally what this credit expansion has done is to bring future GDP forward in time.   As Net extracted fossil fuel energy peaks and begins to fall so will GDP.  Ordinarily you would expect this to follow a Gaussian curve (a symmetrical bell shaped curve).  However because we have brought future GDP forward in time, I would expect a Seneca curve. A Seneca curve resembles a sea wave; the crest of the wave is flattened and slightly higher, and the trailing edge is far more precipitous than the corresponding Gaussian curve would have been.

Why have we done this?  Because the Cornucopeans can't see any danger. They will continue to bring future GDP forward in time by credit expansion until the inevitable happens and we fall over the cliff - the Seneca cliff.  You see,  Cornucopeans from ALL parts of the political spectrum believe that GDP growth and population growth has no limit (or will level off at worst) and that fossil fuel extraction is irrelevant to the point that our industrial civilization can continue for ever, even when all our fossil fuels have been burnt (which by my reckoning will be by the end of this Century).

Personally I have welcomed Central bank intervention.  It has extended the party for 8 years for me while I've been in good health and been able to enjoy it. Another 5 years please by which time I'll be 60.

I especially agree with the "Party extension" concept. For those of us who have kept busy like worker ants we have a stronger personal base than before and are more ready than we would have been 8 years ago.

However, the longer this extends .........the harder the crash.......The base for the masses is eroding.

treebeard's picture
treebeard
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Posts: 581
Fariness

I've never wanted to punch a sentence before, but I do now.  I can't believe how tone-deaf and utterly disconnected from a very obvious and inarguable reality that last statement by the Bundesbank is. I think I was pushed over the edge by the pedantic and meaningless phrase “in an overall context.”  I’ll get over it.

I would argue that they are not tone-deaf at all.  Central banks are not working for the general welfare of the of the population of the country in which they are located.  They are private institutions working for their private constituents, who are all doing very well.  What they say publicly, is what they need to say and has very little to do with the reality behind their actions.  Once we admit to that, then we can start to have an interesting and more nuanced discussion about the nature of "evil".  Our current conception of "evil" is currently so cartonish and childish that I am afraid that a nuanced discussion is simply not to be had.

This is the one really big problems that I have with arguments with about "market fundamentals".   The problem is that crime does pay and very well and always has.  When those in power do it, they just call it something else. Injustice can continue indefinitely.  All the benefits that we often take for granted in our current day were fought for, blood was spilled, none of it was given to us by "reality", "markets", or the benevolent power that be, whoever they happened to be at the time.

In an abstract and philosophical sense we can say that if the central banks continue down this path people will eventually head out into the streets, but that is not the markets responding, that is something else entirely.

So what are we really talking about when we talk about "markets" responding.  Obviously its not 80 to 90% of the population who are going to be responding, they don't have enough capital in influence "markets".  They can do some things, boycott a particular product, protest a particular company.  Certainly that lack of real wage growth among most people over the last 50 to 60 years has made the possibility of a "recovery" impossible.  But will that tip the markets over?  What has been happening is people have working longer hours, not retiring and doing without or with less. Will the "markets" stop this trajectory?

So who are the "markets", not in the abstract, but really.  I am a wage earner.  I go to work every day, I am salaried, not hourly, but still, if don't produce something of value, keep my clients happy, I would get fired. I own my home, a very small one. Looks like I am on track to retire to retire at a reasonable age, barely.  I consider myself middle class.  I don't manage assets, don't have much in the way of assets to be managed.  Am I part of the "market" forces.  Am I, or a collection of people like me going to tip over Japanese bond prices?  I don't think so.  But what scares the hell out of me is when I look at these wealth distribution charts, it puts me somewhere north of the top 5%. WTF!?

So who are the "markets" represented by really, 1/10 of 1% of the population, 1/100, 1/1,000, 1/10,000, 1/100,000 of 1% of the population?  Yet when we we say "markets", it so often invokes the idea that it represents the collective wisdom of all humanity, the truth of the universe somehow. To me, this just an unexamined religious belief.  When does the market crap out for JGBs, when the BoJ own 40%, %50, 60% of them.  How hard would be for the BoJ or other central banks to funnel money through member banks or their "selected" traders to continue to create a "market". How many people would need to be involved? 10, 15, 20?  Isn't that where we are already at with so many markets?

Central banks don't need credibility, they already have lost that.  All they need is power, which they have in spades. A magic printing press, regulatory capture, a bought out 4th estate, and the backing of a military industrial complex.  If things go wrong, well then it's the evil Putin or Chinese doing it.  More reasons to consolidate power and remove freedoms.  This will end badly, but I am not counting on "markets". Markets have long since lost moral or moorings in reality and are simply sucking up to money and power to save themselves.

The markets are not representative of a broad swath of humanity, but a small select club of people that have no interest in the transformative movement sweeping the planet.  Change will come not from centers of power, but from the fringes of morally and socially bankrupt financial system.

 

aggrivated's picture
aggrivated
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 523
deflation and the sense of value

When I helped settle my father's estate years ago I was given some stock certificates by my brother, the executor, to sell. Some were for corporations no longer in business. Beautiful numbered embossed certificates worth zilch. This is the flavor of financialized assets and deep deflation.

Under the same deflation, if you own your home, in money value it may lose 80%. In shelter value there is no loss! I try to keep this in mind when "diversifying" my investments.

Bankers Slave's picture
Bankers Slave
Status: Platinum Member (Offline)
Joined: Jul 26 2012
Posts: 516
Big thumbs up for another of your blindingly poignant posts.

A couple of weeks ago I was street campaigning for Ae911truth when I was approached by 2 very awake and aware muslim men who fully understood and supported my actions.

After a long discussion, one of them confessed to working for Deutsche Bank (he was not proud of this) and proceeded to tell me that the whole point of central banking was to transfer the wealth away from the 99.99% to those well connected at the top.

I whole heartedly agree with your 2nd last paragraph as reflected and confirmed by a Deutsche Bank employee.

jtwalsh's picture
jtwalsh
Status: Gold Member (Offline)
Joined: Oct 1 2008
Posts: 261
“Après moi le déluge”

Treebeard is correct.  The central banks work for their masters, the one percent.  Their interest in the welfare of the general population is minimal at best. The extreme hardship forced upon the Greek people, to insure that the debts created by a corrupt government continue to be paid, is a clear example of the bankers' lack of regard for the average citizen. What we call the "markets" have become nothing more than mechanisms to strip mine whatever wealth is not yet in the hands of the most wealthy.

Like Treebeard my wife and I fall into the top 5% on the income distribution tables.  I do not feel rich, well off, or even what I would call safely comfortable.  It takes almost every penny we earn to live a modest lifestyle in a small American city. I shudder to think how the ninety-five percent get by.

In an economy that is supposedly driven by consumer expenditures how can recovery happen when fewer and fewer people have anything left to spend after paying for food and shelter. One per cent of the population may be able to hold title to ninety-nine per cent of the paper-electronic assets.  They cannot in any imaginable way need ninety-nine per cent of the automobiles, homes, food, clothing turned out in the world each year.

"Deplorable and desperate" was not a slip of the tongue.  It was a clear statement of the regard those in economic and political power have for those on the outside. Having run out of political and economic systems to keep the multitude in check the controllers now seem prepared to instigate social disruptions (black vs. white, citizens vs. police) and to initiate war, (Putin/Russia bashing) to create diversions and to take the focus off of themselves.  My sense is that they have no more clue as to what forces they are unleashing than did the Courtiers and Lords of the French monarchy. "Deplorable and desperate" may some day have the same connotation as "Let them eat cake."

JT

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4849
"the markets"

So I think if nothing untoward happens, the well-trained markets will continue to reach for yield, ignore declining earnings and productivity, and buy the dip as they have been trained to do for seven years now.

However I think there are some mega trends happening that will not be ignorable.  Draghi may be able to buy all the bonds that the EU governments issue, but he will not be able to stop peripheral Europe from voting to leave the EU penal colony.  Peripheral Europe (and I include Italy and Spain) will eventually be forced either into Greek-like economic servitude, or they will finally cry enough and split off.  Italy is almost there right now, and Spain and France are close behind.  Perhaps the migrants will be the trigger.  If not them, then something else.  Poverty and unfairness, perhaps.  Italian monkeys unhappy about receiving cucumbers when the German monkeys get the grapes.

Right now, the markets are just asleep.  When the denouement happens, then you will see "the markets" awake from their slumber, ripping holes in the nether regions of those who imagined everything was under control, and you will wonder why you ever thought of them as "markets" or ""markets"" or """""markets""""".

Markets are the top 10% of wealth holders in each country; bank deposits, small businesses, tens of millions of people who will react with the rapid and unstoppable impulse of self-preservation when actual danger finally appears.

There are 775 billion Euros of "household" bank deposits in Spain alone.  If Spain threatens to leave the EU, those deposits will wake up and figure out they do NOT want to be turned into Pesetas.  Italian households have a trillion Euros - and every Euro will not want to become a Lira.

These are the markets - and that's just two nations in peripheral Europe.  Once they figure out that something is really going to happen, Dragi will be simply overwhelmed.  Germany won't let him do whatever it really will take to "save the EU". 

Europe will fracture.  Its just a matter of time - one of those Asimov-Foundation-like historical imperatives that has its own timeline and its own level of certainty to it that is simply unstoppable.

I don't know which Archduke will end up being shot by which Serbian, all I know is that it will happen, simply because it has to.

And that's just Europe.  Japan?  United States?  We will all have our period of adjustment.

The markets won't be the agent of change - they'll simply be one of the vehicles for the agents to act through once the agents sort out that something is about to happen.  They will reflect the impending reality, and by reflecting it, they will cause it to happen too.  Markets will move with incredible force once they wake up.  And they will wake up - driven by the desire for self preservation.

That's my sense anyway.

newsbuoy's picture
newsbuoy
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Posts: 222
The Money Is Gone

David Dayen, a persistent chronicler of how oligarchs exploit the financial system to enrich themselves at the expense of others, writes about Chris DiIorio, a stock analyst who for 10 years has obsessively investigated how exactly he came to lose $1 million on one penny stock. A remarkable story ensues.

https://theintercept.com/2016/09/22/the-money-is-gone/

DennisC's picture
DennisC
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Joined: Mar 19 2011
Posts: 241
"It's Good to be the King"

 

...It's good to be king, if just for a while
To be there in velvet, yeah, to give 'em a smile...

Tom Petty, Wildflowers

 

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
cello

Reading through your link I am reminded of Arthur's rules for investing.

  1. The old ways are the best.
  2. Always look the other fellow in the eye and shake his hand. A lot can be gleaned from his handshake.
  3. Always know where he lives. In fact the more you know about him the safer you are. Who are his kin?
  4. Make him eat the losses. You are offering up Your hard earned cash to risk. He must have skin in the game too.
  5. Know the product. What does the customer actually buy?
  6. If you cannot understand the deal, you are not supposed to. 

I have made every one of these mistakes. 

If you don't follow these rules, consider your cash to be a gift.

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gkcjrrt
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duplicate post 

duplicate post 

gkcjrrt's picture
gkcjrrt
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Posts: 10
monetization of assets, wealth transfer, refloat

Great article.  Finally, reasonable and well studied individuals such as yourself are calling BS on the central banks.  It is clear they are either incompetent OR IMO they are operating under bad faith.

I wish someone could explain why it must end in a deflationary collapse - recent history seems to show otherwise.  The CBs have and continue to inflate financial assets.  If global CBs have increased their balance sheets $15 trillion over the past 8 years, I don't see any market forces which will prevent them from going to $30 trillion or $50 trillion (this number is already close to the the total value of global equities by the way) .  

Those who matter politically, say the top 20% in terms of wealth own most of the financial assets, and so are just happy to let the charade of asset inflation continue (fairness and equity be damned it would seem).  They have been front running the FED and other CBs believing in the almost explicit CB put.  If and when there is a change in sentiment, and this 20% decides to sell, (which would precipitate a deflationary collapse as the author suggests), the global CBs will "print" and buy the overinflated assets (as they do sovereign bonds today - and as the ECB is already doing with corporate bonds and the JCB is doing with etfs)), thus allowing the speculating or "investing" public to dump their overinflated assets and realize gains - yes prices may decline, but slowly as the top 20% exits their positions with realized cash gains - and the assets are parked on the CB balance sheets.  Then the CBs will write down the assets and refloat them to the public at much lower prices,  CB can't go insolvent after all or at least it doesn't really appear to matter.  Deflation is asset prices, sure, but not collapse, and not before those who have stayed in the markets get to cash out.

This scenario seem logical given where we've been to date.  It is grossly unjust and a massive wealth transfer if it were to occur, but I don't see the top 20% complaining.  It seems 401k balances and net worth, regardless of their origin, are more important than fairness, freedom and rule of law to many people, and this would be a tragedy.  

But I ask, no implore, someone to please shoot this hypothesis down, with why it can't (or won't) happen this way.   

 

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Euro Group

Below is a speaking event with Yanis Varoufakis (former Greek Finance Minister) and Noam Chomsky at the NYPL.  At 38 minutes Yanis talks in some detail about the "negotiations" between the Greek government and the ECB, IMF, and European commission and the dictates of the unelected Euro Group. An interesting look at the levers of power and how it operates.

I think that the whole thing is worth listening to if you have the time, but the discussion about the liquidation of Greece and where that road show is being taken to next particularly apropos to this discussion.

I do hope that the markets "wake up".  It will be an interesting race between increasing capital controls and an attempt of the small investor to save themselves from an increasingly rapacious financial system. In the mean time there is much to be done with basic lifestyle changes to extricate and insulate ourselves from that insane system.

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Group Think

I think gkcjrrt nailed it when he assumed that the central banks will stay with the program,  and "print" as long as they can. The committee structure of the central banks promotes a conservative approach. No one will step out on a limb......the group pressure is strong.

The world will divide into countries with central banks and those without. (Call those without the emerging economies). Those emerging economies will have price discovery and more honest functioning markets. More pain now and a chance for growth and recovery going forward. Rob Arnot sees EM space as a good place to invest. (SFENX) The countries with central banks will continue on a slow downward spiral like we see currently. The numbers will look ok because they are fixed, but the cereal boxes will contain less and less product.

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Debt jubilee

It's a real Tinkerbell moment.  Come on folks, just believe in the power of "money". God is not dead yet and neither is Castro though Franco is still dead. I have always wondered why the CB balance sheet couldn't go from $5T to $25T and then write it off.   Who's complaining about their debt forgiveness?  The question is whose debt gets forgiven?  I might argue for my mortgage but Wells Fargo will have another idea.  OF COURSE it's unjust and flagrantly criminal (unless the laws allow it). But when the CB is insolvent so are ALL the banks which means your bank account is now questionable.  But you "own" stocks and bonds in Schwab and Citi and VAnguard accounts who are also bankrupt because they have no bank accounts either.  So your concern about the rich "cashing out" is balanced by their problem of- into what asset? Green paper notes?  If they have Ferrari's, land, and gold well they'll just be like the rest of America trying to sell their stuff on e-bay. 

 

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Top 0.1% Wealth Share

I was interested to see in the chart of the "Top 0.1% Wealth Share" that the wealth inequality in the US was as high in 1913 as it was in 2013. I have two questions for you on this:.

Great chart that Chris dug up.  I have the same questions.  

 

 
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ebay?

If banks and investment operations freeze up, then cash, PM's, barter &IOU's will remain. Craig's list might work. Ebay is too dependent on banking.

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central bank debt forgiveness

I have always wondered why the CB balance sheet couldn't go from $5T to $25T and then write it off.   Who's complaining about their debt forgiveness?

There Is No Free Lunch.

If the CB went out and bought another $20T in bonds, and then wrote them all off, all that 20T in new base money would be forever in the system.  It could never be removed.  If and when inflation hits, which at some point, it will (once the deflation is passed), there would be no way for the CB to mop up all that cash.

If you thought 1.9 trillion in "excess reserves" was high at a 5 trillion dollar balance sheet, just imagine what it would be at 25 trillion.  Interest rates would never, ever rise above 0%.  I can't even imagine what that would do to asset prices.  And wealth disparity.   And productivity.

A Mises quote via KWN:

“[…] there cannot be any question of abolishing interest by any institutions, laws, and devices of bank manipulation. He who wants to “abolish” interest will have to induce people to value an apple available in a hundred years no less than a present apple. What can be abolished by laws and decrees is merely the right of the capitalists to receive interest. But such laws would bring about capital consumption and would very soon throw mankind back into the original state of natural poverty.”

http://kingworldnews.com/the-unthinkable-has-now-become-reality/

Mises is telling us that zero interest rates results in the consumption of capital, because it violates a very basic state of human nature - having something now is preferable to waiting to get it later.   And so that's what we're seeing right now; falling productivity, and low rates of capital investment.

And that just gets drastically worse if the balance sheet rises by a factor of 5.

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Central banking as infrastructure

When highways become congested the go to solution has always been more and bigger highways. No real effort is made to starve this beast and let another solution develop. The same rule applies to the infrastructure of banks. If the only way out of town in a disaster was on the highway (not all of us own helicopters), then you either suffer the disaster in place or suffer gridlock on the highway.

When it comes to banking there is only one built infrastructure! Real wealth (food, land, precious metals ((which are inedible))and the other forms is capital so well discussed on this site are the helicopter. Think of it as elite personal banking! To depend on the banks in any coming financial disaster is admitting beforehand that you will suffer in place or wait out the gridlock and accept what is left after it. At present I have a small financial helicopter.

My current job is to get my family members to get their own or pursue a less flexible goal of getting one big enough for the whole extended crew.

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Thanks Treebeard

for the Chomsky/Varoufakis discussion link. Wow! After listening to the whole thing Varoufakis closes out comparing bankers, public purse teat suckers (my language), and European corporations who socialize their loses as the grasshoppers and the small working citizens as the ants. And he calls himself "left leaning"!--Did I miss the political pendulum when it swung by? What a great and educational public conversation. Thanks for the post.

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Thanks Treebeard

for the Chomsky/Varoufakis discussion link. Wow! After listening to the whole thing Varoufakis closes out comparing bankers, public purse teat suckers (my language), and European corporations who socialize their loses as the grasshoppers and the small working citizens as the ants. And he calls himself "left leaning"!--Did I miss the political pendulum when it swung by? What a great and educational public conversation. Thanks for the post.

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Gates Hell Revisited

A couple of weeks ago I was street campaigning for Ae911truth

A big thank-you to Bankers Slave for helping to spread 9/11 truth!!

 

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climber99 wrote: Personally I
climber99 wrote:

Personally I have welcomed Central bank intervention.  It has extended the party for 8 years for me while I've been in good health and been able to enjoy it. Another 5 years please by which time I'll be 60.

Yes, but I have children who will inherit a world bereft of resources, capital, and basic humanity because of the greed of other generations, and I'm pissed. I pray they live to be my age, but fear they may not have that chance. I just don't see how we step down from this precipice without a die-off on a massive scale, civilizational collapse, or humanity-destroying war.

 

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Ka-Poom Revisited

Chris wrote:

"Once the illusion of central bank control is fully lost, the financial markets will implode in a deflationary wave that has been held at bay for far too long. Asset prices will collapse..."

If public confidence in CBs is lost in this way, surely they will not be able to double down with their policies of QE and Helicopter Money, and thus will not be able to bring about the hyperinflationary reflation i.e. the 'Poom'.

Do we need to reconsider Ka-Poom theory on this basis?

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Your support

is much appreciated. If any of you good folks here are ever in Edinburgh, send me a PM and we can arrange a meet up. Otherwise, every Saturday weather enabling, you will find me at the east end of Princes Street beside these good ladies,

 

https://www.facebook.com/womeninblackedinburgh

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Is it getting hotter in here?

DB feeling the heat today...

Shares in Deutsche Bank have closed down 7.54% to a new low after a weekend report said Chancellor Angela Merkel had ruled out giving it state aid.

Concerns have been raised about its financial health and the bank's shares are down more than 50% this year.

Focus magazine also said that Ms Merkel would not get involved in its dispute with the US over a $14bn bill regarding the sale of mortgage products.

Deutsche Bank said it had not expected Ms Merkel to intervene in the US case.

"At no point has [chief executive] John Cryan asked Chancellor Merkel to intervene in the RMBS [residential mortgage-backed securities] issue with the US Department of Justice," it said in a statement. "Deutsche Bank is determined to meet the challenges on its own."

Of the $14bn bill, which relates to products sold in the run-up to the financial crisis, Deutsche Bank has previously said it has "no intent to settle these potential civil claims anywhere near the number cited. The negotiations are only just beginning."

The Focus magazine report had quoted unidentified government sources.

During a regular news conference on Monday, government spokesman Steffen Seibert said: "There is no reason for such speculation [about state aid] and the federal government doesn't engage in such speculation."

Regarding its financial position, the bank said: "The question of a capital increase is currently not on the agenda, we comply with all capital requirements."

On Monday, shares in Deutsche - which is one of Germany's biggest banks - finished down 7.54% to 10.55 euros, its lowest level since the 1980s.

'Red rag to a bull'

Michael Hewson, chief market analyst at CMC Markets UK, said: "While one can understand the reticence of German politicians to bailout yet another bank, particularly in the lead up to an election next year, one has to question the wisdom of articulating that reluctance out loud when markets are already nervous about Deutsche Bank's capital position.

"It's akin to a red rag to a bull... given that due to its size Deutsche Bank is arguably too big to fail," he added.

"Markets could well look to test the German government's resolve on that as we head into next year, with further falls in the share price below €10 looking increasingly possible, which will increase the pressure on regulators and politicians to step in, and shore up confidence." (Source)

 

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capital injestion or who ate my lunch

Great quote from Mises. So, it totally makes sense that zero interest rates devour capital. But does it devour from all 'investors' at the same speed? It seems true, as Varoufakis's book title says, that the weak suffer. As the financialization of real wealth is unwound who ends up holding the real wealth?, the Wizard of Oz? Can you help unpack the details of real wealth transfer we see going on before our eyes day by day? Some financial wealth appears to be hot air, but a lot of it has real collateral at stake.
You seem to understand the gears in the machine better than I do, Dave, so could you help me understand how this all works and where the capital goes?

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Meh

Probably been "Manchurian'd" once or twice already anyway, don't you think?

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 Hell to PayPosted by Ron
 

Hell to Pay

 

Ron Bolin: August 28, 2012

At its meeting of August 27, 2012, our Nanaimo City Council was notified by Staff of the process for the preparation of the 2013-2017 Financial Plan.  Here is what was said in the agenda about the process:

“City staff have been installing a new budgeting program, which means that the preparation of the 2013- 2017 Financial Plan will be completed slightly later than usual. The current plan is for the staff review to be done in November, with the budget to be presented to Council at the Committee of the Whole meeting on 2012-NOV-26.

Thereafter, there will be an opportunity at each Council Meeting and Committee of the Whole Meeting for Council get information, discuss the budget and make amendments. Staff will bring forward a bylaw to adopt the financial plan in January.

 

 

lami88's picture
lami88 (not verified)
Lami

So good for this sentence.But 'dumb' mistakes have become 'stupid', and 'stupid' became 'idiotic', and now 'idiotic' mistakes are piling up, accumulating into a mountain of stored potential energy that will someday topple destructively across the global markets.I'm common rail come from sensor .I look hard for every you said..

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