January 22, 2015
As you now know, Europe is set to announce a new QE program. I wish these money printing rocket scientists would call it like it really is, outright monetization but then again the average non thinking person might ask questions? The leak yesterday said the size would be 50 billion euros per month, or more (it turned out to be 60 billion). Thinking about this from a far away view, we can glean a few hilarious aspects.
First, let's look at "size". If the program is "only" (more was expected) 60 billion euros per month, this will amount to around 720 billion additional euros outstanding a year from now. From a "money perspective", this amount is far less than the QE 3 the Fed just publicly (privately maybe not) ended and smaller than the current Japanese operation. The markets may view this as "smaller than hoped for", I of course have a different perspective. If we add up the production of all gold globally from the mines, we come to a ballpark number of a whopping $100 billion. Compare this to the (newly devalued) figure of 720 billion euros and we can round this off to just over $900 billion. So, in just one year, Europe will create nine times the amount of trash currency as the entire world creates of gold ...in one year! The ECB plans to purchase this amount of debt for two years, nearly $2 trillion worth!
Going just a step further, let's look at this $100 billion worth of gold which is produced annually. I am going to tell you that as far as the "world" is concerned, there is NO new gold produced! How can I say this? All you need to do is look at how much gold just China and India combined take off the markets each year. The answer is "all of it"! Actually, that's not true unless we add the phrase "and then some"! So from a size standpoint, Europe is proposing to create nine times the amount of currency as new gold is produced, yet none of the gold even hits the market to add to the current stock. Yes I know, there will be those amongst you who say this is wrong. But is it really wrong if 100%+ of new gold supply gets devoured and vaulted by China and India never to see the light of day again? Yes it is "stock" but it will never in our lifetimes "flow"!
Let's now look at few of the other "little snags" in this European brainchild. First, can Europe handle more debt collectively and what about the ones who cannot? The ECB is proposing a "one for all and all for one" strategy when it comes to responsibility to this debt, will the Germans agree to this? What will happens when push comes to shove and countries with no financial wherewithal just shrug their shoulders when they cannot make the debt service payments? Does this mean that Germany becomes the "one for all"? Wasn't it just a couple of years ago the PIGS debt was on the verge of collapse and rates were skyrocketing? Have they really healed their balance sheets or do they now have MORE debt and HIGHER debt ratios? Are we to believe they are now safer? One last thought, the ECB is the central bank to Europe, should they really be prompting their flock into issuing more of the poison that caused the problem in the first place?
Another question becomes, what about Greece? Will the ECB purchase their bonds? What if Greece's elections finish and the winning party decides to hold the ECB ransom "restructure our debt or we will default ...or just take our ball and leave"? How is this going to be handled? Another aspect going back to "size" is that the 720 billion euro QE will be three times or more the size of current issuance, isn't this the reason the Fed was more or less forced to stop QE ...because they were taking too much collateral out of the system? Will this force banks to purchase lower credit quality debt in their reserves or does it just mean interest rates all throughout Europe will be negative? Does this mean investors will "pay" interest to insolvent deadbeat nations like Portugal, Spain and Italy amongst others? I know it sounds quite strange to have to pay interest on your lent money to an insolvent entity, but this is where we are headed!
While we are on the topic, what about "negative interest rates"? To begin with, if you think about it negative interest rates cannot last forever or even for a long time because it means the lenders in the end will lose all their money. (From a humorous standpoint, maybe this is a good thing because at least they lose all their money "slowly" rather than all at once!) Also from a Mother Nature standpoint, only the very best money does not need to pay interest, all the rest do and the interest rate is decided by the risk of creditworthiness and strength of currency. In this instance, they are all the same sloppy currency but Greece is not Germany even if they do both begin with a G. If negative interest rates were normal, borrowers would end up with everything and lenders would become extinct.
Also, wouldn't this hurt the banking sector in another way than just making collateral impossible to find? Wouldn't the smart ones just go into their bank and withdraw everything and hoard the cash which wouldn't require the constant haircut of negative rates? What does this say about velocity?
All of the above questions and thoughts were things the Swiss have thought about for years. The "commonality" was a problem for them and they decided not to join the EU in the first place. Now, the Swiss National Bank has looked at this current scheme and decided to cut their losses. Why should they continue to purchase euros if they know the official policy is to debase and ultimately ruin them? The Swiss have made a decision, my topic for tomorrow will be "The 'neutral' Swiss seem to have chosen sides" as they announced a new renmimbi hub based in Zurich. Do you think they might have known about this last Thursday when they pulled the plug (peg) on the euro?
One more question or two before we finish, why does Europe even need to do this now anyway? Hasn't their currency already substantially weakened versus the rest of the world and grossly versus the Swiss? Isn't this "REALLY" what QE is all about? Weakening your currency faster than your neighbor so you can steal his market share of exports?
In reality, Europe is playing Russian roulette with a fully loaded gun! Their currency is already weak, yet they want it weaker. They are already broke, yet they want to become broke(r). Rates are already substantially negative but apparently not negative enough. Good (if you want to call it that) quality collateral is already scarce, yet they want to take more from the banking and shadow banking systems. Germany is already not in such a good mood as to what has already been done, yet the ECB wants to rub salt in the wound of the very core of Europe.
In my opinion, this announcement of QE is a very bad choice and very poor experiment. QE has not worked anywhere else in the world, why will they be any different? Before they even announced this they had already received two very important and fully negative votes. The Swiss have abandoned them and gold has exploded higher and broken out to the upside. Maybe they are more fearful of the market hearing Mr. Draghi say "we were just kidding"? He has promised this bazooka for several years and jawboned the markets higher each time it looked like full out collapse was imminent. Now they will fire this so called bazooka, the worst possible immediate outcome would be for their markets to spasm downward in response. Speaking of "response", isn't it curious the ECB "leaked" 50 billion euros yesterday? I am here to tell you, they floated that trial balloon because they were fearful of the response. When the market didn't go spastic, they upped it another 10 billion for good measure! The ECB is in a panic, otherwise no "leak" would ever have appeared. They have lost control, they know it, it is only a matter of time before the markets realize it.
We have already experienced huge volatility which has certainly made some participants insolvent. As I see it, this new episode lays the track towards even more volatility. High volatility in a system that's quite low on liquidity and quality collateral in the first place is a toxic recipe. This will definitely not end well though it may end very abruptly when it does!
Regards, Bill Holter
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Andy Hoffman's Daily Thoughts
January 22, 2015
In last month's "death by deflation," I discussed how fiat currency schemes always yield parabolic debt growth, strangling economic activity and inevitably yielding mass defaults. And as today's unprecedented fiat Ponzi is global, not a nation has been spared - nor its municipalities, corporations, or individuals. And clearly, theparabolic debt growth stage has commenced. Subsequently, in "the direst prediction yet" - which fittingly, was my first article of this horrible new year - I noted how the combination of unprecedented money printing, market manipulation, and financial engineering has created the highest degree of industrial, mining, and oilfield overcapacity in history; which sadly, could take decades to work through, yielding unfathomable amounts of layoffs, bankruptcies, and defaults.
One by one, the Central bankers that created this problem are realizing this; or at the least, attempting to whitewash their legacies ahead of the collapse of history's largest Ponzi scheme. First, "Maestro" Greenspan, who essentially invented modern hyperinflation, said "effective demand is dead in the water, and the effort to boost it via bond buying has not worked." And this, on October 29th, before the historic currency, commodity, and crude oil crash commenced. For the record, I said the same thing three weeks earlier; but hey, better late than never. For that matter, he also espoused that "gold is still,by all evidence, a premier currency, which no fiat currency, including the dollar, can match"; and this, 48 years after writing "Gold and Economic Freedom," in which - as a disciple of Ayn Rand, no less - he concluded that "in the absence of the gold standard, there is no way to protect savings from confiscation through inflation." Talk about better late than never!
And now, in an interview that received essentially zero media attention, Greenspan's counterpart at the Bank of England, Mervyn King, admitted to his abject failures as well. King, who was Governor of the BOE from 2003-13, overlapped the disastrous post- "tech wreck" policies of Greenspan, and post-2008 crisis policies of Bernanke, before being replaced by Goldman Sachs alum Mark Carney. Like Greenspan, King was clearly attempting to re-write the record books - in claiming "we have had the biggest monetary stimulus the world has ever seen, and still have not solved the problem of weak demand. (Thus), the idea that (further) monetary stimulus is the answer after six years doesn't seem (right) to me."
Whether Greenspan or King ever believed their own BS is a question we'll never know; although given Greenspan's background, I tend to doubt it. As for King, I know little of him other than the disastrous results of his policies; and thus, he may well be a brainwashed Keynesian like Ben Bernanke, Janet Yellen, Mario Draghi, and Shinzo Abe; or perhaps, a conniving, power-hungry sociopath like Greenspan. Irrespective, the fact the rats are running from the ship should tell you just how close the end game is; as clearly, these twin monsters are smart enough to realize "weak demand" is winning the day, whether they understand why or not. And said "weak demand" is spreading like Ebola - as demonstrated by today's news that IBM's revenues plunged at their most rapid pace since the Lehman crisis; and worse yet, the entire global economy, indollar terms, has plunged by an astonishing $4 trillion in just the past six months. And this,before the ramifications of the historic currency, commodity, and crude crash have even been realized! Analysts at Societe Generale described this economic holocaust as the "deflationary vortex," and we couldn't agree more.
And yet, despite the propagandist pontifications of "deflationists" the world round, gold and silver are soaring whilst most asset classes are plunging; as exemplified by today's (Tuesday's) markets - manipulation irrespective - in which gold and silver rose by $17/oz and $0.25/oz, respectively - whilst the CRB Commodity Index plunged 2.4%, to within 10% of 2008's spike bottom low, and crude oil plunged another 4.7% One by one, the "deflationary vortex" is drawing everything near it into its path; which is probably why the 10-year Treasury yield plummeted to a new multi-year low of 1.78% this afternoon. Jon Hilsenrath - I mean Janet Yellen - wants us to believe the Fed is "on track" for rate hikes "later this year." However, now that the "final currency war" has gone nuclear - read, Switzerland last Thursday, and the ECB tomorrow - the odds are far better of the Fed reducing rates to negative territory. Just wait until corporate America starts begging for it, and the financial markets scream for "NIRP" and "QE" to infinity; likely within months, if not weeks.
Not only are Precious Metals surging, but doing so in historic fashion - despite some of the most maniacal, desperate Cartel resistance ever - such as today's blatant capping when gold attempted to breach the key round number of $1,300/oz at exactly the 12:00 PM "cap of last resort." And this, with oil prices and Treasury yields in free fall - whilst "miraculously," the "Dow Jones Propaganda Average" bottomed at exactly the PPT's "ultimate limit down" level of -1.0%, subsequently surging for no reason other than manipulation - particularly ahead of tonight's pathetic State of the Union address; which under the category of "famous last words" was titled, I kid you not, "the shadow of crisis has passed!"
By the way, Obama plans to memorialize the "(Miserable) State of the Union" by proposing new, onerous taxes on the rich - which is exactly why, among other reasons, we have been screaming for people to cash out of government-sponsored retirement plans like IRAs, as soon as possible. I mean, if we're going to be the Socialist States of America, it's inevitable tax rates will catch up with those of Canada and Europe; again sooner rather than later. Yes, America, we are destined for 50% taxes on the Federal level; and thus, IRAs will be eroded by "tax inflation" in the same manner dollars are destroyed by Whirlybird Janet's printing press.
Of course, when I speak of Precious metals surging, it's not in dollar terms where the action's really at - despite a massive 14% surge since the Cartel orchestrated "Sunday Night Sentiment" raid, in the immediate aftermath of the Swiss "no" vote seven weeks ago. No, it's in foreign currencies, care of an historic "dollar surge" which - as I have discussed ad nauseum - is NOT due to U.S. political or economic strength; but instead, a global flight to liquidity in anticipation of worldwide financial vaporization. To that end, I have been writing of the catastrophic ramifications of such horrific currency volatility (read, crashes) for years - deeming it the "single most Precious Metal bullish factor imaginable."
In last month's end of the gold "bear market", I wrote of how gold not only was the world's second best performing "currency" last years, but in many nations outperformed nearly all asset classes. This dynamic, which secular Americans fail to comprehend, is driving historic levels of physical PM demand across the globe; including Europe, where the world's most widely utilized currency is in freefall - and just wait until Draghi really turns on the printing presses, possiblytomorrow. I first wrote of this 2½ years ago, when few people even cared - in "dollar-priced gold." However, today's global financial mindset appears to have turned 180 degrees, as the surge in Precious Metals in non-dollar terms is becoming "front and center" news.
To wit, as I write Wednesday evening, Yen-priced gold is less than a half-percent from its all-time high - yielding stark validation of one of my top 2015 predictions, that the early stages of hyperinflation will emerge in the "Land of the Setting Sun." To that end, Euro and Rupee gold are just 18% and 19% from their all-time highs, respectively. And take a wild guess what today's "big winner" was - across all global assets classes. Yep, the Swiss Franc-priced gold "Lady Macbeth" Thomas Jordan (Chairman of the SNB) so passionately despises; which despite the Franc's so-called "strength," will shortly blow through previous records like a hot knife through butter. After all, for all the hype, Switzerland is still just a piddling nation kowtowing to New York/London interests, amidst a horrific, expanding depression; whose credibility has been dramatically comprised - along with its balance sheet. As for Chinese Yuan priced gold - which along with Rupee priced gold, is the world's most important market - I'll just leave that for tomorrow's Audio blog, given its momentous (and massively PM bullish) fundamentals.
All things considered, the key takeaway of this article should be, unequivocally, that 44 years of unadulterated money printing - combined with unprecedented engineering of "weapons of mass financial destruction" - has created a "deflationary vortex" that is rapidly eating away TPTB's best laid fiat plans, much as the Muriatic Acid I put on my driveway ate through the thickest, ugliest oil stains. In other words, the irreversibly debt-strangled, overbuilt world musthorribly implode - with the only remaining questions being when and how; and oh yeah, whether Central bank hyperinflation will enable the losses to be only real in nature - as opposed to real and nominal. At this point, it's almost laughable to believe Precious Metals have anymaterial downside - in any currency; as overwhelmingly, the evidence suggests an historic physical shortage is more likely - and perhaps, imminent.
And by the way, keep your eye on the five PM closed-end funds - GTU, CEF, and SVRZF run by the Spicer family; and PSLV and PHYS by Sprott Funds. Two years ago, I rightfully warned that the Cartel would drive their prices well below Net Asset Value to prevent Stefan Spicer and "Admiral Sprott" from executing secondary offerings, entailing massive physical gold and silver purchases. I still maintain that any "paper PM investment" defeats the purpose of protecting one's assets, but I still watch their trading to see how "strong" or "weak" the Cartel appears. To that end, I'm happy to say that after two years of unparalleled miserable performance, the massive discounts to NAV, or Net Asset Value, are starting to dissipate - with PHYS actually trading at a premium for the first time in recent memory. In other words, not only is physical PM buying exploding, but paper PM buying as well. Frankly, how anyone could find a reason to not buy precious metals now - with the global financial system on the precipice of collapse - is beyond me.
And before I go, in my last article before Thursday's fateful ECB meeting - and perhaps, Sunday's cataclysmic Greek elections - the entire Miles Franklin Blog team thanks you for the kind words, and intelligent discussions, in our chat areas. Even when times appeared their darkest, the feedback was overwhelmingly positive. And now, as the "end game" finally appears to be at hand, the solidarity I witness on the site is a sight to behold. Please continue to use the sight liberally, and tell your truth-minded friends, family, and colleagues about it. I fully expect traffic to increase dramatically in the coming years - and in the alternative media, any place where financial truth is spoken - and wisdom bequeathed - is truly worth following
Our weekly commentaries provide Euro Pacific Capital's latest thinking on developments in the global marketplace. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital.
Tuesday, January 20, 2015
If anyone had any doubt how severely the global economy has been distorted by the actions of central bankers, the "surprise" announcement last week by the Swiss National Bank (SNB) to no longer peg the Swiss franc to the euro should provide a moment of crystal clarity. The decision sent the franc up almost 30% in intraday trading, a scale of movement that is unprecedented for a major currency in the modern era. Although very few in the media or on Wall Street fully understand the ramifications, the situation that forced the Swiss to abandon the peg will soon be faced by bankers of much larger countries in the coming years, the implications of which can have more profound implications for global financial markets.
Other than the immediate fluctuations in exchange rates, the primary reaction to the Swiss move has been indignation. The airwaves have been awash with officials and investors who have felt betrayed by an irresponsible bank that has not only squandered its own credibility but has also damaged the reputation of all central banks. Despite the complaints of now-ruined foreign-exchange speculators, who believed recent statements from the SNB that it would continue to enforce the peg, a blindsided policy reversal was its only viable option. Any hint that the policy was about to change, or could change, would have resulted in the same mass buying of Swiss francs.
But the only thing the SNB did wrong (other than initiating the peg in the first place) was to admit that the policy was unsustainable and have the courage to reverse course. In so doing, they violated the first rule of central banking, which appears to be: Never admit to making a mistake.
Although the move is not as dramatic a change as the recently defeated gold reserve referendum would have likely produced (see my prior commentary), the abandonment of the peg makes Switzerland the first major economy to surrender in the international currency war. It has decided not to race to the bottom, and it has understood that a cheap currency does not solve economic problems. The decision gives a long-delayed victory to the Swiss people.
With a centuries-old legacy of economic independence, the Swiss initially had the good sense to avoid joining the monetary quagmire that became the Eurozone. But with the 2011 euro peg, the country de facto joined the currency union. This tasked a country with a population of just over 8 million people to support the euro, a falling currency used by 335 million people locked in a dysfunctional political union, with governments that have been serially unable to deal with horrific debt profiles. According to tradingeconomics.com, 2013 figures show Switzerland has a debt-to-GDP ratio of just 35.4%. In contrast, the Eurozone has an extremely high ratio of 90.9%. Taking on that kind of dead weight was a very big job for a very small country.
Predictably, the numbers got very silly very fast. In 2009, Switzerland's foreign exchange was $92 billion (SNB Annual Report), representing just 17.5% of its annual GDP. This was high by national standards, but well within the range of most developed countries (The U.S. now has almost no foreign exchange reserves - just .9% of GDP). But in order to maintain the peg, the SNB had to buy hundreds of billions of euros annually. Over the past six years, the tab came to almost $10,000 per year per Swiss citizen. These are enormous sums, even for a rich country. As a result, by the end of 2013 Switzerland's foreign exchange reserves had swelled to $488 billion (SNB Monthly Statistical Bulletin, Dec. 2014) or 71% of its annual GDP. This dwarfs the reserves-to-GDP levels held by the globe's two primary foreign exchange depositories, China (41.3%) and Japan (24.4%).
In retrospect the task was absurd. It was like asking a 100 lb. jockey to perpetually piggyback a 600 lb. sumo wrestler. But the real problem came in recent months when the European Central Bank came closer to announcing a program of quantitative easing, which would have brought even more downward pressure on the euro, requiring the SNB to pick up the buying pace even further. Asking the Swiss to shoulder the QE burden was like asking the jockey to carry the Sumo wrestler into an all-you-can-eat sushi bar. Given that grim reality, the SNB had no choice but to lay down its burden.
Despite this prospect of an open-ended euro buying cul-de-sac, mainstream economists have argued that the move will decimate Switzerland's finances and ruin its economy. They argue that by letting the euro fall, the SNB will suffer immediate losses on the hundreds of billions of euros it now holds in reserve. While this is true, it ignores all the hundreds of billions, if not trillions, of francs that the Swiss would have had to spend (to buy euros) in coming years to maintain the peg. Modern economists believe that the money needed could have been printed out of thin air with no cost to the Swiss economy. But to believe that is to believe in fairy tales.
But when you look at it clearly, Japan, China, and many emerging economies find themselves in roughly the same boat as Switzerland. They are continually inflating their own foreign exchange reserves in order to enforce an unofficial peg against the U.S. dollar. However, in no othercountry has the relative scale of foreign exchange purchases been as dramatic as in Switzerland. But if the Fed unexpectedly launches another round of QE, which I believe it will, then the rest of the world will have to face the same decision as Switzerland had; whether to continue to throw good money after bad, or to cut and run and take the pain now.
Those still in shock by what they see in the rear view mirror had better focus their attention on what lies ahead. To me, the mother of all pegs is the one provided by China to the U.S. dollar. Both the yuan and the Hong Kong dollar are pegged to the U.S. dollar, and China has spent far more money than Switzerland defending its peg. Should China pull the plug on the dollar, our economy has a much larger drain to go down. The Europeans had only recently begun to rely on Switzerland, yet America has been limping on China's crutch for decades. Since our reliance is much greater, so too is the potential impact once it's removed.
Another difference is that while the Swiss are few in number relative to the population of the Eurozone, per capita income in Switzerland is higher. In contrast, China has a larger population than the United States, but its people subsist on much lower incomes. So it's not the rich subsidizing the less well off, but the Chinese poor subsidizing America's middle class. As a result, the immediate gain to China and loss to America will be that much greater than is the case with Switzerland and Europe.
In the future the Swiss surrender may be looked at as the first significant counter-attack against our current global system of monetary insanity. The mistake was not ending this peg, but in adopting it in the first place. The Swiss once again have a strong currency with expanded purchasing power. Yes, Swiss exporters may lose market share to international rivals. But the amount of Swiss francs they will actually earn from each unit sold will likely increase. So the Swiss may be able to export less and still earn the same money. In addition, the cost of imports will fall, allowing the Swiss to buy more with less.
Contrary to the common current belief, the goal of an economy is not to manufacture more products for others to buy, but to be able to buy more products yourself. In that respect, exports are merely the means to achieving that end. The less you need to export to pay for your imports the better. In other words, the goal of an economy is to consume, not to work. If we could consume without working we would happily do so. Working without consuming, not so much. In the past, the Swiss prospered with one of the world's strongest currencies. It will do so again.
Ironically, without the support of the SNB in propping up the euro, full-blown European QE may now be a more remote possibility, and a euro rally against the dollar may not be too far off. Goldman Sachs noted the Swiss' message is that QE is going to be done and perhaps even larger than previously thought. But, with tough love from Switzerland perhaps the European Union may choose to consider real economic reforms rather than risk QE without a Swiss safety net to catch the euro if it starts to tumble uncontrollably. In fact, the forces now in motion, accelerated by the SNB's move, may push the Fed that much closer to launching QE4. Since the "long dollar, short euro" trade is predicated on the expectation of QE in Europe and rate hikes in the U.S., if we end up with QE4 in the U.S. and no QE at all in Europe, the fireworks in the foreign exchange market are just getting started.
January 20, 2015
It's Sunday afternoon, and I simply don't know where to start; as each day, there are literally a half-dozen "horrible headlines" worthy of full-time discussion. To that end, even at the height of the 2008 crisis, things didn't look as dire as today - with literally dozens of potential "black swans" on the horizon, in an environment where, sadly, such events aren't even necessary to catalyze the inevitable collapse of history's largest house of cards. Unquestionably, the majority of the global financial community realizes something is very, very wrong, though the vast majority haven't yet acted to protect themselves. However, history's largest game of "financial musical chairs" has clearly begun; and shortly, the entire world will be desperately rushing for an infinitesimal amount of "chairs."
Let's just look at Russia, to give but one example of the ominously swirling ill-winds. With its currency in free-fall (yes, still); the economic and geopolitical ramifications are, at the least, terrifying. To wit, in the last 12 months, Russia (in Mitt Romney's words, "America's greatest geopolitical foe") has dramatically strengthened its allegiance with America's greatest economicfoe, China; for all and intents and purposes, annexed the Crimean Peninsula amidst heavy Western opposition; cut off natural gas supplies to six Southern European nations; and introduced a new military doctrine, naming NATO - and the U.S. specifically - as its principal enemies. Scarier yet, was this weekend's comments by Russia's Minister of Agriculture, claiming it would exclude Greece from its European food import ban "in the event it leaves the European Union." In other words, with Greece's potentially cataclysmic election just a week away, Putin is clearly laying the ground to build "Soviet Union 2.0." Such an offer will undoubtedly be viewed as an act of diplomatic war in the West - and consequently, will only heat up the expanding "Cold War 2.0." In other words, last year's anti-Russian sanctions are morphing into more serious acts of aggression, at a breakneck pace. And thus, when I read that the Ukraine's President is drafting 50,000 citizens for an anti-Russian mobilization - which, as I write on Sunday evening appears to have begun - I can only cringe with fear.
Yes, Greece is just one week from an historic election, in which the "anti-austerity" (read "pro-default") Syriza party is all but assured to take control. When it does, its leader, Alexis Tsirpas, plans to immediately demand the forgiveness of hundreds of billions of Euros of debt - which unquestionably, the Euro Zone government will refuse. After all, if Greece is allowed to default,all PIIGS would demand the same; and perhaps, "non-PIIGS" nations like France. And thus, the potential for the Euro to break apart NOW - yielding a catastrophic daisy chain of debt defaults, derivative implosions, currency crashes, and social and geopolitical unrest, has reached "Defcon 1" levels. Already, we are witnessing runs on Greece's largest banks, and its citizens have stopped paying taxes in anticipation of a "debt jubilee" and currency devaluation, when Greece inevitably abandons the Euro for a new Drachma. Under such conditions, even the most arrogant Central banks cannot stop - or even slow - the "unstoppable tsunami of reality"; and in the case of the Swiss National Bank last week, can be entirely "overwhelmed."
This is why it's so incredible that the "evil troika" of Washington, Wall Street, and the MSM - aided by their counterparts in Europe, Japan, and other "leading" nations - have been able to create a "meme" that printing money is a positive development. Much less, as all previous efforts have failed. Fortunately, said "tsunami" cannot be stopped, as it was unleashed by the indomitable "Economic Mother Nature" herself. And thus, one by one, the dominoes are falling - as exemplified by the SNB announcement last week, and comments like these from one of the world's largest "TBTF" banks, Deutschebank.
"We doubt inflation expectations will spike sustainably higher on any announcement (at this Thursday's ECB meeting) given the failed history lessons of US and Japan, as well as doubts about QE making a difference quickly in the Euro zone."
Let alone, those of people actually operating in the real Main Street economy; such as these last week from the CEO of Lennar, one of America's largest home-builders.
"Across the board, we're seeing intensified competition as builders go out and chase volume."
Thus far, "TBTF" banks haven't left the trough of free money - prompting the majority of their commentary to mirror the propagandist cheerleading of Central bank puppets like Janet Yellen; who, laughably, believes the historic oil price crash is "transitory." Heck, even as the Vampire Squid itself, Goldman Sachs, issued a disappointing earnings report Friday, its criminal CEO uttered the "lie to end all lies" of the state of the economy - which ultimately, will sit atop the all-time list of hubristic "last words."
"We see evidence of a continued pick up in momentum for the global economy that will improve the opportunity set for 2015."
Again, under the category of "How dumb do they think we are?," what part of this chart suggests a "pick up in momentum?" Or Friday's negative industrial production report? Or multi-decade lows in most commodities and currencies? Or all-time low bond yields in the majority of the Western world? Unless, of course, he is referring to downside momentum - backed by an "opportunity set" structured to benefit from the world's misery!
Of course, as the "end of the era of Central banks" intensifies, even the Goldman Sachs' of the world will be running for cover - realizing that when their benefactors at the Fed and on Capital Hill are bankrupt, they are no longer too big to fail. Heck, even Goldmanprobably "believes its own BS" about Central banks being in control, capable of navigating even the roughest of financial and economic waters. That is they did, until the Bank of Japan lost control subjectively, and the Swiss national bank objectively.
Even the SNB's arrogant leaders - like "Lady Macbeth" Thomas Jordan, who "doth protest too much" against gold's value - all but admitted its policy failure, in not only losing control of the Euro/Franc peg, but incurring massive, unpayable debts and catastrophic losses in doing so. And not only that, but in today's disastrously over-leveraged world of "carry trades" - financed by the promises of central bankers, both implicit (like the "Yellen Put") and explicit (like the Euro/Franc peg) - the "breaking" of such promises puts the entire financial system at risk; as occurred Thursday, when massive losses were reported by foreign exchange traders, hedge funds, and "TBTF" banks themselves - including Goldman Sachs. And oh yeah, an utter avalanche of selling in the world's most widely used currency, the Euro, whose cumulative ramifications will be so broadly negative, it could easily catalyze a new World War. In other words, the veneer of Central bank infallibility was permanently broken, with the only questions remaining being "who's next?," and "how long?" until the game finally ends.
By now, particularly following Christine Lagarde's comment that the SNB announcement took the IMF off guard, the entire world is starting to realize just how desperate - and terrified - the SNB was; although frankly, if they (and Christine Lagarde) had simply read the Miles Franklin Blog, they probably would have been more prepared. In other words, it is rapidly becoming "common knowledge" that not only are Central bankers clueless; and incapable of having even the slightest positive impact on economic activity or balance sheets; but they are clearly not even communicating anymore, as it's become "every man for himself" amidst the terminal, catastrophic phase of history's largest Ponzi Scheme.
Yes, U.S.-led market manipulators are still doing everything they can to prevent the "end game" of a final and total loss of confidence; but at this point, the only markets they still hold sway over are the equities of the largest markets - like the "Dow Jones Propaganda Average" and German DAX; and, of course, the paper gold and silver markets. I mean, watching the DAX hit a new all-time high Friday, as the Euro hit a new 12-year low; whilst the Swiss stock market plunged as the Franc surged, could not better depict just how "deformed" the Central bank fostered, PPT and Cartel-abetted financial markets have become. Only now, the "hangers on" that have been utilizing such orchestrations to their benefit are losing massive amounts of money. And with the Swiss carry trade now over - and confidence in the viability of other such "free money" schemes in doubt - it shouldn't be long before the aforementioned, bastardized "memes" are dead, too. To that end, when I saw St. Louis Fed President James Bullard again try to prop markets with pathetic, transparent jawboning on Friday, I couldn't help but think this is the "bottom of the barrel" of Central banking "weaponry."
*Bullard - Fed could resume unconventional policy if needed
*Bullard - Lesson of QE is it works 'fairly well'
No matter how you slice it, the SNB's catastrophic decision to initiate the Euro peg in 2011 will be remembered as the beginning of the "end of the era of Central banks"; although it wasn't until the peg was broken that the world realized it. And in its aftermath, Central bankers' fear and cluelessness will be Center Stage, as the Bank of Japan meets on Wednesday the 21st, the ECB on Thursday the 22nd, and the FOMC on Tuesday the 27th. And oh yeah, in between we have that little old Greek election, which may well catalyze a horrifying run on European banks.
As for the only guaranteed benefactors of this financial macabre, how ironic is it that the wildly dovish September 2011 commencement of the Euro/Franc peg started the gold "bear market?" - which I write in quotes, as it was entirely due to illegal price suppression. Whilst the end of the peg, when all is said and done, will almost exactly coincide with the "bear market's" end? Just looking at the startling U.S. Mint sales figures to start the year - before the SNB fiasco, as "after" data has not yet been reported; as well as data released Friday that China imported an unfathomable 61 tonnes of gold in the first week of the year, putting in on a pace to exceed 2014's record level by a whopping 50%; and oh yeah, accelerated Russian gold buying, and you can see how the potential for the entire world catching an advanced case of "gold (and silver) fever is extremely strong.
To conclude, we can't be more emphatic that "2008 is back." Only this time, we are at the "end of the era of Central banks"; and thus, they will not only be unable to "contain" the damage, but themselves will be destroyed like ants under a magnifying glass. The Central banks' maniacal money printing schemes were the only way to keep history's largest Ponzi scheme growing; and now that confidence in them is failing, and the need for gargantuan QE programs just to preventinstantaneous collapse has arrived, it won't be long before Central banks will have as much relevance as buggy whips.
January 19, 2015 | Categories: Guest Contributions | Tags: | Print This Article
Israel Shamir is a Russian-born Jew and Israeli citizen. He often has interesting things to say.
By Israel Shamir
The edifice of world post-1991 order is collapsing right now before our eyes. President Putin’s decision to give a miss to the Auschwitz pilgrimage, right after his absence in Paris at the Charlie festival, gave it the last shove. It was good clean fun to troll Russia, as long as it stayed the course. Not anymore. Russia broke the rules.
Until now, Russia, like a country bumpkin in Eton, tried to belong. It attended the gathering of the grandees where it was shunned, paid its dues to European bodies that condemned it, patiently suffered ceaseless hectoring of the great powers and irritating baiting of East European small-timers alike. But something broke down. The lad does not want to belong anymore; he picked up his stuff and went home – just when they needed him to knee in Auschwitz.
Auschwitz gathering is an annual Canossa of Western leaders where they bewail their historic failure to protect the Jews and swear their perennial obedience to them. This is a more important religious rite of our times, the One Ring to rule them all, established in 2001, when the Judeo-American empire had reached the pinnacle of its power. The Russian leader had duly attended the events. This year, they will have to do without him. Israeli ministers already have expressed their deep dissatisfaction for this was Russia’s Red Army that saved the Jews in Auschwitz, after all. Russia’s absence will turn the Holocaust memorial day into a parochial, West-only, event. Worse, Russia’s place will be taken by Ukraine, ruled by unrepentant heirs to Hitler’s Bandera.
This comes after the French ‘Charlie’ demo, also spurned by Russia. The West hinted that Russia’s sins would be forgiven, up to a point, if she joined, first the demo, and later, the planned anti-terrorist coalition, but Russia did not take the bait. This was a visible change, for previously, Russian leaders eagerly participated in joint events and voted for West-sponsored resolutions. In 2001, Putin fully supported George Bush’s War on Terrorism in the UN and on the ground. As recently as 2011, Russia agreed with sanctions against North Korea and Iran. As for coming for a demonstration, the Russians could always be relied upon. This time, the Russians did not come, except for the token presence of the foreign minister Mr. Lavrov. This indomitable successor of Mr. Nyet left the event almost immediately and went – to pray in the Russian church, in a counter-demonstration, of sorts, against Charlie. By going to the church, he declared that he is not Charlie.
For the Charlie Hebdo magazine was (and probably is) explicitly anti-Christian as well as anti-Muslim. One finds on its pages some very obnoxious cartoons offending the Virgin and Christ, as well as the pope and the Church. (They never offend Jews, somehow).
A Russian blogger who’s been exposed to this magazine for the first time, wrote on his page: I am ashamed that the bastards were dealt with by Muslims, not by Christians. This was quite a common feeling in Moscow these days. The Russians could not believe that such smut could be published and defended as a right of free speech. People planned a demo against the Charlie, but City Hall forbade it.
Remember, a few years ago, the Pussy Riot have profaned the St Saviour of Moscow like Femen did in some great European cathedrals, from Notre Dame de Paris to Strasbourg. The Russian government did not wait for vigilante justice to be meted upon the viragos, but sent them for up to two years of prison. At the same time, the Russian criminal law has been changed to include ‘sacrilege’ among ordinary crimes, by general consent. The Russians do feel about their faith more strongly than the EC rulers prescribe.
In Charlie’s France, Hollande’s regime frogmarched the unwilling people into a quite unnecessary gay marriage law, notwithstanding one-million-strong protest demonstrations by Catholics. Femen despoiling the churches were never punished; but a church warden who tried to prevent that, was heavily fined. France has a long anti-Christian tradition, usually described as “laic”, and its grand anti-Church coalition of Atheists, Huguenots and Jews coalesced in Dreyfus Affair days. Thus Lavrov’s escape to the church was a counter-demonstration, saying: Russia is for Christ, and Russia is not against Muslims.
While the present western regime is anti-Christian and anti-Muslim, it is pro-Jewish to an extent that defies a rational explanation. France had sent thousands of soldiers and policemen to defend Jewish institutions, though this defence antagonises their neighbours. While Charlie are glorified for insulting Christians and Muslims, Dieudonné has been sent to jail (just for a day, but with great fanfare) for annoying Jews. Actually, Charlie Hebdo dismissed a journalist for one sentence allegedly disrespectful for Jews. This unfairness is a source of aggravation: Muslims were laughed out of court when they complained against particularly vile Charlie’s cartoons, but Jews almost always win when they go to the court against their denigrators. (Full disclosure: I was also sued by LICRA, the French Jewish body, while my French publisher was devastated by their legal attacks).
The Russians don’t comprehend the Western infatuation with Jews, for Russian Jews have been well assimilated and integrated in general society. The narrative of Holocaust is not popular in Russia for one simple reason: so many Russians from every ethnic background lost their lives in the war, that there is no reason to single out Jews as supreme victims. Millions died at the siege of Leningrad; Belarus lost a quarter of its population. More importantly, Russians feel no guilt regarding Jews: they treated them fairly and saved them from the Nazis. For them, the Holocaust is a Western narrative, as foreign as JeSuisCharlie. With drifting of Russia out of Western consensus, there is no reason to maintain it.
This does not mean the Jews are discriminated against. The Jews of Russia are doing very well, thank you, without Holocaust worship: they occupy the highest positions in the Forbes list of Russia’s rich, with a combined capital of $122 billion, while all rich ethnic Russians own only $165 billion, according to the Jewish-owned source. Jews run the most celebrated media shows in prime time on the state TV; they publish newspapers; they have full and unlimited access to Putin and his ministers; they usually have their way when they want to get a plot of land for their communal purposes. And anti-Semitic propaganda is punishable by law – like anti-Christian or anti-Muslim abuse, but even more severely.
Still, it is impossible to imagine a Russian journalist getting sack like CNN anchor Jim Clancy or BBC’s Tim Willcox for upsetting a Jew or speaking against Israel.
Russia preserves its plurality, diversity and freedom of opinion. The pro-Western Russian media – Novaya Gazeta of oligarch Lebedev, the owner of the British newspaper Independent – carries the JeSuis slogan and speaks of the Holocaust, as well as demands to restore Crimea to the Ukraine. But the vast majority of Russians do support their President, and his civilizational choice. He expressed it when he went to midnight Christmas mass in a small village church in far-away province, together with orphans and refugees from the Ukraine. And he expressed it by refusing to go to Auschwitz.
Neither willingly nor easily did Russia break ranks. Putin tried to take Western baiting in his stride: be it Olympic games, Syria confrontation, gender politics, Georgian border, even Crimea-related sanctions. The open economic warfare was a game-changer. Russia felt attacked by falling oil prices, by rouble trouble, by credit downgrading. These developments are considered an act of hostility, rather than the result of “the hidden hand of the market”.
Russians love conspiracia, as James Bond used to say. They do not believe in chance, coincidence nor natural occurrences, and are likely to consider a falling meteorite or an earthquake – a result of hostile American action, let alone a fall in the rouble/dollar exchange rate. They could be right, too, though it is hard to prove.
Regarding oil price fall, the jury is out. Some say this action by Saudis is aimed at American fracking companies, or alternatively it’s a Saudi-American plot against Russia. However, the price of oil is not formed by supply-demand, but by financial instruments, futures and derivatives. This virtual demand-and-supply is much bigger than the real one. When hedge funds stopped to buy oil futures, price downturn became unavoidable, but were the funds directed by politicians, or did they act so as Quantitative Easing ended?
The steep fall of the rouble could be connected to oil price downturn, but not necessarily so. The rouble is not involved in oil price forming. It could be an action by a very big financial institution. Soros broke the back of British pound in 1991; Korean won, Thai bath and Malaysian ringgit suffered similar fate in 1998. In each case, the attacked country lost about 40% of its GDP. It is possible that Russia was attacked by financial weapons directed from New York.
The European punitive sanctions forbade long-term cheap credit to Russian companies. The Russian state does not need loans, but Russian companies do. Combination of these factors put a squeeze on Russian pockets. The rating agencies kept downgrading Russian rating to almost junk level, for political reasons, I was told. As they were deprived of credit, state companies began to hoard dollars to pay later their debts, and they refrained from converting their huge profits to roubles, as they did until now. The rouble fell drastically, probably much lower than it had to.
This is not pinpoint sanctions aimed at Putin’s friends. This is a full-blown war. If the initiators expected Russians to be mad at Putin, they miscalculated. The Russian public is angry with the American organisers of the economical warfare, not with its own government. The pro-Western opposition tried to demonstrate against Putin, but very few people joined them.
Ordinary Russians kept a stiff upper lip. They did not notice the sanctions until the rouble staggered, and even then they shopped like mad rather than protested. In the face of shrinking money, they did not buy salt and sugar, as their grandparents would have. Their battle cry against hogging was “Do not take more than two Lexus cars per family, leave something for others!”
Perhaps, the invisible financiers went too far. Instead of being cowed, the Russians are preparing for a real long war, as they and their ancestors have historically fought – and won. It is not like they have a choice: though Americans insist Russia should join their War-on-Terrorism-II, they do not intend to relinquish sanctions.
The Russians do not know how to deal with a financial attack. Without capital restrictions, Russia will be cleaned out. Russian Central bank and Treasury people are strict monetarists, capital restrictions are anathema for them. Putin, being a liberal himself, apparently trusts them. Capital flight has taken huge proportions. Unless Russia uses the measures successfully tried by Mohammad Mahathir of Malaysia, it will continue. At present, however, we do not see sign of change.
This could be the incentive for Putin to advance in Ukraine. If the Russians do not know how to shuffle futures and derivatives, they are expert in armour movements and tank battles. Kiev regime is also spoiling for a fight, apparently pushed by the American neocons. It is possible that the US will get more than what it bargained for in the Ukraine.
One can be certain that Russians will not support the Middle Eastern crusade of NATO, as this military action was prepared at the Charlie demo in Paris. It is far from clear who killed the cartoonists, but Paris and Washington intend to use it for reigniting war in the Middle East. This time, Russia will be in opposition, and probably will use it as an opportunity to change the uncomfortable standoff in the Ukraine. Thus supporters of peace in the Middle East have a good reason to back Russia.
Israel Shamir works in Moscow and Jaffa; he can be reached on email@example.com
Language editing Ken Freeland
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