If It Were Possible To Print One’s Way To Prosperity, WE’D ALL BE SPEAKING LATIN ! (think Roman Empire)

 Guest post by Leo Woods…

 I’m going to make this brief because I have a big day tomorrow (oh, I guess I mean later today), and I want to get this out before an insanely busy weekend arrives.

 

The thoughts I was wanting to convey were in regard to “real money” and the VALUE it must possess to be “honest money”.  Because these thoughts dovetail so well with the following article by Chris Martenson, I feel my brevity is justified.

 

My point (which has been proposed by numerous decently intelligent economists and financial writers) is that IT IS NOT POSSIBLE TO PRINT YOUR WAY TO PROSPERITY.  You see, for the laws of economics and finance to function, they must entail the use of a moral currency that actually has real value or is appropriately  backed by something of real value.

 

Just for simplicity I’m going to use gold as an example of money that has value.  So, what gives it value.  Besides it’s obvious untarnishable beauty and general rarity, it just takes one hell-of-a-lot of energy (both physical and mechanical), and time, to discover, mine, refine, and mint a unit of it.  All of this effort and time is costly and adds value to the finished product.  In a similar fashion, much the same could be said about a bushel of wheat or corn.  They too have value based on the value creating metrics of effort and time. 

 

Gold however, makes a better form of money than these just mentioned foods (as proven over the last 2500 years) due to it’s durability and a few other critical characteristics of a perfect money.  My point is that you CANNOT DICTATE, PRINT, or DIGITALLY CREATE VALUE. 

 

An item possesses real value due to the energy, effort, and time it takes to create it!

 

Although the Romans may not have been the first to destroy their country (empire) by corrupting the “value” of their money, they certainly are a spectacular example of it.

 

Now after hundreds of more recent examples have followed the Roman disaster, the United States is following it’s own corrupt leadership down this same well trodden path towards financial destruction by attempting to ignore all economic laws of monetary value, and thus using only a debt based money and a printing press.

 

The bad news is it’s happening here and right now, the good news is we don’t have to be complete saps and just follow our corrupt leadership.

 

We still have time to avoid worthless paper assets, (large bank accts. CD’s, excessive amounts of cash, etc.) and instead own things that have real value. 

 

We don’t have to be mental giants here, history is replete with lessons on this, all we have to do is look.

 

Before I close I want to credit this email’s subject title as having been sourced from the Martenson article immediately following these thoughts.  And it’s an excellent article which is well worth your time.  Hope you can benefit from some of the following contents.

 

Take care.

 

                                                                                                                           Leo

 

 

Peak Prosperity

 

Why The Fed’s Efforts Will End Badly

 

We’ve been down this road before. Quite recently, in fact

by Chris Martenson

 

It’s no secret that I’ve taken the contrarian position for seven long (and frequently frustrating) years.

 

Why? I happen to believe that if it were possible to print one’s way to prosperity, we’d all be speaking Latin. The Romans would have perfected the practice of money printing and would never have faced their own collapse due to insufficient resources for their empire’s continued maintenance and expansion.

 

History repeatedly has shown us that every culture and generation that has dabbled with we’ll-just-issue-more-money “solutions” has met with the same miserable fate.

 

This time will be no different. And if that makes me a ‘contrarian’ then so be it.  I’m happy to stand against the tide of popular opinion and boldly declare that there’s no such thing as a free lunch.

 

More broadly, the Fed is staffed by lunatics. As are the major banks. These are people who fervently believe that endless growth on a finite planet is both desirable and possible. Of course, those of us who look at this empirically know it’s an impossibility.

 

True leadership, responsible leadership, would recognize that simple fact and be working diligently towards a new monetary solution that does not require perpetual expansion. A monetary approach not founded on debt-based money, which pretty much has only two states: rapid exponential expansion, or collapse.

Of course, expecting the Fed, et al., to recognize this is folly.  As Upton Sinclair said, “It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

 

Look, we’ve been down this road before, and the sheer stupidity of our current situation is that we’ve been down it recently enough to know better.  It worked out poorly for us in 2000, again in 2008, and will soon enough again. That’s why I’m currently short the US stock market and plan to increase that short position as time goes on.

 

“But They Won’t Let It Fall.”

I’m quite familiar with, and even sympathetic to, the idea that the central banks will not ‘let’ the markets fall.  And indeed, they’ve done everything imaginable to keep the stock and bond markets magically levitated including, I’m sure, extreme tactics that we’ve not been told about (and maybe never will).

 

And I can understand the initial reasons as to why they did this back in 2009 as the global financial market was in full meltdown. But by 2010, they should have backed off. By not doing so, they put on a trajectory into territory from which there is no easy return, if any at all, without massive failures and disruptions.

And that’s where we find ourselves today.

 

As just one example of our current predicament, consider the degree of difficulty that pensions are in at the moment.

 

Certainly that after 7 years of a steady, if not ruler-straight, advance in the equity markets, pensions are in as much actuarial difficulty as ever.  Many are so badly underfunded that they are mathematically doomed at this point.

 

They’ve suffered from reverse compounding over the past decade; expecting 7.5% returns (where assets will double approximately every ten years) but instead getting something closer to 2.4% on average (which implies doubling every 29 years…a complete statistical and actuarial disaster).

 

The nation’s largest public pension fund, the California Public Employees’ Retirement System, has one-fifth of its assets in bonds and is down 1.3% since July 1, according to public documents. The system, known by its abbreviation Calpers, also has 53.1% of its assets in stocks, 9% in real estate and 9.4% in private equity.

 

In 2015, Calpers posted a return of 2.4%, below its target rate of 7.5%.

(Source – WSJ)

 

And 2015 was a pretty good year in terms of elevation of market prices!  Even worse, to combat the Fed’s ultra-low interest rate policies, pensions have had to chase returns by getting into riskier and riskier territory. From the same article linked just above, we get this chart:

Note the near perfect doubling of risk over the last decade. Compare that expected 7.5% return to the actual 2.4% return funds like Calpers are experiencing, and you quickly realize how on a risk-adjusted basis the Fed has helped to utterly destroy the pension model.

 

Now, whether the pension model was ever going to perform as expected over the long-term horizons is another debatable matter (again, infinite growth is not possible and all of that), but its early demise as a workable idea was accelerated by the Fed and its idiotic policies.

 

At any rate, the point I’m laboring towards here is that the Fed simply cannot ‘allow’ a market decline now because the panic-inducing wealth destruction that would accompany it would be too disruptive — especially during an election year!

 

Of course, next year will have its own reasons for why a market decline cannot be allowed. And so on and so forth until the whole thing just breaks anyways under its own weight.

 

What’s That Groaning Sound?

 

Meanwhile with each passing week, the fantastic distortions of the broken price-discovery mechanism that the Fed, et al, have converted our financial markets into grow ever larger.

 

There are too many to fully cover in this report, but let’s look at a particularly important one: corporate debt.

 

In the aftermath of the Great Recession and encouraged by the lowest interest rates ever, in all of US history, corporations did the logical thing and borrowed like crazy. The resulting growth in corporate debt has been nothing short of astonishing:

 

Risky Reprise of Debt Binge Stars U.S. Companies Not Consumers

 

May 31, 2016

 

Consumers were the Achilles’ heel of the U.S. economy in the run-up to the last recession. This time, companies may play that role.

 

Among the warning signs: rising debt, lagging profits and mounting defaults. While the financial vulnerabilities aren’t likely to lead to another downturn soon, economists say they point to potential potholes down the road for an expansion that’s approaching its seventh birthday.

 

Behind the deterioration in creditworthiness: surging corporate borrowing. Enticed by record-low interest rates, companies increased total debt by $2.81 trillion over the past five years to a record $6.64 trillion. In 2015 alone, liabilities jumped by $850 billion, 50 times the increase in cash by S&P’s reckoning.

 

Hmmmm…rising debt, lagging profits, debt increasing far (far!) faster than cash, and mounting defaults…where have we heard this story-line before?  Oh yeah, in 2008.

 

But note the chart of corporate debt…it has been compounding since 2009 at an annual rate of 11.4% (!).

 

Such a debt binge makes sense if and only if profits and investment have been keeping pace but that’s just not the case.  As the article continues:

 

“Companies have been adding to their debt and their debt has been growing more rapidly than their profits,” said John Lonski, chief economist of Moody’s Capital Markets Research Group in New York. “That imbalance in the past has usually led to problems” in the economy as companies cut back on spending and hiring.

 

Case in point: Last week’s news that so-called core capital goods bookings fell for the third straight month in April. The seasonally-adjusted total of $62.4 billion for non-defense orders excluding aircraft was the lowest in five years, prompting Neil Dutta of Renaissance Macro Research to label business investment “pathetic.”

 

So the story is developing like this: companies have used ultra-low interest rates to pile on debt and buy back shares, but not to re-invest in their own future growth.

 fffffffffffffffffff

Even worse, it’s not like the debt and low-cash situation is evenly spread across the S&P 500 universe. In fact, what cash there is happens to be heavily concentrated in a few hands, as the article explains:

 

Take away the $945 billion the 25 richest companies rated by S&P hold, and the picture doesn’t look particularly pretty for the bottom 99 percent of non-financial corporations.

 

In fact, their cash-to-debt ratios are at their lowest levels in a decade, according to S&P. And more than 50 U.S. companies have defaulted on their debt so far this year.

 

Conclusion

The daily ‘rescues’ seen in the stock market, the ones that seem to arrive in the middle of the night or right at 3:30 p.m. are not terribly mysterious to me.  They represent concerted attempts by official actors and their proxies to keep a happy face on the equity markets for as long as possible.

 

While these tactics were once used to engineer a shift in social mood that would then lead to higher borrowing and spending, they are now locked into a cage match where failure is not an option.

 

To fail here is to permanently ruin pensions, risk social upheavals, destroy political ambitions and careers, and have all of the central planners’ prior mistakes exposed as being morally and intellectually bankrupt.

 

Greenspan, Bernanke and now Yellen are all frauds. None of them has the slightest clue what they are up to or why. None of our central bankers understands the age of limits, or behavioral economics, or the importance of fairness in markets.

 

They’ve simply done what they’ve done to get through another day — another week, another night — without a market correction. They’re clearly afraid of the beast they’ve created, and now will do anything to prevent even a slight correction, which might send it berzerking across the financial landscape.

 

And because they’ve managed to prolong the status quo for soooo long, many observers are throwing in the towel on old tried-and-true strategies and models and are now embracing the “new normal”:

 

Stocks, Bonds, Oil Confounded Experts in May

 

May 31, 2016

 

Sell in May, they said. A strong dollar is bad for stocks and oil, they said. Everyone will get scared if China’s renminbi weakens again, they said. Avoid dangerous growth stocks, they said. Stick with safe, quality defensive shares with a yield, they said.

 

It didn’t turn out that way. As so often, markets confounded conventional wisdom last month.

 

At times, markets seem to move just to spite those of us who painstakingly build explanations. Sometimes we should accept that market moves don’t fit calendar months especially well, with May featuring sharp turnarounds in several asset classes due to comments by Fed policy makers. Most of all, we should be humble about our ability to forecast what will happen to markets, or why, because the patterns change so often.

 

(Source)

 

Yes, or maybe we should also accept the fact that these “markets” are no longer entirely controlled by explainable forces because there’s the hidden hand of scared monetary policy wonks on a lever or two.

 

You know, for the good of the nation and all that.

 

However, be this as it may, the Fed will fail and it will fail badly. If it doesn’t, that will mean that they’ve finally managed to succeed where the Romans and every civilization since has failed. They will have managed to print our way to prosperity.

 

But all the data (and pesky things like ‘math’) suggests otherwise. Moreover, the US election cycle dynamics should also put a dagger into any hopes that actual prosperity for any but the protected classes has been achieved. The people are understandably angry: we’ve been lied to and brazenly so. 

 

When the last insane central bank attempts finally fail, and they will, the impacts will be awful and lasting.  The corporate debt and pension data presented above are just a few of the many examples I can cite where central bank policy has merely bought time at a horrible expense.

Only a truly inept organization is blind to the accumulating unintended consequences that we now see laid about like so much tinder awaiting a proper spark.

 

Perhaps the Fed is aware, or perhaps not. Either way I cannot find a way to imagine that they’re actually clever enough to have finally cracked open the printed prosperity nut.

 

~ Chris Martenson

 

 

https://www.youtube.com/watch?v=AMld73bNCMQ&feature=youtu.be  This is a very interesting interview of Bill Holter where he discusses the important role he sees gold playing in the future monetary system.

 

 

 

 

 

 

The Holter Report

 

bill holter

Bill Holter

Scapegoat!

 

Have you ever wondered “who” would be blamed this time around? To this point, we speak about the “Lehman moment” when we look back at 2008. Of course it was not Lehman’s fault as they were forced, sacrificed or purposely destroyed, however you’d like to describe it. The way I saw it, the banking system needed an injection of capital, cheap capital and lots of it. The only way to get public funds was to “create” an emergency BEFORE the emergency became all engulfing; this is exactly what they did.

 

Now, some eight years and multiple $trillions later we are facing another “liquidity crunch”. It does not make sense that liquidity is scarce after all of the various QE’s but it is. The credit markets are very thin and trading even small pieces of credit has become hard work. The liquidity is just not there to support fully functional and liquid markets. The question now becomes, which financial donkey will have the tail of failure pinned on them?

 

I believe we have been getting the answer over just the last few weeks. My odds on guess is none other than Deutsche Bank, the largest or second largest derivatives monster on the planet. They have settled several cases recently including Libor, stock manipulation and for manipulating the London gold and silver fixes. I find it humorous as we were assured for so many years that gold and silver were THE ONLY things not being manipulated …how foolish of us to have thought such a thing?

 

As you know, DB is now offering 5% rates on 90-day money from it Brussels division. This makes no sense at all since they should be able to raise money in credit markets or from the ECB directly for nearly 0% or even negative …but for some reason they cannot. I have speculated Deutsche Bank has been “kicked out of the club” and their access to capital is being blocked. This may or may not be true but would make sense since they have agreed to turn state’s evidence and rat on other firms misdoings.

 

The latest, DB had their credit rating downgraded yesterday to two notches above “junk” Deutsche Bank’s credit rating was downgraded to 2 notches above junk. This will obviously make it even more difficult to raise capital and certainly increase their costs for capital. I find this very curious because from a systemic standpoint, we now have a wobbling counter partner in the derivatives market with well over $50 trillion! How comfortable can those be on the other side of derivatives with Deutsche Bank? Are they (were they ever?) really “hedged” or not? Without a doubt, it will be better not to find out but that is only wishful thinking.

 

Another aspect is from the judicial side, it now appears the courts are going to allow civil suits against the banks collectively based on criminal acts. The obvious here is that the banks collectively do not have enough capital to settle all the claims that are sure to come. What I am saying here is this, the old “pay to play” model which worked so well for so long may be breaking. It may be that the “paying” part may end up as more expensive than the profits made from “playing”.

 

All of which… which leads me to an important conclusion, the “banks”, collectively, need the system to come down and they need someone to blame. The “someone to blame” part is obvious, but why do they need the entire system to come down? Think about this, if the collapse is systemic then no one individually (except Deutsche Bank?) will have fingers pointed at them. The next logical point is this, how will a court be able to find for plaintiffs if the banks are ALL broke? Can you really squeeze blood from a stone? And penalizing the banks, no matter what they did would certainly not be viewed as something “for the common good”.

 

Let’s face it; the system is coming down one way or the other. If you cannot see this yet then all I can say is “you don’t know that you don’t know” and good luck to you. If the banks have reached the point of no return, doesn’t it make sense to “control” the crash? Or at least the narrative? Doesn’t it make sense to be able to point a finger at one particular bank as the reason instead of admitting it is ALL the banks and the system itself that was flawed. It will be very interesting to see how this exactly unfolds but my money is on Deutsche Bank as the Lehmanesque scapegoat!

 

Speaking of scapegoats, I am sure you saw the Senate vote last week that “sovereigns” (think Saudi Arabia) can be sued civilly. The finger has been pointed at the Saudis for being complicit in 911. The Saudi press returned volley yesterday by claiming the U.S. government was complicit themselves Saudi Press Just Accused US Govt of Blowing Up World Trade Centers as Pretext to Perpetual War. I think what is being missed here is both the Saudis and the U.S. are moving away from the official (impossible) story. Neither now claim that 19 Arabs did this on their own!

 

Do you see the importance of this? “Truth”, (uncovered in these small portions) is slowly coming out via “truth bombs”. The official stories whether they be financial, political or geopolitical are having small shreds of truth added in. As I have said all along, I believe we will see the mother of all truth bombs dropped by Mr. Putin with an absolutely “shocked” China looking in. Any sort of truth bomb will have U.S. (Western) financial markets as the prime target… Can Western markets even survive the real truth?

 

 

Standing watch,

Bill Holter

Holter-Sinclair collaboration

Comments welcome bholter@hotmail.com 

 

 

Martin Wolf: There Will Be Another “Huge” Financial Crisis

By Mark O’Byrne June 2, 2016 0 Comments

Martin Wolf writing in the Financial Times has warned that there will be another financial crisis given the nature of the modern fractional reserve banking and financial system. Financial_Times_corporate_logo.svgWolf asks whether there will be “another huge financial crisis” and then answers his question by saying that there will be, and warns that banks “are designed to fall. So fall they surely will.”

He warns that a system built on making promises it cannot keep is bound to crash, and crash again:

Will there be another huge financial crisis? As Hamlet said of the fall of a sparrow: “If it be now, ’tis not to come. If it be not to come, it will be now. If it be not now, yet it will come – the readiness is all.” So it is with banks. They are designed to fall. So fall they surely will.

A recent book explores not only this reality but also a radical and original solution. What makes attention to this suggestion even more justified is that its author was at the heart of the monetary establishment before and during the crisis. He is Lord Mervyn King, former governor of the Bank of England. His book is called The End of Alchemy.

The title is appropriate: alchemy lies at the heart of the financial system; moreover, banking was, like alchemy, a medieval idea, but one we have not as yet discarded. We must, argues Lord King, now do so.

As Lord King remarks, the alchemy is “the belief that money kept in banks can be taken out whenever depositors ask for it”.

This is a confidence trick in two senses: it works if, and only if, confidence is strong; and it is fraudulent. Financial institutions make promises that, in likely states of the world, they cannot keep. In good times, this is a lucrative business. In bad times, the authorities have to come to the rescue. It is little wonder, then, that financial institutions have become so large and pay so well.

His solution to the dangerous alchemy of the current banking system is to make Central banks pawnbrokers of last resort. This seems somewhat more prudent than the more dangerous deflationary experiment of bail-ins and confiscating deposits, both individuals and families life savings and indeed SME and corporate deposits above a certain level, in order to bail out failing banks.

Wolf joins a long list of investment and finance experts and even the Prime Minister of Japan who are warning that another global financial crisis is coming. The question is not if, but when.

Read full FT article via Irish Times here

 

 

 

Jim Sinclair

 

Jim Sinclair’s Commentary

 

This is as major as was the invention of the OTC Derivative as a prolific instrument.

 

There is a major change in the direction of the wind from behind to directly in the face of the major banksters. If there is more to shift in legal interpretation contained herein then between failed OTC derivatives of all kinds and types plus huge civil awards aggravated by punitive damages, the headline below is absolutely correct. Banks will be dropping like flies.

 

World’s 16 biggest banks, including RBC, ordered to face Libor lawsuits in ruling court warns could ruin them Bob Van Voris, Bloomberg News | May 23, 2016 5:41 PM ET

 

Sixteen of the world’s largest banks including JPMorgan Chase & Co. and Citigroup Inc. must face antitrust lawsuits accusing them of hurting investors who bought securities tied to Libor by rigging an interest-rate benchmark, a ruling that an appeals court warned could devastate them.

 

The appellate judges reversed a lower-court ruling on one issue – whether the investors had adequately claimed in their complaints to have been harmed – while sending the cases back for the judge to consider another issue: whether the plaintiffs are the proper parties to sue, in part because their claims, if successful, provide for triple damages that could overwhelm the banks.

 

“Requiring the banks to pay treble damages to every plaintiff who ended up on the wrong side of an independent Libordenominated derivative swap would, if appellants’ allegations were proved at trial, not only bankrupt 16 of the world’s most important financial institutions, but also vastly extend the potential scope of antitrust liability in myriad markets where derivative instruments have proliferated,” the U.S. Court of Appeals in New York said in the ruling.

Bank of America Corp., HSBC Holdings Plc, Barclays Plc, Credit Suisse Group AG, Deutsche Bank AG, Royal Bank of Canada and Royal Bank of Scotland Group Plc are also among the banks sued in Manhattan.

 

 

Silver Price To Surge To Over $100/oz on Global Technological “Gadget” Demand

By Mark O’ByrneJune 1, 2016

 

The silver price is set to surge 800% or “nine fold” in the coming years due to global industrial and technological demand, the “gadget boom” and tight supplies according to a leading mining executive, of First Majestic Silver Corporation.

Silver “supply concerns” could “boost the metal’s price nine fold”, according to the CEO of the best-performing producer of the metal as reported by Bloomberg.

 

Neumeyer, the E&Y Mining Entrepreneur of the Year 2011 said that a major Japanese electronics maker had approached First Majestic Silver Corp. for the first time last month seeking to lock in future silver stock:

 

“For an electronics manufacturer to come directly to us – that tells me something is changing in the market,” said Keith Neumeyer, chief executive officer of First Majestic, the top stock in Canada and among its global peers this year. “I think we’ll see three- digit silver,” he said, predicting the metal could surge to $140 an ounce by as early as 2019.

 

While long coveted for use in jewelry, silver coins and utensils, silver is increasingly in demand for its industrial applications. Last year, about half of global silver consumption came from such use, including mobile phones, flat-panel TVs, solar panels and alloys and solders, according to data compiled by GFMS for the Washington-based Silver Institute.

 

“Silver is not a precious metal, it’s a strategic metal,” Neumeyer said in an Interview in Vancouver, where the company is based. “Silver is the most electrically conductive material on the planet other than gold, and gold is too expensive to use in circuit boards, solar panels, electric cars. As we electrify the planet, we require more and more silver. There’s no substitute for it.”

 

Industrial demand is set to increase, driven by rising incomes and growing penetration of technology in populous, developing nations, as well as thanks to new uses being found for silver’s anti-bacterial and reflective properties in everything from hospital paints to Band-Aids to windows.

 

“Over the next 10 or 20 years, more and more people are going to be using these devices, and silver is a very limited commodity,” Neumeyer said. “There’s just not a lot of it around.”

 

Use of silver, including investment demand, coin sales and what goes into inventories to settle trades, has outstripped annual supply of the metal in every year since 2000, according to data from GFMS, a research unit of Thomson Reuters Corp.

 

“The silver rally is just beginning,” Neumeyer says. “What we’ve seen in the last two months is just the beginning of the next bull market.”

 

Read and see Bloomberg article and interview here

 

 

 

 

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