This article by David Haggith was first published on The Great Recession Blog.

Brexit — the second major landslide in the Year of the Epocalypse —  has bankers all over the world scrambling to pick up and prop up their crumbled facades this week. This is one more jolt in the developing global economic collapse that I predicted for 2016. 

The ground of an entire nation just dropped several feet. Aftershocks from a drop that size will be felt frequently throughout the summer and to some extent for years to come.

As I’ve said before, US politicians will find it increasingly difficult this year to keep shoring up the US economy until the end of the election cycle. This collapse just made things a lot worse for them. Brexits, Grexits and other exits, oil defaults, job decay, manufacturing malaise and a host of other planet-sized problems are piling up so fast that it will become almost impossible to hold off collapse much longer as global problems press in on the US and other nations.

 

Entire nations are now making for the exits

 

Near the start of 2016, I described the anti-establishment forces that were shaping up to define the year ahead and the impact those nationally divisive forces would have on the world’s banking system this year:

 

The resources of all nations and their central banks are just too depleted to handle such a massive rupture of the global economy as we saw in 2008. Yet, this one is appearing that it could be far greater because it is developing all over the world simultaneously. The capacity of nations and their banks is fully taken up by huge monstrous national debts and balance sheets that have swelled beyond anything anyone would have imagined a decade ago.

 

At the same time, the people of all nations are fatigued from years of hearing about recession. In nations like Greece this is true at a level that is already explosive. If a recession like the Great Recession happens now, it will deplete all hopes because of all the talk of recovery that proved false after the last recession. They will have scaled the mountain — or tried to — only to find themselves shaken to the bottom again. Who would have faith in the central bankers to save the economy this time when all their plans to save it from the last recessionary period blew up in their faces?

 

Anger, albeit late in coming, is showing itself in US elections this round in the form of a movement in both parties away from the establishment. Who believes, however, that newly elected officials could find a solution once the central banks are proven to have failed? In moving away from the establishment, Democrats are moving further left and Republicans further right. There is little likelihood of agreement on a solution, especially one profound enough to right the entire world. (“Hell Week for the Global Economy“)

 

Later in May, I focused on the immigration tensions that were amplifying the anti-establishment discontent in Europe and here at home:

 

We don’t know what will happen with a Brexit or whether a Grexit will raise its ugly head again or whether immigration tensions will spontaneously combust in Europe … but I think the frying pan will certainly be sizzling this summer to cook up the last of the market’s bully beef for the bears to feast upon.

 

The increasingly scarce market bulls are dead cattle walking thanks to zombie economics. (“Zombie Economy Soon to Have its Zombie Epocalypse“)

 

In other words, I wouldn’t bet back then on exactly what national breakaway would happen first in the EU, but was certain national tensions would heat up to where Europe started falling apart this summer, particularly over immigration tensions. The falling apart began right on cue. One cannot always see what section of land will give way first, but one can certainly see that so many pieces are ready to give way that collapse is certain and imminent.

 

Banks and bankers are trembling all over the world

 

To sum up where we are now now, I’ll turn to former Fed Chair Allan Greenspan who said that the Brexit event “may be just the tip of the iceberg” for Europe’s problems. When asked what he meant by that, he responded with the following:

 

This is the worst period I recall since I’ve been in public service. There’s nothing like it, including the crisis — remember October 19th, 1987, when the Dow went down by a record amount 23 percent? That I thought was the bottom of all potential problems. This has a corrosive effect that will not go away…. 

This problem that’s causing the British problem is far more widespread. Fundamentally, what we are looking at is a massive slowing in the rate of real of incomes across the whole European spectrum…. Real incomes are not going anywhere, and that is creating a serious political problem, which is not easy to resolve….

 

I think the euro currency is the immediate problem… There’s this whole movement toward European political integration…. The euro area was a major step in that direction, and it’s failing. Greece is in real serious trouble. It is not going to continue in the euro very much longer, irrespective of what’s going on currently. (CNBC)

 

While Greenspan was one of the absent-minded architects of the Great Recession with his rabid debt-expansion policies, I quote him because he is speaking against his own longtime centrist bias when he claims that Grexit is certain for its own reasons and that the euro “is failing.”

In other words, if even Greenspan says Europe is falling apart and the euro “is failing,” it must be bad. He’s a centrist saying the center is not holding. It’s not the nature of a central banker — even a former one — to be alarmist by saying an entire economic zone run by his comrades, which he has applauded, is now collapsing into chaos.

Don Quijones, an editor of Wolf Street, adds a note to Greenspan’s candid observations:

 

Another serious problem (on which Greenspan was somewhat less forthcoming) is Europe’s swelling ranks of heavily leveraged, scantily capitalized, bad-loan bedeviled, zombified banks. It was they whose stocks plunged the most [on Friday]….

 

The prophets of Project Fear reaped what they’d sown, as financial carnage spread across global markets on news that a slim majority of British voters had done the unthinkable by drowning out the relentless doomsaying and voting to leave the European Union. The pound sterling plunged 8% against the dollar, to $1.37, its lowest level in three decades. The euro fell 1.93%, in itself a huge one-day move for a major currency. UK stocks surrendered over 3% of their value. But that was nothing compared to the havoc unleashed in other European stock markets….

 

In Spain and Italy: the IBEX 35 plummeted 12.3% and the FTSE MIB 12.5%. It was their worst day on record. The UK economy may be in for a hellishly bumpy ride in the months and years ahead, but the fact that London’s FTSE 100 was Europe’s least worst performing stock market on this day of all days suggests that Europe’s biggest financial risks probably lie elsewhere. And that is in euro land, in particular on its southern flank….

 

The shares of Italy’s biggest bank (and global systemically important institution), Unicredit, slid more than 23% on Friday. They are down 59% since January. The stock of Banco Populare, Italy’s fifth biggest bank, also lost 23% on Friday and is down over 80% since the beginning of this year. The fourth biggest institution, the perpetually failing Banca Monte dei Paschi di Siena whose loss-making derivatives bets were made under Mario Draghi’s watch as Bank of Italy’s governor, fell by 16.5%. (Wolf Street)

 

Spain’s banks suffered as badly as Italy’s, with Bankia shares losing 20% of their value. Spain’s largest bank, Santander, already suffering heavy losses from its operations in Brazil, also lost 20% of its value overnight, as did a third mega bank in Spain, Sabadell. Expect to see more major bank bailouts in Europe.

In the UK, Barclay’s shares plunged 20.5%. HSBC dropped 9%, and the Royal Bank of Scotland fell off a cliff, taking a 27.5% pounding.

 

Mood in the restaurants and coffee shops in the high-rise banking hub of Canary Wharf, home to JPMorgan, Citi , HSBC and Barclays, was sober and contemplative, with job security fears rising to levels unseen since the 2008 financial crisis. Major investment banks have already warned they could move thousands of jobs elsewhere if Britain opts out of the EU, while the European Central Bank has signaled it could force euro trading out of London, the world’s largest foreign exchange market….

 

“We’ll have a crash and big layoffs,” a senior investment banker at a U.S. bank told Reuters….

“This is the biggest vote in my lifetime. Black Wednesday and the impact of Lehman Brothers collapsing – these other big events don’t even compare in magnitude to this,” said Mark Boleat, Chairman of the City of London’s Policy and Resources Committee…. “We are just beginning to think through what will have to happen legally andit is massive, absolutely massive….”

 

“Leave’s victory [Brexit’s victory] has delivered one of the biggest market shocks of all time … Panic may not be too strong a word,” Joe Rundle, Head of Trading at ETX Capital said. (Newsmax)

 

Bankers are shaking in their hip waders as they congregate in a swamp full of alligators.

As individual bankers bemoaned what they see as a crushing shock, central banks ran in for emergency rescues. The Bank of England offered a quarter of a trillion pounds plus substantial access to foreign currencies, promising additional measures as required. The US Federal Reserve assured the entire world it was standing by to supplement liquidity through its swap lines with global funding markets. The ECB said it would provide additional liquidity to protect euro stability, and the People’s Bank of China assured other nations it would maintain a stable yuan (though on Monday, China weakened the yuan by its most since the big sell-off last August). Even neutral Switzerland ran to the rescue.

 

In a rare move for a major central bank, the Swiss National Bank openly intervened in currency markets to weaken the safe-haven franc, promising to do even more if needed. (Newsmax)

 

The Epocalypse is here

 

We have now entered a global period of bailouts heaping up against the back of earlier bailouts and attempted recovery coming on the back of already failed recovery. Why? Because it is all the same Great Recession, and as I’ve maintained since I began this blog several years ago the “recovery” is nothing but a prop under the Great Recession’s monstrous belly. That prop, I said would fail this year, and we would slide into the abyss of an economic apocalypse in a series of jolting plunges and rallies.

As I quoted David Stockman in an earlier article,

 

At long last the tyranny of the global financial elite has been slammed good and hard. You can count on them to attempt another central bank based shock and awe campaign to halt and reverse the current sell-off, but it won’t be credible, sustainable or maybe even possible….

 

The central bankers and their compatriots … have well and truly over-played their hand. They have created a tissue of financial lies; an affront to the very laws of markets, sound money and capitalist prosperity…. So there will be payback, clawback and traumatic deflation of the bubbles. Plenty of it, as far as the eye can see….

 

When I say “the Epocalypse is here” or “the end is here,” I don’t mean we are now on the final leg down or that there will be no leveling off or no rally — that its finished. Heck, the central bankers aren’t going to give up the show that easily, and this is an election year in the US where they can expect totally subservient assistance from establishment politicians on both sides of congress. The majority of elected politicians clearly deplore the possibility that Donald Trump could not only be proven right about economic collapse but could be hoisted to a success big enough to give him a political mandate to tear the establishment apart in 2017!

What I mean when I claim “the end is here” is that this is one more enormous jolt like we saw in January that is a part of the end. We are, in other words, going through the end. I’ve consistently stated the Epocalypse will take, at least, a year and half to find its bottom; so it is far from over. This is just the beginning of the end.

Each of these jolts does huge damage to the global economy, weakens banks and central banks and other corporations in substantial ways, and takes us further into the Epocalypse. This one is massive to such a degree that its damage to the establishment will only be discovered over a period of weeks or more likely months. Along the way, we also have smaller jolts like we saw when I quoted Dennis Gartman as saying a month ago:

 

The Bulls and the Bears left scratching their heads and wondering aloud, “What the hell just happened?” …Yesterday was our worst day of the year thus far, as that which we were long of fell and that which we were short of closed unchanged…. Yesterday was a disaster which we wish to put behind us. (Zero Hedge)

 

By “Epocalypse” I mean an economic collapse on the scale of things predicted in The Apocalypse (i.e. on the same scale as biblically prophesied disasters in the Book of Revelation). The “Epocalypse” is my name for our second and deeper plunge into the belly of the Great Recession — a drop so great it will make the first slump look like it was just a dress rehearsal for the real show.

I am sure many bulls who were long on Brexit are feeling the sizzle of the frying pan in the summer heat now as they try to recover from foolhardy long positions. Those were just the first ones who didn’t listen, and they just lost over two trillion dollars. The price of continuing to bet on the bull will grow worse each time something hits. You’re going to smell a lot more barbecued bull this summer … and beyond:

A few major banks that were already stressed will likely fail in the months ahead because Brexit added more stress than they can absorb. That will probably mean more bailouts, but the populace is not inclined to accept any more bailouts, so that will mean more civil unrest if bailouts happen.

National economies that were already crumbling like Greece, Brazil, Italy, Spain and France, will fall faster. As a result, other parts of the Eurozone will likely break off like icebergs in the summer heat. They may not announce their break from the EU this summer, but you’ll see major cracks form around their circumference.

Areas of marginal economic weakness will develop visible fault lines and experience serious tremors. In the US that would include jolts to jobs and wages, more falloff in GDP, increasing social unrest, increasing corporate collapse.

In the midst of that there will likely be periods of calm created by massive central bank infusions. You’ll see central banks invent new tricks that even they didn’t know they could come up with … out of desperation to save their “recoveries.” Those eddies of calm that run as counter currents to the main flow of events may beguile some rosy-eyed optimists into thinking the earth has stabilized, but it hasn’t and it won’t, and those beguiled will be hurt just as many were massively hurt by this jolt. As soon as you think the earth is steady, the next nation will fall.

The calm between January and Brexit was longer than I expected between legs down, and the expected intervening rally went twice as high as I thought it would, but this is an election year. Regardless of the extended pause, global economic breakdown is continuing along the fault lines where I’ve indicated it would and in the year when I said things would all come apart, and the scale of Brexit is as huge as I said each leg of our journey into the Epocalypse will be.

The journey into our decline has now resumed. Each part that gives way makes all the other parts weaker and their own collapse more certain and more imminent. It’s going to be a summer filled with aftershocks.

You cannot stop this collapse, nor can you talk it into happening with negativity either. It is going to happen because it has to happen. It has inevitability all over it. Economic structures that should never have been created in the first place are giving way in what will become total structural failure. They are giving way because of their own flawed design:

• You cannot create mountains of enduring wealth by carving out caverns of debt beneath them.
• You cannot create stable economies by focusing all the benefits toward the rich industrialists and hoping they will trickle down to create demand later.
• You cannot deplete your nation’s treasure with endless wars around the world by putting the wars of budget and beguiling yourself to think that means there was no cost to your own greatness.
• You cannot cram people from divergent cultures together by the millions without creating huge social costs that become economic costs.
• You cannot bail out rich bankers without creating moral hazard that entices them to repeat their sins.
• You cannot centrally manage economies in a way that benefits the periphery.

 

The list could be bigger. The earthquake has happened. The aftershocks will come. And then there is autumn, the time called “fall” because many things will.

via http://ift.tt/292lppr Knave Dave

It appears The Brits may have dodged more than a bullet in their decision to leave The EU. The foreign ministers of France and Germany are reportedly due to reveal a blueprint to effectively do away with individual member states in what is being described as an "ultimatum." As The Express reports, the shockingly predictable final solution to Europe's Brexit-driven existential crisis is an apparently long-held plan to morph the continent’s countries into one giant superstate. The radical proposals mean EU countries will lose the right to have their own army, criminal law, taxation system or central bank, with all those powers being transferred to Brussels. According to the Daily Express, the nine-page report has "outraged" some EU leaders.

The plans for 'a closer European Union' have been branded an attempt to create a 'European superstate', as The Daily Mail reports,

Germany's foreign minister Frank-Walter Steinmeier and his French counterpart Jean-Marc Ayrault today presented a proposal for closer EU integration based on three key areas – internal and external security, the migrant crisis, and economic cooperation.

 

But the plans have been described as an 'ultimatum' in Poland, with claims it would mean countries transfer their armies, economic systems and border controls to the EU.

 

Controversially member states would also lose what few controls they have left over their own borders, including the procedure for admitting and relocating refugees.

The Express reports that the plot has sparked fury and panic in Poland – a traditional ally of Britain in the fight against federalism – after being leaked to Polish news channel TVP Info.

The public broadcaster reports that the bombshell proposal will be presented to a meeting of the Visegrad group of countries – made up of Poland, the Czech Republic, Hungary and Slovakia – by German Foreign Minister Frank-Walter Steinmeier later today.

 

Excerpts of the nine-page report were published today as the leaders of Germany, France and Italy met in Berlin for Brexit crisis talks.

 

In the preamble to the text the two ministers write: "Our countries share a common destiny and a common set of values ??that give rise to an even closer union between our citizens. We will therefore strive for a political union in Europe and invite the next Europeans to participate in this venture."

 

Responding to the plot Polish Foreign Minister Witold Waszczykowski raged: "This is not a good solution, of course, because from the time the EU was invented a lot has changed.

 

“The mood in European societies is different. Europe and our voters do not want to give the Union over into the hands of technocrats.

 

“Therefore, I want to talk about this, whether this really is the right recipe right now in the context of a Brexit."

 

There are deep divides at the heart of the EU at the moment over how to proceed with the project in light of the Brexit vote.

Some figures have cautioned against trying to force through further political integration, warning that to do so against the wishes of the European people will only fuel further Eurosceptic feeling.

Czech minister Lubomír Zaorálek added that the four eastern members had reservations about the proposed common security policy.

 

Meanwhile Lorenzo Condign, the former director general of Italy’s treasury, has said it is nearly impossible to see Europe opting for more integration at such a time of upheaval.

 

He said: “It seems difficult to imagine that the rest of the EU will close ranks and move in the direction of greater integration quickly. Simply, there is no political will.

 

“Indeed, the risk is exactly the opposite – namely that centrifugal forces will prevail and make integration even more difficult.”

It seems the infamous phrase "never let a crisis go to waste" has not been lost on EU officialdom.

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Submitted by Mac Slavo via SHTFPlan.com,

As fears of England leaving the European Union came to a head on voting day, a stunning scene emerged on the streets of London. Though it was completely ignored by the mainstream media, the fact that Brits were lining up in droves in front of gold and silver shops spoke volumes about financial assets of last resort during a real or perceived crisis.

It is within this context that legendary resource investor Doug Casey warns that the hurricane which took the world by storm in 2008 is still a significant threat. While we’ve spent the last several years in relative peace and calm inside the eye of the storm, we’ll be entering the other side of the hurricane wall later this year, says Casey. And as we’ve seen in London, Greece, and Argentina in the past decade, when financial hurricanes wreak havoc across the economic landscape, the only safe haven to be had is in precious metals:

We’re at the start of a really major bull market… This is going to be driven by a lot of things… It’s going to take gold a lot higher than most people can imagine at this point.

 

…I think $5,000 gold will happen at some point because we’re looking at a worldwide monetary crisis of historic proportions.

Casey shares his concerns, warnings and strategies in a must-hear interview with Future Money Trends:

(Watch At Youtube)

You have to remember that since the crisis started in 2007, not just the U.S. government which has printed up trillions of U.S. dollars, but the Europeans, the Japanese, the Chinese… they’ve all created trillions and trillions of currency units.

 

Look at it as a Hurricane… We went into the leading edge of the hurricane in ’07, ’08 and ’09. They papered it over with all this funny money

 

Now we’re going out to the trailing edge… and it’s going to last much longer, be much worse and be much different.

 

I believe we’re going back into the trailing edge of the hurricane this year.

What’s most notable about the awakening of the gold bull market, according to Casey, is that very few people have actually realized what’s happening and why. It is for this reason that Casey has been investing heavily into mining companies like Brazil Resources, a move that’s been mimicked by other well-known investors including famed financier George Soros and business magnate Carl Icahn who are also piling into precious metals related assets.

And though this asset class has been largely ignored by the broader investing public, Casey suggests that the eventual result will be widespread mania and panic buying into gold assets as the global economic and monetary climate gets markedly worse going forward.

Right now, very very few people are involved in gold stocks.

 

They don’t even know gold exists.

 

By the time this market ends there’s going to be a mania in gold, where everybody is going to be talking about it at cocktail parties and touting mining stocks to each other.

 

We’re a long way from that… these stocks have a long way to run.

George Soros previously warned of the same, having noted in 2010 that gold will become the ultimate bubble before all is said and done. Incidentally, this is right around the time he began making his first major acquisitions.

Since then scores of other well known investors, institutions, and private family funds have made similar moves, many of them in secret, ahead of what could be an unprecedented bull market in precious metals.

That gold is still considered a relic by many of the best and brightest economists out there is indicative of an asset that is nowhere near its potential highs.

Once you hear those same processionals, financial advisers, your neighbors, your friends and the local shoeshine boy talking about gold investments at cocktail parties, you’ll know it’s time to sell. For now, they still have no idea what’s coming, making this an optimal time to consider the one asset that has survived the test of time throughout history and the many varieties of crises that have been wrought upon humankind.

via http://ift.tt/28ZKC17 Tyler Durden

Considering Goldman’s abysmal forecasting track record continues to plumb new lows (just today it predicted a Spain victory of Italy, and an England victory over Iceland, both tragically wrong), the following should perhaps be best used as an indicator of what will not happen. Still, since there are a lot of remaining Brexit question, we hope that the following at least provides a useful framework for how to approach the :”known unknowns”, if not so much the unknown unknown ones.

First, here is Goldman’s answer on what happens next, in terms of timeline of key events, as well as bookmaker odds for the next conservative party leader.

Some points from Goldman here:

• In the case of multiple candidates, Conservative Members of Parliament will choose a shortlist of two names for party leader. The winner will then be determined by a postal ballot of the wider members of the party.
• According to Adam Posen, President of the Peterson Institute for International Economics, “there’s a reasonable case to be made that this should go to an election given that the prime minister resigned.”
• More than 3 million people in the UK have signed a petition calling for a second EU referendum.
• Over the next several weeks, leaders across the continent will assemble to address the political implications for the UK and the EU more broadly.

* * *

The next question: how will Scotland and Northern Ireland react. It shows the following chart as evidence of the pro-EU sentiment in these two states.

“A second referendum must be on the table. And it is on the table.”

     – Scottish First Minister Nicola Sturgeon, June 24, 2016

“Scottish First Minister Nicola Sturgeon … threatened to block Britain’s exit from the EU, arguing that such a decision would need the consent of Scotland’s semiautonomous Parliament.”

     – The Wall Street Journal, June 27, 2016

“This outcome tonight dramatically changes the political landscape here in the north of Ireland, and we will be intensifying our case for the calling of a border poll.”

     – Sinn Féin Chairman Declan Kearney, June 24, 2016

On the other hand, as we reported earlier, a new poll has found that the majority in Scotland is against independence with more people (45%) saying Scotland should not conduct a second referendum, than those who said it should (42%).

* * *

Goldman then shows the split within the EU, with those on one side who are urging for a quick separation (Juncker, Hollande), and those who want a slow departure (Merkel, Cameron, Johnson). Merkel is winning.

* * *

Goldman’s final question: is there risk of more referenda across the EU. The answer: a resounding yes, as can be seen in the table below.

 

“The UK has just initiated a movement that will not stop.”

      – National Front Leader Marine Le Pen, June 24, 2016

 

“Hurrah for the British! Now it’s our turn. Time for a Dutch referendum! #ByeByeEU”

      – Dutch Freedom Party Leader Geert Wilders, June 24, 2016

via http://ift.tt/29a8boU Tyler Durden

Submitted by David Stockman via Contra Corner blog,

During Friday’s bloodbath I heard a CNBC anchor lady assuring her (scant) remaining audience that Brexit wasn’t a big sweat. That’s because it is purportedly a political crisis, not a financial one.

Presumably in the rarified canyons of Wall Street, politics doesn’t matter much. After all, when things get desperate enough, Washington caves and does “whatever it takes” to get the stock averages moving upward again.

Here’s a news flash. That’s all about to change.

The era of Bubble Finance was enabled by a political abdication nearly 50 years ago. But as Donald Trump rightly observed in the wake of Brexit, the voters are about to take back their governments, meaning that the financial elites of the world are in for a rude awakening.

To be sure, the apparent lesson of the first TARP vote when the bailout was rejected by the House in September 2008 was that politics didn’t matter so much.

Wall Street’s 800 point hissy fit was all it took to prostrate the politicians. Indeed, the presumptive free market party then domiciled in the White House quickly shed its Adam Smith neckties and forced the congressional rubes from the red states to walk the plank a second time in order to reverse the decision.

There was a crucial predicate for this classic crony capitalist capture of the authority and purse of the state, however, that should not be overlooked. Namely, that in the mid-cycle period of the world’s 20-year experiment in central bank driven Bubble Finance the rubes had not yet come to fully appreciate that they were getting the short end of the stick.

Indeed, the earlier phases of the bubble era witnessed an enormous inflation of residential housing prices. For instance, between Greenspan’s arrival at the Fed in August 1987 and the housing bubble peak in 2007, the value of residential housing rose from $5.5 trillion to $22.5 trillion or by 4X. 

The greatest extent of the housing bubble occurred in the bicoastal precincts, of course. But it did lift handsomely the value of 50 million owner occupied homes in the flyover zone, as well.

Accordingly, the latter did not yet see that the new regime was stacked in favor of the top 10% of the economic and wealth ladder, which owns 85% of the non-housing financial assets. Nor was it yet evident as to the degree to which massive money printing under conditions of Peak Debt almost exclusively stimulates Wall Street speculation, not main street production, jobs, incomes and spending.

In any event, by the eve of the great financial crisis, the GOP was actually controlled by the racketeers of the Beltway and the Wall Street gamblers, not the red state voters who had elected it.

In fact, Goldman’s Sach’s plenipotentiary to Washington, Hank Paulson, was in complete command of the elected side of government. At the same time, the Bush White House had populated the central banking branch of the state with proponents of monetary activism, who were more than ready to authorize “heroic” measures to reflate the bubble.

Needless to say, the leader of the pack, Ben Bernanke, had been groomed for the role of chief bailster by none other than Milton Freidman. The latter, in turn, had led Nixon astray at Camp David 37 year earlier when he persuaded Tricky Dick to default on the dollar’s link to gold, thereby opening the door to fiat money, massive credit expansion and the modern era of Bubble Finance.

There is a straight line of linkage from that great historical inflection point to Friday’s Brexit uprising. Namely, Nixon’s abandonment of the Bretton Woods gold exchange standard, as deficient as it had been, was also a profoundly political act.

It resulted in the abdication of economic and financial policy to an unelected elite and their eventual capture by Wall Street and the forces of speculation and financialization unleashed by unanchored central bank money and credit.

Nixon’s destruction of Bretton Woods was the enabling event. It turned central bankers and financial officialdom loose to operate a dictatorship of bailouts, bubbles and financialization of economic life. And to spread this baleful regime to Europe, Japan and the rest of the world, too.

To be sure, it took more than two decades to fully materialize. There were deeply embedded institutional cultures and ideologies among policy-makers that restrained opened-ended resort to the printing press and financial bailouts.

The Paul Volcker interlude in the US and the determined sound money regime of the Bundesbank are cases in point.

But eventually the old regime gave way. There emerged Greenspan’s dotcom and housing bubbles, the rise of the ECB and the financial rulers of Brussels, the massive bailouts triggered by the global crisis of 2008-2009, the hideous expansion of central bank balance sheets during the era of QE and ZIRP, the emergence of the destructive “whatever it takes” regime of Draghi and the current financial lunacy of subzero interest rates across much of the planet.

But here’s the thing. The rubes are on to the rig.

Twenty-years of Bubble Finance have made the City of London an oasis of splendor and prosperity, for example, but it has left the hinterlands of Britain hollowed-out industrially, resentful of the unearned prosperity of the elites and fearful of the open-ended flow if immigrants and imports enabled by the superstate in Brussels. As on observer put it, the geography of the vote said it all:

Look at the map of those results, and that huge island of “in” voting in London and the south-east; or those jaw-dropping vote-shares for remain in the centre of the capital: 69% in Tory Kensington and Chelsea; 75% in Camden; 78% in Hackney, contrasted with comparable shares for leave in such places as Great Yarmouth (71%), Castle Point in Essex (73%), and Redcar and Cleveland (66%). Here is a country so imbalanced it has effectively fallen over.

The rise of Trumpism in the US reflects the same social and economic fracture. To wit, Bubble Finance has also drastically unbalanced the US as between the bicoastal zones of prosperity it has enabled and the fly-over zones its has effectively left behind.

It goes without saying that massive debt monetization and 90 months of zero interest rates has been a boon for the Imperial City. With almost no restraints on its ability to borrow and spend, the military/industry/security/surveillance complex has prospered like never before, as has the medical care cartel, the education syndicate and the lesser beltway rackets such as green energy and the farm subsidy/food stamp/ethanol alliance.

Likewise, asset gatherers, financial intermediaries, brokers, punters, financial engineers and corporate strip-miners have prospered enormously because the market has been rigged every since Black Monday in October 1987. That is, the cost of debt and carry trades have been falsified, downside hedging insurance in the casino has become dirt cheap and time after time the Fed’s put has bailed-out speculations gone bust.

Even what passes for entrepreneurial  breakouts in the world of social media and new tech isn’t really. It’s just another variant of the dotcom bubble in which a few good innovations are being drastically over-valued (e.g. Uber) while a tsunami of worthless and pointless start-ups have become giant cash burning machines (e.g. Tesla).

Taken altogether, they are funding a ephemeral complex of pseudo businesses, pseudo jobs and pseudo start-up networks that are attracting tens of billions in venture capital that amount to malinvestment.

Meanwhile, the main street economy has atrophied. The first round of Bubble Finance buried the middle class in debt, while the post-crisis intensification has turned the C-suites of America into a giant stock trading and financial engineering arena.

Contrary to the bubblevision patter, in fact, there has been no business deleveraging at all. On the eve of the crisis in Q4 2007, total non-financial business debt outstanding was $11 trillion, and it is now $13.5 trillion.

But on the margin, ever dime of that massive swelling of the business debt burden represents real economic resources cycled out of the flyover zones and pumped back into the financial casino’s and the bicoastal elites which fatten on them.

The recent studies of the Census Bureau data which show that just 20 counties have generated half of all start-ups since the financial crisis provides another take on the underlying fissure:

Americans in small towns and rural communities are dramatically less likely to start new businesses than they have been in the past, an unprecedented trend that jeopardizes the economic future of vast swaths of the country.

 

The recovery from the Great Recession has seen a nationwide slowdown in the creation of new businesses, or start-ups. What growth has occurred has been largely confined to a handful of large and innovative areas, including Silicon Valley in California, New York City and parts of Texas, according to a new analysis of Census Bureau data by the Economic Innovation Group, a bipartisan research and advocacy organization that was founded by the Silicon Valley entrepreneur Sean Parker and small group of investors.

 

That concentration of start-up activity is unusual, economists say. In the early 1990s recovery, 125 counties combined to generate half the total new business establishments in the country. In this recovery, just 20 counties have generated half the growth.

 

The data suggest highly populated areas are not adding start-ups faster now than they did in the past; they appear simply to be treading water. But rural areas have seen their business formation fall off a cliff.

 

Economists say the divergence appears to reflect a combination of trends, all of which have harmed small businesses in rural America. Those include the rise of big-box retailers such as Walmart, the loss of millions of manufacturing and construction jobs across the country and a pullback in business lending that appears to have stung small-town and rural borrowers particularly hard.

The changes also reflect a fundamental shift over the past two decades in which workers and industries power the country’s economic growth. That shift advantages highly educated urbanites at the expense of everyone else. Polling suggests it is one of the driving forces in the political unrest among working-class Americans — particularly rural white men — who have flocked to Republican Donald Trump’s presidential campaign this year.

In short, Bubble Finance is a giant engine of reverse Robin Hood redistribution. It embodies a sweeping fiscal intervention in the natural flows of the free market that punishes savers, laborers, self-funded main street entrepreneurs and the retired populations in favor of speculators and the holders of existing financial assets.

Bubble Finance is an affront to both democratic governance and true prosperity. The Trump voters, the Brexit voters, the masses rallying to the populist banners throughout Europe above all else represent a reactivation of the political machinery in a last ditch campaign to stop the financial elite and their regime of Bubble Finance.

Yes, this time is different, and this time there will be no reflation of the financial bubble like there was after Black Monday, the S&L bust, the dotcom crash and the great financial crisis of 2008-2009.

Needless to say, the Wall Street dip-buyers and perma-bulls who take their cues from the modern day financial ruling class are in for a shock. And today’s statement by Martin Schulz, the President of the EU parliament good not more aptly explain why.

Said Schulz,

“The British have violated the rules. It is not the EU philosophy that the crowd can decide its fate“.

We think not.

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For those 17-year-old hedge fund managers used to BTFD on hopes corporate buybacks will “have their back” and provide the bid on which momentum-chasing HFT algos will piggyback, we have some bad news and some worse news.

The bad news is that we are entering yet another quiet period for buybacks. This means that for the next 45 days, the biggest – and supposedly only – buyer of stocks will be mostly out of the market, and bank buyback desks will not be able to provide much needed support during distressed (read: more sellers than buyers) times.

The worse news is that even without the buyback blackout period, following months of surging stock repurchasing activity by corporate treasurers…

… buybacks have now ground to a virtual halt.

According to TrimTabs, stock buyback announcements by U.S. companies have fallen sharply, sending a longer-term negative signal for U.S. equities.

“Corporate America announced $2.8 trillion in stock buybacks in the past five years, and these buybacks have provided a key source of fuel for the bull market,” said David Santschi, chief executive officer of TrimTabs.  “Corporate actions this year suggest this support is going to diminish.”

In a research note, TrimTabs reported that U.S. companies have announced a mere $11.8 billion in stock buybacks in June through Friday, June 24.  This month’s pace is the lowest this year.  Only four companies have announced plans to repurchase at least $1 billion this month.

“Even if some of the too-big-to-fails roll out buybacks after the release of the second part of the Fed’s stress test results, this month’s volume is likely to be among the lowest in the past three years,” noted Santschi.

TrimTabs also explained that stock buyback announcements by U.S. companies have totaled $291.7 billion this year, which is 32% lower than the $432.0 billion in the same period last year.

“The sharp decline in buyback announcements suggests corporate leaders are becoming more cautious, and it doesn’t bode well for the U.S. stock market,” said Santschi.

It is unclear if the dramatic slowdown is due to a shift in corporate strategy, due to a desire by the C-suite to stockpile cash, or simply because creditors are no longer willing to fund bonds whose “use of proceeds” is to buyback stock, no matter how high the yield.

In any case, the sudden disappearance of this cost-indiscriminate, and biggest by far, stock buyer in the market will be certain to have a substantial impact on risk pricing in the coming weeks and months; just in case the market didn’t have enough things to worry about…

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Submitted by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Last week’s UK vote to leave the EU may have come as a shock to many, but the sentiment that led British voters to reject rule from Brussels is nothing unique. In fact it is growing sentiment worldwide. Frustration with politics as usual, with political parties that really do not differ in philosophy, with an economy that serves the one percent at the expense of the rest of society is a growing phenomenon throughout Europe and in the United States as well. The Bernie Sanders and Donald Trump phenomena are but one example of a frustrated public sensing something is very wrong with society and looking for a way out.

What is happening in the UK, in Europe, and in the US, is nothing less than a breakdown of the entire system. The EU was meant to be a customs union where post-World War II Western Europe could rebuild itself through free trade and a reduction in bureaucracy. Through corruption and political ambition it became an unelected bully government in Brussels, where the well-connected were well compensated and insulated from the votes of mere citizens.

Whatever happens in the near future – and it is certainly not assured that the vote to “Brexit” will actually end in the UK’s departure from the EU – a line has been crossed that supporters of more personal liberty should celebrate. Rule from London is preferable to liberty-minded Britons than rule from Brussels. Just as Texans should prefer rule from Austin to rule from Washington. That doesn’t make either option perfect, just more likely to produce more freedom.

Is Brexit the first victory in a larger freedom movement? Can we get out of a system that creates money out of thin air to benefit the ruling class while impoverishing the middle class? Can we get out of a central bank that finances the wars that make us less safe? Can we exit Executive Orders? Can we exit the surveillance state? The PATRIOT Act? Can we exit NDAA and indefinite detention? Can we exit the US worldwide drone program, that kills innocents overseas and makes us ever-more hated?

Getting out of NATO would be a good first move. This Cold War relic survives only by stirring up conflict and then selling itself as the only option to confront the conflict it churned up. Wouldn’t it be better to not go looking for a fight in the first place? Do we really need still another NATO military exercise on the Russian border? It should be no surprise that NATO Secretary General Jens Stoltenberg was fear-mongering on the eve of the Brexit vote, warning UK citizens that if they vote to leave they could face increased terrorism.

Likewise, the US would do well to exit the various phony “free trade” agreements that provide advantage to the well-connected elites while harming the rest of us.

The act of exit is liberating. We should make a longer list of those things we would like to get out of. I am only getting started.

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Barely has the market had time to digest last week’s Brexit vote by the UK, a vote which may never actually be implemented if the “sturm und drang” campaign unleashed by the EU and the ECB on UK capital markets succeeds in changing the mind of enough “Leavers” to the point that the entire referendum is called off and Boris Johnson never triggers the Article 50 clause, and already Europe’s most financially troubled nation, Italy, is using Brexit as a pretext to unleash a €40 billion ($44 billion) bailout of its insolvent banks.

As the WSJ reported earlier, the Italian government is considering a capital injection for the country’s banking system, after Italian lenders were hit by a sharp selloff in banking stocks Friday, triggered by Britain’s vote to leave the European Union. Of course, Brexit has nothing to do with it: instead, as everyone knows by now, Italy’s banks are beset with €360 billion (and rising) in bad loans, some 18% of total bank balance sheets, chronically poor profitability amid record-low interest rates, thin capital buffers and high costs. It was precisely these concerns that the recently created Atlante “bad bank” was supposed to address until it became painfully obvious that its total war chest of €4.25 was woefully inadequate to put even the smallest dent on Italian bank insolvency.

According to Ambrose Evans-Pritchard, the country is the first serious casualty of Brexit contagion and a reminder that the economic destinies of Britain and the rest of Europe are intimately entwined. Morgan Stanley warned in a new report that eurozone GDP would contract by almost as much as British GDP in a “high stress scenario”.  “When Britain sneezes, Italy catches a cold. It is the weakest link in the European chain,” said Lorenzo Codogno, former director-general of the Italian treasury and now at LC Macro Advisors.

So, in the spirit of never letting a Brexit crisis go to waste, Italy has decided to use the British referendum as the scapegoat and demand nearly ten time as much in new capital to be used (and abused) as Italy’s banks see fit. As the Telegraph adds, an Italian government task force is watching events hour by hour, pledging all steps necessary to ensure the stability of the banks. “Italy will do everything necessary to reassure people,” said premier Matteo Renzi. “This is the moment of truth we have all been waiting for a long time. We just didn’t know it would be Brexit that set the elephant loose,” said a top Italian banker.

According to the WSJ, the chairman of Lower House’s Finance Commission, Maurizio Bernardo, confirmed that the government is studying options to support the banking sector, including a capital injection, and said a law decree “with measures going in that direction” could be approved by the end of this week. So far no decision has been taken as the government is monitoring how markets respond after Friday’s steep downturn.

They said how such an intervention would be implemented is unclear at this stage.  it is also unclear how such a direct state recapitalization of Italian banks using public funds would be permitted by current EU and ECB regulations, which prohibit state bailouts of insolvent banks, although Europe has a long and illustrious history of finding massive loopholes to that particular prohibition. Last but not least it is unclear how existing stakeholders, shareholders, bondholders and uninsured depositors, would be impaired under such a bailout. 

Italian officials are studying a direct state recapitalization of the banks, to be funded by a special bond issue, the Telegraph adds. They also want a moratorium of so-called ‘bail-in’ rules and bondholder write-downs, but these steps are impossible under EU laws. Mr Renzi raised the subject urgently at a meeting with German Chancellor Angela Merkel and French president Francois Hollande at a Brexit summit in Berlin on Monday.  “There has to be a suspension of the bail-in rules and state aid rules at the highest political level in the EU, otherwise I don’t see how this can work,” said Mr Codogno.

The new bail-in reform this year has brought matters to a head, catching EU authorities off guard. It was intended to protect taxpayers by ensuring that creditors suffer major losses first if a bank gets into trouble, but was badly designed and has led to a flight from bank shares. The Bank of Italy has called for a complete overhaul of the bail-in rules.

The WSJ adds that the government could invoke an exception to this rule under European law during exceptional market conditions. “I believe the measures could include a mix of public and private funds,” Mr. Bernardo said.

Meanwhile, Italy has certainly picked a great catalyst on which to blame the crisis that has been sweeping its banking system for the better part of the decade. The aftershocks of the U.K.’s vote to leave the EU in a referendum Thursday continued to rattle financial markets Monday, sending European shares sharply lower, with bank and travel stocks leading the declines.

Banca Monte dei Paschi di Siena SpA shares were down 12.2% on Monday, while Intesa Sanpaolo SpA was down 12.5%. Italy’s FTSE MIB lost 12.5% on Friday, with banking stocks the worst hit.

To be sure, yet another bailout would be a welcome move for banks which have been struggling to reduce their massive exposures to soured loans. As reported previously, investors have so far been unwilling to pay the prices banks were asking to sell their bad loans meaning Italian banks are stuck: they can’t mark their bad loan to market without taking a massive hit to capital, and there are no willing buyers at current prices. 

How did Italy arrive at the €40 billion numbers? Just like in the case of Neil Kashkari’s “back of the napkin” TARP calculation which estimated US bank needs at $700 billion or 5% of the total $14 trillion in residential and commercial mortgages, so Italy is using a similar rule of thumb.  Consultants have calculated that to bring around €200 billion of bad loans—the gross amount of soured loans where debtors are considered insolvent—closer to market values, the banking system would need a collective write-down of bad loans of about €40 billion. Some estimates place the write-down needed at roughly €30 billion.

And there’s your €40 billion bailout total.

Banks have so far refused to take such a drastic action as they believe the market price of bad loans should be higher, in particular considering the value of collateral backing part of those bad loans. The problem is that in recent weeks most potential hedge fund buyers have balked at these bank offer prices.

For now Italy pretends to be in denial:

“Italian banks have the capacity to face this crisis on their own,” said Giovanni Sabatini, general manager of Italian banking association ABI, commenting on the option of government support to the sector.

However, following the next near-death experience of an Italian bank, the official narrative will quickly change.

Currently, it is practically impossible for Italian banks to raise capital. They are caught in a pincer as the ECB simultaneously demands compliance with tougher capital adequacy buffers, in some case demanding fresh infusions of capital three or four times.  The banking squeeze has become politically explosive in Italy after thousands of small depositors were wiped out at four regional banks late last year. They were classified as junior bondholders, even though most of them were just ordinary savers who did not realize what was being done with their money.

Curiously, according to Codogno, the ECB is “unwittingly destabilizing the banks in an overzealous attempt to make Europe’s banks safer.” It is almost as if Mario Draghi had greenlighted Brexit as the designated “crisis” that would be used to enable the circuitous bailout of Italian banks, the same banks of which Draghi was regulator during his tenure in the Bank of Italy, and whose actions have led to numerous lawsuits questioning the legality of the central bank under Draghi.

Italy is now paralyzed under the existing eurozone structure. Analysts say it desperately needs a US-style bank rescue along the lines of the ‘TARP’ in 2008, which used federal funds to mop up bad assets and stabilize the banks. This is forbidden by the eurozone. The likely outcome is that Italy’s PM Renzi will be “forced” to take matters into his own hands and enact a unilateral sovereign rescue of the Italian banking system in defiance of the EU, unless he wins concessions soon from Brussels. Those who know him say he will not go down in flames for the sake of European ideological purity.

As a result, Brexit will be just the scapegoat used by Renzi and Italy to circumvent any specific eurozone prohibitions. And if it fails, all Renzi has to do is hint at a referendum of his own. Then watch as Merkel scrambles to allow Italy to do whatever it wants, just to avoid the humiliation of a potential “Italeave.”

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Submitted by Eugen von Bohm-Bawerk via Bawerk.net,

With global attention focused on BREXIT calamity, potentially more important questions are being overlooked, and especially in the South China Sea where storms are currently brewing between China and a range of littoral states for strategic control of territorial waters.

To be clear, our long term geostrategic position remains unchanged; China will gradually secure control of the South China and East China Seas through its so called ‘nine dash’ line, with the eventual battle for geo-maritime ascendency playing out in the Indian Ocean into the 2030s between China on the one hand, and America on the other. That much remains inexorable, but it’s what happens along the way to that eventual outcome where all the residual risks remains.

 

The most proximate trigger currently relates to pending legal rulings in The Hague that’s almost certain to rule in favour of Philippines legal claims towards the Spratly Islands. We’ll leave all the legal complexities aside, where this is essentially adjudicating on the technical basis of UNCLOS claims rather sovereignty per se. But suffice to say, China will not only reject the findings, it will up the ante with sabre rattling and maritime movements around the Spratly’s with further land reclamation around Scarborough Shoal. It’s also possible China will initiative targeted sanctions against Manila (a nice welcome message for the incoming President Duterte) to prove its point. Anyone willing to stand in the way of Chinese geopolitical pull, will be pushed off the edge of a ‘geo-economic atoll’, at least when it comes to creeping Chinese consolidation of its nine dash line.

Right on cue, the Chinese have just leant heavily on Cambodia to retreat a joint ASEAN statement against Beijing’ claims in the South China Sea, as a classic Chinese tactic to keep any disputes purely on a bilateral divide and rule basis with Vietnam, Indonesia, Philippines, and to a lesser extent, Malaysia. Coincidently, this is where China has all the economic leverage (see chart). That will take some of the heat off the pending ASEAN Regional Forum, not to mention Chinese G20 meetings in September. But the overall rules of the game are clear: If or when, China faces any geopolitical opposition to its maritime claims, it won’t hesitate to wield a large geo-economic stick to beat smaller starts into submission. Needless to say, exactly the same story applies closer to North East Asian home when it comes to maritime tussles with Japan over the Senkakus, and South Korea over Takeshema. China will continue to divide and rule competing littoral states, using geo-economic strength to rail through new geo-maritime facts on the ground.

The real question isn’t whether Japan, South Korea, Vietnam, Philippines, Indonesia or Malaysia occasionally play up and push back against Chinese actions, but ultimately where the US is going to draw the line to put a serious finger in China’s ‘nine dash’ dyke? While it’s true America is overseeing a fundamental reboot of the 7^th fleet, shifting 60% of its naval and maritime assets to Asia by 2020 with far more ‘tit for tat’ maritime measures being taken against Chinese when it comes to patrols, carrier movements and coast guard co-operation. It also comes with an added push from the Obama Administration to get a last minute Trans Pacific Partnership deal through to give America some kind of viable retort to AIIB onslaughts from China.

But at the end of the day, as much as Washington wants to be credible in Asia, it doesn’t want to be credible at any price, and especially not over a bunch of rocks and islands that are high symbolism, but very low on genuine strategic worth. While it’s possible Shinzo Abe will drag America to the brink of conflict with China before his LDP term is up in 2019, when the time comes, not only will America stand down in North East Asia and ASEAN, it’s going to consume most of its political capital trying to get its supposed Asian allies to play nice together rather than drawing a serious line against Chinese naval expansion.

At the end of the day, the only geopolitical relationship that globally matters over the next decade is the US-China G2 nexus, with all the geo-strategic, geo-maritime, and ultimately geo-economic (currency) complexity that brings. For us, that’s precisely why the US is going to put on a ‘brave face’ in North East Asia and ASEAN containment, but ultimately cuts its losses and concede to Beijing’s local dominance. Yet by precisely the same token, it’s also why the long term battle lines for maritime supremacy will ultimately be drawn in the Indian Ocean between the US and China towards 2030. Seen like that, the South China Sea is important, but it’s ultimately a storm in a far larger Indian Ocean teacup…

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It's no secret that the US has a long and storied past when it comes to running guns illegally, and subsequently completely losing control of them. In its most recent debacle, a joint investigation by the New York Times and Al Jazeera has revealed that millions of dollars worth of weapons sent by the CIA and Saudi Arabia to Jordan intended for Syrian rebels was stolen by Jordanian intelligence officials and sold on the black market.

In a separate scheme than was administered by the Pentagon, the CIA-run program code named Timber Sycamore reportedly began in 2013, and the plan called for large shipments of CIA and Saudi arms including Kalashnikov assault rifles, mortars and rocket-propelled grenades to be delivered to Jordan, where Jordanian intelligence would then finish the job and deliver the arms to Syrian rebels. While the budget for the program remains classified, it was learned that the biggest contributors to the program included the US and Saudi Arabia, along with other US allies in the region.

As mentioned, following the delivery to Jordan, the CIA relied upon the General Intelligence Directorate to transport the weapons to Syrian rebels, however often times the weapons disappeared midway. As RT reports, Jordanian officials told the publications that the theft was apparently perpetrated by officers with direct access to cargo, who "regularly siphoned truckloads" of weapons while still delivering some to the designated drop-off's.

The stolen weapons were then sold on the black market in Jordan, and those involved in the scheme worth millions of dollars, used the profits to purchase expensive SUVs, electronics, and other luxury goods. Unfortunately, as was the case in Operation Fast and Furious (and presumably countless other operations), it is also believed that some of the stolen weapons were used to kill two Americans and three others at a police training facility shooting in Amman in November.

The investigation also revealed that senior Jordanian officers had knowledge of the theft and – surprise, surprise – systematically covered up for the lower ranking officers that did the actual smuggling. Only after the Americans and Saudi's started to complain of the theft did the Jordanian intelligence agency allegedly arrest several dozen officers, including a lieutenant colonel running the operation. According to Jordanian officials, a number of the officers were fired from the service but were allowed to keep their pensions and profits from the scheme.

* * *

Alas, don't ever be concerned that America isn't exporting, as those official military exports are understated by the number of gun running operations that are being done behind the scenes – rest assured that Made In The USA stamp is on weapons being used by everyone around the globe.

Also let's not forget that it is absolutely no surprise that the Saudi's are in bed with the US in this effort, as it is the Saudi's who may be truly calling the shots at the end of the day when it comes to what ultimately happens in Syria.

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