On the 28th September Tobias Ellwood, Tory MP for Bournemouth East, stood up in Parliament and suggested that the British Army and the Ministry of Defense be in charge of distributing and administering “millions of doses” of the Sars-Cov-2 vaccines, as well as issuing “vaccination certificates” which will “allow travel”.
And that’s just the highlights, there’s a lot more vaguely sinister language, camouflaged in his rather drab monotone voice. (You can watch the whole speech here, go to 20:24).
This is a concerning development, one very much worth keeping an eye on.
This is not new behaviour for Ellwood. He has always been a consistent voice for use of the military in response to the “pandemic”. On the 18th of September he requested the Prime Minister make “greater use of our fine armed forces”.
He specifically mentions “managing the narrative”, which is no surprise considering his role as a former Army officer, a current reserves officer, and his known affiliation with the 77th Brigade.
For those who don’t know: The 77th is the British army’s team of “facebook warriors”. An information warfare unit whose job is to “counter misinformation”, “manage the narrative” and generally corral and control the internet conversation.
71 Year Old Former Wall Street Trader Gets 5 Years In Prison For $20 Million Ponzi Scheme Tyler Durden
Sat, 10/03/2020 – 08:45
A former Wall Street trader was sentenced to more than 5 years in prison on Tuesday for raising $20 million from investors and then spending the money on himself.
71 year old Paul A. Rinfret pleaded guilty last October to securities and wire fraud and was sentenced on Tuesday to 63 months in prisons. Rinfret defrauded investors using an entity he created called Plandome Partners, LP, from 2016 to 2019, according to Bloomberg.
Rinfret was accused of selling limited partnership interests in Plandome while telling investors he was using their money to trade S&P futures contracts using a “proprietary algorithm”. And there’s your first warning sign.
He used only a “small portion” of the money for investing, returned $8 million to previous investors, spent $30,000 on an engagement party for his son, rented a $50,000 Hamptons vacation home and bought $35,000 worth of custom kitchen cabinets with the rest.
According to The Daily Mail, he spent “$170,000 on jewelry, watches and cars; more than $105,000 on wine and other alcohol; approximately $12,000 on cigars; and more than $130,000 at restaurants.”
On top of that, he lost $3 million trading, prosecutors said. U.S. District Judge Gregory Woods commented: “Mr. Rinfret’s crimes were reprehensible. They were properly described as brazen.”
Rinfret went “full Madoff” and also sent fake monthly account statements that reported false returns to keep his investors from making withdrawals and to convince additional people to give him money.
Rinfret’s public defender described him as “genuinely remorseful” and said he had “lost everything”, including his money and two of his three children who refuse to talk to him. His lawyer also said that his wife left him on the day of his arrest, which was also his 44th wedding anniversary.
Jennifer Willis, his lawyer, said: “He is a man who has been punished by the collateral consequences of his actions.”
Prosecutors argued for a 63 to 78 month sentence, despite this, telling the judge: “The defendant simply wanted to live a more extravagant life than he was already living and give that appearance to others. That’s it.”
Coincidentally enough, today also seems like a good day to remind people that, to this day, nobody has gone to jail for the 2008 housing crisis.
via ZeroHedge News https://ift.tt/3lbfZJG Tyler Durden
I really do not know how to report Wednesday’s events. Stunning evidence, of extreme quality and interest, was banged out in precis by the lawyers as unnoticed as bags of frozen chips coming off a production line.
The court that had listened to Clair Dobbin spend four hours cross-examining Carey Shenkman on individual phrases of first instance court decisions in tangentially relevant cases, spent four minutes as Noam Chomsky’s brilliant exegesis of the political import of this extradition case was rapidly fired into the court record, without examination, question or placing into the context of the legal arguments about political extradition.
Years ago Noam Chomsky visited Julian Assange at the Ecuadorian Embassy in London
Twenty minutes sufficed for the reading of the “gist” of the astonishing testimony of two witnesses, their identity protected as their lives may be in danger, who stated that the CIA, operating through Sheldon Adelson, planned to kidnap or poison Assange, bugged not only him but his lawyers, and burgled the offices of his Spanish lawyers Baltazar Garzon. This evidence went unchallenged and untested.
The rich and detailed evidence of Patrick Cockburn on Iraq and of Andy Worthington on Afghanistan was, in each case, well worthy of a full day of exposition. I should love at least to have seen both of them in the witness box explaining what to them were the salient points, and adding their personal insights. Instead we got perhaps a sixth of their words read rapidly into the court record. There was much more.
I have noted before, and I hope you have marked my disapproval, that some of the evidence is being edited to remove elements which the US government wish to challenge, and then entered into the court record as uncontested, with just a “gist” read out in court. The witness then does not appear in person. This reduces the process from one of evidence testing in public view to something very different. Wednesday confirmed the acceptance that this “Hearing” is now devolved to an entirely paper exercise. It is in fact no longer a “hearing” at all. You cannot hear a judge reading. Perhaps in future it should be termed not a hearing but an “occasional rustling”, or a “keyboard tapping”. It is an acknowledged, indeed embraced, legal trend in the UK that courts are increasingly paper exercises, as noted by the Supreme Court.
In the past, the general practice was that all the argument and evidence was placed before the court orally, and documents were read out, Lady Hale said.
She added: “The modern practice is quite different. Much more of the argument and evidence is reduced into writing before the hearing takes place. Often, documents are not read out.
“It is difficult, if not impossible, in many cases, especially complicated civil cases, to know what is going on unless you have access to the written material.”
At least twice in the current case, Judge Baraitser has mentioned that the defense gave her three hundred pages of opening argument, and has done so in the context of doubting the need for all this evidence, or at least for lengthy closing arguments which take account of the evidence. She was highly resistant to any exposition by witnesses of their evidence before cross-examination, arguing that their evidence was already in their statements so they did not need to say it. She eventually agreed on a strict limit of just half an hour for witness “orientation”.
Julian Assange’s fiance Stella Moris @StellaMoris1 speaking on the final day of evidence in London extradition hearing:
However much Lady Hale thinks she is helping by setting down a principle that the documentation must be available, having Patrick Cockburn’s statement online somewhere will never have the impact of him standing in the witness box and expounding on it. What happened on Wednesday was that the whole hearing was collapsed, with both defense and prosecution lawyers hurling hundreds of pages of witness statement at Baraitser’s head, saying: “You look at this. We can get finished tomorrow morning and all have a long weekend to prepare our next cases.”
I was so disappointed by the way the case petered out before my eyes, that the adrenaline which has carried me through must have dried up. Returning to my room at lunchtime for a brief doze, when I tried to get up for the afternoon session I was overcome with dizziness. I eventually managed to walk to the court, despite the world having decided to present itself at a variety of sharp and unusual angles, and everything appearing to be under glaring orange sodium light. The Old Bailey staff – who I should say have been really friendly and helpful to me throughout – very kindly took me up in a lift and through the advocate’s robing room to the public gallery.
I am happy to say that after court two pints of Guinness and a cheese and ham toastie had a substantial restorative effect. Those who have followed these reports will understand how frustrating it was to be deprived of James Lewis asking Noam Chomsky how he can venture an opinion on whether this extradition is politically motivated when he is only a Professor of Linguistics, or whether he has ever published any peer-reviewed articles. To attempt to encapsulate the wealth of information skipped through yesterday is not the work of an evening.
What I shall do for now is give you the eloquent and brief statement by Noam Chomsky on the political nature of Julian Assange’s actions:
A friend last night gave me the cold comfort that I should not worry about the hurried close of these proceedings reducing the public gaze on the evidence and the arguments (and I think there were altogether nine witness statements yesterday), because that public gaze had been extremely limited, as indeed I have been continually explaining. In other words, it makes no difference. I follow that argument, but it goes against some fundamental beliefs and motivations I have about bearing witness, which I shall need to develop further in my own mind.
In the next few days I will try to bring you a synthesis and analysis of all that passed on Wednesday. Now I need to go to court and see the last few dribbles of this case, and exchange last glances of friendship with Julian for some months.
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Mapping COVID-19’s Crushing Impact On International Tourism Tyler Durden
Sat, 10/03/2020 – 07:35
World Tourism Dayis observed each year on September 27 to “foster awareness among the international community of the importance of tourism and its social, cultural, political and economic value.”
While this year’s edition of World Tourism Day was meant to celebrate the role that tourism plays in rural development and providing opportunities outside of big cities, Statista’s Felix Richter notes that the official theme was overshadowed by the COVID-19 pandemic, which has had a crushing impact on tourism around the world.
Earlier this year, the UN’s World Tourism Organization published estimates on how big the impact of the coronavirus pandemic on international tourist arrivals could be. The most positive of the three scenarios published in May assumed that travel restrictions would be lifted in July. Even under this scenario, which has already turned out to be too optimistic with international travel still severely restricted, the UNWTO expected international tourist arrivals to drop by 58 percent this year compared to 2019.
Looking at the latest data covering the first six months of 2020, the UNWTO’s estimates weren’t far off, though. As the following chart shows, international tourist arrivals were down 65 percent globally for the first half of 2020 compared to the same period of 2019.
With the recent uptick in new infections around the world proving a major setback in efforts to reanimate the ailing tourism sector, millions of people are fearing for their livelihood, especially in regions heavily dependent on the influx of international tourists.
via ZeroHedge News https://ift.tt/3n7Kzpc Tyler Durden
On October 2, the Armenian-Azerbaijani war entered its 5th day. Forces of the Azerbaijani military, supported by Turkey, continued their attempts to capture the contested Nagorno-Karabakh Region and to dismantle the self-proclaimed Nagorno-Karabakh Republic, which is overwhelmingly populated by Armenians.
Intense artillery duels and Azerbaijani airstrikes are being reported across the entire frontline in Karabakh, and even near some parts of the Azerbaijani-Armenian border. Nonetheless, the main clashes still take place in the districts of Fizuli and Jabrayil, where Azerbaijan have achieved their main gains capturing several positions from the Armenians. The Azerbaijani artillery together with Turkish-made and Israeli-made combat drones played a key role in the tactical successes of Azerbaijan on the battlefield.
On October 1, the Armenian military even claimed that 4 Azerbeijani combat drones entered Armenian airspace and 3 of them were shot down, allegedly by the S-300 system. Additionally, the Armenian Defense Ministry claimed that its forces had shot down three Azerbaijani fighter jets and two helicopters. The Ministry of Defense of Azerbaijan dismissed the Armenian claims, calling them “complete nonsense and fake news.”
It insists that the Armenian side uses claims about attacks on its territory in an attempt to trigger the Collective Security Treaty Organization pact and obtain direct military support from Russia in the conflict in Karabakh, which formally is not its territory. What is even more strange, despite the 5 days of open war, the Armenian leadership has still not started the process for the recognition of the Nagorno-Karabakh Republic or the official integration of the region into Armenia. Therefore, it has no even theoretical legal grounds to request CSTO help in a conflict on its territory.
Meanwhile, the UK-based Syrian Observatory for Human Rights, known for its anti-Assad and pro-militant stance in the Syrian conflict, reported that dozens of Turkish-backed Syrian militants had been killed, injured or went missing while fighting against Armenian forces in Karabakh. According to the SOHR, 28 of them were killed and 62 others were injured or went missing. The report alleges that at least 850 Turkish-backed Syrian militants were deployed there. It should be noted that, according to Armenian estimates, their number is about 4,000. France and Russia also expressed their concern regarding the moving of militants to the region. In turn, Azerbaijani and Turkish media and officials insist that Armenia deploys members of Kurdish armed groups, considered to be terrorists by Ankara, to the combat zone. Nonetheless, these claims have not so far been supported by any evidence.
The self-styled Neo-Ottoman Empire of President Recent Tayyip Erdogan is on a full-scale propaganda offensive to instigate an Armenian-Azerbaijani war.
On October 1, the United States, Russia and France released a joint statement condemning the violence in the Nagorno-Karabakh region, calling on the sides to accept a ceasefire and return to the negotiating table. In response, President Erdogan made a fierce statement slamming the OSCE and claiming that Azerbaijan should continue its military push to capture the Nagorno-Karabakh region and thus the war with Armenia.
“I would like to declare that we are together with our brothers in Azerbaijan in their struggle for the liberation of their occupied land. The path to lasting peace in this region lies through the withdrawal of Armenia from all the spans of the Azerbaijani lands occupied by them,” Erdogan said addressing the Turkish Parliament. “Especially the so-called Minsk trio America, Russia, France and their seeking of a ceasefire in the face of this negative situation, which has been reflected these days because they have neglected this problem for nearly 30 years, is above all not acceptable,” he added.
In the best traditions of Turkish public diplomacy, Erdogan simultaneously accused Armenia of triggering the military escalation. Meanwhile, Turkish state media reported that during the recent phone call Turkish Foreign Minister Mevlut Cavusoglu told his Russian counterpart Sergey Lavrov that Turkey sees no reason for a ceasefire in Karabakh for as long as the region remains in the hands of Armenian forces.
Earlier, the Turkish leadership at the highest level declared that it is ready to provide any help, including military, to Baku. The Armenian side claims that Turkey is in fact participating in the war on the side of Azerbaijan.
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Note: all references to inflation are of the quantity of money and not to the effect on prices unless otherwise indicated.
In last week’s article I showed why empirical evidence of fiat money collapses are relevant to monetary conditions today.
In this article I explain why the purchasing power of the dollar is hostage to foreign sellers, and that if the Fed continues with current monetary policies the dollar will follow the same fate as John Law’s livre in 1720. As always in these situations, there is little public understanding of money and the realisation that monetary policy is designed to tax people for the benefit of their government will come as an unpleasant shock. The speed at which state money then collapses in its utility will be swift. This article concentrates on the US dollar, central to other fiat currencies, and where the monetary and financial imbalances are greatest.
Introduction
In last week’s Goldmoney Insight, Lessons on inflation from the past, I described how there were certain characteristics of Germany’s 1914-23 inflation that collapsed the paper mark which are relevant to our current situation. I drew a parallel between John Law’s inflation and his Mississippi bubble in 1715-20 and the Federal Reserve’s policy of inflating the money supply to sustain a bubble in financial assets today. Law’s bubble popped and resulted in the destruction of his currency and the Fed is pursuing the same policies on the grandest of scales. The contemporary inflations of all the major state-issued currencies will similarly risk a collapse in their purchasing powers, and rapidly at that.
The purpose of monetary inflation is always stated by central banks as being to support the economy consistent with maximum employment and a price inflation target of two per cent. The real purpose is to fund government deficits, which are rising partly due to higher future welfare liabilities becoming current and partly due to the political class finding new reasons to spend money. Underlying this profligacy has been unsustainable tax burdens on underperforming economies. And finally, the coup de grace has been administered by the covid-19 shutdowns.
The effect of monetary inflation, even at two per cent increases, is to transfer wealth from savers, salary-earners, pensioners and welfare beneficiaries to the government. In no way, other than perhaps from temporary distortions, does this benefit the people as a whole. It also transfers wealth from savers to borrowers by diminishing the value of capital over time.
Inflation of the money supply is now going into hyperdrive, so those negative effects are going to get much worse. It is time to move from empirical evidence to the situation today, which is the unprecedented increase in the global rate of monetary inflation and specifically that of the world’s reserve currency, the US dollar.
The dollar’s inflation
No doubt, the reluctance to reduce, or at least contain budget deficits is ruled out by the presidential election in November. But whoever wins, it seems unlikely that government spending will be reined in or tax revenue increased. For the universal truth of unbacked state currencies is that so long as they can be issued to cover budget deficits they will be issued. And as an inflated currency ends up buying less, the pace of its issuance all else being equal will accelerate to compensate. It is one of the driving forces behind hyperinflation of the quantity of money.
Since the Lehman crisis in August 2008, the pace of monetary inflation has accelerated above its long-term average, and the effect is illustrated in Figure 1 below.
Figure 1 includes the latest calculation of the fiat money quantity, to 1 August 2020. FMQ is the sum of Austrian money supply and bank reserves held at the Fed — in other words fiat dollars both in circulation and not in public circulation. Because commercial banks are free to deploy their reserves within the regulatory framework, either as a basis for expanding bank credit or to be withdrawn from the Fed and put into direct circulation, whether in circulation or not bank reserves at the Fed should be regarded as part of the fiat money total.
It can be seen that the rate of FMQ’s growth was fairly constant over a long period of time — 5.86% annualised compounded monthly to be exact — until the Lehman crisis when the rate of growth then took off. Since Leman failed in 2008 FMQ’s total has grown nearly 300%.
Since last March growth in the FMQ has been unprecedented, becoming almost vertical on the chart, triggered by the Fed’s response to the coronavirus. And now a second wave of it has hit Europe and the early stages of a resurgence appears to be hitting the land of the dollar as well. With lingering hopes of a V-shaped recovery being banished, a further substantial increase in FMQ is all but certain.
Already, FMQ exceeds GDP. If we take the last time things were normal, say, in 2005 when the US economy had recovered from the dot-com crash and before bank credit expansion and mortgage lending become overblown, we see that in a functioning relationship FMQ should be between 35%—40% of GDP. But with the US economy now crashing and FMQ accelerating, FMQ is likely to be in excess of 125% of GDP in the coming months.
What is the source of all that extra money? It is raised through quantitative easing by the central bank in a system that bends rules that are intended to stop the Fed from just printing money and handing it to the government. Yet it achieves just that. The US Treasury issues bonds by auction in the normal fashion. The major banks through their prime brokers bid for them in the knowledge that the Fed sets the yield for different maturities through its market operations. The Fed buys Treasury bonds up to the previously announced monthly QE limit, only now there is no limit, giving the primary brokers a guaranteed turn and crediting the selling banks’ reserve accounts with the proceeds.
This arm’s length arrangement absolves the Fed of the sin of direct money-printing but evades the rules by indirect money-printing. The Treasury gets extra funding through this roundabout arrangement. Participating banks generally expand their bank credit to absorb the new issue, which they then sell to the Fed, which in turn credits the banks’ reserve accounts. The Treasury gets the proceeds of the bonds to cover the deficit in government spending, and the banks get expanded reserves. The Fed’s balance sheet sees an increase in its liabilities to commercial banks and an increase in its assets of Treasury bonds. The Fed also funds agency debt in this manner, mostly representing mortgage finance.
Under President Trump, the Treasury’s current deficit initially expanded as a planned supply-side stimulus to the US economy to the tune of just over a trillion dollars before covid-19 created additional financial chaos. Businesses experienced severe dislocation and have suffered a widespread collapse. Consequently, and together with the direct injection of money into each household, the Congressional Budget Office revised its trillion-dollar deficit for the financial year just ended as the following screenshot from its website indicates:
Note how half the government’s income arose from revenues and half is covered by sales of government debt to the public (i.e. the commercial banks), which at the end of fiscal 2020 (ended yesterday) is estimated to total $20.3 trillion. But given that the first half of that fiscal year was pre-lockdown and the annualised rate of the deficit at that time was about a trillion dollars, simplistically the annualised rate of the deficit’s increase since last March is in the region of $4.4 trillion. Incidentally, the CBO’s economic projections look too optimistic given recent events, in which case budget projections for this new calendar year will be adjusted for considerably lower revenue figures, and significantly greater outlays at the least. We shall address the price inflation estimates later in this article.
Why QE is inflationary
On 23 March the Federal Open Markets Committee (FOMC) announced unlimited QE for both US Treasury stock and agency debt as well as however much liquidity commercial banks need.[i] While judging the expansion of the budget deficit to be inflationary, it is only inflationary to the extent that it is not financed by savers, either increasing the proportion of their savings relative to immediate spending, or to the extent they divert their savings from other investment media. In the latter case, citizens have been committing their savings more to equity markets than bond markets. The returns for discretionary portfolios managed on the public’s behalf have also found better returns in equities than in government and corporate bonds, though when assessing increasing investment risk Treasury stock is seen to be a safe haven in bond portfolios. Pension funds and insurance companies also allocate cash flow to US Treasuries and to the extent that this is the case, the issuance of further government debt is non-inflationary.
Furthermore, if a bank does not increase its balance sheet by expanding bank credit, its participation in the Fed’s QE programme is not inflationary either. For this to be the case, it would have to sell existing stock, call in loans or subscribe on behalf of clients.
By seeing them through a Nelsonian blind eye these factors give some encouragement to the Fed in funding the Treasury through QE, particularly since the statistics reflect a jump in savings, as the following chart from the St Louis Fed illustrates.
More correctly, the chart reflects the fall in spending when people locked down, as well as the $1,200 stimulus checks distributed to households at end-April, which marked the peak in the chart. Since then, there has been some downward adjustment, partly because some spending has returned, and the backlog of essential spending, such as property maintenance, is being addressed.
The evidence is not yet strong enough to claim this statistical shift in savings habits is permanent. Furthermore, being calculated as the percentage of personal disposable income that is not spent and given the high levels of personal debt throughout the population, much of these so-called savings will have disappeared into credit card and debt repayments. It is more likely that with rising unemployment and roughly 80% of the American salaried population living paycheque to paycheque, that far from there being a higher savings rate, personal finances have deteriorated so much that money is being withdrawn from savings on a net basis, to acquire life’s essentials. In fact, the savings rate is one of those unmeasurable economic concepts, and the reality is that Joe Average is worse off in today’s contracting economy and is drawing down on savings in order to subsist.
The non-inflationary element of QE then boils down roughly to increases in insurance company and pension fund investments in Treasury stock and the increase in bank holdings and reserves at the Fed not funded through the expansion of bank credit. But this creates another factor: the extent to which existing bond investments are sold in order to subscribe for Treasury stock inevitably undermines corporate bond markets and their ability to satisfy their funding requirements. And it is for this reason the Fed has appointed BlackRock to spearhead its purchases of corporate debt to ensure liquidity is available for those markets and to put a cap on risk premiums. Therefore, where banks do not expand credit to buy new Treasury stock, the Fed steps in to compensate with additional monetary inflation.
It has been necessary to go into the mechanisms behind funding government deficits in some detail to establish the inflationary consequences of QE, and to refute claims by monetary authorities and others that QE is either not or only partly inflationary, and so is consistent with the Fed’s mandate. No, with the exception of insurance and pension fund subscriptions, the Fed’s QE is almost pure monetary inflation
The relationship between inflation and prices
Assuming no change in the average cash balances held by a population, over time there must be an inverse relationship between the expansion in the quantity of money in circulation and the diminution of its purchasing power. This is unarguable in logic and to argue otherwise is to subscribe to a version of monetary perpetual motion. By the same token, while the effects on individual prices also have to allow for changes in the factors specific to them, the effects of monetary debasement on the general level of prices should be clear. Now it is time to introduce a second factor; changes in the average cash balances held by a population.
Changes in cash balances are an expression of relative preferences between money and goods. If a population as a whole is satisfied with the stability of money as the medium of exchange, it will be happy to retain balances surplus to its immediate needs. We see this even with inflating currencies, such as the Japanese yen, where irrespective of the level of interest rates monetary expansion merely accumulates as bank deposits. It is unusual for a population to go to the extremes evident in Japan, but equally, a population which realises its currency is declining in purchasing power has every reason to dispose of it in favour of goods, maintaining lower balances in consequence.
The complete rejection of a currency as the medium of exchange renders it utterly valueless and is the common outcome to every hyperinflationary collapse. Governments that become ensnared by inflationary financing face the growing certainty of a Venezuelan outcome.
For now, monetary authorities around the world are relying on public ignorance about money and the theory of exchange. Those who trouble themselves to consider how their currency’s purchasing power is actually changing will notice how it is declining more rapidly than official statistics say. This is deliberate. After the introduction of widespread indexation in the early 1980s governments devised methods to reduce the costs incurred. Changes in statistical methodology have achieved that, with consumer price indices now entirely suppressed, so much so that central banks claim to be struggling to get the CPI to rise to its two per cent target.
The evidence from independent analysts in America such as Shadowstats and the Chapwood Index is that real world prices there are rising at closer to a ten per cent rate and have been for the last ten years. With the FMQ having grown at a monthly compounding annualised rate of 9.6% from the Lehman crisis to the end of 2019, the truth about price inflation appears closer to independent analysts’ calculation than the official CPI. Furthermore, there is little evidence of noticeable change in savings rates or cash hoarding over the period, which would have affected the general level of prices.
The first to realise that the purchasing power of a currency is declining and will continue to do so are usually those who own it for reasons other than as a normal medium of exchange. These are foreign holders who have accumulated currencies other than their own government’s fiat money as a result of trade and have chosen to retain it instead of selling it in the foreign exchanges. And there is a second group of foreign holders which has diversified investment portfolios into foreign financial markets.
These groups are primarily sensitive to external economic and financial factors, such as changes in the outlook for trade, financial asset values and their requirements to hold liquidity in their own currencies. It stands to reason that a state that manages to run continuing deficits on the balance of trade and retain an accumulation of foreign ownership of its currency is vulnerable to changes in international sentiment. This is the situation the dollar finds itself in, with US Treasury TIC figures revealing foreigners own financial securities worth approximately $20.6 trillion, and additionally bank deposits and commercial and US Treasury short-term bills totalling $6.15 trillion. In other words, foreign ownership of the dollar is 130% of the CBO’s estimate of current US GDP.
The accumulation of foreign dollar positions was due to a number of factors: the dollar is the international reserve currency, trade expectations were of continual global growth, the perpetuation of US trade deficits, increasing portfolio investment and a rising dollar. Global trade is now contracting, and the dollar has begun to decline. Commercial priorities are changing from global expansion to conserving capital.
With the global economic outlook deteriorating rapidly, the dollar is notably over-owned by foreigners, which is not counterbalanced by American ownership of foreign currencies. Most of US foreign financial interests are denominated in dollars with exposure to foreign currencies remarkably small at $714bn at end-June.
China has already declared a policy of reducing her dollar investments in US Treasury bonds and is selling her dollars to buy commodities. Few realise it, but China is doing what ordinary people do when they begin to abandon a currency — dumping it for tangible goods which will cost more in future due to the dollar’s declining purchasing power. And as the dollar’s purchasing power declines measured in commodities more nations are likely to follow China’s lead.
When you see a chart of the expansion of money supply, as illustrated in Figure 2 below and combine that with a falling dollar in the foreign exchanges, it is only a matter of time before increasing members of the domestic population begin to follow the foreigners’ lead.
Compared with the past, there is a generation of millennials which through their understanding of cryptocurrencies has learned about the debasement of fiat currencies by their governments. It remains to be seen whether this knowledge will bring forward the general public’s understanding of monetary affairs for an earlier abandonment of money for goods.
Banking and its cyclical consequences
Not only are some of the global systemically important banks (G-SIBs) highly leveraged on their balance sheets — which one would expect at the end of a period of bank credit expansion — but in most cases stock markets are valuing their equity at a fraction of their balance sheet book values, contrasting with outrageously high valuations for non-financial stocks in the most severe economic downturn ever seen in peacetime.
Table 1 below illustrates the point by incorporating the combination of balance sheet gearing and stock market valuations for all the G-SIBs to give a multiple of balance sheet assets to market capitalisation, ranking them from most dangerous to the least on this measure. The only banks in the list with market capitalisations higher than balance sheet equity — price to book ratios of more than one — are North American banks, which might explain why critical leverages are not recognised as a systemic problem in US financial markets
The three highest leverages by a country mile are of Eurozone banks: remember these are just the G-SIBs — there will be many commercial banks as highly leveraged which are not on this list. To have your equity valued at only 15% of book value, which is the indignity suffered by the French bank, Société Générale, should send warning signals to French banking regulators. But they insist on only looking at the ratio of balance sheet assets to balance sheet equity; which for Soc Gen is still an eye-watering 21.4 times. Unlike the regulator, investors appear to think this bank is most likely bankrupt, its share price little more than a call option on its survival.
It is a problem which particularly affects banks in the Eurozone. And experience tells us that the numbers reported by banks are bolstered by their gaming of the regulatory system, which is why when a bank fails the outcome is always worse than the pre-failure numbers would suggest possible.
Large banks do not operate in national silos, having trade finance activities, foreign exchange and derivative trading, lending in foreign currencies and even substantial branches and subsidiary operations abroad. The idea that a crisis in the Eurozone, or Britain for example, can be contained to national boundaries is wishful thinking. With the exception of Wells Fargo, US G-SIBs come out better than those of other jurisdictions, but that will not save them from a systemic crisis originating elsewhere.
While we can point to the end of the credit cycle, there is no doubt that Covid-19 has precipitated a more immediate crisis for commercial banks. The official talk is no longer of a V-shaped recovery, and businesses are on life support.
In the near future, a banking crisis seems inevitable. The best case is it is contained by either governments nationalising all banks subject to failure, or they end up supported directly by their respective central banks, which given the crisis in the US repo market a year ago can be said to be already happening. For the inflationists there is the consolation that money-printing can then be used to support failing businesses through the banks with obstructive commercial considerations removed.
Interest rates
The principal control mechanism deployed by monetary planners is management of interest rates. They are under the delusion that a reduction of interest rates is a stimulus to industrial investment and therefore the betterment of the economy, whereas all their suppression achieves is the destruction of savings and the advancement of malinvestments.
Their delusions were Keynes’s, and remain so with all his acolytes, among which monetary policy planners are numbered. Interest rates are simply the expression of time preference, the cost that a borrower pays to achieve temporary possession. All goods share this feature, and sound money in free markets reflects an average of the time preference of these goods.
In Keynes’s General Theory, a search of the index reveals just one reference to time preference, which occurs three times on the same page and nowhere else. This vital topic is thus dismissed. Keynes accepted that there is time preference but became confused as to what it represents. He merely saw it as a psychological counterpart to his invention of the propensity to consume and failed to make the connection between time preferences for goods and their monetary representation. Since he judged it to be solely related to money as opposed to possession, for him it left open the possibility that interest rates can be managed for a desired economic outcome. This was despite the evidence of which he was otherwise aware, that managing interest rates with a view to controlling the rate of inflation did not work, and that the correlation was between wholesale borrowing costs and the general price level, not its rate of change represented by an inflation rate.[iv] Keynes named it Gibson’s paradox after its discoverer, but since he could not explain the paradox, he chose to ignore it as have all his followers.
For these reasons, managing interest rates to achieve economic outcomes, including recent introductions of negative rates, has proved to be a lamentable failure. But as the currency loses purchasing power, the reflection of time preferences for goods will see an additional factor related to money itself. Thus, time preference expressed in dollar terms becomes significantly higher than justified solely by the deferred ownership of goods. The foreign exchanges insistence that future currency depreciation due to monetary inflation be taken into account will then render the authority’s task of suppressing interest rates impossible.
The Fed will find that in the absence of a significant increase in savings — something it is determined should not happen anyway — as well as financing a deteriorating Federal deficit, it will have to absorb foreign sales of US Treasury, agency and corporate bonds. Foreigners are then reluctant possessors of surplus dollars.
In the absence of a rising level of domestic savings, a rapidly deteriorating budget deficit feeds through to one or both of two outcomes. As an identity of national accounting and in the absence of an increase in savings, a budget deficit is mirrored by a trade deficit, both of which in this new fiscal year on present indications are likely to expand to anything between three and five trillion dollars. That is the first outcome, and if President Trump is re-elected next month this deterioration will likely lead to increased hostility against America’s importers.
The second problem, in view of the first, is how importers already overloaded with dollars will respond to the increasing quantity of additional dollars accumulating in their bank accounts from an increasing trade imbalance. The answer must be that they have no reason to hold on to them. And unless the US Treasury buys these unwanted dollars, deflating the quantity in circulation, these dollars will end up driving the exchange rate lower and inflating prices in the domestic economy.
We can see the conditions where the dollar is driven down against other currencies as only a first step, and we are now aware that China is in the vanguard of selling dollars for commodities, likely to be joined by others as the dollar declines. Consequently, the purchasing power of the dollar — already deteriorating at a ten per cent clip according to independent estimates — is bound to deteriorate at a greater pace.
By its statements and actions, the Fed confirms a belief that an increase in price inflation can be controlled by raising interest rates. Consequently, a falling dollar in the foreign exchanges will present it with an insuperable dilemma: does it raise interest rates to protect the dollar and thereby burst the bubble in financial assets and force the Federal Government’s finances into insolvency? Or does it just let price inflation rip? The choice will be as black or white as that.
Almost always, central banks in this invidious position end up with a compromise, raising interest rates too little too late. Just occasionally, they raise overnight interest rates to stratospheric levels in an attempt to restore order by squeezing the speculators. Other than the temporary effects of the latter expedient, we know from Gibson’s paradox that raising interest rates to control price inflation does not work. And with 130% of the GDP statistic currently represented by foreign ownership of dollars, the bulk of nearly $27 trillion like an elephant in the room is overhanging the foreign exchanges. Worse still for the Fed, Gibson’s paradox tells us that even if the Fed raised interest rates to compensate fully for loss of purchasing power it would not be sufficient to stabilise the currency: that requires the adoption of sound money policies and a stop to inflationism.
The way to look at it is by understanding the foreigners’ assessment of time preference, comprised of a general level for the exchange of goods and an additional level peculiar to a depreciating currency. Therefore, irrespective of the Fed’s interest rate policy market forces represented by foreign interests will take over control of interest rates, and the Fed’s bond bubble will be burst. Rising yields for US Treasuries will collapse the equity market and the market for corporate debt. These events will threaten any remaining foreign interest in the dollar and its capital markets even further. In short, the policy of inflating a financial asset bubble becomes impossible to sustain and its failure will take the dollar down with it as well.
This was why when John Law’s Mississippi bubble burst three hundred years ago, by October 1720 his currency, the livre, was worthless on the foreign exchanges. The collapse had started eleven months earlier, when Law accelerated the inflation of the livre to support a failing share price. The Fed embarked on a doppelganger acceleration of monetary inflation on 23 March for the whole US bond market. If we replicate the John Law experience, the dollar could become valueless in a matter of months.
It is becoming clear to a growing audience that in the absence of a change in inflationary policies, the days of an unbacked dollar are rapidly coming to an end, and it will take down the international fiat order upon which it is based.
via ZeroHedge News https://ift.tt/2Sm8inr Tyler Durden
Gold Prices Supported By Western Investors As Consumer Demand In China And India Slows Tyler Durden
Fri, 10/02/2020 – 23:20
Some of the world’s most well known investors aren’t being coy about wanting to get exposure to gold. In addition to Berkshire Hathaway’s addition of Barrick Gold, Bridgewater also invested in gold backed ETFs during the second quarter.
In fact, holding up gold’s price is interest from the West that is offsetting softer demand from the East, according toFT. The demand coming out of the West has been spurred by the impact of the coronavirus and, more specifically, the idea of a path to endless money printing.
David Tait, chief executive of the World Gold Council, told FT that gold’s rally “has focused a lot of people who had historically looked at gold as the Armageddon trade to look at it through a broader lens”.
In places like India and China, however, demand for gold has been relatively soft. Buyers in the two biggest consumer markets have either been selling their holdings or borrowing against them.
The question then becomes whether or not retail consumption can continue to drive gold’s strength – and what would happen if demand from the West dries up all of a sudden. The last time demand dried up heavily in the West, gold plunged from $1,920/oz. to $1,200/oz. in 2013.
One tailwind is the fact that gold ETFs now make up 35% of global demand compared to just 8% a year ago. But inflows into these funds look as though they could be slowing. For example the GLD registered withdrawals of money in September for the first time in eight months.
A plunge in gold could trigger further selling by many of the same retail investors that have kept the commodity afloat. Gold is currently about 10% lower than its late summer highs.
Adrian Ash, head of research at BullionVault, said: “One risk [scenario] here is that Asian buyers put a floor under the market. But with demand being so abject in the big consumer nations where will that floor be?”
China and India account for more than half of global gold purchases, but demand has fallen 56% in India over the first half of the year. Suraj Popley, who owns a jewelry store in a busy neighborhood of Mumbai said: “People are coming to sell gold, in case they require cash, in case they require liquidity. Very few people are coming to buy.”
Terence Lucien, head of mutual funds at PhonePe in Bangalore said: “There is an affinity towards gold. The way Indians have bought it traditionally, there have been people buying in excess.”
But demand has slowed, also as a result of pandemic-induced lockdowns. Weddings have been postponed and have reduced the appetite for lavish spending. Longer term consumer demand is also falling; down from 900 tons a year from 2010 to 2015 to about 700 tons last year.
Shekhar Bhandari, head of precious metals at Kotak Mahindra Bank, thinks the market will rebound eventually: “Have weddings been postponed? The answer is Yes. Is the number of marriages over the [long term] going to decrease? No.”
China has seen a similar plunge in consumer demand. The country saw its lowest level of consumer demand since 2007 during the first half of this year at just 152.2 tons.
Jeremy East, a Hong Kong-based former Standard Chartered banker, said: “There’s no gold going into China and very little going into India this year. That means the [western] ETF guys need to keep buying, [especially] if at the end of the year China and India are still not buying . . . That gold has got to find a home somewhere. The market needs more money to come in to keep absorbing this gold.”
David Govett, a veteran precious metals trader concluded: “Covid-19 cases are on the rise, governments are starting to panic again, economies are facing down the barrel of a second lockdown. All in all, it should be a perfect storm for gold. There’s too much uncertainty in the world to be short gold.”
via ZeroHedge News https://ift.tt/2SlMBnx Tyler Durden
It is threatened by rioters using violence as a political tool, by individuals intimidating politicians through aggressive home visits, by Presidential debates where name calling and incivility rule, by the loss of a sense of physical safety that is a necessity for a civil society, by destructive hyper-partisanship, and by the suppression of freedom of speech and diversity of viewpoints.
There are few better examples of the suppression of freedom of speech and viewpoint diversity than the recent partisan actions by the management of KNKX, and this blog will review this issue. I will discuss the termination of my weekly weather segment because of KNKX management’s unhappiness with my personal political free speech in social media. And I will demonstrate the extreme hypocrisy of their actions, with their leadership’s use of nearly identical language for their own political advocacy.
Freedom of speech and respect for viewpoint diversity is the foundation of our democracy.
Only in a free society where differing ideas can be offered and compete, can citizens consider all sides of important issues and make wise decisions.
If advocates of one side of an issue can silence the speech of others, the inevitable result will be poor decision making and the undermining of our democracy.
The founders of our nation and subsequent political leaders recognized the central role of free, unfettered speech for the maintenance of our democratic system:
“If men are to be precluded from offering their sentiments on a matter…. reason is of no use to us; the freedom of speech may be taken away, and dumb and silent we may be led, like sheep, to the slaughter.”— George Washington
“If there is any principle of the Constitution that more imperatively calls for attachment than any other it is the principle of free thought — not free thought for those who agree with us but freedom for the thought that we hate.”
– Oliver Wendell Holmes Jr., U.S. Supreme Court justice
The management of public radio station KNKX made a decision in August that directly conflicts with the above principles.
Brief Summary of the Situation
On August 5th, I posted a blog (A City in Fear Can Be Restored) that talked about the boarded up City of Seattle and the irresponsibility of our city’s leaders; a blog that was also highly critical of violent rioters who were, and still are, destroying property, hurting people and their livelihoods, and intimidating individual political leaders. I talked about the damage being “reminiscent” of 1930s Germany (broken glass and more) and that the violent rioters were acting in several ways like the “brownshirts” of the last century.
The day following my blog post, KNKX leadership received a number of messages from partisan individuals who called for my dismissal, and without discussing the situation with me, KNKX management immediately canceled my weather segment. Joey Cohn and Matt Martinez (station manager and program director) called me after the decision was made….no debate allowed, no conversation…my segment was cancelled.
There are few more obvious examples of cancel culture.
In a note on their website they called my blog “misleading” and that it “did not reflect what we stand for.” I emailed both Joey Cohn and Matt Martinez, asking what I “got wrong”. I asked them what was misleading. They refused to answer. They refused to interact in any way.
Whether my blog was accurate was beside the point. I was expressing my political viewpoint in social media completely outside of my contributions to the station. And a public radio station, of all places, should not be in the business of suppressing free speech and limiting ideas. Imagine if your employer fired one of your coworkers for such a reason, and the chilling effects it would have on YOUR freedom of speech. You would quickly become fearful of expressing your viewpoint on anything controversial.
And after reading a half-dozen books on 1930s Germany, I believe the analogy I made is both compelling and reasonable, and I am ready to defend my comparisons. Both the rioters in Seattle (and Portland) and the 1930s brownshirts were organized thugs with a violent anti-capitalist political agendas. The revelations and continued violence of the past two months have provided substantial corroboration of my analysis, documenting the organized nature of the violence and that the goals of the rioters are far different than the peaceful protestors concerned about protecting black lives. In fact, the rioters detract and obscure the valuable messages of peaceful protestors.
Not only did KNKX’s actions contradict the essential principles of our democracy, but they also contradict Seattle civil law (Seattle Municipal Code Ch. 14.04) and the published principles of National Public Radio (NPR), something highlighted in the NPR Ethics Handbook:
“Our journalism includes diverse voices that reflect our society and divergent views that contribute to informed debate…We aggressively challenge our own perspectives and pursue a diverse range of others”
There are few more important roles of a public radio station than to foster diversity of viewpoint, and KNKX management acted to reduce diversity, not increase it. Destroying freedom of speech, not enhancing it.
For more details about the situation, please see a previous blog on the matter.
While KNKX management removed my segment because they disagreed with my viewpoint, KNKX leadership used social media with the same analogies, but in support of a different political narrative. A stunning example of hypocrisy and partisanship.
Hypocrisy
Although it was problematic to KNKX management that I noted the similarity of recent violent rioters with 1930’s brownshirts, they are content for station leadership and on-air contributors to compare President Trump and his administration to Nazis and fascists. In fact, there was a veritable Fuhrer-fest going on in the social media of KNKX leaders.
Consider leading members of the KNKX advisory board. Joan Tornow, a longtime member, climate activist, and one of the key advocates (for several years) of getting me ejected from the station because of my science-based communication on climate change, posted many Trump-Nazi tweets such as:
Ms. Tornow has posted more tweets with references to “brownshirts” in the Trump administration.
Another KNKX advisory board member and the moderator of the KNKX community facebook page, John Woltjer, constantly railed about Trump and that Trump voters were fascists (see below), and even called for the death of Republican Party.
In his leadership role as director of the KNKX community forum Facebook page, John Woltjer decided to prevent any additional comments about my situation or support for my retention on KNKX. Absolutely contradictory to free speech (see below).
Or consider KNKX Board Member Scott Alhsmith, who has compared Trump and conservatives with Nazis. A few examples
Goebbels was Hitler’s propaganda minister.
And the wonderful Art Thiel, KNKX sports commentator and in exactly the same position as I was as an outside contributor, tweeted about Trump being a Hitler-like goose-stepping character.
I could show you many more examples of KNKX leaders using Nazi references, but you get the message. KNKX management believes it is ok to use Nazi, brownshirt, and fascist analogies if one is attacking Trump and Republicans, but a terrible offense and cause for expulsion if one uses these same analogies for violent rioters who are destroying the fabric of civil society with wanton property damage, malicious personal violence, and intimidating political leaders with different viewpoints.
This not only reveals a disturbing political bias but profound hypocrisy in KNKX management.
Partisanship has entered the KNKX “leadership circle,” with tolerance for the viewpoints of only one side of the political divide. KNKX management believes that those with differing viewpoints have no place at the station.
KNKX management might consider the situation in the late 1940s and early 1950s when media fired commentators with “communist sympathies” in their outside writings and speech.
Freedom of speech and honoring of diversity of viewpoint protects individuals of ALL sides of the political spectrum, and KNKX’s actions were deeply destructive to that protection.
Next Steps
KNKX leadership, in giving in to the cancel-culture mob, has undermined basic democratic principles that serve as the foundation for our society. They did not show the tolerance for intellectual diversity that should be in the DNA of any public radio station.
KNKX was saved for one reason: to preserve diversity of viewpoint in our region. KNKX leadership, acting as they did, rejected the station’s reason for existence. Its birthright. And they showed disregard for KNKX listenership that lost a valued program.
I have asked KNKX leaders to reconsider their decision. Unfortunately, they have not been willing to engage.
It is now up to all of you.
If you believe KNKX management made a terrible mistake, one inconsistent with fostering freedom of speech/diversity of viewpoint, and contradictory to the essential role of a PUBLIC radio station, there are a few things you can do.
If you are a financial supporter of KNKX, you can ask them to reverse their decision, and in the meantime put your contributions on pause.
You can write their leaders (see below) requesting that they pay more attention to the core values of our democracy, such as freedom of speech and protection of diversity of ideas.
Or you can complain to the national leaders of National Public Radio (see contacts below).
I do ask that in your interactions with KNKX leadership, you do so in a civil, measured way. An intolerant mob stampeded KNKX to make a terrible mistake; hopefully, coherent reasoned arguments will persuade them to reverse their decision and to reclaim the ethical foundations of the station.
San Francisco Rents Crash Most On Record Amid Mass Exodus Tyler Durden
Fri, 10/02/2020 – 22:40
A new report confirms what we’ve been talking about since the early days (read: here) of the virus pandemic, that is, an exodus out of major cities.
According to real estate analytics company Zumper, the exodus, out of San Francisco has been so great, that the median rent for a one-bedroom apartment collapsed more than 20% in September from a year ago to $2,830. Month over month, September rent for a one-bedroom apartment in the city fell by 7%.
Referring to the plunge in rent prices in San Francisco, Zumper said:
“Not only is this drop among the largest yearly decreases Zumper has ever recorded in our history of tracking rental prices, but it was also the first time the median 1-bed price in San Francisco was priced below $3000. These combined trends show just how drastically the market has changed in the nation’s most expensive city to rent.”
Zumper CEO Anthemos Georgiades, who was quoted by CNBC, said a flood of supply is hitting the market:
“Some renters may be inclined to move to the suburbs to get more space, as the Covid-19 pandemic spurred companies to close offices and allow employees to work from home. Facebook and Google, for example, have told employees they can work remotely at least through next summer,” Georgiades said.
The virus-induced downturn, resulting in the collapse of small businesses citywide, the decimation of low-income households, and high-unemployment, is forcing many folks across the metro area to downsize or move to less expensive areas. He said wildfires and hazardous air conditions were some other reasons for “tipping the balance about their medium-term location choices.”
Social unrest and the rise of violent crime have made many folks uncomfortable about raising a family in the dangerous metro area. Many are moving to rural communities of the Bay Area, from Marin County to Napa wine country and south to Monterey’s Carmel Valley.
Georgiades said it could take years for San Francisco real estate to heal from its pandemic wounds:
“Despite everything our data is showing, there are so many signals that it will recover, however contrarian this point may sound,” he said. “However, I think we’re talking years to fully recover, not months.”
The Chinese understand the long game and they have infinite patience. They have always known that they never needed to attack the US, financially or militarily.
Because China has invariably understood that the US would self-destruct.
POLITICS AND PRINCES DON’T MIX
The Duchess of Sussex who has dragged her poor husband, Prince Harry, into the US election has declared that this will be the most important election in history. She will most probably be right but for the wrong reason. Meghan Markle believes a Biden victory is the only way that the US can be saved, primarily because she can’t stand Trump (which is reciprocal). It probably doesn’t matter who wins the election when is comes to stopping the crash of the US economy and currency.
But what is guaranteed is that Biden’s policies will bankrupt America much faster than Trump’s. The profligate democrats will forgive trillions of debt, increase spending and reduce taxes for the masses.
The Chinese have waited patiently for this moment. They forecast the collapse of the “capitalist monetary system with the dollar as its prop” already half a century ago and how right they have been.
THE DAYS OF THE DOLLAR ARE COUNTED
A 98% fall in real terms – against gold – and a 78% fall against the Swiss franc tells the world that the days of the dollar are counted. So will we see the US bald eagle crash to the ground and a phoenix in the form of a new world currency emerge like in the 1988 Economist article?
Well, the dollar crash is guaranteed and a Biden victory will accelerate the move. But there is unlikely to be a new world currency in the near term. As the dollar falls and with it the US economy, China will gradually emerge as the next dominant economy and super power. But this will take time. Before that we will have chaos in the global financial system, economic collapse in many countries, political upheaval, riots, and wars.
BIDEN – A CATALYST FOR ACCELERATED US DECLINE
So is a Biden victory going to cause all this. No not solely. But just as the coronavirus sped up that fall of the US and world economy, Biden will be the catalyst for an accelerated decline of the US. Both events would have happened anyway but probably not as dramatically as with these two powerful catalysts – CV and Biden.
The coming US election will have bitter consequences for the US and the world whoever wins. It is likely to be aggressively fought not just before November 4th but more so after the result is declared. There will be a plethora of forums where the election result will be disputed and fought like in the courts, the media, the streets, in families and in politics of course.
CHURCHILL – WE SHALL FIGHT ON THE BEACHES
The fighting everywhere reminds me of Winston Churchill’s speech in parliament in June 1940 after the evacuation of Dunkirk:
“…… we shall fight on the beaches, we shall fight on the landing grounds, we shall fight in the fields and in the streets, we shall fight in the hills;…”
Churchill’s speech was obviously to unify and prepare the nation for the major war effort ahead. But the consequence of the US election will be extremely divisive and damaging for the US whoever wins.
So 2021 is not just likely to be the start of a severe and long lasting economic downturn or collapse for the US but also an extended period of extreme political and social disharmony and discontent.
REMINISCING OVER BETTER TIMES
I have just entered my 52nd year of working life. But I can clearly remember life before that as a young boy in Sweden, back in the 1950s. This was a time when the family was the kernel of society and there was total respect for law and order. Mothers were at home and looked after the children. The wages of the father were sufficient to provide for the family. Very few people had debt and obviously there were no credit cards. Most things were paid for in cash. The police was unarmed and there was total respect for their authority. Sweden then was a very homogenous society with few immigrants. There was very little crime and virtually no violent crime. I remember visiting churches in the countryside and the doors were open and church silver would stand on shelves totally unprotected. Young children could move around freely without parental protection. Very few people went on holiday abroad or had cars or televisions. The economy was strong, based on real money with little debt. The quality of life was far superior to today. I am not talking about material things but people were much happier with less stress and strong respect for your fellow humans. There was integrity with strong moral and ethical values.
THE END OF AN ERA
I do realise that all of this could sound like a mature man nostalgically reminiscing and embellishing the past. There might be some truth in that criticism but I am quite convinced that the era we are now in is the end of a cycle when it comes to quality of life, values, crime, honesty, integrity. The current debt based economy with fake money and values is clearly creating a very unhappy society and many discontented people.
This is why the current cycle needs to soon come to an end. The world needs a proper forest fire which destroys the debt and all the bubble assets financed by printed money and worthless debt. The coming fall of the global debt edifice will be a relief for the world but it will obviously involve a long period of suffering. But only after this fall can the world start a new cycle with green shoots based on a sound monetary and financial system which is based on real values, both moral and material.
HALF A CENTURY OF DRAMATIC CHANGES IN THE WORLD
Coming back to my half a century of working life, there have also been some dramatic changes in the world. The table below shows what has happened to debt, dollar, GDP & stocks during my 51 years’ involvement with financial markets, between 1969 and 2020. US federal debt is up 75x and GDP is only up 20x. There is no clearer evidence that the US economy is running on empty and that more and more debt is required to produce an increase in GDP in nominal terms.
DEBT DEFAULT COMING
US debt to GDP has now reached 135% against 35% in 1969 and growing. These debt levels are unsustainable for future growth. With falling tax revenues and rising expenditure, there is zero chance that this debt will ever be reduced. And when interest rates go up, the US will not even be able to service the debt. So a debt default is very likely in the next few years.
Whilst US GDP is up 20x since 1969, China’s GDP is up 175x. There can be little doubt that China will be the next global economic superpower. Only a revolution in China would stop that.
Gold is up 53x since 1969 and the Dow 34x. If dividends after tax are included and reinvested, the rise of the Dow and gold would be fairly equal.
I started the article with China’s view, in 1971, on the future of the dollar and the US economy. The debt explosion and slow GDP growth are clear evidence of how right China was.
But the dollar’s 98% fall against gold and 79% against the Swiss franc confirms China’s 1971 prediction:
“…..the seriousness of the US economic crisis and the decay and decline of the entire capitalist system.”
“…..mark the collapse of capitalist monetary system with the US dollar as its prop…. Nixon’s new economic policy cannot extricate the US from financial and economic crisis.”
So there we have it. The wise Chinese saw half a century ago what would happen to the US, the dollar and the capitalist system and they knew already then that they would be the main beneficiaries.
But destruction of currencies and fall of empires is not new in history. Von Mises stated this phenomenon very eloquently:
2021 THE CHINESE YEAR OF THE GOLDEN OX
2021 will be the Chinese year of the Metal or Golden Ox. It will also be the 50th anniversary of Nixon’s fatal decision to end the gold backing of the dollar.
As the golden ox rises in China, the US bald eagle will crash to the ground as a symbol of the crashing dollar and US economy.
2021 is likely to be an ominous year in the global economy. We may not see the “final and total catastrophe of the currency system” completed already then but we are likely to see the start of the final dollar collapse and a major surge in gold and silver.
Anyone holding depreciating dollars and other currencies will soon regret not holding real money in the form of physical gold and silver.
via ZeroHedge News https://ift.tt/2SmHHXC Tyler Durden
