Bonds

The Crash of 2015: Going Global

Off the keyboard of Thomas Lewis

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Published on the Daily Impact on May 26, 2015

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Titanic_sinking,_painting_by_Willy_StöwerJust in the past week, the headlines have been coming like triphammer blows: in Bloomberg News, “Something has gone wrong with the global consumer,” (according to JP Morgan); in International Business Times, “G7 Finance Ministers to address faltering global growth;” in London’s Telegraph, “HSBC fears world recession with no lifeboats left;” in OilPrice.com, “Clock running out for struggling oil companies;” and even in the mainstream vanilla Washington Post, a column by Robert Samuelson predicts “China’s coming crash,” then puts a question mark at the end to make sure we don’t worry too much.

When you add these concerns to longer standing ones about wild gyrations in the world’s stock and bond markets; the advent of peak oil in pretty much every oil-exporting country in the world; the onset of the effects of global climate change in California, the Middle East, North Africa, Brazil and elsewhere; it becomes apparent that optimism ought to be listed as a disorder requiring medical intervention.

What’s wrong with the global consumer? In the imortal words of Howard Davidowitz, a leading expert on retail, consumers “don’t have any f’ing money.” It is slowly — way too late — dawning on the Masters of the Universe that unless ordinary people have money to spend — and by that we mean real money, not more credit cards or a third mortgage — the Masters are toast.

According to J.P. Morgan economist Joseph Lupton, “It would be difficult to overstate the recent downside surprise in global consumer spending.” Lower gas prices were supposed to stimulate spending. They didn’t. The high stock markets were supposed to encourage enough job creation to seriously dent unemployment rates and stimulate spending. They didn’t. The lackluster numbers of early spring were supposed to be the result of bad weather. They weren’t. “Clearly,” says Lupton, “something is off track.”

Indeed. International shipping is at historic lows. Energy consumption is declining. In the US, the trucking industry is starting to show weakness. At the same time rail-freight shipments are declining sharply. Retail stores are closing by the thousands. While, obliviously, the stock market soars to new heights.  

Meanwhile, says International Business Times, “Finance ministers from the world’s largest developed economies meet in Germany this week against a backdrop of faltering global growth, scant inflationary pressures and a bond market in turmoil.” They’ll get to all this after they have figured out how to keep Greece from nuking the European Union by defaulting on its obligations because Greece hasn’t got any f’’ing money, either. Even if they can figure out how to amputate Greece without getting an infection, they will still be looking at either anemic growth or actual contraction in the powerhouse economies of the United States, China, Canada and Europe.

Now, even if you believe, as I do, that the notion of infinite growth on a finite planet is ridiculous, and the notion that all growth is always good is suicidal, you still live, as I do, in a system that will crash if its faith on growth is broken. So pay attention to these idiots. They’re driving.

Meanwhile, a report written by and for HSBC, the world’s third largest bank, likens the world economy to the Titanic, “sailing across the ocean without any lifeboats.” In fact the report is titled “The World Economy’s Titanic Problem,” and was written by a writer of financial horror stories appropriately named Stephen King. In his relentless account, the world’s central bankers have expended every bit of ammunition they have to stop the approaching iceberg of debt and depression, and the iceberg is bigger and closer than ever. You will stifle a scream as you read.

This gathering emergency is only invisible to those whose paychecks require that they do not see it. Unfortunately, that includes many journalists and virtually all politicians. The rest of us need to take another look at the pile of boards on the aft deck of the Titanic and get to work on our personal lifeboats. Now.

Bond Market Collapse and the Banning of Cash

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Aired on the Doomstead Diner on May 22, 2015

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…Bitcoins, a relatively new form of electronic money are also often hawked as the latest and greatest solution to keeping your money safe. Except EVERYBODY KNOWS about Mt. Gox by now. From Wiki:

Mt. Gox was a Bitcoin exchange based in Tokyo, Japan. It was launched in July 2010, and by 2013 was handling 70% of all Bitcoin transactions.[1] In February 2014, the Mt. Gox company suspended trading, closed its website and exchange service, and filed for a form of bankruptcy protection from creditors called minji saisei, or civil rehabilitation, to allow courts to seek a buyer.[2][3] In April 2014, the company began liquidation proceedings.[4] It announced that around 850,000 bitcoins belonging to customers and the company were missing and likely stolen, an amount valued at more than $450 million at the time.[5][6] Although 200,000 bitcoins have since been "found", the reason(s) for the disappearance—theft, fraud, mismanagement, or a combination of these—are unclear as of March 2014.[7]

You think Fraud, Mismanagement and Hacking will STOP if money goes cashless? OF COURSE NOT, IT WILL GET WORSE! There is no computer system ever that is foolproof and incapable of being hacked, and of course the rewards for hacking such a system or “mismanaging” it gets bigger all the time, so the Best & the Brightest spend all their time figuring out how to do that…

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ALSO, IF YOU HAVE NOT DONE SO ALREADY, TAKE THE SURVEY ON NEAR TERM HUMAN EXTINCTION BELOW!

SWISSIE CAPITULATION!

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Aired on the Doomstead Diner on January 18, 2015

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http://cdn.news12.com/polopoly_fs/1.5585827.1372415753!/httpImage/image.PNG_gen/derivatives/display_600/image.PNG…The folks worst hit here in the short term are the Forex traders who were short on Swissies, figuring they would stay pegged to the Euro as promised by the SNB. At least two of the currency trading firms blew up immediately after this, FXCM and Excel with losses in the $100s Millions, and somebody out there took that hit, although we don’t know precisely who that is yet. Client accounts are supposedly segregated out here, but anything caught up in the trading when this went down is now GONE. Precisely how much anyone with an account with these two firms will be able to get back out and when is an open question. No doubt quite a few folks will get Corzined on this one.

Meanwhile, over in Greece in a not entirely unrelated event, now all 4 of TBTF Greek Banks had to go to the Greek Central Bank for “Emergency Liquidity Assistance”, basically because there is an ongoing RUN of the Greek Banks and everyone with any CFS is trying to get their money OUT of them before they go Tits Up and convert everybody’s savings to New Drachmas, destined to be about IMMEDIATELY worth less than a roll of Charmin.

These banks, which Zero Hedge has reported as “systemic” have basically run OUT of collateral that even the ECB which accepts almost any stinking dogshit will accept for them to hand over a few more Euros. At first it was just 2 banks referred to as systemically important, without revealing which onesd they were. The obvious reason here that the identity of these banks is not being revealed is that would of course ACCELERATE and already ongoing diarreah attack they are undergoing and they would squirt out still more liquified Brown-25. This ploy however did not work, so now the run is on all of them. LOL…

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Oil and the Economy: Where are We Headed in 2015-16?

Off the keyboard of Gail Tverberg

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Published on Our Finite World on January 6, 2014

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The price of oil is down. How should we expect the economy to perform in 2015 and 2016?

Newspapers in the United States seem to emphasize the positive aspects of the drop in prices. I have written Ten Reasons Why High Oil Prices are a Problem. If our only problem were high oil prices, then low oil prices would seem to be a solution. Unfortunately, the problem we are encountering now is extremely low prices. If prices continue at this low level, or go even lower, we are in deep trouble with respect to future oil extraction.

It seems to me that the situation is much more worrisome than most people would expect. Even if there are some temporary good effects, they will be more than offset by bad effects, some of which could be very bad indeed. We may be reaching limits of a finite world.

The Nature of Our Problem with Oil Prices

The low oil prices we are seeing are a symptom of serious problems within the economy–what I have called “increased inefficiency” (really diminishing returns) leading to low wages. See my post How increased inefficiency explains falling oil prices. While wages have been stagnating, the cost of oil extraction has been increasing by about ten percent a year, described in my post Beginning of the End? Oil Companies Cut Back on Spending.

Needless to say, stagnating wages together with rapidly rising costs of oil production leads to a mismatch between:

  • The amount consumers can afford for oil
  • The cost of oil, if oil price matches the cost of production

The fact that oil prices were not rising enough to support the higher extraction costs was already a problem back in February 2014, at the time the article Beginning of the End? Oil Companies Cut Back on Spending was written. (The drop in oil prices did not start until June 2014.)

Two different debt-related initiatives have helped cover up the growing mismatch between the cost of extraction and the amount consumers could afford:

  • Quantitative Easing (QE) in a number of countries. This creates artificially low interest rates and thus encourages borrowing for speculative activities.
  • Growth in Chinese spending on infrastructure. This program was funded by debt.

Both of these programs have been scaled-back significantly since June 2014, with US QE ending its taper in October 2014, and Chinese debt programs undergoing greater controls since early 2014. Chinese new home prices have been dropping since May 2014.

Figure 1. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

Figure 1. World Oil Supply (production including biofuels, natural gas liquids) and Brent monthly average spot prices, based on EIA data.

The effect of scaling back both of these programs in the same timeframe has been like a driver taking his foot off of the gasoline pedal. The already slowing world economy slowed further, bringing down oil prices. The prices of many other commodities, such as coal and iron ore, are down as well. Instead of oil prices staying up near the cost of extraction, they have fallen closer to the level consumers can afford. Needless to say, this is not good if the economy really needs the use of oil and other commodities.

It is not clear that either the US QE program or the Chinese program of infrastructure building can be restarted. Both programs were reaching the limits of their usefulness. At some point, additional funds begin going into investments with little return–buildings that would never be occupied or shale operations that would never be profitable. Or investments in Emerging Markets that cannot be profitable without higher commodity prices than are available today. 

First Layer of Bad Effects 

  1. Increased debt defaults. Increased debt defaults of many kinds can be expected, including (a) Businesses involved with oil extraction suffering from low prices (b) Laid off oil workers not able to pay their mortgages, (c) Debt repayable in US dollars from emerging markets, including Russia, Brazil, and South Africa, because with their currencies now very low relative to the US dollar, debt is difficult to repay (d) Chinese debt related to overbuilding there, and (e) Debt of failing economies, such as Greece and Venezuela.
  2. Rising interest rates. With defaults rising, interest rates can be expected to rise, so that those making the loans will be compensated for the rising risk of default. In fact, this is already happening with junk-rated oil loans. Furthermore, it is possible that the US Federal Reserve will raise target interest rates in 2015. This possibility has been mentioned for several months, as part of normalizing interest rates.
  3. Rising unemployment. We know that nearly all of the increased employment since 2008 in the US took place in states with shale oil and gas production. As these programs are cut back, US employment is likely to fall. The UK and Norway are likely to experience drops in employment related to oil production, as their oil programs are cut. Countries of South America and Africa dependent on commodity exports are likely to see their employment cut back as well.
  4. Increased recession. The combination of rising interest rates and rising unemployment will almost certainly lead to recession. At first, some of the effects may be offset by the impact of lower oil prices, but eventually recessionary effects will predominate. Eventually, broken supply chains may become a problem, if companies with poor credit ratings cannot get financing they need at reasonable rates.
  5. Decreased oil supply, starting perhaps in late 2015. The timing is not certain. Businesses are likely to continue extraction where wells are already in operation, since most costs have already been paid. Also, some businesses have purchased price protection in the derivative market. They will likely continue drilling.
  6. Disruptions in oil exporting countries, such as Venezuela, Russia, and Nigeria. Oil exporters generally get the majority of their government revenue from taxes on oil. If oil prices remain low, oil-related tax revenue will drop greatly, necessitating cutbacks   in food subsidies and other programs. Some countries may experience overthrows of existing governments and a sharp drop in oil exports. Central governments may even disband, as happened with the Soviet Union in 1991.
  7. Defaults on derivatives, because of sharp and long-lasting changes in oil prices, interest rates, and currency relativities. Securitized debt may also be at risk of default.
  8. Continued low oil prices, except for brief spikes, because of high interest rates, recession, and low “demand” (really affordability) for oil.
  9. Drop in stock market prices. Governments have been able to “pump up” stock market prices with their QE programs since 2008. At some point, though, higher interest rates may draw investors away from the stock market. Stock prices may also decline reflecting the poor prospects of the economy, with rising unemployment and fewer goods being manufactured.
  10. Drop in market value of bonds. When interest rates rise, the market value of existing bonds falls. Bonds are also likely to experience higher default rates. The combined effect is likely to lead to a drop in the equity of financial institutions. At least at first, this effect is likely to occur mostly outside the US, because the “flight to security” will tend to raise the level of the US dollar and lower US interest rates.
  11. Changes in international associations. Already, there is discussion of Greece dropping out of the Eurozone. Associations such as the European Union and the International Monetary Fund will find it increasingly difficult to handle problems, as their rich countries become poorer, and as loan defaults become increasing problems.

In total, eventually we are likely to experience a much worse situation than we did in the 2007-2009 period, although this may not be evident at first. It will be only over a period of time, after some of the initial “dominoes fall” that we will see what is really happening. Initially, economies of oil importing countries may appear to be doing fairly well, thanks to low oil prices. It will be later that the adverse impacts begin to take over, and eventually dominate.

Major Concerns

Inability to restart oil supply, even if prices should temporarily rise. The production of oil from US shale formations has been enabled by very low interest rates. If there is a major round of debt defaults by the shale industry, interest rates are unlikely to fall back to previously low levels. Because of the higher interest rates, oil prices will have to rise to an even a higher price than required in the past–in other words, to more than $100 barrel, say $125 to $140 barrel. There will also be a lag in restarting production, meaning that high prices will need to be maintained for some time. Bringing oil prices to a high level for a long time seems impossible without crashing the economies of oil importers. See my post, Ten Reasons Why High Oil Prices are a Problem.

Derivatives and Securitized Debt Defaults. The last time we had problems with these types of financial instruments was 2008. Governments around the world made huge payments to banks and other financial institutions, in order to bail them out of their difficulties. The financial services firm Lehman Brothers was allowed to go bankrupt.

Governments have declared that if this happens again, they will do things differently. Instead of bailing institutions out, they will make changes that will make these events less likely to happen. They will also make changes in how shortfalls are funded.  In many cases, the result will be a bail-in, where depositors share in the losses by “haircuts” to their deposits.

Unfortunately, from what I can see, the changes governments have made are basically too little, too late. The new sharing of losses will have as bad, or worse, impacts on the economy than the previous government bailouts of banks. Regulators do not seem to understand that models used in pricing derivatives and securitized debt are not designed for a finite world. The models appear to work reasonably well when the economy is distant from limits. Once the economy gets close to limits, many more adverse events occur than the models would have predicted, potentially causing huge problems for the system.1

What we are likely to be encountering now is a combination of defaults of many kinds simultaneously–derivatives, securitized debt, and “ordinary” debt. Many of these risks will be shared among institutions, so that banking problems will be widespread. The sizes of the losses are likely to be very large. Businesses may find that funds intended for payroll or needed to pay suppliers are subject to haircuts. How can they operate in such a situation?

It is even possible that accounts under deposit insurance limits will be subject to haircuts. While deposit insurance is available in theory, the amount held in reserve is not very great. It could easily be exhausted by a few large claims (the scenario in Iceland a few years ago). If governments choose not to make up for shortfalls in funding of the insurance programs, the shortfalls could end up with depositors.

Peak Oil. There seems to be a distinct possibility that we will be reaching the peak in world oil supply very soon–2014 or 2015, or even 2016. The way we reach this peak though, is different from what most people imagined: low oil prices, rather than high oil prices. Low oil prices are brought about by low wages and the inability to add sufficient new debt to offset the low wages. Because the issue is one of affordability, nearly all commodities are likely to be affected, including fossil fuels other than oil. In some sense, the issue is that a financial crash is bringing down the financial system, and is bringing commodities of all kinds with it.

Figure 2 shows an estimate of future energy production of various types. The steep downslope is likely because of the financial problems we are headed into.2

Figure 2. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings.Figure 2. Estimate of future energy production by author. Historical data based on BP adjusted to IEA groupings. Renewables in this chart includes hydroelectric, biofuels, and material such as dung gathered for fuel, in addition to renewables such as wind and solar. (It is based on an IEA inclusive definition.)

A major point of this chart is that all fuels are likely to decline simultaneously, because the cause is financial. For example, how does an oil company or a coal company continue to operate, if it cannot pay its employees and suppliers because of bank-related problems?

Our Long-Term Debt Problem. Long-term debt is an important part of our current system because (a) it enables buyers to afford products, and (b) it helps keep commodity prices high enough to encourage extraction. Unfortunately, long-term debt seems to require economic growth, so that we can repay debt with interest.

Figure 3. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

 Figure 3. Repaying loans is easy in a growing economy, but much more difficult in a shrinking economy.

Economists conjecture that economic growth can continue, even if the extraction of fossil fuels and other commodities declines (as in Figure 2). But how likely is this in practice? Without fossil fuels, we can exchange baby-sitting services and we can give each other back rubs, but how much can we really do to grow the economy?

Almost any economic activity we can think of requires the use of petroleum or electricity and the use of commodities such as iron and copper. A more realistic view would seem to be that without the materials we generally use, our economy is likely to shrink. With this shrinkage, long-term debt will become increasingly impossible. This is one of the big problems we are encountering.

Our Physics Problem. Politicians and businesses of all types would like to advance the idea that our economy will continue forever; the politicians and businesses of every kind are in charge. Everything will turn out well.

Unfortunately, history is littered with examples of civilizations that hit diminishing returns, and then collapsed. Research indicates that the when early economies underwent collapse, the shape of the decline wasn’t straight down–declines tended to take a period of years. Not everyone died, either.

Figure 4. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.Figure 4. Shape of typical Secular Cycle, based on work of Peter Turkin and Sergey Nefedov in Secular Cycles.

Physics gives us a reason as to why such a pattern is to be expected. Physics tells us that civilizations are dissipative structures. The world we live in is an open system, receiving energy from the sun. Examples of other dissipative structures include galaxy systems, the solar system, the lives of plants and animals, and hurricanes. They are born, grow, and eventually stop dissipating energy and die. New dissipative structures often arise, if sufficient energy sources are available to dissipate. Thus, there may be new economies in the future.

We would like to think that we can stop this process, but it is not clear that we can. Perhaps economies are expected to reach limits and eventually collapse. It is only if economies can add large amounts of inexpensive energy resources (for example, by discovering how to make use of fossil fuels, or by discovering a less-settled area of the world, or even by adding China to the World Trade Organization in 2001) that this scenario can be put off.

What Can We Do?

Renewable energy is has recently been advertised as the solution to nearly all of our problems. If my analysis of our problems is correct, renewable energy is not a solution to our problems. I mentioned earlier that adding China to the World Trade Organization in 2001 temporarily helped solve world energy problems, with its ramp up of coal production after joining (note bulge in coal consumption after 2001 in Figure 5). In comparison, the impact of non-hydro renewables has been barely noticeable in the whole picture.

Figure 5. World energy consumption by source, based on data of BP Statistical Review of World Energy 2014.Figure 5. World energy consumption by source, based on data of BP Statistical Review of World Energy 2014. Renewables are narrowly defined, excluding hydro-electric, liquid biofuels, and materials gathered by the user, such as branches and dung.

Guaranteed prices for renewable energy are likely to be an increasing problem, as the cost of fossil fuel energy falls, and as buyers become increasingly unable to afford high energy prices. Issues with banks, making it difficult to pay employees and suppliers, are likely to be a problem whether an energy company uses renewable energy sources or not.

The only renewable energy sources that may be helpful in the long term are one that do not require buying goods from a distance, and thus do not require the use of banks. Trees growing in a local forest might be an example of such renewable energy.

Another solution to the problems we are reaching would seem to be figuring out a new financial system. Unfortunately, debt–and in fact growing debt–seems to be essential to our current system. We can’t extract fossil fuels without a debt-based system, in part because debt allows profits to be moved forward, and thus lightens the burden of paying for products made with a fossil-fuel based system. If a financial system uses only on the accumulated profits of a system without fossil fuels, it can expand only very slowly. See my post Why Malthus Got His Forecast Wrong. Local currency systems have also been suggested, but they don’t fix the problem of, say, electricity companies not being able to pay their suppliers at a distance.

Adding more debt, or taking steps to hold interest rates even lower, is probably the closest we can come to a reasonable way of temporarily putting off financial collapse. It is not clear where more debt can be added, though. The reason current debt programs are being discontinued is because, after a certain level of expansion, they primarily seem to create stock market bubbles and encourage investments that can never pay back adequate returns.

One possible solution is that a small number of people with survivalist skills will make it through the bottleneck, in order to start civilization over again. Some of these individuals may be small-scale farmers. The availability of cheap, easy to use, local energy is likely to be a limiting factor on population size, however. World population was one billion or less before the widespread use of fossil fuels.

We don’t have much time to fix our problems. In the timeframe we are looking at, the only other solution would seem to be a religious one. I don’t know exactly what it would be; I am not a believer in The Rapture. There is great order underlying our current system. If the universe was formed in a big bang, there was no doubt a plan behind it.  We don’t know exactly what the plan for the future is. Perhaps what we are encountering is some sort of change or transformation that is in the best interests of mankind and the planet. More reading of religious scriptures might be in order. We truly live in interesting times!

Notes:

[1] Derivatives and Securitized Debt are often priced using the Black-Scholes Pricing Model. It assumes a normal distribution and statistical independence of adverse results–something that is definitely not the case as we reach limits. See my 2008 post that correctly forecast the 2008 financial crash.

[2] Points are plotted at five-year intervals, so the chart is a bit more pointed than it would have been if I had plotted individual years. The upper limit at 2015 is an approximation–it could be a year or so different.

Greek Souvlaki Redux

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Aired on the Doomstead Diner on January 7, 2015

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http://www.bongonews.com/StoryImages/deep_throat_2005-06-03.JPG…Back in 2012 when we opened the Diner for Bizness, one of the major Collapse stories of the day was the implosion of the Greek economy, the subsequent and continuing Bailouts by the IMF, and endless discussion across the blogosphereof whether the Greeks would Default, exit or be booted out from the Euro monetary union, etcetera.

3 years later here, after any number of rounds of bailouts (I have lost count), once again the Greeks are BACK in the Newz, since it looks increasingly likely that Alex Tsipras, Head of the Greek Syriza pretty far left party will wrest control from the quisling New Democracy Partyof Antonis Samaras which has followed the diktats of the hated “memorandum” forcing what is referred to in Newzspeak as “Austerity” down the throat of the Greek Population, Linda Lovelace style…

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Something Stirs

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Published on 22 Billion Energy Slaves on January 31, 2014

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Do you remember this poster that idealistic people used to have on their walls in the 1970s? The native American wisdom it quotes stresses that we can’t actually eat money, which to my young self seemed pretty self-evident.

These days of course, people don’t put posters like that up on their physical walls, they put them all over their virtual social media walls so that like minded people can ‘like’ them and un-like minded people can unlike you and whisper about you having ‘gone weird’.

Anyway, money, or what passes for it these days, has been getting a whole lot more exciting over the last week. I blame Ben Bernanke, the soon-to-be ex-chairman of the US Federal Reserve. During his tenure he has overseen a massive bond-buying programme, the likes which the world has never seen. Now, as he steps down to hand over the reins of power, he is tapering off the amount of – let’s be honest – money printing. And this is having a pretty dramatic effect on things, to say the least.

Although he is being hailed as a fiscal hero in most quarters, the legacy he leaves behind is massive debt and broken economies. And it is only now becoming clear that the effect of flooding the too-big-to-fail banks with money has been to make them even bigger, and to launch a series of crises around the world as ’emerging economies’ (I hate that condescending nomenclature, so have to put it in quotes) suddenly find themselves with currency crises. Any number of them are having to hoik interest rates to protect their currencies, and in doing so are chucking many of their citizens under the proverbial bus.

India, Turkey, South Africa, Russia, Ukraine, plus a baker’s dozen other ’emerging nations’ are in full panic mode as they exhaust their supplies of hard currency trying to keep their own rands, rupees and florins from devaluing. Each one is a different case, with some in better positions than others, but the upshot of it is that all of them will be going through some challenging contractions. Some excitable people are talking about currency wars being a prelude to real bullets and bombs wars. Better get a flak jacket and dig a shelter, if that’s the case.

And it’s not just the ’emerging economies’. Combined, they make up almost half of the world’s trade. A couple of decades ago this would not have been the case, but now, by crashing their economies, the US is effectively shooting itself in the foot – albeit a foot that is wearing the steel toe-capped boots of a reserve currency status. For now.

Turmoil ensues. Stocks are dropping like stones. Money is flooding into safe havens, such as gold, the Swiss franc and, of course, the US dollar. The volatility index has gone through the roof and the mainstream media, for all of its talk about recovery, is still trying its best to ignore it.

And so it becomes clear that all of this QE business boiled down to one thing: most of the world’s weaker economies were sacrificed on the alter of keeping the bigger western economies from melting down. Simple as that, really. Let them have an emerging middle class of consumers, and just when their expectations have been raised, pull the rug out from under their feet and send them all back to the shanty towns. That’s life in the hardball world of dog-eat-dog capitalism.

And still, it may all be for nothing. Does anyone feel safe with their money in a bank account? If so, why? Putting your money in a bank is akin to lending it to a crystal meth addict with a black credit record. Incidentally, once you put your money in the bank it ceases to be yours. Almost every western nation is now talking in terms of bail-ins. A bail-in is where YOU get to bail out the failing bank with YOUR money because the world’s central banks are running out of fire blankets and ammunition to contain the problem of over-leverage. It happened in Cyprus. It may well happen in the UK next, where some banks are insisting that if you want to withdraw money from your own account you must submit to intimate questioning, have documented proof of what you are spending it on, and present a signed note from your mum for good measure.

What’s more, we are heading into a period of deflation. People hear the word deflation and think that it’ll be great because things will be cheaper. They may well be cheaper, but they’ll have correspondingly less money to spend on them, so they’ll still be poorer. Europe has already entered into deflation. I found myself in a Poundland store (where everything costs a pound) this morning on a trip to Truro, the regional capital (a throbbing metropolis of 19,000 people). I must admit to being a bit sniffy about this kind of place in the past. Not any more. I picked up four fruit bushes, some toilet paper, a roll of silver kitchen paper, two home-grow mushroom kits, a CD, two litres of milk and some potting compost – all for ten quid. The same stuff in other stores would cost four times the price.

Perhaps that’s why everyone all of a sudden seems to be shopping at these places and why supermarkets such as Lidl are popping up everywhere. Of course, not everyone can even afford to shop at Poundland or Lidl – these are the people that find themselves lining up at food banks. There are plenty of these too. Some recovery! Still, better get used to going hungry some reports suggest that global food prices will triple in the next two decades.

Poundland: cheap and cheerful

On the way back home I listened to a BBC programme on the radio in which people in Liverpool were questioned about whether they could ‘feel the recovery yet’. Only one person said he had become better off in the last five years and he was selling donuts on the street (‘Because people can’t afford a proper meal any more so they buy donuts.’). Everyone else seemed to have tales of deprivation and downright misery. The only person who could see any green shoots at all was the leader of the city council, who was defending his decision to spend £50 million on a shiny new prestige library that has won some kind of architectural award. The city borrowed the money to build it. But even he said it was ‘challenging’ when the receipts from local taxes only covered about half of what the city spends annually. But he figured everything would be okay in the end because the city has a great vibe and ‘people are resilient’.

Yet, despite all this gloom, there remains a patina of richness and wealth about the country. People cruise around in their shiny new BMWs and Audis and luxury supermarkets are also on the rise. Property prices are rising dramatically, and the government would have us believe that Britain is the rising star of the European economies. Sometimes I have to pinch my arm and remind myself that most wealth is virtual, that 99% of ‘money’ in the global economy is just static electricity on computer chips being buzzed around via satellites and cables from one continent to another seeking ‘yield’.

A newspaper front page last week

So it seems that the propaganda machine is in overdrive to convince us that we are enjoying boom times again. Could it be that this is timed to coincide with the inevitable capital flight from the ’emerging nations’ as QE programmes are wound down? Is the British government’s policy to try and look like the proverbial prettiest horse in the glue factory to skittish investors? Does anyone realise we are just one sharp pin away from a big bubble going pop?

Prediction time. Over the next few weeks and months there will be a massive deleveraging of unsalvageable debt. The stock market will go down a lot. The weaker currencies will devalue mightily as traders act like pack wolves to bring them down one by one. China will wrestle with its out of control shadow banking system, with unpredictable results. People will willingly sign up to have their pensions evaporated. Financial Crisis 2:0 will be hailed and politicians everywhere will blame the ’emerging markets’ for the chaos. Within a year the fracking bubble will have burst (big oil companies are already pulling out as fast as they can), deflation will take hold and a lot of people will suddenly find they are a lot poorer. Life will go on, for most. The investor classes will look around for a new bubble to inflate.

And no, when the last tree has been cut down, the last river poisoned  and the last fish caught, we will find that we can’t eat static electricity either. What strange times we live in.

Death Spiral of the Financial Markets

Off the keyboard of Michael Snyder

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Published on Economic Collapse on August 19, 2013

death-spiral-28-1

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18 Signs That Global Financial Markets Are Entering A Horrifying Death Spiral

The spiral staircase at the Lighthouse in Mitchell Lane, Glasgow - Photo by George Gastin You can see it coming, can’t you?  The yield on 10 year U.S. Treasuries is skyrocketing, the S&P 500 has been down for 9 of the last 11 trading days and troubling economic news is pouring in from all over the planet.  The much anticipated “financial correction” is rapidly approaching, and investors are starting to race for the exits.  We have not seen so many financial trouble signs all come together at one time like this since just prior to the last major financial crisis.  It is almost as if a “perfect storm” is brewing, and a lot of the “smart money” has already gotten out of stocks and bonds.  Could it be possible that we are heading toward another nightmarish financial crisis?  Could we see a repeat of 2008 or potentially even something worse?  Of course a lot of people believe that we will never see another major financial crisis like we experienced in 2008 ever again.  A lot of people think that this type of “doom and gloom” talk is foolish.  It is those kinds of people that did not see the last financial crash coming and that are choosing not to prepare for the next one even though the warning signs are exceedingly clear.  Let us hope for the best, but let us also prepare for the worst, and right now things do not look good at all.  The following are 18 signs that global financial markets are entering a horrifying death spiral…

#1 The yield on 10 year U.S. Treasuries has risen for 5 of the past 6 days, and it briefly touched the 2.90% level on Monday.

#2 Rapidly rising interest rates are spooking investors and causing them to pull money out of bonds at a very rapid pace

Investors have yanked nearly $20 billion from bond mutual funds and exchange traded funds so far in August. That’s the fourth highest pullback ever, according to TrimTabs data. In June, investors took out $69.1 billion — the highest on record.

#3 The sell-off of U.S. Treasuries is being led by foreigners.  In particular, China and Japan have been particularly aggressive in selling off bonds…

China and Japan led an exodus from U.S. Treasuries in June after the first signals the U.S. central bank was preparing to wind back its stimulus, with data showing they accounted for almost all of a record $40.8 billion of net foreign selling of Treasuries.

The sales were part of $66.9 billion of net sales by foreigners of long-term U.S. securities in June, a fifth straight month of outflows and the largest since August 2007, U.S. Treasury Department data showed on Thursday.

China, the largest foreign creditor, reduced its Treasury holdings to $1.2758 trillion, and Japan trimmed its holdings for a third straight month to $1.0834 trillion. Combined, they accounted for about $40 billion in net Treasury outflows.

#4 Thanks to rapidly rising bond yields, some of the largest exchange-traded bond funds are getting absolutely hammered right now

• The $18 billion iShares iBoxx $ Investment Grade Corporate Bond fund (ticker: LQD) has fallen 7.94% since May 2, according to S&P Capital IQ. That’s including reinvested interest from the fund’s bond holdings.

• The 3.7 billion iShares Barclays 20+ Year Treasury Bond (TLT) has plunged 15.9% the same period. Longer-term bonds typically get hit harder when rates rise than shorter-term bonds. For example, the iShares Barclays 3-7 Year Treasury Bond fund (IEI) has fallen 3.2% since May 2.

• PowerShares Emerging Markets Sovereign Debt (PCY), which invests in government bonds issued in developing countries, has fallen 12.7%. The fund has $1.8 billion in assets.

#5 In recent weeks we have witnessed the largest cluster of Hindenburg Omens that we have seen since prior to the last financial crisis.

#6 George Soros has bet a tremendous amount of money that the S&P 500 is going to be heading down.

#7 At this point, the S&P 500 has fallen for 9 out of the last 11 trading days.

#8 Margin debt has spiked to extremely dangerous levels.  This is a pattern that we also saw just before the last financial crash and just before the dotcom bubble burst…

The exuberant mood comes as margin debt on Wall Street hovers near $377bn, just below its all-time high and well above peaks before the dotcom crash and the Lehman crisis.

“Investors have rarely been more levered than today,” said Deutsche Bank, warning that the spike in margin debt is a “red flag” and should be watched closely.

#9 The growth rate of new commercial bank loans and leases is now the slowest that it has been since the end of the last financial crisis.

#10 According to a shocking new report, Fannie Mae and Freddie Mac are masking “billions of dollars” in losses.  Will they need to be bailed out again just like they were during the last financial crisis?

#11 Wal-Mart reported very disappointing sales numbers for the second quarter.  Sales at stores open at least a year were down 0.3%.  This is a continuation of a trend that has been building for years.

#12 U.S. consumer bankruptcies just experienced their largest quarterly increase in three years.

#13 The velocity of money in the United States has hit another stunning new low.

#14 The massive civil unrest in Egypt threatens to disrupt the steady flow of oil out of the Middle East…

After last week’s bloody crackdown by the Egyptian army, fears of a disruption of oil supplies to the West have boosted the oil price. Brent crude prices were propelled to a four-month high of $111.23 on Thursday. If the turmoil gets worse – or unrest spreads to other countries – the risk premium currently factored into the price of crude is likely to increase further.

#15 European stocks just experienced their biggest decline in six weeks.

#16 The Japanese national debt recently crossed the quadrillion yen mark, and many are expecting the Japanese financial system to start melting down at any time.

#17 In Indonesia, the stock market is “cratering“.

#18 In India, the yield on their 10 year government bonds has skyrocketed from 7.1 percent in May to 9.25 percent now.

As the coming months unfold, keep a close eye on the “too big to fail” banks both in Europe and in the United States.  When the next great financial crisis strikes, they will play a starring role once again.  They have been incredibly reckless, and as James Rickards told Greg Hunter during an interview the other day, we are in much worse shape to deal with a major banking crisis than we were back in 2008…

What’s going to cause the next crisis?  Rickards says, “The problem in 2008 was too-big-to-fail banks.  Well, those banks are now bigger.  Their derivative books are bigger.  In other words, everything that was wrong in 2008 is worse today.” Rickards goes on to warn, “The last time, in 2008 when the crisis started, the Fed’s balance sheet was $800 billion.  Today, the Fed’s balance sheet is $3.3 trillion and increasing at $1 trillion a year.”  Rickards contends, “You’re going to have a banking crisis worse than the last one because the banking system is bigger without the resources because the Fed is tapped out.”  As far as the Fed ending the money printing, Rickards predicts, “My view is they won’t.  The economy is fundamentally weak.  We have 50 million on food stamps, 24 million unemployed and 11 million on disability, and all these numbers are going up.”

We never even came close to recovering from the last financial crisis and the last recession.

Now the next major wave of the economic collapse is coming up quickly.

I hope that you are taking this time to prepare for the approaching storm, because it is going to be very painful.

Welcome to the Hotel California Mushroom Farm

Off the keyboard of RE

Published originally on Reverse Engineering on November 21, 2010

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Note from RE:  No time this week to write the Sunday Brunch on the Diner, so I went to the Reverse Engineering Refrigerator looking for Leftovers.  Found this morsel from 2010.  Makes me look like fucking Nostradamus, because if I said I wrote it today, nobody would bat an eyelash.

Some new information has begun circulating across the Blogosphere which is shedding some new light and new perspectives on the Inflationista-Deflationato Debate. Specifically, its Newz of rapidly spreading Inflation not in the FSofA where the Money is being printed, but rather in Emerging Markets over in Asia. Hong Kong apartments are going for $4500/sq ft, China declares a 4.4% Inflation rate that is probably double that in reality, etc.

China Ghost CitiesThe reason for this is Obvious. Capitalista Pigmen who are close to the Money Spigot aren’t taking the freshly printed Toilet Paper and loaning it out to J6P Small Bizman here, said Bizmen are already too in debt to take on more and already are not paying back what they owe. So instead of making biz loans to every Tom, Dick and Harry here, these banks are shoveling the money at every Chin, Chen and Chang over in China. Said Bizmen are happy to build Ghost Cities and Bridges to Nowhere with this money.

Its all pouring into the EMs like a Niagara Falls of Money. This is the “Hot” market with the “endless possibilities for Growth” that our Pigmen Asset Managers like Jim Rogers are investing in as they chase Yield. Does this have the same Stink as all the money that got poured into Eastern Europe after the fall of the Berlin Wall or what? That ended well. The Swiss Banks are going to be eating that mistake until Helicopter Ben Bails them out.

Asia is a HUGE Bubble, or as I like to call it a Liquidity Trap/Asset Class Sinkhole. Such places are like a Roach Motel for Money. You can Check In, but you cannot Check OUT. Or the Hotel California of Money. You can Check Out any time you like but you can NEVER leave with the Money. LOL. Or at least sometime in the very near future you won’t be able to when some Yellow Swan comes in for a landing and everyone runs for the Asian Fire Exit at the same time.

So yea, Inflationistas like Gonzalo Lira and Deflationatos like me have something which we can agree on, which is that massive Money Printing does have to cause Inflation SOMEWHERE, and in this case where the Inflation is taking place is in the Hong Kong RE market and assorted other Malinvestment directed at Asia at the moment. Like the money loaned out here to build McMansions; like the money loaned out to Eastern Europe to join the Capitalista “Party like its 1999” orgy; like the money loaned to Ireland to become Pharmaceutical Exporters; like the money loaned to Spain to build Tourist Resorts for German Pigmen on the Costa del Sol, it is all destined to go up in SMOKE here, in the Greatest Bonfire of Paper Wealth in All of Recorded History.

schrodingerRoughly 75% of all the Dollars in existence are not here in the FSofA, they are floating around outside our borders, and MOST of them are tied up in some kind of Investment in some Asset class. Most of them are NOT FRNs stuffing the mattresses of the Chinese Overlords. Of actual FRNs, there are only around $1T of them out there, a drop in the bucket of what is probably in the QUADRILLIONS of notional money floating around the Shadow Banking system. The rest of the money only exists as Digibits in a Database, and when as MUST happen eventually all the Assets are Marked to Market instead of Marked to Heisenberg’s Uncertainty Principle, those Dollars will POOF disappear just like Schrodinger’s Cat when you try to pin down its location. You can pin down Position or Velocity, but when you pin down one, the other one becomes undefinable. So when the Velocity of Money goes to Zero, you can’t pin down its Position. It might still exist somewhere, but it’s probably halfway across the Universe by now in another Galaxy along with Schrodinger’s Cat. Unless Han Solo transports it back to us at Warp 10 in the Millenium Falcon, we are SOL. LOL.

I don’t see a Hyperinflation of Huge Influx of Dollars here as Foreign holders of Dollars try to dump them, because they don’t REALLY have Dollars. What they have are DOLLAR DENOMINATED ASSETS, most of it Notional money in the form of CDS, MBS etc. When they try to sell those Assets for Dollars, they will only get Pennies for them, if they can sell them at ALL. Since most of those Assets are in fact held by the TBTF Banks and their Illuminati Owners, POOF they are massively Insolvent AGAIN, even more insolvent than they already are. Is Da Fed going to then go and BUY every Resort on the Costa del Sur at Par from them with still MORE Funny Money? Reducto ad Absurdum, somewhere along the line this collapses.

This goes right along with the idea that as the Muni Market collapses, Da Fed will be going in to buy all of THOSE also. And of course Da Fed will ALSO print up enough money to fund the IMF so that all the PIIGS can be Bailed Out, and CA ALSO of course. Meanwhile, EVERYBODY KNOWS the FSofA itself is functionally BK, so for how long is it possible that people keep accepting the idea one BK country can Loan money to another BK one or buy Assets with money it does not have? That this Circle Jerk hasn’t collapsed already is a Testament to the Cognitive Dissonance which occurs in the failure of a Monetary System.

The Geniuses like Helicopter Ben and JC Trash-it who are running the whole show as Illuminati Apparatchiks simply cannot accept the idea that they can’t solve the problem. They don’t really have any answer for this problem other than Money Printing followed by War, and the goal there for the Illuminati controlling the Clueless Apparatchiks is to bet correctly on who wins the war and maintain control over the Banking SYSTEM they use and tie up the right Assets under their own Ownership, and have the New Goobermint validate their Asset Claims once the War is finishes, which in this case it never will in any clear manner like the end of WWII leading to the original Bretton Woods accord. Thus by funneling money to Prescott Bush’s Union Bank, the Thiessen Family was able to maintain their ownership and control over German Industry despite the fact that Hitler, who they ALSO funded lost the War.

Now, as this process works itself through, besides Emerging Markets the next Asset Class where a lot of the Hot Money flows is into Commodities. We have seen already serious Price Spikes there, but such Price Spikes are not Hyperinflation. Commodities are also a Liquidity Trap-Asset Class Sinkhole, but they operate on a shorter timeline than stuff like Property Bubbles, which can take a decade or more before they POP. Commodity spikes have a much shorter timeline, a few months or at most a year. The reason for that is most of them are Consumables like Food and Oil. They take an End Consumer who has money enough to pay the outrageous prices to stay Bubbled Up in price. However, as we saw with $147/bl Oil, this Taps Out the end Consumer VERY quickly, and then you get a crash in the price of that Commodity down to the $35 price level before it started creeping back upward. Whoever bet on it and wasn’t well Hedged or who did not unload his position before the inevitable crash came lost his shirt.

http://www.theblaze.com/wp-content/uploads/2012/09/Food-Stamps-Yearly1.jpgSmall Economies like Weimar and Argentina and Chile and Zimbabwe can undergo prolonged Hyperinflation because the Market as a WHOLE does not respond to the fact a small country like that is getting Priced Out of the commodities market. It’s a Small Blip on the Radar if those countries are Priced Out and their population is Starving because their Money has gone worthless. It is NOT a Small Blip if a very LARGE country with a very LARGE Military gets priced out of the Food Market. Then it is a very LARGE Blip which perturbs the Market as a whole, and the price crashes.

You have an even BIGGER issue when one currency functions as the World RESERVE Currency. Then every time you get a Price Spike in commodities, its not just the Issuer of that currency who gets hit, but every country on the PLANET that is using that currency to define Asset Values and their own currency value, if they have one of their own.

What does a Price Spike in Food do here in the FSofA? At the moment very little because food is a relatively small percentage of income for most folks in the FSofA who have not already fallen off the Economic Cliff. For those who have, we also are running the SNAP Card program, insulating this ever growing number of people from “Food Insecurity”, aka STARVATION.

mushroom

However, in all the Developing Nations (aka “Emerging Markets”) of the world where food is a BIG part of the family budget and there isn’t a Safety Net like SNAP, Food Riots pop up like Mushrooms on a cool and damp morning in Kennett Square, PA. (Mushroom Capital of the WORLD! LOL) This would INCLUDE Chen Rice Wine over in China, because while the Chinese Overlords are doing quite well, your average Chinese Peasant or Factory Worker is still subsisting on an annual salary of like $3000 (the salary J6P would also have if we want to compete with China for cheap labor). Chen is going to be going HUNGRY when Rice goes up 30% in price. Not good for the Stability of this EM. The Chinese Overlords MUST STOP this inflation or else they are going to lose control of their country. So they Bluster at Helicopter Ben to STOP Printing, and HB Blusters Back for them to STOP manipulating their currency. Something gotta GIVE here of course. Who will Blink First? It doesn’t really matter, because when either side does Blink, the only Recourse is WAR.

http://blog.heartland.org/wp-content/uploads/2013/03/gold-bars-3.jpgAll the consumable commodities are destined to Spike and Crash for as long as this monetary regime stays functional and/or until the War exits the Political/Economic sphere and migrates to the Battlefield. As long as Oil is priced in Dollars this will remain the case, and the BRIC countries are not going to be able to replace that with another Fiat currency, nor will the World Bank be able to do so. Same problem would occur with ANY Global Currency, based on ANYTHING, even Gold in an Industrial Economy whose total basis for value is on Cheap Energy. That my Gold Bug friends is the REAL crux of the matter. Follow the MONEY. The real MONEY or Economic Wealth of Industrial Civilization is in OIL and its control, NOT in Gold Bars.

Let us do a Thought Experiment. If say TOMORROW all the Fiat Crashed and the House of Saud would only take Payment in Gold for Oil, what happens? Of course all the people who have no Gold are SOL immediately. However, even all you well Prepped Pigmen with some Gold Eagles in your Basement Safe are going to have to cough them up to the House of Saud in order to get the Oil and its Products AND services you depend on, like a Functioning Goobermint that protects your Property Rights. The Oil Producer essentially holds everyone dependent on that Oil Hostage for their Gold, until all the Gold is in THEIR safes. Then what do you buy Oil with (if any is left under their Desert Sands by then)?

Of course it is not quite so simple as that, since Saudi Arabia is a Food Importer, so as long as you are a Food Exporter and can Price Up the Food to match the Oil Price Input you could have a round robin trade going on there of Food for Oil, with the Gold serving as a measure. The problem there is that this trade cannot go on in perpetuity, since while the Gold does not get destroyed, the Oil does. When the Oil runs OUT, the Saudis are left with lots of Gold in the Basement Safe, and nothing to EAT, since of course you cannot EAT Gold, and unlikely anyone with meager quantities of food will trade it for a lump of metal they cannot eat.

The Food exporter is in slightly better shape (but not much) since even though he has No Gold left and No Oil either, he still does have some possibilities for producing Food, though not nearly in the quantity possible when the Oil was flowing in from Saudi Arabia. So with no Oil and now little Gold to function as Money, this population is going to have little to work with beyond Barter to keep the Economy moving, but by then your Goobermint has gone the way of the Dinosaur and nobody is going to be out there protecting your Property Rights over “your” land other than YOU.

You think the FSA is a problem NOW? Wait until the SNAP Card program collapses. Communists will start popping up like Mushrooms on a cool and damp morning in Kennett Square, PA. Over in Greece, the Communist Party is already growing. The reason is their “Socialist” Goobermint isn’t doing jack SHIT to keep them from being turned into Debt Slaves to the Illuminati. The last Refuge for the hopeless and disenfranchised with Nothing Left to Lose is Communism. Its no problem at all philosophically or economically for people who have NOTHING to agree to share Everything. LOL. Only people who have something left to lose are afraid of Communism. You can battle against this only for so long as you keep the number of Have Nots in the Population below a certain Critical Mass. The CM seems to be about 25% of the population Unemployed, where no Safety Net exists to keep them going. At the point you have that many completely off the cliff, you probably have another 50% of the population barely hanging on, and 25% still in Control and doing OK. This is where the Battle for their Hearts and Minds and Warm Bodies to serve as Cannon Fodder comes in, as some in the middle 50% go with the Communists because they are afraid if they don’t they will attacked by the “hoodlums”; and others in the middle sign on to be Soldiers for the Illuminati with a Hot meal and a place to sleep if they fight to preserve the Status Quo. Depending on who wins the battle, you end up with either Communism or Fascism, and in large societies both are variants of the same thing, Totalitarianism. The only time you can get some kind of Middle Ground is when there is sufficient Surplus in the economy to keep everyone at least fed and housed. Such a surplus existed here in the FSofA right through Lyndon Johnson’s Great Society Program, which bought off the FSA for more than 40 years, using the Thermodynamic Energy of Oil first in the years directly following WWII, followed by Financialism and ever upward spiraling Debt in the years since the Great Society. It was NECESSARY to incur that debt in order to STOP what was happening in the FSofA in the 60s, the draining of enough resource wealth to keep everyone fed and housed in the Industrial paradigm. This was resulting locally with increasing Civil Violence, and internationally with Wars of Aggression for Hegemony over the world in places like Vietnam. Of course our Illuminati Masters did not REALLY stop this, all they did back then was Kick the Can down the road a piece with the Great Society.

It never ceases to amaze me reading the amount of Bile spit at the Free Shit Army on the pages of TBP, and more than a few other Blogs I read. Since the very MOMENT money became used as the instrument of commerce back in the time of the Sumerians, every one of these societies has been stuck with the dichotomy of Haves and Have Nots. For the great preponderance of the time in between, from about 5000BC to 1865AD or so, explicit Slavery was the answer to the Have Not problem. The Industrial Revolution made many if not most forms of Productive Human Labor quite valueless by replacing it with the thermodynamic energy of Oil, so you didn’t even really need Human Slaves anymore in the direct Ownership sense of an individual Human Life. Economic slavery became the order of the day, as a whole new economy developed based on the consumption of the Oil resource. As it grew, many forms of “Make Work” industries developed to employ people, but they didn’t really produce anything of value. In fact the people who make the MOST money produce nothing at all, they merely sit behind a Bloomberg Terminal and place bets on where the next Bubble will pop up. Closer they are to the Money Spigot, more money they have to Leverage and bet, the more they make. Thus Goldman Pigmen can go an entire MONTH not losing bets on a single trading day. Nice work if you can get it of course.

All the make work stuff of the post Industrial economy led by the IT sector never resolved the problem of poor folks falling off the economic cliff for one reason or another, and the Industrial Economy never could provide enough Good Paying jobs to keep everyone employed. It only did for a while here in the FSoA when the Industrial Capacity everywhere else in the “developed” world had been LEVELED in WWII. Once that capacity was rebuilt, and then additional capacity overbuilt in Asia, the price of Industrial Labor fell precipitously, and it was an easy thing indeed for Unions to be destroyed and Capital to move its way over to Cheap Labor countries like China. That merely accelerated the process of more people falling off the economic cliff here in the FSoA, which in order to maintain social cohesion necessitated an ever expanding population of the FSA. Many of them did find work in low paid service sector jobs for a while, but as the consumer based economy of the Industrial paradigm collapses, so also collapse all those service sector jobs. So every day now the FSA increases in its numbers, to the point now where even many of our readers are members of the FSA, collecting their UE checks after being downsized out of their job as an IT Engineer or having that job outsourced to an Indian Geek in Delhi, who will write the same code for 1/10th the price the FSofA IT Geek needs to pay his mortgage.

Although certainly the 30 Blocks of Squalor and the long term FSA populating those decaying streets are the most visible evidence here of the collapsing Industrial Economy, for now less visible members of this army are hunkered down Squatting in McMansions yet to be foreclosed on, collecting UE Bennies and feeding their children with SNAP cards. Those McMansions still look pretty good if they are still occupied since they were all built in the last decade, but in a few years they will have the same dilapidated quality of the housing in the 30 blocks of Squalor. No money available to do maintenance, no money to buy gas for the John Deere Riding Lawn Mower.

People revile the Free Shit Army until the day they JOIN that army. Ever so parochially, they believe “This will never be ME!”, since they have their Sheepskin from the University of Illinois where they studied the Productive Subject of IT, eschewing their interest in the Fine Arts so they would be prepared for a Job in our economy. As this economy spins it way downward, all those nice young WHITE boys and girls who started families and moved into McMansions will quickly become members of the FSA as well, if they are not already. Should those boys reject the UE Bennies, should they reject the SNAP card to feed their young children? Who in their right mind would do that?

As we transition out here from the Industrial/Information Technology age, unless as a society we provide some buffer to make the transition, MANY people will go Hungry, and they won’t all be the Black folks in the 30 Blocks of Squalor who fell off the cliff quite some time ago, barely after explicit slavery was abolished after the War of Northern Aggression. More and more, the FSA is going to be composed of the predominant group of White people who for a while rode the Great Train of prosperity that followed the accessing of the thermodynamic energy of Oil.

http://www.jewishvirtuallibrary.org/images/hitler1.jpgThis new group of the Impoverished and Disenfranchised will be led to revile the old group of I & D, and our Illuminati Masters will direct their hatred toward them, with an ensuing Race War quite likely as a result. Even more likely to begin over in Europe than here in the FSofA, if you read blogs like the Gates of Vienna and the subtext of policies the Dutch MP Geert Wilders espouses. Over the last 20 years, from France to Germany to the Netherlands, they have been importing cheap labor and filling up their “suburbs” with Muslim populations to do the scut work of their society, but as they run out of scut work for them to do more of them fall onto their social welfare roles. Now at best they would like to Export all these folks back to the countries they migrated from. A bit easier to try and justify than exporting the Black population of the FSoA back to Africa since they have been here since the 1700s, but equally implausible in practical application. Since exporting the Impoverished is less possible now than it was when the Jews migrated out of Europe toward the shores of Amerika, one can only suspect a new iteration of the Final Solution being undertaken over in Europe. Here in the FSoA as well this time also.

The FSA is an artifact of Industrialization and exchanging Explicit Slavery for the Economic Slavery of Capitalism. A Trade Off was made starting in the time of Otto von Bismark to develop a Social Welfare state that would handle the problem of the Have Nots that has always existed since monetary systems were implemented in the aftermath of the Agricultural Revolution. Utilizing the Thermodynamic Energy of Oil, it has through this period in the developed Industrial economies been possible to “buy off” the impoverished by providing them a basically free living, although not a very pleasant one in the various Ghettos around the world that are mirrors of the 30 Blocks of Squalor. As the Oil Age comes to a close, its no longer possible to do this Buy Off, which leaves only two possibilities, explicit Slavery or Death via the Final Solution.

Here in the FSofA, because the FEAR of Communism has been so thoroughly inculcated into the population, unlike Greece its unlikely that we will see a real resurgence of a Communist movement like the Wobblies of the Great Depression. FDR only managed to hold this off at the time by buying time with some Socialist reforms like Social Security and the Myth of Home Ownership financed through Goobermint guaranteed Loans from Fannie Mae. It was a last ditch compromise by the Illuminati of that time financed with the Thermodynamic Energy of Oil, then present in copious quantities underneath fields in OK and TX. In the intervening years since, the Illuminati consolidated their control running a Corporatocracy which is now morphing into an explicitly Fascist State, evidenced by increasing intrusive Full Body searches at all Air Transit Checkpoints and ever expanding control of commerce in all sectors of the economy. The whole apparatus is so well entrenched now it is doubtful any kind of Communist movement would stand a chance of success, so for those of you worried about that outcome here, its not likely. You will of course have to live with the alternative, a Fascist Goobermint which watches your every move and controls every aspect of your life. All you can really do during this period is wait for said Goobermint to eventually collapse on itself through internal corruption and the collapse of the Conduits. That could take quite some time, depending on how well our Fascist Leaders are able to run the War machine along with the Police State. Given the general level of Incompetence in Goobermint and decreasing Energy to hold the system together, I don’t think the timeline will be all that long, however.

We are now fresh OUT of Can Kicks, and there is nowhere in the world with great resource wealth to rape anymore, certainly not China, which is already a post industrial Cesspool. All the Hot Money Helicopter Ben is Printing is going into Malinvestment in Asia, hyperinflating their economies and setting up enormous Bubbles waiting to burst in every Emerging Market. When it collapses, as it MUST, there will simply BE no place for Capital to migrate to. Nowhere left to Run, Nowhere to Hide. Then it will become a real Global War of the Haves v. the Have Nots, and the number of Haves will be exceedingly small in number. ALL the Conduits, including Money will collapse in the course of this War, and the Death Toll coming down the pipe is close to incalculable, though it cannot be more than the entire population of Homo Sapiens, so it has an upper limit as an Extinction Level Event.

I keep my fingers crossed this is not the end of our experiment with Sentience on this planet. I do hope that there are at least a few remaining small tribes of people who will rebuild a new civilization based on better principles of Stewardship of our Planet and Generosity toward Others, rather than the Planetary Rape and Intraspecies Greed which defines Capitalism. The only thing for sure here is that if that time does come, its not going to be for a VERY long time, and the intervening years are going to be filled with Death, Anguish and Pain beyond measure for most of Humanity. The most important thing to come from that time is to make sure that Justice is Done, and the Greedy are made to Pay for their Sins. There is no level of Violence too great to Exact Retribution for the Violence done to the world and its people by Capitalism. Eternal Justice WILL prevail, and the Meek Shall Inherit the Earth. Right AFTER the Meek get very, VERY Angry.

See you on the Other Side.

Easter 2013: The Crucifiction of Money

Off the keyboard of RE

Published on the Doomstead Diner March 31, 2013

Discuss this article at the Economics Table inside the Diner

Easter Sunday 2013, and as usual the Dominoes are Toppling all over the world economically and geopolitically, as a portion of the world population celebrates the Life-Death-Life-Death of a Carpenter-Preacher who claimed to be 1/3 of God.

Inside the Diner as usual also, the debate goes on about the Validity of these claims and what the Significance of them are. From my POV, with so much shit currently ongoing with a MUCH more direct impact on our further Earthly Existence, whether or not JC was 1/3rd of God or not is not a major concern. That is just me though, and does not reflect the Group Think of the Diner. LOL.

Let me go to my major concern of the day, the ongoing Redefinition of what it means to be a Bank Depositor. Most people believe that a Bank is place that Holds Your Money, keeps it Safe from Thieves and you can go get it anytime the Bank is Open and you have your ID with you to prove you are the Owner of said Money. Sorry, no.

The NEW definition of a Bank Depositor is as an UNSECURED CREDITOR of the Bank! When you make a deposit, you are LOANING your money to the bank, and the Bankster now owns it and is free to Gamble it in any way he sees fit. If he loses the money, since you are Unsecured, any assets the bank might still have go FIRST to Senior Bondholders, they get to Divy up the Carcass, the Depositor is left with BUPKIS.

Now, this is hardly the first time in History a Banking System has crashed, in fact it happens at VERY regular intervals in the 80 year Nabe. Every time though, the same folks Reboot, claim to Own Everything they Repoed in the Crash and start Loaning out money AGAIN based on the Assets they Claim to Own. If you want access to any of those Assets, you gotta Borrow the New Money from them, pay interest on it and get taxed on it, try to Save it until the NEXT crash when POOF Up in Smoke it goes again, Rinse and Repeat.

Last time this occurred in the Great Depression, to “Restore Faith” in the Bankstering System, they came up with the Marvelous Gimmick of Goobermint INSURANCE of Bank Deposits! Known here in the FSoA as FDIC. In this farce, supposedly if your Bank goes Belly Up, Da Goobermint will make good on your Deposit up to some nominal figure, 100K has been the common amount chosen for this, though with Inflation in some places it was upped to 250K.

While such Insurance can sorta work in the case of Individual Bank Failures, it can’t work in a systemic Banking Collapse, especially when Da Goobermints doing the Insuring themselves are BK. They don’t HAVE the money to “make good”, and no they can’t just print it either. Why not?

Well first off because NONE of Da Goobermints INCLUDING the FSoA owns the money based on the World Reserve Currency of the Dollar. The Banking Syndicate owns this money and they’ll only Print It in return for Bonds issued by the respective Goobermints, and they’ll only buy those Bonds with Freshly Printed currency of one color or another if they think they can extract further Wealth and Profit out of a given country. Once you look like a Bad Bet as a country, you can’t sell your Bonds, unless yet ANOTHER supra-national agency guarantees them, read that the Troika in the case of Eurotrashland.

The Troika over in Europe and Da Fed here are ALSO insolvent entities, but they are Last Up the Line until the Ferengi Interstellar Freighters loaded with Gold Pressed Latinum show up and the Vulcans arrive to share their Matter-Antimatter Energy system powered by Dilithium Crystals stolen from the Klingons and Romulans. LOL.

Political Pressures abound on both Da Fed and the Troika, but neither is currently engaged in Naked Printing, they are still just buying Bonds from the few countries they consider good bets to extract more wealth from, aka the FSoA and Germany mostly. Said countries have to keep issuing out more debt to support the collapsed debt already everywhere else. The more peripheral countries sucked into this Black Hole of Debt, the bigger the problem becomes for the Core countries, and eventually their Bond Market collapses too. Then the Big Repo begins, along with of course the concomittant Warfare involved.

The HI scenario for the Dollar only occurs if Da Fed will Naked Print to Cover on all the FDIC Insured accounts when systemic Bank failure crosses the pond, and so far what is occurring in Greece & Cyprus indicates they will not do that. Rather Capital Controls will be put in place to prevent Bank Runs and Depositors will be Locked Out from their savings held in the banks.

Exactly WHY any J6P in Eurotrashland is keeping money in a Bank now past a month worth of Bills is a mystery to me. It’s not like any accounts pay much interest under ZIRP. The security is NIL, there is a WAY more likely chance your deposit will be confiscated by the Bank than there is someone will find the cash buried in your backyard.

Small to Medium size Biznesses have an altogether more difficult issue, they HAVE to keep sizable sums in Banks to do commerce and make payroll. Said accounts usually are beyond even Fake Goobermint Insurance, so when the Bank Holiday comes to their Bank, they are basically SOL. Thus a Banking Collapse leads rapidly to a collapse of trade, widespread Unemployment and Depression. Ongoing in Cyprus now as we speak.

There is much Smoke now in Eurotrashland that a Bank Run is already underway out of the Euro even beyond Cyprus. Slovenia is being hit hard, and Super Mario Draghi is hiding behind the Refrigerator with the rest of the Goldman Cockroaches. The ECB is being very Cagey about publishing numbers on Capital Outflow. Measures to restrict Capital flow across borders are being implemented everywhere. The Banksters are LOCKING DOWN.

Where there is SMOKE, there is FIRE. If you are in Europe, I highly suggest you get your money OUT of the Bank and OUT of Euros sooner rather than later. That Titanic is GOING DOWN. For the Dollar Holders here in the FSoA, you probably have a bit longer, but not by much I think. When it goes down in Europe, the AVALANCHE truly begins. Avalanches don’t go SLOW.

RE

Knarf plays the Doomer Blues

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