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Epiconomics 102 : The Sunlight Economy

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Published on Peak Surfer on May 15, 2016

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"It is green capitalism, we admit, but the gene expression for capitalism must and will change."

 

 

 

The adoption of The Paris Agreement by 195 countries on December 12, 2015 marks the end of the era of fossil fuels. There is no way to meet the targets laid out in this agreement without keeping 90 percent or more of remaining coal, oil and gas in the ground. The final text still has some serious gaps, and the timetable will have to speed up, but the treaty draws a red line on atmospheric CO2 we cannot cross. As science, economics and law come into alignment, a solar-powered economy is barrelling at us with unstoppable force.

Nafeez Ahmed, a former Guardian writer who now blogs the System Shift column for VICE’s Motherboard recently pondered the Energy Returned on Energy Invested (EROEI) problem with renewables and came up with something that might form the basis for smoothing the transition.

First, you have to get a sense of the scale of the driving force behind this change. Ahmed observed that since the crash in oil prices (underlying causes here) and the Paris Agreement, more than 65% of the world’s oil companies have declared bankruptcy. The Economist puts the default at $2.5 trillion. The real number is probably much higher. Following Paris, Goldman Sachs surveyed over $1 trillion in stranded assets out in the fracking fields that will never be booked. Carbon Tracker puts the likely cash that will be thrown down bad wells by the still standing 35% of fossil industry dinosaurs — and never-to-be recouped — at $2.2 trillion.

In our book, The Paris Agreement, we described why the fossil shakeout is likely to liberate huge cashflows into renewable energy, but with one giant caveat. There is significantly lower net energy (EROEI) in renewables than the fossils provided in their heyday. That augurs economic contraction no matter how you slice it.

Degrowth is already happening. Carbon Tracker identified Peabody Coal as one of those energy giants unable to pass a 2C stress test. Peabody scoffed. Six months later, Peabody went bankrupt.  There are now more solar installers than coal miners in the US and the gap widens each month.

Mark Harrington, an oil industry consultant, tells his clients now the cascading debt defaults will shake the global economy by late 2016 or early 2017 and could make the 2007-8 financial crash look like a cakewalk. Utilities are the new housing bubble.

The EROEI on Texas Spindletops was 100 to 1. The net energy produced from Canadian tar sands or Bakkan shale is less than you can get from green firewood, maybe 3 to 1. Oil rig count in the Bakkan as of this morning: zero. Lost investment exploring and drilling there? billions.

Nafeez Ahmed says:

The imperative to transition away from fossil fuels is, therefore, both geophysical and environmental. On the one hand, by mid-century, fossil fuels and nuclear power will become obsolete as a viable source of energy due to their increasingly high costs and low quality. On the other, even before then, to maintain what scientists describe as a ‘safe operating space’ for human survival, we cannot permit the planet to warm a further 2C without risking disastrous climate impacts.

Staying below 2C, the study finds, will require renewable energy to supply more than 50 percent of total global energy by 2028, “a 37-fold increase in the annual rate of supplying renewable energy in only 13 years.”

Let us leave aside the 2C discussion for now. Two degrees is in the bank and 5 degrees is what we have a slim chance of averting, assuming we can muster the collective will to plant enough trees, make soil, and stop dumping carbon into the atmosphere. Whether 4 degrees, which is likely to be reached by about mid-century, give or take 10 years, is survivable by mammals such as ourselves remains an open question. The odds do not favor our collectively recognizing the risk in time, all of us must acknowledge.

Those odds get even longer once President Trump, taking advice from the Koch brothers, Dick Cheney and Mitch "Black Lungs Matter" McConnell, appoints an Energy Task Force sometime in the first hundred days. Within a few months, Congress will attempt to bend energy economics around their political gravity well. They will superincentivize coal, nuclear and fracked gas and raise even more impossible hurdles for solar power, responsible biomass waste conversion and energy efficiency. Chances then of humans surviving another century: nil.

Trump's tweet has now been retweeted 27,761 times.

Last year the G7 set the goal of decarbonization by end of century, which, like Trump, is a formula for Near Term Human Extinction. At the Paris gathering 195 countries agreed to bounce the date to 2050, with a proviso that it could even accelerate more if needed. More will be needed.

The Bright Shining Hope

Analysts like Stanford’s Tony Seba say that solar power has doubled every year for the last 20 years and costs of photovoltaic power have dropped 22% with each doubling. If you believe these numbers, eight more doublings — by 2030 — and solar power will provide 100% of the world’s electricity at a fraction of today’s prices with significant reductions of carbon emissions. But there is a hitch.

The EROEI of solar power is not improving as quickly as the price. Energy efficiency, especially the embodied energy of components like turbine towers and rooftop arrays and the mined minerals for crystal manufacture, is substantially less than the concentrated caloric punch of oil and coal. Fossil sunlight is to sunlight as crack cocaine is to coca leaves.

And a decarbonated SMART is not your daddy’s muscle car.

That is not to say a civil society living on sunlight can’t still be very nice, and nicer, in fact, than the dirtier industrial civilization, especially if you only have a generation or two left before you go extinct to enjoy it.

All of this revolution could be accomplished, and paid for, simply by a small epigenetic hack in the DNA of central banks. They need to express the gene that prints money. As Ellen Brown explains:

"The combination of fiat money and Globalization creates a unique moment in history where the governments of the developed economies can print money on an aggressive scale without causing inflation. They should take advantage of this once-in-history opportunity . . . ."

Don't panic, and it might be a good idea to follow Ford Prefect's example of carrying a towel, in the unlikely event that the planet is suddenly demolished by a Vogon constructor fleet to make way for a hyperspace bypass.

Despite the paucity of intelligence in the throne room of the Empire, there is, however, a faint glimmer of light coming from a corner of the dungeon, should we peer farther. Ahmed latches on to Eric Toensmeier’s new book, The Carbon Farming Solution, that quotes a Rodale Institute study:

Simply put, recent data from farming systems and pasture trials around the globe show that we could sequester more than 100 percent of current annual CO2 emissions with a switch to widely available and inexpensive organic management practices, which we term ‘regenerative organic agriculture’… These practices work to maximize carbon fixation while minimizing the loss of that carbon once returned to the soil, reversing the greenhouse effect.

As we described in our books, The Biochar Solution and The Paris Agreement, it is possible to unleash the healing powers of the natural world — not by tampering further but by discerning and moving with its flows the way indigenious peoples did for eons — that doesn't just halt climate change but restores it to the pre-industrial. By using a permaculture cascade — regenerative cropping to food, feed and fiber; to protein and probiotic extracts (from waste byproducts); to biofuels (from waste byproducts); to biochar and biofertilizers (from waste byproducts); to probiotic animal supplements and industrial applications like fuel cells (from biochar) — bioeconomics can transform a dying planet into a garden world. But, again, there is a hitch.

Ahmed says:

According to a 2011 report by the National Academy of Sciences, the scientific consensus shows conservatively that for every degree of warming, we will see the following impacts: 5-15 percent reductions in crop yields; 3-10 percent increases in rainfall in some regions contributing to flooding; 5-10 percent decreases in stream-flow in some river basins, including the Arkansas and the Rio Grande, contributing to scarcity of potable water; 200-400 percent increases in the area burned by wildfire in the US; 15 percent decreases in annual average Arctic sea ice, with 25 percent decreases in the yearly minimum extent in September.

The challenge climate change poses to bioeconomics is where epigenetic agents come in. There is a permaculture army waiting in the wings. We have been training and drilling for 30 years. Cue marching entrance, stage left, with George M. Cohan’s arrangement of Yankee Doodle Dandy.

 

 

This will require more than Busby Berkeley. First, as we described here last week, we will need a change of the command switches that express civilization’s genes. This is unlikely to come from Hillary Clinton, central banks, the G7 or the International Monetary Fund — just witness the debacle at Doha in April.  It will more likely arise spontaneously from the grass roots, led by regenerative farmers, treehuggers and degrarians, but funded — massively — by institutional investors in search of safe havens from petrocollapse and failing confidence in a stale, counterproductive paradigm.

It is green capitalism, we admit, but the gene expression for capitalism must and will change.

"If you think about it, economic growth could happen through dematerialization," says Jack Buffington, a researcher at the Royal Institute of Technology in Stockholm and author of Progress, Technology and Seven Billion People: A Solution to Save Capitalism and The Recycling Myth: Disruptive Innovation to Improve the Environment.

"Think about all the different things your smart phone can do that 20 years ago you had a computer, you had a telephone. you had an alarm clock…. So, I think there is a way to transform things through the use of materials to dematerialize while at the same time leading to economic growth. Even if you tried to stop innovation you won't. What we have to push for is a model that between the environment and the economy is complementary, so we achieve goals of improving people's lives at the same time as improving the environment."

A bioeconomy is coming. Fast. There are demonstrations of it, large and small, popping up all over the world. The DNA for the global financial marketplace — our social customs for nations, currency systems and trade — has not changed. What is being transformed is the histone that occupies the space between the helices and flips the switches to turn expressions on and off. Who are the radical free agent proteins that are moving in to transform the histone?

You are.

 

Epiconomics 101: Our Fiscal Genome

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Published on Peak Surfer on May 8, 2016

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"Vital public services like health care, education, transportation and communication should be free."

 

In the May 2d New Yorker, Siddhartha Mukherjee wrote an ode to his mother and aunt, identical twins, taking the opportunity to dig into the roles of nature and nurture in shaping our lives, Going a step farther, he brought in one of our favorite topics here, epigenetics, or the ability of the same DNA strand to issue different instructions depending on external stimuli.

Last year, in our discussion of quantum entanglement, we observed how little of what we call our own bodies is actually our own DNA. More than 95 percent belongs to our unique, personal, coevolving microbiome that not only helps us breathe, digest, and heal illness, but influences our patterns of thought and intentions.

Mukherjee chronicled the gross result of this conspiracy, describing how two brothers, separated by geographic and economic continents, might be brought to tears by the same Chopin nocturne, as if responding to some subtle, common chord struck by their genomes, or perhaps by their epigenomes, and how two sisters — separated long before the development of language — had invented the same word to describe the way they scrunched up their noses: “squidging.”

Mukherjee overlooked the closely entangled microbial web of alien presences, but we’d observe that although these twins may have placed distance and culture between themselves, they had been together long enough to have nearly identical microbiomes from gestation, birth and infancy.

Nucleosome crystal structure at 2.8 angstrom resolution showing a disk-like shape. DNA helices at edge, histones and free proteins in center. The worm-like structures are RNA messengers. reasonandscience.heavenforum.org

Mukherjee writes:

It is a testament to the unsettling beauty of the genome that it can make the real world stick. Hindu philosophers have long described the experience of “being” as a web—jaal. Genes form the threads of the web; the detritus that adheres to it transforms every web into a singular being. An organism’s individuality, then, is suspended between genome and epigenome. We call the miracle of this suspension “fate.” We call our responses to it “choice.” We call one such unique variant of one such organism a “self.”

In his visits with various scientists Mukherjee probed the complex connections of the histones that occupy the empty spaces within the double helix and seem to possess a mysterious power to trigger or silence gene expressions. What he seems to overlook is the role of non-human microbiological agents in making these sorts of choices for their hosts. Indeed, his description of a histone begs comparison to other life forms:

In 1996, Allis and his research group deepened this theory with a seminal discovery. “We became interested in the process of histone modification,” he said. “What is the signal that changes the structure of the histone so that DNA can be packed into such radically different states? We finally found a protein that makes a specific chemical change in the histone, possibly forcing the DNA coil to open. And when we studied the properties of this protein it became quite clear that it was also changing the activity of genes.” The coils of DNA seemed to open and close in response to histone modifications—inhaling, exhaling, inhaling, like life.

***

These protein systems, overlaying information on the genome, interacted with one another, reinforcing or attenuating their signals. Together, they generated the bewildering intricacy necessary for a cell to build a constellation of other cells out of the same genes, and for the cells to add “memories” to their genomes and transmit these memories to their progeny.

While we were pondering these things, bicycling through a Spring rainstorm one morning, we tuned our mobile cyberamphibian prosthesis to Michael Hudson’s interview on Extraenvironmentalist #91. Hudson described how debt deflation is imposing austerity on the U.S. and European economies, siphoning wealth and income to the financial center while impoverishing the periphery. Its the theme of his latest book, Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

Crossing two hot wires in our rain soaked brain, the comparison between economic theory and genetics wafted a blue smoke that trailed out from under our bike helmet.

The system itself — the DNA code — is monetary policy, trade rules, labor, capital assets and other components of what we call “the economy.” The histones are the central banks and the FED that set the policies epigenetically by turning switches on or off. The wild cards are those alien protein agents that seem to bring about changes in the histones. A century ago those might have included J. D. Rockefeller and J. P. Morgan. Then came Henry Wallace and Franklin D. Roosevelt. Today they would include Jaime Dimon (Morgan Chase), Lloyd Blankfein (Goldman Sachs), Christine Lagarde (IMF), and Prince Mohammed bin Salman bin Abdulaziz Al-Saud.

It is pretty clear from most indicators that since at least 2008, and likely much earlier, our economic DNA has been instructed to express a cancer. As Gail Tyerberg observes:

Both energy and debt have characteristics that are close to “magic” with respect to the growth of the economy. Economic growth can only take place when growing debt (or a very close substitute, such as company stock) is available to enable the use of energy products.

Back in the era of cheap energy less debt was required. In our era of expensive energy, gigantic and growing debt is required. But you can only build debt on itself up to the point where confidence in repayment by those who are owed the money falters. After that, watch out. No debt, no energy. No energy, no economy.

Greg Mannarino of Traders Choice says:

Let’s just look at the stock market… there’s no possible way at this time that these multiples can be justified with regard to what’s occurring here with the price action of the overall market… meanwhile, the market continues to rise. … Nothing is real. I can’t stress this enough… and we’re going to continue to see more fakery… and manipulation and twisting of this entire system… We now exist in an environment where the financial system as a whole has been flipped upside down just to make it function… and that’s very scary. … We’ve never seen anything like this in the history of the world… The Federal Reserve has never been in a situation like this… we are completely in uncharted territory where the world’s central banks have gone negative interest rates… it’s all an illusion to keep the stock market booming.

… Every single asset now… I don’t care what asset… you want to look at currency, debt, housing, metals, the stock market… pick an asset… there’s no price discovery mechanism behind it whatsoever… it’s all fake… it’s all being distorted. … The system is built upon on one premise and that is confidence that it will work… if that confidence is rattled the whole thing will implode… our policy makers are well aware of this… there is collusion between central banks and their respective governments… and it will not stop until it implodes… and what I mean by implode is, correct to fair value.”

It’s created a population boom… a population boom has risen in tandem with the debt. It’s incredible. So, when the debt bubble bursts we’re going to get a correction in population. It’s a mathematical certainty. Millions upon millions of people are going to die on a world-wide scale when the debt bubble bursts. And I’m saying when not if… … When resources become more and more scarce we’re going to see countries at war with each other. People will be scrambling… in a worst case scenario… doing everything that they can to survive… to provide for their family and for themselves. There’s no way out of it.”

Jason Heppenstall, who lives in Cornwall, England, writes in the 22billionenergyslaves blog:

Aside from the police and the shops closing, public toilets are closed virtually all of the time, and the Post Office too is soon to close down, having been privatised and now asset stripped. The council is being forced to raise its taxation rates by 4% this year to cover the shortfall caused by spiraling costs and diminished funding from central government. Clinics and charities are being squeezed out of existence and the local council tried (and failed) to privatise the town’s midsummer festival.

My wife works in the care sector. The stories I get to hear will make you never want to be dependent on the state in your old age. If you can’t rely on your kids to look after you in your dotage it might be wise to keep a bottle of whisky and a revolver in your bottom drawer. Or maybe you'd rather die of thirst lying in your own mess because the 19-year-old unqualified carer who works for minimum wage is too busy checking Facebook on her phone to hear you pressing the emergency button by the bed.

Former US Budget Czar David Stockman wrote this week:

Owing to the recency bias that dominates mainstream news and commentary, the massive expansion of the Fed’s balance sheet depicted above goes unnoted and unremarked, as if it were always part of the financial landscape. In fact, however, it is something radically new under the sun; it’s the footprint of a monetary fraud breathtaking in its magnitude.

***

In essence, during the last 15 years the Fed has gifted the US economy with a $4 trillion free lunch. Uncle Sam bought $4 trillion worth of weapons, highways, government salaries and contractual services but did not pay for them by extracting an equal amount of financing from taxes or tapping the private savings pool, and thereby “crowding out” other investments.
 

This is not Al Gore. It is Elon Musk, a beneficiary of govt largess

Instead, Uncle Sam “bridge financed” these expenditures on real goods and services by issuing US treasury bonds on a interim basis to clear his checking account. But these expenses were then permanently funded by fiat credits conjured from thin air by the Fed when it did the “takeout” financing. Central bank purchase of government bonds in this manner is otherwise and cosmetically known as “quantitative easing” (QE), but it’s fraud all the same.

In essence, Uncle Sam has gotten $4 trillion of “something for nothing” during the last 16 years, while the Washington politicians and policy apparatchiks were happy to pretend that the “independent” Fed was doing god’s work of catalyzing, coaxing and stimulating more jobs and growth out of the US economy.

What the Fed was actually doing was falsifying and inflating the price of financial assets. As Michael Hudson points out, the prime error is placing the financial sector in the same column as honest labor or capital contributions. Finance is actually a drain on those things. It is a withdrawal from productivity, not a contributor to GDP.

Stockman agrees:

But financial engineering does not add to GDP or increase primary spending; it results in the re-pricing of existing financial assets. That is, it gooses stock prices higher, makes executive stock options more valuable and confers endless windfalls on the fast money speculators who work the financial casinos.

Last month, Mario Draghi, the European Central Bank president, became the first central banker to take seriously the idea of helicopter money – the direct distribution of newly created money from the central bank to eurozone residents.
 

Germany’s leaders have reacted furiously and are now subjecting Draghi to nationalistic personal attacks. Less visibly, Italy has also led a quiet rebellion against the pre-Keynesian economics of the German government and the European commission. In EU councils and again at this month’s IMF meeting in Washington, DC, Pier Carlo Padoan, Italy’s finance minister, presented the case for fiscal stimulus more strongly and coherently than any other EU leader. More important, Padoan has started to implement fiscal stimulus by cutting taxes and maintaining public spending plans, in defiance of German and EU commission demands to tighten his budget. As a result, consumer and business confidence in Italy have rebounded to the highest level in 15 years, credit conditions have improved, and Italy is the only G7 country expected by the IMF to grow faster in 2016 than 2015 (albeit still at an inadequate 1% rate).

The Automatic Earth

With England jumping ship and Germany saying nicht to every reform proposal, the EU is headed for a disaster but Italy seems to be able to still think outside the box. To us this suggests the potential for alien-led histone modification in the DNA of modern finance.

Heppenstall says:

The irony of being called anti-European is that I am ardently pro-European. I’ve lived in four different EU countries, travelled all over and am married to an Italian Dane. Europe, to me, is the most diverse place in the world and has an amazing spread of history and culture. My ideal life would involve spending several months each year travelling around Europe in a camper van and getting to know it in an even more intimate manner. The EU is not Europe; it’s an abstract concept masking a faceless undemocratic organisation that funnels wealth from one place to another and keeps its modesty intact behind a fig leaf of supposed liberalism.

It doesn’t have to be that way. We could still have a Europe united around some core values other than money and power and capitalism. How about a Europe focused on an emerging eco-consciousness? Or what about remaking it as a loose cooperative of bioregions? Or perhaps, at the very least, we could all agree on a shared constitution founded on liberty, equality and fraternity. Former Greek finance minister Yanis Varoufakis has suggested something along those lines, setting up a pan-European umbrella group called DiEM25 that aims to shake things up ‘gently, compassionately but firmly.’ Perhaps there could be more debate about what kind of Europe would be better suited to weathering the coming financial, ecological and energy shocks without causing so much collateral damage to both itself and other nations.

Until that happens we’ll just have to stand back and watch the fireworks. Big institutions like the EU are like skyscrapers; they don’t come crashing down to the ground without taking out plenty of other nearby buildings and the EU is like the leaning tower of Pisa on steroids.  Big things are an artifact of the age of oil – the future is necessarily smaller and more local. The best course of action is to stop arguing over whether it is best to be stood on top of the creaking tower it or beside it, and simply get the hell out of the way before it goes over. 

Draghi’s Italy, it should be recalled, was the country whose Supreme Court last month ruled that Roman Ostriakov, a young homeless man who had bought a bag of breadsticks from a supermarket but had slipped a wurstel – a small sausage – and cheese into his pocket, had acted out of an immediate need by stealing a minimal amount of food, and therefore had not committed a crime. Carlo Rienzi, president of Codacons, an environmental and consumer rights group, told Il Mesaggero, “In recent years the economic crisis has increased dramatically the number of citizens, especially the elderly, forced to steal in supermarkets to be able to make ends meet.” La Stampa said that, for supreme court judges, the right to survive still trumped property rights, a fact that would be considered “blasphemy in America.”

Michael Hudson

Hudson is another epigenetic secret agent. He advocates a debt jubilee similar to what Truman pushed on Europe after World War II, creating the “German Economic Miracle.” In Hudson’s view, the quickest route to reform would be shifting from taxing honest labor to taxing unearned income and capital gains; from burdening the shrinking middle class to shrinking the rentier class. Vital public services like health care, education, transportation and communication should be free.

Ellen Brown, who has been beating the drum for public banks from her Web of Debt page and books, notes that the Bank of North Dakota, the nation’s only state-owned depository bank, was more profitable last year than J.P. Morgan Chase and Goldman Sachs, and that was after the fracked gas bubble burst. She urges local governments everywhere to bypass the Fed and the vulture banking system and create their own public banks.

Ellen Brown

North Dakota has led the way in demonstrating how a state can jump-start a flagging economy by keeping its revenues in its own state-owned bank, using them to generate credit for the state and its citizens, bypassing the tourniquet on the free flow of credit imposed by private out-of-state banks. California and other states could do the same. They could create jobs, restore home ownership, rebuild infrastructure and generally stimulate their economies, while generating hefty dividends for the state, without increasing debt levels or risking public funds – and without costing taxpayers a dime.

The ability of these foreign antagonists to infect the global economy with a new narrative is a relatively recent phenomenon. The false narrative embedded by Bretton Woods and the Chicago School are not that thoroughly ensconced that they can’t be evicted. There is no reason why the inane policies of economic astrologers could not be quickly reversed by protein protagonists with simple but compelling histological reforms, such as basing the future on a bioeconomy that sequesters carbon and runs on sunlight.

Next week: Epiconomics 102: The Sunlight Economy 

The New Silk Roads and the Rise of the ‘Chinese Dream’

chinese flagsgc2smFrom the keyboard of Pepe Escobar
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chinese flags

Originally published in Counterpunch on February 26, 2016

 


Beijing is advancing a Chinese-led globalization that will challenge U.S. hegemony both regionally and globally.

Earlier last week, the first Chinese commercial train, with 32 containers, arrived in Tehran after a less than 14-day journey from the massive warehouse of Yiwu in Zhejiang, eastern China, crossing Kazakhstan and Turkmenistan.

This is a 10,400 km-long trip. Crucially, it’s also no less than 30 days shorter compared to the sea route from Shanghai to Bandar Abbas. And we’re not even talking about high-speed rail yet – which in a few years will be installed all along from eastern China to Iran and onward to Turkey and, crucially, Western Europe, enabling 500-plus container trains to crisscross Eurasia in a flash.

When Mohsen Pour Seyed Aghaei, president of Iran Railways, remarked that, “countries along the Silk Road are striving to revive the ancient network of trade routes,” he was barely touching the surface in what is an earth-shattering process.

Chinese President Xi Jinping visited Iran only last month – the first global leader to do so after nuclear sanctions were lifted. Then the heirs to the former Silk Road powers – imperial Persia and imperial China – duly signed agreements to boost bilateral trade to $600 billion over the next decade.

And that is just the beginning.

Trade Wars and Air/Sea Battles

To frame the earth-shattering process in a strategic perspective, from the Chinese point of view, it’s enlightening to revert to a very important speech delivered last summer by General Qiao Liang at the University of Defense, China’s top military school. It’s as if Liang’s formulations would be coming from the mouth of the dragon – Xi – himself.

Beijing’s leadership assesses that the U.S. won’t get into a war against China within the next 10 years. Pay attention to the time frame: 2025 is when Xi expects China to have turned into a “moderately prosperous” society as part of the renewed Chinese Dream. And Xi for his part would have fulfilled his mandate – arguably basking in glory once enjoyed only by the Little Helmsman Deng Xiaoping.

The secret for the next 10 years, as General Liang framed it, is for China to overhaul its economy (a work in progress) and internationalize the yuan. That also implies striking an Asian-wide free trade pact – which is obviously not the Chinese-deprived American TPP (Trans-Pacific Partnership), but the Chinese-driven RCEP.

General Liang directly connects the internationalization of the yuan to something way beyond the New Silk Roads, or One Belt, One Road, according to the official Chinese denomination. He talks in terms of a Northeast Asia free trade agreement, but in fact what’s in play, and what China aims at, is the trans-Asia free trade agreement.

As a consequence, a “ripple effect” will divide the world:

“If only a third of the global money is in the hands of the dollar, how can the U.S. currency maintain its leadership? Could a hollowed out United States, left without monetary leadership, still be a global leader?”

So the decline of the U.S. dollar is the key issue, according to the Beijing leadership, of China’s “recent troubles” under which loom “the shadow of the United States.”

Enter the U.S. “pivot to Asia.” Beijing clearly interprets its goal as “to balance out the momentum of China’s rising power today.” And that leads to the discussion of the former AirSea Battle concept (it has now “evolved” into another mongrel), which General Liang qualifies as an “intractable dilemma” for the U.S.

“The strategy primarily reflects the fact that the U.S. military today is weakening,” said Liang. “U.S. troops used to think that it could use airstrikes and the Navy against China. Now the U.S. finds neither the Air Force nor the Navy by themselves can gain advantages against China.”

Only this previous paragraph would be enough to put in perspective the whole, tumultuous cat and mouse game of Chinese advances and American bullying across the South China Sea. Beijing is very much aware that Washington cannot “offset some advantages the Chinese military has established, such as the ability to destroy space systems or attack aircraft carriers. The United States must then come up with 10 years of development and a more advanced combat system to offset China’s advantages. This means that Americans may schedule a war for 10 years later.”

Have War, Will Plan

So, no major war up to 2025, which leaves Xi and the Chinese Communist Party (CCP) leadership free to advance like a juggernaut. Observers who follow the moves in Beijing in real time qualify it as “breathtaking “ or “a sight to behold.” The Beltway remains mostly clueless.

At the onset of the Chinese Year of the Monkey, the CCP under Xi’s orders released a sensational cartoon hip hop video that went mega-viral. Talk about Chinese soft power; that’s how Xi’s platform for his 10-year term, up to 2023, was announced to the masses.

Enter the Four Comprehensives: 1) to develop a “moderately prosperous society” (translated into a GDP per capita of US$10,000); 2) Keep deepening reforms (especially of the economic model); 3) Govern by the rule of law (that’s tricky; but essentially means the law as interpreted by the CCP); 4) Eliminate corruption from the CCP (a long work in progress).

None of this, of course, implies following a Western model; on the contrary, it shows off Beijing counteracting Western soft power on every domain.

And then, inevitably, all roads, sooner or later, lead to One Belt, One Road. And yet General Liang sees it as way beyond a globalization process, “the truly American globalization,” which he qualifies as “the globalization of dollars.” He – and the Beijing leadership – do not see the China-driven One Belt, One Road as “an integration into the global economic system. To say that the dollar will continue its globalization and integration is a misunderstanding. As a rising great power, One Belt, One Road is the initial stage of China globalization.”

Radically ambitious does not even begin to describe it. So as much as One Belt, One Road is the external vector of the Chinese Dream, bent on integrating the whole of Eurasia on a trade and commerce “win-win” basis, it is also “by far the best strategy China can put forward. It is a hedge strategy against the eastward move of the U.S.”

There we have it – mirroring what I have been writing since One Belt, One Road was launched. This is China’s “hedge strategy of turning its back to the U.S. eastward shift: You push in one direction; I go in the opposite direction. Didn’t you pressure me to it? I go west, neither to avoid you nor because I am afraid, but to very cleverly defuse the pressure you gave me on the east.” Welcome to China pivoting West.

Feel Free to Encircle Yourself

General Liang, predictably, prefers to concentrate on the military, not commercial aspects. And he could not spell it out more clearly.

“Given that China’s sea power is still weak, the first choice of One Belt, One Road should be to compete on land,” he said. Liang frames the top terrain of competition as the “belt” – overland New Silk Road routes; and that leads to worrying, still unanswered questions about the Chinese army “expeditionary capabilities.”

General Liang does not expand on this competition – arguably with the U.S. – along the New Silk Road belt. What he believes to be certain though, is “that in choosing China as its rival, America chose the wrong opponent and the wrong direction. Because in the future, the real challenge to the United States is not China; it is the United States itself, and the United States will bury itself.”

And how will that happen? Because of financial capitalism; it’s as if Gen. Liang has been reading Michael Hudson and Paul Craig Roberts (as he certainly does). He notes how “through the virtual economy, the United States has already eaten up all the profits of capitalism.”

And what about that “burial”? Well, it will be orchestrated by “the Internet, big data, and the cloud” as they are “pushed to the extreme” and will “gain a life of their own and oppose the government of the U.S.”

Who would have thought it? It’s as if the Chinese don’t even have to play go anymore. They just need to let the adversary encircle itself.


PepePepe Escobar is the author of Globalistan: How the Globalized World is Dissolving into Liquid War (Nimble Books, 2007), Red Zone Blues: a snapshot of Baghdad during the surge (Nimble Books, 2007), and Obama does Globalistan (Nimble Books, 2009).

A Look to 2016

TriangleofDoomgc2reddit-logoOff the keyboard of Steve Ludlum

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Published on the Economic Undertow on January 4, 2016

No doubt a lot of people are happy to see 2015 in the rear view mirror: refugees, their ‘hosts’ in Europe, bond investors, frackers and Brazilians, it is likely that 2016 will bring more of the same, challenges and idiocy … and a ray of light!

— Energy deflation to take hold in 2016

Triangle of Doom 123115

Figure 1 (above): The $64 trillion dollar question: ‘Is energy deflation under way’? If it is, get ready. It will be the biggest story of 2016 and years decades to come. (TFC Charts, click for big)

Discuss this article at the Economics Table inside the Diner

Energy deflation is similar to Irving Fisher’s debt deflation: a premium or ‘scarcity rent’ is attached to the price of crude. This manifests itself as a reduction in customer borrowing power; the price of crude cannot fall fast enough to offset the ballooning scarcity rent! In energy deflation, fuel prices are always too high for customers while the same prices are too low the drillers. The outcome is a vicious cycle: increased scarcity rent and self-compounding fuel shortages => greater scarcity rent!

If oil prices happen to rise for any reason — such as a war between Saudi Arabia and Iran — the scarcity rent doesn’t go away, the entire combined price becomes even less affordable causing the price to crash again.

America’s waste-based economic infrastructure has been built assuming endless supply of sub- $20 crude into perpetuity. The inflated prices the world has endured since the turn of the millennium have left this ‘investment’ hopelessly underwater. The prices have also done a number on the credit-worthiness of ordinary customers. This is why declining prices for crude oil have so far been unable to reboot economic growth … current lower prices are still too high to offer much in the way of (debt) relief. This means more price drops to come; more driller pain.

Right now it is hard to tell whether the current ‘action’ in crude- and other markets is a trading phenomenon or something more, but we are soon to find out one way or the other. The inevitable outcome of energy deflation is the supply of fuel shrinking to the level that can be supported by productive, remunerative use … rather than the current wasteful level supported by access to credit. Because remunerative use of our fuel supply is a (very) modest fraction of overall consumption … a modest fraction of our current fuel supply is what we will be able to afford.
 

— Dollar Preference emerges as an economic factor in 2016

fredgraph velocity

Figure 2: Hoarding much? M2 money velocity (chart by St. Louis Federal Reserve). While the actual supply of M2 funds is increasing, the volume of transaction taking place with those funds has been shrinking (plummeting).

A component of energy deflation is the effect of constrained energy supply on money. When priced in crude, money — particularly dollars — have real worth (money never has value, otherwise it would never be spent). It turns out a very modest (flow) constraint has an out-sized effect on money-worth. Right now, dollars are exchanged on demand for a valuable physical good millions of times every single at gas stations around the world. Because of this exchange, the dollar can be considered a quasi-hard currency … similar to the way exchanging dollars for gold rendered the buck a hard currency during the early 1930s. What keeps the dollar somewhat ‘soft’ despite exchangeability has been the flood of fuel into markets and gas stations. There is no obvious reason to prefer dollars or make an effort to gain them vs. something else; little in the way of ‘scarcity rent’ to distort the worth of dollars.

Given the appearance of a fuel supply constraint and the scarcity rent, the perceived character of money shifts: dollars cease to be near-worthless proxies for commerce, becoming instead proxies for scarce and valuable fuel. They are then hoarded out of circulation … as is starting to take place around the world right this minute!

Commerce withers as the economic activity is reduced to currency arbitrage; trading different forms of money back and forth so es to gain the fuel ‘bargain’ dollars represent … This is what ‘dollar preference’ means: the buck is preferred to all other kinds of money because of its relationship to fuel.

The only way to escape the depression that results from this preference is to break the bond between dollars and petroleum the same way the Roosevelt administration severed the connection between dollars and gold in 1933. The US must ‘go off oil’ the same way it- and the rest of the world went off gold in the middle-1930s.

fredgraph-gasoline sales

Figure 3: Along with M2 velocity, gasoline sales have been declining. (chart by St. Louis Federal Reserve). When customer are broke — or tight-fisted — they don’t buy gas. Low prices can’t fix broke.

— The Kurds will destroy the Islamic State in Syria in early 2016.

The sharp decline in fuel prices since 2014 has severely dented the Islamic State which is not possessed of the material means of support: it has no economy to speak of, no industry, finance or organic credit. It must swap goods such as stolen fuel and antiquities with donor states by way of Turkey to gain materiel. Low oil prices means less funds to be spent on war-making, medical supplies and salaries.

Just days before Christmas, with little fuss and less warning, the Kurdish military force captured a vital road crossing over the Euphrates River, putting the Kurds astride ISIS supply lines and issuing the death-sentence for the group, (DW):

Syrian Kurds take strategic dam from ‘Islamic State’

 

 

 

 

 

An alliance of US-backed Syrian Kurdish and Arab rebels has taken a key dam on the Euphrates River from the so-called “Islamic State.” The alliance has pushed back “IS” from large swaths of territory.

The Syrian Democratic Forces (SDF), a rebel alliance that includes the powerful YPG Kurdish militia and Arab rebel groups, wrested control of the strategic Tishreen Dam from Islamic State on Saturday after making rapid advances south earlier this week, Kurdish media reported.

 

 

 

 

Tishrin 2

Figure 4: In war — as with finance — leverage matters: Tishrin dam on the Euphrates carries the highway from Jarabulus to Manbij- to points south and east including Raqqa and Mosul in Iraq. (Washington Post/Institute for the Study of War). Taking the dam (intact) and establishing a bridgehead on the western side of the Euphrates leaves the landlocked ISIS group at the mercy of the Kurds.

The road connection with Turkey is the only way in- or out of the Islamic State caliphate with Jarabulus-Manbij as the main thoroughfare. Leaders, recruiters, wounded fighters traveling to- and through Turkey, troop replacements from the rest of the Middle East and elsewhere, all ISIS military supplies must travel through this territory; trucks carrying purloined crude travel the other direction. As of now there is no scheduled airline service to/from anywhere in the Islamic State.

The group is responding to the existential threat by adopting a lifeboat strategy: upping efforts to organize in Libya and elsewhere in Africa. Stripped of its precious caliphate heartland and its leadership dead, captured or on the run, the group will lose relevance, becoming target practice for other ‘Brand X’ militant groups and Western commandos. In our current Islamic world without pity, every sign of weakness is an invitation to murder. At the same time, ISIS ‘threat’ will be unmasked as to a large degree a US-media creation, a fashionable ‘flavor of the month’; the ‘New al-Qaeda’ (as opposed to ‘Classic’ version), a militarily inept criminal group with violent tendencies but little else; an instrument to mold US public opinion into an appropriately warlike form.

syria-ISIS-7-15

Figure 5: Syrian zones of control along with gains by Kurdish forces since November, 2015. Islamic State supply lines extend through the area claimed by Turkey as a ‘safe zone’. The weight of strategic necessity draws the Kurds toward Manbij and al-Bab. When these towns are captured the rout will be on. The only surprise will be how quickly the IS group collapses. It will be entertaining to watch the group’s ’emirs’ on YouTube in women’s clothes filter through Kurdish territories toward Turkey in small groups … and being found out; to see them jumping beardlessly into dented Toyota pickup trucks to race like rats across the countryside in every direction looking for a way out.

Fleeing to Iraq offers no hope of escape: there are Kurds in Iraq, too. They all have very long memories …

That the Kurds aim to close Manbij gap is indicated by heavy fighting between Kurds and non-ISIS militants near Azaz and US bombing in and around Manbij. The tactical cat is already out of the bag, there is nothing to gain for the Kurds by waiting … unless they hope to lure more IS fighters into the town so that they might be killed more efficiently.

Islamic State’s primary supporter is Turkey, a Nato member with all the military bells and whistles. It might be expected for the Turks defend their interests and send troops across the border to push the Kurds back. Not this time: they won’t risk stepping into Syria or attacking on the ground without air superiority, something they threw away without thinking … by shooting down a Russian aircraft that was doing them no harm.

 

In early November, a combined Iraqi-Syrian Kurdish offensive in Northern Iraq dislodged ISIS forces from Sinjar town in Northern Iraq, at the same time Kurdish led Syrian Democratic Force (now QSD) overran al-Hawl a few miles away across the border in Syria. This action cut the road running between Raqqa and Mosul. In December, Iraqi security forces attacked the Islamic State in Ramadi, pushing them out of the center of the city.

 

The patient Kurds torment the Islamic State in the east, causing them to pull in what reserves they possess, then attack in force in the west. The ISIS group is left with many widely separate places that must be held at all cost including Raqqa, Ash Shaddadi, the oil-producing region near Deir al-Zour and Manbij. This means that none of these place will be held at all.

Turkish blunder and Russian air defense means a Kurdish ‘cordon sanitaire’ along the northern Syria border connecting all the Rojava cantons. This gives Kurds an influence greater than their numbers would suggest. Their control over supply flows would constrain other rebel groups such as al-Nusra. They would be seen to ‘pick winners’, which in turn offers a potential a way out of the endless auto-destructive warfare between the irreconcilable factions. Kurds have demonstrated the ability to coexist with Syrian Arab Army, to collaborate on the ground with Sunni, Arab even Turkmen groups which are otherwise represented by extra-Syrian jihadi extremists. Kurds’ military capability and success increasingly renders Assad irrelevant regardless of Russian commitments … of all the groups involved in Syria the Kurds come across as most reasonable … grown up.

Islamic State — like Ashley Madison — has had a nice little run. Time for them to go, so also:

— Turkish strongman, Recep Erdogan, man of many blunders, to be removed from office by military coup.

The war that keeps on giving in the Middle East reaches out to touch everyone in the region. No escape for Erdogan who has lost his sense of balance. His approach to winning over Kurdish hearts and minds in Turkey is not to embrace them but to shoot. The inevitable outcome: a civil war leading to a belligerent Kurdistan carved out of southeastern Turkey, something the Turkish military — which is charged with the actual winning over part — views with alarm. Who gets the axe? 20+ million Kurds or one deluded mad man in an ill-fitting suit?

Prior to Erdogan and AK Party, the powerful military was the final political arbiter in Turkey. Prime ministers served at the pleasure of the command. If the Generals believed official policy was destructive or would lead to war there was a coup … as in 1960, 1971 and 1980. Erdogan purged the Turkish command by way of kangaroo corruption trials; the army has been a Stepin Fetchit fool-for-Erdogan ever since.

Undertow observes the Turkish military to be resentful and awaiting its chance … Turkish generals understand the army cannot defeat Kurdish militants in urban settings without destroying the country. The key is what the Kurds do over the next few months; as they defeat ISIS, they also defeat Erdogan at the same time. The emergence of ‘protection brigades’ like YPG in Kurdish areas will force the military’s hand. This is the Kurds’ moment, they will not be denied. Erdogan will be ejected and replaced with a national council until new elections can be held. The clue to this outcome is the exposure of Erdogan involvement in the smuggled oil trade with Islamic State. Corruption being the instrument by which the military is purged, corruption will also be the hammer to dismantle the Erdogan regime.

— The China economy will crash … who could have guessed?

Ho hum, who cares! Old news … Oops. The China stock market is crashing already. What took it so long? The cause is excess Chinese leverage + dollar preference, the flight of dollars from China and the stripping Chinese finance of collateral. Turns out China is not a credit provider but depends on millions of Americans borrowing from Capital One to buy stinky China-Brand Poison Dog Food and lead-painted baby toys.

Collapse of China’s economy is ironically best evidence of dollar preference! Said economy has been built on a foundation of borrowed dollars; repayment outside of China makes the dollars which remain in China that much more desirable. The bidding of dollars in China means the unbidding of everything else: China RMB depreciates, real estate stumbles, stocks are socked, the only thing certain in China is smog.

— The ‘Widowmaker Trade’ finally unravels.

Shorting Japanese bonds is called ‘the widowmaker’ because the prices never plunge … even when fundamentals such as the vast overhang of debt-relative to GDP suggest they must. The short-sellers wind up being fed to the pigs … Endless monetization and balance sheet expansion by Bank of Japan and reluctance (good sense) of Japanese themselves to spend has pushed bond prices high as possible and kept them there. (Bond yields are inverse to prices; yields decline and prices increase.) Beginning this year, dollar preference will undermine whatever worth the bonds represent as the yen will (continue to) depreciate relative to the dollar. A problem is the massive position accumulated by BoJ. Should it becomes necessary to sell some of its bonds, the Bank will find there are few buyers because they have been elbowed out of the market by the BoJ!

— Migrants will flood into the US as Puerto Rico defaults leaving millions of US citizens with no means of support.

The island has overspent and cannot retire its loans. Its ambiguous administrative status within the United States and inept leadership does not offer much hope for ordinary Puerto Ricans who will make their way in great numbers to the mainland.

— War between Iran and Saudi Arabia …

Both countries are fighting an all-out proxy war in Iraq, Syria, Yemen and elsewhere; the recent execution of a Shiite imam by the Saudis has inflamed tensions to the breaking point. Reality rules: despite the status of both countries as (wealthy) petroleum suppliers, both countries are actually too poor to afford a general war, particularly one that might adversely affect exports … or propel energy deflation.

— Economic uncertainties will cause world- industry leaders to shelve ambitious plans to combat climate change

Instead: ‘Conservation by Other MeansTM‘ … Entropy always wins, always.

 

 

 

 

 

 

 

 

 

Survey: Fate of Countries in Collapse – Results: Currency Collapse

survey-says-2gc2smOff the keyboard of RE

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Published on the Doomstead Diner on September 22, 2015

toast2

Discuss the Results at the Survey Table inside the Diner

TAKE THE FATE OF COUNTRIES SURVEY HERE

One of the longest running arguments on the Diner is how various different countries will fare as collapse progresses forward.

http://www.philipcaruso-story.com/wp-content/uploads/2015/02/Where-To-Live.jpgMost often, this pits the FSoA against China, and the Diner has some China Bulls and some China Bears.  I am a notorious China Bear gong back to my days on the Peak Oil Forum, where at the time because China was such a hot investment opportunity with double-digit growth rates it was common wisdom the Chinese would out-compete the FSoA Empire to lead the world in the second half of the 21st Century.  It was there I first added my Tag Line to analysis posts on China, "The Chinese are TOAST". 😀

Now in reality here, as time goes by EVERY industrialized nation is toast, in the sense every one is dependent on the systems that are driven by copious quantities of fossil fuel energy.  Once that energy can no longer be accessed or afforded, life as we know it now wll come to a halt.

However, this is unlikely to happen all at once, and it is unlikely to play itself out exactly the same way in different countries, different regions and even from town to town.

In this survey we look at the large nation states individually and regionally for the smaller ones, to find out the opinions of the Kollapsniks TM on which ones are the best positioned as collapse gathers speed, and which ones will fare the worst.

Besides China and the FSoA, the other one of the "Big Three" countries often discussed in comparing on this topic is Russia.  Russia is often cited as more resilient by virtue of the fact they already went through one collapse when the USSR collapsed, plus the fact they have a decent amount of fossil fuel energy still left in the ground.  However, they have numerous problems as well, wars ongoing to their south, the Ukrainian situation and enormous financial and currency turbulence.

Take the survey, and let us know who you think will do best and which ones worst as collapse gets fully underway.

TAKE THE FATE OF COUNTRIES SURVEY HERE

Results: Currency Collapse & Debt Implosion Survey

http://joeforamerica.wpengine.netdna-cdn.com/wp-content/uploads/2013/04/survey-says.jpgOK, now onto the results from last week's Collapse Survey TM, Currency Collapse & Debt Implosion.

First question to look at is which of the current major currencies is likely to collapse first, and which has the potential to hold up the longest.

This is obviously important if you want to try to "preserve wealth", you certainly don't want to be holding the currency that collapses first! Duh. Roll Eyes

On the other hand, you have the problem of the utility of a currency in your neighborhood.

For instance, say the Norwegian Krone holds its value while the FSoA Dollar crashes.  Even if you have some Krone stashed in a Norwegian or Swiss Bank account, or even actually have some of their Notes in your basement safe along with your stash of Gold Coins, is Walmart going to take your Krone for a purchase of a bag of rice in Peoria, IL?  Not very likely.  You might stand a better chance in Europe, particularly Scandinavian countries if you have Krone, but here in the FSoA they are unlikely to do you a whole lot of good.  Only if you want to do currency trading during the spin down is this worthwhile to consider, and first off you need to be pretty flush to do that kind of trading, and second it's a fool's game these days with manipulated markets.  Even back in the day when I messed with currency trading it was nuts.  You have to leverage to beat the band to make any money this way.  You can get SWAMPED in a big move overnight.  Then the margin calls hit, and your next trip is out the window of the 49th floor.

Leaving aside the question of whether holding foreign currencies might benefit you personally, on the nation state level it's important to consider because he whose Currency crashes first, Collapses first.  So who is it gonna be?

I found the results of this particular question to be absolutely astounding.  Here's the results:

  1 2 3 4 5 6 7 8 Standard Deviation Responses Weighted Average
Chinese Renminby/Yuan 10
(9.8%)
23
(22.55%)
8
(7.84%)
17
(16.67%)
10
(9.8%)
8
(7.84%)
8
(7.84%)
1
(0.98%)
5.92 102 4.81 / 12
European Euro 9
(8.82%)
13
(12.75%)
15
(14.71%)
19
(18.63%)
10
(9.8%)
11
(10.78%)
5
(4.9%)
5
(4.9%)
5.24 102 4.88 / 12
Japanese Yen 15
(14.71%)
8
(7.84%)
13
(12.75%)
12
(11.76%)
11
(10.78%)
10
(9.8%)
8
(7.84%)
15
(14.71%)
4.92 102 4.98 / 12
Russian Ruble 7
(6.86%)
16
(15.69%)
21
(20.59%)
13
(12.75%)
8
(7.84%)
13
(12.75%)
2
(1.96%)
2
(1.96%)
5.91 102 4.99 / 12
Brasil Real 29
(28.43%)
14
(13.73%)
6
(5.88%)
3
(2.94%)
7
(6.86%)
5
(4.9%)
3
(2.94%)
4
(3.92%)
7.53 102 5.29 / 12
British Sterling/Pound 0
(0%)
3
(2.94%)
7
(6.86%)
10
(9.8%)
21
(20.59%)
6
(5.88%)
11
(10.78%)
16
(15.69%)
5.74 102 6.78 / 12
US Dollar 27
(26.47%)
7
(6.86%)
5
(4.9%)
1
(0.98%)
1
(0.98%)
3
(2.94%)
1
(0.98%)
2
(1.96%)
10.02 102 7.1 / 12
India Rupee 3
(2.94%)
13
(12.75%)
10
(9.8%)
4
(3.92%)
6
(5.88%)
8
(7.84%)
7
(6.86%)
6
(5.88%)
4.59 102 7.29 / 12
Canadian Loonie 0
(0%)
3
(2.94%)
4
(3.92%)
9
(8.82%)
2
(1.96%)
9
(8.82%)
16
(15.69%)
14
(13.73%)
6.69 102 7.66 / 12
Australian Dollar 1
(0.98%)
0
(0%)
5
(4.9%)
7
(6.86%)
8
(7.84%)
7
(6.86%)
11
(10.78%)
11
(10.78%)
7.49 102 7.84 / 12
Norwegian Krone 0
(0%)
2
(1.96%)
6
(5.88%)
2
(1.96%)
8
(7.84%)
5
(4.9%)
22
(21.57%)
17
(16.67%)
6.17 102 7.93 / 12
Swiss Franc 1
(0.98%)
0
(0%)
2
(1.96%)
5
(4.9%)
10
(9.8%)
17
(16.67%)
8
(7.84%)
9
(8.82%)
6.63 102 8.43 / 12

IMHO, this ordering is INSANE.  Apparently Kollapsniks TM think that the Chinese Renminby will collapse BEFORE the Euro and Yen!  WTF?  Not only that, the Indian Rupee will outlast the FSoA Dollar! hahahahahahahaha.

Which currency outlasts them ALL (according to Kollapsniks)?  The Swissie!  A currency issued by a tiny nation of 8M people with a GDP of $685B (2013 data) is going to outlast the Dollar and Renminby?  WTF?  There are more people living in NY Shity than all of Switzerland!

When the Euro goes down, the Swissie goes with it.  The SNB has HUGE exposure to Euro denominated debt, they have been buying it up to keep the exchange rate from going through the roof.  It's simply nuts to think this currency can outlast those of the Big 3.

My order for currency collapse?

Brasil Real
India Rupee
Russian Ruble
Japanese Yen
European Euro
British Sterling/Pound
Norwegian Krone
Swiss Franc
Australian Dollar
Canadian Loonie
Chinese Renminby/Yuan
US Dollar

Brasil is already on the serious ropes, and so is India.  Weak economies and too much poverty.  Russia should be strong, but they are a target for the Western Illuminati Banksters, so they will be under constant currency attack.  Yen & Euro go next, and then subsidiary currencies like Sterling, the Swissie and Krone go after them.  The Oz Dollar and Hoser Loonie keep value because of how closely they are connected to the FSoA Dollar.

One caveat to this is that once the cascade begins, it may be impossible to tell which one collapsed first.  Once a major like say the Japanese Yen collapses, this will cause so much havoc in the Interbank lending market that everything else will lock up in pico-seconds.

IMHO, the Final Battle for All the Currency Marbles is between the Chinese Renminby and the FSoA Dollar.  I think the Dollar wins this battle, because so much debt is denominated in dollars. Too many .01%ers have their wealth wrapped up in Dollars or Dollar denominated assets to let that one collapse.  We'll see on that one.

OK, now onto Q2, which is whether Gold & Silver will replace Fiat Currencies once they collapse?

Survey-Gold

  Yes No Standard Deviation Responses
All Data 34
(33.01%)
69
(66.99%)
17.5 103

Overwhelmingly by a 2/3rds majority, most Kollapsniks TM do not think Gold and Silver will replace Fiat once it crashes.

I tend to agree with that one, the PMs are too centralized and too few people have access to them for them to be workable as a currency medium.  There also is no clear idea on how these could be distributed out, or how letters of credit would be issued or anything else.  They might function as a Barter item, but as a currency that many use, it seems unlikely.

If Gold & Silver are NOT likely, what is likely once this Currency Regime fails? icon_scratch That was the subject for Q3.  Here's the results for that one:

  1 2 3 4 5 Standard Deviation Responses Weighted Average
TPTB will institute a New World Currency, the SDR or something similar 37
(39.36%)
11
(11.7%)
19
(20.21%)
13
(13.83%)
14
(14.89%)
9.47 94 2.53 / 5
LETS (Local Exchange Trading System) Money will be issued in many locales 23
(24.47%)
21
(22.34%)
19
(20.21%)
26
(27.66%)
5
(5.32%)
7.28 94 2.67 / 5
Paper Money will be issued based on Gold and Silver held in a Central Bank 11
(11.7%)
19
(20.21%)
29
(30.85%)
22
(23.4%)
13
(13.83%)
6.46 94 3.07 / 5
Gold & Silver Coins will be used as Currency 7
(7.45%)
32
(34.04%)
18
(19.15%)
20
(21.28%)
17
(18.09%)
7.98 94 3.09 / 5
No money will work and Trade will be all Barter 16
(17.02%)
11
(11.7%)
9
(9.57%)
13
(13.83%)
45
(47.87%)
13.3 94 3.64 / 5

A large plurality (almost 40%) of Kollapsniks TM think that TPTB will be able to institute a new centralized currency regime from the BIS (Bank for International Settlements, Basel, Switzerland, Central Bank of Central Banks, Home Base for the Illuminati). This is a particularly favored idea by Conspiracy Theorists, but it is not one I hold as most likely.  The likely candidate are SDRs, aka Special Drawing Rights, a concoction the BIS already has in place for internal use based on some potpourri of currencies and commodities and who knows what else they threw in that basket..

I am not in that camp.  Perhaps they will try this, but to get every country in the world to cede their monetary sovereignty over to the BIS would be near impossible IMHO.  It's like the Euro on Steroids.  It really does nothing other than re-denominate debt, and it sure doesn't put any new resource back in the ground.   To me, this is a non-starter.  Not to say it won't be attempted though.  It's a last gasp effort for the Illuminati to maintain hegemony over the economic system.

LETS systems of Local Currencies come in at #2, and this I feel is most likely to occur.  Regional breakup of the One to the Many TM will at least at the beginning require each region to develop their own local currency.  Potlatch at this stage of the spin down seems unlikely.

Far as Centrally held Gold being a basis for a currency, to me this is also a non-starter.  If you have a Central Bank holding gold in the Basement Safe, after a crisis of banking confidence like this, who would not go to the bank and DEMAND their "Gold Backed Note" to actually be redeemable in said Gold?  Once the gold is redeemed, what does the Bank have as an Asset?  At this point, the Gold you redeem for the note the Bank printed on it is just a barter item.

Will all trade eventually go all Barter?  It's already on its way there in some places, but that will take some time in the core countries I imagine.   Cannot be sure on this though, a rapid collapse could make barter the only functioning economic system in your neighborhood for a while.  Good idea to have barterable goods in your preps. Alcohol and Cigarettes are traditional barter items, I suggest also Tampons, Pampers, Condoms, Ammo, & Shoes as good choices of barter goods that last a long time.  Shoes in particular, have you noticed how many of the pictures of refugees show them to be barefoot?  Once trade with China halts, shoes are going to be hard to come by.  Right now though, you can buy a nice pair of sneakers at Wally World for $15 on sale.

Finally in this survey, how long before the Dollar finally dies completely and you can't use it to buy food at the major food retailers?  This could be either because the Dollar has hyperinflated to worthlessness or the shelves are empty.  Here's the results for this one:

  2016 2018 2020 2025 2030 The Dollar will keep working for the forseeable future Standard Deviation Responses
All Data 10
(9.71%)
16
(15.53%)
16
(15.53%)
22
(21.36%)
14
(13.59%)
25
(24.27%)
4.98 103

You have a pretty nice Bell Curve here, except for the 25% or so of people who thnk the Dollar will keep working past 2030.  The 2025 date seems about right to me, although again a major banking crisis and lockup could change that in an instant.

All in all, this was one of our most interesting surveys to date.

 

Early Warning

gc2smOff the keyboard of Steve Ludlum

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Published on Economic Undertow on August 30, 2015

Triangle-of-Doom-080113

Discuss this article at the Economics Table inside the Diner

Around the world, markets have taken a hit and the establishment responds as best it can; liberal applications of happy talk and cheap credit along with promises of a lot more where that came from.

Much of our finance problem has been caused by the costs associated with a surplus of cheap credit. This conforms to the First Law of Economics which states the costs of managing any surplus increase along with the surplus until at some point they exceed it. Adding more credit cannot provide a solution as it adds to already- breaking costs at the same time. We cannot borrow our way out of debt even as it is the only means industrialization has left to us. Cracks are widening, the credit structure will fail, it isn’t a matter of ‘if’ but ‘when’.

As per usual, the bosses rush to prop up finance key men. This is the only thing they know. The bosses are creatures of the key men, when these stumble so do the bosses. Each groups aims to hold the other along with the rest of the economies hostage. Sending in the clowns on suicide missions is how economies work in the New Millennium. The Chinese government directs the retirement accounts of ordinary Chinese into the stock market furnace. They fear that the plunge in China issues is not an ordinary asset market correction but the end of the entire Chinese industrial enterprise as we know it. The government does not dare utter these terms but they don’t have to, their actions speak for themselves.

China follows the rest of the world in tapping its retirement accounts. We are in the middle of a crisis that has been steadily intensifying since 2007. Managers demand the economic system be bailed out; instead of tapping entrepreneurs and technology, the finest minds of a generation rob from pensioners.

The economies must become more productive which means increasing the efficiency of output. Consequently, pensioners are called upon to sacrifice their retirements in the UK, Greece, Russia, France, in the US … in cities and states pensions everywhere are under attack. Now, add China.

Public sector pensions in the US are looted to support stock buybacks which keep US stock markets afloat, (Financial Sense):

Massively underfunded public pensions are driving an epic credit boom in the corporate bond market that will likely accelerate in the coming years.

 

 

 

 

 

 

Lawrence McQuillan of the Independent Institute explained on Financial Sense Newshour this week how public pensions are being operated under rules and assumptions that would be considered criminal under Federal law if operated similarly in the private sector.

We spoke with him about his very important book, California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, where he said that in order to meet their funding requirements the Big Three pension funds in California (CalPERS, CalSTRS, and UCRP) assume that “they will outperform the average portfolio return…by 21 percent every year for decades.”

 

 

 

 

 

That never happens, the idea is ridiculous. Instead the retirees’ funds support the stock market price-inflation regime; when that market falters and prices decline the funds vanish into the pockets of well-positioned elites … just as they are set to vanish in China.

Bosses insist deploying more- and fancier machines will solve our economic problems; this presumes machines are productive. Technology is endlessly advertised as saving us but the raiding of pensions indicates otherwise: the scraping of the bottom of the barrel in real time. It’s an admission that technology doesn’t and can’t work, from the people who are in a position to know.

What happens after the retirements are pilfered? Who knows? Nobody has a plan. The elites have no choice but to reside on the same broken planet as the rest of us, using the same (diminished) services. There is nowhere to hide, no place to escape from what are fast becoming universal consequences.

Here you go way too fast,
Don’t slow down, you’re gonna crash.
You should watch, watch your step …
Don’t lookout, gonna break your neck.

 

 

 

 

 

 

So shut, shut your mouth,
‘Cause I’m not listening anyhow.
I’ve had enough, enough of you,
You know to last a lifetime through …

 

 

 

 

 

The Federal Reserve offers to reconsider raising interest rates next month as if this was a thing seriously considered in the first place. The fact of ongoing zero-percent interest rates speaks louder than any words. The fact of it reveals that the doctrine upon which American-style ‘prosperity’ is erected is false. Each succeeding unit of business activity requires ever-greater amounts of credit to produce; finance productivity, like the machine variety, turns out to be a fairy tale:

Fred GDP-debt 061515

Figure 1: Total US credit market debt including US government versus US nominal GDP by way of FRED. Credit expands exponentially but business activity never catches up. Credit is a necessary subsidy for all industrial activity, we are now past the point of diminished marginal returns, where each additional borrowed dollar offers only a few well-pinched pennies in return.

Na nana na na na nana na na-aaaa
Na nana na na na nana na na-aaaa

 

 

 

 

 

 

Here you go, way too fast.
Don’t slow down, you’re gonna crash.
You don’t know what’s been going down,
You’ve been running all over town.

So shut, shut your mouth …
‘Cause I’m not listening anyhow
I’ve had enough, enough of you,
You know to last a lifetime through …

 

 

 

 

 

The ‘Great Trade’ since the emergence of Southeast Asian manufacturing ‘tiger economies’ has been the short-dollar carry; this is this trade that is unwinding right now around the world. Dollars are borrowed from New York finance and swapped overseas for higher-yielding investments denominated in non-dollar currencies. The tigers grow and the currencies strengthen vs. the dollar. Direct yield is added to currency appreciation. This carry trade is one reason why so many US corporations have set up shop overseas, to capture currency appreciation. The dollars lent overseas become collateral for new forex issue in the target countries, this is then spent on infrastructure which amplifies the entire process in a virtuous cycle.

Dollars are also sold short into various asset markets with the same intent, to capture ‘currency’ (share price) appreciation. Asset- and currency investment ‘bubbles’ since 1973 have been a kind of petroleum price hedge, where the fuel and other investments are treated as if they are the same. Appreciation of assets such as stocks or real estate is intended to exceed appreciation of the fuel ‘asset’. With time fuel users become rich enough to afford fuel at any price. This works in theory but fails in practice because of the need to unwind the carry trade — to sell the asset and buy back the dollar — to capture the appreciation and apply it to the fuel. As with other Ponzi schemes, only a relative handful of shills are able to exit the trade with gains in hand. The schemes only work as long as (borrowed) funds are flowing in, as long as each succeeding round of funding is cheaper than those ‘invested’ before … and as long as all participants in the trade don’t try to exit at once. When any of these trends shift into reverse the scheme collapses.

Just as real estate- or oil prices have been expected to continually rise in price, the dollar is expected to continually cheapen relative to other currencies; to ‘go down’. As such the dollar trade is subject to the ‘Paradox of Thrift’, when too many interests are on the same side of a trade. Having all investors on the short side means a market ultimately deprived of sellers, where everyone has sold out: eventually nobody is left to ‘sell to the sellers’. At this point there is nothing for the dollar but to defy conventional wisdom and ‘go up’.

If economists paid attention to ‘inputs’ rather than dissing them, they would acknowledge that billions of dollars and other currencies are swapped on demand for a valuable physical good at gas stations around the world every single day. It is this exchange- on the global scale, rather than the forward pricing of credit by central banks and finance lenders that determines the price of money. As such there is no independent monetary policy, anywhere; central banks are irrelevant. Priced in oil, ‘commodity’ dollars have worth. Instead of being a proxy for the waste-extravaganza we call ‘commerce’, the dollar becomes a proxy for scarce and valuable petroleum, just like the dollar was a proxy for scarce and valuable gold during the early 1930s. As fuel vanishes forever out of a billion tailpipes, dollars become precious, then hoarded; leaving fewer dollars for drillers which in turn amplifies fuel scarcity in a vicious, self-reinforcing cycle.

So what do you want of me,
Got no cure for misery.
And if I go about with you,
You know that I’ll get messed up too with you …

 

 

 

 

 

 

Na nana na na na nana na na-aaaa
Na nana na na na nana na na-aaaa

 

 

 

 

 

Increased dollar demand is best evidence for fuel scarcity rather than the non-stop media bawling about a glut. Users are voting with their wallets, spurning ‘Brand X’ currencies and other assets, scrambling to gain cash dollars. The increased worth of once-blighted buck becomes a dagger to the heart of the short-dollar carry and its variations in other asset classes.

Those who have borrowed dollars are now just now finding out how expensive it is to repay: costly to the point of national ruin. China is dumping billions in Treasury securities every month in order to gain dollars. Once spent these dollars never return: this turns out to be the First Law cost of China’s vast dollar reserve surplus. China’s resource providers are likewise seeing runs out of their own currencies. Businesses and governments borrowed billions from Wall Street lenders, they all need cheap bucks to service their debts and can’t get them. The flood of easy money to the rest of the world to support miniature versions of the US ‘growth story’ has been replaced by a dollar ebb and so-called ‘capital flight’, (Don Quijones/Wolfstreet):

With Friends Like These…

 

 

 

 

 

 

It doesn’t help when your own national investors and corporations are offloading the domestic currency (Mexican peso) as fast as they can. As Jorge Gordillo, chief analyst at Grupo Finaniero CI Banco, told the Mexican daily El Excelsior, as confidence in Mexico’s economic fortunes wanes, more and more Mexican banks and businesses are exchanging their pesos for dollars, fueling further demand for the world’s reserve currency.

It is the worst of vicious circles: the stronger the dollar gets, the more the locals want it. The more the locals want it, the weaker the peso becomes. Rinse and repeat …

 

 

 

 

 

It isn’t just carry traders desperately seeking dollars. The gigantic fuel industry itself is left to grope beneath the cushions for spare change, (Bloomberg):

Oil Industry Needs Half a Trillion Dollars to Endure Price Slump

Luca Casiraghi and Rakteem Katakey (Bloomberg)

At a time when the oil price is languishing at its lowest level in six years, producers need to find half a trillion dollars to repay debt. Some might not make it.

The number of oil and gas company bonds with yields of 10 percent or more, a sign of distress, tripled in the past year, leaving 168 firms in North America, Europe and Asia holding this debt, data compiled by Bloomberg show. The ratio of net debt to earnings is the highest in two decades.

If oil stays at about $40 a barrel, the shakeout could be profound, according to Kimberley Wood, a partner for oil mergers and acquisitions at Norton Rose Fulbright LLP in London.

 

 

 

 

 

Five hundred billion is a lot of money. That is the amount needed to roll over maturing debts and pay interest on ‘junk’ loans; it does not include fresh funds needed to keep drilling. This amount does not include national oil drillers indirect costs, the amount needed is likely to be much larger, (Reuters):

The speed of decline in Saudi Arabia’s foreign reserves slowed in July after the government began issuing domestic debt to cover part of a budget deficit created by low oil prices, central bank data showed on Thursday.

 

 

 

 

 

 

The world’s largest oil exporter has been drawing down its reserves to cover the deficit. Net foreign assets at the central bank, which acts as the kingdom’s sovereign wealth fund, have been sliding since they reached a $737 billion peak last August.

But the latest data showed net foreign assets shrank only 0.5 percent from the previous month to 2.480 trillion riyals ($661 billion) in July, their lowest level since early 2013. They had dropped 1.2 percent month-on-month in June and at faster rates early this year.

 

 

 

 

 

Indirect costs include defending the domestic currencies of oil exporting countries. Where this money is going to come from is problematic because of the low fuel prices. The borrowed funds that have been supporting drillers are now stranded because the customers are unable to borrow … in a market made up entirely of (insolvent) borrowers there is nobody left who is able to repay!

Nouriel Roubini suggests a finance-system early warning system, (Project Syndicate):

A Financial Early-Warning System

 

 

 

 

 

 

Recent market volatility – in emerging and developed economies alike – is showing once again how badly ratings agencies and investors can err in assessing countries’ economic and financial vulnerabilities. Ratings agencies wait too long to spot risks and downgrade countries, while investors behave like herds, often ignoring the build-up of risk for too long, before shifting gears abruptly and causing exaggerated market swings.

Given the nature of market turmoil, an early-warning system for financial tsunamis may be difficult to create; but the world needs one today more than ever. Few people foresaw the subprime crisis of 2008, the risk of default in the eurozone, or the current turbulence in financial markets worldwide. Fingers have been pointed at politicians, banks, and supranational institutions. But ratings agencies and analysts who misjudged the repayment ability of debtors – including governments – have gotten off too lightly.

 

 

 

 

 

Currency depreciation, national bankruptcies, non-stop wars, sacrifice of pensioners and fuel price crash, what sort of warning does Roubini & Company need? Every sort of alarm is going off and has been for years! Nobody pays attention. There have been climate warnings, bank insolvency warnings (little different from what Roubini proposes), resource depletion warnings, corruption- and cartelization warnings; warnings about pollution, overpopulation, consumption, exhaustion of topsoil, proliferation of nuclear weapons, rising militarism … over-dependence upon finance and central banks, etc. Economies are fragile, they are built on a foundation of lies, they cannot bear the weight of the truth so it is swept under the rug. Markets which are seen to measure the worth of information are institutionally incapable of measuring the same markets’ willingness to guzzle the Kool-Aid: the Paradox of Grift.

To Roubini, the only alerts that seem to matter can only come from economists themselves … the enterprise is painted into a corner.

Na nana na na na nana na-aaaa
Slow down, you’re gonna crash.

Even though unraveling is well underway, the various media components of big business are busy informing the proletariat (and each other) that everything is just fine and that ‘sustainable growth’ is right around the corner. Meanwhile, the markets around the corner grind relentlessly lower.

Warnings — early and otherwise — are seen to trigger the events that managers are desperate to avoid. This leaves no place for prudence. The central banker can never say there is an asset bubble or that the bankers are helpless to affect outcomes or admit a mistake. Central Banker-speak is carefully calibrated and purposefully innocuous. Should it be otherwise, a money-panic is certain to occur. This reveals the extent to which market capitalism is dependent upon fraud and participants eagerness to embrace it. As with much else in our benighted nonsense world we’ve built for ourselves, we and our leading characters are happy to follow the script … right off the edge of the cliff.

Na nana na na na nana na na-aaaa,
Slow down, you’re gonna crash.
Na nana na na na nana na na-aaaa,
Slow down, you’re gonna crash!

 

 

 

 

 

 

Na nana na na na nana na na-aaaa,
Slow down, you’re gonna crash.
Na nana na na na nana na na-aaaa,
Slow down, you’re gonna crash!

Na nana na na na nana na na-aaaa,
Slow down, you’re gonna crash.
Na nana na na na nana na na-aaaa,
Slow down, you’re gonna crash!

Na nana na na na nana na na-aaaa,
Slow down, you’re gonna crash.
Na nana na na na nana na na-aaaa,
Slow down, you’re gonna crash!

— The Primitives “Crash” (Paul Court, Steve Dullaghan, Tracy Spencer)

 

 

 

 

 

(In Dollars)

Off the keyboard of Steve Ludlum

Follow us on Twitter @doomstead666
Friend us on Facebook

Published on Economic Undertow on August 13, 2015

Visit the COLLAPSE.GLOBAL Portal for Links & Daily Updates from around the Collapse Blogosphere

Triangle of Doom 080815

Figure 1: the not-quite-triangle of not-yet doom: World is slipping relentlessly toward energy deflation. Chart by TFC Charts, (click on for big).

Discuss this article at the Economics Table inside the Diner

Since last summer oil prices have crashed 50% (in dollars). The media fairy tale suggests an output contest between Saudi Arabia and US oil drillers with the resulting glut overwhelming demand. This is yet another reprise of the modern myth of plenty and prosperity, eternally bountiful supply enabling bottomless demand in a consumption paradise. Indeed, demand exists everywhere there is a TV set and paper money; it is the ability to exercise demand that is slipping away.

The Undertow story is of an unacknowledged energy shortage leading to exclusion of less-solvent customers from petroleum markets world-wide. Instead of odd-even days or gas lines, fuel is rationed by way of access to credit. As the fuel shortage propagates, the number of solvent customers declines. This is natural and should not need explanation: oil prices fall because customers are broke. There is the illusion of excess supply because the number of solvent customers falls faster than extraction rates. Attempts by drillers to lift more petroleum exaggerates the illusion of excess supply; prices fall which strangles drillers in a vicious cycle.

Low prices are unable to stimulate consumption, instead, they illuminate the failure of consumption to earn anything … that the economy itself is bankrupt-by-design rather than mismanaged.

The absence of real earnings means all returns must be borrowed. Debt is expensive, the costs are added to those of extracting- and distributing fuel. The marginal consumer is excluded from fuel markets because he cannot afford to borrow or the lender rations credit for solvency reasons. The outcome is a margin call across the economy leading to bankruptcies that ration credit further. Ultimately, credit becomes unavailable and fuel is allocated to those who can earn an actual return on its use … provided there are any real returns to be had. If the returns are not sufficient to support energy extraction there is no energy. This is the outcome of energy deflation, why every effort must be made to keep from slipping into it.

Just as leverage amplifies itself in a virtuous cycle during the expansion period, leverage works violently ‘the other way’ as credit contracts. Self-amplification of customer insolvency is the point of no-return. When low prices strangle- rather than enable consumption, there is no way to reverse the process. If relative solvency cannot enable output then neither will insolvency. If governments cannot enable output by way of subsidies during a period of credit expansion they certainly cannot do so when credit is contracting. Governments must borrow the subsidies they offer to drillers, in doing so they ultimately borrow from the same customers who cannot meet the drillers’ costs; as such governments are no more solvent than their bankrupt citizens.

The great post- World War Two buildout of American style suburbs in the US and elsewhere has succeeded in devouring its resource base and replacing it with claims against what (little) resource capital remains. We are certain to fail spectacularly because we have succeeded at our fools’ errand so spectacularly.

When Is the Crash Coming?

The usual finance suspects are queuing up to predict an imminent market crash, aome have been predicting one for twenty years. They don’t want to be seen as missing the Titanic, others have proven to be prescient: Jeremy Grantham, Nouriel Roubini, Professor Steve Keen. Robert Shiller warns investors to beware the ‘New Normal Bubble'; Dean Baker … well, maybe not this time. Martin Armstrong suggests October this year for the big bang (slump). Nicole Foss suggests that the unraveling is already underway as does Economic Undertow. The problem is most economists view the problem as confined to finance and interest rate policy. This misses the point, monetary- and financial adjustments are irrelevant to an outcome that is driven by resource depletion. Finance difficulties are symptoms of the disease not the cause; we are undergoing a self-propelled regime of hard rationing that is taking shape under everyone’s nose.

Recent China currency depreciation (vs. dollars) puts more downward pressure on fuel prices even as OPEC drillers Iran and Iraq send more crude to the markets, currency depreciation (vs. dollars) in Japan and Europe reduces the overall bid for crude; demand in countries that supply China such as Brazil are likewise blowing up due to ripple effects and unwinding carry trades.

U.S. stocks fell in early trading on Tuesday in a broad-based retreat as China’s surprise devaluation of the yuan pushed the dollar higher and pressured commodity-related shares.

 

 

 

 

 

Oil erased most of its gains from Monday following the devaluation by the world’s top energy consumer. Other commodities such as copper, aluminum, nickel and zinc also fell.

Eight of the 10 major S&P sectors were down, with the energy index and the materials index both lower by nearly 2 percent (and more).

Exxon Mobil’s 1.8 percent drop was the biggest drag on the energy index and Freeport-McMoRan’s 12.5 percent slump dragged on the materials index.

Concerns around the health of the second-largest economy in the world also weighed on shares of U.S. automakers and industrials. General Motors was down nearly 3 percent, while Caterpillar was down 2.4 percent.

The yuan fell to its lowest against the dollar in almost three years following what the country’s central bank described as a “one-off depreciation”.

 

 

 

 

Stock prices are variable, what matters is the price trend (in dollars) relative to the trends of other currencies. Dollar-preference can be seen at work: China needs dollars to import fuel, so do other fuel importers. China also needs dollars to prop up its gargantuan stock- and real estate swindles – slash – Ponzi schemes. To gain dollars it must offer more RMB to foreign exchange holders than it did the day previously. This becomes a sort of dog-chasing-his-tail process where every depreciation gives cause for further depreciations down the road. The name of the game is to trade the ‘Brand X’ currencies including RMB at any price to gain dollars; as these are bought up becoming scarce and more desirable the trade amplifies itself.

With time, the causes that propel depreciation become indistinguishable from effects. China depreciates because of the flight of dollars overseas represents shrinking demand for its own currency. Yet, the depreciation itself is incentive to ditch the currency! Over the span of two days China and everything that it contains is today worth five- percent less than it was, previously. Out of $6.8 trillion in GDP, $340 billion has vanished without a trace, in the blink of an eye: whatever increase the country expected to gain this year is lost by way of its depreciation.

Whatever China seeks to gain by way of cheaper exports is lost due to higher import prices (in dollars):

China Oil 081115

Figure 2: China net petroleum exports by Mazama Science (click for big). The gap between what China extracts domestically and what it must import is financed with borrowed dollars and euros. China turns out to be another energy deadbeat little different from Greece, Argentina or Spain. While China domestic crude output is significant, it cannot keep pace with the country’s galloping consumption.

As China property- and stock markets crash, China aims to dump its deflation onto its trading partners … who are all trying to do the same thing. Like Germany within the eurozone, China has its bunch of captive punching bags to which it can export its misery: Australia, Peru, Myanmar, Brazil, Canada among others. For China’s largest trade partner the US, depreciating RMB is a defacto interest rate increase whether it is considered as such or not. This renders irrelevant whether the Federal Reserve raises policy rates later this fall or not … the result is deflation for the US leading to recession.

Economies are nothing more than fuel wasting enterprises, with the financing edifice erected upon this scaffold. Because fuel itself is hard to hold and store (without a tank farm), ‘money’ is held instead of fuel. With the passage of time, the dollar becomes preferred over other currencies as a fuel carrier. This is because there are plenty of dollars, because Wall Street produces the bulk of the world’s credit; because the US has been the ‘consumer of last resort’, because so many countries export goods or workers to the US that dollars are in wide circulation in these countries … because the dollar is proxy for the American hyper-wasteful lifestyle that almost everyone on Planet Earth aspires to.

Dollar preference turns this last dynamic on its head: instead of being a proxy for waste, the dollar becomes a proxy for what is being wasted. Once that point is reached it becomes a hard currency like the gold-backed dollar of 1932, the same dollar that was hoarded out of circulation causing most of the banks and businesses in the country to fail. The difference was that going ‘off gold’ did not affect how the US consumed energy, going ‘off oil’ would mean just that: switching from a non-functioning industrial economy to a non-industrial version that uses little or no oil at all.

USDCAD 081215

Figure 3: The Canadian loonie (in dollars); Forex charts by XE.com, (click for big). China exports deflation: the loss of crude oil customers in China and elsewhere leaves Canada at the brink of a recession.

USDAUD 081215

Figure 4: The US dollar — Australian dollar cross; like Canada, Australia bought the ‘it’s different this time’ hype about China resource capital consumption. As it turns out, Australia, like China, is worth a less today than it was over several years of yesterdays. Its reliance on China manufacturing leaves it with assets that have become liabilities.

USDBRL 081215

Figure 5: The US dollar — Brazilian real cross. Sez Bloomberg:

Investors are concerned that the political instability (in Brazil) will push the country into a deeper recession and make it increasingly vulnerable to a sovereign-credit downgrade. The real has depreciated 8.1 percent in the last month, the biggest decline among 16 major currencies tracked by Bloomberg.

Currency depreciation is a dynamic that drives itself. Monetary- and fiscal policy is irrelevant: the worst-case scenario is well- meaning policy blunders amplifying dollar preference unintentionally. As with debt, once on the depreciation treadmill it is almost impossible to get off; this offers a continuum of opportunities for errors, these tend to be self-amplifying as well.

USDEUR 081215

Figure 6: Welcome to Eurolandia, the home of self-propagating policy errors (in dollars). Turns out Germany beating its trading partners to a pulp is not good for business. Who could have guessed? As the fuel buying power of dollars increases, they flow toward the highest bidders, out of Europe, China, Japan and elsewhere toward Wall Street … and offshore tax havens. The outcome is a margin call against leveraged assets. Credit flows are never one- way. After flooding into a country, credit reverses and the funds that are necessary to support leveraged assets are withdrawn. This results in deflation. The same credit rationing underway in Greece is scaled up monumentally in China … with the same outcome!

China Sector Credit Flows(1)

Figure 7: China’s problem takes the form of a giant pink arrow: China’s finance structure is like Argentina’s because China is dependent upon dollar- and other hard currency inflows as collateral for domestic loans. This contradicts conventional analysis which has China as a US creditor. China cannot create dollars or dollar credit; China ‘lends’ energy (coal) and human labor to the US in the form of manufactured goods, these cost the country very little to produce. Repayment is in the form of dollar loans which cost Wall Street almost nothing to produce.

Within China there are two parallel dollar economies. Dollars flow by way of US customers and retailers to Chinese manufacturers. Some are forwarded to the Peoples Bank of China at the official exchange rate where purchasing power is replicated in the form of secured RMB loans into the Chinese economy. The balance are diverted by manufacturers into the loan shark economy where they become quasi-collateral for as many RMB loans as the market will bear. This lending is universally unsecured: when there is no collateral to seize in the place of circulating money, both borrower and lender are ruined.

In China, the shadow banks are very strong, they have distributed losses into the economy a long time ago; these losses have simply not been recognized. Deflation occurs when these losses are finally measured, when inflated Chinese assets are marked to market.

Analysts insist that Chinese dollar reserves can be deployed to bailout its shadow lending business. This is not possible because there is no refunding channel between the central bank and shadow finance. Lenders are simply shells erected to enable the theft of Forex reserves. Any redeployed reserves would be stolen as well. This in turn starves manufacturers of customers who lack vendor credit with which to purchase Chinese goods. Because shadow banks are strong, any unsecured central bank lending would be distributed into the Chinese economy as more unrecognized losses. Attempts to bail out shadow banks precipitates the deflation crisis the Chinese establishment is desperate to avoid: flight of dollar collateral => decline in RMB purchasing power => recognition of losses => bank insolvency and runs out of banks.

Credit cannot expand forever; the ‘Minsky Moment’ occurs when the cost of servicing (unsecured) debt plus the cost of running the actual economy exceeds the cash flow that can be generated by more borrowing.

USDJPY 081215

Figure 8: The yen (in dollars). The Japanese government purposefully aimed to depreciate the yen and monetize government spending at the same time. The outcome has been higher import prices and less consumption, “Conservation by Other MeansTM“.

USDARS 081215

Figure 9: Argentina would rather not depreciate but it has little choice. The country is desperate to develop even as it becomes another economic road kill. Argentina shares with Brazil, Canada and Australia a dependence upon Chinese purchase of commodity goods; as China falters so does the peso. Sadly, Argentina’s plight does not offer it any relief from its overseas creditors …

USDRUB 081215

Figure 10: Even oil producing giants such as Russia are not immune to dollar preference. Like other countries, Russia uses foreign exchange dollars, euros and sterling as collateral for its own lending. As a result, it is in trouble when the Forex starts flowing out of the country; there is nothing supporting the ruble. Russia’s fortunes have not been helped by its sclerotic ruling cadre and military adventures; Russia is only a powerhouse in the history books.

USDIRR 081215

Figure 11: US dollar – Iranian rial. The chart clearly indicates when Western sanctions were applied in 2012 and later in 2013. Iranians were desperate to swap whatever rials they could get their hands on to gain precious dollars. Oil exports do not give any country wealth, instead the wealth is pumped onto ships and sent away to be annihilated somewhere else. Sadly, our economists don’t see things this way, they call the parasitic claims on wealth ‘capital’ and the wealth that is destroyed … ‘inputs'; they whine when the inputs can’t be had cheaply, they whine louder when they are too cheap. Because of economists’ blindness, it is always a surprise when countries like Iran, Russia, Brazil and Mexico find themselves in hot water; economists refer to the ‘Dutch disease’. These countries are hollowing themselves out as fast as they possibly can. What might save some of them is the ruin of their customers; a bit of oil might remain in the ground until some day in the future when someone can figure out what to do with oil besides burn it up for nothing!

USDMXN 081215

Figure 12: Mexican peso (in dollars). Another petroleum exporter facing the hardest of times: the government is incompetent and corrupt, the countryside is overrun with violent bandits, its largest oil field is in terminal decline … the peso is worth less every minute. Checking through other currencies and countries the indicators are much the same. Save for UK sterling and a few others, the world’s currencies are worth much less — over a considerable period of time — relative to the dollar.

Regarding what can be done, vs. what will be done: consider the role of crashes within debtonomies (click on thumbnail then look to the far right):

Chart Thumbnail 070514
 

Technology and institutions are suggested as change-agents by conventional analysts. Within Debtonomics, the change agent is the process itself. Increasing the capital burn-through rate results in more changes which in turn serve to amplify capital exhaustion. Technology is the instrument of waste, institutions take form to rationalize the use of technology and to provide credit to enable more waste.

 

 

 

 

 

Crashes are the consequence of resource depletion (Great Finance Crisis) or aggregated surplus-related costs that cannot be shifted. The outcome is that costs rebound against the aggregators themselves; (Great Depression, Long Depression, ongoing Great Finance Crisis). In advance of a crash there is no general incentive to make management changes so as to reduce risks … even as risks compound. Crashes result in mass bankruptcy and obvious changes including public demand for accountability. Crashing is the hardest way to change but seemingly the only way for Debtonomies.

 

 

 

 

It is hard to say right now whether the depreciation seen worldwide represents dollar preference or something else. It is possible that currency movements are marketplace phenomena that will revert to some sort of mean over time. In any event, the time to take steps to avoid this problem and energy deflation … is slipping away. Obviously, the most important step is to stop wasting resource capital. Because one way or the other, like it or not, capital is going to be conserved.

“A sound banker, alas, is not one who foresees danger and avoids it, but one who, when he is ruined, is ruined in a conventional way along with his fellows, so that no one can really blame him.”

— John Maynard Keynes,

 

© Copyright Steve Ludlum 2015

4 Signs of Deflation

Off the keyboard of Michael Snyder

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Published on The Economic Collapse on July 20, 2015

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4 Things That Are Happening Today That Indicate That A Deflationary Financial Collapse Is Imminent

When financial markets crash, they do not do so in a vacuum.  There are always patterns, signs and indicators that tell us that something is about to happen.  In this article, I am going to share with you four patterns that are happening right now that also happened just prior to the great financial crisis of 2008.  These four signs are very strong evidence that a deflationary financial collapse is right around the corner.  Instead of the hyperinflationary crisis that so many have warned about, what we are about to experience is a collapse in asset prices, a massive credit crunch and a brief period of absolutely crippling deflation.  The response by national governments and global central banks to this horrific financial crisis will cause tremendous inflation down the road, but that comes later.  What comes first is a crisis that will initially look a lot like 2008, but will ultimately prove to be much worse.  The following are 4 things that are happening right now that indicate that a deflationary financial collapse is imminent…

#1 Commodities Are Crashing

In mid-2008, just before the U.S. stock market crashed in the fall, commodities started crashing hard.  Well, now it is happening again.  In fact, the Bloomberg Commodity Index just hit a 13 year low, which means that it is already lower than it was at any point during the last financial crisis…

 

#2 Oil Is Crashing

On Monday, the price of oil dipped back below $50 a barrel.  This has surprised many analysts, because a lot of them thought that the price of oil would start to rebound by now.

In early 2014, the price of a barrel of oil was sitting above $100 a barrel and the future of the industry looked very bright.  Since that time, the price of oil has fallen by more than 50 percent.

There is only one other time in all of history when the price of oil has fallen by more than $50 a barrel in such a short period of time.  That was in 2008, just before the great financial crisis that erupted later that year.  In the chart posted below, you can see how similar that last oil crash was to what we are experiencing right now…

Oil Price 2015

#3 Gold Is Crashing

Most people don’t remember that the price of gold took a very serious tumble in the run up to the financial crisis of 2008.  In early 2008, the price of gold almost reached $1000 an ounce, but by October it had fallen to nearly $700 an ounce.  Of course once the stock market finally crashed it ultimately propelled gold to unprecedented heights, but what we are concerned about for this article is what happens before a crisis arrives.

Just like in 2008, the price of gold has been hit hard in recent months.  And on Monday, the price of gold absolutely got slammed.  The following comes from USA Today

The yellow metal has tumbled to a five-year low amid a combination of diminishing investor fears related to foreign headwinds in Greece and China, and stronger growth in the U.S. which is leading to a stronger dollar and coming interest rate hikes from the Federal Reserve. Investors have been dumping shares of gold-related investments as other bearish signs, such as less demand from China and the breaking of key price support levels, add up.

Earlier today, an ounce of gold fell below $1,100 an ounce to $1,080, its lowest level since February 2010. Gold peaked around $1,900 an ounce back in 2011.

For years, I have been telling people that we were going to see wild swings in the prices of gold and silver.

And to be honest, the party is just getting started.  Personally, I particularly love silver for the long-term.  But you have got to be able to handle the roller coaster ride if you are going to get into precious metals.  It is not for the faint of heart.

#4 The U.S. Dollar Index Is Surging

Before the U.S. stock market crashed in the fall of 2008, the U.S. dollar went on a very impressive run.  This is something that you can see in the chart posted below.  Now, the U.S. dollar is experiencing a similar rise.  For a while there it looked like the rally might fizzle out, but in recent days the dollar has started to skyrocket once again.  That may sound like good news to most Americans, but the truth is that a strong dollar is highly deflationary for the global financial system as a whole for a variety of reasons.  So just like in 2008, this is not the kind of chart that we should want to see…

Dollar Index 2015

If a 2008-style financial crisis was imminent, these are the kinds of things that we would expect to see happen.  And of course these are not the only signs that are pointing to big problems in our immediate future.  For example, the last time there was a major stock market crash in China, it came just before the great U.S. stock market crash in the fall of 2008.  This is something that I covered in my previous article entitled “Guess What Happened The Last Time The Chinese Stock Market Crashed Like This?

As an attorney, I was trained to follow the evidence and to only come to conclusions that were warranted by the facts.  And right now, it seems abundantly clear that things are lining up in textbook fashion for another major financial crisis.

But even though what is happening right in front of our eyes is so similar to what happened back in 2008, most people do not see it.

And the reason why they do not see it is because they do not want to see it.

Just like with most things in life, most people end up believing exactly what they want to believe.

Yes, there is a segment of the population that are actually honest truth seekers.  If you have felt drawn to this website, you are probably one of them.  But overall, most people in our society are far more concerned with making themselves happy than they are about pursuing the truth.

So even though the signs are obvious, most people will never see what is coming in advance.

I hope that does not happen to you.

Bond Market Collapse and the Banning of Cash

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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…

For the rest, LISTEN TO THE RANT!!!

Full Rant Transcript available HERE

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

Singularity of the Dollar

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Published on the Doomstead Diner on March 22, 2013

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     On Wednesdayday, March 18, 2015 at precisely 4:04 PM ET in the FOREX trading Markets, there was a Flash Crash of the Dollar.  Just prior to that though, the Almighty Dollar was subjected to an event known in Mathematics and Physics as a “Singularity”

sin·gu·lar·i·ty

ˌsiNGɡyəˈlerədē/

 

Physics Mathematics

A point at which a function takes an infinite value, especially in space-time when matter is infinitely dense, as at the center of a black hole.
     You see clear evidence of The Singularity in the compression of values that occurred directly before just about every FOREX trading pair went BERZERK, and the Dollar value relative to all of them Flash Crashed.
     You see a similar effect in a Black Hole, when matter is compressed to infinite density and infinitessimal space, collapsing on itself from too much Gravity pulling it inward and lack of Energy pushing it outward.
http://i1-news.softpedia-static.com/images/news2/Black-Holes-Shouldn-039-t-Exist-2.jpg
http://www.speed-light.info/speed_of_light/singularity2.JPG     The formation of  Black Hole comes at was is known as an “Event Horizon”.  That is the point in Space-Time at which the equation “flips over” and irreversible collapse occurs, leading to the Singularity.
     In the diagram at left, you see that everything is drawn inwards to create the singularity, but it doesn’t show what comes out the “Other Side” of said Singularity.  You see that better in the photo above, which has Radiation streaming outward from the Center of the Black Hole.
     The graph at the top of the page shows the very same features, the Event Horizon was crossed at approximately 13:53 ET based on the X-Axis, and then the Flash Crash occurred about 10 minutes later at 14:04 ET.  Why did this occur?
     Well, as just about everyone knows by now, most trading is no longer done by Humans, it is done by Computers which follow certain Algorithms, known as High Frequency Trading algorithms, or HFT for short.  By no small coincidence, the folks who program up these algorithms do not usually come from Economics, they are recruited from Ph.D. Theoretical Physicists graduating from schools like MIT, Columbia, Oxford, etc.  Economics tends to be pretty “soft” on the quantitative end, whereas Physics is more rigorous in this regard, basically Physics people are better at Math than Economics people.  LOL.

They are known as “quants” because they do quantitative finance. Seduced by a vision of mathematical elegance underlying some of the messiest of human activities, they apply skills they once hoped to use to untangle string theory or the nervous system to making money.

http://www.maximumpc.com/files/u96627/geek.jpgThis flood seems to be continuing, unabated by the ongoing economic collapse in this country and abroad. Last fall students filled a giant classroom at M.I.T. to overflowing for an evening workshop called “So You Want to Be a Quant.” Some quants analyze the stock market. Others churn out the computer models that analyze otherwise unmeasurable risks and profits of arcane deals, or run their own hedge funds and sift through vast universes of data for the slight disparities that can give them an edge.

Still others have opened an academic front, using complexity theory or artificial intelligence to better understand the behavior of humans in markets. In December the physics Web site arXiv.org, where physicists post their papers, added a section for papers on finance. Submissions on subjects like “the superstatistics of labor productivity” and “stochastic volatility models” have been streaming in.

Quants occupy a revealing niche in modern capitalism. They make a lot of money but not as much as the traders who tease them and treat them like geeks. Until recently they rarely made partner at places like Goldman Sachs. In some quarters they get blamed for the current breakdown — “All I can say is, beware of geeks bearing formulas,” Warren Buffett said on “The Charlie Rose Show” last fall. Even the quants tend to agree that what they do is not quite science.

[Note: I don’t think these grads are “seduced by a vision of mathematical elegance” as much as they are seduced by pulling home a big paycheck, but that is another question for another day.  LOL.]
     So, with the advent of computers, Physics grads have been recruited to design up the HFT trading programs, which tend to reflect the kinds of equations that they learned in physics, so if you get a similar “Event Horizon” on the mathematical level with all the variables that are being computed, you’ll get a similar type of rendering on a graph, which is of course what you got with the graph up top here.
     So, your next question is just what was it that occurred at 13:53 that pushed the algos over the edge of the Event Horizon?  Some parameter must have had a significant change, but we don’t know what that change was, although to be sure somebody does.  What are some likely possibilities?
1-One of the Algos “misfired” with a glitch, which sent all the rest of them over the edge also.  That’s a plausible Random Explanation.
     However, with so much ongoing here in the world of Global Finance Manipulation, it seems more likely to me that somebody who can push VERY big money around did a significant dump of Dollars, against the current general trend of the market to run TOWARD the dollar right now, since it’s still the best looking Dogshit in the Pound.  Who could possibly make such a large Dump of Dollars?  Only two reasonable possibilities there.
1 Da Fed:  Da Fed can buy or sell as many Dollars as it wants to, doing Currency Swaps at will.  Perhaps TPTB in charge there wanted to stop or at least slow down the appreciating value of the dollar relative to other currencies or raise the price of Oil by devaluing the dollar.
2- The Chinese:  The Chinese have a vast hoard of Dollars, and their own currency of the Renminby has a “soft peg” to the dollar, so as the dollar has been increasing in value relative to other currencies, so has Renminby.  The problem with that of course is that it hurts the Chinese Export market and their “competitiveness” as everyone rushes to “Beggar Thy Neighbor” by devaluation, attempting to be able to undersell competitors in this manner.
     Such devaluation comes at a Price though, because it makes any you import relatively more expensive, most notably here Energy Imports which none of the mercantilist economies can do without if they want to keep producing and exporting industrially manufactured goods, and which is necessary for producing Food in Industrial Quantities to support their large populations.
     There are some other possible candidates, the Ruskies for instance are in a pitched battle with the Western Illuminati Banking system that uses the Dollar as World Reserve Currency, but it doesn’t seem likely that with all the sanctions currently in place they would have sufficient leverage in Dollars to pull a stunt like this.  Nor does it seem likely the Japanese would do it either, except perhaps as a proxy for Da Fed.
     The next important question is what are the consequences of this?  In the aftermath the following day, the Dollar “rebalanced” and climbed right back up to where it was before, and BAU resumed.
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/03/20150319_oops2.jpg
     So, if there was intention to permanently crash the system, it obviously failed.  If the purpose was to get a few FOREX traders to stain their underwear, it was wildly successful.  LOL.
     The purpose may have simply been to demonstrate how unstable the House of Cards is and to make everyone more skittish than they already are.  If you were able to Front Run this you might have been able to make a lot of money, but besides the folks who set it off, it would have been impossible to front run.  I’m not sure even the folks who set it off could front run it, because they don’t have access to all the other algos which are trading, so they wouldn’t know what the behavior of all the currency pairs would be.  Probably though it could reasonably be assumed the dollar would plummet in value relative to everything else.
     Moving into the future, it reminds us first that all the markets are thoroughly manipulated and being run by a very few very big players, mainly the Central Banks and TBTF Investment Banks.  There are some large Hedge Funds running HFT that possibly could set off another Singularity event as well, and it doesn’t have to be just in the FOREX market, although that is where the biggest and quickest potential damage is possible.  In the worst case scenario, there is a rapid and massive shift of all currencies which actually HOLDS, like the recent rebalancing of the Swissie against the Euro.  This has a cascading effect on the balance sheet of banks with large number of loans denominated in Swissies which can quicly render them insolvent, as was the case with the Austrian Regional Bank Hypo Alpe Adria & Heta Asset Resolution AG and the province of Carinthia;

A Black Swan Lands In Southern Austria: The Ripple Effects Of “Mini-Greece Going Off In The Heartland Of Europe”

By far the most notable news of the past week, which has still gone largely unnoticed by the greater investing community whose focus instead was on whether algos would ramp the Nasdaq to 5000, and keep the S&P above 2100, even before Mario Draghi finally began buying bonds that nobody wants to sell, was the “Spectacular Development” In Austria, whereby the “bad bank” of failed Hypo Alpe Adria – the Heta Asset Resolution AG – itself went from good to bad, with its creditors forced into an involuntary “bail-in” following the “discovery” of a $8.5 billion capital hole in its balance sheet primarily related to ongoing deterioration in central and eastern European economies.

This shocking announcement promptly sent the price of Heta bonds crashing as creditors, no longer enjoying the explicit guarantee of the state, scrambled to get out of “northern Europe’s” first Lehman moment.

But while the acute pain came and went for Heta bondholders who have seen a nearly 50% loss in just a few short months, the bigger and far more diffuse pain is only just starting, or as Bloomberg put it, “Austria’s decision to wind down Heta Asset Resolution AG sent ripples through the financial system, causing credit rating downgrades in Austria and bank losses in Germany.”

The first casualty: the beautifully picturesque southern Austrian province of Carinthia.

jenga_collapse      This by itself is bad enough, with cross contagion effects already being felt by other banks in Germany. However, imagine if numerous currency pairs rapidly changed in valuation, then you have similar problems going on everywhere in many countries, and many simultaneous bank failures as a result.  If the system has this much trouble handling the failure of one small Austrian Bank, imagine what happens if it is many of them, plus a few large systemic banks like Deutchbank too!  In this case the whole Jenga Tower comes down, and quite rapidly also.

To date, all the failures have been contained through a variety of accounting frauds and the endless expansion of CB balance sheets with gobs of Irredeemable Debt now on their books.  Each of those is an increasingly malformed block being placed ever higher on the Jenga Tower.  It is Magical Thinking to believe that this tower will not eventually collapse under its own weight and increasing instability, demonstrated by the nearly daily “Flash Crashes” in markets all over the Globe, all linked together at the speed of light by the telecommunications network and run not by human hands, but by HFT algorithms, which while they may be designed by Geniuses, are still subject to the laws of mathematics and physics.

The main law involved here is one everyone is familiar with, which is:

What Goes UP, must come DOWN

When this Tower does collapse, it will come down a whole lot faster than it went up.  That day approaches ever closer now, and it would be a good time to get started running in the other direction away from it, as fast as you can.  Run Away, Run Away FAST, Run Away NOW TM.

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The Last, Great Run For The U.S. Dollar

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Published on The Economic Collapse on March 10, 2015

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The Death Of The Euro And 74 Trillion In Currency Derivatives At Risk

Dollars Euros - Public DomainAre we on the verge of an unprecedented global currency crisis?  On Tuesday, the euro briefly fell below $1.07 for the first time in almost a dozen years.  And the U.S. dollar continues to surge against almost every other major global currency.  The U.S. dollar index has now risen an astounding 23 percent in just the last eight months.  That is the fastest pace that the U.S. dollar has risen since 1981.  You might be tempted to think that a stronger U.S. dollar is good news, but it isn’t.  A strong U.S. dollar hurts U.S. exports, thus harming our economy.  In addition, a weak U.S. dollar has fueled tremendous expansion in emerging markets around the planet over the past decade or so.  When the dollar becomes a lot stronger, it becomes much more difficult for those countries to borrow more money and repay old debts.  In other words, the emerging market “boom” is about to become a bust.  Not only that, it is important to keep in mind that global financial institutions bet a tremendous amount of money on currency movements.  According to the Bank for International Settlements, 74 trillion dollars in derivatives are tied to the value of the U.S. dollar, the value of the euro and the value of other global currencies.  When currency rates start flying around all over the place, you can rest assured that someone out there is losing an enormous amount of money.  If this derivatives bubble ends up imploding, there won’t be enough money in the entire world to bail everyone out.

Do you remember what happened the last time the U.S. dollar went on a great run like this?

As you can see from the chart below, it was in mid-2008, and what followed was the worst financial crisis since the Great Depression…

Dollar Index 2015

A rapidly rising U.S. dollar is extremely deflationary for the overall global economy.

This is a huge red flag, and yet hardly anyone is talking about it.

Meanwhile, the euro continues to spiral into oblivion…

Euro U.S. Dollar

How many times have I said it?  The euro is heading to all-time lows.  It is going to go to parity with the U.S. dollar, and then it is eventually going to go below parity.

This is going to cause massive headaches in the financial world.

The Europeans are attempting to cure their economic problems by creating tremendous amounts of new money.  It is the European version of quantitative easing, but it is having some very nasty side effects.

The markets are starting to realize that if the value of the U.S. dollar continues to surge, it is ultimately going to be very bad for stocks.  In fact, the strength of the U.S. dollar is being cited as the primary reason for the Dow’s 332 point decline on Tuesday

The Dow Jones industrial average fell more than 300 points to below the index’s 50-day moving average, wiping out gains for the year. The S&P 500 also closed in the red for the year and breached its 50-day moving average, which is an indicator of the market trend. Only the Nasdaq held onto gains of 2.61 percent for the year.

There’s “concern that energy and the strength in the dollar will somehow be negative for the equities,” said Art Hogan, chief market strategist at Wunderlich Securities. He noted that the speed of the dollar’s surge was the greatest market driver, amid mixed economic data and concerns about the Federal Reserve raising interest rates.

And as I noted above, when the U.S. dollar rises the things that we export to other nations become more expensive and that hurts our businesses.

This is so basic that even the White House understands it

Despite reassurance from The Fed that a strengthening dollar is positive for US jobs, The White House has now issued a statement that a “strengthening USD is a headwind for US growth.”

But even more important, a surging U.S. dollar makes it more difficult for emerging markets all over the world to borrow new money and to repay old debts.  This is especially true for nations that heavily rely on exporting commodities

It becomes especially ugly for emerging market economies that produce commodities. Many emerging market countries rely on their natural resources for growth and haven’t yet developed more advanced industries. As the products of their principal industries decline in value, foreign investors remove available credit while their currency is declining against the U.S. dollar. They don’t just find it difficult to pay their debt – it is impossible.

It has been estimated that emerging markets have borrowed more than 3 trillion dollars since the last financial crisis.

But now the process that created the emerging markets “boom” is starting to go into reverse.

The global economy is fueled by cheap dollars.  So if the U.S. dollar continues to rise, that is not going to be good news for anyone.

And of course the biggest potential threat of all is the 74 trillion dollar currency derivatives bubble which could end up bursting at any time.

The sophisticated computer algorithms that financial institutions use to trade currency derivatives are ultimately based on human assumptions.  When currencies move very little and the waters are calm in global financial markets, those algorithms tend to work really, really well.

But when the unexpected happens, some of the largest financial firms in the world can implode seemingly overnight.

Just remember what happened to Lehman Brothers back in 2008.  Unexpected events can cripple financial giants in just a matter of hours.

Today, there are five U.S. banks that each have more than 40 trillion dollars of total exposure to derivatives of all types.  Those five banks are JPMorgan Chase, Bank of America, Goldman Sachs, Citibank and Morgan Stanley.

By transforming Wall Street into a gigantic casino, those banks have been able to make enormous amounts of money.

But they are constantly performing a high wire act.  One of these days, their reckless gambling is going to come back to haunt them, and the entire global financial system is going to be severely harmed as a result.

As I have said so many times before, derivatives are going to be at the heart of the next great global financial crisis.

And thanks to the wild movement of global currencies in recent months, there are now more than 74 trillion dollars in currency derivatives at risk.

Anyone that cannot see trouble on the horizon at this point is being willingly blind.

Kurrency Kollapse: To Print or Not To Print?

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“THE GREATEST BONFIRE OF PAPER WEALTH IN ALL OF RECORDED HISTORY TM

money-burning

Snippet:

http://www.angelfire.com/art/masks/images/mask01.jpg…So to try to resolve this mess, one choice for Da Federal Reserve would be to issue out multiples of the $Trillions$ it has already issued out and take every last indebted country onto its own balance sheet as the collateral, effectively essentially putting say France under the Ownership of the Federal Reserve! Then the Frogs get the same treatment that Greece gets now taking it up the ass from the Troika. The population gets squeezed dried, but this STILL does not stop the implosion from progressing onward.

The other choice, which in the words of Ambrose Evans-Pritchard is to “take their medicine” is that Da Federal Reserve STOPS pitching Worthless Money after more Worthless Money out, and TBTF Banks and entire nation States go Bankrupt in a huge Daisy Chain, or as I once wrote on the Peak Oil Forum, “The Greatest Bonfire of Paper Wealth in All of Recorded History”.

There is no Third Option as yet identified here, it’s a Shakespearian Comedy/Tragedy, “To Print or not to Print, that is the question? Whether ’tis nobler to die by the slings and arrows of Hyperinflationary misfortune,, or to dry up liquidity and die slowly in a Deflationary Spiral, and by collapsing this stupid shit end this utter nonsense? To sleep, perchance to die…”

For the rest, LISTEN TO THE RANT!!!

This Week in Doom Feb. 15, 2015

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Originally published on the Doomstead Diner on February 16, 2015


“We find that whole communities suddenly fix their minds upon one object, and go mad in its pursuit; that millions of people become simultaneously impressed with one delusion, and run after it, till their attention is caught by some new folly more captivating than the first.”

– Charles Mackay


In  Extraordinary Popular Delusions and the Madness of Crowds published in 1841, Charles Mackay identified a common thread of individual and collective idiocy running through past fads such as alchemy, witchhunts, prophecies, fortune-telling, magnetizers, phrenology, poisoning, the admiration of thieves, the imputation of mystic powers to relics, haunted houses, crusades – and financial bubbles.

Ostensibly Mackay wrote his book with a 19th-century sense of confidence that such superstitions had been consigned to the ashheap of history by intelligence, experience and the habits of mind honed by the enlightenment. He observed that men think in herds and go mad in herds, and “only recover their senses slowly one by one.” For the most part, he has been proven right. Intelligent people typically do not invest faith in obvious superstitions like alchemy, ghosts, fortune-telling, witchcraft or crusades. Unless you count those little adventures in Iraq and Afghanistan. (And Iraq again, as President BHO makes the Klown Kar Kongress an offer they will have trouble refusing.)

Today we sophisticates look down our collective noses at the bubble blowers of the past,  and view those of the Mississippi Company, South Sea Company and  the Tulip mania as aberrations of simpler less sophisticated folk. Today, resistant to superstition, we cling to the rabbit’s foot of denial for man’s responsibility for climate change, and take the knee toward the totem that central banks can relieve an unpayable global debt with more debt.

Mackay writes of a Parisian hunchback who supposedly profited by renting out his hump as a writing desk during the height of the Mississippi Company mania. Lean up against my hump and consider the latest evidences of our surrender to the embrace of comfortable superstitions.


Peak Water?

A sign (in black) that reads “Tap without Water” is seen inside an ice-cream shop at the Pinheiros neighbourhood in Sao Paulo February 10, 2015.

 Climate change is no hypothetical to the residents of São Paulo, Brazil, currently in the grips of an historic 80 year drought.

The reason for the drought is complicated: a mix of climate change, Amazonian deforestation, water mismanagement and Pereira’s theory that the massive expansion of cities like Sao Paulo with very little green spaces left has created a kind of heat island which sucks up moisture. That, Pereira says, actually diverts water from the surrounding countryside where the reservoirs are. He says he fears a future where there will be riots over water.

The Cantaeira reservoir system provides half Sao Paulo’s drinking water. It’s now down to only 6 percent of capacity.

Other regions are also affected, and soaring food prices leave many struggling to adapt. Many report having no water every day from 12 midday to 8 a.m.  Last year, Brazil famously hosted the World Cup, an effort that displaced other priorities, deferring action on what is now an environmental  disaster.

According to one report, Brazilians have already begun to create strategies to deal with shortages.

Brazilians are hoarding water in their apartments, drilling homemade wells and taking other emergency measures to prepare for forced rationing that appears likely and could leave taps dry for up to five days a week because of a drought.

After January rains disappointed, and incentives to cut consumption fell short, São Paulo officials warned their next step could be to shut off customers’ water supply for as many as five days a week – a measure that would likely last until the next rainy season starts in October, if not longer.

Some form of water rationing is almost certainly in the cards for over 40 million people destined to be affected by the water shortages. But not to worry–wealthy Brazilians are installing large storage tanks into their apartment buildings or houses to spare them the worst hardships of rationing.

Consider for a moment the specter of millions of climate refugees moving in search of water. Then consider the likely outcomes when some of the world’s great rivers, nourished by glacier melt for thousands of years, suddenly run dry.


Resource Bubble? 

The recently released study “Planetary Boundaries: Guiding Human Development on a Changing Planet,” quickly garnered a certain amount of online notoriety. Prepared by eighteen scientists from various universities, it soberly announced that human civilization had crossed four of nine environmental boundaries.   It introduces the concept of the “planetary boundary” (PB), a framework that provides a science-based analysis of the risk that humans pose to a liveable earth:

The relatively stable, 11,700-year-long Holocene epoch is the only state of the Earth System (ES) that we know for certain can support contemporary human societies. There is increasing evidence that human activities are affecting ES functioning to a degree that threatens the resilience of the ES—its ability to persist in a Holocene-like state in the face of increasing human pressures and shocks. The PB framework is based on critical processes that regulate ES functioning. By combining improved scientific understanding of ES functioning with the precautionary principle, the PB framework identifies levels of anthropogenic perturbations below which the risk of destabilization of the ES is likely to remain low—a “safe operating space” for global societal development.

Those planetary boundaries are no surprise to readers of this blog: climate change, stratospheric ozone depletion, ocean acidification, biodiversity loss, biogeochemical flows, land-system change, and freshwater use.  Cue the bleating from the denialists.  As well-intentioned as this report is, it is likely to reside in the same drawer, ignored, where similar reports reside.  Find an excellent essay on this theme here.

As sea levels rise, floods have become more common on the base. Photographer’s Mate 1st Class Michael Pendergrass/U.S. Navy

And in a related story, the Pentagon understands what’s coming in terms of climate change even if our elected lawmakers do not. As residents of Norfolk, Contrary and I live at Ground Zero for sealevel rise and land subsidence. I have lived in the same home for 32 years. After 24 years of flood free living, the last eight have seen three instances when flood waters came to my front step.

Those who talk most about climate change — scientists, politicians, environmental activists — tend to frame the discussion in economic and moral terms. But last month, in a dramatic turn, President Obama talked about climate change in an explicitly military context: “The Pentagon says that climate change poses immediate risks to our national security,” he said in his State of the Union address. “We should act like it.”

On one level, this is just shrewd politics, a way of talking about climate change to people who don’t care about extinction rates among reptiles or food prices in eastern Africa. But it’s also a way of boxing in all the deniers in Congress who have blocked climate action — many of whom, it turns out, are big supporters of the military.

The Pentagon is examining its 704 coastal installations and sites in a big study to try to figure out which bases are most at risk. Eventually some tough decisions will have to be made about which ones to close, relocate or protect. Even speculating about the number of possible closures is too hot a topic for anyone in the Pentagon to touch right now.

Just as there are climate-change hot spots, there are also climate-denial hot spots — and Virginia is one of them. The Republican-dominated Virginia General Assembly has been hostile to discussion of climate change — one legislator called sea-level rise “a left-wing term.” Instead, the politically acceptable phrase in Virginia is “recurrent flooding.” 

Right up there with “legitimate rape” as part of the incantation du jour.


Forever Blowing Bubbles…

One of Collapse’s Greatest Hits is the imminent unwinding of the Ponzi scheme of debt foisted upon the peoples of the world by central bankers.  We saw a harbinger in 2007-8, with bank bailouts proffered by Congress over the heads of an insufficiently grateful populace, then later with quantitative easing (QE); and in the euro zone, loan restructurings offered to countries not named Germany at the gunpoint of austerity.  But somehow, planes, trains, and automobiles keep moving, the shelves are restocked, and the paychecks cashed. And we keep whistling in the dark because we all share a stake in the superstition that business-as-usual can go on forever; and  nobody, but nobody wants to address the fact that there is not enough collateral on this planet or the next to pay off global debt.

What do we really know? We know that oil prices have begun to ramp up after a steep dive, not unknown in the history of oil prices.  We know that since our entire business model is based on cheap energy, a fall in its price is likely to have a deflationary effect. Many who write about a coming economic collapse love to talk about the collapse of the U.S. dollar, yet the dollar is strengthening relative to other currencies.

Michael Snyder is one of those who scores these games at home and he says:

Someday the U.S. dollar will essentially be toilet paper.  But that is not in our immediate future.  What is in our immediate future is a “flight to safety” that will push the surging U.S. dollar even higher.

This is what we witnessed in 2008, and this is happening once again right now.

Just look at the chart that I have posted below.  You can see the the U.S. dollar moved upward dramatically relative to other currencies starting in mid-2008.  And toward the end of the chart you can see that the U.S. dollar is now experiencing a similar spike…

Dollar Index 2015

At the moment, almost every major currency in the world is falling relative to the U.S. dollar.

For example, this next chart shows what the euro is doing relative to the dollar.  As you can see, the euro is in the midst of a stunning decline…

Euro U.S. Dollar

Instead of focusing on the U.S. dollar, those that are looking for a harbinger of the coming financial crisis should be watching the euro.  As I discussed yesterday, analysts are telling us that if Greece leaves the eurozone the EUR/USD could fall all the way down to 0.90.  If that happens, the chart above will soon resemble a waterfall.

Will leave it for you to work out what a rising US dollar means for those growing economies all over the world that have borrowed enormous piles of very cheap U.S. dollars, and who now face the prospect of repaying those debts and interest with much more expensive dollars, when their own currencies are crashing.


Quick Takes

The Disease Time Bomb: Flooding the Country with Eradicated Diseases

Over the last year we have seen numerous eradicated diseases come surging back in the United States. From Whooping Cough and the current Measles outbreak, to mystery diseases like EV-D68, which is causing paralysis in young children, The United States seems to be a ticking time bomb of disease.

Warning: author seems to be all to willing to blame these outbreaks on immigrants.


 Empire of Lies

The redoubtable Charles High Smith addresses this week’s central theme:

We are living in an era where a single statement of truth will drive a pin into the global bubble of phantom assets and debts, and the lies spewed to justify those bubbles.

How many nations are blessed with political and financial leaders who routinely state the unvarnished truth in public?

Only two come immediately to mind: Greece and Bhutan.

 

 


Koch Brothers Group Shouted Down By Irate Citizens During Montana Town Hall Meeting

A “Healthcare Town Hall” set up by the Koch brothers’ Americans for Prosperity (AFP) group, in Kalispell, Montana, turned raucous on Thursday night. Americans for Prosperity has been crisscrossing the state of Montana, in an attempt to pressure moderate Republican lawmakers into signing a pledge to block Medicaid expansion. On Thursday, they brought their traveling road show to Kalispell. However, the residents of the small Northwestern Montana town were unpersuaded…

 Not all the news is bad. A defeat for the Koch brothers anywhere is a victory for humanity everywhere.
 

 Here’s what developer scum have in mind for the Grand Canyon:

Developers Confluence Partners want to make a 420-acre attraction out of the east rim, with a plan to put in an Imax theater, retail shops, hotels, an RV park, and a 1.6-mile-long gondola tram that would take riders from the rim of the canyon down 3,500 feet to the valley floor in about 10 minutes. Intentions for the valley floor include construction of a terraced “riverwalk” and a food pavilion.

Native American groups are banding together to battle this absurdity.


The useless agreement which everybody wanted

The Saker on the agreement between France and Germany and Russia regarding Ukraine.


Creeping Lawless Fascism Watch

The video was just released of an elderly grandfather being slammed to the ground so hard by an Alabama police officer that it severed his vertebra and paralyzed the man. As you will see in the video, the police then attempt to force the man to walk and believe he’s resisting arrest when his legs won’t work – not knowing that they broke his neck.

According to AL.comChief Larry Muncey told a small press conference in Madison that he also recommended that Parker be fired for his use of force against a man who committed no crime, did not speak English and could not understand the commands. 

There are no words.


Peak Ignorance Watch

GOP lawmaker calls women “a lesser cut of meat”

South Carolina State Sen. Thomas Corbin

 
A Republican state senator in South Carolina called women “a lesser cut of meat” and suggested that they belonged barefoot and pregnant, the libertarian-leaning blog FITS News reports.

Chauvinist in any context, Corbin’s remarks occurred during a legislative dinner this week to discuss domestic violence legislation. Sources present at the meeting told FITS that Corbin directed his comments at fellow GOP state senator Katrina Shealy, the sole woman in the 46-member chamber.

“I see it only took me two years to get you wearing shoes,” Corbin told Shealy, who won election in 2012. Corbin, the site explains, is said to have previously cracked that women should be “at home baking cookies” or “barefoot and pregnant,” not serving in the state legislature.

Contrary brought this particular rabbit turd to my attention. One might well speculate why he’s so hostile towards women….

Contrary offered this wordless comment:

Good enough for me. And illustrates why the people in South Carolina, home office of American sedition, can’t have nice things. And a reminder of what the madness of crowds can wreak.


banksy 07-flower-thrower-wallpaperSurly1 is an administrator and contributing author to Doomstead Diner. He is the author of numerous rants, articles and spittle-flecked invective on this site, and quit barking and got off the porch long enough to be active in the Occupy movement. He shares a home in Southeastern Virginia with his new bride Contrary in a triumph of hope over experience, and is grateful that he is not yet taking a dirt nap.

Pandora’s Box

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Aired on the Doomstead Diner on January 28, 2015

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Snippet:

…Well, the Worst Nightmare for the Clowns & Jokers in Brussel Sprouts has come to pass, as Alex Tspiras and the Greek Syriza Party won a BLOWOUT victory in the latest round of Greek Elections. They are so far out in front of everyone else on the Popular Front over there that not even election rigging could fix that one.

Alex has promised to go to the WALL against the Troika Austerity that has been hammering down on Greece for the last 6 years, since the initial financial crash in 2008. Bascially Syriza has opened up the window and shouted to the world, “We’re Mad as HELL, and we’re not gonna take it anymore!”

This basically amounts to opening Pandora’s Box here, because the Brussel Sprouts are now between the Rock and Hard place. If they cut the Greeks loose, the Euro collapses even faster than it already is collapsing. If they capitulate and forgive Greek Debt, every other PIIGS Nation will pul the same stunt, beginning with the Spaniards, but quickly moving through the Portuguese, Italians and Frogs too. Soon as one of these major debtor nations has debt written down, they ALL will want their debt written down…

For the rest, LISTEN TO THE RANT!!!

Death of the Dollar & Demise of the Euro

Off the keyboard of John Ward

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Published on The Slog on December 27, 2014

emperors-new-clothes

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CRASH2: The death of the Dollar + the demise of the euro…and other more important outcomes

https://hat4uk.files.wordpress.com/2014/12/empclothes.pngTHE CITIZENS MAY BE WEARING CLOTHES, BUT IT’S GOING TO TAKE A LONG TIME BEFORE THEY REALIZE THAT THE EMPERORS ARE NAKED

I’ve taken a fair amount of stick over the years for seeing ‘the end’ before it happens. A lot of the criticism is justified, and I would agree that on the whole I’ve been naive about just how incorrigibly crooked national and supranational elites were prepared to be in order to keep the show on the road.

On the other hand, I did put my money where my mouth is – and it did cost me dear. So I’ve made mistakes…and I’ve learned from them. And gradually – first with gold and then via the currency markets – I made up a good 60% of the loss. And most important of all, I am today 80% less exposed to fiat currency bailin losses than I was ten months ago.

However, I’ve maintained from the outset that collapse is a matter of when, not if: I realise that many Sloggers continue to assert that ‘They’ will just keep the Rollover going until one day sovereign debt and derivative exposures are simply inflated away. But for me, that strategy has been a dead duck for eighteen months at least. The movers and shakers of whom we write and talk have the same chasmic fault as every other psychopath: they overestimate their superhuman ability to control everything.

The events that have yanked control from their grasp have been piling up over those eighteen months….and accelerating. Now there is a rushing, bubbling confluence of standoff, retaliation, long-term weakness, blunder and testosterone ensuring that the game is up. Whether one looks at Greece, Italy, France, Ukraine, oil prices, interest rates, the Bundesbank v ECB slugging match, falling consumption, dated export strategies, East European growth or Asian production costs, they can’t all be evaded. The bad ship SS Neolib is surrounded by a wolfpack of U-Boats: only so many torpedoes can miss before one hits the powder magazine.

It is the latest truly remarkable miscalculation of US foreign policy, however, that has sealed not just the fate of globalist supranational colonialism, but doomed the Dollar. The decision to “bring Putin to heel” has been – for what one might call the anti-Washington bloc – one American imperial goose-step too many. Like many acts of State/Pentagon/White House macho have done in the past, this latest calumny has united opposition. The difference this time is that it has galvanised the ‘alternative world view’ like no other. This time, we aren’t talking Islamist lunatics, we’re talking very powerful interests.

I believe the two main fallouts from oil manipulation will be these: first, a triggering of energy derivatives in excess of $6 trillion that will be a San Francisco Earthquake of 1909 proportions for Wall Street. And second, the creation of a serious Dollar alternative when it comes to international transactions. While even fifteen years ago I would have dreaded those outcomes, today I think ‘Bring it on’.

Although Western Christmas has interrupted the process, the speed with which enthusiasm for a Chinese bailout of the Ruble has been displayed is dizzying. Even the old Australian warhorse Fraser now sees Aussie alignment with the USA as a hostage to fortune; more significantly, the feedback I’m getting is that much of Latin America, the former Soviet satellites, North Africa, Black Africa and even a post-euro Greece may very quickly sign up to whatever the new currency ‘bloc’ has on offer.

If you think I’m off beam here, then examine the reaction of Jamie Dimon to developments. Mr Dimon – the banking equivalent of Sweeney Todd – railroaded first Wall Street and then Congress into the inclusion of a clause in new bailin legislation….and the clause explicitly allows the banks to remove derivative responsibilities to shell satellite subsidiaries that do not fall under the ‘bail yourself out, asshole’ thrust of the legislation. The heroine as ever, Elizabeth Warren, was quick to spot it…but too late to rally the defence against it. (Obama, by contrast, was so active in supporting Dimon’s amendment, he came across like a guy about to ejaculate prematurely, and frequently).

Dimon knows what the oil-spill is going to mean. Hence the panic. Significantly, Paul Craig Roberts has also blogged with great wisdom in the last ten days to concur 100% with the view that this time, the US has shot itself not just in the foot, but in the temple. So too have Wolf Richter, Ye Zie at Bloomberg, and a host of other normally divergent commentators.

$$$$$$$$$$$$$$$$$$$$$$$$$$$$

It is a regularly repeated human trait to see the end of something awful as the beginning of something idyllic. 1918, 1945, 1990 and 2013 proclaimed, in turn, a War to End all Wars, the United Nations, the Peace Dividend, and The Arab Spring. Such New Dawns turn out to be just Another Day in very short order – almost without exception.

The collapse of the Soviet Union did two things: it put a reunited Germany back at the centre of Europe, and fed gargantuan meals to the inflated Id of America’s State Department-CIA-Pentagon-Texas-Wall Street axis of interference. It also unleashed a neoliberal greed-fest in Russia, the ramifications of which Putin is still wrestling today.

What we are about to experience over the next 2-3 years is Crash2. Crash1 (2008-9) was an alarm-call that Wall Street and the City of London treated with a large mallet applied liberally to the clock. Crash2 will wreak socio-economic havoc across the globe, but even that will not be the end. It cannot be the end, because our problem as a species is constitutional and cultural. There won’t be a Crash3 (I suspect) but there will be a Stage3. And it won’t be over until the natural species state of affairs is restored.

That ‘natural’ state is, contrary to neoliberal agitprop, not a sort of Hobbesian brutishness. In the wild, neither Socialism nor Neoliberalism exist. The norm au sauvage is the hierarchical mutuality of the tribe, in which the elite cannot ignore the poverty of the majority: the brutish conflict, in fact, only occurs when the Alpha’s power has gone to his head. The result – always – is that he loses it.

While futurology consultancies speculate about such developments, they always get it wrong because they don’t ‘get’ the concentric circles of regular backlash that rule the creation and assessment of ideas: they know only how to extrapolate a straight line from what is.

The utter uncertainty of the future beyond Crash2 is best summed up by the reworking on an old gag.

Question: How long does it take Homo sapiens to restore the natural order of things?

Answer: Nobody knows, because it’s never been tried.

Enjoy your Sunday, wherever you are – and remember: however hard you try to render them otherwise, Christmas leftovers are still Christmas leftovers.

If Wishes Were Loaves and Fishes

From the keyboard of James Howard Kunstler
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goldputin
Originally Published on Clusterfuck Nation December 22, 2014

Janet Yellen and her Federal Reserve board of augurers might as well have spilled a bucket of goat entrails down the steps of the mysterious Eccles Building as they parsed, sliced, and diced the ramifications in altering their prior declaration of “a considerable period” (that is, before raising interest rates), vis-à-vis the simpler new imperative, “patience,” with its moral overburden of public censure aimed at those too eager for clarity — that is to say, the assurance that the Fed will not pull the plug on their life-support drip of funny money for the racketeering operation that banking has become.

The vapid pronouncement of “patience” provoked delirium in the markets, with record advances to new oxygen-thin heights. Behind all this ceremonial hugger-mugger lurks the dark suspicion that the Federal Reserve has no idea what’s actually going on, and no idea what it’s doing. And in the absence of any such ideas, Ms. Yellen and her collegial eminences have engineered a very elaborate rationale for doing nothing.

The truth is, they have already done enough. They have succeeded via their dial-tweaking interventions in destroying the agency of markets so that nobody can tell the difference anymore between prices and wishes. Coincidentally, it is that most wishful time of the year, especially among the professional money managers polishing their clients’ portfolios as the carols are sung and the champagne corks pop. Ms. Yellen should have put on a Santa Claus suit when she ventured out to meet the media last week.

Not even very far in the background, there is wreckage everywhere as events spin out of the pretense of control. Surely something is up in the Mordor of derivatives, that unregulated shadowland of counterparty subterfuge where promises are made with no possibility or intention of ever being kept. You can’t have currencies crashing in more than a handful of significant countries, and interest rates ululating, without a lot of slippage among the swaps. My guess is that a lot of things have busted wide open there, and we just don’t know about it yet, like fissures working deep below the surface around a caldera.

This Federal Reserve is running on the final fumes of its credibility. Counsel “patience” as it might, other institutions and the people running them may run out of patience with it and start running for cover. When currencies catch fire, even a run on the bank becomes an exercise in futility. The rot is spreading from the margins to the center. In a world of oxidizing paper obligations, the paper dollar is hardly a fortress but more like a stack of empty foil-wrapped boxes displayed in the concourse of a shopping mall scheduled for closure as soon as the holiday is concluded. Maybe some wise-ass kid will just torch it. The security guard is still awaiting his previous paycheck and is out drinking by the dumpster.

It will be at least a couple of months before the Fed dares to start “printing” again and a lot can happen before it does. If and when it does resume QE — and it will be sorely tempted — all its credibility will finally be lost. What an opportunity for another country, say a country with an already foundering currency, to dare introduce money partially backed by gold. Could happen. That hypothetical nation may be one with, say, substantial oil reserves, something that even an economically depressed global industrial economy desperately needs. That hypothetical nation may be one that is very weary of being jerked around by the USA, with our augerers and vizeers, and haircuts-in-search-of-brains.

Merry Christmas everyone and, this dwindling year, be especially careful what you wish for.

 

 

***

James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency, and Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation. His novels include World Made By Hand, The Witch of Hebron, Maggie Darling — A Modern Romance, The Halloween Ball, an Embarrassment of Riches, and many others. He has published three novellas with Water Street Press: Manhattan Gothic, A Christmas Orphan, and The Flight of Mehetabel.

Competitive Currency Devaluation & Deflation

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Aired on the Doomstead Diner on November 18, 2014

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http://www.cartoonspot.net/looney-tunes/images-looney-tunes/speedy-gonzales-A.gif

Speedy Gonzalo Lira sez, “OOPS! I guess I made a MEEESTAKE!”

Snippet:

…Remember back to 2008-2009 when Hank Paulson pulled out the Bazooka to bail out the TBTF Banks, and then Helicopter Ben Bernake launched the first of his QE ships? Pundits in the Econ Blogosphere went berserk, predicting imminent Hyperinflation of the Dollar. John Williams, Speedy Gonzalo Lira, Mish, you name it they all predicted rampant HI which somehow never arrived here.

Meanwhile in the dark secluded corners of the internet, a few people like Nicole Foss of The Automatic Earth, Steve Ludlum from Economic Undertow and myself all predicted a deflationary event coming down the pipe, at least for the Dollar.

What is the situation today? Deflation is now the word of the day spoken fearfully by Central Bank chieftains, and even notorious Hyperinflation predicting sites like Zero Hedge are on the Deflation Bandwagon…

For the rest, LISTEN TO THE RANT!!!

The Instability Express

From the keyboard of James Howard Kunstler
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pyramid-scheme
Originally Published on Clusterfuck Nation November 17, 2014

The mentally-challenged kibitzers “out there” — in the hills and hollows of the commentary universe, cable news, the blogosphere, and the pathetic vestige of newspaperdom — are all jumping up and down in a rapture over cheap gasoline prices. Overlay on this picture the fairy tale of coming US energy independence, stir in the approach of winter in the North Dakota shale oil fields, put an early November polar vortex cherry on top, and you have quite a recipe for smashed expectations.

Plummeting oil prices are a symptom of terrible mounting instabilities in the world. After years of stagnation, complacency, and official pretense, the linked matrix of systems we depend on for running our techno-industrial society is shaking itself to pieces. American officials either don’t understand what they’re seeing, or don’t want you to know what they see. The tensions between energy, money, and economy have entered a new phase of destructive unwind.

The global economy has caught the equivalent of financial Ebola: deflation, which is the recognition that debts can’t be repaid, obligations can’t be met, and contracts won’t be honored. Credit evaporates and actual business declines steeply as a result of all those things. Who wants to send a cargo ship of aluminum ore to Guangzhou if nobody shows up at the dock with a certified check to pay for it? Financial Ebola means that the connective tissues of trade start to dissolve, and pretty soon blood starts dribbling out of national economies.

One way this expresses itself is the violent rise and fall of comparative currency values. The Japanese yen and the euro go down, the dollar goes up. It happens in a few months, which is quickly in the world of money. Foolish US cheerleaders suppose that the rising dollar is like the rising score of an NFL football team on any given Sunday. “We’re numbah one!” It’s just not like that. The global economy is not some stupid football contest.

When currencies change value quickly, as has happened since the past summer, big banks get into big trouble. Their revenue streams are pegged to so-called “carry trades” in which big blobs of money are borrowed in one currency and used to place bets in other currencies. When currency values change radically, carry trades blow up. So do so-called “derivatives” such as bets on interest rate differentials. When the sums of money involved are grotesquely large, the parties involved discover that they never had any ability to pay off their losing bet. It was all pretense. In fact, the chance that the bet might go bad never figured into their calculations. The net result of all that foolish irresponsibility is that banks find themselves in a position of being unable to trust each other on virtually any transaction.

When that happens, the flow of credit, a.k.a. “liquidity,” dries up and you have a bona fide financial crisis. Nobody can pay anybody else. Nobody trusts anybody. Fortunes are lost. Elephants stomp around in distress, then keel over and die, and a lot of “little people” get crushed in the dusty ground.

The happy dance about low gasoline pump prices featured on Fox News, combined with the awful instability in currency markets, will cut a swathe of destruction through the shale oil “miracle.” That industry has been relying on high yield “junk” financing to perform its relentless drilling-and-fracking operations — imperative due to the extremely rapid depletion rate of shale oil wells. Across the board, shale oil production has not been a profitable venture since it was ramped up around 2006. Below $80 a barrel, chasing profit only becomes more difficult for those who couldn’t make a profit at $100. A lot of those junk bond “investments” are about to become worthless, and the “investment community” will lose its appetite for any more of it. That will leave the US government as the investor of last resort. Expect that to be the object of the next round of Quantitative Easing. The ultimate destination of these shenanigans will be the sovereign debt crisis of 2015.

 

***

James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency, and Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation. His novels include World Made By Hand, The Witch of Hebron, Maggie Darling — A Modern Romance, The Halloween Ball, an Embarrassment of Riches, and many others. He has published three novellas with Water Street Press: Manhattan Gothic, A Christmas Orphan, and The Flight of Mehetabel.

Must Be the Season of the Witch

From the keyboard of James Howard Kunstler
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debt-bubble
Originally Published on Clusterfuck Nation  October 6, 2014

As the Governor goblins at the Federal Reserve whistle past the graveyard of dead Quantitative Easing, and the US dollar magically expands like a prickly puffer fish, and Mario Drahgi does what it takes with Euro duct tape to patch all black holes of unpayable debt from Athens to Dublin, and Japan watches its once-wondrous economy congeal in a puddle of Abenomic sludge (with a radioactive cherry on top), and China chokes on its dollar-peg, and Russia waits patiently with its old friend, Winter, covering its back — and notwithstanding the violent chaos, beheadings, and psychopathic struggles across the old Levant, not to mention the doubling of Ebola cases every 20 days, which the World Health Organization did not have the nerve to project beyond 1.2 million in January (does the doubling just stop there?) — there is enough instability around the globe for the gentlemen of Wall Street to make one last fabulous fortune arbitraging the future before the boomerang of consequence circles this suffering planet and finally accomplishes what the Department of Justice under Eric Holder failed to do for six long years.

It’s the season of the witch and you should be nervous. Especially if you live in part of the world where money is used. Pretty soon nobody will know what any currency is really worth — at least for a while — or what anything else is worth, for that matter. Perhaps the fishermen of India will start using their worthless gold for sinkers. Jay-Z and Diddy will gaze down on their bling in despair, thinking, perhaps, they should have invested in Betamax players instead. In the time of anything-goes-and-nothing-matters, it’s dangerous to expect anything.

Here’s what I expect: the surge of the dollar is the crest of an historic Great Wave. A Great Wave is an awesome event, and its crest is a majestic sight, but soon the foam spits and hisses and the wave breaks and crashes down on the beach — say, out at the Hamptons — where hedge funders stroll to catch the last dwindling rays of a beautiful season, and all of a sudden they are being swept out to sea in the rip-tide that retracts all that lovely green liquidity, and no one is even left on the beach to weep for them. Indeed their Robert A. M. Stern shingled manor houses up behind the dunes are swept away, too, and the tennis courts, and the potted hydrangeas, and the Teslas, and all the temporal bric-a-brac of their uber-specialness.

And, of course, it being the season of the witch, that’s where the zombies come out for real — the tattooed savages who all this time have been stewing in their own rancid juices awaiting their turn to get jiggy with the nation that left them restlessly undead. I don’t think you can overestimate the depth of ill-feeling that the American public harbors for the cravens who engineered their USA into the biggest booby-trap the world has ever seen. The trouble is, they lost their humanity in the process, so when they have their way with the feckless folks tweaking the dials, you might want to contemplate moving to Finland.

Who can feel confident about the tending of things just now? The diminishing returns of the Information Age are about to bite our collective ass like an army of Orcs. The sum of all that digital magic is a nation completely incapable of telling itself the truth or acting honorably. Unemployment is down without employment being up. Candy Crush is making the world safe for democracy. We have the finest health care system in the world. ISIS is trying to compete with our homegrown videogame industry for supremacy in porno-violence (actually, I thought we already won that) but now we will obliterate all the bad guys in the world by remote control from the drone bunkers of Las Vegas, and that will show them. Thank goodness the long holiday season is almost upon us to juice the so-called economy ever-higher.

There has never been a crazier moment in history. The weeks before the outbreak of the First World War seem like a garden party compared to the morbid antics of these darkening days. America, you’ve been wishing fervently for the Zombie Apocalypse. What happens when you discover you can’t just change the channel?

 

 

***

James Howard Kunstler is the author of many books including (non-fiction) The Geography of Nowhere, The City in Mind: Notes on the Urban Condition, Home from Nowhere, The Long Emergency, and Too Much Magic: Wishful Thinking, Technology and the Fate of the Nation. His novels include World Made By Hand, The Witch of Hebron, Maggie Darling — A Modern Romance, The Halloween Ball, an Embarrassment of Riches, and many others. He has published three novellas with Water Street Press: Manhattan Gothic, A Christmas Orphan, and The Flight of Mehetabel.

ANTI-DOLLARS II

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Aired on the Doomstead Diner on July 28, 2014

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Snippet:

…As mentioned in my last Anti-Dollar Rant, the rhetoric continues to grow regarding abandonment of the Dollar as Premier Financial Toilet Paper,/World Reserve Currency with many countries now making agreements to swap their own Toilet Paper without wiping the Ass of the Federal Reserve Bank in the middle of taking a Financial Shit.

The latest agreement to hit the Newz is between the Swissies and the Chinese, agreeing to swap Swiss Franc Toilet Paper for Chinese Yuan Toilet Paper to the tune of around $25B equivalent in FSoA Dollar Toilet Paper. This of course is Chump Change in a world awash in $Trillions$ of FSoA TP, not to mention Japanese Yen TP, Euro Charmin, etc. Please don’t Squeeze the Charmin!…

http://clickamericana.com/wp-content/uploads/mr-whipple-charmin.jpg

For the rest, LISTEN TO THE RANT

For those who missed ANTI-DOLLARS I, here’s that Rant.

RE

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