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Posts Tagged ‘Financial Meltdown

Your New American Dream

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by James Howard Kunstler 
Posted November 28, 2011

IT’S REALLY SOMETHING TO LIVE IN A COUNTRY THAT DOESN’T KNOW what it is doing in a world that doesn’t know where it is going in a time when anything can happen. I hope you can get comfortable with uncertainty. If there’s one vibe emanating from this shadowy zeitgeist it’s a sense of the total exhaustion of culture, in particular the way the world does business. Everything looks tired, played out, and most of all false. Governments can’t really pay for what they do. Banks have no real money. Many households surely have no money. The human construct of money itself has become a shape-shifting phantom. Will it vanish into the vortex of unpaid debt until nobody has any? Or will there be plenty of worthless money that people can spend into futility? Either way they will be broke.

The looming fear whose name political leaders dare not speak is global depression, but that is not what we’re in for. The term suggests a temporary sidetrack from the smooth operation of integrated advanced economies. We’re heading into something quite different, a permanent departure from the standard conception of economic progress, the one in which there is always sure to be more comfort and convenience for everybody, the economy of automatic goodies.

A big part of the automatic economy was the idea of a “job.” In its journey to the present moment, the idea became crusted with barnacles of illusion, especially that a “job” was a sort of commodity “produced” by large corporate enterprises or governments and rationally distributed like any other commodity; that it came with a goodie bag filled with guaranteed pensions, medical care to remediate bad living habits, vacations to places of programmed entertainment, a warm, well-lighted dwelling, and a big steel machine to travel around in. Now we witness with helpless despair as these illusions dissolve.

The situation at hand is not a “depression,” though it may resemble the experience of the 1930s in the early going. It’s the permanent re-set and reorganization of everyday life amidst a desperate scramble for resources. It will go on and on until there are far fewer people competing for things while the ones who endure construct new systems for daily living based on fewer resources used differently.

In North America I believe this re-set will involve the re-establishment of an economy centered on agriculture, with a lot of other activities supporting it, all done on a fine-grained local and regional scale. It must be impossible for many of us to imagine such an outcome – hence the futility of our current politics, with its hollow promises, its laughable battles over sexual behavior, its pitiful religious boasting, its empty statistical blather, all in the service of wishing the disintegrating past back into existence.

This desperation may be why our recently-acquired traditions seem especially automatic this holiday season. Of course the “consumers” line up outside the big box stores the day after the automatic Thanksgiving exercise in gluttony. That is what they’re supposed to do this time of year. That is what has been on the cable TV news shows in recent years: see the crowds cheerfully huddled in their sleeping bags outside the Wal Mart… see them trample each other in the moment the doors open!

The biggest news story of a weekend stuporous from leftover turkey and ceremonial football was a $6.6 billion increase in “Black Friday” chain-store sales. All the attention to the numbers was a form of primitive augury to reassure superstitious economists – more than the catatonic public – that the automatic cargo cult would be operating normally at this crucial testing time. The larger objective is to get through the ordeal of Christmas.

I don’t see how Europe gets through it financially. The jig is up there. Lovely as Europe has become since the debacles of the last century – all those adorable cities with their treasures of deliberately-created beauty – the system running it all is bankrupt. Europe is on financial death-watch and when the money stops flowing between its major organs, the banks, the whole region must either go dark or combust. Nobody really knows what will happen there, except they know that something will happen – and whatever it is portends disruption and loss for the worlds largest collective economy. The historical record is not reassuring.

If Europe’s banks go down, many of America’s will, too, maybe all of them, maybe our whole money system. I’m not sure that we will see a normal election cycle here in 2012. A few bank runs, bank failures… gasoline shortages here and there… the failure of some food deliveries to supermarkets in some region… these are the kinds of things that can bring down a political system drained of once-ironclad legitimacy. All that is left now is the husk of ritual – witness the failure of the senate-house “super-committee.” The wash-out was so broadly anticipated that it was greeted with mere yawns of recognition. It would be like pointing at the sky and saying, “air there.”

This holiday season spend a little time musing on what the re-set economy will be like in your part of the country. Think of what you do in it as a “role,” or a “vocation,” or a “trade,” or a “calling,” or a “way of life,” rather than a “job.” Imagine that life will surely go on, even civilized life, though it will be organized differently. Add to this the notion that you are part of a larger group, a society, and that societies evolve emergently according to the circumstances that their time and place presents. Let that imagining be your new American Dream.

German Pope, Italian Central Banker

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by Gary North
Posted November 24, 2011 

CONCLUSION: EUROPE IS IN BAD SHAPE. This is hedge fund manager Kyle Bass’s assessment of the situation in Europe. He stated this in a rousing interview on the BBC’s TV network. Here is the segment:

He made two crucial points – points that stock market investors are ignoring. First, over the last nine years, there has been an increase of world debt from $80 trillion to $210 trillion. These numbers are staggering. Global debt over the last nine years has grown at 12% per year, while GDP has grown at 4% per year.

While he did not verbally spell out the conclusion for the interviewer, it is this: when credit must grow by 12% per year in order to produce 4% GDP growth, at some point there will not be enough GDP to supply sufficient credit. It is time once again to quote economist Herb Stein: “When something cannot go on forever, it has a tendency to stop.”

Bass had a great metaphor: the PIIGS have “sailed into a zone of insolvency.” Second, he explained, the sovereign debts in Europe will be written down. There is no other solution. The airhead interviewer with the Oxbridge accent seemed to be doing a college-skit imitation of Emma Thompson. She challenged him. What about Germany? Can’t Germany continue to fund Europe’s “southern neighbors”? Germany has “the earning power.” (Note: this means German taxpayers.)

Bass responded instantly. First, the German court has determined that any further bailouts are unconstitutional. Second, Greece – and, by implication, the other “southern neighbors” – will spend every euro it borrows from Germany and then come back for more, threatening a default if its demands are not met – exactly what it has done so far. This goes on until the write-down takes place, which it will.

There are two ways of looking at this: the Bass way and the Bass-ackwards way. The airhead chose the latter.

He draws conclusions from the numbers. No one in the mainstream media and mainstream investment fund world seems to be willing to do this. They talk and invest as if the process can go on forever. Debts need not be repaid. This is ancient Keynesian dogma that goes back to the New Deal. “We owe it to ourselves.” On the contrary, specific borrowers owe it to specific creditors. At some point, the specific borrowers are going to default, leaving specific creditors with huge losses. How huge?

THREE TRILLION EUROS!

Charles Hugh Smith agrees with Bass. He says that there will have to be a write-down. By “write-down” he means write-off. He estimates the losses at three trillion euros. Someone will have to take the hit. The great political debate in Europe today is over who will take this hit, and how soon.

It will be investors. But, to forestall the day of reckoning, Europe’s politicians pretend that taxpayers’ credit lines can be used by superficially solvent Northern European governments in order to borrow more money from creditors in order to lend to the PIIGS’s governments, so that the PIIGS’s governments can continue to (1) delay real austerity measures, i.e., massive layoffs of government workers and massive cuts in welfare payments, and (2) make payments on what they owe to investors, mainly banks.

Smith admits that three trillion euros is a guess. Nobody knows how much bad sovereign debt there is, so we must start somewhere. In a world of $210 trillion worth of debt, his estimate seems reasonable to me.

Let’s start with the most basic fact about all this uncollectible, impaired, bad debt: every euro of debt is somebody else’s asset. Wipe out the debt and you wipe out the asset. That’s why there’s no willingness to accept the writedown of debt: somebody somewhere has to suck up 3 trillion euros of loss.

This is the source of Europe’s present policy of “kick the can,” or more accurately, “kick the can with press releases and summits.” If there were a pain-free solution, it would have been implemented long ago. There is no way Europe is going to “grow its way out of this debt.” How much of the eurozone’s “growth” was the result of rampant malinvestment and risky borrowing? More than anyone dares admit. It won’t take austerity to crash the euroland economy, all it will take is turning off the debt spigot.

Europe is facing the problem that Bass raised when he spoke of 12% per year increases of credit and 4% increases per year of GDP. There is no way to grow your way out of this. This is not just Europe’s problem. It is the world’s problem. But Europe is facing it now because the debts are coming due now. They must be rolled over. Creditors must agree to re-lend. But why should they?

The Establishment world of crony capitalism speaks of “re-structuring” the debt. What does this mean? Smith does not pull any punches.

“Restructuring” is a code word for writeoffs. Here, let me “restructure” the euro bond you bought at a 4% coupon yield. Now you’re going to get 2%, and you’re going to like it. Bang, your bond just lost half its market value, but everyone gets to keep it on the books at full value. Nice, until you have to sell it to raise cash. Oops, the euro has slipped in value so you lost more than 50%.

The banks keep the assets on the books at face value. The underlying value is down by at least 50% for Greek bonds. The European experts admit this. (Why the debt is worth that high a percentage is beyond me.) The Greeks are going to default, one way or another.

Who will take the hit? Smith writes: “There’s a fundamental truth that everyone has to understand: what the government spends, the public will pay for sooner or later, whether in taxes or inflation or having their debt defaulted on.” This is reality. But it’s not precise enough.

WHO IS THE PUBLIC?

If there is hyperinflation – price inflation above 30% per year for a decade or more – the public that takes the hit will be almost everyone inside the eurocurrency zone. There will be almost universal hardship.

On the other hand, if monetary inflation ceases for more than a few months, there will be a depression. Big banks will fail. Their depositors will lose everything. The money supply will shrink. It will be 1930-38 all over again.

Central bankers do not allow such things. The European Central Bank will try to walk the tightrope, just as the national central banks in Europe did after World War II. The ECB will pursue boom-bust policies, refusing to capitulate either to a Great Depression or hyperinflation.

But how can it walk this tightrope? The losses will be huge for large banks. The politicians will try to transfer the cost of bailing out Europe’s banks to Germany. But the debts are too large.

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After the collapse – Who will your neighbours be?

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by Brandon Smith
of Alt Market
Posted November 04, 2011

This article has been contributed by Brandon Smith of Alt Market, an organization that facilitates networking, local community action, and the exchange of knowledge and ideas and promotes decentralization, localism, and the de-globalization of human economic systems.

Dr. William Stockton celebrates yet another birthday surrounded by family and friends in the midst of a grand suburban paradise. The party is warm, and the evening is filled with joy and merriment. These people singing his praises, laughing and imbibing generous amounts of spirits, are neighbors he’s known for over 20 years. He understands them well, or at least, he thinks he does…

The good doctor, as his neighbors often point out with a jabbing chuckle, is a prepper; a brand of survivalist who participates in the day to day routine of mundane American life while using his spare time to safeguard against unforeseen disaster. His friends view this behavior as an amusing curiosity, an eccentric hobby, but none take it nearly as seriously as William does. It’s not that he is paranoid; far from it. In fact, William Stockton is a professional, a man of sense, and a man of family. He merely lives in an era of great potential danger, where nuclear war and societal collapse are anything but fantasy. Stockton takes these issues into account as an individual, and acts according to the severity of his environment. Much more than his neighbors, he represents legitimate rationality.

Unfortunately for the doctor, and for those who live around him, the days of wine and frosted cake are about to abruptly end as a Civil Defense emergency bulletin blares over the wire. The reality that today’s comforts could disappear in the blink of an eye sets into the minds of the frightened listeners. And soon, we begin to witness the TRUE character of those William once held dear.

This scenario might sound like a familiar consideration to many of us, but for now it remains the stuff of nighttime TV. So begins a rather prophetic and ingenious episode of The Twilight Zone entitled “The Shelter”…

The fascinating thing about “The Shelter” is that it is one of the few short stories showcased in The Twilight Zone (a science fiction program) which hasn’t a single element of science fiction within it. “The Shelter” is terrifying exactly because it is NOT a product of wild imagination, but a representation of social fact that cuts to the calcium rich bone of our culture, even 50 years after it aired on television.

The cold hard truth is, much of our country is completely unprepared for a crisis of any considerable proportion. While the 1950’s and 1960’s held the specter of immediate full scale nuclear war, and thus a highly persuasive incentive for preparedness, the new millennium has hardly been anything to sneeze at. Economic collapse is just as destructive to a nation as an atomic bomb, if not more so. The likelihood of social unrest and the long term implosion of our financial system is greater today than it has been in any other era of American history. So much so that even our currency may evaporate along with our standard of living. Those who prep today are acting in as much a logical fashion as those who built shelters during the height of the Cuban Missile Crisis.

The knee jerk conclusion here by skeptics of the prepper lifestyle will be that the bunker owning citizens of the “red scare” days wasted their time. That obviously, there was no nuclear holocaust, and all their careful planning was for naught. Or why not bring up the media generated hysteria of Y2K, which played on the public’s utter lack of general knowledge concerning computers and U.S. infrastructure to inspire a widespread prepping panic? Did that farce not prove the absurdity of the survivalist mentality?

The answer is no, not really…

The eventuality of collapse is not the issue. Though America today has zero room to maneuver as far as inflationary printing and debt based spending are concerned, and economic instability is inevitable according to the fundamentals regardless of any practical or impractical political measures that could be introduced, the crisis is not our focus. Our focus is, and always has been, independence and self reliance regardless of the circumstances. Through national prosperity, or national pain, the key to survival is to never make assumptions. To never count on your environment to remain hospitable. To keep catastrophe in mind, even if others around you do not.

One vital aspect of survival that often goes unaccounted for by even the most astute preppers, however, is the issue of community. When the last vestiges of normal society crumble, will you be surrounded by friends, or foes? The difference is not always apparent, as Rod Serling noted in the brilliant episode of the Twilight Zone above. The question then arises; how do we know who to work with, who to trust, and when to keep our mouths shut?  When the going gets brutal, who will have the guts to stand firm, who will run, and who will stab us right in the back if they get the chance?

Being a prepper for some years myself, and working with a myriad of character types, I have found that certain personality signals and quirks should be addressed in those who live around you, or those you plan to associate with. Certain kinds of people can be pure poison for any survivalist or any organization striving for practical solutions to collapse. Look at your neighbors and your associates carefully and with some objectivity. Do they fit any of the below profiles a little too well…?

The Lemming

This person lives life to the fullest, which by their definition essentially means working 9 to 5 in a job they despise with co-employees they hate, going home to watch reruns of The Apprentice while drinking away the pain of inadequacy, and bathing in the warm oily coconut butter glow of mainstream news before sinking into their soft feather bed of political ineptitude and dreaming sensible dreams of cult-like consumerist mayhem.

This kind of neighbor will likely freak at even the most non-invasive philosophies. Mention of voting for third party candidates (or Ron Paul) draws googly eyed expressions of disbelief, as if you just broke wind at their dinner table. Conversations of possible economic collapse inspire in them reactions of either complete dismissal along with skeptical cackling, or shrugged shoulders and passive solutions. They buy into anyone who happens to be in a position of petty authority, and would jump into a septic tank filled with rusty nails if someone in an expensive suit or a white coat told them to.

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EU’s unraveling destroys the meme of Democracy

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from The Daily Bell
Posted November 07, 2011

Greeks await name of new coalition government PM … Greeks are keen to return to some stability after months of turmoil … Greek leaders are due to agree the name of a new prime minister to lead a unity government until fresh polls are held. The deal came after Prime Minister George Papandreou agreed to stand down. It followed days of upheaval caused by his decision – now revoked – to hold a referendum on the EU bailout plan to tackle Greece’s debt crisis. – BBC

Dominant Social Theme:
Greeks cannot wait for their new “unity” government.

Free-Market Analysis:
Parliamentary democracy is farce. That is one of many benefits provided to us by the unraveling of the EU. The Greeks – most Greeks, anyway – seem to want to leave the EU. They don’t want to be rescued. They want to be left alone.

The elites who have created the promotional elements of regulatory democracy and parliaments did so with the idea that that this meme would be an effective replacement for the Divinity of Kings meme. Both are equally inadequate in our view. God did not choose Kings – not any more than people nowadays choose their democratic leaders.

Nowhere is this more evident now than in the EU where countries regularly are denied the opportunity to vote on anything of consequence. Not that we think voting is such a big deal, but it seems to us better than the alternative, which is simply having a political ideology imposed upon you.

The Greeks therefore will know what they believe in, in aggregate. The Greeks, like the British, are to be denied the opportunity to vote on their “participation” in the EU. The Greeks are to have their democracy, but only as it affects unimportant matters.

The mask has slipped a little. We see the iron fist beneath the velvet glove. The entire mechanism of elite control is on display in Greece. We’ve watched it unfold, as you have, dear reader. The mechanism is NOT being driven by an ideology or vision of a unified Europe. It’s being driven by a merciless power elite that wants to keep Europe together as a region in order to use it and other regions to build world government.

Why do they need Europe to retain its unitary composition? Why not let it split back up? Because this would shatter the larger narrative of directed history. You see, for at least a century and perhaps a lot longer, the world has been in the grip of a PROMOTION.

In this promotion, almost every aspect of world history including wars, revolutions, technological advances and even money itself are manipulated to TELL A STORY. The story that is being told is one of the inevitability of world government.

This is why we emphasize that the elite uses dominant social themes, fear-based sub-promotions existing within the larger promotion to control the narrative leading to a one-world order. The elite cannot simply decree it. They need to work within the boundaries of what is justifiable.

This is important because the elites need to look toward the future. They cannot simply “make it up.” They need to work within rough guidelines. In the future the story will be told that forward-looking leaders created the European Union and then found it worked so well that they created a Union of the World.

For this reason, among others, they don’t want the Union to collapse. For this reason, among others, we have indicated that a collapse of the Union in our view will indicate the efficacy of the Internet Reformation which is now continually collapsing elite memes. It is a big problem. For them.

And so they muddle along. It is analogous to the Emperor With No Clothes. He, too, finally realized that he was naked for all the world to see. But he marched on, nonetheless. He kept up the pretense.

The elites, too, find it necessary to keep up the pretense for as long as possible. The promotional mechanism has been exposed. The buy-in that the elites desperately need has been shattered. And yet they continue. The rote rehearsal of an illegitimate program is more important than its credibility.

The intelligentsia has fallen away, and this too is a problem. Without an intelligentsia willingly proselytizing directed history, its imposition becomes more difficult to maintain and mold. This is one of the reasons the elites spent so much time and effort cultivating 20th century thought magazines like the Economist, the New Yorker and the New York Review of Books.

These were relatively tiny publications, but they reached the “thinking people” – the larger group that was ideologically fluent though uninvolved directly with the one-world conspiracy or its money mafia. It was this larger group of concept-adept people that the power elite especially wanted to manipulate.

And manipulate them they did, with savagery and savage joy. In the mid-20th century, it had to be seen to be believed. You likely couldn’t find a major American or European city that didn’t have its cadre of youthful intellectuals sitting around in cafes, smoking cigarettes, drinking coffee and debating the “isms” – communism, socialism and fascism.

If you had suggested to these youngsters that all of these concepts were merely the construct of a tiny band of impossibly wealthy families and their enablers and associates, you would have been shunned as a nutcase. The disconnect would have been impossibly vital! Mere words would not have sufficed. Such a conspiratorial concept could not have been entertained, even. And was not.

Why? Because of the efficacy of DIRECTED HISTORY. It was that good. It was that persuasive – and pervasive. And that is the system that the elite continues to employ today – even though people see through it and it’s lost a good deal of its credibility with the ‘Net intelligentsia, which is the only intelligentsia, these days, worth considering.

The article excerpt above from a BBC report states that the Greeks are eager to “return to stability.” What a lie this is. Greeks are eager to return to a life, from what we can see, where they will not be hounded by the EU and its domestic, parliamentary harriers. Greeks, from what we understand, don’t want EU bailouts. They want to leave the EU.

The possibility of Greece leaving the euro has been raised by EU leaders, the article tells us. We highly doubt that these “leaders” want that to occur. They’ve got their claws into Greece. Grecian sovereignty is already basically abrogated. Greece as a nation does not really exist anymore, though Greece as a culture shall perpetuate itself.

Greece and Greek culture has given so much to the world. The greatest gift may be the spectacle once again of elite manipulation and the evident and obvious ruse that is parliamentary democracy. Once the elites get through with Greece it will likely be impossible to maintain that this sort of system has any legitimacy.

Conclusion:
No doubt the power elite is fomenting another meme to take its place. We’ve described it, in fact. But in this era of the Internet Reformation it is unlikely to be nearly as efficacious as the last one.

The imminent failure of the Eurozone

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by Econophile
Posted  September 2, 2011
This article originally appeared on the Daily Capitalist.

YOU KNOW THOSE MOVIES WITH THE BOMB SET TO A TIMER ticking down to 00.00 where the sweaty hero nervously cuts one wire at a time while holding his breath and then at 00.01 he stops the bomb? Well, Europe is like that except that the bomb goes off and kills everyone.

Our planet has a problem. Its leading economies, the U.S., Japan, and the E.U. are declining. That is, about one-sixth of the world’s population is losing ground.

These big economies are the ones that lead the rest of the world, including China. Countries like China, India, and Brazil, depend on the health of the big economies to keep buying their products and commodities so they can grow and generate wealth for their citizens.

What is especially concerning is the blow-up that is about to happen in Europe. It is not something that is happening “over there.” In a world that is so interconnected financially and by trade, a sinking Europe is everyone’s concern.

Their problems are much the same as ours with a twist. Their governments and central banks have also pursued reckless monetary and fiscal policies and now, effect is following cause. They have more or less followed the same policies as has the U.S., much to the same end. They spent large, engaged in Keynesian fiscal stimulus in a bailout attempt, ran up huge debts and deficits, and their economies are in decline.

The twist is the European Monetary Union (EMU), known as the eurozone. It is as if here in the U.S. there was no federal government and each state was truly sovereign, but there was a Federal Reserve Bank. Some states spend more than others, funding deficits by borrowing huge sums to support programs their citizens wanted. The profligate states want the Fed to buy their debt and float them loans created out of thin air, or otherwise they will go belly up and they will take down many states’ banks. The responsible states know they will be stuck with the bill.

The EMU started on the idea that it would bind the EU closer. In essence it was a political decision rather than an economic decision. They passed a stern rule that said no state could run of deficits of more than 3% of their GDP. Except for Estonia, Finland, and Luxembourg, all countries, including Germany, now exceed the limit. Thus their politicians sacrificed fiscal probity for political gains.

They have hit the wall: Greece will soon default on their sovereign debt. On Tuesday, yields on one year Greek bills  reached 60%.  It is a sign that investors have no faith in the Greek government’s ability to repay their debt.

The EU, ECB, and the IMF are trying to establish a European Financial Stability Facility (EFSB) in order to further bail Greece out. They have already pledged €110 billion and they are trying to put another package together of €109 billion. But Finland insists that Greece puts up additional collateral, which is not possible. Since the collateral would be part of the bailout money, it would be, in essence, Germany and France guaranteeing Finland’s contribution.

Greece has missed every fiscal target it or its saviors has had. They are trying to get their deficit down to 7.6% of GDP through more austerity measures, but it looks like they will miss again (est. 8.5+%). Basically they are asking the Greeks to do something they don’t want to do, and they will no doubt take to the streets again in protest.

If they default, then that opens a can of worms. European banks, other than Greek banks, hold €46 billion of Greek sovereign debt. Belgium’s Dexia hold Greek sovereign debt equal to 39% of its equity; for Germany’s Commerzbank, it’s about 27%. On top of that, EU banks are into private Greek companies for about €94B (France, €40B; Germany €24B). According to the Wall Street Journal, the total market cap of all EU banks was just €240. The same article also points out additional unknown liabilities to insurers and investment banks.

The International Accounting Standards Board (IASB) has warned banks they need to write down, or mark-to-market, the Greek debt they hold. Whether they do or don’t doesn’t matter. The fact is that these banks are undercapitalized and in trouble. Their “stress tests” are a fiction. Liquidity is starting to shrink in their banking system because of these jitters. Rabobank, for example, said it is growing cautious about interbank lending – now limited to overnight loans. More banks are stepping up to the ECB window for funds. Overall, credit is starting to tighten. Nervous Greek depositors are withdrawing funds from their banks. Rich Greeks never trusted their banks.

In other words the Europeans have created a problem that they can’t solve, easily at least.

Here are their alternatives:

1. Keep bailing out Greece, with the specter of Italy and Spain being the next target of market forces as EU economies cool off. This is not appealing to Germany and France who know their taxpayers will have to put up most of the money.

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Too stupid for words – If this doesn’t convince you hyperinflation is upon us, nothing will!

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by Andy Hoffman (Ranting Andy)
Posted August 8th, 2011

LAST NIGHT I CAME ACROSS AN ARTICLE DEPIECTING SUCH A LEVEL OF STUPIDITY, MORAL HAZARD, and chutzpah, that I had to reread it several times to make sure it wasn’t satire.  I figured there is no way such “luminaries” in the eyes of the doting public could possibly give such moronic, and destructive soundbytes, particularly during the most significant sovereign threat the U.S. has faced since Pearl Harbor.  But they DID anyway, and weren’t even challenged by the press.

I initially sent a brief email stating my loss of words, but as any of my readers know, that condition rarely lasts long, particularly when pertaining to an opportunity to castigate two of the people I hate most on EARTH, Alan Greenspan and Warren Buffett.  I had also gone essentially a whole day of sleep, but now that I’m refreshed the creative juices are again flowing. No need to list the Hall of Shame accomplishments of these clowns, particularly Greenspan who, unlike Buffett never earned a dime in the “legitimate business world” (sorry, I had to steal that phrase from Dr. Phillip Bombay in “Back to School”, my all-time favorite comedy).

Given the ongoing, and now accelerating, COLLAPSE of the U.S. financial system, sometimes one really needs to EMPHASIZE how far down the rabbit hole we have gone to realize that the odds of escape are no better than a ray of light in a black hole.

This weekend, amongst perhaps the most intense GLOBAL episode of “Sunday Night Special” ever, in an attempt to assuage investor fears, the puppet media trotted out their two biggest shills, Greenspan and Buffett, to give worldwide investors their sage advice.  But rather than to even hedge their comments, they straight out stated ‘all is well, nothing to see here.

Greenspan, in my mind THE NUMBER ONE PERSON RESPONSIBLE FOR THIS MESS, whom in his retirement years has been subtlely hinting that he remembers his roots as advocate of REAL MONEY (i.e. gold), decided to do a 180 and return to the Greenspan of old, fearless of “irrational exuberance” and ever-willing to implement the “Greenspan put” with a few strokes of his money-printing keyboard.

In response to a Meet the Press question regarding the validity of S&P’s decision to downgrade U.S. Treasury debt, he vociferously defended his former employers by stating  “The United States can pay any debt because we can always print money to do that. So there is zero probability of default.”  Yes readers, he actually said that, in front of a GLOBAL audience, fully believing this would be a comfort to bondholders, creditors, and rating agencies alike.

Even better, everyone’s favorite government sell-out and insider trading expert, Warren Buffet, had the gall to not only attack S&P, but add that a new rating of AAAA should be instituted so the U.S. could be UPGRADED!

Readers, we are entering a VERY, VERY DANGEROUS TIME, unprecedented in human history.  The largest, most destructive fiat Ponzi scheme of all time is on the verge of certain collapse, and frankly at the pace things are going such a cataclysm could occur at any moment. Bill H., also of GATA fame, penned a great missive this morning comparing the time frames of a mania versus a panic, driving home the conclusion about how fast things can plummet when CONFIDENCE is lost and FEAR takes over, as opposed to the slow-motion inflation of a GREED-based bubble.  That loss of confidence is picking up steam as we speak, and comments like this are the type that could potentially start an avalanche at any time.

Yes, Greenspan is an old, senile coot, but he has had more influence over world monetary policy than any man in history.  And more importantly, we now have the past TWO Fed Chairmen, Greenspan and Bernanke, who have cumulatively destroyed the dollar for 24 of the 40 years it has reigned as “reserve currency”, giving similar statements about ‘helicopter drops’ in terms of the arsenal available to them. With protests and in some cases riots going on all over the world in response to rising inflationary pressures (Egypt, Libya, Tunisia, Algeria, Bahrain, Greece, and now more civilized nations such as Israel and the UK), such massively hyperinflationary statements from the reserve currency’s LEADERS can only bode for potentially horrific near-term outcomes, in my view.

Sorry for the light humor about Back to School, as frankly this is no time for humor of any kind.  At the GATA conference, Jim Rickards spoke about the psychology of complex systems such as financial markets, noting that every system has its own threshold of pain, and that at any time we could witness the “straw that breaks the market’s back.”  Once the hyperinflationary genie is out of the bottle (and it’s pushing FULL FORCE at the cork right now), the 1971-2011 worldwide status quo will be GONE FOREVER, replaced by a MUCH SCARIER reality, the type that has inspired insidious fictions such as 1984, V for Vendetta, and Atlas Shrugged, as well as more diabolical realities such as Stalinist Russia, Fascist Italy, and Nazi Germany.

Holding any material portion of your “wealth” in DOLLARS, POUNDS, or EUROS appears SUICIDAL, particularly if held in insolvent BANKS in the U.S., UK, or Europe.  All one needs to do is look at the chart of Bank of America, THE LARGEST AMERICAN BANK, (http://www.ffiec.gov/nicpubweb/nicweb/top50form.aspx), which has been bailed out perhaps a half dozen times (on its own and via Merrill Lynch and Countrywide Credit), to realize that NO AMOUNT OF PAPER, ACCOUNTING CHICANERY, OR PPT SUPPORT, will ultimately be able to save the system.

NOW IS OFFICIALLY NOT SOON ENOUGH to PROTECT YOURSELF from the tsunami which is about to wipe out the Western financial system once and for all.  The receding of the waters is long past, and now the wave is within spitting distance of the shore

Too much of a good thing is not a good thing

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by David Galland of Casey Research
Posted August 12, 2011

I AM BEGINNING TO FEEL A BIT LIKE ONE OF THE FRENCH unfortunates stumbling through the fog in the Ardennes, circa 1914. Except that, instead of Germans full of deadly intent coming at me in the gloomy forest, it is a flock of black swans. As it was for the French in the Ardennes, the number of problems – then Germans, now black swans – is becoming overwhelming.

Consider just a little of what we as investors, and as individuals looking forward to retirement in accommodations more commodious than a shipping box, must contend with:

  • The Euro-Stone. Despite all the bailouts and bluster flying about Europe, the yields in the wounded “piiglets” of Greece, Portugal, etc. have failed to soften to more tolerable levels. Worse, yields in the fatter PIIGS of Spain and Italy are hardening. This is of no small import to the German and French banks, which together are owed something like US$2 trillion by the porkers. At this point, it is becoming clear that the eurozone’s systematic flaws doom the euro to continue trending down until it ultimately takes its place in the pantheon of failed monies.
  • The Yen Has Lost Its Zen. This week the Japanese government again began intervening in currency markets because, remarkably, the yen has been pushed to highs against the dollar. This in a nation with a government debt-to-GDP ratio that is better than twice the also horrible ratio sported by these United States.

That ratio ensures that Japan’s long struggles will continue, burdened as it also is with the aftermath of the deadly tsunamis and the ongoing drama at Fukushima. Adding to its woes are the commercial challenges it faces from aggressive neighbors, and maybe worst of all, the demographic glue trap it is stuck in, with fewer and fewer young to pick up the social costs of the old. Toss in the waterfall plunge in Japan’s much-vaunted savings rate – formerly a big prop keeping Japanese interest rates down – and the picture for Japan is anything but tranquil.

  • China’s Crucible. There are many reasons for being optimistic about the outlook for China, including a large and hard-working populace. But there is one overriding reason to expect a big bump in the path to China’s emergence as the world’s reigning economic powerhouse.

Simply, it’s a capitalistic country with a communist problem.

Now, in the same way that some people believe in leprechauns or any of dozens of other magical beings, some people believe that an economy can be successfully commanded just as a captain commands the crew of a Chinese junk cruising along the coast. It’s a fantasy.

While the comrades in charge have done quite well – largely by getting out of the way of natural human actions – they are fast reaching the limits of their ability to navigate the shoals. As I don’t need to tell you, China is a massive country, with hundreds of millions of people capable of every manner of human strengths and frailties. But if they share one interest, it is in a job that allows them to keep their rice bowls full and a roof over their heads. Said jobs don’t come from government dictate – at least not on a sustainable basis – but rather by the messy process of free-wheeling commerce… and the more free-wheeling, the better.

In the July edition of The Casey Report, guest contributor James Quinn discusses the very real challenges facing China, not the least of which is that in the latest reporting period, official Chinese inflation popped up to 6.4%. Even more concerning was a 14% rise in the price of food.

Scrambling to keep employment high while also keeping inflation low, the Chinese government is throwing all sorts of ingredients into the mix – building ghost cities, raising interest rates, stockpiling commodities, clamping down on dissent, hacking everyone – but in the end, the irrefutable laws of economics must prevail. And so the Chinese government will have to atone for the massive inflation it unleashed in 2008, and for the equally disruptive misallocations of capital that are the hallmark of command economies.

While the blowup in China will wreak havoc in world markets, including many commodities, a bright side for gold investors is that the country’s rising inflation should help keep the wind in the sails of monetary metal. It’s no coincidence that the World Gold Council’s latest data show investment demand for gold in China more than doubling in the first quarter of this year.

  • Uncle Scam. Then there is the United States. Casey Research readers of any duration know the fundamental setup… The political avarice that dominates both parties… The fear and greed of John Q. Public and his steady demands that the government do more… The scam being run by the Treasury and the Fed to provide the funny money to keep the government running… The cynical attempts by certain politicians to stoke a class war… The cellars full of toxic paper at the nation’s financial institutions… The outright corruption and deceit of the various government agencies as they twist and torture the data to fool the people into supporting them in their scams.

But there’s a growing problem: An increasing number of people and institutions are coming to understand just how intractable the problems are. This has resulted in a steady move into tangible assets – gold, especially – that are not the obligation of any government. And it’s not just individuals and money managers moving into gold, but central banks as well. That is an absolute sea change from the situation even a few years ago.

Meanwhile, with the Treasury unable to borrow since May, a backlog in government financing needs has built up. Which begs the question: With the Fed standing aside (for the moment), where is the government going to find all the buyers for the many billions of dollars worth of Treasuries it needs to flog in order to keep the scam going?

If I were a conspiracy theorist, I might look at the sell-off in equities this week, triggered as it was by nothing specific, and see a gloved hand operating behind the curtain. After all, nothing like a good old-fashioned stampede out of equities to send billions chasing after “safe” Treasuries… which has been exactly the case this week.

Regardless, with the crossroads for hard choices now behind us, the global economy finds itself at the top of a long hill… with no brakes. From here on, it will increasingly be every nation for itself – meaning a return to competitive currency devaluations and, in time, exchange and even trade controls. And we will see a return of the Fed to the markets. On that topic, I will once again trot out a chart from an article by Bud Conrad that ran in The Casey Report a couple of years back.

I do so because it shows what I think is a very strong corollary between what occurred in Japan after its financial bubble burst and what is now going on here in the U.S. (and elsewhere). As you can see, as a direct result of the Japanese central bank engaging in quantitative easing, the Japanese stock market bounced back strongly. But then, when the quantitative easing stopped, the market quickly gave back all its gains.

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