Latest from LEAP 2020 is out. Click here for detailed summary of their publication. This is an European perspective.
Layout of the full article :
1. World recession in sight
2. The banks’ doubtful business
3. Tax haven all hell
4. Neo-protectionism between regional blocs
5. Emerging nations’ strategy in gold
6. The Fed’s last bullets
7. Euroland : national unity governments and the ECB to the rescue
8. High risk strategies
Click here for Martin’s take on the Fed’s push upward of the Dollar, whether that was their intention or not. From May 13th.
Probably why Ben is leaving in 2014….
And here for the impact of higher interest rates.
From the link above:
The realization that the expansion of the money supply by the Fed has failed to create inflation has befuddled every standard domestic economic theory. They have failed to graduate to the global level where they must realize that the dollar has emerged as a international currency going beyond a mere reserve currency becoming the currency of choice since there is no rational alternative. The expansion of the money supply by the Fed has been absorbed globally. The idea of stimulating through purchasing government bonds that in theory would put money into the system has failed to comprehend that 40% of the bonds are held by foreign entities. Thus, the old theories are just antiquated and have led to a massive level delusion everywhere from economics, share markets, gold, to interest rates.
Interest rates under domestic theory will have to rise to save pension funds. The Fed will not see the global implications and the huge dollar shorts and a rise in rates will spark a massive short-cover rally in the dollar. With the German elections looking more perilous by the day come September, the future going into 2016 could be a massive rally in the dollar coupled with rally in the Dow Jones Industrials that could reach 17330, 18900, or 23,388 by 2015.75. If the central bankers screw it up as usual, they could create a Japanese type bubble on this one.
Once again, Charles Hugh Smith of Of Two Minds, explains the facts beautifully.
If you want to know what will happen and why, this is it.
Examine point three very carefully.
3. Since the only endgames to ballooning debts and declining household incomes are runaway inflation or renunciation of debt, the Status Quo has only one choice left to preserve its neofeudal arrangement: do more of what has failed spectacularly, i.e. inflate more asset bubbles as a way to mask the system’s phantom collateral for a few more months or perhaps years.
Unfortunately for central banks and their politico cronies, serial asset bubbles face the headwinds of diminishing returns. All the Fed and Federal agencies had to do to launch the first housing bubble was lower interest rates and encourage subprime mortgages.
Take a look at that Case-Shiller House Price Chart, can you say unsustainable? The Fed is purchasing billions in mortgages each month and the US government is insuring any and all new mortgages and it is still a basic flat line. Spending lots of money just to stay in place….unsustainable.
And take a look at that stock market chart, adjusted for CPI (which is the lowest inflation indicator), stocks have not rebounded. But you would never guess that from listening to the financial talking heads. With this chart in mind, there is still movement up for stock prices, but just keep in mind that is up just to get where you were in 2007. And look at the scary volatility in the stock market since 2007. Bumpy ride.
But the scariest chart, the one that will ensure an economic depression for the next 20 years (whether that is a deflationary depression or a hyperinflationary depression or both, one after the other). It is the spread between real income and real expenses and the widening of that gap that will keep the US in a depressive economic situation for years to come.That spread can happen in a deflation or hyperinflation, same outcome for Main Street. And Main Street, the consumer, is 70% of GDP.
That increasing spread will make sure more defaulted consumer and mortgage debt, lower GDP, and more bail outs and bail-ins for entities holding that debt. Add to this an aging population those income naturally declines after retirement.
These charts tell the whole story.
John Williams offers the real stats on unemployment. You pay for the detail, well worth the money, but here is the punch line:
- March Unemployment and Employment Counts Both Dropped by 200K-Plus,
Signaling Intensifying Economic Contraction
- March Unemployment: 7.6% (U.3), 13.8% (U.6), 22.9% (ShadowStats)
- M3 Continues to Slow as Monetary Base Pushes to Record $3.0 Trillion
- February Trade Deficit and Construction Suggestive of Continuing Economic Stagnation
Click here for Jim’s thoughts on the Cyprus Situation via King World News.
Sinclair: “This historic event is one of the single largest and most important in my 50+ years of being involved in markets. It is as serious as what I have said, and the Chairman of the Federal Reserve is saying, ‘They are going to screw up all of my work; to hell with them, I don’t want to be Chairman when this hits the fan.”
In addition to Ben’s reference to his possible “limited” term, groovygirl also thought she heard him say that the DOW had not really reached a new high recently if you factored in the rate of inflation. What? Blasphemy! I don’t think that is something a Fed Chairman is supposed to advertise. Must keep the sheeple in the dark about that one (and the fact their houses didn’t really reach new highs in 2006 either).
Lots of rumors about Cyprus, its impact, and what will happen. Rumors cause panic and panicked people make poor decisions. Be level-headed. If you have taken precautions and protected your savings (as these types of things will continue to happen until global debt is reset by agreement or collapsed by chaos), this drama should be a source of mild entertainment, not panic.
LEAP 2020 has just issued its newest publication, GEAB N 73, dated March 16, 2013. They have a free, and very detailed, summary. Click here.
Between short-term economic indicators which describe only what occurred in the week, others which are manipulated by governments to reflect the message they want to give, and finally others which no longer have any relevance in today’s world, economic reality is at the very least very badly portrayed, even disguised, by these figures followed however by businesses, banks, and even countries. As an example, only currency exchange rate variations make it no longer possible to say if it’s Brazil or the United Kingdom which is the sixth largest world power. This statistical fog prevents dependable navigation which is paramount in these times of crisis ». Whether it be the fruit of intentional manipulation by the players in their efforts to survive or the result of the extreme volatility of the bases for calculation (such as currency values and the US dollar in particular), this trend is, in fact, confirmed.
Totallygroovygirlfriday wanted to address (or just put her two cents in) the ongoing national discussion of wealth inequality (which will only get louder).
First, groovygirl acknowledges that we have a huge wealth spread in the United States and most of the world. But some of the discussion of late has blamed centralization, political capture and monopolies for that wealth inequality. Groovygirl is not sure these are the sole reasons. The danger in making these our only assumptions is that if we get the cause wrong, our solution might be a failure (under the best political and fair environment). And we will not solve the main problem, but just create new ones.
So, let’s review Charles Hugh Smith’s latest blog post and the link to the viral video making the rounds. Click on the links to review.
Charles suggests that wealth inequality exists because:
Wealth comes from earned and unearned (rent, dividends, etc.) income and capital appreciation, so it’s no surprise that the income of the wealthiest segment has also far outpaced the lower 95%:
Check out that wonderful chart of the rise of the 5% from 1913 to 2008.
Charles continues:
I have long held that the greatest source of wealth inequality is political: those with great wealth have captured the for-sale machinery of governance, and “persuaded” the Central State to carve out quasi-monopolies and cartels that enable artificially high premiums. They also buy subsidies, exceptions and tax breaks for their income streams.
Although, gg agrees with the above, she would add that the types of investments that the top 5% have been disproportionately gaining on are primarily debt-expansion driven.
Groovygirl looks at that 100-year chart and doesn’t see all political cartels (well, maybe one, The Federal Reserve), but she sees a debt creation long-term cycle that is primarily fueled by The Federal Reserve System that has run its final cycle course and popped.
So groovygirl is saying this looks to her like a debt collapse (the Winter Cycle) may take care of the wide income spread. But she will also acknowledge that the top 5% has a political pull on where new debt creation goes now, and especially in the last two decades.
But see how the top five-percent’s wealth has risen and fallen with the debt crisis of the last decade? We can fully expect it to fall again when debt completely collapses.
Is gg just seeing long cycles everywhere? Probably, that is what she does best. It is her main perspective. Keep that in mind.
Later in Charles’ post, in which he does a wonderful job of explaining how technology will not solve the unemployment problem, he says that the best solution for inequality is:
An economy in which surplus is distributed to decentralized communities rather than being concentrated in the Central State and its financial Elites, where the spoils are divided up according to bought-and-paid-for political favoritism, is perhaps the most efficient, practical, sustainable and fair distribution system possible in an era of structural labor surplus.
Charles is firmly in the camp that decentralization will help solve the wealth gap. groovygirl is not so sure. (Having said that, groovygirl is in favor of more decentralization than we have now for other reasons.) But she is not so sure that we can decentralize the system in a fair manner in the middle of a collapsing debt crisis. The time to decentralize, gg’s opinion, was during the massive debt expansion of the late 80′s and 90′s.
GG contends that a debt collapse will force decentralization anyway. And if we move to create laws and taxes that equalize wealth during the debt collapse, this might force a chaotic decentralization or decentralize things that are better done on a centralized level for the health and benefit of society. GG is sure everyone has their own opinion on what those things might be.
It is entirely possible that laws equalizing wealth during a debt collapse will stifle capital creation and economic activity at a de-central and central level after the collapse, causing the poor and middle class to be poorer and the wealthy to hoard assets and capital for a longer period of time and thus, the economy to lag longer than necessary.
Throw into the mix that government (at any level) creates new laws that are a reaction to the past or present, rarely in anticipation of a fast-changing future that helps all locales.
So, groovygirl is suggesting that we look for a systemic change that will address as smooth a transition as possible from expanding debt to no debt and make local vs. central a secondary discussion under that umbrella. Local government can be just as corrupt, political, reactionary, and debt driven as a central one. But they can also be better than central government at quickly addressing key issues and organizing efficient plans during a crisis.
Right now we have an unfair distribution of debt that creates ongoing income and resources inequality. When the debt collapses, we may have no assets, no income, and/or no resources to distribute to anyone equally or unequally, while having laws on the books that hinders use of the capital and assets that are left standing.
It is groovygirl’s opinion that what we have now is not working and will not work in a debt collapse, it is crony capitalism and give free markets a bad name. But she is cautious that we should choose our next system and its accompanying laws in a proactive way, not a reactionary way. If we do not, and gg is not confident that we will, be prepared for a protracted and long economic depression.
Just some thoughts…..feel free to share yours in the comment section. Thanks for reading.
Here is the latest from the Fed itself on the pop of the Student Loan Bubble. The only good thing that can come out of this is the collapse of the US Collegiate System. Anyone who goes to college and doesn’t pay cash will become a debt slave for life (or at least 25 years), which ever comes first.
Again, groovygirl says: how can a graduate of college pay off collage debt on 10.00 per hour job (if he-she can find one), save for a 20-50% down payment for a home, get married and start a family, afford health care, and pick up any of the slack in the 70% consumer portion of the GDP? Only one or maybe two of those things can happen. And since college debt is exempted from bankruptcy laws, it will not be the college debt. Debt slavery. Housing has to implode.
I wonder if Bloomberg will alter its cover at all when the student loan bubble pops?
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