Despite US equity investors' exuberance over bouncing crude oil prices, the world's crude producers continue to suffer and while Venezuela is in the headlines every day (having already collapsed into chaos), Nigeria appears the nearest to that abyss next. Having urged investors "don't panic" last year, and seeing dollar reserves drying up rapidly earlier this year, recent "lies" about the nation's statistics have raised fears of a looming devaluation as FX forwards have crashed to 291 Naira to the dollar (current peg is 199).
We have argued the inevitability of Fed-administered hyperinflation, prompted by a global slowdown and its negative impact on the ability to service and repay systemic debt. One of the most politically expedient avenues policy makers could take would be to inflate the debt away in real terms through coordinated currency devaluations against gold, the only monetize-able asset on most central bank balance sheets. To do so they would create new base money with which to purchase gold at pre-arranged fixed exchange prices, which would raise the general price levels in their currencies and across the world to levels that diminish the relative burden of debt repayment (while not sacrificing debt covenants). The odds of this occurring seem to have risen, judging by the gold prices.
Ludwig von Mises once wrote, "No one can escape the influence of a prevailing ideology.” The images coming from Venezuela should serve as a potent reminder of how dangerous the ideas of men like Joseph Stiglitz are. Statism and economic interventionism must be rejected, in order for humanity to thrive.
In 1922, Germany was up to its eyes in debt, to the point that it was beyond repayment. The government, in attempting to overcome the dire poverty that had developed, decided to print more paper banknotes. The printing didn’t (and couldn’t) solve the problem, so they printed more. Then more again... The reader may say to himself, “When will people learn?” Sadly, they don’t. Incredibly, when the reichsmark collapsed in 1923, no one blamed the excessive printing. In fact, many people felt that if only the printing had continued just a bit longer, everything might have been all right. What we can take away from this is that what happened in Weimar Germany in 1922–1923 is happening now in Venezuela in 2016. (And has happened in some twenty other countries over the last hundred years, most recently in Argentina in 2000 and in Zimbabwe in 2008.) The same will occur in Europe and America in the fairly near future.
The Forgotten Depression tells of the slump of 1920-21: high unemployment, collapse in commodity prices, upsurge in bankruptcies and sharp break in stock prices. However, unlike the Great Depression, the 1920 affair was over in 18 months. What explains its brevity? James Grant, publisher of the prestigious Grant's Interest Rate Observer, tells the story of America's last governmentally-untreated depression; relatively brief and self-correcting which gave way to the Roaring Twenties...
While it most likely is just the usual Friday (past) midnight trial balloon by the Nikkei, a media outlet that has promptly become the BOJ's mouthpiece (recall a week ago the new owner of the FT reported that Abe would delay his 2017 sales tax increase, only to see the premier backpedal when the reaction in the USDJPY was not quite as desired), moments ago the Japanese publication reported that the Bank of Japan will "likely set aside funds for the first time to prepare for losses on its huge holdings of Japanese government bonds should the central bank end its monetary easing policy in the future."
The last phase in all cases of hyperinflation is currency stabilization. This phase is inevitable whether it be because of changes introduced by the government or due to complete rejection of local currency by the population. In order for such a monetary reform to be successful, it is essential that the government first eliminate the main cause of the inflation (the budget deficit). Unfortunately, it does not seem as though the Venezuelan government has any plans to decrease spending, nor does it appear that revenue from oil will be recovering any time soon, meaning that any attempts at currency stabilization will surely fail (just as it did the last time when the bolivar fuerte was introduced in 2008). In light of this situation, it seems that Thiers’ Law is inevitable.
Venezuela's opposition leader Henrique Capriles urged Venezuelans Tuesday to defy a state of emergency decreed by the government as it grapples with an acute political and economic crisis. Capriles spoke as the opposition-controlled congress prepared to debate the sweeping measures decreed by President Nicolas Maduro. He said lawmakers will probably reject the measures, and that if the government insists they remain in force "it is up to us... to ignore this decree."
"They Are Scared To Death" - CEO Explains The Single Biggest Reason Why People Are Buying Precious MetalsSubmitted by Tyler Durden on 05/16/2016 21:25 -0400
We can talk about technical charts, supply and demand fundamentals, and price manipulation, all of which point to significant increases in the value of gold and silver for the foreseeable future. But according to Golden Arrow Resources CEO Joseph Grosso, who is credited with the discovery of the largest silver deposit in history, the single biggest reason that retail investors, institutional players and governments around the world are gobbling up physical precious metals, resource stocks and ETF’s at unprecedented levels is that they are scared to death of the state of the global economy and where it will go next...
"I think we're at the cusp of a bear market in both stocks and bonds that will last up to thirty years. This is on a real basis, not on a nominal basis, inflation adjusted basis."
Had the federal government held a constant measuring stick rather than "tinkering, engineering, distorting" key government calculations such as the size of the economy (GDP), the rate of inflation, level of unemployment, or size of federal deficits and federal debt...the reality we face would be plain and honest choices needed. Instead, the responsibility of those working for "the people" has been breached via falsifying and distorting each of these (over decades). This consistently improves the output and does not allow a true means to quantify and qualify the nations health. Simply put, the government has continually tinkered, tampered, and distorted the accounting so as to mislead or create a falsely positive appearance.
Zimbabwe is set to print its own version of the US dollar, as an ailing economy fuels a severe cash shortage in the southern African nation. John Mangudya, Zimbabwe’s central bank governor, said Thursday the so-called bond notes will be backed by $200 million in support from the Africa Export-Import Bank. The specially designed dollar notes will come in denominations of two, five, 10 and 20. They will also have the same value as their U.S. dollar equivalents. The bond notes are an extension of so-called bond coins of one, five, 10 and 25 cents which the central bank introduced in 2014 and are pegged to the value of the U.S. dollar.
If an economic system collapses in the woods and no one is paying attention, are there any consequences outside the woods? Well, yes, of course. As with most situations financial and global, however, consequences are not usually taken very seriously until they have spawned a vast bog of sewage we all have to then swim through. The issue is and always will be “interdependency,” and the dissolution of sovereign borders. The European Union dynamic, for example, can only end in one of two ways - the complete dismantling of the supranational body and a return to sovereignty, or, a socio-economic crisis followed by even more centralization and the end of all remnants of sovereignty. Either way, the consequences will not be pretty. The same strategy may also be used in the Western hemisphere; more specifically, the collapse in South America that almost no one in the mainstream seems to be paying much attention to.
Venezuela is now so broke that it no longer has enough money to pay for its money.