There is a bull market developing in gold and few are aware of it...
In Part 1, we described the world’s economy as one that is based on energy. The design of the system is such that the economy can only grow; shrinkage tends to cause collapse. If this view of the situation is correct, then we need an ever-rising amount of inexpensive energy to keep the system going. We have gone from trying to grow the world economy on oil, to trying to grow the world economy on coal. Both of these approaches have “hit walls”. Now we have practically nowhere to go.
Six years on from the financial crisis and central banks are still hacking away at interest rates. Australia and Romania's did this week and while Poland and India held off, both are expected to prune rates later in 2015.
Deflation goes hand in hand with releasing the individual from the debt enslavement that was created with the monetary policies of the past 100 years. Nigh unlimited printing of money has become the orthodox strategy to avoid deflation. Deflation was made the scapegoat for all sorts of economic ills in a century of pro-inflation propaganda. For deflation to happen government interference in money and the economy needs to stop. The endorsement of deflation goes hand in hand with safeguarding liberty. “Paper money has become the technical foundation for the totalitarian menace of our days.”
The ECB kills the Troika!
There is intense debate going on in the worlds of economics, politics, and finance as to whether we will, in 2015, experience the mother of all stock market crashes or whether, instead, we will float along ever higher on the happy cloud that has been making at least some people rich over the last few years (or whether, for a third possibility, we will just muddle along somewhere in the middle). Beyond the diatribes from the punditocracy, there is a mood – maybe it is idiosyncratic – but there’s the feeling that something dramatic is about to happen. I mean, a snowstorm hits and the local supermarket runs out of bread?! Are we all rehearsing for something here?
Until now, central banks have restricted monetary policy to domestic economic management; this is now evolving into the more dangerous stage of internationalisation through competitive devaluations. The gold price is an early warning of future monetary and currency troubles, and it is now becoming apparent how they may transpire. The ECB move to give easy money to profligate Eurozone politicians is likely to have important ramifications well beyond Europe, and together with parallel actions by the Bank of Japan, can now be expected to increase demand for physical gold in the advanced economies once more.
Tsipras already tipped his hand a few weeks ago...
The grand central banking experiment being conducted around the globe right now will not end well. With little more than a lever to ham-fistedly move interest rates, the central planners are trying to keep the world's debt-addiction well-fed while simultaneously kick-starting economic growth and managing the price levels of everything from stocks to housing to fine art. The complexity of the system, the questionable credentials of the decision-makers, and the universe's proclivity towards unintended consequences all combine to give great confidence that things will not play out in the way the Fed and its brethren are counting on.
We won't go into the specific details of China's burst housing bubble, the shady underworld of its pyramid scheme wealth-management products, the fact that any hard asset in China is rehypothecated literally a countless number of times, the nuances of its deflating shadow banking system, or even the complexities of its alleged capital controls (alleged, because as a reminder, they only exist for the common folks - the really wealthy Chinese are naturally exempt from any capital flow constraints). We will point out something even more disturbing. The Offshore Yuan just hit a two-year low, reaching a level not seen since September 2012.
It is my expectation, unless these deflationary trends reverse course in very short order, that if the Fed raises rates it will invoke a fairly negative response from both the markets and economy. However, I also believe that the Fed understands that we are closer to the next economic recession than not. For the Federal Reserve, the worst case scenario is being caught with rates at the "zero bound" when that occurs. For this reason, while raising rates will likely spark a potential recession and market correction, from the Fed’s perspective this might be the “lesser of two evils.”
Bill Gross Slams Broken Capitalism: "Policymakers Must Promote A Future Which Offers Hope As Opposed To Despair"Submitted by Tyler Durden on 01/29/2015 09:17 -0400
"Officials at the Federal Reserve – the most powerful and strongest of Parker Brothers – seem to now appreciate the hole that they have dug by allowing interest rates to go too low for too long.... While there is no better system than capitalism, it is incumbent upon it and its policymakers to promote a future condition which offers hope as opposed to despair. Capitalism depends on hope – rational hope that an investor gets his or her money back with an attractive return. Without it, capitalism morphs and breaks down at the margin. The global economy in January of 2015 is at just that point with its zero percent interest rates."
The bottom line is that unfortunately for the BTFDers, with the Fed no longer giving explicit buy signals with the "considerable time" language struck, and with an implicit economic upgrade suggesting a rate hike is still on the table, it is becoming increasingly more difficult to frontrun the Fed's "wealth creation" intentions.
In the QE era, monetary policy has lost any semblance of discipline and coherence. As Draghi attempts to deliver on his nearly two-and-a-half-year-old commitment, the limits of his promise – like comparable assurances by the Fed and the BOJ – could become glaringly apparent. Like lemmings at the cliff’s edge, central banks seem steeped in denial of the risks they face.
Suppose you could print up counterfeit dollars, euros or yen that were identical to the real things. Fun, you think? Here's how it plays out.