Sovereign Debt

The significance of these developments cannot be overstated. Central Banks will be increasingly acting against one another going forward. There will more surprises and more volatility across the board. Eventually it will culminate in a Crash that will make 2008 look like a picnic.

"The future is unknown and we are not dealing with markets that are free markets anymore...now we have government interventions everywhere. [But] in the last say twelve months, I have observed an increasing number of academics who are questioning monetary policies. That's why I think they will take the gold away and go back to some gold standard by revaluing the gold say from now $1000/oz to say $10,000 dollars. An individual should definitely own some physical gold. The bigger question is where should he store it? because... the failure of monetary policies will not be admitted by the professors that are at central banks, they will then go and blame someone else for it and then an easy target would be to blame it on people that own physical gold because - they can argue - well these are the ones that do take money out of circulation and then the velocity of money goes down - we have to take it away from them... That has happened in 1933 in the US."

Another Crisis is brewing. It’s already hit Greece and it will be spreading throughout the globe in the coming months. 

What if the assumptions about a U.S. economic recovery and Fed rate hikes were wrong? Could observers be mistaken now about the trajectory of the Dollar vs. the Euro as they were back in 2000? Confidence is the only thing that really undergirds modern fiat currencies. But confidence can be very ephemeral...disappearing as quickly as it arrives. The U.S. Dollar benefits from confidence that the Euro currency may just be unworkable, that the U.S. economy will continue to improve, and that the Fed will raise rates throughout the remainder of 2015 and into 2016. If these expectations are unfulfilled, there could be a Euro reversal.

Will the Japanese “monetary perpetuum mobile” ever get questioned by financial markets?

We have argued that it is a perilous myth that central bankers these days control a general price level. They instead incentivize massive financial flows into securities markets and fashionable sectors. Over time, ramifications and consequences reach the profound. For one, excess liquidity promotes over/mal-investment. It’s only the scope and nature that remain in question. If major Bubble flows inundate new technology investment, the resulting surge in the supply of high-margin products engenders disinflationary pressures elsewhere. Policy responses to perceived heightened “deflation” risks then only work to exacerbate Bubbles, mounting imbalances and structural fragilities. This was a critical facet of “Roaring Twenties” analysis that was lost in time.

Things are unfolding in textbook fashion for another major global financial crisis in the months ahead, and yet most people refuse to see what is happening.  In their blind optimism, they want to believe that things will somehow be different this time.  Well, the coming months will definitely reveal who was right and who was wrong.  The following are 11 red flag events that just happened as we enter the pivotal month of August 2015...

The German Council of Economic Experts is out with a new report on euro area crisis management which backs state bankruptcies and euro exits for governments deemed "uncooperative." "A permanently uncooperative member state should not be able to threaten the existence of the euro. In view of this, the Council of Economic Experts recommends that the withdrawal of a member state from the currency union must be possible as an utterly last resort," the council says.

Deflation is back on the front burner and it's going to destroy all of the careful central planning and related market manipulation of the past 6 years. Clear signs from the periphery indicate that a destructive deflationary pulse has been unleashed. After years of suppression, the forces of reality are threatening to overwhelm our managed global ""markets"'. And it's about damn time.

"The modern financial animal is wont to assume that he or she lives in an age of science. The truth is we live in an age of pseudoscience. Far from dealing in science, central bankers, and, to a degree, investment bankers and security analysts, employ magical thinking... For an individual to fix Libor is a crime. For a central bank to suppress European bond yields is an act of financial statesmanship..."

Unfortunately, Trump’s antics will make it only more difficult to hold a sane debate about taking that time-out from immigration. So, one alternative is an insane debate about it, one based on sheer grievance and gall rather than the responsibilities of governance. We've feared for many years that we are all set up to welcome a red-white-and-blue, corn-pone Nazi political savior type. We don’t think Donald Trump is it. But he will be a stalking horse for a far more skillful demagogue when the time comes. There’s a fair chance that the wheels will come off the banking and monetary system well before the 2016 election. Who knows who or what will come out of the woodwork before then.

Greece’s lesson for Russia, and for China and Iran, is to avoid all financial relationships with the West. The West simply cannot be trusted. The “globalism” that is hyped in the West is inconsistent with Washington’s unilateralism. No country with assets inside the Western system can afford to have policy differences with Washington. It is testimony to the insouciance of our time that the stark inconsistency of globalism with American unilateralism has passed unnoticed.

The preposterous Gong Show in Brussels over the weekend was the financial “Ben Tre” moment for the Euro and ECB. That is, it was the moment when the Germans - imitating the American military on that ghastly morning in February 1968 - set fire to the Eurozone in order to save it. In short, Greece will become an outright debtors’ colony and its government will function as page-boy legislators for the Troika occupiers. Needless to say, political and social upheaval will erupt when the full extent of the Tsipras surrender becomes evident, and the resulting political contagion will spread throughout the length and breadth of Europe as Greece implodes. In due course, the euro will collapse and the baleful Keynesian money printers’ regime in Frankfurt will be repudiated and dismantled. But not before European democracy has a brush with death, and European prosperity is extinguished for a generation.

With Puerto Rico missing a payment on a bond overnight "due to non-appropriation of funds" but denying that this constitutes anything close to a default, the territory may be about to retake the limelight as Greece is now "fixed." As Peter Schiff explains, this is far from over... As in Greece, the Puerto Rican economy has been destroyed by its participation in an unrealistic monetary system that it does not control and the failure of domestic politicians to confront their own insolvency. But the damage done to the Puerto Rican economy by the United States has been far more debilitating than whatever damage the European Union has inflicted on Greece. In fact, the lessons we should be learning in Puerto Rico, most notably how socialistic labor and tax policies can devastate an economy, should serve as a wake up call to those advocating prescribing the same for the mainland. 

Despite earlier commenting that Greek debt sustainability is hard without a write off, German FinMin Schaeuble just told German lawmakers bluntly that there will be no Greek debt cut. What is problematic for Merkel and her minions is that Mario Draghi just confirmed what The IMF has been 'secretly' leaking - that it is "uncontroversial that Greek debt relief is necessary." As this confusion reigns, The Eurogroup has issued a statement "welcoming the adoption by the Greek parliament" of the measures imposed upon the Greek people to drive them further into depression.