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We Have Reached a Major Turning Point in Central Bank Intervention

Phoenix Capital Research's picture





 

 

I believe we are at a major turning point for the financial system.

 

For nearly four years, the entire financial system has been held together (just barely) by extraordinary interventions on the part of the world’s Central Banks.

 

These interventions have resulted in capital fleeing the markets (hence the low trading volume), moral hazard becoming the norm and a marketplace in which hope of more intervention has a greater impact than the actual intervention itself.

 

The problem with this, from day one, was that eventually we would reach the point at which additional intervention no longer had any effect. This would come about due to:

 

  1. Investors having grown so accustomed to Central Bank intervention that they no longer respond to additional measures.
  2. Central Banks facing a problem so massive that it is beyond their power to stop it.

 

Few people understand just how close we came to #2 early this past summer. Indeed, there was a brief period there, where we were literally on the verge of systemic collapse courtesy of the Spanish banking system imploding.

 

It all started with the collapse of Spain’s Bankia in May 2012. Bankia was formed by merging seven smaller bankrupt banks. In early May 2012 Bankia had to be nationalized. This was a potential Lehman moment that kicked off a massive bank run and resulted in the ECB putting the entire Spanish banking system on life support to the tune of over €300 billion Euros (the entire equity base for every bank in Spain is only a little over €100 billion).

 

At that time, the Spanish Ibex (stock market) broke out of its 20-year bull market and nearly took down all of Europe with it.

 

The one thing that held the system together was ECB President Mario Draghi promising that he may provide unlimited buying (which would give Spanish banks a chance to dump their assets in exchange for cash to fund liquidity needs… they were in that bad a shape). That pulled the system back from the edge and things rallied.

 

The ECB did indeed announce an unlimited bond buying program on September 6 2012. The Federal Reserve then announced an open-ended QE program a week later on September 13 2012.

 

And that’s when everything changed.

 

Instead of blasting off into the stratosphere, stocks fell soon after this announcement. That was the first sign that the game has changed: after every other announced program in the past four years, the markets fell briefly but then rallied hard and didn’t look back.

 

Not this time.

 

And so we experienced the first item I listed above (investors grew accustomed to Central Bank intervention that they no longer respond to additional measures).

 

We now are also experiencing #2 (Central Banks are facing a problem so massive that it is beyond the power to stop it). That problem is the fiscal cliff which Bernanke himself has admitted that the Fed cannot contain. “I don’t think the Fed has the tools to offset [the fiscal cliff].”

 

This is Ben Bernanke, arguably one of the most powerful if not the most powerful man in the Western financial system, admitting that the Fed doesn’t have the tools to address an issue. This has never happened before. For every single issue that has arisen going back to 2006, Bernanke claimed he had things under control.

 

Not this time.

 

So, we have investors now so accustomed to Central Bank intervention that even the promise of unending intervention doesn’t appease them… at the exact same time that an issue so great (the fiscal cliff) appears that even the Fed has admitted it cannot manage it.

 

No one is picking up on this because everyone is focusing on Black Friday and the Santa rally which I mentioned in last issue. But things have changed. And they have changed in a big way.

 

And no one has a clue how to deal with what’s coming.

 

Ever since the EU Crisis began in earnest in January 2010, EU leaders have maintained the following strategy:

 

  1. Engage in endless meetings/ discussions, none of which resolve anything.
  2. Announce that the situation is resolved.
  3. Wait for the world to realize nothing has been fixed.
  4. Repeat.

 

The prime example is Greece. There have been no less than 30 “Greece is saved” press releases/ announcements, accompanied by market rallies only to discover that Greece is not saved and in fact is worsening by the week.

 

We’ve now had two formal Greece bailouts. We’re currently working on a third/ debt buyback program, the stated goal of which is to get Greece’s Debt to GDP ratio to 120% by 2020.

 

Again, the goal for the current proposal is to get Greece to the point at which it will still be totally broke in eight years. It’s amazing no one laughs out loud at EU meetings.

 

Actually they did… the below came from a recent Q&A session with Jean-Claude Juncker, current Prime Minister of Luxembourg.

 

 

Question: Is the goal still to get Greece's debt to 120%?

Juncker: The fact is that the target of 120% will remain, but the target as far as the time frame is concerned has been postponed to 2022.

[Laughter in the room]

Juncker: That was not a joke!

            Source: ZeroHedge

           

The reality is that no politician wants to implement actual solutions (total default, wipe out of all bad debt, and massive economic structural changes) because all of them are 100% politically toxic.

 

Meanwhile Greek unemployment worsens while its GDP continues to collapse. Indeed, from peak to today, Greek GDP has fallen nearly 20%. This collapse is equal to that of Argentina in 2001, when it had a full-scale systemic implosion.

 

Again, this is the country that political leaders and financial luminaries claim has been “saved” dozens of times.

 

If you’re looking for ideas on how to navigate this mess, we have produced a FREE Special Report available to all investors titled What Europe’s Collapse Means For You and Your Savings.

 

This report features ten pages of material outlining our independent analysis real debt situation in Europe (numbers far worse than is publicly admitted), the true nature of the EU banking system, and the systemic risks Europe poses to investors around the world.

 

It also outlines a number of investments to profit from this; investments that anyone can use to take advantage of the European Debt Crisis.

 

Best of all, this report is 100% FREE. You can pick up a copy today at:

http://gainspainscapital.com/eu-report/

 

Best Regards,

 

Graham Summers

 

PS. We also offer a FREE Special Report detailing the threat of inflation as well as two investments that will explode higher as it seeps throughout the financial system. You can pick up a copy of this report at:

 

 

 

 

 

 

 

 

 


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Sun, 12/02/2012 - 20:34 | Link to Comment cosmyccowboy
cosmyccowboy's picture

remember our dear leaders push for higher taxes has nothing to do with the amount of deficit reduction will occur and everything to do with FAIRNESS!!!

Sun, 12/02/2012 - 22:23 | Link to Comment Oldwood
Oldwood's picture

And revenge!

Sun, 12/02/2012 - 23:53 | Link to Comment willwork4food
willwork4food's picture

Semper Fi!

Sun, 12/02/2012 - 11:41 | Link to Comment northerngirl
northerngirl's picture

The games will continue until confidence is lost in the currency, and that will not happen until the general public realizes that currency and money are not the same thing.

Sun, 12/02/2012 - 09:32 | Link to Comment Quinvarius
Quinvarius's picture

So the Fed puts out deflation expectations while it hyperinflates the money supply.  What is so hard to grasp here?  Of course they are going print all the money the USA requires to operate.  They have been doing it for decades.  There is no fiscal cliff.  If there was a real issue here, they would have addressed it like adults.  They are just carving up the spoils of the next round of looting and grabbing the spotlight until Dec 21 in DC. 

Sun, 12/02/2012 - 19:34 | Link to Comment ZFiNX
ZFiNX's picture

The deflation expectations keeps yields low so they can 'load da boat' at a low cost of interest.

Sun, 12/02/2012 - 09:13 | Link to Comment lamont cranston
lamont cranston's picture

Good ol' Jean-Clawed. Wasn't he the dude who made the comment about "you have to lie (sic)" or something like that?

Sun, 12/02/2012 - 00:40 | Link to Comment Lord Koos
Lord Koos's picture

The "fiscal cliff" is bullshit.

Sun, 12/02/2012 - 01:03 | Link to Comment nmewn
nmewn's picture

Yes, it is.

60-80 billion dollars ANNUALLY in taxation (the current tax the rich meme) vs a trillion plus deficit ANNUALLY in spending. One wonders where (lets round it off) the other nine hundred forty billion will come from...and that's being generous.

I've got a pretty good idea from where. The same place it always comes from. The only question remaining is how much will be printed into existence to make up for the shortfall from THAT normal "resource".

Prepare accordingly.

Sun, 12/02/2012 - 22:05 | Link to Comment BraveSirRobin
BraveSirRobin's picture

Actually, I think the current proposal from the White House is $160,000,000,000 in new taxes, delay of spending cuts, and $50,000,000,000 in new "stimulus" spending to counteract the negative growth effects of the tax increases.

I like to type in all the zeros instead of writing "$160 billion" and "$50 billion." I am burnishing my credentials and practicing on becoming a FED Chairman.

 

Sun, 12/02/2012 - 23:21 | Link to Comment lasvegaspersona
lasvegaspersona's picture

we will get a 10 year plan...all the spending NOW all the savings LATER....just like always...

Sun, 12/02/2012 - 17:38 | Link to Comment bigkahuna
bigkahuna's picture

They are going to have to print up a crap load and eliminate the debt ceiling if we go over the "cliff". As I understand, uncle sugar is going to start cutting up some of it's credit cards and begin firing muppets.

 

Then the quds force is gonna make a move on us. <--sarc 

 

Anyway, I read a story yesterday that reasoned that uncle sugar would cut spending resulting in a contraction of the money supply which would lead to some price deflation if left unchecked?

Sun, 12/02/2012 - 22:08 | Link to Comment BraveSirRobin
BraveSirRobin's picture

"They are going to have to print up a crap load and eliminate the debt ceiling if we go over the "cliff". As I understand, uncle sugar is going to start cutting up some of it's credit cards and begin firing muppets."

I thought we just save Bigbird and give Tax Cheat Little Timmy G the congressional power to set the debt ceiling.

Mon, 12/03/2012 - 00:55 | Link to Comment bigkahuna
bigkahuna's picture

Man, the problem is you are probably going to be right. I can already see that stupid fucking grin on turbo timmys face.

The last five years for me have been surreal. It's like the laws of mathematics have been suspended let alone logic.

The paradigm keeps shifting. I am tired of asking myself "why the fuck did that just happen?" and the subsequent thought of --we're gonna pay for this!

All of the spending and debt and dishonesty are going to come back to roost on us all. Well, it will roost on some harder than others of course, but when the day comes when we find we have to use deadly force to egress the grocery store parking lot- some will be ready, some will just be dead.

Sun, 12/02/2012 - 00:16 | Link to Comment newengland
newengland's picture

Crikey! Are you saying the Chairsatan et al are going to turn on each other?

Excellent.

Long on popcorn, short ropes and long drops :-)

Sat, 12/01/2012 - 23:07 | Link to Comment Stuck on Zero
Stuck on Zero's picture

The Central Bank interventions are not useless.  They succeed very well in transfering all of the nations wealth and power to the illuminati.

 

Sun, 12/02/2012 - 12:24 | Link to Comment masterinchancery
masterinchancery's picture

Yes, it can't be over because the middle class still has some stuff left to be looted.  After that, the important looters can retire to their heavily guarded chateaux in Switzerland and southern France.

Sun, 12/02/2012 - 00:17 | Link to Comment newengland
newengland's picture

No honor among thieves. They hate each other, mostly when they run out of other people's money, and their slave staff plot to kill them.

Sat, 12/01/2012 - 22:55 | Link to Comment mt paul
mt paul's picture

what no twinkies...

 

they said there would be twinkies

at the end of these coments...

Sat, 12/01/2012 - 22:02 | Link to Comment Bear
Bear's picture

I thought you said the same thing two years ago?

Sat, 12/01/2012 - 20:56 | Link to Comment disabledvet
disabledvet's picture

the USA has had in my opinion only three "postive" systems of public finance in its history...and i do agree the current one has completely broken down. by public finance i would argue simply "a system for the extinguishment of all debts public and private." the first was literally "the first"...namely the Hamiltonian system...one that was quite effective until Andrew Jackson became President and "extinguished it"...quite completely actually. The second was a true "gold standard" (all paper money redeemable in actual gold...with an actual bank lending against gold reserves held in it vault)...in effect started under Grant but in reality not until the 1880's. This system was truly fascinating as basically one guy made himself and his bank the constant target of speculative attack (who wouldn't want to break a bank with actual gold in it...unlike the current ones with nothing but IOU's and promises of more "Fed largesse")...and who lost his system not because the market panic of 1906 destroyed the system but because he succeeded so well in defending his bank's gold the Government deemed him "too powerful" and took the gold to create the monstrosity called "the Federal Reserve." The third i would argue was created by Henry Morgantheau after World War 2...originally a "a gold price rule" system (no banks lent against gold by then but against deposits--and of course the strength of the economy with full backstopping by the Fed). I would argue this system completely collapsed in 2008...having "mostly" collapsed under Nixon. I peg the date 2008 because "the money flowed...and continues to flow...from Washington DC to the Banks via a Bailout Regime." And yes...there are strings attached. So many in fact it's really hard to call them banks anymore...more like "exploded whale carcasses." I think the euro-zone...while not making an attempt...certainly pretended to offer up some type of "alternative" to the US...but they didn't really do anything other than to say "pick us now!" so far that approach looks like a total catastrophe. I simply don't see any other economy right now the rival the USA's in either size or meaningfulness...not that this COULDN'T happen. (Brazil is an intriguing case...but my understanding is that the interior has not but developed correctly. It does have an interior to develop however.) China obviously has a lot of potential...and it does have a vast interior that it not only wants to develop but is in fact developing. The only problem is that nobody wants to live out there. Still....this is a huge chunk of real estate. Russia is another fascinating example...the ultimate in "interior space"...but with no rule of law...or rule of anything it would appear save for "Putin"...doesn't appear that's going to threaten the "money you love us here" thing either. So it looks....amazingly...the entire planet is still on the "Flight 93 of Finance"...the good old USA. Unlike what is posted here i believe the primary threat to the dollar comes not from gold but from OIL. the dollar amounts involved are simply beyond belief staggering. and i'm not talking reserves folks...but CONSUMPTION..."where the rubber hits the road" as they say. if there's anything out there to "break the buck" it will be OIL...and not gold (whose market is really quite miniscule...and economic utility close to nil of course)...NOT THAT I DON'T LOVE GOLD BASED FINANCE...it's just that when we're talking true "end of the world" cats and dogs sleeping together stuff...gold ain't it. the other option i have opined about is a "financial Supernova" caused by the sheer "volume" of "gaseous Government debt" that is...as well know "compounding." for some "it's just a real big number"...but what no one actually talks about is how a number that large is still compounding even with the current de minimus interest rate. in other words "it can be like a Red Giant suddenly going super-nova." sorry but there ain't nothin' contained about the deficit no matter how high taxes get raised because should the economy stall or slip back into recession (as has already happened in New York City and New Jersey) then all deficit projections will be null and void. the irony of course is that business profits have never been higher...IN HISTORY. Should that change... O

Sat, 12/01/2012 - 22:07 | Link to Comment Transformer
Transformer's picture

Hey disabledvet.  If you want to publish long diatribes on Zero Hedge (which may be interesting, I don't know, I didn't read it), it would be good to learn about punctuation, paragraphs, things like that. 

Just sayin'

Sun, 12/02/2012 - 20:26 | Link to Comment Navigator
Navigator's picture

Agreed.  I've always said that if a writer isn't bright enough to paragraph properly, he or she isn't bright enough to write anything I'd want to read.

Sat, 12/01/2012 - 20:42 | Link to Comment Zero Govt
Zero Govt's picture

"...Bernanke himself has admitted that the Fed cannot contain. “I don’t think the Fed has the tools to offset [the fiscal cliff].”

it's called "stick" Graham

it's how the Banksters (Fed etc) whip all those pork bellied pigs in parliament that can't get off the nations debt(it) card into line for their final all-out financial rape of what remains of the country they've skimmed, fleeced and tortured for decades

read between the lines Graham, Ben's saying Congress is fucked without him, hand over your country for a bankster asset stripping .....or else!!


Sat, 12/01/2012 - 21:52 | Link to Comment covert
covert's picture

it seems like everything that's wrong always traces back to the people.

http://covert.ias3.com/forums/

Sat, 12/01/2012 - 20:13 | Link to Comment woggie
woggie's picture

the beast is on the gobble
and all that matters is we're all headed for it's belly
http://youtu.be/ntmthFyaYzY

Sat, 12/01/2012 - 19:35 | Link to Comment All is chosen
All is chosen's picture

We have this article showing twice. TD's humour can be so cruel. The more the complaints about Summers' blinding obvious outpourings, the more of it is posted :(

 

Sat, 12/01/2012 - 22:09 | Link to Comment Transformer
Transformer's picture

Who's been right over and over about the Fed and QE3?  Til he wasn't, of course.

Sat, 12/01/2012 - 18:49 | Link to Comment dumpster
dumpster's picture

so phoenix your still trying the karnac the central banks? .. doing a fractile comparson with this call to your famous  QE3.. ten yard miss .

 

How is it you always get it wrong .but for free reports the only loser is your postage  and credibility

Sat, 12/01/2012 - 18:57 | Link to Comment Fake Jim Quinn
Fake Jim Quinn's picture

You have it right but don't say it in print. I use Phoenix as a 100% perfect contra indicator. He says the dollar going dowm, I buy USD. Please don't interfere with his thinking...one of the best aspects of ZH besides the political discussions is this formula to make a few extra bucks!

Sun, 12/02/2012 - 00:48 | Link to Comment Bollixed
Bollixed's picture

If you guys don't quit dumping on Phoenix, the Tylers are going to lose all that revenue PC pays for these adverts.

For Christ's sake, I had to put up with all those stupid Obama ads during the campaign, these ads are easy to take.

Somebody has to pay the bills...

Sat, 12/01/2012 - 18:09 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

The farce will go on until BRICS introduces a gold/silver backed currency.  That's when the farce collapses and America is finished.

Sun, 12/02/2012 - 01:47 | Link to Comment AGuy
AGuy's picture

Unless WW3 happens first.

FWIW: I don't see the BRIC's moving to a gold standard. I think Gov't bueracrats in the BRICs would rather hoard gold for themselves. BRICs are some what dependant on foriegn trade surplus, so I don't see an rush to prevent their currencies from falling, or to seek currency appreciation either.

As far as the EURO, I think they will figure out another way to kick the can down the road. Perhaps Spain and other PIGS will nationalize domestic wealth from the working class. ie consficate all people and retirment savings, sell public assets. Whatever it takes to prop up the system. As Junker said early, they know how to fix the problem, just not with the bureaucrats keeping thier jobs. Where there is a bureaucrat job at stake their is a way to kick the can.

Sun, 12/02/2012 - 09:59 | Link to Comment overmedicatedun...
overmedicatedundersexed's picture

gold shipped in the odd ways these days:

 

http://www.telegraph.co.uk/news/worldnews/centralamericaandthecaribbean/9715842/Multi-million-gold-heist-from-boat-in-Caribbean.html

hate it when my gold goes missing to the pirate raids..so sorry Tax man, so sorry.

Sat, 12/01/2012 - 22:05 | Link to Comment Bear
Bear's picture

I hope soon ... I'm tired of waiting but then again Mad Max doesn't look too good either

Sat, 12/01/2012 - 19:45 | Link to Comment in4mayshun
in4mayshun's picture

Oh please! The Anglo American Banker Government will never allow other countries to develope a pure monetary system. WW3 first. There's a reason that the US has the most powerful military in history.

Sat, 12/01/2012 - 21:25 | Link to Comment cranky-old-geezer
cranky-old-geezer's picture

 

 

BRICS will up the ante to thermonuclear.  US will back down, its military is nothing against ICBMs.

US kleptocrats' balls shrivel up and fall off when the thermonuclear card comes out, and last check there's 3 nuclear powers among BRICS, including the biggest one on the planet.

Sat, 12/01/2012 - 17:44 | Link to Comment davidsmith
davidsmith's picture

"And no one has a clue how to deal with what's coming."

 

What 14-year old wrote that???  Haven't you ever heard of corporatism?  Read any book about the Italian economy under Mussolini, and you'll see what comes next.  Jeesh!  What idiots write for this site!

Sat, 12/01/2012 - 18:18 | Link to Comment dark_matter
dark_matter's picture

Articles that ends with "Order my free report" are never credible.

Sun, 12/02/2012 - 23:21 | Link to Comment willwork4food
willwork4food's picture

Unless they are enhanced with the knowledge of a very pretty girl in short shorts.

Then it is not only credible, it's gospel.

Sat, 12/01/2012 - 17:05 | Link to Comment falak pema
falak pema's picture

no we haven't

Sat, 12/01/2012 - 16:48 | Link to Comment spinone
spinone's picture

Reports of the dealth of the economy have been greatly exaggerated

Sun, 12/02/2012 - 10:48 | Link to Comment Peter Pan
Peter Pan's picture

It's not just the economy that is dead. Its people and therefore the nation are dead. Forty six million or so people would be dead if there were no food stamps, perhaps another 100 million if the government did not have the means to run a trillion dollar deficit year after year. The economy is not dead, we just need to realise that cities like Detroit are an exception rather than the norm. The economy is not dead but Bernanke persists with ZIRP. The nation is not dead but it certainly has the look of the living dead or some kind of zombie. Give me a break Spinone and take a good look at your neighbourhood, your income, your malls and even your own family and even if you still think the economy is not dead, then at least admit it is comatose, necrotic or diseased.

Sun, 12/02/2012 - 22:20 | Link to Comment BraveSirRobin
BraveSirRobin's picture

Actually, they would not be dead. Thye would just have to find something productive to do, or steal it. Productive people can either pay people for goods or services, or they can pay taxes. When the government takes wealth from the productive and pays people to be unproductive, you get less wealth, and more unproductive people. It really is that easy.

Sat, 12/01/2012 - 16:33 | Link to Comment nowhereman
nowhereman's picture

If their lips move, they're lying.

Sat, 12/01/2012 - 16:34 | Link to Comment Mad Muppet
Mad Muppet's picture

Why worry, by adopting the Japanese model we can get a few more good years out of the old nag before she dies. We can look at getting another pony then.

Sat, 12/01/2012 - 16:29 | Link to Comment bank guy in Brussels
bank guy in Brussels's picture

Re 'Major Turning Point' it seems we have had quite a few of them already

And the Ponzi yet continues

It all has lasted a lot longer than many of us thought it would

Sharp critical observers of the government finance credit bubble - like Doug Noland of the Prudent Bear Credit Bubble Bulletin, and Jim Sinclair of MineSet -

They seem to think we still could have another two years or so of Mega-Ponzi, till the grand ka-boom and reset

Seems we shouldn't underestimate the Central Bankstas ... they still may have some months' worth of trickery left to deploy

Sun, 12/02/2012 - 19:25 | Link to Comment SheepDog-One
SheepDog-One's picture

Its lasted longer than people thought it would, which really just means the innevitable will only be exponentially worse when it does finally snap. I believe they really dont know what the fuck to do at this point. 

Sun, 12/02/2012 - 20:12 | Link to Comment Imminent Crucible
Imminent Crucible's picture

They admitted they don't know what to do. At least, Dallas Dick did. Fisher said "Nobody on the committee, nor on our staffs at the Board of Governors and the 12 Banks, really knows what is holding back the economy. Nobody really knows what will work to get the economy back on course. And nobody—in fact, no central bank anywhere on the planet—has the experience of successfully navigating a return home from the place in which we now find ourselves. No central bank—not, at least, the Federal Reserve—has ever been on this cruise before."

Not a good thing to hear from the bridge when it's dark out and the water is full of icebergs.

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