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Who Will Be The Last To Crash?

Tyler Durden's picture




 

Submitted by Paul Rosenberg via FreemansPerspective.com,

This is the question that astute investors are forced to ask themselves these days. No reasonable person believes that a system of ever-expanding debt can resolve painlessly. It simply cannot happen… not, at least, until 2+2 stops equaling four.

But the international money system, while deeply interconnected, can implode in sections. In fact, it’s highly unlikely that it will crash as a single unit.

So, if you have significant moneys to invest, you end up coming back to our question: Who will be the last to crash? Once you decide that, you can concentrate your assets in that place, hoping to come through the crash with at least most of your value intact.

Let’s look at several aspects of this:

#1: Background statistics:

  • World debt is upwards of $200 trillion, and growing steadily. World GDP is $70-some trillion, only about a third of the debt. This debt will not be paid back. Massive amounts of debt will have to be written off in losses.

  • US debt is north of $18 trillion. (Amazingly, *cough*, it hasn’t changed in months *cough*.) Forward promises are north of $200 trillion, meaning that a child born today is responsible to repay $625,000. And since roughly half the US population pays no income tax… and presuming that this newborn will be a member of the productive half… he or she is born $1.25 million in debt. Such repayments will never happen. Most of those debts will not be repaid.

  • Japan is worse off than the US. The UK is bad. Many EU countries are worse.

These numbers, by the way, are ignoring more than a quadrillion dollars of derivatives and lots of other monkey business. (Rehypothecation, *cough*, *cough*.)

#2: No one wants to rock the boat.

Informed men and women understand that the entire system is unstable. Probably a majority of them are simply hoping that it holds together until they die. A few dream that magical new inventions will kick-start the system into a new orgy of debt, blowing an even larger super-bubble that lasts through their hopefully longer lifetimes.

But informed people also know that the system stands almost wholly upon confidence. If the sheep get scared enough to run away, the whole thing ends… and no one is ready for it to end.

So, heavy investors speak in soothing tones. They don’t want to spook the masses.

#3: We’ve already had warning shots.

Last year, the International Monetary Fund (IMF) published a horrifying paper, called The Fund’s Lending Framework and Sovereign Debt. That paper, in turn, was based upon one from December of 2013, called Financial and Sovereign Debt Crises: Some Lessons Learned and Those Forgotten.

The December 2013 document, right at the start, says that “financial repression” is necessary. Here’s what it says (emphasis mine):

The claim is that advanced countries do not need to resort to the standard toolkit of emerging markets, including debt restructurings and conversions, higher inflation, capital controls and other forms of financial repression… [T]his claim is at odds with the historical track record of most advanced economies, where debt restructuring or conversions, financial repression, and a tolerance for higher inflation, or a combination of these were an integral part of the resolution of significant past debt overhangs.

So, in order to fix debt overhangs – currently at horrifying levels – financial repression is not just an option, but required.

And of course, they’ve already had a trial run, when they stole funds directly from individual bank accounts in Cyprus.

The IMF report goes on to say:

[G]overnments can stuff debt into local pension funds and insurance companies, forcing them through regulation to accept far lower rates of return than they might otherwise demand.

[D]omestic defaults, restructurings, or conversions are particularly difficult to document and can sometimes be disguised as “voluntary.”

We have a pretty good idea of what’s coming down the pike.

But again, Goldman’s Muppets are not to be told about this. And truthfully, most of them don’t want to know.

#4: We have no view of what’s happening in the back rooms.

People make large bets on what Janet Yellen and the Fed will decide next, but when we do that, we overlook something very important:

Yellen is merely an employee of the Federal Reserve, not an owner. And we don’t know who the owners are.

We do know that the Fed is owned by private banks, and that it has a monopoly on the creation of US currency, but we really don’t know who owns the shares. The true owners are almost certainly reflected in the roster of primary dealers, who skim Federal Reserve units as they’re being made, but we don’t know much more than that.

So…

Who are the people that Yellen takes orders from?

What do these people want?

What are their long-term positions?

Who might they protect, aside from themselves?

We don’t have real answers to any of these questions. From our perspective, the guts of the machine are hidden behind a curtain.

#5: The US is playing to win.

One thing we do know is that the US has a strong hand. Within a general deflationary situation, the Fed can print away. And they’re propping up the US markets quite well… for now.

Feeling their power (after all, they can blow up more stuff than anyone else!), the US is throwing their weight around, forcing nearly every bank in the world to play by their rules. (Think FATCA and fining foreign banks.) And for the moment, it is working.

Bullying everyone else over the long term may, however, not be viable. No one – especially people like Putin and the Chinese bosses – likes to be slapped around in public. And they are not powerless.

Conclusion: Most Bets Are on the US

Europe isn’t looking good. Japan isn’t looking good. The UK is holding, but as mentioned above, its numbers are horrible. Switzerland seems to be in-between strategies. China has problems. Russia has problems. The BRICS have never been stable.

That leaves the US. My impression is that most serious investors would rather hold dollars than yen or euros; most big businesses too. Their bets are on that the US will crash last.

So, are the Fed and the US Treasury doing this intentionally? Are they quietly pulling the pins out from under the others, making sure that they’ll be the last currency standing? I have no inside information, but I’d bet on it.

Remember, the gang on the Potomac has most Americans believing that whatever they do overseas is pure and holy. Furthermore, 99% of their serfs will reflexively obey any order they give. So, why shouldn’t they play dirty? They have the best bombs and a somnambulant public.

For now.

 

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Wed, 07/01/2015 - 20:38 | 6260329 CaptainAmerika
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the lofty pine is oftenest shaken by the winds; High towers fall with a heavier crash; And the lightning strikes the highest mountain  http://www.philiacband.com/propaganda.html

Wed, 07/01/2015 - 20:47 | 6260373 freewolf7
freewolf7's picture

The last to crash? Well I think we have the best sociopaths here in the USA.

Wed, 07/01/2015 - 21:03 | 6260438 FreedomGuy
FreedomGuy's picture

"He who exits first exits best."

It applies to market crashes and fire escapes.

Wed, 07/01/2015 - 21:06 | 6260446 Save_America1st
Save_America1st's picture

Or....

 

Kyle Bass quoting Tim Geithner:  "We're just gonna kill the dollar"

https://www.youtube.com/watch?v=ILKolTI1s50

Wed, 07/01/2015 - 22:53 | 6260809 old naughty
old naughty's picture

"xits first, exits best..."

perhaps this is better play?

http://us.battle.net/wow/en/forum/topic/15270807586

 

Wed, 07/01/2015 - 21:07 | 6260451 flash338
flash338's picture

Snake that eats its own tail eventually craps in own mouth.

-Ancient Chinese Proverb

Wed, 07/01/2015 - 20:38 | 6260341 Its_the_economy...
Its_the_economy_stupid's picture

i wanna know the first thru last please

Wed, 07/01/2015 - 23:35 | 6260915 RaceToTheBottom
RaceToTheBottom's picture

The ability to Print endlessly gives one lots of power, including acting through Japan and Belgium.

Wed, 07/01/2015 - 20:39 | 6260346 will ling
will ling's picture

hopefully all simultaneously; better mad max pickins' - ya know?

Wed, 07/01/2015 - 20:42 | 6260355 Oldwood
Oldwood's picture

WINNING!!!

Wed, 07/01/2015 - 20:42 | 6260358 kaiserhoff
kaiserhoff's picture

Thoughtful piece.  Collapse of the banking/finance system may be poorly correlated to the real economies, and in fact, give the productive sector a much needed break.  That said, what nations need in difficult times, is depth of field.

I think the US, Canada, Greater Germany, and Australia will do reasonably well, but with a reduced living standard.  Not a good time to be in the cities, with few exceptions.   The urban/rural split is a great divide.  Also, not a fun time to be a politician, of any stripe.

Wed, 07/01/2015 - 20:49 | 6260382 Winston Churchill
Winston Churchill's picture

Disagree KH.

The real third world countries probably won't even notice the bump in the road.

The pussified, spoilt developed world is going to get very ugly in comparison.

Just hoping  the starving exodus from the cities won't reach you, is not really a plan.

Wed, 07/01/2015 - 20:56 | 6260398 kaiserhoff
kaiserhoff's picture

Neither will the Amish.

Life at about a fifties level of American development has some appeal to me.

Africa, Haiti, Latin America..., not so much.  Oddly enough, the question of whether we are far enough into the boondocks came up at a little confab a couple of days ago.  Several of us have chosen locations based on that.  Time will tell.

Wed, 07/01/2015 - 21:00 | 6260420 Oldwood
Oldwood's picture

But can they download music on their smart phones? Huh, huh, can they???

Wed, 07/01/2015 - 21:06 | 6260449 kaiserhoff
kaiserhoff's picture

You haven't seen the new pimped out buggies with chrome wheel covers...?

   (me neither;)

Wed, 07/01/2015 - 21:26 | 6260519 disabledvet
disabledvet's picture

I'm not moving to Johannisburg anytime soon that's fer sure.

"As long as your Metropol is near water you should fine."

Denver is an interesting one though.

the only reason the USA hasn't been annihilated by 2008 is because we somehow avoided the liquidity trap...something usually ALL reserve currencies succumb to as everyone else simply devalues against you until you roll over and DIE.

This go around is quite surprising as Japan, Europe and now China appear headed straight into this unique form of monetary Hell. Hence why I STRONGLY believe Europe will simply DITCH the euro.

Of course that leads to a whole new set of problems the rest of the human race can safely ignore...

Wed, 07/01/2015 - 20:59 | 6260417 WTFUD
WTFUD's picture

Australia? When 33% of it's exports are to China.

Wed, 07/01/2015 - 20:43 | 6260362 Winston Churchill
Winston Churchill's picture

Papua New Guinea looks rock solid about now.

Head hunting seems to be thriving.

Who knew it was the jobs paradise of the world ?

Wed, 07/01/2015 - 20:49 | 6260378 Wild Theories
Wild Theories's picture

they also have oil&Gas at the lower end of operating costs in the Asia-Pac region, also helpful.

Wed, 07/01/2015 - 21:26 | 6260512 e_goldstein
e_goldstein's picture

I'm looking into the Federated States of Micronesia. It and North Korea are the only two nations in the world that do not have central banks; and frankly, I think that it would be safter living among the cannibals than the bankers at this point.

Wed, 07/01/2015 - 21:41 | 6260570 Jorgen
Jorgen's picture

How about this little paradise?

Wed, 07/01/2015 - 21:45 | 6260588 e_goldstein
e_goldstein's picture

I will never be a subject of, nor reside in the territory of the British crown.

Wed, 07/01/2015 - 21:41 | 6260571 Jorgen
Jorgen's picture

How about this little paradise?

Wed, 07/01/2015 - 20:45 | 6260364 Four chan
Four chan's picture

a thing that is, what it is, can never crash, gold & silver bullion.

Wed, 07/01/2015 - 20:46 | 6260371 Bighorn_100b
Bighorn_100b's picture

Question sounds like a game of risk. I stopped playing that game a long time ago.

The answer is, every man/women for themselfs. Rules? No rules! Any questions? Ok then, game on! Let's get ready to rumble!

Wed, 07/01/2015 - 20:47 | 6260375 Wild Theories
Wild Theories's picture

I'm gonna go on a wild shot and call: Japan.

Wed, 07/01/2015 - 21:31 | 6260533 Its Only Rock N Roll
Its Only Rock N Roll's picture

I agree.  Last man standing is the one everyone called to fall first. 

Wed, 07/01/2015 - 20:52 | 6260390 Jtrillian
Jtrillian's picture

New Zealand... that's why all the banksters are moving there.

You will never find a more wretched hive of scum and villainy.
Wed, 07/01/2015 - 22:52 | 6260803 WernerHeisenberg
WernerHeisenberg's picture

"New Zealand... that's why all the banksters are moving there.  You will never find a more wretched hive of scum and villainy."

True.  The 13th century settlers were cannibals.  The 19th century settlers were liars, thieves, and murderers.  The 20th century created a dumbed down herd of smug socialists.  Now the 21st century settlers are the worst of the worst - corrupt officials from China and bankers from London.  Now we have quite a few dark lords, fast breeding mobs of orcs, and dumb as a fence post hobbits.  No elves, wizards, or brave free men in sight.

Wed, 07/01/2015 - 20:52 | 6260392 Tall Tom
Tall Tom's picture

As having the World Reserve Currency if the USA crashes then all will crash at the same time.

 

Martin Armstrong did this justice and reported that the USA will be the last to crash. I buy his argument.

 

 

Wed, 07/01/2015 - 21:01 | 6260425 Oldwood
Oldwood's picture

Those who crash last, crash best....like in the biggest ball of fire imaginable??

Wed, 07/01/2015 - 21:01 | 6260424 WTFUD
WTFUD's picture

The Author is Sanguine. Optimistic even in an adverse situation.

Wed, 07/01/2015 - 21:08 | 6260457 WTFUD
WTFUD's picture

It's obvious the last to crash will be Russia.

The sanctions have forced them to diversify their food production and they have all the energy to last for 200 years.

Wed, 07/01/2015 - 21:12 | 6260473 Oldwood
Oldwood's picture

If shit keeps going the way it seems to be, we may all have enough energy to last a thousand years.

No, I ain't going to Disneyland. I'll need better mules for my wagon.

Wed, 07/01/2015 - 21:19 | 6260496 Troy Ounce
Troy Ounce's picture

...and Russia has 15% ratio public debt/GDP, is not financialized and people live relatively humble lives. I agree, WTF.

Wed, 07/01/2015 - 23:00 | 6260773 Volkodav
Volkodav's picture

Russians do not spend money they do not have normally

Belarus also, and Mongolia is unnoticed sleeper..

Wed, 07/01/2015 - 21:09 | 6260463 ISEEIT
ISEEIT's picture

"Most bets are on the U.S."

Well then humanity is well and truly fucked.

The 'U.S.' is the nexis of most of this anti-human pathology.

 

'Bet' on the U.S. (government) and you only support the sociopath's who've gotten us all to this point.

Wed, 07/01/2015 - 21:20 | 6260497 ajkreider
ajkreider's picture

The debt hasn't moved because, cough, the Fed is reducing its balance sheet and sending $10 billion a month to the Treasury, cough. And, cough, we're at record tax receipts, cough.

Wed, 07/01/2015 - 21:25 | 6260517 Government need...
Government needs you to pay taxes's picture

Before anyone faps to the notion that the Fed puppeteers have this bitch under control, STOP.  Can anyone piss up a rope?  If yes, continue to get your fap on. If no, might be time to stock up on guns, broads, and booze.

Wed, 07/01/2015 - 21:26 | 6260520 new game
new game's picture

nowhere to hide, eventually, ha...

stayin put, home is home, and they can all go fuck themselves.

nailguns anon.

donors welcome.

dropoff at banks...

Wed, 07/01/2015 - 21:57 | 6260634 MsCreant
MsCreant's picture

Last to crash does not work. 

Okay, dominoes fall, the effects spread out on the web of financial interconnectivity, but it does so in a reflexive, feedbackish kinda way. 

Bang, credit event. Some folks go down a notch. Those folks failing, make others fail a little. Some of those fails, arrive in clusters, make the US fail a little, which in turn makes much of the system quake, with more failures in those places, that then send new shock waves out. 

No ONE fails last. We all fail some together. Third world countries will feel it the least. Put your money there, if you dare...

Wed, 07/01/2015 - 22:04 | 6260656 OC Sure
OC Sure's picture

"But the international money system, while deeply interconnected, can implode in sections." 

The first problem is that there is not an international productive work system. There is an international theft system. 

The second problem is that writers, commentators, and teachers have not yet identified the first problem. 

Wed, 07/01/2015 - 22:18 | 6260701 T-NUTZ
T-NUTZ's picture

Gold will be the last currency standing.

Wed, 07/01/2015 - 23:12 | 6260844 TimmyM
TimmyM's picture

The proper question in a debt based system is not who will be the last to crash? But what will be the last accepted collateral?

Wed, 07/01/2015 - 23:47 | 6260960 Kirk2NCC1701
Kirk2NCC1701's picture

"Diamonds are Forever",  some say.

Thu, 07/02/2015 - 00:19 | 6261027 NoBillsOfCredit
NoBillsOfCredit's picture

Gold is NOT A "CURRENCY"! It is the metal money is made of. Money is a tool, like a hammer. "currency" is a Note that is due and current. Damn I am tired of the ignorance!

Thu, 07/02/2015 - 06:38 | 6261361 ramgold2206
ramgold2206's picture

well said.... if your tired trying to educate ZH'ers ... try educating the unwashed masses about the benefits of acquiring Phyzz

www.teamramgold.com

Thu, 07/02/2015 - 08:11 | 6261527 T-NUTZ
T-NUTZ's picture

Aside from the condescension, I am sorry you miss the trees for the forest.  You are simply wrong Money is not a "tool", but you are.  Currency is a form of money and money is a medium of exchange and a store of value.  Gold qualifies on all fronts.  Even better and to my point, Gold is a form of money that is not another's liability because of it's rarity and hence intrinsic value (backing).   Hence gold is the ultimate collateral.  This is why central banks hold gold.  I will go further and quote Alan Greenspan,

"Yes... Remember what we're looking at. Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can macth it."

Wed, 07/01/2015 - 22:34 | 6260755 honestann
honestann's picture

When the financial system seizes up, everything else collapses due to the inability to operate those businesses.

So there may be short delays between the various dominoes, but the fiat financial predators have connected them all together so tightly, and leveraged them so extremely, the delays may be very, very short.

Plus, when the predators-that-be "close banks and markets", exactly how will everyone keep doing business?

Cash?  Talk about "velocity of fiat currency"!!!

Gold?  Talk about "velocity of money"!!!

Wed, 07/01/2015 - 23:21 | 6260873 OC Sure
OC Sure's picture

 

What is a "fiat currency?"

Isn't that a non descript and uninformative manner of evasion?

It is like meeting someone at an airport and asking them where they are from and they say, "I am from a country." Or your friends are excited for your purchase of a new car and when they ask you what kind did you get, you say, "I got a blue one!" Or, your spouse returns from the grocery store and you ask what did they get, and they say, " food."

There are two types of currency. Either money or counterfeit. Only counterfeit requires the decree. To say that the currency is fiat is to be evasive and pusillanimous where clarity and strength are needed the most. 

 

Thu, 07/02/2015 - 06:35 | 6261355 ramgold2206
ramgold2206's picture

best try get your hand on some Phyzz gold...served as money for 5000 years... chances are it might serve a few more years to come

www.teamramgold.com

Wed, 07/01/2015 - 23:57 | 6260982 Radical Marijuana
Radical Marijuana's picture

Everybody is going to lose.

Thu, 07/02/2015 - 00:03 | 6260997 Flying Wombat
Flying Wombat's picture

Greek Crisis Awaits Other NATO Partners

http://thenewsdoctors.com/?p=476300

Thu, 07/02/2015 - 00:38 | 6261057 joseJimenez
joseJimenez's picture

Last to crash must turn the lights out.  Oh wait! wrong blog

Thu, 07/02/2015 - 00:59 | 6261080 Phoenix901210
Phoenix901210's picture

There isn't going to be a last, all markets are completely intelinked. 2008 didn't go down like dominoes. It happened everywhere.

Thu, 07/02/2015 - 02:21 | 6261180 Consuelo
Consuelo's picture

If one looks back through the various commentaries since '08/'09, the U.S. as 'last man standing' has fairly well been played through from every angle.   It is far from a unique perspective.    However, most who take this view, still look at the world through a purely economic lens, with the U.S. as the center-of-the-universe.    They are either ignorant of, or have no knowledge of how geopolitics and geo-strategic moves by nations increasingly unfriendly to the U.S. - for a variety of reasons, can not only play into the scenario, they can Dominate it...   All it takes is the right set of circumstances - which, not coincidentally, the U.S. seems to be setting up on a monthly basis with Russia and China.   In short, even street-smart types like Martin Armstrong are clueless as to the speed at which the U.S. could be knee-capped, given the right circumstances.

Thu, 07/02/2015 - 10:42 | 6262147 RaceToTheBottom
RaceToTheBottom's picture

Whenever I am in a plane crash, I find sitting in 35A is a much better seat than 1A.  The time difference for the crash to reach me is worth the discussion.

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