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The Next Financial Crisis Won't Be Like The Last One
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
It seems increasingly likely the next Global Financial Meltdown will arise in the FX/currency markets.
Central banks are like generals: they tend to fight the last war. The Great Financial meltdown of 2008 was centered in too big to fail, too big to jail transnational banks and other financial entities with enormous exposure to collateral risk (such as subprime mortgages), highly leveraged bets and counterparty risk (the guys who were supposed to pay off your portfolio insurance vanish in a puff of digital smoke, leaving you to absorb the loss).
In response, the central banks and treasuries of the major economies "did whatever it took" to save the private banking sector from insolvency and collapse. In effect, central banks launched a multi-pronged bailout of banks and other financial heavyweights (such as AIG) and hastily constructed a clumsy and costly Maginot Line to protect the now-indispensable private banks from a similar meltdown.
The problem with preparing to fight the last war is that crises arise not from what is visible to all but from what is largely invisible to the mainstream.
The other factor is what's within the power of central banks to fix and what's beyond their power to fix. Correspondent Mark G. and I refer to this as the set of problems that can be solved by printing a trillion dollars. It's widely assumed that virtually any problem can be fixed by printing a trillion dollars (or multiple trillions) and throwing it at the problem.
Yes, the looming student-loan debacle can be fixed by printing a trillion dollars and paying down a majority of the existing student debt.
But lots of other problems are not fixed by printing a trillion dollars. Printing $1 trillion can pay for a lot of make-work jobs, but that's not the same as boosting employment in a sustainable, organic fashion.
The ocean's fisheries will not magically come back from being stripmined if a central bank prints $1 trillion. If the $1 trillion is spent wisely, perhaps in a decade or two fisheries can recover. But neither employment or ecosystems can be "saved" by printing money and throwing it at the usual vested interests.
So what else is beyond the easy fix of a quick $1 trillion printing/bailout? How about the foreign exchange (FX) market? Many a government and central bank has attempted to fix the foreign exchange market, but they fail for the simple reason that the FX market is too large to control for long.
$1 trillion just isn't that much in a market that trades $3 or $4 trillion per day.
It's not that difficult to predict that the next global financial crisis will arise not in the banking sector but in a market that's beyond the reach of central banks. That is, printing $1 trillion and promising to "do whatever it takes" won't fix what's broken.
One reason I have been focusing on the potential of the U.S. dollar (USD) to strengthen for the past four years is the potential for this dynamic to fatally disrupt the central bank-managed global "recovery."
Could the U.S. Dollar Rise 50%? (January 12, 2011)
We can already see the consequences of a strengthening USD: since the USD started strengthening against other currencies late last summer, capital flows have reversed globally, fleeing China and the emerging markets. Commodities and global trade have crashed as a result of this drain of capital out of emerging markets into USD-denominated assets.
The other reason crises arise is policies designed to solve one problem end up triggering another even more uncontrollable problem. Trying to control FX markets is intrinsically loaded with paradoxes and unresolvable conflicts, as whatever a central bank or treasury does to effect global FX markets has another set of consequences within the domestic economy that issues the currency.
Conversely, if the central bank/treasury set policies to control a crisis in their domestic economy, those policies have uncontrollable consequences in global FX markets.
For example: if a central bank raises interest rates to defend its currency, those higher rates strangle the domestic economy. In effect, the central bank has only bad options: either accept a domestic recession to defend the currency, or let the currency devalue and watch the domestic economy implode as import costs soar and capital flees the devaluing currency.
Add all this up and it seems increasingly likely the next Global Financial Meltdown will arise in the FX/currency markets. The core paradox - that central banks can't control both domestic and global FX markets with the same set of policies - cannot be resolved by printing $1 trillion, or even $5 trillion.
Printing money to fix one problem leads to another set of problems that are only made worse by additional money-printing.
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No it wont
THIS IS GOING TO BE A BIG ONE
Where is this fucking shemitah when you need one, huh?
<= Markets should rally into fed hike
<= Muppet bag passing suckers rally like no other
Cock-sucker is still at the bar...
You can buy the shmata (T-shirt).
Many will make huge $$$$$$ in FX right before the computers go dark
True dat.
Currency volatility is exactly why globalists will move towards a single global currency once the fed gets done destroying the U.S dollar. It's been suggested that the U.S dollar is the single world currency but I don't think that will be the case. It leaves too much power in the hands of washington (or those who really control Washington) and the global elites won't accept that fact.
Of course the excuse they will use to enact that Global Currency IS the collapse.
It is all by design.
And Washington will not be in control. It is not currently.
Look toward Jerusalem.
I think the NWO cabal transcends any particular ideology. They serve the same god. i.e. The god of power!!! Money is power, fame is power, and of course the 'appearance' of public service is power.
;-D
The future reserve currency will not likely be a single currency at all but in fact it's more likely to be based on a basket of currencies so that no one country has the ability to manipulate the markets. I would also put a very strong bet on the yuan palying a far greater role as the center of financial power shifts towards the east once more (something not seen since before Columbus last set sail).
This is 1000% correct. It is ALL by design.
Collapse the USD. Invalidate, once and for all, the idea of Rule of Law being tantamount to Rule of Man, which is the single defining principle of the US Constitution. One World Government - the UN. One World Central Bank - the IMF/World Bank.
All of it controlled by psychopathic, parasitic Pharisees with delusions of deity and an utterly insatiable powerlust.
Look towards the re-emergence of the Roman Empire Tom - i.e., the rise of a 'new' Europe. You're seeing the beginnings of it right now in real time with this refugee mess. By the way, none of those down-votes are mine --
I see spies.
Global currency....fat chance. The Euro is a trial run to that pipe dream.
The USD is being eroded because the elites would rather "grow" out of debt by taking on more debt....until collapse.
The debt ponzi eventually kills all fiat currencies.
^^ This.
What you think that just because the system collapses under it's own wait that people will take the lesson to heart? If there is one thing we've is that they won't. The "solution" to the world's problems is always moar of the same.
How are they going to convince Russia and China of a global currency when America has been pushing and poking?
There is a solution Doc, but the bullet heads in public service will immediately "weaponize" it. Strong AI will give us the opportunity to create a real unbiased justice system a la "Farewell to the Master" and "The Day the Earth Stood Still". A truly fair justice system will ensure that the elite scofflaws get their due punishment. Until this happens we are doomed to repeat our ridiculous behaviours.
;-D
You're talking about going full Skynet.
Never go full Skynet.
Sadly, skynet is most likely where we are headed...
;-D
BTW, your avatar is very, very cool.
Assuming we can keep the socio-economic status quo intact for another 20 years or so, I expect the Singularity to occur within that time frame. The chance of us actually doing that is pretty much zero. WWIII will intervene and push the date of the Singularity back at least a decade. I'm still optimistic we'll see it by 2050. Then we'll have WWIV against the machines. Winner take all... I'm not too concerned about this as I will have long ago become worm food.
Thanks for the compliment,
;-D
Strong AI will give us the opportunity to create a real unbiased justice system
Depends on who is doing the programming. And when a case doesn't fit the algorithm?
The operative word here is "opportunity". I made it clear that TPTB will weaponize it. If we can create a truly honest enforcer of the laws, then we can move forward and not continue to repeat our greed and fear driven mistakes. As long as the elites are able to skirt the law, we are royally (no pun intended) screwed...
;-D
the problem, you see, is that the people have no voice, because MSM pretend to be the voice of the people.
The Euro is/was a trial run... and now 'they' know why it failed...
A major reason (not the only one) why the Euro hasn't worked is because it was not meant to function in the context of multiple 'sovereign' national governments. I.e. it was envisaged that political union would follow the monetary union.
So what's the solution these maniacs in power will push for? - Enforced political union. Global political union. And that means war.
After that, that's when we get the global currency.
"The tighter your grasp, the more star systems will slip through your fingers."
The present Euro pains will be used as a vehicle to get the Euro countries to give up some of their financial freedoms. United states of Europe....
They know where they want to go, these are just some intermediate steps to get there.
Am wondering whether the debt jubilee will be part of the reset, at least between currencies going to the new one?
I think the EURO was a test run to a world currency(SDR's). It's implosion is immenient, and the Designers need to regroup.
Destroying ALL currencies(fiat) is my guess. That way they will usher in the "politically neutral SDR" currency,
and once that is established, go to all digital money and outlawing PM's
Agreed.
When the only tool you have is a hammer...it's easy to print money.
So what's the next tool?
Should be a scalpel, but I expect pliers and a blowtorch.
Yeah, but when?
Allready started DeadFred.
Stocks trending lower
Comodities trending lower
Proffits trending lower
House prices trending lower
Spending trending lower
Good job opportunities trending lower
Etc etc
Well, the markets didn't implode monday, that shemitah crap will soon be replace by yet another end of the world prediction.
Now, the markets are green, oil is setup for a spike up... I'm buying all this crash crap when it's actually happening because all these panick reactions and jumps from side to side in the bus have cost my a shitload of money.
This is my 5th or 6th Armageddon that I've survived. I'm running out of lives.
Im with you SD Im buying the shit no one wants lol...
Went with the UPRO/SPXU equal weight strat, loses a little in flat markets, starts making money at a roughly 33% move in either direction. IB also pays about 2.5% for the privilage of loaning my shares.
Not sure what to think anymore. Just grown indifferent to it all.
Being prudent, living within my means, hedging longer term risks as well as taking short term risks here and there.
The next crisis may perhaps not be such a grand spectacle as 2008, but a muddle-through slow motion train wreck.
what we need are some protectionist laws....thats the ticket!
Currency wars
then
Trade wars (carefull what you wish for)
then
War
Oh, stop it.
People have been waging trade and currency wars against the US for decades.
The prospect that we might finally start to fight back terrifies them.
But the war against us continues unabated nevertheless.
Seriously, tell me what we have to lose in a trade war with, for example, China?
Well, we'd lose a drain of tens of billions of dollars a month. Boo-hoo.
China, of course, would be destroyed due to their inability to find a market large enough to replace what they lose from us.
Considering that we have the largest market in a world desperate to save itself by exporting, protectionism should be used as powerful tool to encourage other nations to play nice with us.
China, for example, should be forced to choose between building a challenger to the US Navy and selling goods to the US economy. One or the other, not both.
Mexico should have to pick between access to the US market and dumping surplus population across the border to the north while squashing immigration from the south.
We are holding the most powerful set of cards in a world filled with busted flushes. Play to win, not supinely push our chips across the table. Sure, everybody hates protectionism-- from the US, but when it comes time to shield their internal markets, it's stay out White Boy. Two way street needs to be the minimum policy.
+100
I've been saying this for years now.
The next central banking tool employed will most likely invovle uranium.
The next central banking tool employed will most likely be an migrant!
"Trying to control FX markets is intrinsically loaded with paradoxes"
I LOVE a good paradox.
I too think it will be a fiat war....fiat vs fiat....and it will get wierd..with one country not accepting the other countries fiat....it will be strange times...
you also can't print potable water or joules (eroei)...
The BIG financial collapse IS going to happen as it IS inevitable ! However NO ONE knows exactly when that will occur . Don't make the mistake of assuming that it will NEVER happen & make NO preparations ! Remember in " The boy who cried wolf" story , the wolf does show up !
Printing money to fix one problem leads to another set of problems that are only made worse by additional money-printing.
It all comes down to first knowing what money really is ... always has been ... always will be.
Money is a "promise to complete a trade".
This is obvious from examining trade: (1) Negotiation; (2) Promise to deliver; (3) Delivery. With simple barter, (2) and (3) happen simultaneously, on-the-spot. Money allows (2) and (3) to happen over time and space. Thus, money is obviously "a promise to complete a trade".
Any Medium of Exchange (MOE) process observes the natural relation:
INFLATION = DEFAULT - INTEREST
Money is created by traders making trading promises and getting them certified. Money is destroyed by traders delivering on those promises and returning the certificates. Anyone who has bought a house or car over time knows the process. In the mean time, the certificates (really just records) circulate in the marketplace as the most desired object of simple barter exchange.
They are most desired because:
The last attribute (never lose their value) comes from proper management of the process. For any trading promise no money exists before the trade. No money exists after the trade. So there can be no inflation ... it is guaranteed to be zero.
What if a trader fails to deliver? With a properly managed MOE process, the DEFAULT is immediately detected and the certificates are recovered by an immediate INTEREST collection of like amount.
It's just that simple.
You "can't" print a trading promise. What you're seeing with printing is "counterfeiting". It is principally done by governments making fake trading promises ... promises they have no intention of delivering on. Further, they roll over these debts which is obvious default. Then they charge themselves less interest than any other trader.
The result, a 4% leak in our MOE process. They even claim to "want" a 2% leak. That's how governments are funded when they can no longer collect adequate taxes to support their largess.
Nice.
when the only tool you have is a hammer that has thors head on it, print gold coins with thors head on them.
No the next financial crisis won't be the last. But Woody Dorsey is calling for another crash. He predicted the August crash 3 weeks before--almost to the day and now predicted not 1 but 2 more important time zones. (1) is a "Black Hole" crash. See for yourself, but be prepared!!
The first negative time zone is approaching real fast. See for yourself.
No the next financial crisis won't be the last. But Woody Dorsey is calling for another crash. He predicted the August crash 3 weeks before--almost to the day and now predicted not 1 but 2 more important time zones. (1) is a "Black Hole" crash. See for yourself, but be prepared!!
The first negative time zone is approaching real fast. See for yourself.
Let import costs soar.
Then everybody will need to build and sell their product from the god 'ole USA.
We are self sufficient in energy and food.
the world needs us, we don't need the world.
ZH/Charles, here is the general theory of inflation. Do you know the answer to the critical question?
http://just-a-thought-from-thinair.blogspot.com/
http://just-a-thought-from-thinair.blogspot.com/2015/09/the-general-theo...
By subsidizing the banks, the banks were subjugated. Bankers are now beholden to gov't, not customers.
Justl like the gov't bought big insurance to hide the lies of Obamacare:
http://www.teapartytribune.com/2015/09/15/185b-unfunded-bribe-for-big-in...
The shemitah this year is to buy the dips. Dont forget that this year is shemitah 7x7=49 no crisis here.
This is the vogue in today's economic argumentscalled Central Banks' trillema. In that, Central Banks cannot control the volatility in the domestic economy through interest rate fixes without affecting the currency and vice versa. Third leg lies in still having an open economy. These ball jugglers hands are increasingly weakened with the cance of peak debts. (Peak debts provide less flexibility). So letting markets to cure with deep recessions cannot be entertained by these tinklers. The final meltdown is inevitable with a dysfunctional global economy...the questions are 1) when 2) in what orders i.e. which asset goes first and not necessarily the currency market.
You bet that the real economies of goods and services will remain the recipients of all the CB's clueless choices/tinkers. With it your wages, savings and investments in paper assets. Well then do the little People matter in their Voodoo Economics ?