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Is This How The Next Global Financial Meltdown Will Unfold?
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
In effect, a currency crisis is simply the abrupt revaluation of the currency to reflect new realities.
I have long maintained that the structural imbalances of debt and risk that triggered the Global Financial Meltdown of 2008-2009 have effectively been transferred to the foreign exchange (FX) markets.
This creates a problem for the central banks that have orchestrated the "recovery" by goosing asset bubbles in stocks, real estate and bonds: unlike these markets, the currency-FX market is too big for even the Federal Reserve to manipulate for long.
The FX market trades roughly the entire Fed balance sheet of $4.5 trillion every day or two.
Currencies are in the midst of multi-year revaluations that will destabilize the tottering towers of debt, leverage and risk that have propped up global growth since 2009.
Though the relative value of currencies is discovered in the global FX market, there are four fundamental factors that influence the value of any currency:
1. Capital flows into and out of the currency (and the nation that issues the currency).
2. Perceived risk, specifically, will this currency preserve my global purchasing power (i.e. capital) or erode it?
3. The yield or interest rate paid on bonds denominated in this currency.
4. The scarcity or over-abundance of the currency.
If we dig even deeper, we find that currencies reflect the income streams and assets of the issuing nation. Consider the currency of an oil exporting nation that has seen both its income from selling oil and the underlying value of its oil in the ground fall by more than 50%.
Why shouldn't that nation's currency decline in parallel with the erosion of income and asset valuation? As a nation's income and asset base decline, there is less national income to pay interest on sovereign bonds, less private income to tax, and a reduced asset base for additional borrowing.
This is especially true if the nation issued debt and/or currency profligately in good times. Recall that debt and currency are one in the same: if someone trades euros for a U.S. Treasury bond, they don't just own a bit of sovereign debt--they own the currency of the nation that issued the bond (in this case, the U.S. dollar).
This is equally true of corporate bonds--all the debt is denominated in a specific currency, and owners of the bonds are not just betting that the interest will be paid and the bond redeemed at maturity, but that the underlying currency will not lose much of its global purchasing power.
One proxy for the absolute destruction of commodity-based income streams and assets is the CRB Index. No wonder emerging economies that depend heavily on the export of commodities are cratering, along with the currencies they issue.

Once participants become aware of the rising risk of holding a depreciating currency, the trickle out of a currency quickly becomes a torrent of fleeing capital.
Once the perceived risk switches from risk-on to risk-off, the only way to prop up the currency is to raise the interest rates that bonds denominated in that currency yield.
But raising interest rates has a brutally negative effect on the domestic economy, as higher rates choke off domestic lending, which then pushes the economy into recession.
It's a no-win double bind, though, for doing nothing and letting one's currency implode drains the nation of capital and makes imports unaffordable. That matters when the imports are energy and/or food.
When those become scarce and unaffordable, social disorder soon follows.
The currency that has benefited from this reversal of capital flows is the U.S. dollar (USD):

Debt/currency crises tend to trigger defaults and weakness in other currencies. We have a recent example of such a crisis: the Asian Contagion of 1997-98:

Though that crisis was linked to Thailand's failed bid to support its currency's peg to the U.S. dollar, the current situation is actually far more fragile as the destruction of commodity income and valuation raises the risk of sovereign defaults, corporate bond defaults, and capital flight that deepens already severe emerging-market recessions.
The bone-dry half-dead forest awaiting an igniting lightning strike is the global mountain of debt--debt which is no longer supported by current valuations of commodities and risk.
In effect, a currency crisis is simply the abrupt revaluation of the currency to reflect new realities. That revaluation then raises the risk premium on debt denominated in that currency or owed in other currencies.
As emerging market currencies decline, the income streams needed to service all the debt denominated in U.S. dollars declines, a self-reinforcing dynamic: as income and valuations fall, capital flees, pushing the relative value of the currency down even more, which further raises the risk premium that then triggers even more capital flight.
The sums in play are so staggering (an estimated $11 trillion in emerging market debts denominated in other currencies) that even the Fed won't be able to stop the meltdown.
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2016 is fucked out year I predict.
The ingredients are being fed into the cauldron.
Thrice the brinded cat hath mew'd.
Thrice and once, the hedge-pig whin'd.
—'tis time! 'tis time!
. Round about the caldron go;
In the poison'd entrails throw.—
Toad, that under cold stone,
Days and nights has thirty-one;
Swelter'd venom sleeping got,
Boil thou first i' the charmed pot!
Double, double toil and trouble;
Fire burn, and caldron bubble.
Fillet of a fenny snake,
In the caldron boil and bake;
Eye of newt, and toe of frog,
Wool of bat, and tongue of dog,
Adder's fork, and blind-worm's sting,
Lizard's leg, and owlet's wing,—
For a charm of powerful trouble,
Like a hell-broth boil and bubble.
Double, double toil and trouble;
Fire burn, and caldron bubble.
Scale of dragon; tooth of wolf;
Witches' mummy; maw and gulf
Of the ravin'd salt-sea shark;
Root of hemlock digg'd i the dark;
Liver of blaspheming Jew;
Gall of goat, and slips of yew
Sliver'd in the moon's eclipse;
Nose of Turk, and Tartar's lips;
Finger of birth-strangled babe
Ditch-deliver'd by a drab,—
Make the gruel thick and slab:
Add thereto a tiger's chaudron,
For the ingrediants of our caldron.
Double, double toil and trouble;
Fire burn, and caldron bubble.
Cool it with a baboon's blood,
Then the charm is firm and good.
From MacBeth---love it... a great passage.
I may be an uneducated old redneck, but...
I believe the article has got it right. And the financial shit storm coming soon is gonna be a doozy.
Still stackin'
hairball
I will still be surprised if this shit holds together through the end of this year...but if it escapes 2016 sure does look nasty...
Get your boating accidents in while you can...
The tinder of currencies is just waiting for George Soros with a match.
It's all going hot, it has to, there are few mechanisms to delay this or the war.
Yep and the Fed wants to dump first.
This witches rant now makes a whole lot of more sense. The Obama admin is only down to the 26th stanza
Too bad we can't add the Klingon Cocksuckers from Uranus D.C. to the cauldron, and make the FED drink the end result.
IT'S PEEEEEPUL!!!
Don't eat green crackers...
Spoctor Din
OBTW: I get the sense that 2016 will be an interesting year too. Whatever you are going to do, do it soon.
So what are we going to call this one, the "central bank collapse"? The Fiat Fiasco? The Ponzi Pull It? Debtageddon?
Apocalypse Now
Who knows? It's all bs.
This stuff isn't. More Kalibr from the Caspian
https://www.youtube.com/watch?v=yf2SZ_gjtA0
Russia priority delivery: For Paris
https://www.youtube.com/watch?v=KeA_QZOBRSg
The Final Countdown,,,
Spoctor Din
Those pesky facts are getting in the way again.
Baltic Index at record low, copper at 6 year lows, oil, nickel and silver getting pounded, new bombings and attacks, etc...
Doom Ball is rolling again.
Doom for useless fucking paper-pushers maybe. For companies that have real inputs and produce real products, this is great! I love it when my input commodities get cheaper!!! Bring it, fuck the useless fucking paper-pushers!!!
Come on now, don't go introducing logic and intelligence into the argument.
Good luck and best wishes to you and yours bro...
thanks, likewise. My life in a word... "margins"...
the amount of digital money spinning around the world making millions of people "rich" is mind bogglng when one considers what things of real value have actually been added to the real economy.
same as it ever was... ..until the supply lines break... could be a while.
hedge accordingly.
the margin squeeze of life liberty and value of labor. oh, those nets(using correct acctg methods?), thanks for reminding me, ha...
Agreed this will go on longer than most here anticipate.
Never get outta the boat!
Apocalypse Wow !
Wil not make 2016. Obama is making sure of that.
Obama has until January 20th, 2017 to finish wrecking the USA. He knows he's working against a deadline and is redoubling his efforts.
Could be longer than that...
Man-made national emergency...
Timed perfectly to hand off to the new "guy", HITLERY...just like 8 years ago
if we go tits up it's gonna be Trump, not Hilarity
Every year they say that, every year it's a slow decline. 2016, another year of slow decline...shitty economy, more suicide deaths that the previous year, and an ever declining white birth rate.
one thing up;police killings and chitown murders...
arm sales suicide bombing too. death is the rage.
long death a sure trade...
The fed has it where they always intended it to be. Currency as an illusion.
Fundamentals don't matter. The privy players will collect the ransom and the conservative realists will feel the pain. Gold bugs, burned over and over and over again.
If you havn't figured whose in charge yet, then look back in long and short term history. Bullshit has a habit of repeating.
Phuk Dat Bic
Exaggerated as usual.
The central bankers will collaborate to keep borrowing rates low and liquidity high, and the debt tsunami will be rolled over, at even lower rates and longer terms.
ALL the predictions of immanent collapse are immanent crap. Regimes die of corruption very very very very slowly over generations, not abruptly.
I think you will find that regimes die in the fires of collapse either due to foreign invasion or domestic revolution more than anything else. History is on my side on this one.
YES, I agree with you and your point confirms mine, ie regimes do not die just from corruption, they must be overthrown by force, either internal or external.
The populations of USA, Europe are MANY generations away from being motivated enough to revolt and overthrow their regimes, and these regimes are militarily too strong to be overthrown by external invasion.
However, the continuous terror attacks of the INTERNAL and external islamic cultists will add to the deterioration of the quality of life in developed countries, but NOT overthrow the regimes.
The overthrow of the constitutional government of the US has been underway since at least 1913, it accelerated on 9/11/01. The coup de grace will be the signing of TTP, TTIP and FISA. So no, it IS imminent an overthrow by transnational elites generations in the making.
"For more than a century ideological extremists at either end of the political spectrum have seized upon well-publicized incidents such as my encounter with Castro to attack the Rockefeller family for the inordinate influence they claim we wield over American political and economic institutions. Some even believe we are part of a secret cabal working against the best interests of the United States, characterizing my family and me as 'internationalists' and of conspiring with others around the world to build a more integrated global political and economic structure--one world, if you will. If that's the charge, I stand guilty, and I am proud of it."
David Rockefeller from his autobiography "Memoirs"
"The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries."
David Rockefeller, Memoirs
I agree. Besides, even if InnVest's premise of no abrupt collaps was historicaly correct, he fails to acknowledge that historicaly never before has there been no monetary backing of any kind, on a global scale, across all curencies. When it is finally recognised by the masses that the emporer is wearing no clothes, TPTB better have a good plan B already in the works and ready to go, or the rats will be jumping ship rather quickly.
There is NO BETTER place for the rats in the developed countries to jump to - the entire human world is one highly-integrated globalized cesspool. However, the rats, or their capital, in the relatively more shitty developing countries will be able to jump to the relatively less shitty developed countries.
Yes, it's a cesspool. But the capital you refer to (currency), assumes that there is capital that retains its value. What if there is no retained value? People need only lose faith in it for it to become worthless.
It's already in place and on the agenda. Chinese have buy-in now that the Yuan is part of the SDR. The IMF and BIS are ready to step in as White Knights when currencies collapse. Indeed, it's a planned demolition. Read The Tower of Basel by Ellen Brown not the new book by Adam whatever. Here is a link. Regardless of your opinion on Ellen here research is correct and verifiable with some effort. The buck stops at the BIS.
http://www.globalresearch.ca/the-tower-of-basel-secretive-plans-for-the-...
Yes! STOP overthinking this!!!
Simply put, such "let the majority eat cake" monetary experiments have been tried before.
Yes, LOP, eat that cake before it rots and makes you sick. THe whole earth is an experiment. THose who expect something for nothing end up with nothing.
The system will correct. Who is caught in the crosshairs is to each's destiny.
Leverage and financial engineering is way above historic averages. Don't let history be your guide this time around.
Like the USSR? China will pull the plug when they are ready. Soon by the look of their collapse.
LOL, bet not. CHS isn't Phoenix Capital, this isn't doom porn but intelligent analysis. We do see a lot of doom porn but this isn't it.
Well said.
"Regimes die of corruption very very very very slowly over generations, not abruptly" <--- True, however, this bullshit HAS been going on for generations. The corrupt FED was created over 100 years ago. I think it's time that we kill it!
If you assemble the army required to actually kill it, then I will enthusiastically join the cause, until then, we all must suffer and endure as the regime continues, and I must continue to earn income to support my family.
When the currency comes into question, the armies that the currency employ's also come into dought. Funny like that, the most loyal fighters have to believe in what you are paying them with.
Bah, the centurions will surely accept salt as wages!
What? Regimes are overthrown all the time and replaced with another.
" Minsky divided the process into three phases. In the first, investors take on little enough debt that they have no trouble meeting their capital and interest payments. In the second, they stretch their finances so they can only afford the interest. In the third, or Ponzi, phase they take on debt levels that require rising prices to be safely financed; the homebuyers who took on 125% mortgages at the peak of the property boom were a classic example "
Minsky's 3 phases of collapse
"Regimes" have never faced the mountains of debt that they face today. Not even remotely close.
The world's most important economies have never been as tightly coupled as they are today.
The world's Central Banks have never been as hamstrung in terms of policy options as they are today.
It is sheer fantasy to imagine that the collapse – which is already unfolding – will take many years, let alone decades to complete.
You doomsday apostles have been predicting immanent collapse for decades, and you have been absolutely wrong for decades.
The amount of the debt is almost irrelevant - only the amount of the payments matters, and the regimes have decades more schemes and tricks to keep the payments low, and eventually they can write off debt to reduce payments, as has already been done many many many many times before without collapse.
The process is DECAY, DECLINE, and ROT, ie continuously declining real incomes and total quality of life, not collapse for a VERY VERY LONG time.
Utter rubbish.
In 2012, I predicted that the impending crisis would unfold in earnest by 2017, and I stand by the prediction.
To wit: Japan.
Yes. Unfortunately, there can be only one "Japan".
I'm not discounting your premise in its entirety, however, I think to have not thought it through to its conclusion and how uncontroled the conclusion can unfold. You state that, "only the amount of the payments matters". I think yoiu are correct here but worng in that you think it can go on much much longer. The interest payments on the national debt and the debt itself, are going up at a stagering rate. When the payments required to service the debt excede the tax base received, one can onlly raise the taxes or default on the debt payments. The people rise up once you tax them beyond a certain level. And according to the CBO, the debt is projected to go up each year by 2 trillion. How does that math work out for you?
You are analyzing this as if the government can't print money. They can. And they will. They have the "Courage to Act." They can pay off the entire debt with printed money as fast as they want. For the good of the nation of course. Problem solved.
And inflation? Well, they have already convinced people inflation is good and are loudly and proudly printing to reach 2%. Everyone likes it and cheers them on. Just announce inflation is not just good, it's grrrrreat. And raise target to 5% or more. If too many people grumble, a few helicopter drops of money will perk up the mood. This is always how these things play out.
Yes, government can print money. Whether or not it is accepted by the producers of essential goods and services is another thing all together. That can change, in a fucking instant. Still, considering the low standards of most sheep, it could be a while.
In every country I know that hyperinflated and hyperinflates, people have ridden it to the end where the currency was replaced with a different unit of government currency so the game could continue. Everyone still primarily accepts government currency all the way. Boggles my mind, but does seem to be how people behave. Maybe with gold and bitcoin available this time around things will be different and they'll abandon fiat. Hopefully.
Again complete bullshit. History is littered with civilizations that dissappeared because of resource mal-investment and mis-allocation. WWI and WWII basically started because regardless of the "fiat du jour" it was impossible to deliver the essentially goods and services due to a lack of resources. When your tribe mal-invests it's resources, you go to war and steal resources from other tribes.
Been this way since the dawn of time. Yes, human technology advances (often due to the dire circumstances of war, but ALWAYS at great costs - trust me I know what it costs to take technology from the bench to the market), human nature on the other hand...
Yes, governments can and will print. And yes this ends in the users of the currency ridding it to the end of the hyperinflation. However, in the past, there has always been hard money (backed by something that everyone acknoledges as valuable) to fall to or peg to in the case of the dollar (which was backed by gold at the time). To go from a failed fiat to another fiat is non sequitur.
Why would anyone lose their life savings to a failed currency just to eagerly jump on board another fiat currency run by the same CB and government as the last one?
Maybe because they have no savings thus no alternative. And when government starts incarcerating people for using PM's.
These "public servants" are ruthless. Their banker bosses are even worse. Look what they did to Schiff's father over not filing and paying some taxes. Deplorable.
Correct!!! He is thinking linearly. Unfortunately, those payments are increasing exponentially.
Mathematically the increases in debt payments are NOT exponential- this is factually incorrect.
Bullshit. Let me guess, you think that the real debt is only 18 trillion too? Look at the exponentially increasing cost of social security, and medicare, to name only two liabilites.
Go back to sleep or provide a link otherwise.
Think not only increases in debt payments, factor in decreases in the ability to meet the increasing debt payments, as well as illegal immigration (low skill set) attaching itself to the Welfare / Entitlement system.
Then .. add in all the extra costs and dents to productivity that increased "security" of a non assimilated 10% illegal immigration provides....then add in the 10% rthat burn cities like Baltimore / Detroit down.
You will get to the exponential increase pretty quickly. And it ain't linear... as Laws O Physics says below. And I only usually agrre with LoP when he is trippin'.
1. The regime can create as much money as they want and monetize its own debt.
2. The regime OWNS ALL of the assets and incomes under its control. The USA regime currently confiscates a FAR LOWER percentage of earnings, ie taxes, than they have in the past, so the USA regime still has plenty of capacity to increase confiscations, ie taxes.
3. The USA population is as far away from rebellion against the regime as the earth is far away from the end of the universe, ie infinite in practical terms. In fact, only a tiny fraaction of the residents of the USA have any savings or capital - the overwhelming majority live paycheck to paycheck or entitlement payment to entitlement payment. The ONLY thing that these proletariat masses know about "money" and "government debt" is what the regime tells them. And a MAJORITY of the tiny fraction of the population that actually do have higher incomes and savings or capital are ENTHUSIASTIC supporters of the socialist coercive collectivist policies of the regime, especially the socialist (ie "democrat") party - they are prolific contributors to and supporters of the party of coercive collectivism.
Contradict yourself much? Those "proletariat masses" have been growing exponentially. Now go look at the cost of disability, medicare, medicade, and the SNAP program. In one breath you say this and in another you argue that liabilites are not increasing exponentially. What a moron, good luck with that cognative dissonance.
Bread and circuses most certainly have a cost.
The US may have lower tax rates than in times past and of some other countries, but this stability is predicated on the faith in the dollar for which these other countries currency is backed and for which the US enjoys default currency status. Your arguments may hold up individualy on their face. However, combined together and in the context of history, your conclusion of effective perpetual expansion is unworkable; it's a tightly wound clock. This doesn't end well.
Bullshit. Stop linking in a linear fashion. The payments you speak of must cover liabilities that have been increasing exponentially.
The decay and rot can be hidden for a while...
when truth comes to light, it never does so in a linear fashion. It does so horrifically in ways that the propaganda mouth pieces say "we never saw coming".
Again bullshit.
Correct. However, so long as the supply lines hold and the world's sheep get their bread and circuses, the "let the majority eat cake" monetary experiment continues.
After that it becomes global Weimar, but not before. Could be a while considering what sheeple are willing to consume.
d/p
There's no mention of this being imminent. It's inevitable though.
Sounds great except its naiive. The CBs will try to do that, but its like a heroin addict ... its all cool as long as they keep the doses in control, and not too much. But then some bad heroin comes into the neighborhood and they OD quick. Illegal immigration is the bad heroin coming into the US and Europe's system. The margin of error decreases with each dose... its very small now.
Goldman said this today (Bloomberg):
As growth picks up and weaker currencies help alleviate economic imbalances, “2016 could be the year EM assets put in a bottom and start to find their feet,” strategists led by Kamakshya Trivedi wrote in a note Thursday
@two hoots - Fading Goldman's recs is a rather profitable strategy. All they do is talk their book and hype stuff they need to unload.
GS is probably sitting on a sh*t-ton of toxic EM waste that it desperately wants out of before TSHTF.
DOOM PORN!!!!!
With this article one only needs to look at the USD, Gold and the stock market which tells this story of fraud, deception by an unlecleted bankers.
It's all contained. We live now in the world of limitless everything. We have reached paradise.
Why are people talking about a next meltdown? It's already melting down. Listen to any conference call by any company. Companies are taking massive write downs due to changes in working capital. Cash and receivables denominated in foreign currencies are worth signicantly less. Most economic indicators say the global economy started imploding in 2011. Look at copper, look at gold, look at silver, look at zinc. Hell, look at Coach. Coach is down about 60% since 2012. People around the world are fucking broke. They can't be buying luxury purses. Nordstrom is down about 30% in 2015 alone.
We have reached peak richness....what the fuck else is there, they already own it all. Tptb want depopulation as their next project.
Just keep "guiding lower" and then "beating" the lower expectations. Works.
actually ... it all started with a trader who went belly-up on eTrade for $106,000
Mainstreet is rapidly collapsing, wall street not so. Depends on the view you want to take. The charts are there to tell wall street's story. Notice the stock market has done generally very well since the fiasco in Paris. You will only see the collapse in the poor, middle and lower middle class communities. Don't go looking for it in the upscale communities....not for now anyway.
You are in the matrix. There is no clear up and down anymore. Become one of the 1% and you will never know a collapse.
There are some middle class still left in the market, but when the next transfer happens, the only ones left will be .01% and the rest holding the bag. We are getting nearer to that inflection point.
Government is not collapsing either. My wife and I recently took a plane flight and sitting next to us was a woman who was an accounting consultant working with one of the large US military bases. She said they military is acting as if there is an infinite supply of money. This rubbed her the wrong way, since it her community is suffering.
She is still encumbered with the old style thinking that printing paper money matters.
The Bernank has taught us otherwise.
/s
A financial meltdown is good for stock prices, right?
absolutely, and don't forget to short all the really thin traded stocks for the biggest bang.
Friday surprise: Pollard released on parole, heading for New York.
'Pollard’s lawyers also have sought permission for him to travel immediately to Israel, and two Democratic members of Congress — Eliot Engel and Jerrold Nadler, both of New York — have called on the Justice Department to grant the request so that Pollard can live with his family and “resume his life there.”'
http://www.mintpressnews.com/convicted-israeli-spy-jonathan-pollard-rele...
Israel is overjoyed, so it looks like Hitlery will be the next US Pres.
There ain't gonna be another meltdown because the banking cabal is busy paying off broke ass muslims to stage terror attacks around the world whereever Christians reside.
WAR will be the next big economic driver!
War (or better yet - pestilence? which horseman is being nellied up to gate as the favorite for the Rothchild's?) would solve a shit-ton of problems for the ruling class - it would thin the herd, it would knock down the ghost-city that is the global economy at this point, and allow a profit-generating rebuild by a shell-shocked population willing to work for food in the wake of the devastation that world war would create. It would need to be a war that didn't consume TOO many resources though or it would be self-defeating.
I would bet on both occurring. Do you think that the BlackLivesMatter morons are going to be conscripted? They are useless chattel, as are 75% of University Admin people when it comes to productivty ... which is a handy skill to have during a war.
War is getting played out too. Big nations don't go to war with each other anymore, they have nuclear deterrence. War today means big countries beating the crap out of small countries. And ISIS is not really a worthy enemy for a full blown ground invasion like Iraq. The war machine will also suffer here. As will the US economy due to automation and globalization. At the end of the day, the debt can cannot be paid back, and even the slave labor of man is rapidly losing its value to the elite. The only solution now is a completely different way of thinking than we have had for the past 200 years.
Exactly. Einstein said "No major problem can be solved on the same plane of consciousness that created it."
'Someone else' said "The failure of every human endeavor begins with the inability or unwillingness to recognize and act upon reality."
problem with war, if it gets real serious it reduces consumer demand and that's already having issues. Who will be left to go shop at the war malls?
"As emerging market currencies decline, the income streams needed to service all the debt denominated in U.S. dollars declines, a self-reinforcing dynamic: as income and valuations fall, capital flees, pushing the relative value of the currency down even more, which further raises the risk premium that then triggers even more capital flight."
"debt denominated in U.S. dollars" is the operative phrase here. Where a country's debt is denominated in _someone else's_ currency, currency moves tend to be downward, especially when the debt in question is denominated in US dollars. Currency crashes have occurred in many, many smaller countries that took on a lot of US-denominated debt from the IMF, World Bank and other agents of US hegemony in order to build useless infrastructure projects for the benefit of US contractors like Bechtel. The currency crash usually followed a speculative attack on the currency by forex traders. It was the last stage in a documented plan to turn these countries into US vassal states, as chronicled by John Perkins in his book _Confessions of an Economic Hitman_, and Ellen Brown in her book, _Web of Debt_. The moral here is that you are insane to borrow money in a currency whose relative value is not in your control, and in the control of bankers.
HOWEVER, where a nation's debt is denominated in _its own_ currency, the picture is less clear. Japan is the classic case here. They are heavily dependent on exports of manufactured goods. Conversely, they are also heavily dependent on fuel imports. Yet because their onerous debt burden, >100% of GDP, is denominated in Yen, their currency has been mixed over time. Domestically, they have been struggling with deflation for more than two decades, meaning that the purchasing power of the currency domestically has been RISING over time.
This makes sense too. Inflation occurs when there is too much currency in circulation (ie: in people's pockets, ready to spend). The easy money encourages vendors to raise prices, causing inflation. If a disproportionate chunk of a nation's currency is being diverted toward debt payments, though, there will be comparatively less of it available for average people to purchase things. This relative scarcity of currency causes prices to fall, ie: deflation.
The point here is that markets are complex and tend to defy simplistic explanations. You can't merely say that because a country is mismanaging its finances, this will automatically cause the currency to fall in value. Sometimes, mismanagement causes it to rise. This is what we are seeing presently in the case of the Japan, the US and Europe where forex prices are mixed and purchasing power is rising.
"This is what we are seeing presently in the case of the Japan"
You may want to check the Yen/Dollar chart. The Yen has lost 38% versus the dollar since 2012.
You realize that there is a difference between forex value and purchashing power?
That's why, if the dumb, corrupted or compromised fucks who call themselves Leaders in the non Developing and Emerging markets, don't decouple their Debts and trade from the USD, are totally screwed.
Decouple and tough it out for a while, or die a 1000 slow deaths and become total vassal states. There is no middle ground, no Door #3.
gold :-) silver :-)) bitcoin :-)))
I'll take Platinum over gold-plated tungsten any day, thank you very much.
'The FX market trades roughly the entire Fed balance sheet of $4.5 trillion every day or two'
This isn't accurate - a lot of that figure is accounted for by forwards and swaps rather than total traded volume.
It’s complicated… but the rules that existed prior to 2008 were dismantled very quickly under Obama, and then as CHS points out that dismantling was then exported. Fed has jawboned turning course back to that magical time but there is just no way. Even if there was another big bang left in the global economy (consolidation – 80’s, globalization – 90’s, technology – 90/00’s, housing – 00’s, shale oil – 10’s) there isn’t enough energy (peak oil) to make it happen.
All the “wealth” being created right now is just the sloshing around of computer digits like the best MMOG ever created. But if every player decided to cash out and walk for the exit, it would quickly start a bidding war on real assets that would end in tears and bullets.
So what is this magical rule that was abolished in 2009 onward? The bread and butter of capitalism - the idea that debt needed to be serviced – that if you had a unit of capital and put it to work that it would return your original capital plus a little sumptin sumptin. Well there ain’t no more sumptin sumptin – so there is no more gain on capital to be had.
Now this rule was abolished for the biggest boys – those who could afford to tap into this ever-flowing stream of capital. But it certainly wasn’t abolished for me or anyone remotely associated with me. And it wasn’t abolished for a lot of these foreign countries. So CHS has a point – the abolishing of the magical rule allowed the big bang to resonate on to today, but can it allow this process to continue indefinitely? Okay, so Greece was thrown under the bus, Puerto Rico, some US cities, and increasingly states (Illinois / pensioners). But how many proud and potentially armed countries that have commodities and are relatively self-sufficient food-wise are going to allow their sovereignty to be upended by this rolling power-down of the global economy? Uh, no clue.
Very well presented Tunneler
you forgot the trillion dollar student loan, followed by the trillion dollar car loan.....next up the trillion dollar worm farm, followed by the six trillion dollar cloud counting research grants, followed by the 250 trillion dollar pension balancing reform act. By the way doesn't Illinois need to borrow a trillion to pay off the lotto winners?
Somehow, someway, sometime - perhaps in the near future, we are going to find out why China has been buying gold at such a pace.
Wait, I thought 2015 was going to be the year of the collapse. Ya know Sheitah year and all that. Or was it 2014? No wait, it was going to collapse in 2013. Or maybe 2012?
I'll beleive it when I see it.
Look out your window dingbat - it's already collapsed for most of the people around you. The desperation amongst kids in college has been palpable for a decade. No skills, no means, no ends, no girl, maybe a couple of guns and a lot of ammo. The playbook is clear.
Have been looking out the window. We need to hire workers for the holiday season. 250 positions available, 3 shifts to choose from 3rd shift positons pay $17/hour. We are still 105 positions short.
I'm calling bullshit. What's the name of the company? What town? In what industry?
You mean to tell me that 94M people are out of work, protesters are lining up and picketing to raise their rates to a measly $15/hr. and you can't fill positions where they can "choose" from the flexible offering of three separate shifts at a $17 rate?
If you can provide some real information that can be verified I'll stand corrected, but this is either a subsidized/governmental program or your full of shit. No chance this is a private, legitimate enterprise.
Hookers at the Mustang Ranch?
In many cities that would not pay the rent. Your location is?
Osmium, you with OSRAM?
OSmium + WolfRAM = OSRAM ( which how the company name was created)
Even stopped clocks are correct twice a day.
I stopped holding my breath but my knuckles are still white.
It should have "openly" collapsed and for the record you can take your dates all the way back to 2008 when it did collapse. If we had free markets and real elected governments who spoke the truth, the whole thing would have come down hard by now. Instead we have the current shit show of lies, more lies, manipulation and false flags. You can spin your sarcastic vibe that it will go on forever but the truth is when it does happen, not only will you believe it but you'll be crying like a pussy.
But a Karate Man bruises on the inside!
You stoopid fuck. It did collapse in 2008... the answer was to have the lowest int rates in 5000 years and print out of thin air $ 4Trillion USD...that we know of.
Read the article again...Moar money printing ... or what is the next dose of heroin going to look like?
Do you think it is a coincidence that all this is happening in a soon to be election year?
I guess if we need a dose of heroin 2 or 3 times the size of the dose in 2008 we might just end up with a severe, life threatening, overdose; at the very least a blackout swan.
Grab a rubber band (to tie back your greasy, graying ponytail), and your old '68 Martin D-18, then settle in for some good nostalgia. How 'bout that Charles...?
Again CHS produces insight. CHS is someone who thinks in terms of systems, which gives him an edge in that. His newest book is based on his understanding of systems, is an explication of how our social-economic systems evolved to this point and what opportunities are now opened, and what needs done to take advantage of the opportunities.
Transitions into new eras are not smooth, trouble-free or clear until long after the fact of history converting it to narrative and knocking off all the bits of reality that don't fit the story. If you want the best understanding possible how to think about your opportunities, where the system is evolving to, read his book. Kid you not, the guy is unique in his understandings.
http://www.amazon.com/gp/product/B0178MQI1M?ref_=cm_cr_pr_product_top
I have to write a review.
https://thinkpatriot.wordpress.com
I'll have to read his newest book. I really enjoy CHS' analysis, but at a certain point I find him infuriating. He's great at the systems analysis, as you say. But to me he seems too much a product of our current system. He sees how it's being implemented wrongly, but he doesn't seem to see the fundamental flaws in it, or alternatives to it. I mean, a system based on debt at interest has to always grow or it simply can't function. On a finite planet, that's tricky. Once finite limits are reached, then everything has to become abstract in order to continue to grow. That distorts everything, so we can't use the old rules to determine what the next steps should be. It's no longer the same system at all; it's not a perversion of the old system. That's where CHS doesn't satisfy my, in my experience of reading his works. He doesn't really address that fundamental issue. Maybe he has and I've missed it, or he does it in this new book.
their solution is to stretch the length of time (duration) and timing (decision) variables to cover this already foreseen possibility.
As long as they can elongate the duration and decision variables sufficiently they can maintain control.
when the rubber hits the road they have been able to spread the risk in time, geographically and over various types of entities and instruments sufficiently to prevent a cataclysmic event that brings it all crashing down.
that's how they've done it all along.
unforeseen war is the only possibility on the horizon at this time that might implode the house of cards.
ahhhh yes, "when the rubber meets the road" and you have a 15 year auto loan.....you might just be a redneck.
THe solution is to live your own life the best you can.
Make friends, influence people, live to your own moral standards. Set a good example it's ALL you can do because we do not control the world, just don't be controlled by it.
So conrad ..will you be able to block the BlackLivesMatters folks when they pass rush your QB?
Glad ZH is catching on to CHS. His writing style is consice and his ideas are spot on.
"Glad ZH is catching on to CHS. His writing style is consice and his ideas are spot on."
I agree. You listening Tyler(s)????
hairball
This witches rant now makes a whole lot of more sense. The Obama admin is only down to the 26th stanza.
I don't understand CHS' logic here.
We are having a move into the US Dollar already - yes,
and things might come into motion that triggers even more capital flight - yes, but that would be a flight into the US Dollar for lack of any perceived alternative (even though that's just clueless running with the herd),
so why would the Fed even want to stop the meltdown? (of other currencies while the US Dollar strengthens!)
a strong dollar up to the point that other nations multinational corps cannot pay interest. if they default, the game crashes down....if they feel a ton of pain, US dollar holders can go buy assets on the cheap....then the us treasury gives some guarantees and voila stable again.
The design, as evident from their behavior, of financial systems, at all levels, are terribly unstable, from a Control Systems Engineering point of view, because of positive feedback in the control loop. Whether accidental or deliberate that design flaw allows an entity with the deepest pockets to "game" the system over the short-term, the long-term or basically whenever and as long as their resources hold out.
In this case the positive feedback is what causes the initial capital flight to become a torrent. Weakness begets weakness, as commodity prices weaken then collapse, whereas before strength beget strength as commodity prices were increasing. The strengthening phase in commodity prices was caused by the US Federal Reserve's Qualitative Easings and, to a lesser extent, the ECB and the Bank of Japan.
In a few years, after the desired financial destruction is completed in the commodity-producing nations, these capital flows will reverse out of the US dollar to pick up commodity assets from their bankrupt AND thankful owners. It's a terribly-flawed control system design. An Engineer responsible for such a design would quickly become unemployed. But, the Masters of the Financial Universe simply become richer and richer.
The system needs a lot more damping.
Under-damped (now) - the system tends to oscillate after step changes and is unstable
Over-damped - very slow to react
Critically damped - the perfect compromise
The chances of our financial clowns coming up with a critically-damped system is about zero.
Non-linearity, particularly at the zero bound of interest rates, decreases systemic stability dramatically. Most non-linear systems inherently trend towards instability.
Tsar Vlad the Impaler will suddenly reneg on his $1.1T in debts, sending the markets into a death spiral and loosing a typhoon of CDS calls.
This will end very suddenly and very badly.
Yes, American and European leaders have been doing exactly that. Pushing Putin to listen to his advisors who suggested the default on debts.
Putin has refrained from doing that. He is indeed a great world leader.
And why would that be a death spiral for everyone?
yeah meltdown, wake me up when it is really happen
You'll be awoken by the sounds of your life crashing around you.
It's all about belief, who believes and for how much longer, nothing else matters and never did.
The Chinese are burning bank notes for heat? Read that in the Daily Mail.
Ok, so how do you devalue your currency against every other, though it might be used specifically to trade in oil and the measure against other currencies? Any guesses?
Does the answer involve helicopters?
Just one word. Hillary.
You'll get a sense of how bad things are right now just by sorting Google Finance stock screener by price to sales, only companies that are profitable.
Walmart: down 30% this year
Dillard's down 50% from the peak
Kohl's: down about 40% from the peak
Macy's: down about 30% from the peak
Alcoa: down 50% from the peak
???? EMERGENCY???. CTRL + PRINT, CTRL + PRINT, CTRL + PRINT, Everywhere things are seizing up. CTRL + PRINT, CTRL + PRINT, Beware DEflation is everywhere, CTRL + PRINT. ?? _JOHNLGALT
The USA is the safest place in the world for money period.
We don't rely on exports a great deal so we're not effected as badly.
Yeah they will start charging interest and there will be HUGE problems for exporting countries but not so much here.
You can whine all you want that trillions of dollars debt is bad but the bottom line is the United States holds shit loads of assets WELL in excess of the debt but a country mile.
In a world of bullshit with other countries over pricing assets, the USA holds real value in natural resource you can own and trade (you think China if they were facing a default would let you have their coal? The USA will give you the damn coal of they have to.
The USA is the safe debt to hold.
And you know it.