We're In The Eye Of A Global Financial Hurricane

Tyler Durden's picture

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

The only "growth" we're experiencing are the financial cancers of systemic risk and financialization's soaring wealth/income inequality.

The Keynesian gods have failed, and as a result we're in the eye of a global financial hurricane.

The Keynesian god of growth has failed.

The Keynesian god of borrowing from the future to fund today's consumption has failed.

The Keynesian god of monetary stimulus / financialization has failed.

Every major central bank and state worships these Keynesian idols:

1. Growth. (Never mind the cost or what kind of growth--all growth is good, even the financial equivalent of aggressive cancer).

2. Borrowing from the future to fund today's keg party, worthless college diploma, particle board bookcase, stock buy-back, etc. (oops, I mean "investment")--a.k.a. deficit spending which is a polite way of saying this unsavory truth: stealing from our children and grandchildren to fund our lifestyles today.

3. Monetary stimulus / financialization. If private investment sags (because there are few attractive investments at today's nosebleed valuations and few attractive investments in a global economy burdened with massive over-production and over-capacity), drop interest rates to zero (or below zero) to "stimulate" new borrowing... for whatever: global carry trades, bat guano derivatives, etc.

Here is my definition of Financialization:

Financialization is the mass commodification of debt and debt-based financial instruments collaterized by previously low-risk assets, a pyramiding of risk and speculative gains that is only possible in a massive expansion of low-cost credit and leverage.

That is a mouthful, so let's break it into bite-sized chunks.

Home mortgages are a good example of how financialization increases financial profits by jacking up risk and distributing it to suckers who don't recognize the potential for staggering losses.

In the good old days, home mortgages were safe and dull: banks and savings and loans institutions issued the mortgages and kept the loans on their books, earning a stable return for the 30 years of the mortgage's term.

Then the financialization machine revolutionized the home mortgage business to increase profits. The first step was to generate entire new types of mortgages with higher profit margins than conventional mortgages. These included no-down payment mortgages (liar loans), no-interest-for-the-first-few-years mortgages, adjustable-rate mortgages, home equity lines of credit, and so on.

This broadening of options (and risks) greatly expanded the pool of people who qualified for a mortgage. In the old days, only those with sterling credit qualified for a home mortgage. In the financialized realm, almost anyone with a pulse could qualify for an exotic mortgage.

The interest rate, risk and profit margins were all much higher for the originators. What's not to like? Well, the risk of default is a problem. Defaults trigger losses.

Financialization's solution: package the risk in safe-looking securities and offload the risk onto suckers and marks. Securitizing mortgages enabled loan originators to skim the origination fees and profits up front and then offload the risk of default and loss onto buyers of the mortgage securities.

Securitization was tailor-made for hiding risk deep inside apparently low-risk pools of mortgages and rigging the tranches to maximize profits for the packagers at the expense of the unwary buyers, who bought high-risk securities under the false premise that they were "safe home mortgages."

Financialization-- which can only expand to dominate an economy if it is supported by a central bank bent on expanding credit--has two inevitable and highly toxic consequences:

-- Risk seeps into every nook and cranny of the financial system, greatly increasing the odds of a systemic domino reaction in financial meltdowns. This is precisely what we saw in the 2008-09 Global Financial Meltdown (GFM): supposedly "contained" subprime mortgages toppled dominoes left and right, bringing the entire risk-saturated system to its knees.

-- Extraordinary wealth and income inequality, as those closest to the central bank money/credit spigots can scoop up income-producing assets first at much lower costs than Mom and Pop Main Street investors.

The rising anger of the masses left behind by the central bank / financialization wealth harvesting machine is the direct result of Keynesian monetary stimulus that rewards debt-based speculative gambles by those closest to the cheap-credit spigots.

As I explain in my book Why Our Status Quo Failed and Is Beyond Reform, the only possible output of central bank monetary stimulus is financialization, and the only possible output of financialization is unprecedented wealth and income inequality.

The global financial system is in the eye of an unprecedented hurricane. While central bankers are congratulating themselves on their god-like mastery of Nature, and secretly praying to the idols of the Keynesian Cargo Cult every night, the inevitable consequence of borrowing from the future, the obsession with "growth" at any cost and financialization /monetary stimulus, a.k.a. the rich get richer thanks to central banks is systemic collapse.

Don't fall for the mainstream media and politicos' shuck-and-jive that all is well and "growth" will return any day now. The only "growth" we're experiencing are the financial cancers of systemic risk and financialization's soaring wealth/income inequality.

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misalkin's picture

How low will silver go if JPM decides to sell all the silver it has?

MFL8240's picture

Why sell it when it is the most undervalued assett out there and they can supress its price and buy more and plan for the crash they helped create?

O C Sure's picture

Theft is a failure for whom?

J S Bach's picture

In the past, the international usurers have always ridden out their storms gliding along within the security of the eye.  It is we plebs who have wrought their devastation.  This time they need to be thrown overboard with lead weights attached.

santafe's picture
santafe (not verified) J S Bach May 23, 2016 7:45 AM

GOD is PISSED.

http://goo.gl/TB1ezK

MANvsMACHINE's picture

JPM has already sold all of its silver hundreds of times if you know what I means.

Shocker's picture

We are so far from a recovery.... its sad

Layoff List: http://www.dailyjobcuts.com

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A Pimp's love is different's picture

The Rothschild weather machine has succeeded to stop the hurricane dead in the path that it was tracking.

 

Unfortunately (for them), it's stopped right on a geographical fault line where the next quake will open a crack in the earth, swallow them up, and send a 1000 ft tsunami in all directions.

 

Ain't central planning a dandy?

Save_America1st's picture

As Andy Hoffman always says....You cant fight economic Mother Nature.   All this bullshit and trickery that the money masters have subjected the world to has run its course, and the effects have been devastating.  They may be able to trick economic Mother Nature a little while longer but in the end she's gonna hit us full force with a Tsunami that will wipe everything out.

Keep stacking the essentials and be ready for it, folks.  Those who make it through this storm to the other side with enough phyzz and other essential supplies in their possession will hopefully be able to rebuild.

jeff montanye's picture

it's something at least to be famous.  how much the dead care is still in dispute.

imo keynes had revolutionary but ancient insight into the economic cycle.  he was right that the weakness in capitalism is the demand side because the companies are stronger and will do to wealth and income what has now been done (and, remember, prior to free fruit loops).  over cycles, government  should save in the good times and spend in the bad.  wise bronze age princes said much the same regarding building famine reserves.

however apparently (democratic?) man and her politicians are too weak to implement this deceptively simple plan.  they spend the reserves in good times and mortgage the grandchildren in bad.

zeronetwork's picture

This world is due for a reset.

Divided States of America's picture

The educated rich folks are bailing out on the financial system while the uneducated rich people like the Chinese are plowing into risk assets at the peak. This will not end well. Watch Canadian RE and stocks to tank soon.

 

Four chan's picture

everything is fine zero hedge wrong for 8 years

doomsday around the next corner

DaveyJones's picture

their god-like masturbation

Pinch's picture

The "collapse" that never happens. More ZH master debating.

ali-ali-al-qomfri's picture

kinda like a chinese car crash compilation video, i'm always stunned at the lack of attention,situational awareness, to traffic, same with the money i guess,

Amalgamated Tang's picture

Now that is Climate Change I can believe in!

adanata's picture

Jeff.... Clearly you are not familiar with the psychopathic mindset. Their goals are control, domination and depopulation. They couldn't care less about anyone's grandchildren... Not even their own.

Jtrillian's picture

When you can print endless amounts of money at will, 

When you control the government,

When you cntrol the mainsrtream media,

When you cntrol the the police,

When you cntrol the and the military,

When you control the corporations,

can this not last indefinitely? 

There appear to be two outcomes to this fiasco.  First, is a loss of faith characterized by a revolution.  Social unrest, riots, anarchy, would ensue.  The crackdown would likely be swift and feirce and any uprising would be used to further dismantle individual righs closing the coffin lid on the constitution.  Second, and more likely, is the rise of the corporate fascist state.  Indeed, we are already seeing a rise of fascism across the globe.  But in this case, those who control the central banks are the supreme rulers, while corporate execs are the loyal nobles, the military are the knights and the 99% become the peasants who are told to fight against themselves (and they probably will) by mainstream media. 

OR

We could start actually taxing corporations and start breaking those that are so big that they create an oligarchy (there are many oligarchies across several industries including big pharma, mainstream media, cable companies, insurance companies, and energy companies).  We could pass the 28th Amendment making it illegal for individual doners to contribute more than $250 to a candidate running for office effectively ending big money in polotics.  We could restore the constitution and stop spying on Americans illegally and redact NDAA sections 1021 and 1022.  We could hold those accountable for torture and charge them with war crimes.  We could actually start taxing corporations and billionares instead of allowing them to dodge taxes altogether (or worse, get huge subsidies).  We could squash TPP as it is a clear violation of our rights to due process and strips away individual governments ability to regulate corporations.  We could rebuild our nations infrastructure and manufacturing industry by replacing free trade with FAIR TRADE, and thus restoring the middle class.  We could start working with outside countries again instead of bullying them.  We could recognize the industrial military complex for the monster that it is and stop "war for profit".  Most importantly, we could stop the hate and recognize that people have a right to live their lives as they see fit as long as they are not causing harm to others. 

But sadly, I do not see any of the latter happening... not until the 99% set aside their petty differences and unite to overthrow the sociopaths driving us to oblivion. 

adanata's picture

Jtrillion... The current devastation cannot and will not be resolved in a positive way for the Sheeple unless they figure it all out and withdraw from the system. The necessary information is readily available to them but this has not been sufficient to enlighten the apparently brain dead public.... I mean Obummer and Hildebeast actually have "supporters". The way forward appears grim indeed. :/

conscious being's picture

You left out Trumpo. Trumpo has supporters too who are no less stupid than the Hildebeast Obummer variety.

They all are approved by, work for and are threatened by the same international mafia.

The deep state has to collapse before any real change can happen.

ft65's picture

The masses need to figure out who the enemy is, at the moment most still believe the control grid and even admire many of those who have been spinning them the line. Then they will unite behind (yet) another false messiah. Traditionally we go to war long before the masses wake up.

 

The French had the right idea for dealing with their masters.   

hoos bin pharteen's picture

Unfortunately, they replaced them with even worse ones.

jeff montanye's picture

and fairly quickly too, napoleon was emperor in less than a generation.  well crafted law though.

the zionists thought we needed a new pearl harbor to be great again.  we got 9-11.

what we need now is an acknowledged gulf of tonkin incident, but this time revealing not some rinky-dink false flag naval encounter to get more into a war we were already in, known to a few in the military, the security service and the highest civilians.

no this time revealing the greatest crime in the history of the nation.  with perps after the fact enough to empty out the beltway and a whole lot more.

adanata's picture

I didn't forget The Donald... The Barons of Basel do not fear any individual; if they haven't gotten to him yet, they will. They will do business with Trump. They will convince the Sheeple things are looking up. The Barons will probably give them the Fed (they don't need it anymore), a flat tax and provide superficial changes to placate the public as they forge ahead. They put the noose around the neck of humanity centuries ago and pull it ever tighter. One day it will be tight enough and they'll kick out the chair. Like taking candy from a baby...

Kirk2NCC1701's picture

TPP, you say? Well, last night Obama and the Vietnamese President held a joint news conference (11 pm PST, 1 PM local), to announce a wide range of agreements, investments, MIC deals, 26,000 VC students in the US, south China Sea, climate change and... TPP.

You see, even Commies can be corrupted and bought with enough wealth and lifestyle, as history shows us time and again, because WHO DOES NOT WANT SOMETHING FOR NOTHING? Which is exactly what the Babylonian Money Magic (Usury system) promises.

flaminratzazz's picture

money for nothing, fruit loops for free

Scuba Steve's picture

I disagree.

I know I didnt say it on this site, but I've said/thought since Ross Perot the only way to breakthrough would be with a viable 3rd party of the people led by a rich man/men and I still believe that.

Rich guys that have the resources and inside game to fight back and make a stand while re-inforcements build the momentum.

I pray that Trump is that man.

adanata's picture

Regrettably, I do not agree. No man or even group of men can stop this juggernaught. They would have too many vulnerabilities. i believe the majority of humanity itself must grasp the situation. Perhaps survival instincts will prompt an evolutionary intellectual leap and open their eyes and brains. You never know but there appears to be scant hope of this development... although hope is eternal.

Oldwood's picture

They have effectively demonized wealth, categorizing everyone who attained wealth as equally dirty...unless they capitulate to the "collective". We see plenty of truly despicable super rich people funding this government controlled disaster, but as soon as another equally wealthy person comes onto the scene, they are castigated as part of the problem...the evil rich. Atlas Shrugged lays it out pretty damned well. Those with the ability to resist or fight back are labeled as the threat, be it with money or guns or simple intelligence. Our indoctrination is complete. 

withglee's picture

always ridden out their storms gliding along within the security of the eye.

Right. When you are a capitalist running your farming operation (business cycle), you create the issues, front run them, and harvest. Everyone else is betting on the instant replay.

JRobby's picture

A good piece outlining why collapse is inevitable. Sadly, the opening comments are about silver instead of how to keep yourself and family safe during chaos and mass citizen detainment?????

ThanksChump's picture

I want to buy an apartment building that follows the eye of this storm. I'm ready to sign today.

I don't have a down payment, but I'm totally good for the principle, yo.

de3de8's picture

IN the middle of a big brown eye

withglee's picture

Why sell it when it is the most undervalued assett out there

Because photography has gone digital ... and that silver service and silver ware has now been replaced by stainless steel. That's why!

shovelhead's picture

Industrial demand has dropped since the demand for solar panels tapered but bullion and coin sales have more than made up for any loss.

Silver demand is growing.

Silver service ? Like as in 19th century Downton Abbey?

You gotta get out more.

MANvsMACHINE's picture

Silver is money...and does a bunch of other shit.

withglee's picture

Silver is money...and does a bunch of other shit.

I am a billionaire and do a bunch of other shit.

Hmmm. Saying that didn't make it so ... at least the billionaire part.

JRobby's picture

You better buy up enough to hire a small army that you  can trust to protect you and your silver holdings during the chaos.

Otherwise, go back and keep your ether binge going.

withglee's picture

A better strategy would be to make lots of friends and have a mobility plan.

a false profit's picture

Very simplistic answer. 

 

1) Silver is a monetary metal.  Demand for it continues simply because of this fact.

2) Silver is industrial metal  Silver has the best conductive properties of any metal.  Better than copper.  For this reason it is used in solar panel production.  Demand will continue to grow. 

 

http://www.wallstreetdaily.com/2015/06/11/silver-demand-solar-energy/ 

http://www.forbes.com/sites/greatspeculations/2014/10/21/trends-in-silve...

 

Look at the table named "All time PV installations by country" at URL below.  You can see growth is accelerating. 

 

http://www.forbes.com/sites/greatspeculations/2014/10/21/trends-in-silve...

 

 

A Pimp's love is different's picture

silver solder for moonshine stills bitchez! ;-)

BigJim's picture

Half of all silver produced is hoarded EVERY year - almost 500 million ounces of it. Coins, bars etc. There is a shit ton of it sitting around ready to be dishoarded if price rises appreciably.

If "they" manage to produce graphene economically you can kiss most electronics demand for it goodbye. Future industrial demand shouldn't be taken as a given.

I own a shitload of silver - after 2011 I bought from around $28 down to $15 - and I wish I didn't. If/when the banksters organise another pop I'll be keeping my eye on the GSR and swapping it for gold.

withglee's picture

AFP: Very simplistic answer.

WG: For me, it doesn't warrant more study. I know it's not money so I have no direct use for it. If it shows up in electronics somewhere, that's other's interest and concern.

AFP: 1) Silver is a monetary metal.  Demand for it continues simply because of this fact.

WG: Absolute nonsense. There is no such thing as a "monetary metal", just as there is no such thing as a "monetary policy" ... unless of course you are operating under an improper MOE process ... which of course we always have been, but certainly don't need to be. With a proper MOE process, there would be zero interest in silver as money because it couldn't compete. It would be too inefficient and could never guarantee perpetual perfect balance between supply and demand for the silver itself ... an absolutely necessary requirement for any proper MOE process. And of course it is far from being in free supply. The total value of silver in the world is about 1/5th the total value of gold ... and the total value of gold is less than $2,000 per person on earth ... chump change.

AFP: 2) Silver is industrial metal  Silver has the best conductive properties of any metal.  Better than copper.  For this reason it is used in solar panel production.  Demand will continue to grow.

WG: They reduced conductivity issues by shortening distances far more than by reducing resistivity. Heck, they've used more aluminum than silver in IC production.

AFP:
http://www.wallstreetdaily.com/2015/06/11/silver-demand-solar-energy/

http://www.forbes.com/sites/greatspeculations/2014/10/21/trends-in-silve...

Look at the table named "All time PV installations by country" at URL below.  You can see growth is accelerating.

WG: Maybe I'll look, but it would be a snipe hunt with PV companies dropping like flies.

AFP: http://www.forbes.com/sites/greatspeculations/2014/10/21/trends-in-silve...

WG: Does it include "stacking"?

a false profit's picture

WG:  I respect your response.   There can be no true markets without parties on both sides of the trade.  

 

So, we will find out in time who's correct.

O C Sure's picture

Commodity money comes about voluntarily.

Monetary Policy comes about involuntarily.

withglee's picture

Commodity money comes about voluntarily.

Monetary Policy comes about involuntarily.

"ALL" money comes about voluntarily. There is no such thing as "commodity money" or "monetary policy".

Commodities cannot be money because they can't deliver the two most important attributes of money: (1) Perpetual perfect balance between supply and demand for the money itself; and (2) Perpetual free supply of money.

And a proper MOE process does not employ a policy. It is not a tool of economics. Rather, it does just exactly what the traders who invented it, invented it to do ... efficiently enable simple barter exchange over time and space. It is an "in process promise to complete a trade". For any trader creating money, it does not exist before he gets his trading promise certified, and it doesn't exist after he delivers as promised.

And the use of money is never involuntary ... nor does the MOE process that "manages" it need to be exclusive. Like insurance and credit cards, multiple MOEs can co-exist. The best one prevails. And the best one is the one that perfectly delivers those necessary attributes most efficiently to traders.

To declare a commodity money is to declare real money impossible ... thus to dictate an expensive substitute of blessed "stuff" to serve in its place ... adding an interim, expensive step to trading over time and space.

withglee's picture

WG:  I respect your response.   There can be no true markets without parties on both sides of the trade.  

 

So, we will find out in time who's correct.

I'm an old person. I've run out of time. But I've seen enough time go by that it looks hopeless. People here I presume rate themselves above a HUL (an hour of unskilled labor), but they sure don't demonstrate it.

It's oh-so-simple when you "know" money is obviously and undeniably "an in-process promise to complete a trade". It doesn't exist before the promise nor after delivery ... so in a proper process, real money "cannot" inflate or deflate ... and real money is in perpetual free supply.

What could be easier to understand? Monetary policy? Derivatives? LIBOR? PM refining and grading?

Wake up! Time is running out.

ThanksChump's picture

The switch from lead/tin solder to silver amalgam solder in plumbing - that switch alone - compensates for the entire photography industry's switch to digital.

Color photography silver was always recycled anyway. Very efficiently, too. B&W photography is as popular as it ever was, but is not growing (why Kodak dropped Tri-X Pan film manufacture).

As much silverware is sold now as at any time in history.

PMs are grossly undervalued, and will be until the moment that they correct. They'll overshoot their true value, and that's when you trade for real stuff like steel, concrete, microchips, toilet paper, etc.

Figure on 75% of total global debt, $780 trillion or so, and divide that by aboveground gold and silver ounces. That's a good baseline value. I doubt an over-correction will last more than a week, so set your trade for baseline + 3 days, and trade for real stuff on that 3rd day.

That's a safer bet than most others. Ammo's always a good investment. Heck, physical .22LR rounds have easily beaten the indices and ETFs since 2000. Explosives do quite well, with the less-volatile compounds outperforming less stable varieties. Accelerants like kerosene are cheap, cheap, cheap. Surgical kits are undervalued too.

You must always diversify.

withglee's picture

PMs are grossly undervalued, and will be until the moment that they correct.

The only thing that overvalues them is the artificial demand caused by "stackers" who think silver is money or something to invest in for the coming "reset".

Commodities are pretty efficient supply/demand adjusters. It's when you get this ridiculous speculation involved that you can have this kind of distortion.

Googling on copper I found demand for the last 10 years has be virtually flat. But supply has gone up about 30%. So that would explain depressed copper prices.

I submit any price distortions for lots of these commodities whose production is related (e.g. gold, silver, copper), come from people thinking PM is money and is going to save them from the impending calamity.

Keep stacking ... double jams.