When This All Blows Up...

Tyler Durden's picture

Authored by Chris Martenson via PeakProsperity.com,

This report marks the end of a series of three big trains of thought. The first explained how we’re living through the Mother Of All Financial Bubbles. The next detailed the Great Wealth Transfer that is now underway, siphoning our wealth into the pockets of an elite few.

This concluding report predicts how these deleterious and unsustainable trends will inevitably ‘resolve’ (which is a pleasant way of saying ‘blow up’.)

The Ka-POOM Theory

In terms how this will all end, we favor the scenario put forth by Eric Janszen in 1998 called the Ka-POOM theory.

This theory rests on the belief that the Federal Reserve along with the other world central banks looked at Japan's several decades of economic stagnation and decided that deflationary recessions are to be avoided at all costs -- even if that means blowing asset bubbles and then cleaning up the destruction left behind in their aftermath.

Because the Fed, et al. have a limited playbook (which is: print, and then print some more), the Ka-POOM model calls for limited periods of disinflation, followed by massive money printing sprees that then produce high inflation.

Despite the trillions and trillions in thin-air money printed by the world's central banks over the past 8 years, a common rebuttal we hear is “But there’s been no inflation so far!”  To which I reply, “Yes, that’s what we're being told. But that's not actually true.”

Remember: inflation is simply “too much money chasing too few goods.”  We can detect today's excess of money in the rising prices in our cost of living -- but those higher prices are symptoms, not causes. Inflation is not "higher prices". Inflation is "too much money".

Next, inflation is not an evenly-distributed event. It’s not like the price of everything rises 10% at the same time. The inflation rate is an average, which contains some prices going up, while others stay flat or even go down going down. It’s always a lumpy experience.  The reason why is that money is not evenly distributed across the economy, and it doesn't always chase (or desire) the same things.

So the Fed and other central banks have printed up trillions and trillions of dollars, euros and yen, which they then essentially handed over to the financial markets and the very few people who work within them (as well as their biggest clients).  As a direct consequence, we’ve seen enormous inflation in the prices of things that relate to that tiny universe of people – stocks, bonds, trophy city apartments, Gulfstream 5 jets, fine art, and rare gems. 

These items have all gotten massively more expensive over the past decade. Just as would have happened if the Fed had printed up a trillion dollars and given them everyone living in a trailer park in the American South, with the restriction that the money could only be used to buy other trailers in the region. Do you have any doubt that the price of trailers in the South wouldn't explode upwards?

Well, that’s exactly analogous to what has happened to financial and trophy assets. The amount of money created and poured into the financial markets by that central banks has been incredibly enormous. As a first-order event, it raised the prices of nearly all financial assets. And then, as a second-order derivative, it then flowed into the properties and cherished possessions of the financial industry insiders. 

The summary is that we’ve already had lots of inflation – but it has (so far) been mostly contained to the areas where the freshly-printed money was first directed. No surprise there.

But it's certainly not only been limited to the rarified items the rich enjoy. Anyone who is currently looking to purchase a home, car or college education has a pretty good idea how prices have jumped substantially over the past decade.

Here’s the thing about the attempts by central banks to circumvent the workings of the actual economy by simply printing up money: It is doomed to fail. It always does; one cannot simply 'print up' prosperity.  Printing up money merely creates the illusion of free wealth for those with first access to it. In reality, what happens is that it secretly transfers the wealth from everyone else to those lucky few. 

The Fed and the rest of the central banking cartel are consciously and very pointedly picking winners and losers.

It’s not in their power to make everyone a winner.  So they have decided to throwing granny (and savers and pensions) under the bus while financial elites and well-connected speculators (e.g. JP Morgan and other large banks) extremely wealthy in the process.  Wealth is being transferred from Parties B-Z to Party A – from the many to the few.

What the Fed promised would happen along with all of this money printing has not materialized. There has been no return to rapid economic growth. And there won't be, because we have massive structural problems in our economy that can't be papered over forever.

This stark fact makes the Fed's entire money printing misadventure not just pointless, but dangerously destabilizing from a social and political perspective. The world's central banks, especially the Fed, have done an enormous amount of damage. These institutions, as well as the decision-makers within them, are going to have a heck of lot to answer for when the inevitable crack-up comes.

A Quick Re-Cap

And so here we find ourselves, at the final torturous, grinding part where the final bubble top is formed. The über-bubble. The Greatest Of Them All.

A bubble this spectacular requires a top worthy of its size. A long, massive top, full of increasing exuberance -- until the very last investor is sucked in. 

Where I’ve noted humans’ remarkably silly behavior during bubble episodes in the past – tulip bulbs, railroads, swampland  - I still struggle to understand or even explain this one.

It’s so obvious at this point. And yet, like its brethren bubbles of the past, a lot of otherwise thoughtful and careful people are getting sucked in by its siren song.

I guess the best economic description of it might be “a credit bubble” with sub-components like sovereign and household debt, and sub-sub-components like Toronto real estate and the IPO price for SNAP shares (that’s Snapchat, which soon after its launch, had a valuation of $40 billion. This mind you, is a company that has no identifiable revenue model).

A credit bubble occurs when the issuance of credit grows faster than income supporting it. Here’s what that looks like on a national scale for the US. The bottom red line is income (GDP) and the top blue line is Total Debt. We can see that debt has been growing at twice the rate of GDP since 1970:

Debt to GDP

You have to be quite delusional to think that debt can be compound at twice the rate of income forever. Unfortunately, there are more than a few of those ungrounded optimists working in central banks and governments the world over. Their thinking is simply, The sky’s the limit! 

Those of us living in reality find this mindset puerile and insulting. And, of course, dangerously reckless. And it’s also maddening to hear the media cheerleaders for Wall Street selling us this bunk as if it were somehow sensible.  It is not.

Look, millions -- likely billions -- of people are at risk of getting badly hurt. When this bubble blows, it’s going to be enormously destructive and take out a lot of wealth along the way.  Millions of jobs will be destroyed. What people think of as wealth will evaporate as though it never existed in the first place (it didn’t). Political dynasties and major financial institutions will be ruined.

As I wrote recently, this will be widely and popularly referred to a period of wealth destruction. It will feel that way to must, but it will be actually be a period of wealth transfer:

The summary here is this: We are still printing and borrowing enormous amounts of money and credit, but the world is not growing any larger in response.  The pressure is building.  Nobody knows when all of that money and credit will have to be 'trued up' against the amount of real stuff out there. But it will. History shows us that it always does.

 

And that moment will be referred to by most as a period of wealth destruction. 401ks will be shredded, bonds will become worthless, defaults will spike, institutions and entire countries will fail - but the truth is that all of that paper 'wealth' was an illusion. People's faith in it had been betrayed long before, when those in power started abusing the system by creating too many tertiary claims.

 

After the dust settles, there will be winners and losers, and those with the proper framework will understand that what actually happened was that all of the wealth was transferred from those who thought they owned it, to those who actually did.

 

The biggest remaining question is whether the wealth transfer comes about in the form of an inflationary destruction, like in Venezuela today, or as a deflationary bust more in the fashion of Greece.

(Source)

The only thing that capable of preventing this coming carnage would a resumption of rapid economic growth. And I mean growth that exceeds the rate of debt creation.

But that's simply not going to happen. 

The Problem With Growth

We can dispense with the idea of “solving” our too-much-debt problem by a resumption of rapid economic growth either by deduction or observation.  Both work just as well on their own, but each tells a similar story in this case. 

The deductive route notes that economic growth stimulated by ever-higher amounts of borrowing simply requires greater and greater debt loads to accomplish.  Eventually debt levels simply become too high, and pinch off growth.

We can also deduce that because economic growth is tightly linked to energy consumption, lower amounts of usable energy flowing through an economy will cause that economy to stall out as well. Because we know that both the quantity as well as the net yield we get from our energy-producing activities are flattening, this explains why GDP growth is flattening too.

Thus, from a deductive standpoint, combining what we know about high levels of debt and flattening energy returns energy there’s really no more room for confusion about why GDP growth is, and will remain, anemic (at best).

Observationally, we now have more than a full decade of sub-par (i.e., ‘too low’) world GDP growth: 

Debt to GDP

(Source)

Notice that the last year of data, 2016, is coming in at the lowest reading since the Great Recession, while the next two years are estimated to also come in at less than 3%.  The world hasn’t averaged 3% GDP growth in a decade. Even the mighty US has gone more than ten straight years without breaking into the 3% range. 

We have to ask: How many years does it take to finally admit that there’s something seriously wrong with our hopeful story line that robust growth is going to save our debt-ridden bacon?

Just for the record, things are not shaping up any better here in 2017 either…

Atlanta Fed GDPNow model predicts 1.2% 1Q17 growth

And, just for kicks, we might also note that the GDP forecasting agencies of the world have consistent in over-estimating future growth.  Of course, this doesn't deter them from continuing to predicting higher future growth each year. As a case in point, here are the IMF's predictions for world growth over the past 6 years:

Debt to GDP

(Source)

Each of those colored lines is a forecast.  Each of them foresaw growth going notably higher in the near future.  Not only was every one of them utterly wrong in direction, each failed at getting even the next quarter anywhere close to right.  See how none of those lines ever dips below 3%?  See in the prior chart how global growth never breached 3% in any of these same plotted years?

For a variety of reasons, with aging demographics being a huge factor, future growth in the OECD countries must slow: 

Debt to GDP

(Source)

My ‘prediction’ is that these projections will turn out to be far too high. Mainly because I include declining net energy in my views and no mainstream economist ever does.  But the track records of these outfits shows that taking the ‘under’ side of the over/under bet offers incredibly safe odds.

At any rate, the main story here is that the only way we can begin to justify the astronomical levels of debt currently on the books, let alone slathering on new tranches just to keep the whole thing form imploding, is to have a story of endless, rapid future economic growth. Which is, we've already shown, a delusional fantasy.

Stagnating growth, ever more trillions of debt, and a finite amount of depleting net energy all adds up to an unsustainable mess.  With asset price bubbles everywhere and wealth transfer mechanisms already in place, the end-game involves a very few winners and a lot of losers.

Anything that is this unsustainable will someday end. But how? And how should we position ourselves for it? 

In Part 2: The Ka-POOM! Survival Guide, we detail in depth the most likely progression predicted by the Ka-POOM! model. First, a punishing crash in prices as natural market forces eventually overwhelm the Fed's doomed efforts to print the world to prosperity. Think of the 2008 crash, but on steroids.

Then will come the inevitable response from the central banking cartel: Set the printing machines on maximum speed! While this may seem to work for a brief while, it will soon collapse the world's currencies in a hyperinflationary deluge.

This will be a very tricky time for preserving wealth as things swing violently from disinflation to inflation. Understanding the mechanics and knowing what to expect will be critical -- not just for safeguarding your money, but for taking advantage of what will surely be some of the best bargains of our lifetime.

Click here to read the report

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Logan 5's picture
Logan 5 (not verified) Mar 11, 2017 11:05 AM

Blown up, SIR!

 

Razzle Dazzle!

 

Dats da fact... JACK! It's party time... battalion style!

Croesus's picture

Yeah, I've been hearing "The End is Nigh" for a very long time... >30 years...so "any day now", this is all over. 

Ask me again, 10 years from now. 

samcontrol's picture

Hey, long time no talk... You know nothing Croesus¡

Croesus's picture

That's a new one...nobody ever told me that before. I hope you didn't stay up late thinking it up. 

samcontrol's picture

Just like the line from GOT John snow, it is just my way of saying hi.

Pairadimes's picture

One bubble to rule them all...

Chris Dakota's picture
Chris Dakota (not verified) Pairadimes Mar 11, 2017 12:01 PM

I finally occurred to me this morning the elites are bringing Islam to the West because it is very good at keeping people in line.

Of course not for them, but for us.

 

J S Bach's picture

This is how usury works, folks (or DOESN'T work depending on your perspective).  If our money were honest and debt-free, it wouldn't be necessary to "grow" the economy at all.  It could remain exactly the same ad infinitum... and if it were to grow or contract, a debt-free money supply could be controlled up or down to maintain an equalibrium.  It's really simple as long as your money and those trusted to monitor it are honest.  Money is merely a vehicle of exchange... a tool of barter.  An economy MUST grow if this currency is based on debt in order to fulfill the interest payments due on that debt.  The whole present system is both criminal and insane from any angle.  But, those creatures who developed it and profit by it will not let go of their diabolical fount willingly.  They must be exterminated root and branch.  Once the great reset comes, they will announce a "new and better" system with themselves in control, of course.  This we must not allow.  Once honest money is the norm in our world, an unprecedented peace and prosperity will ensue.  But, we must FIGHT for this future... it will not come about on its own.

ebworthen's picture

Yup.  First chart, Debt vs. GDP; divergence began in earnest when Nixon unhinged from Gold Standard, 1972.

Rampant inflation and rates of 16% followed late 70's, then bust of '82, then boom-bust financialization since.

prime american's picture
prime american (not verified) nope-1004 Mar 11, 2017 1:23 PM

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... http://bit.ly/2jdTzrM

xythras's picture
xythras (not verified) prime american Mar 11, 2017 4:11 PM

When this all blows up maybe we won't be here to worry. 

And all thanks to TRUMP leaving all the neocohens run freely inside Pentagon:

Mattis is The Only Trump Political Appointee at the Pentagon Two Months In

http://dailywesterner.com/news/2017-03-11/mattis-is-the-only-trump-polit...

 

 

 

kavlar's picture
kavlar (not verified) xythras Mar 11, 2017 8:22 PM

Can't wait for it to go ka-boom.

Mano-A-Mano's picture
Mano-A-Mano (not verified) kavlar Mar 11, 2017 8:23 PM

Yeah, that way we can hang all those private bankers who own the Federal Reserve.

http://biblicisminstitute.wordpress.com/2014/08/24/the-corrupt-federal-r...

kavlar's picture
kavlar (not verified) Mano-A-Mano Mar 11, 2017 8:23 PM

Count me in.

Mano-A-Mano's picture
Mano-A-Mano (not verified) kavlar Mar 11, 2017 8:24 PM

Counted in.

Manthong's picture

“too much money chasing too few goods.”  

Old school,,, not anymoar.

Yes, that ended in 2008 when the financial predators were allowed to escape their malfeasance and indeed, were funded by Bush and Congress (by f'g us) to catapult them to incredible wealth.

Then in late 2011 all of the CB’s decided that they would eliminate the market and the mechanism of price discovery through their authority to create infinite fiat digits.

Now robots are the traders and any human that ventures into the robot killing fields… well, gets killed.

I posit that today the problem really is too many .gov and banker arbitrary command digits in too few hands inflating speculative assets for the fortunate few at the top and essential obligations for the masses downstream to the bottom.

The inequality is that the poor cannot convert the effects of inflation into hard assets the way that those at the top can easily do.

That’s why Jamie Dimon is (way,way) richer than you.

But at least Blankenfien's monster is doing God’s work at your expense.

The only escape now is to escape.

Trump, unfortunately does not appear to have a better idea.

When the FAKE “market” and .gov edifice is repudiated by the humans and enough of them just bail out of all financial constructs, maybe the disequilibrium might have an effect.

The only other outcome is…. Matrix, 1984, Day of the Living Dead… other dystopia.

Take your pick.

 

Manthong's picture

 

If you have the ability, overlay the major exchange indices price with their corresponding EPS.

Love you baby, XXX.

 

MK13's picture

Ah, that's what the masses said before French and Russian revolutions. I don't think they were saying that 10 years in, if they weren't pruned already. No bueno man.

Tarzan's picture

I read ZH to find Truth, because I've learned above all things, when seeking understanding through the twists and turns, smoke and mirrors, follow the money.

Over the years it's become painfully obvious to me that the coming fall will be a matter reality revealed, rather then reality changing.

What people think of as wealth will evaporate as though it never existed in the first place (it didn’t). Political dynasties and major financial institutions will be ruined.

As I wrote recently, this will be widely and popularly referred to a period of wealth destruction. It will feel that way to must, but it will be actually be a period of wealth transfer:

When this big day comes, and it will only take a day, we will not see the destruction of wealth.  What will happen is a clearing of the smoke.  All that "wealth" is an illusion, and suddenly that reality will come full frontal in one massive flash crash, to a fair market price based on real transactions. 

It is the speculation that's distorted price, and thus distorts perceived "wealth".  "traders" buying and selling things that never actually trade hands, is the hallmark of this massive bubble.  Too often the seller doesn't deliver anything, and the buyer only takes delivery of a promise, inflated, unrealistic digits in the sky. 

This will suddenly stop, and buying and selling will be reduced to a price you and I would actually agree to, in a real transaction. where goods are actually traded for real stored labor, instead of easy "money" bank loans, and hollow promises to deliver a commodity that will never actually change hands.

It sounds so simple, yet we're so far down the rabbit whole, real prices would be devastating to the "Markets"!

Unfortunately, illusion is preferred by the masses, and Reality will have to be thrust on a land of delusion, where telling the truth is offensive to most.  Thus, right to the last day, America will sleep, until the reality of our debt, our poverty, our vulnerability, is forced on us....

You say, ‘I am rich; I have grown wealthy and need nothing.’ But you do not realize that you are wretched, pitiful, poor, blind, and naked. I counsel you to buy from Me gold refined by fire so that you may become rich, white garments so that you may be clothed and your shameful nakedness not exposed, and salve to anoint your eyes so that you may see.…

 

Manthong's picture

..but it is the pensions and municipalities that will take the hard fall, along with the rest of the sheep that thought they were along for the ride.

New_Meat's picture

MDB's bot woke up at the crack of Noon!

fockewulf190's picture

The outstanding derivatives will blow the system apart before the central banks can counter act the chain reaction with more fiat printing. The sheer amount of derivatives, shown to be at least in the hundreds of trillions, can't be covered. The Great Reset will cause, as Jim Rogers and others have been saying for a long time already, people, as well as nations, to "disappear".

Get prepared.

bonderøven-farm ass's picture

Debt ceiling cap March 15 along with a potential Fed rate hike.... 

I recall someone (long ago) stating that our debt is no longer servicable once rates are >3.5% (assuming we ever each that point again). 

The yoke is harnessed.

Socratic Dog's picture

Yep.  The Feds rate is what they consider the economy to be growing at.  If their rate goes negative, it's because the economy is shrinking.

It's all bullshit of course.  "GDP" is composed largely of financial piss and wind.  Debt becomes GDP.

Amazing a learned article such as this can be wrote without mention of Jews or Oil.  The one brought us usury, the other finite growth.  Both sorta important to where we find ourselves.  Important, as in, the defining inputs.

veritas semper vinces's picture

This is an outstanding post . This is the root of the problem and people need to understand it if they hope for any solving of the problem. Our sick society(not only Murica,but the whole west) is the product of fake money.We have fake money,fake market,fake GDP,fake news and culture/education,fake values,fake political system/democracy/republic,fake health system,womwn with fake boobs/asses/faces...

But we do have real wars of aggression presented as spreading freedom and democracy

fockewulf190's picture

It is encouraging to see that one state after the next...too slowly for my taste but still...are passing laws recognizing phyzz as money again.

Justin Case's picture

One of the chief virtues of a gold standard is that it serves as a restraint on the growth of money and credit. It makes runaway government deficit spending and major monetary catastrophes such as hyperinflation practically impossible.

Opponents of a gold standard can’t defend the political malpractices that are enabled by a fiat currency regime. So instead they spin a narrative about how gold supposedly hampers the economy.

According to Keynesian economics, spending boosts the economy while savings contracts it.

Keynesians put the cart before the horse. Savings and investment drive the economic productivity that enable consumers to enjoy a high standard of living. But Keynesians believe the economy only booms when demand is artificially pumped up by debt, government spending programs, and perpetual currency depreciation (inflation) engineered by central bankers.

aurum4040's picture

If people would unite, completely stop using debit/credit/FRN/banking system and go back to PM's and barter, we'd be fine after an adjustment period. Trouble is everyone remains too selfish, shortsighted, and, in some cases, just plain ignorant to unite for such a cause. 

Retronomicon's picture

Well said Bach.  You're as good a writer of words as music.

GoonerDog's picture

Bizarro fake fiat goes poof. Bizarro "new and improved" fake fiat introduced. Meanwhile, discredit gold as replacement for fake fiat through blatant manipulation of what we once knew as "markets."

 

Hang the bankers, end the Fed.

 

Four chan's picture

how do we force the world into one currency controlled by us? 

well we control all the central banks, own all the productive 

assets and have made pretty much every one on earth a debt slave 

to out fiat. lets blow up all the currencies in bubbles around 

the world, then when they collapse under their own unpayable 

debt (we created out of thin air) we will step in with our...

well, lets just call it our final solution for humanity.

 

end the fed

Zorba's idea's picture

Rather, another distraction while the Great Fleecing of America winds down.

Walter_Sobchak's picture

Make the holocaust real this time.

Walter_Sobchak's picture

Make the holocaust real this time.

Croesus's picture

@ samcontrol: 

Ah, gotcha now...I'm a little slow over here this morning...

How are you doing?

When you're not busy, drop me a line at zhletters @ hushmail dot com

max2205's picture

Hey! Fucker! There are more trailer parks in the rest of Amerika than the south.  You are a racist! 

espirit's picture

Ahh, the Elite Few.

Where are they going to spend it?

Bluntly Put's picture

That's the easy part to know, automation.

BullyBearish's picture

The central banker's cycle: pump up credit to get the bees buzzing and creating lots of honey then cut off credit to buy the bankrupt bee's honey for pennies on the dollar...so you see, it's not enough for them to have MORE...you HAVE to have Less...

flaminratzazz's picture

Most folks like to ignore the fact that the Great Depression was planned and created by bankers ON PURPOSE

Socratic Dog's picture

As were the Russian Revolution, and WWI and II.  Look at the number of bankers present at the Treaty of Versailles.  The Dulles brothers were there, gawd help us.

Logan 5's picture
Logan 5 (not verified) Socratic Dog Mar 11, 2017 3:04 PM

Luckily, jews didn't have anything to do with any of it.

 

They were minding their own business makin' bagels & corned beef sammiches & shit.

veritas semper vinces's picture

85 % of the first Bolshevik government were joooos. Most position of power in NKVD .Same for the other communist countries

Logan 5's picture

Get right out of town! Those fun lovin' rascals? Unpossible!

Chris Dakota's picture
Chris Dakota (not verified) veritas semper vinces Mar 11, 2017 7:01 PM

Most imporant jobs in Germany before Uncle Adolf were Jews too.

How many of those suckers are on the planet, it's got to be way more than we are told.

jews everywhere

Dancing Disraeli's picture

Immediately outlawed 'antisemitism,' too.

7thGenMO's picture

And the head of the NKVD was Beria who liked to have his henchmen round up young girls so he could force his Juiceness into them.  The left in this country seems to cozy up to similar scum like J. Epstein which should make any thinking person wary about why elites like Soros et al. are funding Bolshevik-like activities in the USA and elsewhere.

Matteo S.'s picture

To flaminrarzazz : no, the great depression was the consequence of the big debt bubble of the 1920's, which itself was the fake solution devised to the recession of 1920/21, which itself was the consequence that the super-fast growth that the US enjoyed during WW1 was artificial and unsustainable.

The point is that an economy which produces 100 needs to distribute 100 in revenues so that customers can buy production.

Giant Meteor's picture

Wolf Wolf Wolf ! The boy cried to the villagers, repeatedly, because HE was a dip shit and just wanted attention. Meanwhile the villagers caught on to the game, after having that shit pulled more than a few times.

Wolf Wolf Wolf! The boy cried again! Except this time, there was a whole pack of these ferocious, angry (and hungry) fuckers. Well as you can imagine, no villagers came this time. No they were busy at home counting their stacks, cooking apple fritters and taking liberties with the neighbors wife.

The boy, frightened beyond comprehension, and having left his mac 10 on a nearby rock, now utterly alone and completely naked, had HIS balls ripped off first, then the entire flock of sheep, totally ripped to shreds, one by one, in a gory and macabre scene straight out of Nightmare on Elm Street, which incidently came out in Nineteen Eighty Four ...