Reading time: 2,989 words, 13 pages 7 to 12 minutes.
People who ask when things will collapse just don’t get it. There won’t BE a collapse because it already began long ago. The collapse of economies, financial systems, currencies, social order (or insert favorite term) is not an event, but a long drawn-out process.
This continuing collapse will pick up speed as we circle closer to the drain. Ernest Hemingway, when asked how one goes bankrupt replied, “Slowly at first, then suddenly.”
Given recent events, I find it difficult to believe anyone still drinks the ass media’s so-called ‘recovery’ Kool-Ade. As I’ve written before, there is no recovery and there never will be. This sucker is going down. Systems are shaking themselves apart and no one knows what will emerge on the other side. Is that not reason enough to prepare?
Below are some of the recent events that prove we are circling closer to the drain.
1) Switzerland’s (central) National Bank decouples from the Euro
2) Falling petroleum prices
3) China’s economic slowdown
4) Global economic slowdown
5) Collapsing commodity prices
6) The EU announced QE
7) The Bank of Canada dropped interest rates to near zero
8) Chinese stocks drop 8% on margin trading curbs
9) Rising U.S. dollar killing U.S. exports
10) Canadian store closings & lay-offs
Before getting down to the dirty details, let Mac Slavo sum up our present economic situation saying, “All over the world central banks are printing money. Trillions upon trillions of dollars, euros, yen and yuan are being injected into the global economy. The immediate effect, of course, is rising asset prices because most of that money ends up in the hands of private banking cartels that continue to manipulate financial markets world-wide.
“And though their activities have given investors and the general public the perception of success, the reality is that we are in serious economic trouble. Otherwise, why would central banks need to forcibly keep interest rates near zero and continue to slam massive amounts of cash into equities and other markets?”
With that in mind, let’s examine some of these recent indicators.
1) Switzerland’s (central) National Bank decouples from the Euro – Desperate times call for desperate measures that produce a banquet of unintended consequences.
The Swiss National Bank had to buy hundreds of billions of Euros annually to maintain their currency pegged to the Euro. Once it became obvious that the EU would commit QE suicide and infect any currency pegged to it, the Swiss wisely pulled the plug and became the first major economy to surrender in the global currency war.
Switzerland decoupling its franc from its Euro peg caused considerable turmoil. Some currency traders, brokers and hedge funds lost their shirts. As well, many mortgage holders in Hungary and Poland are in trouble having mortgaged their homes in Swiss francs instead of the currency they earn. This gave them lower interest rates. It worked until it didn’t work anymore. When the Swiss franc shot up 20% after decoupling from the Euro, these mortgage payments will increase a painful 20%.
By the way, many Canadians recently bought vacation homes and condos in the U.S. to take advantage of lower real estate prices. With the U.S. dollar strengthening and all other currencies falling as a result (including the $CAD), Canadian mortgage holders of U.S. property are also facing a painful haircut.
There is a lesson here: always pay your debts in the currency that you are earning. Pledging your debts in another currency is much too risky, especially nowadays as systems splinter and shake themselves apart. Expect volatility to increase in every conceivable area.
This ‘beggar thy neighbor’ currency war was tried during the last Great Depression. It impoverished the world.
In any case, Switzerland’s surrender should be a wake-up call because the mother of all pegs are the Chinese yuan and the Hong Kong dollar pegged to the U.S. dollar. This dwarfs the Swiss peg by magnitudes.
Once the U.S. economy fails to ignite – aside from propaganda and pretense – the U.S. Fed will be forced into another round of QE in 2015 with some new, tarted-up name. The rest of the world will face the same dilemma as Switzerland. Should China decouple from the U.S. dollar, the repercussions will be far greater than Switzerland’s decoupling. This might well be the basis for Martin Armstrong’s forecast of a major sovereign debt crisis in 2015.75 (this fall). Like I said, we are watching systems shake themselves apart. Warning: get out of the system (more GOTS below).
2) Falling petroleum prices – There has been much lively debate about the reasons for the falling price of petroleum so I won’t add to the confusion. However, it’s more than coincidence that petroleum prices are falling as U.S. Quantitative Easing (QE) ends.
Many idiot neo-Keynesian economists laud cheaper pump prices as a boon to the recovery. Don’t believe it. Falling gas prices don’t create more wealth; it just shifts money from the gas pump elsewhere.
The grey area on the chart indicates recessions. The National Bureau of Economic Research (NBER) take about a year before announcing a recession has started. Don’t be surprised if future charts show 2014 in grey.
3) China’s economic slowdown – China’s double digit growth has hit the skids at 3.4%. And, we know that China cooks their numbers even more than the Amerikan government does theirs so it’s a safe bet China is facing a recession.
4) Global economic slowdown – The World Bank recently forecast a cut to global growth.
5) Collapsing commodity prices – It’s China again. With their past insatiable demand for commodities, China’s slowdown has the prices of major commodities sinking fast. In fact, China is selling its surplus copper thus contributing to global over-supply.
This time there will be no rebound like there was after 2008. Most of the world is at “peak debt” and the level of malinvestments is now monumental due to cheap capital and aberrational high price of oil.
6) The EU announced QE – CNBC reports, “The long-anticipated introduction of euro zone government bond purchases, which could amount to as much as a trillion euros, will mean the ECB will join the U.S. Federal Reserve, Bank of England and Bank of Japan in launching a quantitative easing (QE) scheme.”
Japan’s QE hasn’t worked for more than two decades. The U.S. has been failing for six years. And, now the European Union announced it too is shooting itself in the foot.
On ‘unintended consequences’, Tyler Durden of Zero Hedge asks,” Has it been lost on anyone that the oil crush, the Greece turbulence, the sudden realization the money issues in China are becoming more apparent by the day, and a whole lot more began happening near to the day QE ended hence a mere 60-ish days ago? Funny how a world based on sound fundamentals and economic principles would do that is it not?”
7) The Bank of Canada dropped interest rates to near zero – Canada’s central bank (the Bank of Canada) joined the ‘race to the bottom’ by dropping interest rates closer to zero. Imports into Canada will be more expensive. On the plus side, exports will be cheaper which will offset some of the drop in petroleum and other commodity prices.
8) “Chinese stocks drop 8% on margin trading curbs” – That was USA Today’s headlines. In a desperate and ultimately futile attempt to cool off the red-hot Chinese economy with a ‘soft-landing’, USA Today reported, “Chinese shares plunged about 8% Monday after the country’s securities regulator imposed margin trading curbs on several major brokerages, a sign that authorities are trying to rein in the market’s big gains. It was China’s largest drop in six years.”
9) Rising U.S. dollar killing U.S. exports – In the currency war’s race to the bottom, the U.S. dollar is losing because it’s rising faster than other currencies.
How can a ‘strong dollar’ be negative? I’m glad you asked. According to “Chart of the Day” above, contributing to disappointing U.S. corporate earnings is “the surging strength of the dollar which makes it more difficult for multinational corporations to sell their products overseas.” With that in mind, how can anyone still believe the so-called ‘recovery’ fairy tale promulgated by the ass media?
10) Canadian store closings & lay-offs – The Canadian Broadcorping Castration (CBC) reports that Target is closing all their Canadian stores and laying off 17,600 employees. The article cites numerous reasons for Target’s failure except the most obvious; we’re in a depression caused by demographics and debt.
Boomers are retiring, the millennials are broke and Canadian household debt is 160% leaving little discretionary income. Compare Canadian debt to U.S. debt in the chart below.
A few more thoughts below:
Volatility before Crash
We’re seeing headlines like, “Global stockmarkets tumble amid huge fall in the price of copper as value of euro drops below its 1999 launch level”
The Daily Mail quotes “Top economist says world economy ‘running on one engine… the American one.” I really hate to break it to this so-called economist, but the U.S. is running on pretense, propaganda and ass media bullshit. In other words, the world economy is running on fumes.
CNBC quotes, “Stuff happens when QE ends,” said Peter Boockvar, chief market analyst at The Lindsey Group. “It’s no coincidence that the market started going into a higher volatility mode, it’s no coincidence that the decline in commodity prices accelerated, it’s no coincidence that the yield curve started flattening when QE ended.”
Egon von Greyerz of Matterhorn Asset Management writes, “The triggers for major changes in history always seem insignificant at the time. This was the case with the shot in Sarajevo or the fall of the Creditanstalt in Austria. The shot in 1914 was the catalyst for WW1 and the failure of the Austrian bank in 1931 the beginning of the 1930s depression.
“It is hard to say today what in history will be seen as the catalyst for the worldwide downturn that is now about to start not just in the economy but also politically, geopolitically and socially. And this will not just be a temporary cyclical downturn but a secular downturn that could last for decades or even longer.”
He says we now live in an ‘unreal world’, “We now live in an unreal world based on unreal money to the extent of $300 trillion of debt and printed money plus over one quadrillion dollars of worthless derivatives. This has created unreal asset values but also unreal people whose primary desire is to dominate the world. But we know that unreal things do not last, whether it is a £200 million flat in London or a bonus for a Wall Street banker of $100 million.
“Real wealth cannot be created by printing worthless pieces of paper. If that was the case we could all stop working and just print money.”
Baltic Dry Index
Regular readers know that the Baltic Dry Index of global freight rates is a reliable leading economic indicator because shippers are unlikely to book cargo space if they have nothing to ship.
In fact, rates for all ship sizes are down 42% to 52% Year-Over-Year below.
How to Benefit from Bursting Bubbles
In other words, can you make money in a depression? The answer is yes, and the method is one simple word: cash. Bursting bubbles send asset prices plunging. You need cash to buy assets at pennies on the dollar.
And, as Jim Sinclair said numerous times, you need to GOTS – Get Out Of The System.
Here is Jim’s GOTS check list. Few of us can do all these but the more we do the safer we’ll be.
1. Your equities are held in certificate form.
2. You have no Federal retirement funds.
3. You have no CDs and investments in bonds.
4. You have modest money deposited among selected BRICs countries.
5. You store your own precious metals.
6. You have no mortgage obligations.
7. You keep cash on hand for 6 months expenses.
8. You have no consumer debt at all.
9. You have a small hobby farm for protein and veggies outside of where you are living with no mortgage debt, set up green.
10. You have a gas, diesel or electric car with high fuel mileage for the farm.
11. You have a generator with large fuel capacity for the farm.
And, I would add one more; get your money out of the bank and (figuratively) under your mattress before you’re robbed blind by a bail-in. Money in the bank is not yours. If you don’t have it; you don’t have it. Keep only enough in the bank to pay bills.
What Else Can You Do?
You’re not helpless. Even during the depths of the last Great Depression, 75% of workers had jobs, people made money and the wise profited by having cash to buy marked-down assets.
Below are some brief ideas from the Organic Prepper. Click on that link for more details and further links.
– Create multiple streams of income.
– Learn to shop wisely.
– Build a pantry.
– Learn to do it yourself.
– Learn to live on less (and enjoy it).
– If you can’t protect it, you don’t own it.
Cannot Save the System
I leave you with one of the most spine-chilling statements I’ve heard. This is from the fellow who was instrumental in creating many of the derivatives that are today haunting the world and who then wrote a 4,000 page treatise on the subject.
“Governments are not really trying to save the system anymore,” said Satyajit Das, a banking expert in Sydney, Australia. “They now realize that’s impossible. They are just trying to manage the decline.”
I first quoted this in the November 2008 crash update. Nothing has changed. Nothing has been ‘fixed’, the ‘too-big-to-fail’ are larger and all the structural problems that caused the so-called Great Recession have deteriorated further.
Will the Sheeple Awaken?
Last, but not least, let’s bust some bunk. The question is often asked, when will the sheeple wake up? Another related question often asked is, will our troops ever shoot their own citizens if they are ordered to do so? I suspect the real motive behind such questions is wishful thinking and an embarrassing lack of understanding of human nature.
Answer: 2/3 of the sheeple will blindly follow what they’re told and, yes, most troops will shoot their own citizens for that same reason. This was demonstrated long ago by the controversial Milgram experiments conducted by Yale University professor Stanley Milgram.
In the wake of the Nuremburg trials of Nazi leaders for crimes against humanity, Milgram wanted to understand how otherwise civilized German people could accept the extermination of the Jews in the Second World War. In the early 1960’s, Milgram conducted a series of experiments to study such group behavior and the resulting blind obedience to authority.
Volunteers were asked to give ever stronger electric shocks to people supposedly learning a task whenever they made a mistake in learning. The “learners” were actually actors who were not harmed, but the volunteers believed that the shocks, up to a fatal 450 volts, were real.
Milgram expected less than 1% of the volunteers would go all the way. He was so stunned when 65% of the volunteers gave fatal shocks that he filmed the last day of the experiments thinking that no one would believe the results unless they were recorded.
Later, Dr. Thomas Blass performed a meta-analysis on the results and he confirmed that Milgram’s experimental techniques were solid and that the percentage of volunteers willing to administer fatal socks was indeed between 61% and 66%.
It is also amazing that even among those few volunteers who refused to administer fatal shocks none of them refused to give further shocks before the 300-volt level!
Needless to say, Milgram’s experiments are highly controversial and there are many criticisms, most being no more than “whistling past the graveyard”. The experiments would be unethical today (true), the volunteers were not evil people (true), Milgram sometimes bullied the volunteers to continue (true), etc. Yes, all true. However, as true as these may be, they do not change the results of the experiments.
“The social psychology of this century reveals a major lesson: often it is not so much the kind of person a man is as the kind of situation in which he finds himself that determines how he will act.” –Stanley Milgram, 1974
“Ordinary people, simply doing their jobs, and without any particular hostility on their part, can become agents in a terrible destructive process. Moreover, even when the destructive effects of their work become patently clear, and they are asked to carry out actions incompatible with fundamental standards of morality, relatively few people have the resources needed to resist authority,” Milgram in his book Obedience to Authority.
Conclusion: don’t hold your breath waiting for the sheeple to awaken because 2/3 will believe and do what the authorities tell them. Troops, especially, are trained to obey orders. History is replete with examples. Make sure you don’t become one of these statistics.
This was supposed to have been a brief update. It’s difficult being brief when there’s so much happening.
Remember the mantra:
We cannot borrow our way out of debt.
We cannot spend our way to prosperity.
We cannot pretend our way out of trouble.
January 28, 2015
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