DEATH BY DEFLATION
by Andrew Hoffman, Miles Franklin
This weekend, a reader sent me a Forbes article with one of the most clueless, disingenuous themes imaginable; i.e., “there is zero evidence (repealing Glass-Steagall in 1999) unleashed the financial crisis.” I have always been fascinated by Forbes’ flip-flopping around reality and delusion, especially as Steve Forbes is a notable gold bull; in fact, one of the most vocal advocates of a new gold standard. Then again, for a variety of reasons cumulatively depicting the flaws of
human nature, even many of the financial world’s brightest minds refuse to acknowledge the most important factor driving them; i.e, the manipulation of markets by the “weapons of mass destruction” developed post-1999 by banks armed with modern technology, unlimited Federal subsidies, not a shred of regulation or oversight, and the often explicit guarantee that they are indeed “too big to fail.”
Why do I bring this up, as I write on what could turn out to be an utterly terrifying Monday morning? Because watching the, as Zero Hedge put it, “bidless” Euro open a cent and a half lower last night, amidst plunging oil prices and exploding fears of a Euro-killing “GrExit,” it truly horrified me to witness what derivatives have created. As first hinted at by the May 2010 “flash crash” – when the Dow plunged 700 points in minutes due to an overload of high frequency offers that created a vacuum of illiquidity costing hundreds of millions of instantaneous losses, derivatives have not only destroyed markets permanently, but driven retail and institutional participation to record low levels. The October 15th flash crash in Treasury yields – when the 10-year yield plunged from 2.21% to 1.87%, also in minutes, was a second blaring warning of what’s to come. And trust us, when “what’s to come” inevitably arrives – perhaps this year – if you haven’t already protected yourself, it will be too late to save yourself.
Throw in the fact that the handful of banks that operate the majority of such algorithms are, for all intents and purposes, insolvent – funded solely by the Fed, ECB, and other Central banks’ printing presses – and you can see just how dangerous “markets” have become. Not to mention, when said Central banks’ own stock and bond buying have driven valuations to record levels amidst the worst fundamentals of our lifetime, whilst the few institutions still remaining are robotically programmed to buy into such lunacy, driven by to archaic, suicidal “rules” built into the financial world’s “DNA.”
Throw in the sheer lunacy of the government taking over key businesses; such as housing, given that Fannie and Freddie now purchase essentially all new mortgages, and we’re talking about not only a “radioactive” financial industry, but one on the verge of nuclear implosion. And this, the sector that produces more “profits” than any other in America! In other words, not a shred of humanity, common sense, or incentive remains in the financial world (other than for the government-backed “1%” to pillage the “99%”) – yielding “markets” more prone than ever to being instantaneously vaporized. Which is exactly what’s barreling down the tracks like a runaway locomotive; likely, MUCH sooner than most can imagine.
Yes, now that TPTB have safely tucked away the monster bonuses their 2014 manipulative efforts enabled, the “whole shebang” is collapsing before our eyes. The world round, there is no longer a shred of doubt we are amidst an all-out economic collapse of historic proportions. And now that Central banks utilized all their “dry powder” in levering up their balance sheets post-2008, there is no remaining safety net; not in the slightest. When inevitably the “Yellen Reversal” is unleashed upon the world – i.e., Federal Reserve admission that the U.S. economy is in effect collapsing, and thus in need of “QE4″ – I’ll bet anything the “assumed response” will not occur, in lieu of a horrifying loss of confidence in all things paper, including the dollar itself.
And irrespective of how much money is printed (distributed not to the people, but TBTF banks that will hoard it given the utter dearth of profitable loan opportunities), the “death by deflation” that 44 years of money printing caused will consume and destroy them like gale force wind blowing over leaves and matchsticks. One by one, currencies will serially crash, whilst the monster debts and overcapacity created by four-plus decades of capital “deformation” will destroy global trade for years, perhaps decades to come. This is what’s happening as I write – i.e., NOW; and frankly, I am far more terrified today than amidst the throes of Fall 2008.
For the billionth time, “inflation” refers not to consumer price levels, but the rate of monetary creation. “Deflationists” focus principally on the low velocity inherent in an over-indebted economy that prevents price levels from rising – principally for “want versus need” products, of course. And to that end, they are dead right – aside from not understanding the fact that gold and silver are NOT “deflation-prone commodities.” The “diminishing returns” of debt accumulation are well known mathematical truisms, and we discussed America’s falling into this trap three years ago. Heck, it was one of the first things I wrote of when joining Miles Franklin! This is what I wrote of in Friday’s MUST READ article, the “direst prediction of all“; which, unquestionably, will yield freefalling commodity prices until the entire economy implodes into a pile of dust, or psychotic Central banks hyper-inflate their nominal value, whilst destroying their real value further.
Moreover, said “deflationists” – as well as essentially all mainstream analysts – entirely ignore the fact that hyperbolic money printing ultimately destroys the credibility of currency issuers, inevitably causing currency runs that have destroyed EVERY ONE of the previous 599 fiat Ponzi schemes. And the deeper the world goes into debt; the wider the gap between productive capacity and actual demand; and the more strained social and geopolitical relations become; the more likely that a fuse, any fuse, will emerge to set in motion the aforementioned “end game.” At this point, which I find difficult to believe is not VERY, VERY soon, the only thing that can save you are assets immune to such enormous wealth destruction, either by “inflation” or “deflation.” Which are, of course, the only assets to have met every definitional parameter of MONEY for the past 5,000 years; i.e., physical gold and silver.
This morning, WTI crude has not only plunged through $52/bbl, but $51/bbl as well – en route to the $35/bbl lows of 2008, and perhaps significantly lower. Only this time, the CRB index will likely beat oil itself to its 2008 lows – as the global, comprehensive collapse of essentially all commodities screams “death by deflation” louder than anything the Miles Franklin Blog can possibly write. Germany reported its lowest “inflation” reading since 2009 this morning, exemplifying how this cancer is spreading like wildfire – and even the Fed’s best efforts to prevent the “most damning proof yet of QE failure” are imploding, as the 10-year Treasury yield has plummeted to 2.04%, en-route to “filling the gap” created by the aforementioned October 15th collapse, and far lower levels thereafter.
And what do you know? Despite yet another ferocious Sunday night attack, as well as countless other this morning, gold and silver are soaring whilst all other global markets collapse. U.S.-priced gold is comically being capped at exactly $1,200 (but not for long, methinks), but in all other currencies is literally exploding higher. Starting with Euro-priced gold, which DECISIVELY breached the psychological (and heavily Cartel-defended) barrier of €1,000/oz this morning; as well as Swiss franc-priced gold, which surged through CHF 1,200/oz like a hot knife through butter. Regarding the latter, in hindsight, NOTHING could have been better for gold than the ill-fated Swiss “no” vote; but I’ll save that for another day, other than to say a “yes” vote represented the only chance that would have been afforded humanity for even a modest slowing of the printing presses, and expectations thereof. For now, all I can say is RUN, and do it FAST, from all things paper – into the time immemorial safety of real money!