THE DEFLATIONARY VORTEX
by Andrew Hoffman, Miles Franklin
In last month’s “death by deflation,” I discussed how fiat currency schemes always yield parabolic debt growth, strangling economic activity and inevitably yielding mass defaults. And as today’s unprecedented fiat Ponzi is global, not a nation has been spared – nor its municipalities, corporations, or individuals. And clearly, the parabolic debt growth stage has commenced. Subsequently, in “the direst prediction yet” – which fittingly, was my first article of this horrible new year – I noted how the combination of unprecedented money printing, market manipulation, and financial engineering has created the highest degree of industrial, mining, and oilfield overcapacity in history; which sadly, could take decades to work through, yielding unfathomable amounts of layoffs, bankruptcies, and defaults.
One by one, the Central bankers that created this problem are realizing this; or at the least, attempting to whitewash their legacies ahead of the collapse of history’s largest Ponzi scheme. First, “Maestro” Greenspan, who essentially invented modern hyperinflation, said “effective demand is dead in the water, and the effort to boost it via bond buying has not worked.” And this, on October 29th, before the historic currency, commodity, and crude oil crash commenced. For the record, I said the same thing three weeks earlier; but hey, better late than never. For that matter, he also espoused that “gold is still,by all evidence, a premier currency, which no fiat currency, including the dollar, can match“; and this, 48 years after writing “Gold and Economic Freedom,” in which – as a disciple of Ayn Rand, no less – he concluded that “in the absence of the gold standard, there is no way to protect savings from confiscation through inflation.” Talk about better late than never!
And now, in an interview that received essentially zero media attention, Greenspan’s counterpart at the Bank of England, Mervyn King, admitted to his abject failures as well. King, who was Governor of the BOE from 2003-13, overlapped the disastrous post- “tech wreck” policies of Greenspan, and post-2008 crisis policies of Bernanke, before being replaced by Goldman Sachs alum Mark Carney. Like Greenspan, King was clearly attempting to re-write the record books – in claiming “we have had the biggest monetary stimulus the world has ever seen, and still have not solved the problem of weak demand. (Thus), the idea that (further) monetary stimulus is the answer after six years doesn’t seem (right) to me.”
Whether Greenspan or King ever believed their own BS is a question we’ll never know; although given Greenspan’s background, I tend to doubt it. As for King, I know little of him other than the disastrous results of his policies; and thus, he may well be a brainwashed Keynesian like Ben Bernanke, Janet Yellen, Mario Draghi, and Shinzo Abe; or perhaps, a conniving, power-hungry sociopath like Greenspan. Irrespective, the fact the rats are running from the ship should tell you just how close the end game is; as clearly, these twin monsters are smart enough to realize “weak demand” is winning the day, whether they understand why or not. And said “weak demand” is spreading like Ebola – as demonstrated by today’s news that IBM’s revenues plunged at their most rapid pace since the Lehman crisis; and worse yet, the entire global economy, in dollar terms, has plunged by an astonishing $4 trillion in just the past six months. And this, before the ramifications of the historic currency, commodity, and crude crash have even been realized! Analysts at Societe Generale described this economic holocaust as the “deflationary vortex,” and we couldn’t agree more.
And yet, despite the propagandist pontifications of “deflationists” the world round, gold and silver are soaring whilst most asset classes are plunging; as exemplified by today’s (Tuesday’s) markets – manipulation irrespective – in which gold and silver rose by $17/oz and $0.25/oz, respectively – whilst the CRB Commodity Index plunged 2.4%, to within 10% of 2008′s spike bottom low, and crude oil plunged another 4.7% One by one, the “deflationary vortex” is drawing everything near it into its path; which is probably why the 10-year Treasury yield plummeted to a new multi-year low of 1.78% this afternoon. Jon Hilsenrath – I mean Janet Yellen – wants us to believe the Fed is “on track” for rate hikes “later this year.” However, now that the “final currency war” has gone nuclear – read, Switzerland last Thursday, and the ECB tomorrow – the odds are far better of the Fed reducing rates to negative territory. Just wait until corporate America starts begging for it, and the financial markets scream for “NIRP” and “QE” to infinity; likely within months, if not weeks.
Not only are Precious Metals surging, but doing so in historic fashion – despite some of the most maniacal, desperate Cartel resistance ever – such as today’s blatant capping when gold attempted to breach the key round number of $1,300/oz at exactly the 12:00 PM “cap of last resort.” And this, with oil prices and Treasury yields in free fall – whilst “miraculously,” the “Dow Jones Propaganda Average” bottomed at exactly the PPT’s “ultimate limit down” level of -1.0%, subsequently surging for no reason other than manipulation – particularly ahead of tonight’s pathetic State of the Union address; which under the category of “famous last words” was titled, I kid you not, “the shadow of crisis has passed!”