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Elite Liberty & Freedom NWO Tyranny Uprising

An American Tragedy: Trump Won Big

Raúl Ilargi Meijer reaches the same conclusion as Scott Adams about the “winner” of last night’s debate. However, he has a completely different perspective and tone than Adams. From Meijer at theautomaticearth.com:

If the US presidential debate last night showed anything, it must be that just about everyone has dug themselves into their trenches and had no desire whatsoever to ever came out.

This seemed especially clear on the Hillary side, which appeared to include -to an extent- ‘moderators’ Anderson Cooper and Martha Raddatz, judging from their interruptions. But, granted, they were the only biased side in the discussion, so we don’t really know what trenches the Republicans have dug.

The biggest problem with biased moderators is that people notice their bias. Not those who are on one side already, it passes them by. But others do. And perhaps more importantly, -in this case-, Hillary’s team loses its ability to adopt a neutral view. And she will therefore hear so much praise that she can’t figure out if she’s not done too well.

To illustrate that point: the main takeaway must be that Trump won the debate hands down, but that’s the opposite of what Hillary sympathizers concluded and what various polls said. It’s still true though, if only for one simple reason. That is, for 48 hours straight all talk and ‘reporting’ had been about Trumps lewd ‘words’ on the Access Hollywood tapes.

Trump really was cornered, and he knew it, everyone knew it. But after the second debate, and within 90 minutes, most of the talk turned towards how he ‘threatened’ to jail Hillary. Now, that’s not what he said, but even if he had, it’s something a lot more people sympathize with than with his language on the tapes. That’s a lot of territory ‘conquered’.

Meanwhile, even the likes of Paul Ryan don’t seem to grasp what happened overnight (he apparently think Hillary already won). What he doesn’t appear to see is, again, that Trump looked completely lost for 48 hours, but doesn’t look so lost now. There are 4 weeks and a day left in the campaign, and a lot can still happen.

Look, Trump is a buffoon. The word could have been invented specifically to define him. And it would be a very bad idea to make him president of the US. But that doesn’t mean the idea of making Hillary president is any better. It may well be worse, for a variety of reasons.

What the debate made clear once more is that America stands face to face with itself, it’s looking in a giant mirror, one which -only- in choice moments does not contort its own image, and America finds there’s nothing to like about what it sees in those brief moments in that mirror. And then therefore immediately proceeds to contort that image like it’s used to doing.

America may not like to look at its own stone cold hard reality, but it’s better than any culture ever in painting a picture of itself that it does like. In fact, it’s the first nation ever that made exactly that its main goal in life.

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Banksters Corruption Economy Fascism Manipulation

The IMF and All The Other Losers

I read a lot, been doing it for years, about finance and affiliated topics (a wide horizon of them), which means I’ve inevitably seen a wholesale lot of nonsense fly by. But for some reason, and I think I know why, Q3 2016 has been gunning for a top -or bottom- seat in that regard, and Q4 is looking to do it one better/worse.

Apart from the fast increasingly brainless political ‘discussions’ that don’t deserve the name, in the US and UK and beyond, there are the transnational organizations, NATO, IMF, EU and all those things, all suffocating in their own hubris, things I’ve dealt with before in for instance Globalization Is Dead, But The Idea Is Not and Why There is Trump. But none of it still seems to have trickled through anywhere that I can see.

The end of growth exposes the stupidity and ignorance of all but (and even that’s a maybe) a precious few (of our) ‘leaders’. There is no other way this could have run, because an era of growth simply selects for different people to float to the top of the pond than a period of contraction does. Can we agree on that?

‘Growth leaders’ only have to seduce voters into believing that they can keep growth going, and create more of it (though in reality they have no control over it at all). Anyone can do that. So ‘anyone’ who’s sufficiently hooked on power games will apply.

‘Contraction leaders’ have a much harder time; they must convince voters that they can minimize the ‘suffering of the herd’. Which is invariably a herd that no-one wants to belong to. A tough sell.

Any end to growth will and must therefore inevitably change the structure of a democracy, any democracy, any society for that matter. It will lead to new leaders, and new parties, coming to the front. And it should not surprise anyone that some of these new leaders and parties will question the very structure of the democracy they are part of, if only because that structure is already undergoing change anyway.

The tight connection between an era of economic growth (and/or contraction) and the politicians that ‘rule’ during that era is reflected in Hazel Henderson’s“economics is nothing but politics in disguise”.

 

On the one hand you have the incumbent class seeking to hold on to their waning power, churning out false positive numbers and claiming that theirs is the only way to go (just more of it), and on the other hand you have a loose affiliation – to the extent there’s any affiliation at all- of left and right, individuals and parties, who smell change that they can use to their own benefit.

They just mostly don’t know how to use it yet. But they’ll find out, or some of them will. Blaming people and groups of people for what’s gone wrong will be a major way forward, because it’s just so easy. It’s another reason why the incumbents class, the traditional parties, will go the way of the dodo: they will be blamed, and rightly so in most cases, for the fall of the economic system.

That’ll be the number one criteria: if you’re -perceived as- part of the old guard, you’re out. Not at the flick of a switch, but nevertheless the rise of Trump and Farage and all those folks has been much faster than just about anyone would have thought possible until very recently.

They feed on discontent, but they can do so only because that discontent has been completely ignored by the ruling classes everywhere. Which has a lot to do with the rulers in all these instances we see pop up now still being well-off, while the lower rungs of societies definitely are not.

Moreover, if most people still had comfortable middle-class lives, the dislike of immigrants and refugees would have been so much less that Trump and Wilders and Le Pen and Alternative for Deutschland could never have ‘struck gold’. It’s the perception that the ‘new’ people are somehow to blame for one’s deteriorating living conditions that makes it fertile ground for whoever wants to use it.

And since the far left can’t go there, the right takes over by default. Bernie Sanders and Jeremy Corbyn have brave ideas on redistribution of wealth, but there is still too much resistance, at the moment, to that, from the incumbent class and their voters, to have much chance of getting anywhere.

Of course the traditional right wing smells the opportunity too, so Hillary (yeah, she’s right wing) and Theresa May and Sarkozy and Merkel are all orchestrating sharp turns to the right, away from their once comfortable seats in the center. They all sense that power will not be emanating from the center going forward, and it’s power, much more than principles, that they are after.

 

But enough about politicians and their parties, who can and will all be voted out of power. Much harder to get rid of will be the transnational organizations, like the EU and IMF (there are many more), though they represent the ‘doomed construction’ perhaps even more than mere local or national power-hungries. The leading principle is simple: What has all the centralization led to? To today’s contracting economies.

To that end, let’s just tear into a recent random Bloomberg piece on this week’s IMF meeting, and the ‘expert opinions’ on it:

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Banksters Corruption Economy Manipulation

How to Suffocate Your Economy: Drown it in Massive Private Debt.

By Richard Vague

does the IMF keep badly missing its global growth forecast? And what does that have to do with the 2016 presidential election?

In the years since the 2008 global crisis, when the world’s growth rates tumbled, the IMF has dutifully printed forecast after forecast predicting rebounding growth rates. But in reality, rates have fallen well short of these predictions, as seen in Chart 1.

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One of the key and largely overlooked reasons for this disappointing growth is hiding in plain sight: the increasing global burden of private debt—the combination of business debt and household debt. Even though government debt grabs all the headlines, private debt is larger than government debt and has more impact on economic outcomes. In the United States, total nonfinancial private debt is $27 trillion and public debt is $19 trillion. More telling, since 1950, U.S. private debt has almost tripled from 55 percent of GDP to 150 percent of GDP, and most other major economies have shown a similar trend. [See Chart 2.] Since GDP is largely the sum of all the spending, and thus income, of households and businesses in an economy, if aggregate private debt to GDP has tripled, that means that average businesses and households have three times more debt in relation to their income. Both private debt and government debt matter, and both will be discussed here, but of these two, it is private debt that has the larger and more direct impact on economic outcomes, and addressing the issues associated with private debt is the more productive path to economic revival.

Stagnant incomes, underemployment, and job insecurity are key reasons so many voters in Europe and America are now willing to embrace candidates outside of the mainstream. But the now stultifying level of private debt, and the accompanying impact on growth, is an equally important reason.

vague-charts2

Private debt is a beneficial and essential part of any economy. However, as it increases, it can bring two problems. The first is dramatic. Very rapid or “runaway” private debt growth often brings financial crises. Runaway private debt growth brought the 2008 crisis in the United States, the 1991 crisis in Japan, and the 1997 crisis across Asia, to name just three. And just as runaway debt for a country as a whole is predictive of calamity for that country, runaway debt for a subcategory of debt, such as oil and gas or commercial real estate, is predictive of problems within that subcategory.

The second problem it brings is much more subtle and insidious: When too high, private debt becomes a drag on economic growth. It chips away at the margin of growth trends. Though different researchers cite different levels, a growing body of research suggests that when private debt enters the range of 100 to 150 percent of GDP, it impedes economic growth.

When private debt is high, consumers and businesses have to divert an increased portion of their income to paying interest and principal on that debt—and they spend and invest less as a result. That’s a very real part of what’s weighing on economic growth. After private debt reaches these high levels, it suppresses demand.

Because interest rates are low, some economists have dismissed this impact. However, most middle- and lower-income households (which is where the highest rate of debt growth has been), as well as most small- and medium-size businesses, pay interest rates much higher than money market rates. In the case of low-income households and small businesses, the rates for some types of debt can be very high, often an APR of 20 to 30 percent or more. And in addition to interest, all these borrowers have to pay down the principal balance of the loan. High debt makes these borrowers more reluctant to spend or take on more debt. Further, an estimated 6.4 million of the 56 million mortgages held in the United States are still severely underwater. Millions more are less severely underwater or just barely “above.” Many of these mortgages were underwritten at the height of the boom. Since then, the home values, and in many cases the incomes, of these borrowers have fallen. Lower rates may help but do not solve their financial stress. Though their rates may be lower, all of these borrowers are now in a world where increases in income and revenue are harder to come by.

This all takes a bite out of the spending and investing that drives growth.

The unprecedented amount of our global debt glut is underscored by the creeping presence of negative interest rates—a situation where the borrower, unbelievably enough, gets paid for borrowing. An estimated 15 percent of European corporate debt issued now has a negative interest rate. If the massive $150 trillion glut of debt is the culprit that is curbing demand, then perhaps this European Central Bank experiment with negative rates is the inevitable response to this glut. High private debt contributes to lower rates by reducing demand for credit—since highly leveraged borrowers have less ability to borrow more and are often understandably wary of further borrowing. But these negative rates are not generally available to low- and middle-income borrowers.

U.S. private debt growth has disproportionately affected the least well-off Americans. In fact, since 1989 (the year the Fed started a survey of this statistic), the debt level of the 20 percent of U.S. households with the lowest net worth has grown two and a half times faster than all other households. And though consumers have deleveraged since the crisis, and the popular perception is that consumers are in much better shape today, consumers are in fact carrying 13 percent more debt as a percent of GDP than they were in 2000, the moment before the ill-fated private debt boom that led to the 2008 crisis began.

As mentioned, GDP roughly equates to the aggregate spending and income of the businesses and households in a country, and the private debt of a country is the sum of household and business loans. So to speak about the “private debt to GDP ratio” of a country is essentially the same as speaking about the “private loan to income ratio” of that country. You’ll recognize that ratio, because it is the same one that lenders have long used to help make loan decisions for individuals and businesses. Whether you are applying for a loan as an individual or for your business, if your loan-to-income ratio is low, the lender is likely to conclude that you have capacity for more debt, and if it is high, the lender will likely conclude that you will struggle to pay your existing loan, much less qualify to take on additional debt.

It follows directly that if a country’s private debt to GDP ratio is low, let’s say 50 percent, then the households and businesses in that country generally have low loan-to-income ratios and are well positioned to power growth through increased leverage. And if a country’s private debt to GDP ratio is high, let’s say 200 percent, then the households and businesses in that country are generally overleveraged, with, on average, very high debt ratios. They are much less likely to be able to boost growth through more borrowing.

Chart 2 showed that private debt to GDP in major economies has been growing rapidly since World War II. However, it has been growing in size relative to GDP for a lot longer than that. It’s part of a process often described by economists as “financialization” or “financial deepening,” an increase in the size of a country’s debt and equity markets usually explained as simply the maturation of a market. But as we have seen, when it comes to debt, it is much more than that—it is the path from low leverage to overleverage for the participants in that economy. The benefit of increasing leverage from low levels has played a central role in the miraculous gains in incomes over the 200-plus years since the Industrial Revolution. You can see this clearly in Chart 3. I have made a concerted effort to reconstruct more than 200 years of private debt history for the six countries in this chart—China, Japan, Germany, Britain, France, and the United States—because collectively, they have accounted for roughly 50 percent or more of global GDP since the Industrial Revolution. So studying the data of these six countries during this period gives us a fairly solid proxy for the world during the most important era of economic history. (This chart is a work-in-progress which will be augmented and refined in preparation for an upcoming book on this same subject.)

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Banksters Economy Fascism Manipulation

Hillary Became Unelectable Long Ago

Whenever I bring up something Hillary Clinton has done or failed to do, there are always people who react with a “Yes, but Trump did so and so…!” reflex. I’d like to get that out of the way first of all, because it distorts the conversation to no end. Criticism of Hillary does not equal support for Trump. Suggesting that it does is insulting.

I do not think it’s a good idea for Trump to become president. But that does not mean it’s a better idea for Hillary to be inaugurated. In fact, there’s something to be said for the argument that if you have to choose between two really bad options, pick the worst in order get it over with faster. The problem with that, in turn, is that in this case it’s hard to determine which of the two is worse.

 

 

I’ve had an article in progress on my desktop for weeks, with the (work-)title “Hillary Is Not Electable”. Never finished it until now because there was always 1) lots of work on other things, and 2) a daily stream of new Hillary files that looked like they should be included (I have dozens of them open in a browser).

But then over the weekend, just after I had asked readers of the Automatic Earth Facebook page what they thought the odds were that Hillary would drop out of the presidential race citing health factors, I saw Scott Adams, of Dilbert fame, tweet: “Hillary Clinton just became unelectable”, in reaction to the statement by her campaign that she had become ‘overheated’ during the 9/11 service in NY, where multiple sources report it was about 75ºF (24ºC) with a 40-45% humidity.

Scott didn’t yet know when he wrote his tweet and subsequent blogpost, The Race for President is (Probably) Over, that the ‘official’ message would be changed from overheating to pneumonia mere hours later.

And even though it’s a valid question to ask why she would venture among the public with a potentially -highly- contagious disease that she was diagnosed with two days earlier, and even though I saw my headline used by someone else, these things are not what shapes the issue as I see it. Because I think Hillary became unelectable long ago. Still, then this morning I read the following in the NY Post:

“Clinton’s spokesman said that in addition to her illness, “several of the senior staff have been afflicted with something or other for the last few days.” “I was sick for a couple of days. I had the mild form of it,” Fallon said. The stricken staffers included campaign manager Robby Mook, and two top aides who needed emergency medical treatment – one of whom was taken by ambulance to a hospital emergency room after collapsing from severe dehydration, People magazine reported. Fallon told CNN that Clinton’s pneumonia, which she is treating with antibiotics, was “not contagious.”

So her staff is sick enough to require emergency medical treatment, but not for Clinton’s pneumonia, which is “not contagious”. What do they have then (it’s obviously contagious), and does Hillary have it too, in addition to her pneumonia? Were the staff coughing? The NY Times claimed yesterday that most of the staff were not told about the pneumonia diagnosis. Apparently not even after some of them fell ill around the time of that diagnosis?! What a curious story.

One additional thing I think must be mentioned, which I picked up yesterday through Mish, is a timeline of Hillary’s 2016 coughing fits that consists of 7 examples – with videos- dating back to January 25. We can only guess what’s going on here; the campaign certainly hasn’t been very forthcoming with information.

It’s her very campaign leaders, and the way they deal with information, that have now become Hillary’s Achilles heel. Not that I see how they could have done much else, or much different; whenever someone suggests that Hillary should be fully transparent from now on in, I think 1) you haven’t been paying attention, and 2) transparency is her worst enemy.

Transparency is the very thing she and her crew sought to prevent when setting up her email servers the way they did (in 2009). She recently said it was done at the suggestion of Colin Powell, who promptly denied it, and added that the server set-up had been running for a year before she ever asked him anything about it.

I don’t have a clue why she had the whole thing set up the way she did, it all looks really clumsy, but I do know her initial goal was to expressly be non-transparent. This is obvious from the lack of communication with the State Department. It’s obvious because she deleted 10s of 1000s of emails, many after having received subpoenas (one in August 2013, the other (actually 2 separate ones) in March 2015, forbidding her to do just that.

She did hand over some emails to the FBI and the Benghazi Committee, but thousands more were discovered or handed over at later points in time. Thousands of others were “BleachBit-ted” by an employee of her server host because they allegedly only contained yoga and/or wedding related topics. Not that we can check that; that’s were BleachBit comes in.

The narrative that a lowly employee decided on his own to make these mails unrecoverable is one of the worst points in the entire story. But even more important is that deleting the mails was against US law. And that Hillary and/or her staff are not the people who decide what is important or not. Not when it comes to State business. That is a gross and illegal overreach.

And it’s also what the whole ‘unelectable’ thing hinges on. After 8 years as First Lady and 4 as Secretary of State, it’s fully unbelievable that Hillary would not have known why the State Department has its own servers (though they may not always have functioned in ideal ways), or what classified markers are on mail or email. That reeks of desperation, pre-conceived or not, and it’s ludicrous that the FBI takes her word for it. Moreover, she’s on record saying she’s aware of classification requirements:

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Banksters Corruption Economy Manipulation

Negative Interest Rates and the War on Cash

Nicole Foss: As momentum builds in the developing deflationary spiral, we are seeing increasingly desperate measures to keep the global credit ponzi scheme from its inevitable conclusion. Credit bubbles are dynamic — they must grow continually or implode — hence they require ever more money to be lent into existence. But that in turn requires a plethora of willing and able borrowers to maintain demand for new credit money, lenders who are not too risk-averse to make new loans, and (apparently effective) mechanisms for diluting risk to the point where it can (apparently safely) be ignored. As the peak of a credit bubble is reached, all these necessary factors first become problematic and then cease to be available at all. Past a certain point, there are hard limits to financial expansions, and the global economy is set to hit one imminently.

Borrowers are increasingly maxed out and afraid they will not be able to service existing loans, let alone new ones. Many families already have more than enough ‘stuff’ for their available storage capacity in any case, and are looking to downsize and simplify their cluttered lives. Many businesses are already struggling to sell goods and services, and so are unwilling to borrow in order to expand their activities. Without willingness to borrow, demand for new loans will fall substantially. As risk factors loom, lenders become far more risk-averse, often very quickly losing trust in the solvency of of their counterparties. As we saw in 2008, the transition from embracing risky prospects to avoiding them like the plague can be very rapid, changing the rules of the game very abruptly.

Mechanisms for spreading risk to the point of ‘dilution to nothingness’, such as securitization, seen as effective and reliable during monetary expansions, cease to be seen as such as expansion morphs into contraction. The securitized instruments previously created then cease to be perceived as holding value, leading to them being repriced at pennies on the dollar once price discovery occurs, and the destruction of that value is highly deflationary. The continued existence of risk becomes increasingly evident, and the realisation that that risk could be catastrophic begins to dawn.

Natural limits for both borrowing and lending threaten the capacity to prolong the credit boom any further, meaning that even if central authorities are prepared to pay almost any price to do so, it ceases to be possible to kick the can further down the road. Negative interest rates and the war on cash are symptoms of such a limit being reached. As confidence evaporates, so does liquidity. This is where we find ourselves at the moment — on the cusp of phase two of the credit crunch, sliding into the same unavoidable constellation of conditions we saw in 2008, but on a much larger scale.

 

From ZIRP to NIRP

 

Interest rates have remained at extremely low levels, hardly distinguishable from zero, for the several years. This zero interest rate policy (ZIRP) is a reflection of both the extreme complacency as to risk during the rise into the peak of a major bubble, and increasingly acute pressure to keep the credit mountain growing through constant stimulation of demand for borrowing. The resulting search for yield in a world of artificially stimulated over-borrowing has lead to an extraordinary array of malinvestment across many sectors of the real economy. Ever more excess capacity is being built in a world facing a severe retrenchment in aggregate demand. It is this that is termed ‘recovery’, but rather than a recovery, it is a form of double jeopardy — an intensification of previous failed strategies in the hope that a different outcome will result. This is, of course, one definition of insanity.

Now that financial crisis conditions are developing again, policies are being implemented which amount to an even greater intensification of the old strategy. In many locations, notably those perceived to be safe havens, the benchmark is moving from a zero interest rate policy to a negative interest rate policy (NIRP), initially for bank reserves, but potentially for business clients (for instance in Holland and the UK). Individual savers would be next in line. Punishing savers, while effectively encouraging banks to lend to weaker, and therefore riskier, borrowers, creates incentives for both borrowers and lenders to continue the very behaviour that set the stage for financial crisis in the first place, while punishing the kind of responsibility that might have prevented it.

Risk is relative. During expansionary times, when risk perception is low almost across the board (despite actual risk steadily increasing), the risk premium that interest rates represent shows relatively little variation between different lenders, and little volatility. For instance, the interest rates on sovereign bonds across Europe, prior to financial crisis, were low and broadly similar for many years. In other words, credit spreads were very narrow during that time. Greece was able to borrow almost as easily and cheaply as Germany, as lenders bet that Europe’s strong economies would back the debt of its weaker parties. However, as collective psychology shifts from unity to fragmentation, risk perception increases dramatically, and risk distinctions of all kinds emerge, with widening credit spreads. We saw this happen in 2008, and it can be expected to be far more pronounced in the coming years, with credit spreads widening to record levels. Interest rate divergences create self-fulfilling prophecies as to relative default risk, against a backdrop of fear-driven high volatility.

Many risk distinctions can be made — government versus private debt, long versus short term, economic centre versus emerging markets, inside the European single currency versus outside, the European centre versus the troubled periphery, high grade bonds versus junk bonds etc. As the risk distinctions increase, the interest rate risk premiums diverge. Higher risk borrowers will pay higher premiums, in recognition of the higher default risk, but the higher premium raises the actual risk of default, leading to still higher premiums in a spiral of positive feedback. Increased risk perception thus drives actual risk, and may do so until the weak borrower is driven over the edge into insolvency. Similarly, borrowers perceived to be relative safe havens benefit from lower risk premiums, which in turn makes their debt burden easier to bear and lowers (or delays) their actual risk of default. This reduced risk of default is then reflected in even lower premiums. The risky become riskier and the relatively safe become relatively safer (which is not necessarily to say safe in absolute terms). Perception shapes reality, which feeds back into perception in a positive feedback loop.

 

 

The process of diverging risk perception is already underway, and it is generally the states seen as relatively safe where negative interest rates are being proposed or implemented. Negative rates are already in place for bank reserves held with the ECB and in a number of European states from 2012 onwards, notably Scandinavia and Switzerland. The desire for capital preservation has led to a willingness among those with capital to accept paying for the privilege of keeping it in ‘safe havens’. Note that perception of safety and actual safety are not equivalent. States at the peak of a bubble may appear to be at low risk, but in fact the opposite is true. At the peak of a bubble, there is nowhere to go but down, as Iceland and Ireland discovered in phase one of the financial crisis, and many others will discover as we move into phase two. For now, however, the perception of low risk is sufficient for a flight to safety into negative interest rate environments.

This situation serves a number of short term purposes for the states involved. Negative rates help to control destabilizing financial inflows at times when fear is increasingly driving large amounts of money across borders. A primary objective has been to reduce upward pressure on currencies outside the eurozone. The Swiss, Danish and Swedish currencies have all been experiencing currency appreciation, hence a desire to use negative interest rates to protect their exchange rate, and therefore the price of their exports, by encouraging foreigners to keep their money elsewhere. The Danish central bank’s sole mandate is to control the value of the currency against the euro. For a time, Switzerland pegged their currency directly to the euro, but found the cost of doing so to be prohibitive. For them, negative rates are a less costly attempt to weaken the currency without the need to defend a formal peg. In a world of competitive, beggar-thy-neighbour currency devaluations, negative interest rates are seen as a means to achieve or maintain an export advantage, and evidence of the growing currency war.

Negative rates are also intended to discourage saving and encourage both spending and investment. If savers must pay a penalty, spending or investment should, in theory, become more attractive propositions. The intention is to lead to more money actively circulating in the economy. Increasing the velocity of money in circulation should, in turn, provide price support in an environment where prices are flat to falling. (Mainstream commentators would describe this as as an attempt to increase ‘inflation’, by which they mean price increases, to the common target of 2%, but here at The Automatic Earth, we define inflation and deflation as an increase or decrease, respectively, in the money supply, not as an increase or decrease in prices.) The goal would be to stave off a scenario of falling prices where buyers would have an incentive to defer spending as they wait for lower prices in the future, starving the economy of circulating currency in the meantime. Expectations of falling prices create further downward price pressure, leading into a vicious circle of deepening economic depression. Preventing such expectations from taking hold in the first place is a major priority for central authorities.

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Banksters Corruption Economy Manipulation

Negative Interest Rates and the War on Cash

Financial Totalitarianism in Historical Context

 

Nicole Foss: In attempting to keep the credit bonanza going with their existing powerscentral banks have set the global financial system up for an across-the-board asset price collapse:

QE takes away the liquidity preference choice out of the hands of the consumers, and puts it into the hands of central bankers, who through asset purchases push up asset prices even if it does so by explicitly devaluing the currency of price measurement; it also means that the failure of NIRP is — by definition — a failure of central banking, and if and when the central bank backstop of any (make that all) asset class — i.e., Q.E., is pulled away, that asset (make that all) will crash.

It is not just central banking, but also globalisation, which is demonstrably failing. Cross-border freedoms will probably be an early casualty of the war on cash, and its demise will likely come as a shock to those used to a relatively borderless world:

We have been informed with reliable sources that in Germany where Maestro was a multi-national debit card service owned by MasterCard that was founded in 1992 is seriously under attack. Maestro cards are obtained from associate banks and can be linked to the card holder’s current account, or they can be prepaid cards. Already we find such cards are being cancelled and new debit cards are being issued. 

Why? The new cards cannot be used at an ATM outside of Germany to obtain cash. Any attempt to get cash can only be as an advance on a credit card….This is total insanity and we are losing absolutely everything that made society function. Once they eliminate CASH, they will have total control over who can buy or sell anything.

The same confused, greedy and corrupt central authorities which have set up the global economy for a major bust through their dysfunctional use of existing powers, are now seeking far greater central control, in what would amount to the ultimate triumph of finance over people. They are now moving to tax what ever people have left over after paying taxes. It has been tried before. As previous historical bubbles began to collapse, central authorities attempted to increase their intrusiveness and control over the population, in order to force the inevitable losses as far down the financial foodchain as possible. As far back as the Roman Empire, economically contractionary periods have been met with financial tyranny — increasing pressure on the populace until the system itself breaks:

Not even the death penalty was enough to enforce Diocletian’s price control edicts in the third century.

Rome squeezed the peasants in its empire so hard, that many eventually abandoned their land, reckoning that they were better off with the barbarians.

Such attempts at total financial control are exactly what one would expect at this point. A herd of financial middle men are used to being very well supported by the existing financial system, and as that system begins to break down, losing that raft of support is unacceptable. The people at the bottom of the financial foodchain must be watched and controlled in order to make sure they are paying to support the financial centre in the manner to which it has become accustomed, even as their ability to do so is continually undermined:

An oft-overlooked benefit of cash transactions is that there is no intermediary. One party pays the other party in mutually accepted currency and not a single middleman gets to wet his beak. In a cashless society there will be nothing stopping banks or other financial mediators from taking a small piece of every single transaction. They would also be able to use — and potentially abuse — the massive deposits of data they collect on their customers’ payment behavior. This information is of huge interest and value to retail marketing departments, other financial institutions, insurance companies, governments, secret services, and a host of other organizations….

….So in order to save a financial system that is morally beyond the pale and stopped serving the basic needs of the real economy a long time ago, governments and central banks must do away with the last remaining thing that gives people a small semblance of privacy, anonymity, and personal freedom in their increasingly controlled and surveyed lives. The biggest tragedy of all is that the governments and banks’ strongest ally in their War on Cash is the general public itself. As long as people continue to abandon the use of cash, for the sake of a few minor gains in convenience, the war on cash is already won.

Even if the ultimate failure of central control is predictable, momentum towards greater centralisation will carry forward for as long as possible, until the system can no longer function, at which point a chaotic free-for-all is likely to occur. In the meantime, the movement towards electronic money seeks to empower the surveillance state/corporatocracy enormously, providing it with the tools to observe and control virtually every aspect of people’s lives:

Governments and corporations, even that genius app developer in Russia, have one thing in common: they want to know everything. Data is power. And money. As the Snowden debacle has shown, they’re getting there. Technologies for gathering information, then hoarding it, mining it, and using it are becoming phenomenally effective and cheap. But it’s not perfect. Video surveillance with facial-recognition isn’t everywhere just yet. Not everyone is using a smartphone. Not everyone posts the details of life on Facebook. Some recalcitrant people still pay with cash. To the greatest consternation of governments and corporations, stuff still happens that isn’t captured and stored in digital format….

….But the killer technology isn’t the elimination of cash. It’s the combination of payment data and the information stream that cellphones, particularly smartphones, deliver. Now everything is tracked neatly by a single device that transmits that data on a constant basis to a number of companies, including that genius app developer in Russia — rather than having that information spread over various banks, credit card companies, etc. who don’t always eagerly surrender that data.

Eventually, it might even eliminate the need for data brokers. At that point, a single device knows practically everything. And from there, it’s one simple step to transfer part or all of this data to any government’s data base. Opinions are divided over whom to distrust more: governments or corporations. But one thing we know: mobile payments and the elimination of cash….will also make life a lot easier for governments and corporations in their quest for the perfect surveillance society.

Dissent is increasingly being criminalised, with legitimate dissenters commonly referred to, and treated as, domestic terrorists and potentially subjected to arbitrary asset confiscation:

An important reason why the state would like to see a cashless society is that it would make it easier to seize our wealth electronically. It would be a modern-day version of FDR’s confiscation of privately-held gold in the 1930s. The state will make more and more use of “threats of terrorism” to seize financial assets. It is already talking about expanding the definition of “terrorist threat” to include critics of government like myself. 

The American state already confiscates financial assets under the protection of various guises such as the PATRIOT Act. I first realized this years ago when I paid for a new car with a personal check that bounced. The car dealer informed me that the IRS had, without my knowledge, taken 20 percent of the funds that I had transferred from a mutual fund to my bank account in order to buy the car. The IRS told me that it was doing this to deter terrorism, and that I could count it toward next year’s tax bill.

 

 

The elimination of cash in favour of official electronic money only would greatly accelerate and accentuate the ability of governments to punish those they dislike, indeed it would allow them to prevent dissenters from engaging in the most basic functions:

If all money becomes digital, it would be much easier for the government to manipulate our accounts. Indeed, numerous high-level NSA whistleblowers say that NSA spying is about crushing dissent and blackmailing opponents. not stopping terrorism. This may sound over-the-top. but remember, the government sometimes labels its critics as “terrorists”. If the government claims the power to indefinitely detain — or even assassinate — American citizens at the whim of the executive, don’t you think that government people would be willing to shut down, or withdraw a stiff “penalty” from a dissenter’s bank account?

If society becomes cashless, dissenters can’t hide cash. All of their financial holdings would be vulnerable to an attack by the government. This would be the ultimate form of control. Because — without access to money — people couldn’t resist, couldn’t hide and couldn’t escape.

The trust that has over many years enabled the freedoms we enjoy is now disappearing rapidly, and the impact of its demise is already palpable. Citizens understandably do not trust governments and powerful corporations, which have increasingly clearly been acting in their own interests in consolidating control over claims to real resources in the hands of fewer and fewer individuals and institutions:

By far the biggest risk posed by digital alternatives to cash such as mobile money is the potential for massive concentration of financial power and the abuses and conflicts of interest that would almost certainly ensue. Naturally it goes without saying that most of the institutions that will rule the digital money space will be the very same institutions….that have already broken pretty much every rule in the financial service rule book. 

They have manipulated virtually every market in existence; they have commodified and financialized pretty much every natural resource of value on this planet; and in the wake of the financial crisis they almost single-handedly caused, they have extorted billions of dollars from the pockets of their own customers and trillions from hard-up taxpayers. What about your respective government authorities? Do you trust them?…

….We are, it seems, descending into a world where new technologies threaten to put absolute power well within the grasp of a select group of individuals and organizations — individuals and organizations that have through their repeated actions betrayed just about every possible notion of mutual trust.

Governments do not trust their citizens (‘potential terrorists’) either, hence the perceived need to monitor and limit the scope of their decisions and actions. The powers-that-be know how angry people are going to be when they realise the scale of their impending dispossession, and are acting in such a way as to (try to) limit the power of the anger that will be focused against them. It is not going to work.

Without trust we are likely to see “throwbacks to the 14th century….at the dawn of banking coming out of the Dark Ages.”. It is no coincidence that this period was also one of financial, socioeconomic and humanitarian crises, thanks to the bursting of a bubble two centuries in the making:

The 14th Century was a time of turmoil, diminished expectations, loss of confidence in institutions, and feelings of helplessness at forces beyond human control. Historian Barbara Tuchman entitled her book on this period A Distant Mirror because many of our modern problems had counterparts in the 14th Century.

Few think of the trials and tribulations of 14th century Europe as having their roots in financial collapse — they tend instead to remember famine and disease. However, the demise of what was then the world banking system was a leading indicator for what followed, as is always the case:

Six hundred and fifty years ago came the climax of the worst financial collapse in history to date. The 1930’s Great Depression was a mild and brief episode, compared to the bank crash of the 1340’s, which decimated the human population. The crash, which peaked in A.C.E. 1345 when the world’s biggest banks went under, “led” by the Bardi and Peruzzi companies of Florence, Italy, was more than a bank crash — it was a financial disintegration….a blowup of all major banks and markets in Europe, in which, chroniclers reported, “all credit vanished together,” most trade and exchange stopped, and a catastrophic drop of the world’s population by famine and disease loomed.

As we have written many times before at The Automatic Earth, bubbles are not a new phenomenon. They have inflated and subsequently imploded since the dawn of civilisation, and are in fact en emergent property of civilisational scale. There are therefore many parallels between different historical episodes of boom and bust:

The parallels between the medieval credit crunch and our current predicament are considerable. In both cases the money supply increased in response to the expansionist pressure of unbridled optimism. In both cases the expansion proceeded to the point where a substantial overhang of credit had been created — a quantity sufficient to generate systemic risk that was not recognized at the time. In the fourteenth century, that risk was realized, as it will be again in the 21st century.

What we are experiencing now is simply the same dynamic, but turbo-charged by the availability of energy and technology that have driven our long period of socioeconomic expansion and ever-increasing complexity. Just as in the 14th century, the cracks in the system have been visible for many years, but generally ignored. The coming credit implosion may appear to come from nowhere when it hits, but has long been foreshadowed if one knew what to look for. Watching more and more people seeking escape routes from a doomed financial system, and the powers-that-be fighting back by closing those escape routes, all within a social matrix of collapsing trust, one cannot deny that history is about to repeat itself yet again, only on a larger scale this time.

The final gasps of a bubble economy, such as our own, are about behind-the-scenes securing of access to and ownership of real assets for the elite, through bailouts and other forms of legalized theft. As Frédéric Bastiat explained in 1848,

“When plunder becomes a way of life for a group of men in a society, over the course of time they create for themselves a legal system that authorizes it and a moral code that glorifies it.”

The bust which follows the last attempt to kick the can further down the road will see the vast majority of society dispossessed of what they thought they owned, their ephemeral electronic claims to underlying real wealth extinguished.

 

The Way Forward

 

The advent of negative interest rates indicates that the endgame for the global economy is underway. In places at the peak of the bubble, negative rates drive further asset bubbles and create ever greater vulnerability to the inevitable interest rate spike and asset price collapse to come. In Japan, at the other end of the debt deflation cycle, negative rates force people into ever more cash hoarding. Neither one of these outcomes is going to lead to recovery. Both indicate economies at breaking point. We cannot assume that current financial, economic and social structures will continue in their present form, and we need to prepare for a period of acute upheaval.

Using cash wherever possible, rather than succumbing to the convenience of electronic payments, becomes an almost revolutionary act. So other forms of radical decentralisation, which amount to opting out as much as possible from the path the powers-that-be would have us follow. It is likely to become increasingly difficult to defend our freedom and independence, but if enough people stand their ground, establishing full totalitarian control should not be possible.

To some extent, the way the war on cash plays out will depend on the timing of the coming financial implosion. The elimination of cash would take time, and only in some countries has there been enough progress away from cash that eliminating it would be at all realistic. If only a few countries tried to do so, people in those countries would be likely to use foreign currency that was still legal tender.

 

 

Cash elimination would really only work if it it were very broadly applied in enough major economies, and if a financial accident could be postponed for a few more years. As neither of these conditions is likely to be fulfilled, a cash ban is unlikely to viable. Governments and central banks would very much like to frighten people away from cash, but that only underlines its value under the current circumstances. Cash is king in a deflation. The powers-that-be know that, and would like the available cash to end up concentrated in their own hands rather than spread out to act as seed capital for a bottom-up recovery.

Holding on to cash under one’s own control is still going to be a very important option for maintaining freedom of action in an uncertain future. The alternative would be to turn to hard goods (land, tools etc) from the beginning, but where there is a great deal of temporal and spatial uncertainty, this amounts to making all one’s choices up front, and choices based on incomplete information could easily turn out to be wrong. Making such choices up front is also expensive, as prices are currently high. Of course having some hard goods is also advisable, particularly if they allow one to have some control over the essentials of one’s own existence.

It is the balance between hard goods and maintaining capital as liquidity (cash) that is important. Where that balance lies depends very much on individual circumstances, and on location. For instance, in the European Union, where currency reissue is a very real threat in a reasonably short timeframe, opting for goods rather than cash makes more sense, unless one holds foreign currency such as Swiss francs. If one must hold euros, it would probably be advisable to hold German ones (serial numbers begin with X).

 

US dollars are likely to hold their value for longer than most other currencies, given the dollar’s role as the global reserve currency. Reports of its demise are premature, to put it mildly. As financial crisis picks up momentum, a flight to safety into the reserve currency is likely to pick up speed, raising the value of the dollar against other currencies. In addition, demand for dollars will increase as debtors seek to pay down dollar-denominated debt. While all fiat currencies are ultimately vulnerable in the beggar-thy-neighbour currency wars to come, the US dollar should hold value for longer than most.

Holding cash on the sidelines while prices fall is a good strategy, so long as one does not wait too long. The risks to holding and using cash are likely to grow over time, so it is best viewed as a short term strategy to ride out the deflationary period, where the value of credit instruments is collapsing. The purchasing power of cash will rise during this time, and previously unforeseen opportunities are likely to arise.

Ordinary people need to retain as much of their freedom of action as possible, in order for society to function through a period of economic seizure. In general, the best strategy is to hold cash until the point where the individual in question can afford to purchase the goods they require to provide for their own needs without taking on debt to do so. (Avoiding taking on debt is extremely important, as financially encumbered assets would be subject to repossession in the event of failure to meet debt obligations.)

One must bear in mind, however, that after price falls, some goods may cease to be available at any price, so some essentials may need to be purchased at today’s higher prices in order to guarantee supply.

Capital preservation is an individual responsibility, and during times of deflation, capital must be preserved as liquidity. We cannot expect either governments or private institutions to protect our interests, as both have been obviously undermining the interests of ordinary people in favour of their own for a very long time. Indeed they seem to feel secure enough of their own consolidated control that they do not even bother to try to hide the fact any longer. It is our duty to inform ourselves and act to protect ourselves, our families and our communities. If we do not, no one else will.

Categories
Banksters Corruption Economy Fascism Manipulation

Negative Interest Rates and the War on Cash

It’s been a while, but Nicole Foss is back at the Automatic Earth -which makes me very happy-, and for good measure, she starts out with a very long article. So long in fact that we have decided to turn it into a 4-part series, if only just to show you that we do care about your health and well-being, as well as your families and social lives. The other 3 parts will follow in the next few days, and at the end we will publish the entire piece in one post.

Here’s Nicole:

 

 

Nicole Foss: As momentum builds in the developing deflationary spiral, we are seeing increasingly desperate measures to keep the global credit ponzi scheme from its inevitable conclusion. Credit bubbles are dynamic — they must grow continually or implode — hence they require ever more money to be lent into existence. But that in turn requires a plethora of willing and able borrowers to maintain demand for new credit money, lenders who are not too risk-averse to make new loans, and (apparently effective) mechanisms for diluting risk to the point where it can (apparently safely) be ignored. As the peak of a credit bubble is reached, all these necessary factors first become problematic and then cease to be available at all. Past a certain point, there are hard limits to financial expansions, and the global economy is set to hit one imminently.

Borrowers are increasingly maxed out and afraid they will not be able to service existing loans, let alone new ones. Many families already have more than enough ‘stuff’ for their available storage capacity in any case, and are looking to downsize and simplify their cluttered lives. Many businesses are already struggling to sell goods and services, and so are unwilling to borrow in order to expand their activities. Without willingness to borrow, demand for new loans will fall substantially. As risk factors loom, lenders become far more risk-averse, often very quickly losing trust in the solvency of of their counterparties. As we saw in 2008, the transition from embracing risky prospects to avoiding them like the plague can be very rapid, changing the rules of the game very abruptly.

Mechanisms for spreading risk to the point of ‘dilution to nothingness’, such as securitization, seen as effective and reliable during monetary expansions, cease to be seen as such as expansion morphs into contraction. The securitized instruments previously created then cease to be perceived as holding value, leading to them being repriced at pennies on the dollar once price discovery occurs, and the destruction of that value is highly deflationary. The continued existence of risk becomes increasingly evident, and the realisation that that risk could be catastrophic begins to dawn.

Natural limits for both borrowing and lending threaten the capacity to prolong the credit boom any further, meaning that even if central authorities are prepared to pay almost any price to do so, it ceases to be possible to kick the can further down the road. Negative interest rates and the war on cash are symptoms of such a limit being reached. As confidence evaporates, so does liquidity. This is where we find ourselves at the moment — on the cusp of phase two of the credit crunch, sliding into the same unavoidable constellation of conditions we saw in 2008, but on a much larger scale.

 

From ZIRP to NIRP

 

Interest rates have remained at extremely low levels, hardly distinguishable from zero, for the several years. This zero interest rate policy (ZIRP) is a reflection of both the extreme complacency as to risk during the rise into the peak of a major bubble, and increasingly acute pressure to keep the credit mountain growing through constant stimulation of demand for borrowing. The resulting search for yield in a world of artificially stimulated over-borrowing has lead to an extraordinary array of malinvestment across many sectors of the real economy. Ever more excess capacity is being built in a world facing a severe retrenchment in aggregate demand. It is this that is termed ‘recovery’, but rather than a recovery, it is a form of double jeopardy — an intensification of previous failed strategies in the hope that a different outcome will result. This is, of course, one definition of insanity.

Now that financial crisis conditions are developing again, policies are being implemented which amount to an even greater intensification of the old strategy. In many locations, notably those perceived to be safe havens, the benchmark is moving from a zero interest rate policy to a negative interest rate policy (NIRP), initially for bank reserves, but potentially for business clients (for instance in Holland and the UK). Individual savers would be next in line. Punishing savers, while effectively encouraging banks to lend to weaker, and therefore riskier, borrowers, creates incentives for both borrowers and lenders to continue the very behaviour that set the stage for financial crisis in the first place, while punishing the kind of responsibility that might have prevented it.

Risk is relative. During expansionary times, when risk perception is low almost across the board (despite actual risk steadily increasing), the risk premium that interest rates represent shows relatively little variation between different lenders, and little volatility. For instance, the interest rates on sovereign bonds across Europe, prior to financial crisis, were low and broadly similar for many years. In other words, credit spreads were very narrow during that time. Greece was able to borrow almost as easily and cheaply as Germany, as lenders bet that Europe’s strong economies would back the debt of its weaker parties. However, as collective psychology shifts from unity to fragmentation, risk perception increases dramatically, and risk distinctions of all kinds emerge, with widening credit spreads. We saw this happen in 2008, and it can be expected to be far more pronounced in the coming years, with credit spreads widening to record levels. Interest rate divergences create self-fulfilling prophecies as to relative default risk, against a backdrop of fear-driven high volatility.

Many risk distinctions can be made — government versus private debt, long versus short term, economic centre versus emerging markets, inside the European single currency versus outside, the European centre versus the troubled periphery, high grade bonds versus junk bonds etc. As the risk distinctions increase, the interest rate risk premiums diverge. Higher risk borrowers will pay higher premiums, in recognition of the higher default risk, but the higher premium raises the actual risk of default, leading to still higher premiums in a spiral of positive feedback. Increased risk perception thus drives actual risk, and may do so until the weak borrower is driven over the edge into insolvency. Similarly, borrowers perceived to be relative safe havens benefit from lower risk premiums, which in turn makes their debt burden easier to bear and lowers (or delays) their actual risk of default. This reduced risk of default is then reflected in even lower premiums. The risky become riskier and the relatively safe become relatively safer (which is not necessarily to say safe in absolute terms). Perception shapes reality, which feeds back into perception in a positive feedback loop.

 

 

The process of diverging risk perception is already underway, and it is generally the states seen as relatively safe where negative interest rates are being proposed or implemented. Negative rates are already in place for bank reserves held with the ECB and in a number of European states from 2012 onwards, notably Scandinavia and Switzerland. The desire for capital preservation has led to a willingness among those with capital to accept paying for the privilege of keeping it in ‘safe havens’. Note that perception of safety and actual safety are not equivalent. States at the peak of a bubble may appear to be at low risk, but in fact the opposite is true. At the peak of a bubble, there is nowhere to go but down, as Iceland and Ireland discovered in phase one of the financial crisis, and many others will discover as we move into phase two. For now, however, the perception of low risk is sufficient for a flight to safety into negative interest rate environments.

This situation serves a number of short term purposes for the states involved. Negative rates help to control destabilizing financial inflows at times when fear is increasingly driving large amounts of money across borders. A primary objective has been to reduce upward pressure on currencies outside the eurozone. The Swiss, Danish and Swedish currencies have all been experiencing currency appreciation, hence a desire to use negative interest rates to protect their exchange rate, and therefore the price of their exports, by encouraging foreigners to keep their money elsewhere. The Danish central bank’s sole mandate is to control the value of the currency against the euro. For a time, Switzerland pegged their currency directly to the euro, but found the cost of doing so to be prohibitive. For them, negative rates are a less costly attempt to weaken the currency without the need to defend a formal peg. In a world of competitive, beggar-thy-neighbour currency devaluations, negative interest rates are seen as a means to achieve or maintain an export advantage, and evidence of the growing currency war.

Negative rates are also intended to discourage saving and encourage both spending and investment. If savers must pay a penalty, spending or investment should, in theory, become more attractive propositions. The intention is to lead to more money actively circulating in the economy. Increasing the velocity of money in circulation should, in turn, provide price support in an environment where prices are flat to falling. (Mainstream commentators would describe this as as an attempt to increase ‘inflation’, by which they mean price increases, to the common target of 2%, but here at The Automatic Earth, we define inflation and deflation as an increase or decrease, respectively, in the money supply, not as an increase or decrease in prices.) The goal would be to stave off a scenario of falling prices where buyers would have an incentive to defer spending as they wait for lower prices in the future, starving the economy of circulating currency in the meantime. Expectations of falling prices create further downward price pressure, leading into a vicious circle of deepening economic depression. Preventing such expectations from taking hold in the first place is a major priority for central authorities.

Negative rates in the historical record are symptomatic of times of crisis when conventional policies have failed, and as such are rare. Their use is a measure of desperation:

First, a policy rate likely would be set to a negative value only when economic conditions are so weak that the central bank has previously reduced its policy rate to zero. Identifying creditworthy borrowers during such periods is unusually challenging. How strongly should banks during such a period be encouraged to expand lending?

However strongly banks are ‘encouraged’ to lend, willing borrowers and lenders are set to become ‘endangered species’:

The goal of such rates is to force banks to lend their excess reserves. The assumption is that such lending will boost aggregate demand and help struggling economies recover. Using the same central bank logic as in 2008, the solution to a debt problem is to add on more debt. Yet, there is an old adage: you can bring a horse to water but you cannot make him drink! With the world economy sinking into recession, few banks have credit-worthy customers and many banks are having difficulties collecting on existing loans.
Italy’s non-performing loans have gone from about 5 percent in 2010 to over 15 percent today. The shale oil bust has left many US banks with over a trillion dollars of highly risky energy loans on their books. The very low interest rate environment in Japan and the EU has done little to spur demand in an environment full of malinvestments and growing government constraints.

Doing more of the same simply elevates the already enormous risk that a new financial crisis is right around the corner:

Banks rely on rates to make returns. As the former Bank of England rate-setter Charlie Bean has written in a recent paper for The Economic Journal, pension funds will struggle to make adequate returns, while fund managers will borrow a lot more to make profits. Mr Bean says: “All of this makes a leveraged ‘search for yield’ of the sort that marked the prelude to the crisis more likely.” This is not comforting but it is highly plausible: barely a decade on from the crash, we may be about to repeat it. This comes from tasking central bankers with keeping the world economy growing, even while governments have cut spending.

Continue Reading>>>

Categories
Banksters Economy Fascism Manipulation

Meanwhile in Greece..

Everyone gets 15 minutes of fame. Greece had its spot in the limelight last year. It is now no longer famous. We have all moved on to bigger dramas, or so we think. The French feel theyare the victims because of terrorist attacks, the British because of Brexit, Americans because of Trump.

Warhol’s 15 minutes of fame line is as much about the average human being’s attention span as it is about anything else, like the proliferation of media. The data in the picture at the top of this article are from 2014. They are what moved Greeks to elect Syriza in early 2015. But the Greeks found out within 6 months that this made no difference; the Troika called the shots, not the Greek people, not its government.

Every single one of the numbers in that pic has gotten worse over the past two years since it was released, often by a lot. There are hundreds of thousands of Greeks who make anywhere from €100 to €500 a month working the only part time jobs they can find. 1.2 million workers must wait anywhere from 3-15 months for their salaries to be paid.

But they’re the lucky ones; at least they have jobs. There are millions who don’t make any money at all. 3 million Greeks have no health care coverage because of this. That’s 30% of the population. A related quote I first put up last year is: “..if you are sick in Greece now, you have an expiration date.”

The IMF report I wrote about recently in Why Should The IMF Care About Its Credibility?states unambiguously that the IMF itself, in cahoots with the EU, is to blame for all this misery. But we haven’t seen one single word that would indicate there are plans to rectify this gross injustice.

The austerity measures forced upon Greece by the EU and IMF squeeze the country itself, and the people who inhabit it, into ever growing desolation, with no way out at all on the horizon. A country and its economy cannot heal or recover when it has a 25% unemployment rate, and 50-60% for its young people. And has seen hundreds of thousands of its best educated people leave the country.

Moreover, with pensions, on which a large part of the overall population depends just to survive, having been cut for the umpteenth time (supplementary pensions were cut between 21% and 46% on August 1), while a wide range of taxes keep rising across the board, consumption is being strangulated, which leads to more companies and stores closing, more unemployment, rinse and repeat. You can find it in the dictionary under ‘vicious circle’. Or in the Greek one under ‘Schäuble’ or ‘Dijsselbloem’.

And then Angela Merkel had the gall not long ago to claim the EU had found the ‘right mixture’ of policies with regards to Greece. These people are so -willingly- blind, and they care so little about what their policies do to people, they couldn’t find a ‘right mixture’ if it drove over them in a truck.

Greece is being ritually slaughtered, and the Brexit referendum has not taught Brussels one single lesson. They’re not going to understand until it’s too late and the EU blows up, but that may still take some years, while for the Greeks it’s already too late now.

The Troika should really -certainly after the IMF report- be forced to repeal their ‘policies’ versus Greece, but who’s going to force them? They’re not accountable to anyone. Well, except for the IMF executive board, but they are just a bunch of …. And the other Troika side, the EU, is a lost case.

On top of the country’s internal problems, there are now 57,000 refugees stuck in Greece. 21,000 of them have requested asylum. Plans to relocate them through the EU have been miserable failures. Most of the refugees live in one of dozens of improvised camps in below-par conditions. Those who don’t have papers are often de facto prisoners.

More misery is on the way. The Troika has forced through a law that will make it much easier to foreclose on homeowners who can no longer pay their mortgages. It’s not hard to see that there are many of them. The country must therefore prepare for another epidemic of homelessness, a scary prospect for a society that’s already been hit so hard.

 

 

As you will know if you’re a regular reader of the Automatic Earth, I started the “Automatic Earth for Athens Fund” last spring when I first went to Greece to see what the Syriza ‘revolution’ would bring (we now all know what it brought). The donations from Automatic Earth readers into the fund went far beyond what I could have dreamed of.

After donating some of it to two volunteer clinics and am institute for streetchildren (see links to articles below), I decided to focus on donating the funds to O Allos Anthropos (which means The Other Human), a group of impoverished Greeks who feed other poor Greeks, and do so by cooking in the street. The movement is led by someone who has become a dear friend, Konstantinos (Kostas) Polychronopoulos.

 


Konstantinos (Kostas) Polychronopoulos 
 

I have been back in Athens for a few months now, talked to Kostas quite a bit, and donated more of your money. So much so that there is nothing left. I paid the rent for the ‘nerve center’ in May (€2,054 per 3 months) and a total of €2,500 in May and June to repair Kostas’ car, without which the entire organization would grind to a halt. And then paid the rent again this Thursday, another €2,054.

My administration indicates that you have donated $24,370 to date, and I have given away $26,694. The numbers can’t be exact, because donations come in in USD, EUR and CAD, and exchange rates vary. Also, Paypal takes ‘its share’, which also varies. But one’s thing’s sure: the money’s been spent, and well spent. Actually, two things are sure, the second being that more money is needed.

 


Kostas was so happy to have his car running again, and you made that possible. It’s taken him ‘twice around the whole country’ in the past year. 13 different cities. It costs €500 to get a return ticket on the ferry to Lesbos with the car…
 

I am hesitant to ask the same people repeatedly to donate, but I will, because at this moment I have no choice. After I paid the rent two days ago Kostas told our friend and translator Tassos that he had two euros left in his pocket. And that’s not good. Of course I’ve known all along that the money could run out, but also that it won’t be for my lack of trying. And yes, this has become personal over the past year.

And now, not only will there be another wave of homelessness, other things deteriorate as well. A few weeks ago Kostas told me that donations of food, his by far most important kind of donations, are down by over 40%. People in Greece simply don’t have the money anymore to afford donations. While he has 13 ‘social kitchens’ running all over Greece which together prepare 3-5000 meals every day, and would like to do more, but can’t because he doesn’t have the means.

Another issue too has raised its head. Volunteer clinics like the ones I donated to a year ago are now coming to Kostas to see if he can get them medicine and various medical accessories. So he’s looking into that, with doctors to guide the process. There are people who donate unused medication, it’s starting up and the need there is great too.

Meanwhile, increasingly people come to O Allos Anthropos to be fed, who used to donate food themselves. Society is changing for the worse rapidly. The ‘nerve center’ I paid the rent for a few times allows some 100 homeless people every day to get a shower, have breakfast, do laundry, and have their children get help with schoolwork, often with pens and paper and books and schoolbags that are also donated.

According to Kostas, there are 155 NGOs operating in Greece. And while some undoubtedly do some good, it’s hard not to wonder what most of them do. Some of the issues with NGOs coming to Greece are obvious: for the big ones it’s their corporate structure, and for many it’s that they come from abroad and don’t know the culture. Though I don’t want to say anything negative about this, fact is there must be millions of euros flowing through this ‘industry’, and it’s hard to see where it‘s going.

It’s precisely because of such issues that I have chosen to support Kostas and O Allos Anthropos. They are Greek, they don’t make money from their involvement, so every penny goes towards those who need it most, and they are themselves as poor as those they help. And Kostas is the little engine that could who holds it all together, and holds everyone together.

 

 

Here is a video featuring Kostas from 2 years ago. What struck me when seeing it again is that he’s proud of going from handing out 20 to 200 meals per day. Since then, he’s gone to 5000 per day. And yes, I also do get the irony in the role that your donations to the Automatic Earth for Athens fund have played in making that development possible. I would deeply regret having to bow out now, and leave Kostas to himself. Not that he wouldn’t make it, but we, you and me, have made a big difference. But I can’t do it alone, it has to be as much of a community effort as O Allos Anthropos itself is. So please help.

 

 

 

I’ll get back to you about this soon. I’ve been breaking my head trying to figure out how to collect more funds to continue supporting O Allos Anthropos, lying awake at night over it. Yeah, we could turn to crowdfunding perhaps, but I think it’s important that it would have to be done right, and this is not my expertise.

Kostas is a bit of a difficult ‘customer’ to work with, but for good reasons in my eyes. He doesn’t want the group to become an official organization, he doesn’t want to become an NGO, and he doesn’t want to apply for government support. Because all these things would lead away from what he thinks is essential: people helping people.

He refused an award from the EU last year saying ‘you guys are responsible for this mess and this misery, I want nothing from you’. ‘Official’ support comes with conditions, with people wanting to tell you what to do and how to do it. But yes, it makes it harder to keep things afloat, and to help where help is needed.

Kostas has many ideas for how he would like to change and expand his operations, but for now just holding on to the basics is a battle. He was talking the other day about villages in the mountains where mostly older people live, isolated and in dire need of food and medication, of how he would like to set up a way to reach out to them.

I’ll leave this here for now. If anyone has ideas about for instance a crowdfunding campaign, please contact me at contact •at• TheAutomaticEarth •dot• com. For anyone in the medical profession, if you have ideas about how to get medication here from abroad, please let me know. There is a great need for insulin, various cancer drugs are not available in the country at all anymore, and then there are things like blood pressure tests, blood sugar tests, hearing aids and wheelchairs.

I’ll get a full list from one of the hospitals soon. Everything medical will run through them too.

Categories
Health Monsanto Preparedness & Health

Toxic Wheat, GMOs and the Precautionary Principle

Recently, I posted a two-tear old article on facebook.com/TheAutomaticEarth that was shared so many times it seems to make sense to use it for an Automatic Earth article as well. The article asks how toxic the wheat we eat is – or Americans, more specifically-, and why that is.

But first I would like to touch on a closely connected issue, which is Nassim Nicholas Taleb’s ‘war’ on GMOs. Taleb, of Black Swans fame, has been at it for a while, but he’s stepped up his efforts off late.

In 2014, with co-authors Rupert Read, Raphael Douady, Joseph Norman and Yaneer Bar-Yam, he published The Precautionary Principle (with Application to the Genetic Modification of Organisms), an attempt to look at GMOs through a ‘solidly scientific’ prism of probability and complex systems. From the abstract:

The precautionary principle (PP) states that if an action or policy has a suspected risk of causing severe harm to the public domain (affecting general health or the environment globally), the action should not be taken in the absence of scientific near-certainty about its safety. Under these conditions, the burden of proof about absence of harm falls on those proposing an action, not those opposing it. PP is intended to deal with uncertainty and risk in cases where the absence of evidence and the incompleteness of scientific knowledge carries profound implications and in the presence of risks of “black swans”, unforeseen and unforeseable events of extreme consequence.

[..] We believe that the PP should be evoked only in extreme situations: when the potential harm is systemic (rather than localized) and the consequences can involve total irreversible ruin, such as the extinction of human beings or all life on the planet. The aim of this paper is to place the concept of precaution within a formal statistical and risk-analysis structure, grounding it in probability theory and the properties of complex systems. Our aim is to allow decision makers to discern which circumstances require the use of the PP and in which cases evoking the PP is inappropriate.

This puts into perspective the claims made by Monsanto et al that since no harm has ever been proven to arise from the use of GMOs, they should therefore be considered safe. Which is the approach largely taken over by American politics, and increasingly also in Europe and other parts of the world. In their paper, Taleb et al say the approach does not meet proper scientific standards.

This is very close to my personal opinion, expressed in many articles in the past, that GMOs pose such risks on such a wide scale to the food supply of every human being on earth -as well as a much wider selection of organisms- that they should not be legalized before perhaps 100 years of tests have been done by large and independent teams of specialists.

Note that if you, as an individual farmer, as a community or even as a nation, want to ban GMOs but your neighbors do not, you will in the case of many crops not stand a chance of keeping your plants GMO free. For which you can subsequently be sued by the ‘owner’ of the genetically altered plants and seeds.

Also, I think it is irresponsibly dangerous to give a handful of companies (Monsanto, Bayer, DuPont, Syngenta), who all happen to be chemical giants dating back to the 20th century interbellum, and all with questionable pasts, a quasi-monopoly over the -future of- world’s food. Because that is where things will go unless proper principles are applied, both scientific and legal.

One of the main arguments proponents of GMOs use is that through thousand of years mankind has altered crops through selection ‘anyway’, so talking about anything ‘pure’ or ‘natural’ in this regard is not relevant. Taleb put the difference between altering a staple through this ‘generational’ selection on the one hand and the modifying of genes in a lab into a sketch:

The sketch was later annotated by Rahul Goswami, approved and shared by Taleb:

I think it is obvious that ‘generational’ selection through breeding is localized, can be rejected by nature. Genetic modification is something completely different, it takes a much bigger step (a giant leap) and forces itself -as a more or less alien body- onto a much larger eco-system.

It’s not about trying to figure out what works, but about forcing itself upon the world and its inhabitants regardless of the consequences. The precautionary principle is missing where it is most needed.

A few examples of Taleb’s tweets on the topic in the past few days make his stance abundantly clear.

“GMO issue is ignorance of the properties of complex systems/fattails (Monsanto’s 107 Nobels, 80 y.o. are 50 y behind)”

“Anyone pro-GMOs on “scientific” grounds is 50 years behind, ignorant of complexity, or just stupid”

“Monsanto pulled no stop trying to discredit me: 1000 mails to Univ (!),>1000 shill posts. Nada. F***you money works.”

Then, on to the article I started talking about above. As I said, it was written some two years ago by Sarah at the Healthy Home Economist. From the reactions to my posting it on Facebook -a huge number of shares- I surmise that many people A) had no idea that what Sarah describes is common practice, and B) have a profound interest in the topic.

Note: while a fair number of people said they had never heard of this, and/or doubted it was true at all, quite a few confirmed it as common where they live, and not just stateside, but in Scotland, Argentina etc.

Let’s see how we get through this. I don’t want to just post the whole thing, but I’ll need large portions of it.

The Real Reason Wheat is Toxic

The stories became far too frequent to ignore. Emails from folks with allergic or digestive issues to wheat in the United States experienced no symptoms whatsoever when they tried eating pasta on vacation in Italy. Confused parents wondering why wheat consumption sometimes triggered autoimmune reactions in their children but not at other times. 

In my own home, I’ve long pondered why my husband can eat the wheat I prepare at home, but he experiences negative digestive effects eating even a single roll in a restaurant. There is clearly something going on with wheat that is not well known by the general public. It goes far and beyond organic versus nonorganic, gluten or hybridization because even conventional wheat triggers no symptoms for some who eat wheat in other parts of the world.

What indeed is going on with wheat? For quite some time, I secretly harbored the notion that wheat in the United States must, in fact, be genetically modified. GMO wheat secretly invading the North American food supply seemed the only thing that made sense and could account for the varied experiences I was hearing about. I reasoned that it couldn’t be the gluten or wheat hybridization. Gluten and wheat hybrids have been consumed for thousands of years.

It just didn’t make sense that this could be the reason for so many people suddenly having problems with wheat and gluten in general in the past 5-10 years.

Finally, the answer came over dinner a couple of months ago with a friend who was well versed in the wheat production process. I started researching the issue for myself, and was, quite frankly, horrified at what I discovered. The good news is that the reason wheat has become so toxic in the United States is not because it is secretly GMO as I had feared (thank goodness!).

The bad news is that the problem lies with the manner in which wheat is grown and harvested by conventional wheat farmers. You’re going to want to sit down for this one. I’ve had some folks burst into tears in horror when I passed along this information before.

Common wheat harvest protocol in the United States is to drench the wheat fields with Roundup several days before the combine harvesters work through the fields as the practice allows for an earlier, easier and bigger harvest

Pre-harvest application of the herbicide Roundup or other herbicides containing the deadly active ingredient glyphosate to wheat and barley as a desiccant was suggested as early as 1980. It has since become routine over the past 15 years and is used as a drying agent 7-10 days before harvest within the conventional farming community.USDA pesticides applied to wheat.

According to Dr. Stephanie Seneff of MIT who has studied the issue in depth and who I recently saw present on the subject at a nutritional Conference in Indianapolis, desiccating non-organic wheat crops with glyphosate just before harvest came into vogue late in the 1990’s with the result that most of the non-organic wheat in the United States is now contaminated with it.

Seneff explains that when you expose wheat to a toxic chemical like glyphosate, it actually releases more seeds resulting in a slightly greater yield: “It ‘goes to seed’ as it dies. At its last gasp, it releases the seed” says Dr. Seneff. According to the US Department of Agriculture, as of 2012, 99% of durum wheat, 97% of spring wheat, and 61% of winter wheat has been treated with herbicides. This is an increase from 88% for durum wheat, 91% for spring wheat and 47% for winter wheat since 1998.

Wheat farmer Keith Lewis: “I have been a wheat farmer for 50 yrs and one wheat production practice that is very common is applying the herbicide Roundup (glyphosate) just prior to harvest. Roundup is licensed for preharvest weed control. Monsanto, the manufacturer of Roundup claims that application to plants at over 30% kernel moisture result in roundup uptake by the plant into the kernels. Farmers like this practice because Roundup kills the wheat plant allowing an earlier harvest.

A wheat field often ripens unevenly, thus applying Roundup preharvest evens up the greener parts of the field with the more mature. The result is on the less mature areas Roundup is translocated into the kernels and eventually harvested as such. This practice is not licensed. Farmers mistakenly call it “dessication.”

Consumers eating products made from wheat flour are undoubtedly consuming minute amounts of Roundup. An interesting aside, malt barley which is made into beer is not acceptable in the marketplace if it has been sprayed with preharvest Roundup. Lentils and peas are not accepted in the market place if it was sprayed with preharvest roundup….. but wheat is ok.. This farming practice greatly concerns me and it should further concern consumers of wheat products.”

This practice is not just widespread in the United States either. The Food Standards Agency in the United Kingdom reports that use of Roundup as a wheat desiccant results in glyphosate residues regularly showing up in bread samples. Other European countries are waking up to to the danger, however. In the Netherlands, use of Roundup is completely banned with France likely soon to follow.

Using Roundup on wheat crops throughout the entire growing season and even as a desiccant just prior to harvest may save the farmer money and increase profits, but it is devastating to the health of the consumer who ultimately consumes the glyphosate residue laden wheat kernels.

The chart below of skyrocketing applications of glyphosate to US wheat crops since 1990 and the incidence of celiac disease is from a December 2013 study published in the Journal Interdisciplinary Toxicology examining glyphosate pathways to autoimmune disease. Remember that wheat is not currently GMO or “Roundup Ready” meaning it is not resistant to its withering effects like GMO corn or GMO soy, so application of glyphosate to wheat would actually kill it.

While the herbicide industry maintains that glyphosate is minimally toxic to humans, research published in the Journal Entropy strongly argues otherwise by shedding light on exactly how glyphosate disrupts mammalian physiology. Authored by Anthony Samsel and Stephanie Seneff of MIT, the paper investigates glyphosate’s inhibition of cytochrome P450 (CYP) enzymes, an overlooked component of lethal toxicity to mammals.

The currently accepted view is that glyphosate is not harmful to humans or any mammals. This flawed view is so pervasive in the conventional farming community that Roundup salesmen have been known to foolishly drink it during presentations! However, just because Roundup doesn’t kill you immediately doesn’t make it nontoxic. In fact, the active ingredient in Roundup lethally disrupts the all important shikimate pathway found in beneficial gut microbes which is responsible for synthesis of critical amino acids.

Friendly gut bacteria, also called probiotics, play a critical role in human health. Gut bacteria aid digestion, prevent permeability of the gastrointestinal tract (which discourages the development of autoimmune disease), synthesize vitamins and provide the foundation for robust immunity. In essence:

Roundup significantly disrupts the functioning of beneficial bacteria in the gut and contributes to permeability of the intestinal wall and consequent expression of autoimmune disease symptoms

In synergy with disruption of the biosynthesis of important amino acids via the shikimate pathway, glyphosate inhibits the cytochrome P450 (CYP) enzymes produced by the gut microbiome. CYP enzymes are critical to human biology because they detoxify the multitude of foreign chemical compounds, xenobiotics, that we are exposed to in our modern environment today.

As a result, humans exposed to glyphosate through use of Roundup in their community or through ingestion of its residues on industrialized food products become even more vulnerable to the damaging effects of other chemicals and environmental toxins they encounter! What’s worse is that the negative impact of glyphosate exposure is slow and insidious over months and years as inflammation gradually gains a foothold in the cellular systems of the body.

The consequences of this systemic inflammation are most of the diseases and conditions associated with the Western lifestyle: Gastrointestinal disorders, Obesity ,Diabetes, Heart Disease, Depression, Autism, Infertility, Cancer, Multiple Sclerosis, Alzheimer’s, etc.

In a nutshell, Dr. Seneff’s study of Roundup’s ghastly glyphosate which the wheat crop in the United States is doused with uncovers the manner in which this lethal toxin harms the human body by decimating beneficial gut microbes with the tragic end result of disease, degeneration, and widespread suffering

[..] The bottom line is that avoidance of conventional wheat in the United States is absolutely imperative even if you don’t currently have a gluten allergy or wheat sensitivity. The increase in the amount of glyphosate applied to wheat closely correlates with the rise of celiac disease and gluten intolerance. 

Dr. Seneff points out that the increases in these diseases are not just genetic in nature, but also have an environmental cause as not all patient symptoms are alleviated by eliminating gluten from the diet. The effects of deadly glyphosate on your biology are so insidious that lack of symptoms today means literally nothing. If you don’t have problems with wheat now, you will in the future if you keep eating conventionally produced, toxic wheat!

I guess we can leave it at that for now. Do go to the original article for more. Whether you look at it from a scientific viewpoint, as Taleb et al do, or from a common sense one, as Sarah does, the common thread seems obvious: Monsanto and other rich chemical giants seek to be the sole providers -even owners- of the world’s food, handed to us for free by nature and generations of our ancestors.

And to achieve that magnitude of power -and riches- they are more than willing to literally drive over sick and dead bodies. Once again, Taleb:

The precautionary principle (PP) states that if an action or policy has a suspected risk of causing severe harm to the public domain (affecting general health or the environment globally), the action should not be taken in the absence of scientific near-certainty about its safety. Under these conditions, the burden of proof about absence of harm falls on those proposing an action, not those opposing it.

That is not what’s happening, and there’s not much time left to start applying it before it’s too late. Because GMOs, once they’ve been introduced in a large enough environment, are near impossible to get rid of.

To end on a somewhat happier note, Taleb thinks that Monsanto is doing quite poorly these days, financially. Then again, that’s why Bayer wants to buy them, and that would only mean a continuation or even increase of the present practices.

What we need is decision makers who understand the science of complex systems, probability and the precautionary principle. And I don’t know about you, but when I look at who’s vying to be the leaders of the US, UK and many other nations, I think we’re a long way away from that.

Only Putin seems to get it. His stated goal is to make Russia the largest producer of organic food in the world. So maybe there is still hope.

Categories
Banksters Corruption Economy Manipulation Stock Market

Deflation Is Blowing In On An Eastern Trade Wind

Brexit is nowhere near the biggest challenge to western economies. And not just because it has devolved into a two-bit theater piece. Though we should not forget the value of that development: it lays bare the real Albion and the power hunger of its supposed leaders. From xenophobia and racism on the streets, to back-stabbing in dimly lit smoky backrooms, there’s not a states(wo)man in sight, and none will be forthcoming. Only sell-outs need apply.

The only person with an ounce of integrity left is Jeremy Corbyn, but his Labour party is dead, which is why he must fight off an entire horde of zombies. Unless Corbyn leaves labour and starts Podemos UK, he’s gone too. The current infighting on both the left and right means there is a unique window for something new, but Brits love what they think are their traditions, plus Corbyn has been Labour all his life, and he just won’t see it.

The main threat inside the EU isn’t Brexit either. It’s Italy. Whose banks sit on over 30% of all eurozone non-performing loans, while its GDP is about 10% of EU GDP. How they would defend it I don’t know, they’re probably counting on not having to, but Juncker and Tusk’s European Commission has apparently approved a scheme worth €150 billion that will allow these banks to issue quasi-sovereign bonds when they come under attack. An attack that is now even more guaranteed to occcur than before.

 

Still, none of Europe’s internal affairs have anything on what’s coming in from the east. Reading between the lines of Japan’s Tankan survey numbers there is only one possible conclusion: the ongoing and ever more costly utter failure of Abenomics continues unabated.

It’s developing in pretty much the exact way I said it would when Shinzo Abe first announced the policies in late 2012. Not that it was such a brilliant insight, all you had to know is that Abe and his central bank head Kuroda don’t understand what their mastodont problem, deflation, actually is, and that means they are powerless to solve it.

That Abe said somewhere along the way that all that was needed was his people’s confidence to make Abenomics work, says more than enough. The multiple flip-flops over a sales-tax increase say the rest. People don’t become more confident just because someone tells them to; that has the opposite effect. Deflation results from reduced spending, which in turn comes from not only decreasing confidence as well as a decrease in money people have available to spend.

That modern economics sees everything not spent as ‘savings’ adds significantly to the failure -on the part of Abe, Kuroda and just about everyone else- to understand what happened in Japan over the past 2-3 decades. To repeat once again, inflation/deflation is the velocity of money multiplied by money- and credit supply. The latter factor has in general gone through the roof, but that means zilch if the former -velocity- tanks.

That this velocity is -still- tanking, in Japan as well as in the western world, is due to, more than anything else, an unparalleled surge in debt. At some point, that will catch up with any economy and society. Even if they are growing, which our economies are not. Growth has been replaced with credit, and credit is debt. It’s safe to say that money velocity cannot possibly ‘recover’ until large swaths of debt have been cancelled, one way or another.

For Japan we saw this week that “..household spending fell for the third straight month in May and core consumer prices suffered their biggest annual drop since 2013..” (Reuters) while “..The Topix index dropped about 9% in June, plunging on June 24 with the Brexit vote, the most since the aftermath of the 2011 earthquake. The yen strengthened about 8% against the dollar in June.. (Bloomberg).

Japan has an upper-house election in a little over a week, and it seems like Abe can still feel comfortable about his position. A remarkable thing. The country needs to stop digging, it’s in a more than 400% debt-to-GDP hole, but Abe won’t listen. The rising yen is suffocating what is left of the economy, as are the negative interest rates, but all the talk is about ‘further easing’.

 

Still, Japan is outta here, and this has been obvious for a long time to the more observant observer. In the case of China, it is a more recent phenomenon, and it will even be disputed for a while to come. It’s also one that will have a much more devastating effect on the west. We’ve seen problems in various markets in Singapore, Macau and Hong Kong, but the real issues on the mainland are still to be sprung on us.

Mainland stock exchanges are as good a place as any to begin with. The combined tally for Shanghai and Shenzhen looks like this -data till June 23-; yes, that’s a loss of over 40% in the past year.

Beijing has been trying very hard to paper over these numbers, even quit supporting it all for a while through 2014, only to do a 180º when they didn’t like what they saw (foreign reserves drawdown), and now PBoC injections have gone bonkers: $316 billion in one month would mean $4 trillion on a yearly basis in what is really nothing but monopoly money.

Meanwhile, corporate bonds are, perhaps partly because of volatility, becoming an endangered species. Maybe the PBoC can do something there as well, the way Draghi does in Europe (must be high on the agenda), but there’s already so much bad debt we hardly dare watch.

China must and will try to keep boosting exports by devaluing the yuan. It’s just waiting for an opportunity to do it without being accused of currency manipulation. Perhaps it can create that opportunity?! Create a crisis and then use it?! Regardless, this Reuters headline yesterday sounded very tongue in cheek:

China To ‘Tolerate’ Weaker Yuan

China’s central bank would tolerate a fall in the yuan to as low as 6.8 per dollar in 2016 to support the economy, which would mean the currency matching last year’s record decline of 4.5%, policy sources said. The yuan is already trading at its lowest level in more than five years, so the central bank would ensure any decline is gradual for fear of triggering capital outflows and criticism from trading partners such as the United States, said government economists and advisers involved in regular policy discussions. Presumptive U.S. Republican Presidential nominee Donald Trump already has China in his sights, saying on Wednesday he would label China a currency manipulator if elected in November.

Note: remember Japan above? The yen rose 8% against the USD just in June, as the yuan fell by just 4.5% in all of 2015 (6.8% over the past 2 years). Now you go figure what’s happening to Japan-China trade. And the yuan is still hugely overvalued. But the desire to be part of the IMF basket of currencies comes with obligations. Trump doesn’t help either.

I said in the beginning of this year that a 30% devaluation was something of a minimum, and that certainly continues to stand. So yeah, creating a crisis may be the only way out. An accident in the South China Sea perhaps. Combined with a ‘tolerance’ for a 50% weaker yuan….

All of the above leads us to the title of this essay: deflation is coming in from the east. China’s economy’s already in deflation, even though it will take some time yet to be acknowledged. A very ‘nice’ report from Crescat Capital provides a bunch of clues.

China QE Dwarfs Japan and EU 

In July of 2014, we wrote about the huge imbalance with respect to China’s M2 money supply and nominal GDP relative to the US. At the time, China’s M2 money supply was 71% higher than the US but its economy was 56% smaller, which we said was an indication of the overvaluation of the Chinese currency. Since that time, the yuan has fallen by only 6.8% relative to the dollar. We haven’t seen anything yet. 

Today, the circumstances have significantly worsened. Money supply has continued to grow faster than GDP. With over $30 trillion of assets in its banking system and an underappreciated non-performing loan problem, we are convinced that China is headed for a twin banking and currency crisis. Money velocity has reached historically low levels which reflects China’s extreme credit imbalance and its crimping impact on its ability to generate future real GDP growth.

Just as worrying as the immense amount of credit built up, China has been reporting major downward revisions in its balance of payments (BoP) accounts. For more than a decade, China had been reporting an impossible twin surplus in its BoP accounts. When we wrote about this issue in 2014, we emphasized the likelihood of massive illicit capital outflows that not been accounted for. At that time, according to the State Administration of Foreign Exchange of China (SAFE), China had accumulated a BoP imbalance that was close to $9.4 trillion surplus since 2000 which we believed represented capital outflows that should have been recorded in the capital account.

The same accumulated BoP number today, revised by SAFE several times since, is now a deficit of about $2.8 trillion. Essentially, with its revisions, the SAFE has acknowledged even more capital outflows over the last 16 years than we had initially identified. On the capital account side, there was a downward revision of $10.1 trillion – from a $4.2 trillion surplus to a $5.9 trillion deficit. On the current account side, the revisions show that Chinese exports have not been as strong as initially reported over the last decade and a half. China’s current account surplus has been reduced by $2.1 trillion– going from $5.1 trillion to $2.9 trillion over the last 16 years. What we initially considered to be a $9.4 trillion imbalance has been more than proven by a $12.2 trillion revision.

Those are some pretty damning numbers, if you sit on them for a bit. There was another graph that came with that report that takes us head first into deflationary territory. China’s velocity of money:

That is utterly devastating. It’s what we see in the US, EU and Japan too, but ‘we’ have thus far been able to export our deflation -to an extent- to … China. No more. China has started exporting its own deflation to the west. Beijing MUST devalue its currency anywhere in the range of 30-50% or its export sector will collapse. It is not difficult.

That it will have to achieve this despite the objections of Donald Trump and the IMF is just a minor pain; Xi Jinping has more pressing matters on his mind. Like pitchforks.

The ‘normal’ response in economics would be: in order to fight deflation, increase consumer spending (aka raise money velocity)! But as we’ve seen with Japan, that’s much easier said than done. Because there are reasons people are not spending. And the only way to overcome that is to guarantee them a good income for a solid time into the future, in an economy that induces confidence.

That is not happening in Japan, or the US or EU, and it’s now gone in China too. Beijing has another additional issue that (formerly) rich countries don’t have. This is from a recent Marketwatch article on Andy Xie:

China Is Headed For A 1929-Style Depression 

[..] Xie said China’s trajectory instead resembles the one that led to the Great Depression, when the expansion of credit, loose monetary policy and a widespread belief that asset prices would never fall contributed to rampant speculation that ended with a crippling market crash. China in 2016 looks much the same, according to Xie, with half of the country’s debt propping up real-estate prices and heavy leverage in the stock market – indicating that conditions are ripe for a correction. “The government is allowing speculation by providing cheap financing .. China “is riding a tiger and is terrified of a crash. So it keeps pumping cash into the economy. It is difficult to see how China can avoid a crisis.”

And then check this out:

China’s GDP grew 6.9% in 2015, its slowest pace in a quarter-century. For 2016, Beijing has set a GDP target of 6.5% to 7%; The latest spate of global uncertainties prompted Bank of America Merrill Lynch and Deutsche Bank to trim their forecasts to 6.4% and 6.6%, respectively. The export sector, long a driver of Chinese growth, is sputtering due to global saturation and household consumption is barely 30% of China’s GDP, Xie said. In the U.S., household consumption accounted for more than 68% of GDP in 2014, according to the World Bank.

Yeah, China is supposed to be going from an export driven- to a consumer driven economy. Problem with that seems to be that those consumers would need money to spend, and to earn that money they would need to work in export industries (since there is not nearly enough domestic demand). Bit of a Catch 22. And definitely not one you would want to find yourself in when the global economy is tanking.

The more monopoly money Beijing prints, the more pressure there will be on the yuan. And if they themselves don’t devalue the yuan, the markets will do it for them.

Kyle Bass says China’s $3 trillion corporate bond market is “freezing up” (see the third graph above), which threatens to undermine the $3.5 trillion market for the wealth management products Chinese mom and pops invest in. He expects a whopping $3 trillion in bank losses, an amount equal to the entire corporate bond market (!) “to trigger a bailout, with the central bank slashing reserve requirements, cutting the deposit rate to zero and expanding its balance sheet – all of which will weigh on the yuan.”

With the yuan down by as much as it would seem to be on course for, wages and prices in the west will plummet. This wave of deflation is set to hit western economies already in deflation and already drowning in private debt, and therefore equipped with severely weakened defenses.

Leonard Cohen once wrote a song called “Democracy Is Coming To The USA”. Maybe someone can do a version that says deflation is coming too. Not sure that’s good for democracy, though.

Have a great Holiday Weekend.