“Keynesian and monetarist economists claim all that’s needed to return prosperity in the PIIGS countries is looser money and their own currencies. The next best thing would be transforming the character of the euro from that of the German mark to the Italian lira. They’re wrong. A policy that tries to restore conditions that existed before the euro crisis will fail, just like the foolish U.S. policy effort to reinflate the housing bubble. Prosperity comes from savings and investment, not government deficits and welfare state programs financed by the printing press.” (emphasis added)
Dan Amoss, CFA, Agora Financial, 8/24/12
Too true! But “government deficits and welfare state programs financed by the printing press” will not be abandoned any time soon. Since the consequences of not trying to continue to kick the Economic Can down The Road (to the Cliff) are unacceptable to Globalist Politicians and Bankers at The Fed, and the ECB, the printing will continue; thus providing the Delusion (publicized by the MainStream Media) that Recovery is on the way, until Reality pierces it.
Until then, print they will (see below regarding Spain – critically important to the International Financial System). The only questions are: when, how much, and when does Reality stop them?
But the Can Kicking provides Profit Opportunities. So how does one Profit while the Can Kicking continues? Savvy forecasting of the Timing and Variety of Can Kicking can greatly enhance the chances for Profit and Protection, and prepares one for the more widespread recognition of The Impending Reality.
That Reality, by the way, is Hyperstagflation. The excessive money printing and credit provision (QE1, 2, LTRO, and ESM, etc. e.g.) which has occurred so far has not revived the Economy. But it has caused substantial Inflation if one looks at the Real Numbers, rather than Bogus Official ones (see Note 1). The ultimate result is described by Marc Faber.
“There’s still a 100 percent chance the world heads into recession, Marc Faber, publisher of ‘The Gloom, Boom & Doom Report,’ told CNBC’s ‘Closing Bell’ on Thursday, echoing a call he made in May.
“…‘The U.S. economy has decelerated and I don’t see much growth in the next six to 12 months,’ Faber said.
“…‘I think that if you look at the injection of liquidity and the intervention by the Federal Reserve and the Treasury with fiscal measures, it has already impoverished the U.S. economy,’ he said.
“…‘Corporate profits will disappoint over the next 12 to 18 months.’”
“Odds of Global Recession Are 100%”
Marc Faber to CNBC’s “Closing Bell,” 8/23/2012
Indeed! The Mega-Banker Interventions have so distorted the Financial Markets and Economy that most Sectors have become mainly dependent on Interventions, even though The Delusion persists among many that these Sectors trade mainly on Fundamentals.
- Invest and Trade with well-informed forecasts of likely future Monetary, Credit, and related Interventions in mind and with the recognition that we are likely headed into a Hyperstagflationary Era.
- On the Price-Bullish side, focus on those few sectors, like Food and Energy, whose prices, though somewhat affected by Interventions like Q.E. for example (which impelled increases in Food Prices) still Trade Mainly on Fundamentals.
- Pay close attention to the Debt Markets and especially Sovereign and other debt yields. Generally, Sovereign Debt (including U.S., U.K., and France as well as the PIIGS) is in a bubble which has begun to leak, and will eventually burst. Thus yields will be rising mid to long term. Consider Keith Weiner regarding debt and The Fate of Fiat Paper Currencies.
“Debt has been growing exponentially everywhere… Debt is backed with debt, based on debt, dependent on debt, and leveraged with yet more debt. For example, today it is possible to buy a bond (i.e. lend money) on margin (i.e., with borrowed money).
“The time is now fast approaching when all debt will be defaulted on. In our perverse monetary system, one party's debt is another's "money." A debtor's default will impact the creditor (who is usually also a debtor to yet other creditors), causing him to default, and so on. When this begins in earnest, it will wipe out the banking system and thus everyone's "money." The paper currencies will not survive this.”
“Is Gold Backwardation Now Permanent?”
Keith Weiner, New Austrian School of Economics, 2/29/2012
While we do not agree that “all” Debt will be defaulted on, or with, Weiner’s basic point, that Major Fiat Currencies with the Purchasing Power which they now embody, will not survive. However, his comments point in the right direction: there will be increasing Sovereign Defaults, since The Icelandic Solution (see our recent Article) is probably the only one for many Sovereigns for the long run. And the Purchasing Power of Fiat Currencies will continue to decline vis-à-vis Real Assets.
- Bear in mind that ongoing Q.E. and related actions, etc. conducted by the private for-profit Fed and ECB is intended mainly to bail out the Mega-Banks, i.e. to keep them from collapsing from their own Bad Debts. (Recall that the Financial Accounting Standards Board decided that Banks could mark their portfolios to Model (i.e. to Myth) rather than to Market.)
If Bailing out the Mega-Banks were not the main purpose, why is it that The Fed continues to pay “interest” to the Mega-Banks for depositing their Reserves at the Fed. Were these “interest” payments to cease, the money could be loaned to job-creating small businesses which, generally, are starved for funds. That would increase employment and economic growth.
- Yes China is slowing. And, yes, the Economy there is probably worse than its Highly Controlled Official Statistics reveal. But its exports are still greater than imports and its relatively (to the west) high interest rates reveal an economy which is still growing, albeit more slowly.
- And even though Gold and Silver prices are subject to ongoing suppression by The Cartel* (see Note 2), which has had an increasingly difficult time maintaining its Takedowns, Takedowns which have bottomed at increasingly high levels.
- Spanish Banks are experiencing a Bank Run. ECB data revealed that outflows from Spanish Banks were €74 Billion ($93 Billion) in July, twice the previous monthly record. These banks have lost 11% of their deposits already this year.
Since the Spanish economy is much larger than Greece’s, this will probably impel the ECB to print more Euros. This will depreciate that Fiat currency even more, and that is Good for Gold, Hold thy Gold! We do forecast another Takedown is likely which should provide a Buying Opportunity (see Note 3 below).
- Increasing Prices for Food are not only the result of the U.S. Drought, but also caused in large part by ongoing QE-caused Fiat Currency Purchasing Power Dilution. (Remember the “Arab Spring” over a year ago was launched by Food Price Increases.) Food Prices are not going to be dropping much, if at all. Food Prices are in a long-term uptrend. Therefore, more Societal Disruptions are coming.
- Excessive (i.e. well in excess of GDP Growth) Central Bank generated Money Printing and Credit Provisions are causing Real Inflation which is masked by Bogus Numbers (see Note 1). Invest in Assets which hold their value in periods of Monetary Inflation (see Note 4 regarding High Yield Portfolios).
August 30, 2012