Economic pressures

[Danny B]

GOV bonds backing financial institutions

Reportedly, the stock market is getting ready to roll over. Ho Hum.
Sovereign Debt Crisis on Steroids | Armstrong Economics
Armstrong calls for a sovereign default in October of 2015. Should this happen, all the reserves of banks, hedge funds, pension funds and other GOV debt holders would be TOAST.

[Danny B]

Inflating the debts away

Ruphus; "What do you think of the Euro QE starting up at the point that US interest rates increase?

I also don't understand how a country can "inflate their debt away" as I have read many, many places. Can you also write about that please?

I would think that contracts between countries would have inflation language built in. "
No country can afford to have a strong currency. It kills exports. The various States have played round-robin taking turns printing to weaken their currencies. They don't want any currency to be considered a "safe haven"away from inflation. Also, EVERY country wants to be a net exporter. This obviously impossible. A weak currency tends to help the export business. Brazil is currently winning this war. Brazil Succeeds Beyond Wildest Dreams in Winning ?Currency War? | HoweStreet.com4500 tons of gold traded EVERY day. This tells you that MANY private contracts are referenced to gold,,, most likely on the day of settlement. The gold never changes hands. It is the most reliable denominator.

[Danny B]

Jim Willie, again

There is no denying that Pox Americana has spread war worldwide. I suppose that there was some legitimacy going into Korea. Nothing was accomplished in Viet Nam other that enriching the war industries. Did all the wars after WW II improve the world? Some of our "police actions" may have had merit,, most NO.
The fiends in the District of Corruption are working to get WW III fired up.
With the advent of birth control and mechanized agriculture, it is a different world than it was 70 years ago. The world is quite tired of the Anglo-American (bankers) insatiable appetite for war. The R.O.W. is working to take away our Bretton Woods credit card for unlimited war. They are rejecting the dollar and dollar bonds. It will take time but, they know that they have everything to lose if they don't succeed soon.
They will hasten the Sovereign bond crash because the alternative is worse. After the crash, they will ostracize us to pull our fangs. Sadly for us, they will try to impose an economic crash so bad that GOV will be so occupied with domestic problems that they won't have time for foreign wars. GOV is prepared to clamp down HARD to stifle domestic problems.
GOV can address it's limited resources to keep State and military intact OR it can address the limited resources to the general populace. Our imports will be cut off except for what we can pay for in gold.
Jim Willie: The Greatest Self-Inflicted Gunshot Wound in 2,000 Years! | SilverDoctors.com
I suspect that it will be difficult to import oil. The lower 48 have reached peak cheap oil. Canada is captive and won't have a choice. The Keystone pipeline is ostensibly just a shortcut for existing pipelines. It will effectively double our capacity for importing Canadian oil. We have tons of pipelines already. Just, not in the right places. The Alaskan pipeline is abraded because north-slope oil is hot and has sand in it. Dunno how much longer it can remain in service.
Russia has just cut a deal with PEMEX so, I wouldn't count on Mexican oil.

If the sovereign bond market does indeed crash, it will take down the banks. With the banks gone, there won't be financing to resuscitate the fracking industry. Better start working on that wood-gas truck.

[Danny B]

Yanking out the dollar rug

We've had years of ZIRP. It was always assumed that rates would rise at some point in the future. Apparently, the FED is creating the narrative that it is time to raise rates. This article has lots of graphs that show that the economy is doing GREAT. The Real Reason the Fed Has To Raise Rates in June | EconMatters
We only have 5.2% unemployment. All the indicators agree that it is time to raise rates. There are a few naysayers though; Six Days Until Bond Market Crash Begins | EconMatters

This article talks about the "overheated labor market".
From Yellen Put To Yellen Massacre - The Automatic Earth
"The Federal Reserve, and now the European Union have set the stage for the biggest collapse in bond markets that will make the sub-prime financial crisis look like a cakewalk."
"In short, Janet Yellen will go down into history as the person responsible for what may be the biggest economic crash ever, or at least delivering the final punch of the way into it, a crash that will make the rich banks even much richer. And there is not one iota of coincidence in there. Yellen works for those banks.'

[Ruphus]

Us qe

Quantitative Easing of the US cost about $4 trillion. The Social Security Trust Fund is expected to peak at around $3 trillion in 2021.

I wonder if the QE monies would have been better spent somehow lowering the retirement age for social security benefits. Being that jobs are being abolished due to technological efficiency we could employ younger workers by letting older ones retire earlier.

It seems everything is so exponential, especially population growth, that currency availability must be also. Shouldn't we expect the exuberant printing of cash just to keep up with population growth year after year? This must be the reason past currencies have failed. They did not have the ability to keep up making money versus population growth. Currency in the US is darn near digital now. A digital currency could easily keep up with population growth, but it would be based on nothing but what the GOV said. Currencies would be traded based on interest rates. Instead of a birth certificate you would get a $10000 credit card in your name. Married couples would get a credit for NOT having children.

It's strange to think about!

[Ruphus]

Interest rates

It seems that the FED has two options, raise interest rates and crash the market completely or raise interest rates and pop the bubble then lower rates again. The latter would need to be done over and over. The only hope of a real monetary recovery must come with help of the GOV to raise interest rates from the back door with a significant tax increase and then not spend it. This should wean money from the stock market but still have liquidity for the dollar. But this would hurt the economy and no politician would raise taxes most likely. So USD is pretty screwed from all sides. Do you see any possible way out of this mess?

Also this was pretty informative:

Money for Nothing

It helped my pea brain anyway. Although it looks like it bashed the FED and Greenspan, it is probably the opposite. I think it may be a propaganda piece that will be used to calm the masses when interest rates go back up in the 20% range. I can hear it now..."It's something that must be done, we've had to do it before...yada yada yada IT's FOR THE CHILDREN!!!" Sell your stocks and gold and other assets , me thinks cash will be king soon enough.

[Danny B]

too many cnsumers, not enough warm-blooded producers

Ruphus, there is an inescapable duality to all of this. The biggest stumbling block is human nature. We / you can NOT assume that all people are like you / me. If I gave Eric Dollard $1 million, he would build his earthquake detector. I went up to see him in Lone Pine to make sure that he didn't expire from poverty.
If you gave $ 1 million to many people, they would quit their job and kick back.
All organisms have a natural tendency to conserve energy. Given open-ended financial support, most people would stop producing. I've been to the aboriginal reserves, the ghettos, the Indian reservations, and the Eskimo communities that receive endless money from the Native Lands Settlement Act Men base their self-worth on how good a producer they are. Take that away, and they drink,, or worse.
Suppose that all work was done by machines and robots. What would the average man do?
If you read the CAFR reports, you see that GOV has charged us $ trillions that it didn't need for any particular purpose. They want to keep us producing. The whole country could be run on the labor of just a few. What would the rest do?

The money supply is growing at three times the rate that the productive economy is growing. There is plenty of money but, it is all locked up in the financial system. Kids are expensive and the growing poverty is driving down the birth rate;

https://zgeography.wordpress.com/2013/03/18/list-of-countries-currently-experiencing-population-decline/

More and more of the production is done by machines that are NOT consumers,, except for energy. 22 Billion Energy Slaves
At the same time, we are going into a demographic crash where the old are no longer producing and highly outnumber the young.
It's a real mess because there just aren't enough producers who are also consumers. Lots of consumers,, falling number who are also producers.
Our capitalist system ONLY wants to reward consumers who are CURRENT producers. Even the companies listed in the S&P 500 are many $ billions in arrears in funding their in-house pensions.

[Danny B]

safe haven dollar and emerging markets

The dollar is going higher and higher. This has happened before and it is always a sign of great turmoil. http://static1.businessinsider.com/i...924/dollar.png
While the dollar is not money, it has been the best currency for the last few decades. Strong dollar is a signal of a major market event rate hike - Business Insider
Every taxi driver and shoeshine boy knows that we are close to a bond market crash. Lots of currency is running to the "safe haven" dollar. There was about $ 9 trillion in carry trade that must be serviced,, at the same time that dollars are fleeing emerging markets.
Should the FED hike rates, this would put an enormous strain on emerging markets.
Naturally, this would cause a crash of derivatives on this $ 5.7 trillion in off-shore dollar loans.

[Danny B]

ZIRP and the end of ZIRP

The FED created ZIRP to save the banks. This transferred about $ 400 billion a year,,, lost to savers as missing interest,,, to the banks. What else?
The pension funds base their actuarial tables on 7--8 % interest return. CALPERS is one of the best run funds and they managed 1%, not adjusted for inflation.
The hedge funds haven't been able to make any money except by going to the very risky junk-bond market.
Insurance funds haven't been able to make any money either.
The stock market hasn't returned any more than just siting in cash.

7 years of ZIRP is wiping out everybody but the banks. The FED knows that any rise in interest rates will have a BAD effect on a few hundred $ trillion worth of interest-rate-swaps. The FED is also very aware that ZIRP is killing major parts of the financial industry. There has been talk for years about raising the prime interest rate. Nobody believed it because it would be so destructive. The talk is taken seriously now because the collateral damage from ZIRP is getting so bad.

Suppose that the FED raises the interest rates on bonds. YOU hold a 1% bond and treasury is selling 2% bonds. Who will want your bond?
The total amount of bills, notes and bonds as treasury securities is $ 7.3 trillion. The bond market trades $400 billion a DAY .Armstrong says that the sovereign bond market will collapse. What happens when $ 400 billion does NOT trade every day?
What Are U.S. Treasury Securities?

We're broke and getting broker.
Economist: The American Dream is Dead

[Danny B]

Debt Forgiveness In History | House of Debt

The modern view is that you NEVER forgive debt.
The Modern Debt Jubilee | Zero Hedge
In the case of Greece, the Troika loans new money + interest so that Greece can pay back old loans. This stupidity postpones default.
The PTB have worked to enforce the idea that no lender EVER suffers a default. They reward stupidity on the part of the lender.

The CBs are producing ever-more currency while the producing economy is producing ever-less wealth. GOV /bankers steal our income by blocking price depreciation and raising taxes. Now, they suddenly discover that we have insufficient purchasing power. Their solution is to have us keep spending and have our kids indentured to them for the rest of their lives. We refuse to take on more debt so, GOV does all the spending and signs our name to the bill.

In a perfect world, the producers would get interest-free loans. This is the fastest way to increase total wealth without increasing the debt burden. The speculators would have to pay interest.

[Ruphus]

Thank you again for your time here Sir.

Can you explain derivatives in layman's terms and then give an actual example?

It seems like a bet on a bet, like hedging somehow that Google will have earnings of 43 cents a share in the 3Q 2016. Is that what it is?

[Danny B]

Derivatives

Plleeeeaaassseee, don't call me sir. I work for a living
"Derivatives are types of investments where the investor does not own the underlying asset, but he or she makes a bet on the direction of the price movement of the underlying asset via an agreement with another party."
Derivatives 101
The other party could be the man-in-the-moon and the bet could be on the future cost of green cheese. There is no connection to the underlying commodity or debt that the bet is based on.
You could sell your house and 20 people can come along and make a bet with other people as to whether or not you pay for it. It is legitimate to hedge your bet with your investment. Hedging every bet in creation was just a way to generate fees when the banking business was too crowded and insolvent.
When interest rates were at their lowest, various parties bet that they would stay there indefinitely. At one time, there were $ 441 trillion in interest rate derivatives. The banks figured that, if they lost, the FED would bail them out.

[Danny B]

No collateral and ,, people just don't want to work

Everyone and their dog is printing currency and bonds. This represents real wealth if it is backed by things that people want AND can buy. If it is not backed, it is faux wealth. The tangibles are called "collateral". The ECB has almost no collateral to back it's issuance of new bonds.

http://www.zerohedge.com/news/2015-03-15/full-explanation-how-ecb-broke-europes-bond-market

People can't buy stuff anyway because they don't have jobs.
The Bureau of Labor SOne Last Look At The Real Economy Before It Implodes - Part 2

The really scary part is that; post ? depression it may be impossible to get a job. 70 Million Americans Could Lose their Jobs in the Next 10 years | Shenandoah

[Danny B]

U.S. Treasury Drops a Bombshell Yesterday: “Quicksilver Markets”
They aren't the only ones who are nervous. "So now we have five billionaires and the BIS all flashing warning signals which can only mean one thing: stocks"

http://www.zerohedge.com/news/2015-03-17/billionaire-hedge-fund-manager-fears-sudden-profound-pervasive-loss-faith-deja-vu-gl

"ECB Prepares For Grexit, Anticipates 95% Loss On Greek Debt"

http://www.zerohedge.com/news/2015-03-18/ecb-prepares-grexit-anticipates-95-loss-greek-debt

What does 2 sigma quicksilver look like?
So, investors in Greek debt will get a haircut of 95%. Does that qualify as "decapitation"? What about the people who hold derivatives on Greek debt?

[Danny B]

The DEA Is Seizing Cash Without Warrants In Its Version Of Stop-and-Frisk - ForbesTreasury Secretary urges IMF and World Bank to remain tools of US foreign policy

http://www.zerohedge.com/news/2015-03-20/justice-department-rolls-out-early-form-capital-controls-america