The Smell of Collapse is in the Air – Part 2

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Read The Smell of Collapse is in the Air – Part 1 and Part 3.

CAUTION! Before you continue…

  • If you believe that total government debt can grow FOREVER and more rapidly than the underlying economy, this article is NOT for you.
  • If you believe that governmental deficit spending, QE, and bond monetization can continue FOREVER without major consequences, this article is NOT for you.
  • But if you are sane enough to know that our current economic policies will produce a “train wreck,” read on…

The U.S. economy is being overwhelmed by a loss of faith and trust in politicians, government, and bankers, excessive debts, artificially low interest rates, unsustainable deficit spending, expensive wars, QE (money printing) to infinity, “Inflate or Die” monetary policy, potential derivatives implosion, Obamacare and so much more. A slow-motion collapse is occurring and most of us do not see it. Consider these thoughts from insightful writers:

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Collapse Indicated by Stalling Growth in Global Financial Reserves

Hugo Salinas Price:

“As it is, the US can only continue to monetize government debt. Higher dollar interest rates are inevitable and will cause further government deficits; the debt overhang in both the US and Euro Zone is so great that a rise of a few points in interest rates will explode the deficits, and so on and so forth.

Bottom line: Stalling growth in International Reserves tells me that a world financial collapse is in the offing.

Collapse Indicated by Loss of Trust in Western Economic Systems

David Stockman:

“There is no honest pricing left at all anywhere in the world because central banks everywhere manipulate and rig the price of all financial assets. We can’t even analyze the economy in the traditional sense anymore because so much of it depends not on market forces, but on the whims of people at the Fed.”

“The Blackberry Panic of September 2008, in which Washington policy makers led by former Goldman Sachs CEO Hank Paulson, panicked as they saw Wall Street stock prices plummet on their mobile devices, had very little to do with the Main Street economy in the United States. The panic and bailouts that followed were really about protecting the bonuses and incomes of very wealthy and politically well-connected managers at banks and other heavily leveraged businesses that were eventually deemed too big to fail. What followed was a massive transfer of wealth from the taxpayers and middle-class savers, in the form of bailouts and zero interest rates on bank deposits imposed by the Fed, to the so-called One Percent.”

I think the political realities of the situation make the most likely scenario one in which there will be some kind of real financial collapse and disorder that will require a total reconstruction of the system.

The Burning Platform:

Despite the frantic efforts of the financial elite, their politician puppets, and their media propaganda outlets, collapse of this aristocracy of the moneyed is a mathematical certainty. Faith in the system is rapidly diminishing, as the issuance of debt to create the appearance of growth has reached the point of diminishing returns.

“We are witnessing the beginning stages of political collapse. The government and its leaders are being discredited on a daily basis. The mismanagement of fiscal policy, foreign policy and domestic policy, along with the revelations of the NSA conducting mass surveillance against all Americans has led critical thinking Americans to question the legitimacy of the politicians running the show on behalf of the bankers, corporations and arms dealers.

“We are supposedly five years past the great crisis. Magazine covers proclaimed Bernanke a hero. If we are well past the crisis, why are the extreme emergency measures still in effect? If the economy is growing and jobs are being created, why do we need $85 Billion of government debt to be monetized each and every month?”

“Just the slowing of debt creation will lead to collapse. Bernanke needs a Syrian crisis to postpone the taper talk. Those in control need an endless number of real or false flag crises to provide cover for their printing presses to keep rolling.”

Bill Fleckenstein:

“Since April, the 10-Year has gone from about 1.6% to as high as 3% recently. Now we have to see when this rally in bonds stops. The bond market will then roll over and then the Fed won’t have the tapering as an excuse. It means the bond market has ceased to price in the scenario that the Fed wants, and the bond market is not responding to the Fed’s moves in the short-run. In the old days we would call that ‘losing control of the bond market.’ And if that starts to happen, all hell is going to break loose.”

Michael Pento:

“The 10-Year went from 1.4% to 3%, and that made Mr. Bernanke panic. The average on that (10-Year) yield is 7% in the modern era since 1971 when we closed the ‘gold window.’ So, if the average is 7%, and the United States of America, this once great land, can’t (even) tolerate a 3% yield on the 10-Year Note, that means the Fed can never unwind QE.

That’s enough to cuff Mr. Bernanke’s hands. So the Fed is indeed trapped as you indicated. They cannot significantly bring down QE. That means a perpetual increase in the Fed’s balance sheet. That (also) means an inexorable rise in asset bubbles like stocks, bonds, and real estate, and it’s going to end (very) badly.

Hank Paulson Interview:

“Paulson believes there will be another financial crisis.”

“It’s a certainty. As long as we have markets, as long as we have banks, no matter what the regulatory system is, there will be flawed government policies. Those policies will create bubbles.”

Alternate Interpretation: As long as we have Treasury Secretaries who represent the interests of Goldman Sachs and Wall Street bankers instead of the US economy, then we can be certain of another financial crisis.

Collapse in Retirement Income

Dennis Miller:

“While the Federal Reserve holds down interest rates and floods the banking system with money, it’s destroying the retirement dreams of several generations. The Employee Benefit Research Organization reports that 25 – 27% of baby boomers and Generation Xers who would have had adequate retirement income – under return assumptions based on historical averages – will run out of money if today’s low interest rates are permanent.”

In addition to the problem of low yielding investments caused by the historically low interest rates created by the Fed, even more retirees will run out of money, much sooner, when the inevitable inflation in food and energy prices smacks the U.S. economy, and especially retirees.

Discussion

  1. It seems clear that we are losing faith in our politicians, our leaders, and our financial systems. Approval levels for congress and the President of the United States are low. Too-Big-To-Fail banks and “banksters” are despised and openly criticized.
  2. The Federal Reserve is losing credibility; more and more people are realizing that QE is good for the bankers and the wealthy, but that it does little for “Main Street” people except drive up the prices they pay for food and energy.
  3. The American public is generally opposed to war in the Middle East but that seems to matter little to the political and financial elite who will profit from the war.
  4. Most people, so it appears, know that inflation is much higher than officially stated, and that inflation will become far worse than it is today. (When was the last time you saw a cup of premium coffee or a gallon of gasoline for less than $1?)

Consider this verse from “Desolation Row” – by Bob Dylan (in the 1960s). Does it describe our currently collapsing financial and political systems?

“They’re selling postcards of the hanging
They’re painting the passports brown
The beauty parlor is filled with sailors
The circus is in town
Here comes the blind commissioner
They’ve got him in a trance
One hand is tied to the tight-rope walker
The other is in his pants
And the riot squad they’re restless
They need somewhere to go
As Lady and I look out tonight
From Desolation Row”

Read more from Desolation Row.

Read: This Crazy Extend & Pretend Economic World
Read: Going Dark! Economic Cycles Point Downward

GE Christenson
aka Deviant Investor

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4 thoughts on “The Smell of Collapse is in the Air – Part 2

  1. It can easily be fixed by a properly managed Medium of Exchange (MOE). First, know that “money” is “a promise to complete a trade”. This meaning is obvious in examining trade.

    A trade is made up of three steps. (1) Negotiation; (2) Make a trading promise; (3) Deliver. In simple direct barter, (2) and (3) happen simultaneously on the spot. Money allows (2) and (3) to happen over time and space.

    Money is a certified trading promise. It is certified and monitored by the MOE manager. The money is created and freely given to the trader. When he completes his trade, he returns the money and it is extinguished. If he fails, he DEFAULTS (and a rollover is a DEFAULT). DEFAULTs leave invalid trading promises in circulation. That circulating money must be recovered to protect the marketplace and the other traders. This recovery is made with INTEREST collections. These INTEREST collections precisely equal DEFAULT experience.

    The governing relation is: INFLATION = DEFAULT – INTEREST. The object (and only acceptable result) is for INFLATION to be zero everywhere all the time. The effect is responsible traders pay zero INTEREST.

    Notice, since money is just an in-process trade, the supply and demand is “always” in perfect balance. There are no supply and demand issues for the money itself.

    This type of MOE management should be carried out by the Treasury Department, not by a collection of international bankers who call themselves the Federal Reserve.

    To get this done, a Constitutional amendment is required. And that will take 10 years if we started today.

    Todd Marshall
    Plantersville, TX


    • I agree. I think you have described it perfectly. And what you described would eliminate much of the financial world, so it is an understatement to say there will be resistance from Wall Street and the millions of people they have “bought off.”

      GE Christenson
      aka Deviant Investor


  2. Everyone is looking for the bubble in precious metals to start. Very few folks have correctly prediced bubbles. The fact is we are somewhere in the biggest stock market bubble in history.

    Those who held stocks or bought in March of 2009 are the ones who rode the bubble.

    Too many folks are predicting a gold bubble while the price seems to be looking for a bottom, not a top.


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