House of Cards – Will It Collapse?

“Wolfgang” posted on the Jim Sinclair website the following in regard to markets, the Fed, QE, bonds etc.  I think he summarized it nicely.

MARKETS: 

“You have to understand one thing… in the past, all markets were, generally and as a rule, based on supply and demand driven by investors (both institutional and retail).

Today the Fed is involved in all markets hoping to keep prosperity alive (a ridiculous notion that every capitalist and Austrian economist believes is nothing more than voodoo economics).

Therefore now, more than ever before, all markets are interconnected when it comes to pricing.

The Fed is monitoring and toying (manipulating) with the dollar, interest rates, stocks, bonds, oil, etc.

But, if you know their plan, their objective, it can be beneficial in making investment decisions. Below you can see how interrelated everything has become. The Fed doesn’t know how to get out of the corner they painted themselves into.”

GOLD:

“Gold: Not so good an investment until the Fed loses control (dollar collapses, inflation roars upward, bond market collapses, etc.)”

DOLLAR:

“Dollar: Shouldn’t rally much more or else US multinational corporations lose too much money. Also, the ensuing deflation will overcome our economy.”

OIL:

“Oil: Although many claim oil can drop to single digits, if the Fed were to allow that to happen, the NAT GAS and OIL fracking companies would go bust and default on trillions of bank loans, causing a global financial crisis.”

BONDS:

“Bonds: Fed has been the main buyer of all newly issued treasury bonds. If the bond market collapses, who will buy from all the sellers if the Fed doesn’t print more money to take up the slack.”

INTEREST RATES:

“Interest rates: If the Fed wants to raise interest rates significantly to stop any upcoming inflationary spiral, they risk increasing the rates on all Treasury Bond issuance!  This means they’ll have to pay more interest on their debt, putting them even deeper in the hole. We already have $18+ trillion in debt. Just figure out what each 1% means in terms of increased interest expense for the Treasury!”

DERIVATIVES:

“Derivatives: A quadrillion in outstanding derivatives today. Much of that based on interest rates. If interest rates were to rise significantly, there would be massive defaults causing another global financial crisis.”

STOCKS:

“Stocks: The Fed is trying to keep the stock market up for the benefit of the public (really the benefit of the rich) and create a feeling of optimism among the public. All the QE over the past few years has gone into the stock market and bond market and keeping interest rates low. If they take it away, those markets will crash. Therefore it appears they must keep printing.”

**********

The Fed, and other central banks, MUST keep “printing” … but if they DON’T keep “printing” … what could happen?

  • Global economies descend into stagflation or a depression.
  • Global economies become erratic and volatile.
  • Debt overwhelms most western economies.
  • Most people live through difficult times.
  • Wall Street will beg for more QE, more “money printing,” and another “helicopter drop” of central bank fiat currencies.
  • Desperate businesses and individuals will act accordingly.
  • Most people will be unprepared as many paper assets crash and burn.

Like soldiers running for cover under enemy fire, some investors will seek protection in gold and silver.

To maintain confidence and the illusion of growth central banks must continue to inflate the bond, equities, and currencies bubbles.  Expect more debt – lots more debt as central banks feed monetary heroin into their economies.  The inevitable result of too much debt is a crash or reset.

From Bob Moriarty of www.321gold.com

Complex systems always fail catastrophically.”

From Bill Gross:

“Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment super cycle may be exhausted.”

“Their ‘New Normal’ [normalization of 2% growth and 2% inflation] as I reaffirmed most recently at a Grant’s Interest Rate Observer quarterly conference in NYC, depends on the less than commonsensical notion that a global debt crisis can be cured with more and more debt.”

“When does our credit based financial system sputter/break down?  When investable assets pose too much risk for too little return.”

“Hogwash.  This is all ending.”

 

Read:          Secular Investor  Negative Interest Rates:  Financial Black Hole

Andy Hoffman     De-fiatization

Bill Holter:             The Money Has To Go Somewhere

My thought:  It is unwise to scramble in front of an oncoming steam-roller in search of dollar bills when real money, gold and silver, is still available at “bargain” prices.

 

Gary Christenson

The Deviant Investor

15 thoughts on “House of Cards – Will It Collapse?

  1. By legalizing the Ponzi scheme concept, Ben Bernanke unwittingly created the ultimate virtuous circle which has worked as he hoped and will continue working until it no longer does. Yellen can enable the perpetuation of the appearance of prosperity by implementing 3XPonzi, but requiring that while half the money can remain in bank coffers to keep them solvent, the other half must be distributed among the populace for the purchase of the requisite food, clothing, shelter and toys to allow their participation. Our children and grandchildren will have nothing to worry about but our great-
    great grandchildren and theirs will have had sufficient experience with the system to elect politicians who aren’t hypocrites and only the top 1% will have to work.
    construct an exit.


  2. Surely China will announce sooner or later that they actually have lots of gold, maybe even 10-20,000 tons? Better have made your preparations by the time of this announcement!


  3. I am discouraged by the fact that one of the greatest economies of all time is being brought to its knees by incredible fools that have been elected and re-elected by another group of fools. There is no way to avoid the inevitable outcome of the work of fools over decades. And in the shadows are waiting the fascist opportunists like Obama, etc waiting to pick up pieces of America for exploitation. If folks thought the Nazi regime was horrific, wait until Der Fuhrer Obama assumes total control.


  4. As noted above, it is unlikely in the extreme that central banks will stop creating currency and because of positive interest left in the market the creation must increase. With this assumption it would seem of greater interest to focus on the dynamic of continued currency creation and acceleration with ongoing attempts by the Fed/governments to direct that currency out of circulation to ameliorate price inflation while allowing their monetary inflation. I contend that losing control of the ability to direct the new currency away from circulation and “lock up” price inflation will be the dynamic to effect the population in general. When the currency leaves the ledger page and touches real life goods and services is the point where “johnny lunchpail” will feel it and react.


  5. Way before the dollar crashs ,way before the U.S.A. becomes a third world country, our government will take all the 401K money. When that and pensions are exhausted we will unleash the military to do whatever to ensure that we do not lose our country. There is no way the country wih the greatest military ever will let us be conquered. That is why I do not think the gold hedge will ever come into play.



    • Rick, I’m sorry, you don’t understand money and you’re deluded. You’re thinking of money in the classical sense where money had intrinsic value–value in its own right. Today, money is credit, created out of thin air when the bank makes a loan . There isn’t anything of value in 401Ks and pension funds to take. It is just digits on a computer indicating that your account has so many dollars available for you to spend. It’s not the money that’s valuable but the goods which money can buy that’s valuable. Zimbabwe had plenty of money in circulation, but it couldn’t buy anything (goods), so the money was worthless. Paper money is the ultimate Derivative.

      The government, you and your neighbor are in direct competition for ‘goods’. Taking your 401k or your pension fund will limit your ‘demand’ for ‘goods’ as money rations the supply of scarce ‘goods’. But the government can print any amount of money to buy ‘good’, to bid them away from you. Also, they can just take it through force. Why, then should they take your 401k and pensions when it would only make you angry and threaten their legitimacy? They’re stealing it through inflation, anyway.

      What makes you think that the greatest military can’t be defeated, when history has shown it to be otherwise.
      Or, that the military may dissolve on it own as happened to Rome? What make you think that the military will serve you and not the government or elite? You need to rethink this.



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