When the “Wealth Effect” Bubble Cracks

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“In psychology, cognitive dissonance is the mental stress (discomfort) experienced by a person who simultaneously holds two or more contradictory beliefs, ideas, or values, when performing an action that contradicts those beliefs, ideas, and values; or when confronted with new information that contradicts existing beliefs, ideas, and values.” – Cognitive dissonance, Wikipedia

 

It is now February 2017. Everything continues in slow motion in US stocks, with the other global equity markets playing the same tune. It is though nothing could send stocks into a bear market again….at least that is the impression the markets are giving the public emotionally.

In other words, why worry or think? If we look at “negative” financial information, it can create stress.

Yet, headlines like these make us uncomfortable with our “never decline” stock market images as other financial bubbles are cracking around the globe. One every American with money in the Dow 20,000 bubble should consider is the China property bubble.

China Makes Curbing Property Bubble A Priority in 2017, Nikkei Asian Review, Dec 17, 2016

 

China Tightens Monetary Policy Via Repo- Rates Rise, MarketWatch, Feb 3 ‘17

A couple of years ago I walked through a big home supply store where I live, seeking to see where items were made. I went down aisle after aisle. By far the largest country making products for this store was China. I looked at products in others stores and found similar results.

So when the Communist government in China seeks to deflate their property bubble followed a few weeks later by actions tightening credit and raising interest rates, I pay close attention.

The reason is simple. The two nations depend on each greatly.

If you create trillions in new debt across the nations of the world to levitate asset prices and stimulate your economy, eventually lending rates rise and those projects that came from that torrent of debt must be sustainable on its own. Otherwise prices must adjust downward as credit tightens, bad loans rise, and spending slows.

But this outlook is not happy. In fact, it’s sobering. We had rather seek information that fits the narrative we want to believe.

As long as the “felt wealthy” game continues, we come to trust in the “wealth effect”. And why shouldn’t we? These words were spoken by Chairman Bernanke in the fall of 2012.

Fed Seeking to Create Wealth, Not Just Cut Rates, Yahoo News, Sept 14 ‘12

 

The idea is for the Fed’s $40 billion-a-month in bond purchases to lower interest rates and cause stock and home prices to rise, creating a “wealth effect” that would boost the economy.

 

And “if people feel that their financial situation is better because their 401(k) looks better or for whatever reason — their house is worth more — they’re more willing to go out and spend,” Chairman Ben Bernanke told reporters. “That’s going to provide the demand that firms need in order to be willing to hire and to invest.”

If you went out and borrowed money to buy a house, car, new clothes, and take a vacation, would you FEEL successful? Could you LOOK successful to others around you, many even doing the same? So what is the problem with such actions, especially if the state (i.e. Federal Reserve) creates trillions in debt out of thin air to alter our perceptions?

Easy. You are front running the economy with trillions in cheap debt that at some point, must be paid back, rolled into a new loan pushing out the debt further, or default.

A year ago, Richard Fisher, former President of the Federal Reserve Bank of Dallas, told the public the “wealth effect” was not a sustainable plan.

“What the Fed did, and I was part of it, was front-loaded an enormous market rally in order to create a wealth effect.” [‘We Front-Loaded an Enormous Stock Market Rally’, Seeking Alpha, Jan 7 ‘16]

But this story is not solely from the actions of the Federal Reserve; this story, fostered by the People’s Bank of China, created the largest expansion of debt of any nation in world history.

China’s total debt stock more than tripled between 2000 and 2007 and quadrupled from 2007 to 2014. This was a $26 trillion increase. As debt flooded the nation in projects that were totally unsustainable from the start, the drag from this debt and rising delinquent loans continues to slow their economy. When we consider that roughly a third of global debt growth between 2007 and 2014 came from China’s historic debt explosion, what happens in China will impact the rest of the world? For the United States and China to be so closely dependent on each other, the a collapse of their property bubble will impact Americans.

To have China front run their economy with massive sums of debt, while the Federal Reserve did the same through QE policies since 2009, severe consequences must come.

 

The Unreal, Eerie Emptiness of China’s ‘Ghost Cities’, Wired, Feb 4 ‘16

 

“Cities and districts built without demand or necessity resulted in what some Chinese scholars have termed, literally, ‘walls without markets’,” says William Hurst, political science professor at Northwestern University. …“Political exigency and investment hysteria trumped economic calculus or consideration of genuine human needs.”

 

Top China Credit Analyst Says Bad Debt Ratio May Hit 22%, Loan Losses in Trillions, Bloomberg/Contra Corner, May 25 ‘16

Tighter credit conditions are coming everywhere we look. The Dow 20,000 is a way to keep investors and Americans living in the “wealth effect” until the “debt effect” from such policy cracks our complacency.

For now, we continue watching the biggest stock bubble on record, placing our “faith” in more corruption of markets through constant actions by global central banks.

Shhh, don’t wake us. Facing another bust only creates cognitive dissonance.

A Curious Mind

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Cash Removed Hits India

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It is now November 2016. By 2024, we will wonder how we could ignore so many warnings. The way we receive our news as Americans, I doubt most individuals know anything about what has taken place since November 8th in India. Our focus, and it certainly is very important, has been on our national elections, especially the President. However, what has been going on in India is important to everyone seeking to understand historical trends in the world of money and their impact to our lives if these trends are not altered.

This is a major event in the continuing move toward a global cashless society.

I was alerted to this story by a colleague of mine who grew up in India.

For us in 2016 we certainly see the world around us becoming more cashless, but removing large amounts of cash from use? Maybe in the movies, but real life? For the world in 2024…well, looking back everyone could have a very different view by then.

Good Morning, Hand Us Your “Big” Bills

I started my day like any other, reviewing my emails and various news sites. When I opened the email from a member of one of my Austrian economics chat groups, I was immediately curious about two of his recent writings on what the people of India were experiencing with their own money since last week since he was Indian.

I have linked both of his articles in this post – contain videos as well – and would encourage anyone to read them and watch some of the videos. This is a huge deal, yet as is common in my country, America, the majority know nothing about these developments or how this could impact our lives in the future.

This is a condensed version of events. We start with the day one after the Prime Minister’s announcement.

Last night (8th November 2016), India’s government banned the use of Rs (rupees) 500 (app. $7.50) and Rs 1,000 ($15) banknotes. This pretty much made most currency – in – use illegal. Banks and ATMs are closed today. The government believes that doing this will help eradicate corruption and push counterfeit money out of circulation. According to the Indian government, the counterfeit money tends to come from Pakistan and helps finance terrorism.

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India being the second most populated nation behind China should tell the world that we should not take this is merely some random event that has no relevance to our own lives. India is also a member of BRICS, a group of nations that have been gaining financial clout as a group on the world stage for more than a decade. Collectively their populations make up over half the global population and 22% of global gross domestic product. In 2014, the group launched The New Development Bank.

‘BRICS’ nations to form development bank to rival World Bank, IMF, LA Times, 7/15/14

We return now to recent events, where we see that corruption is increasing, not decreasing from the government’s actions.

Those who find themselves stuck with high denomination bills today, must accept as little as Rs 700 in usable currency for every Rs 1,000 of banned currency.

 

At least theoretically, people can still use the otherwise banned bills at hospitals, gas stations, pharmaceutical shops, and train stations. As one would expect in India, these places have been converted into corrupt currency-exchange shops as of today.

 

But for most legitimate uses, none of these organizations are accepting the otherwise banned instruments. Why should they, when they can force customers to pay in the still-legal currency and then buy the banned instruments for Rs 700 for every Rs 1000 in face value, making a neat 43% extra profit without doing anything?

So much for slowing down corruption. But it gets worse.

Today, there is utter chaos in the market, with only the spontaneously erupted black market available to bypass the ban – most people simply don’t have anything else but the banned currency bills. Some are booking train tickets for future rides and are subsequently canceling them – they can use the banned currency to buy the tickets and can then get legal currency back after ticket-cancellation charges. This is costing people a lot of time, but it is the only way they can stay afloat and buy food. Others are taking different measures, equally desperate.

 

By any sane person’s reckoning, corruption has skyrocketed for the moment. So has gold (in some places physical gold had reached US $2,294 per ounce). Those who run businesses have lost whatever remnant of trust in the government they still had. In recent months several businessmen have confessed to me that they are closing down because the state has become increasingly heavy-handed and bureaucratic. Contrary to what the World Bank and IMF are saying, India is suffering economically. Its institutions are crumbling.

The comments above by an Indian, were written the morning after their Prime Minister banned the 500 and 1000 bills from circulation, these two bills representing 86% of the nation’s cash in circulation.

The following news report from Bloomberg makes it clear that forcing the people to change their old bills for smaller bills when the larger ones were this widely used in daily business is having drastic effects on the people.

The shortage of cash has started to hit movement of goods as well. More than half of an estimated 9.3 million trucks under the All India Motor Transport Congress have been affected as drivers abandon vehicles mid-way into their trip after running out of cash, according to Naveen Gupta, secretary general of the group. India’s roads carry about 65 percent of the country’s freight.

My colleague from India’s second article, dated November 16th, supports the comments above from the Bloomberg article.

Today India is on the verge of a major social-political crisis, unless either the government backs off from the decision of banning the currency or some real magic happens. There is chaos in the streets and daily life is slowly but surely coming to a full halt. …

 

That same afternoon (first day banks opened), I went to the post office with a friend who wanted to get his money converted. After waiting a long time there, we found out that the post office had run out of cash. Since then most ATMs have had limited amounts of cash available and banks keep running out of cash as well.

 Remember Greece last summer? The picture below was posted in the July 2015 post, Optimism Didn’t Help Greeks or Chinese.

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From Greece in July 2015 to India in November 2016.

New Delhi: People queue up at out side of banks ATM to get money in New Delhi on Sunday. PTI photo by Vijay Verma(PTI11_13_2016_000071A)

New Delhi: People queue up at out side of banks ATM to get money in New Delhi on Sunday. PTI photo by Vijay Verma(PTI11_13_2016_000071A)

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As human beings, may we never forget that terms like GDP, inflation, QE, and interest rates, remove us from the human drama of those hardest hit in the midst of such a financial hurricane. May we remember that this is a story about daily human life and seek to make a difference, even if we touch only a few lives in these growing financial storms around our world.

97% of the Indian economy is cash-based. With 88% of all outstanding currency no longer usable, the economy is coming to a standstill. The daily-wage laborer, who leads a hand – to – mouth existence in a country with the GDP per capita of a mere $1,600, no longer has work, as his employer has no cash to pay his wages.

 

Half of India’s citizens do not have a bank account and around 25% do not even have an ID card. These are the country’s poorest people, who have no way of converting their money – even if they learn how to do it, which is already a nigh insurmountable hurdle. Also, those who are old, disabled or sick have no choice but to suffer, for without personally visiting a bank branch office, one cannot convert one’s banknotes.

Like cages full of birds their houses are full of deceit; they have become rich and powerful and have grown fat and sleek. Their evil deeds have no limit; they do not plead the case of the fatherless to win it, they do not defend the rights of the poor. – Jeremiah 5:27-28

The righteous is concerned for the rights of the poor, the wicked does not understand such concern.  – Proverbs 29:7

 

A Curious and Caring Mind

 

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Trillion Dollar Pictures

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To the World of 2024,

It would appear that our time in this maddening central banking experiment is ticking down. For that reason, I am going to post pictures with few comments until history gives us world headlines to post.

First is a picture from news service Zero Hedge, comparing the size of the derivatives book of banking giant Deutsche Bank in September 2016 with the Gross Domestic Product of the entire nation of Germany and the GDP of the entire European Union. [The Run Begins: Deutsche Bank Hedge Fund Clients Withdraw Excess Cash, 9/29/16]

germangdp_eugdp_db-derivaties-sept9-16-zh

Next, is a chart from Tom Fitzpatrick of Citigroup just released. Once again, the source was a post from Zero Hedge. [The Chart That Give Citi “The Chills”, Oct 10]

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The third picture reveals that on August 12, 2016 world markets saw THE lowest yield on the 10 year British Gilt ever in history, records spanning more than three centuries. These yields have risen sharply (prices falling) since then.

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My next chart shows that since reaching its all time high on August 15, 2016 (18,668), the Dow Jones Industrial Average has repeatedly stopped declining after falling to its 100 day moving average on September 9th. There is no way a worldwide crowd of investors could randomly repeat a pattern at a technical line this many times. This would make sense if powerful high speed computers halted the decline around this level repeatedly. 

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Are we looking at the final day the Dow was above its 100 day? Could price and experience change soon?

As you look at the pictures above and the postings since 2014 on this blog, you can see why I am so concerned about the world of price illusion from central banking intervention while the global economy we all live in daily continues to slow.

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Alex Weber, Chairman of global banking giant UBS, also a former President of the German Bundesbank, made these comments recently. They once again remind us that a knowledge of the financial world and history is of value, even when an experience provided by constant intervention gives us the false sense of a world without risk.

“They (central banks) have taken on massive interventions in the market, you could almost say that central banks are now the central counterparties in many markets. They are the ultimate buyers…

 

Investors have been driven into investments where they have very little capability for dealing with what is on their plate and I think that is a sure reminder of where we were in a different asset class in 2007.”

Hang on. The pressure to our thinking and feelings is rising.

A Curious Mind

 

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A New Holiday: Central Bankers’ Day

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Today is September 21, 2016.  Two of the largest central banks in the world gave press releases after their regularly scheduled two day meetings. It is not normal for two major central banks to do this on the same day, but this is what took place today.

The reason I am calling it a “holiday” is because the most common theme across investment markets at the management or trading level has become “central banks run the show”. Free markets? What’s that? We now are centrally planned with constant intervention by the state (i.e. major central banks) to make certain the public is happy with their 401k statements and rising real estate prices.

Will this grand illusion end very badly and powerfully? Could it be very soon?

Cheap Oil Has Killed Nearly 200,000 Jobs, CNN Money, August 4, 2016

Vancouver Average Detached Home Prices See Worst Slide in 39 Years, Huffpost British Columbia, Sept 2, 2016

Have we reached a place in history where more central planning, greater the debt levels, and more “assisted” markets become week by week, the MORE confident we can become that this is a much better path than when we had a more free market structure, far less debt, and “assistance” was occasional rather than constant?

Read on. Keep thinking.

The Sept 21st View Looking Back

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sept21_dow_fedrelease

Once again, the computer algos with some “assistance” kicked off another hard run back up. Will it last long? Go to a new all time high again? What is important is that we all remember that the image of central bankers bring happiness was issued on this new “holiday”.

Of course, all is not rosy for central bankers. The Bank of Japan continues having troubles getting the yen to go down according to their plans, and their stock market to climb much before stalling. Now yields on its debt have been climbing from their lowest levels in history.

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Holiday Happiness?

As you look at the chart of the NASDAQ 100 above, ask yourself, “Are stocks reflecting the comments and data that brought us into this “holiday”? Do financial markets at all time high levels reflect the REAL economy? If not, should every investor have an exit plan?

Most of the comments and charts below were pulled today, Sept 21st.

The first two tweets are by Lawrence Summers, former US Treasury Secretary and Chief Economist at the World Bank.

sept21_summers-lacktools

sept21_summers-fed-fragile

I thought these bankers “always” had another scheme to fix the problem? With the NASDAQ producing its highest levels ever today, it would appear that “the crowd” is certainly not thinking about a “shock at a fragile moment”. This NASDAQ image is of extreme confidence.

On this “holiday”, are there any “gloom and doom” naysayers who just can’t understand all the optimism central bankers have brought stock investors?

sept21_worldtrade

But what does world trade have to do with a stock market?

sept21_investmentdecline

If business investment has been slowing, why should that possibly impact our 401k statements and retirement plans?

sept21_germanycds-db

Yes, I know there are things called Credit Default Swaps which rise in price sharply if these big investors believe a company or country is on the verge of default, but why worry that one of the largest banks in Europe could be on the verge of default or nationalization by the German government? Besides, that only happens in times like September 2008 when Lehman’s filed bankruptcy and AIG was nationalized and stocks were getting clobbered.

Stocks certainly don’t seemed phased by such news today.

Could Germany Allow Deutsche Bank To Go Under, Zero Hedge, Sept 21

Meet the Riskiest Bank in the World, Business Insider, Sept 21

As we can see, central bankers have made sure at that millions of stocks investors sitting in stock funds at all time high levels will not impacted by something that happens in Europe…right?

sept21_corporatedebtdoubledsince2008

The doubling of corporate debt since 2008? That doesn’t look good? What if corporate stock prices start falling, wouldn’t the company still have all this debt on its books?

If debt were climbing faster than earnings and had reached the highest levels since 2000 this seems like something that would impact all time high stock prices, doesn’t it?

sept21_debttoearnings-highsincentury

Well, I am not going to worry or be concerned about this silly old data. My experience from trusting central bankers for the last few years has come out okay. The brokerage statement is fine. Besides, what could some manager who oversees a couple hundred billion in investments know that I don’t know? Why do I need to even think about making changes now, especially since today is a central banker’s “holiday”?

$195 Billion Asset Manager: “The Time Has Come To Leave The Dance Floor”, Zero Hedge, 9/21

One things is for certain. Central bankers have been at this a very long time. They know what they are doing. This is certainly no “experiment”, and they would never artificially push up prices to trick us into thinking we were wealthy from trillions in new debt.

World Seeing Greatest Monetary Experiment in History, Jacob Rothschild, RT, August 17, 2016

jacobrothschild

The six months under review have seen central bankers continuing what is surely the greatest experiment in monetary policy in the history of the world. We are therefore in uncharted waters and it is impossible to predict the unintended consequences of very low interest rates, with some 30 percent of global government debt at negative yields, combined with quantitative easing on a massive scale,” Rothschild writes in the company’s semi-annual financial report.

bernanke

Fed Seeking To Create Wealth, Not Just Cut Rates, Yahoo News, Sept 14, 2012

The Federal Reserve wasn’t just trying to drive down interest rates when it announced a third round of bond purchases Thursday.

 

It also wants to make people feel wealthier – and more willing to spend.

 

The idea is for the Fed’s $40 billion-a-month in bond purchases to lower interest rates and cause stock and home prices to rise, creating a ‘wealth effect’ that would boost the economy.

 

And “if people feel that their financial situation is better because their 401(k) looks better or for whatever reason – their house is worth more – they’re more willing to go out and spend,” Chairman Ben Bernanke told reporters. “That’s going to provide the demand that firms need in order to be willing to hire and to invest.”

sept20_dow2-living2024

Thank goodness we can have these holidays in celebration of our central bankers. Why would anyone be foolish enough to think these central planners of our financial markets and global economy would ever face limits in markets?

Bank of Japan Risk: Running Out of Bonds To Buy, WSJ, Sept 9, 2016

ECB Fast Exhausting German Bonds for QE Buying As Yields Tumble, Bloomberg, July 19, 2016

sept21_centralbankersbubble

sept21_fedpolicycrackcocaine

Now I am having doubts? Maybe having an “unlimited punch bowl” is not such a good idea? Maybe I should stop betting with an “all in” approach, never selling or reducing my junk bond and stock positions at these all time high levels?

Just not today. It’s a holiday.

A tired but curious mind

 

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No Worries, “They” Will Keep It Up

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To the World of 2024,

The title of this post will sound strange to everyone living in 2024. How could people all over the world come to believe that a small group of powerful bankers, central banks, could use their “tools” so that the nations of the world could eventually reach a point where the public at large did not need to be concerned about a major change in prices? No matter what negative event shook global financial markets, these “money fireman” were always standing ready to pour on MORE debt and/or use various manipulative tools to “assist” investment markets until things “returned to normal”.

Let me illustrate with a recent event for us, which by 2024 will be studied as history. It is called the Brexit. This was a public referendum where the British people voted to leave the European Union on June 23rd.  Friday the 24th produced big drops in stock markets around the world.

July21_LossesJune23

Yet the monetary fire hoses were ready, as demonstrated by comments from the big central banks listed in this article on that same Friday.

Central Banks Ready to Pump Billions into System to Calm Jittery Markets After Brexit Shock, Financial Post, June 24, 2016

[US Federal Reserve, European Central Bank, Bank of England, Central Bank Governors and Finance Ministers from the G7, Swiss National Bank, Bank of Japan, People’s Bank of China, Reserve Bank of India, and the Central Bank of the Russian Federation]

July20_Gains.SinceJune24

Four weeks later, not only have the events of June 24th been quickly erased, but they and other high risk developments over this period as seen through “the markets” can be viewed as no big deal. Risk? What is that?

This global “rescue” did not take place during the Great Recession in 2008. This did not take place in 2009 when the Federal Reserve started “temporarily” buying up toxic assets (mortgage backed securities) from the banks in order to free up credit.

This is July 2016, the 89th month since the March 6, 2009 low. It is impossible to believe that “stability” was the goal of central bankers. If the objective was to calm markets, they failed. The view of risk has now become, “This is great. Central bankers will drive up my stock investments very quickly, and if U.S. stocks, push them to new all-time highs!

Declines? What is that? ‘They’ will always keep prices up.”

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The problem, as you know, is that these major central banks have been “rescuing” the nations of the world with more debt since the Great Recession, than any time prior to 2008.

July21_Waiting

So why are there still millions of investors sitting in US stock funds at the highest prices ever recorded, when with each passing week there are myriads of reasons the dominoes should start falling?

Why Italy’s Banks Could Ignite a Eurozone Crisis, Marketwatch, 7/21/16

UK Property Funds Suspend Trading, Freeze Assets, Investopedia, 7/6/16

(Bank of Japan governor) Kuroda: Helicopter Money is Illegal, FT, 4/28/16

Something Big Is Coming: Bernanke to “Secretly” Meet With Kuroda; “Helicopter Money” on the Agenda, Zero Hedge, 7/7/16

Yen Soars, Stock Slide After Kuroda Says “No Need or Possibility for Helicopter Money”, Zero Hedge, 7/21/16

The financial industry was taught, and thus passed on to Main Street investors, the idea that no matter what happens, the American stock market ALWAYS comes back. Why study lessons from 400 years of financial history? What’s wrong with US and world debt loads’ soaring?

We have seen interest rates drop since the 1980s. In the US, the highest levels ever seen were in 1981 when the yield on 10 year US Treasuries reached 15.84. Now this month, on July 5th, the yield on the 10 year hit a low of 1.37. This low was the lowest ever in American history.

If we can all look back and agree that it was obvious that rates would fall from the highest levels on record in 1981, can we not also agree that rates at some point would rise?

While this 36 period has rewarded bond investors who have seen prices rise as yields have fallen, are these same investors considering this piece of history?

July22_HistoryofInterestRates

“The greatest of all secular bear bond markets, which began in April of 1946, and probably ended in September 1981, carried prime long American corporate bond yields from their lowest recorded yields to their highest. The yield index rose from 2.46 to 15.49% for seasoned prime issues and up to 16.5% (industrials) and 18.0% (utilities) for high-quality new issues… If a constant maturity thirty-year 2 ½% bond had been available throughout this second bear market of the century, its prices could have declined from 101 in 1946 to 17 in 1981, or 83%.” – A History of Interest Rates, Third Edition Revised (1996), Sidney Homer and Richard Sylla, pg 366-367

Having become a world where our own experience supersedes the lessons from history, how should public perception change when stocks go down, and rates rise?

July22_Dow

July22_USTreasuries36Years

In 2024, the answer will be yet another story from the annals of financial manias. Everyone will understand that “the state” could never stop investment prices from deflating, since they were the very ones whose actions and polices over inflated them since 2008.

Sadly, this has created not only enormous financial problems across societies, but reduced the critical importance of ethics in a sound financial and economic system.

“Dishonesty wasn’t really a solution, it was simply easier.” – Charles Hugh Smith, economist

“It’s not just the political system that’s rigged, it’s the whole economy.” – Presidential Candidate Donald Trump at the Republican National Convention, July 21, 2016

 

A Curious Mind

 

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The “Experience” Market Bubble

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“There is truth deep down inside of you that has been waiting for you to discover it, and that Truth is this: you deserve all good things life has to offer. You know that inherently, because you feel awful when you are experiencing the lack of good things. All good things are your birthright!” – The Secret (2007), 41 weeks in top the five NY Times Hardcore Advice List; it opens my article, Fear and Perception, released on November 1, 20017, two days after Hong Kong’s Hang Seng stock index hit its highest level ever. So much for “all good things” being a “birthright”.

 

Four months earlier, on Thursday, July 19, 2007, I released a group email to all paid and free subscribers of Best Minds Inc. The email stated the following:

“Evidence is mounting that we are in the final throes of this worldwide, credit-fueled bubble. The wobbling dominoes certainly merit the attention of all investors and advisors.”

That same day, the Dow closed above 14,000 for the first time. It began its descent the next day, but roared back up to close 8 days above this level in October 2007 before starting its downward march through what is now known as the Great Recession. It would take until February 1, 2013, and the public watching the largest ongoing bailout of global banks ever, before the Dow would once again close above 14,000.

So if investors wanted to “experience” wealth, why was July 2007 a harbinger that their wealth was about to be taken from them? Because financial facts at the top of financial bubbles are very different from financial feelings.

By July 2007 I had already seen the Philly Banking Index decline since February. I had contacted a few of my Wall Street level sources for areas I should be watching. One individual told me to pay close attention to two big hedge funds at Bear Stearns that were close to being shut down. Their total value at the end of 2006 was close to $20 billion. On July 16, 2007, the two funds were closed. One source stated that one fund’s assets were valued at zero and the second at 9 cents on a dollar.

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Two Big Funds At Bear Stearns Face Shutdown, WSJ, June 20, 2007

“Two big hedge funds at Bear Stearns Cos. were close to being shut down last night as a rescue plan developed over several days fell apart in a drama that could have wide-ranging consequences for Wall Street and investors.

Merrill Lynch & Co., one of the hedge funds’ lenders, said it would move to seize collateral — much of it mortgage-backed debt — from the two funds and sell it, according to documents reviewed by The Wall Street Journal.”

Since this is all history now, everyone can say, “Oh, I knew that the markets were going to fall.” However, in July 2007, the mood was very different.

On Sunday, July 22nd, I ran into a financial advisor at my church. He had signed up for my free educational services, so had received the group email on the 19th.

“Hey, are you still looking for a collapse?” he said sarcastically.

“We all have our opinions”, I stated, and walked off.

A few weeks later, anyone reading headlines knew we had entered a credit crisis. However, since we are wired to desire more, and the financial industry feeds the idea that every decline is merely a correction before soaring higher, by October, breaking 14,000 again was seen as normal, and looking for prices to be cut in half seen as nothing more than “naysayers”.

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However, we all know today, that history was about to change the perception of investors in 2008. By the time these comments were made by President George W. Bush to the American people, we had already seen the collapse of Bear Stearns in March and the bankruptcy of Lehman Brothers and the nationalization of AIG in September. Like today, these events did not come because there were no financial facts supporting we were living in a financial bubble in 2007, but because the feeling from rising prices built on “unlimited” cheap debt was far more “positive” while it lasted.

[President George W. Bush, The Economy & The Bailout: Primetime Address to the Nation, Washington, DC, September 24, 2008]

“Good evening. This is an extraordinary period for America’s economy. Over the past few weeks, many Americans have felt anxiety about their finances and their future. I understand their worry and their frustration. We’ve seen triple-digit swings in the stock market. Major financial institutions have teetered on the edge of collapse, and some have failed. As uncertainty has grown, many banks have restricted lending. Credit markets have frozen. And families and businesses have found it harder to borrow money.

 

We’re in the midst of a serious financial crisis, and the federal government is responding with decisive action….

 

In close consultation with Treasury Secretary Hank Paulson, Federal Reserve Chairman Ben Bernanke, and SEC Chairman Chris Cox, I announced a plan on Friday. First, the plan is big enough to solve a serious problem. Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system. In the short term, this will free up banks to resume the flow of credit to American families and businesses. And this will help our economy grow….”

It is no longer September 2008. It is now June 2016. The problems from the ultra cheap loans into the trillions that lead to the credit crisis of 2008 were never addressed. Global debt is now over $200 trillion, an increase of over $60 trillion since Q4 2007 when the Dow left its 14,000.

At the end of May 2016, the Dow is still hanging close to its all time high from over a year ago, and yet has seen two plunges from its 18,000 twice, both declines taking the Dow down over 2500 points in less than a month.

Yet even the most powerful financial organizations in the world continue to reveal that 7 years of “unlimited debt and intervention” have not created a strong growing economy.

The IMF Slashes World Growth Forecasts Again, CNBC, April 12, 2016

Global growth continues, but at an increasingly disappointing pace that leaves the world economy more exposed to negative risks. Growth has been too slow for too long,” IMF Chief Economist Maurice Obstefeld told a media conference on Tuesday, according to prepared remarks.

G7: Global Economic Growth An ‘Urgent Priority’, Al Jazeera, May 27, 2016

The leaders of the G7 group have said the world economy is an urgent priority and cautioned that a British vote to leave the European Union would seriously threaten global growth.

Act Now, Or Risk Another Deep Downturn, OECD Warns Policymarkets, Yahoo Finance, June 1, 2016

In the OECD’s (an international economic organization of 34 nations) latest economic outlook published on Wednesday, the organization said that global growth had “languished over the past eight years as OECD economies have struggled to average only 2 percent per year, and emerging markets have slowed, with some falling into deep recession”….

 

“The need is urgent. The longer the global economic remains in the low-growth trap, the more difficult it will be to break the negative feedback loops, revive market forces, and boost economies to the high-growth path. As it is, a negative shock could top the world back into another deep downturn,” Mann said.

World Bank Cuts Global Growth Forecast on Weak Demand, Commodity Prices, Financial Express, June 7 ’16

The World Bank slashed its 2016 global growth forecast on Wednesday to 2.4 percent from the 2.9 percent estimated in January due to stubbornly low commodity prices, sluggish demand in advanced economies, weak trade and diminishing capital flows….

 

The downgraded World Bank forecast follows a similar move by the International Monetary Fund, which cut its growth forecasts two months ago.

May2016_Dow

May2016_BKX

 

With all the strong concerns about the global economy slowing from the world financial organizations listed above, shouldn’t both investors and advisors be asking WHY does the Dow keep returning to its first in history 18,000 level, and ignoring headlines like the ones above?

Remember 2007 when the Dow went to 14,000 for the first time in 2007? Remember how the KBW Bank Index was dropping months ahead of the broader US stock indices. As of May 31, 2016, the KBW Bank Index, after two big drops, and two big rallies, is still down 12.4% lower than its 2015 high. Are the big banks telling everyone something?

Unlimited Debt and State Intervention Was Wrong From the Start

We are quickly running out of time to sit silent and ignore this 800-pound gorilla. We must choose between two paths. The first is to continue to ignore this problem, the lessons from the 2000-2002 and 2007-2009 collapse, and the destruction straight ahead to the lives of people all over the world. We must embrace the expansion of the state and the constant “assistance” we have seen since 2009 by central banks around the world through additional trillions in ongoing bailouts in our financial markets, even the direct actions to buy up certain markets in order to artificially inflate them for a few years.

The second is to face these real world problems. We must start quickly by talking about these problems, that will impact every individual, community, school, and place of worship across our nation, and for that matter, world.

Will we speak out? Will we sit silent? One thing is for certain, hoping for more corruption of our markets and economy by central bankers and global politicians is immoral.

The trouble is finding ways to talk about what our globalist, materialist centered world has come to believe is permanent, which never was: the path to riches from bankrupting the nations.

Everyone needs to consider the hard facts presented in one of my recent articles, When Rare Data Screams, Listen. Anyone who remembers the double-digit CD rates from the early 1980s really needs to check this one out. This is history!

image014

* 1981 – Annual high in the Dow was 1,050. US national debt crosses $1 trillion for the first time. 2015 – Annual high in the Dow hits 18,351 on May 19th. The last day of 2015 the national debt hits 18.9 trillion.

 

A Curious Mind

 

 

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Do Money Rail Lines End?

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TrainRailsEnd

Since 1971, the world has been on the train of unlimited debt. With the US dollar being removed from its gold standard, all checks against a continuing extension of the rail lines have been removed. Unlimited debt is now the “solution” to “random” financial crises caused by too much debt. “Prosperity” has evolved into a permanent rail line, or so we are lead to believe.

What individual getting on a train in California and riding to Virginia would be surprised when told they had come to the end of the line? Would they expect someone to extend the track another hundred or two hundred miles over the Atlantic? Even if that were the case and the ride was smooth for a little longer, there would be an uneasy feeling that consequences were coming.

This is not an American view, this is a world view. Anyone taking a train into Hong Kong, Tokyo, Sydney, or Rio de Janeiro would face the same problem if those lines were extended out over the ocean.

Yet this is exactly what is embedded in the minds of the public; the longer the line can be extended, the more prosperity can come from unlimited debt and state intervention.

Wilshire.NationalDebt_NationalNetWorth.April2016

We know that a business or individual is not on a long-term sustainable path by taking on more and more debt to create wealth without paying down debt. So why believe that a nation can do this? Simple. Our experience.

An Italian Rail Line

For the individual reading this in 2024, you will see clearly how this story unfolded. But today, in 2016, the majority view is that global rail lines have infinite possibilities. Yet the minority voice is getting louder as the waves of problems get higher.

January news stories showed a rising level of non-performing loans in Italian Banks, loans where payments were either behind or had stopped.

This reached a level by the end of last year not seen since 1996.

Italian Bank’s Bad Loans Continue To Mount, MarketWatch, Jan 20 ’16

According to data published Tuesday by Italy’s banking lobby ABI, Italian banks’ gross bad loans, measured at their face value, stood at EUR201 billion in November, 11% higher than the same period a year prior.

Gross bad loans were 10.4% of total loans in November, the highest percentage figure since 1996.

Had the European Central Bank (big global central bank) provided bailouts for European banks before 2016? Of course, and at levels never seen in history.

Eurozone Bank Lending Slows Despite ECB’s 1 Trillion Cheap Loans, The Telegraph, April 20, 2012

ECB Poised To Launch 1 Trillion Quantitative Easing, The Guardian, January 22, 2015

So what was the solution for extending the rail lines recently?

Next Stop on the ECB Adventure: $980 Billion in Corporate Bonds, Bloomberg, March 10, 2016

Life goes on as abnormal, right? Yes, for the time being, but now without a great deal of misinformation to the public and yields plummeting so low on European government bonds that rebellion eventually comes.

Let me illustrate.

Mish Shedlock reveals one glaring problem from laying down this recent track to prosperity by the ECB. A reader of Shedlock’s writings, “Lars”, makes this observation:

The Italian central bank has under Target2 borrowed €250 billion, mainly from Bundesbank. The loan is unsecured, not a single € in collateral. The 250 billion is then lent to Italian banks, all of them insolvent. [Is the ECB Bailing Out Banks on the Sly?, Mish Shedlock, May 1 ‘16]

Will lowering borrowing costs, pushing interest rates to negative, and artificially stimulating short term rallies fix these large financial problems?

Richard Koo, Chief Economist at Nomura Securities in 2003, made it clear what needed to be done to reboot Japan’s financial institutions after years and years of constant bailouts.

BalanceSheetRecessionThe NPLs (non performing loans) should be disposed of in an orderly and predictable manner. The pace of disposal should be determined collectively by the banking authorities and the private-sector banks to ensure that the resulting deflationary impact on the economy is minimized. [Balance Sheet Recession: Japan’s Struggle With Uncharted Economics and Its Global Implications (2003), Dr. Richard Koo, pg 273]

Anyone following the headlines knows that Japan chose to bury these loans with more debt, rather than deal with this structural problem.

 

If we look at charts of Italian and German bond yields, we see that once these “rescue” programs STARTED, government bond yields went higher, now lower. Oops.

Italy_10YearGovtBondYields.RecordLows

Germany_10YearGovtBondYields_RecordLows.April2016

How can the problem of too much debt be corrected by creating trillions out of thin air to push borrowing costs to historic lows? Yes it extends the tracks, but for how long and at what long term cost? When the time comes to sell the assets the central banks are buying, who will have a few trillion lying around to buy them? Who wants bond yields at three CENTURY lows?

image008

Shedlock presented the chart below three months ago. By using the ECB’s own data, it is clear that the 2 trillion in bailout programs announced and launched since December 2011 did not stop Spain and Italy’s banks from experiencing massive capital outflows by December 2015.

Italy’s banks experienced the highest monthly outflow of capital on record.

Flows_MishShedlock_Feb2016

[Chart from Capital Flight Intensifies in Italy and Spain; Curiously, Money Flows Into French Banks, Mish Shedlock, Feb 9 ‘16]

 

What is very clear from Europe and Japan, is that time is running out on the use of more debt to extend the tracks without severe consequences. The public is starting to wake up to real world realities that no amount of central planning can stall. The actions of some passengers show they want to get off the train.

Italian Banks Under Pressure As Popolare di Vicenza IPO Fails, The Guardian, May 2 ‘16

Italian banking shares have come under pressure after the planned listing of regional lender Popolare di Vicenza flopped and the latest government measures aimed at tackling the sector’s bad loans fell short of expectations.

The stock market in Milan said it could not allow Popolare di Vicenza to list after investors bought just 7.7% of its €1.5 bn share issue….

Italian bank shares have lost nearly a third of their value this year due to concerns about €360 bn of bad debts accumulated during a three-year recession, while negative interest rates are also eroding bank profits.

May2.16_EuroStoxx50

Japan’s Negative Interest Rates Are Driving up Sales of Safes, Fortune, Feb 23 ‘16

That’s not great news for the Bank of Japan.

The Japanese are spending—but not in a way that is likely to strengthen the country’s economy.

Following the Bank of Japan’s decision to lower interest rates below zero in January, many consumers have reportedly rushed to hardware stores in search of one thing: safes.

May2_Nikkei2

May2_NikkeiBigBear

As we continued to watch what is taking place around the world, could the day come when the Dow at 18,000 is a thing of the past, a reflection of a society that had placed its faith in an unstoppable train built on unlimited debt and central banking intervention?

May3_Dow34years.DebtToo

“Ordinary people have the ability not to think about things they do not want to think about”  Blaise Pascal

74438614, 23/1/06, 2:44 pm, 8C, 5320x4923 (0+900), 67%, bent 5 stops, 1/60 s, R96.7, G73.4, B86.1

74438614, 23/1/06, 2:44 pm, 8C, 5320×4923 (0+900), 67%, bent 5 stops, 1/60 s, R96.7, G73.4, B86.1

 

A Curious Mind

 

 

 

 

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A Global Currency: Peace or Pain?

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For the last few years my wife and I have watched the PBS series, Downton Abbey. The final episode left us with a positive finale to the lives of many of its characters. I believe many have watched the series from remarks made over the last few years.

The series has taken us through a short but tumultuous period of British history. From the sinking of the Titanic in April 1912, WWI, the return from the war, and the roaring 20s, the attention to detail in this series has been superb in my opinion. Rather than a documentary on history with names, dates, and statistics, we have seen this period through the lives of the individual fictitious characters.

DowntonAbbeyCastle

One part that rings home from my own research on the financial side of history during this period, was that the US and Europe both disconnected from their history of backing their currencies with gold, and instead devalued their currencies by printing up massive amounts of debt in order to cover their expenses during World War I. You may remember statements by Lord Grantham in episodes how the rapid rise in wage costs had lead them to lay off workers from their estate. Did you know that land prices shot through the roof in the 1910s as the Federal Reserve went into action in 1914, pouring in billions (remember that was a big number for our debt at that time) into the US and global banking system.

While the world of WWI and the 1910s and ‘20s seems like ancient history today, the role of central banks and money have been at the heart of the modern global financial system over the last century. If one seeks to understand where history has brought us and is taking us, one must understand the role of money in the hands of the central banks, the most powerful financial players in our global financial system. One must also understand the history of the world’s only international monetary unit, something most individuals do not know even exist.

The following is a very short summary of various events that prove that a global currency is in fact a development that totally changes everyone’s long term plans. It will be written in the format of diary entries from the last 12 years of my life and our history.

So hang on!

The Modern History of Global Money

Spring 2004

My first understanding of the history of a global currency came from a book written by renown monetary historian and Austrian economist, Dr. Murray Rothbard, A History of Money and Banking in the United States: The Colonial Era To World War II (2002). Below is a look at historical events that took place in 1943 and 1944:

“In the postwar planning for economic affairs, the State Department was in charge of commercial and trade policies, while the Treasury conducted the planning in the areas of money and finance. In charge of the postwar international financial planning for the Treasury was the economist Harry Dexter White….

 

While the White Plan envisioned a substantial amount of inflation to provide greater currency liquidity, the British responded with a Keynes Plan that was far more inflationary.

 
The Keynes Plan, moreover, provided for a new international monetary unit, the ‘bancor’, which could be issued by the ICU (a new entity called the International Currency Union. It was never launched) in such large amounts as to provide almost unchecked room for inflation, even in a country with a large deficit in its balance of payments….

 
Despite extensive concessions, there was no ‘bancor’; the US dollar fixed at $35 per gold once was now firmly established as the key currency base of the world monetary order.”

Rothbard’s book was my first step in not only understanding the foundation of a move toward a global currency in 1943 & 1944, but in truly understanding the modern history of paper money.

MisesBanner

I would strongly encourage each of you to visit the Mises Institute’s website.

May 2006

After releasing my industry research paper on short selling, which contains interviews with world famous individuals, as I prepared for my 5th monthly issue to my investment research newsletter a very strong patriot and Christian woman called me from the Washington DC area named Joan Veon. Joan had been encouraged by a friend in 1990 to go to a world UN meeting since she was always researching and reading how material and policies developed at these major conferences was filtering down to educational and government policies around the world. She was always trying to educate her fellow Americans.

She also told me to start watching the developments in the only international monetary unit in our world today, the Special Drawing Rights established by the International Monetary Fund in 1969, just two years before the US government refused to redeem its paper currency for gold in international finance.

In April 2009 it was being introduced to the world as part of the “rescue” to the 2008 credit collapse.

SDR_IMF

April 2009

“I think a New World Order is emerging and with it, the foundations of a
new and progressive era of international cooperation. We have resolved,
that from today, we will together manage the process of globalization, to
secure responsibility from all and fairness to all, and we have agreed that
in doing so, we will build a more sustainable and more open, and a fairer
global society.” – Gordon Brown, member of the Fabian Socialist Party and Prime Minister of the UK in 2009, comments made to at a G20 Conference in London on April 2, 2009. An actual film of his remarks is linked.

World Leaders Agree On Global Response, Accord in London Quadruples Funding of IMF, but Delays Decisions on Many Divisive Issues, WSJ, April 3 ‘09

“The summit of many of the world’s leading economies in London
announced a tripling of the lending power of the International
Monetary Fund to around $750 billion.

They also unveiled a $250 billion expansion in the IMF’s reserve
currency — the special drawing right — to boost liquidity in the global financial system….”

As you can see above, the IMF’s expansion of the ONLY international monetary unit known as the Special Drawing Rights was rapidly expanded in 2009 for the first time in its 40 years of existence.

March 2011

In the spring of 2011 I posted the two research papers to my website showing an expanding  role of the Special Drawing Rights in global banking and financial markets. Clearly this international monetary unit was not going away nor merely a topic for academic eggheads.

 
Reserve Accumulation and International Monetary Stability, 4/13/10
Enhancing International Monetary Stability – A Role for the SDR?, 1/7/11                           International Monetary Fund. — posted on March 23 ’11

“From SDR to bancor – A limitation of the SDR (Special Drawing Rights) as discussed previously is that it is not a currency….A more ambitious reform option would be to build on the previous ideas and develop, over time, a global currency. Called, for example, bancor in honor of Keynes, such a currency could be used as a medium of exchange– an ‘outside money’ in contrast to the SDR which remains ‘inside money’.” [see pp 26 – 27 from the April  10 IMF report listed above.]

May 2014

Now we leap to the spring and summer of 2014, to examine the slow move POLITICALLY away from the US dollar as the most widely used currency in the world and frankly, at the very foundation of the substantial improvement of the American way of life since WWII.

 
During the spring of 2014, I started seeing our various European Allies signing major financial agreements to do business directly between the euro and pound with the Chinese renminbi. These were first in history events. These were nations that had been our allies since WWII. Now they were setting up agreements to do business directly between their currency and China’s currency, which would further reduce the need for the US dollar in global trade.

Bundesbank, PboC Sign Accord To Make Frankfurt Yuan Hub, Bloomberg, 3/28/14

 
Bank of England and People’s Bank of China Agree on London Yuan Clearing Hub, International Business Times, 4/1/14

2015, May and December

In 2015, China established the Asia Infrastructure Investment Bank, which some saw as a direct attempt to go head to head with the World Bank established by the West in the 1940s. Once again, European nation’s joined the AIIB in spite of pressure from the US.

Why Europe Defies the US to Join A China-Led Bank, DW, 3/18/15

“Despite US pressure to stay out, Europe’s four-largest economies, Germany, France, Britain and Italy, are set to join a China-led regional bank, seen as a potential rival to the US-based World Bank.”

China Officially Launches New Development Bank AIIB, DW, 1/17/16

“China, the world’s second largest economy, has officially launched a development bank that could complement or rival the US-backed World Bank. Regardless, it highlights China’s growing economic clout.”

Finally, we finished 2015 with another first in history, when the IMF approved inclusion of China’s renminbi currency as part of the Special Drawing Right. This is now no longer a possibility. It is now a fact.

 
The Renminbi Joins the IMFs SDR Basket. Now What?, The Diplomat, 12/1/15

“This is a big moment for China, but its economy still has challenges that it needs to address.”

So as we continue to watch history, unless the citizens of various nation states protest this continued rise in the only global monetary unit, it would appear that when we may find ourselves at the bottom of this current major bust like the spring of 2009, with the high probability that this global money will expand its global reach yet again.

 
While I see this as a direct threat to the financial sovereignty of each individual nation, the lack of understanding or discussion about this development since 2009 does not bode well for an informed public to reject this threat.

A Sad, but Curious Mind

 

 

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A 4,000 Year Old Lesson: Joseph & The Costs of A State Rescue

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Over the last 7 years we have watched the largest expansion of debt and the powers of central banks ever on record. Not a month goes by that I do not ponder how we could have surrendered so much authority to these entities.

McKinseyGlobal

After the Great Recession in 2008 one would have thought that we would have learned something about pouring trillions of cheap debt into highly leveraged financial deals as the “rescue” from the most recent financial collapse.
Yet the chart above from McKinsey Global Institute makes it clear that the financial wise men of modern finance only took us deeper into debt, making the entire global structure even more fragile.

So what could happen when we reach the bottom of the next global deflationary bust?

Rather than looking to the same group, drunk on the “eternal” riches of more power from more debt, let’s journey back almost 4,000 years to the Egyptians.

SenroswetI_Dynasty12_1961.1917

[Relief of Senwosret I, 12th Dynasty, 1961-1917 BC, The Metropolitan Museum of Art]

7 Years of Plenty, 7 Years of Famine

In the Hebrew writings of the Tanakh or Old Testament we find the story of Joseph and his interpretation of a dream by an Egyptian Pharaoh. The book of Genesis describes the dream’s meaning.

“That is the thing which I spoke unto Pharaoh: what God is about to do He hath shown unto Pharaoh. Behold, there come seven years of great plenty throughout all the land of Egypt. And there shall arise after them seven years of famine; and all the plenty shall be forgotten in the land of Egypt; and the famine shall consume the land; and the plenty shall not be known in the land by reason of that famine which followeth; for it shall be very grievous.” – Genesis 41: 28-31, A Hebrew –English Bible

Desert.Pyriamids

Whereas Joseph’s plan during the 7 years of plenty was for the Pharaoh to appoint overseers to collect 20% of the gain and store it up in the communities across Egypt in anticipation of the coming famine (Gen 41: 34-36), anyone looking at the actions of central bankers and government leaders since the Great Recession in 2008 can easily see that all “the grain” was used up and even more spent, as the public was lead to embrace the idea that the borrower is not the lender’s slave, but the basis of “experiencing” prosperity!

Famine? Pain? You must be joking; debt based money could always be created at a moments notice to overcome such obstacles, and without long term consequences. Right?

With global markets hitting record highs in 2014 and 2015, the real lesson we need to consider today, is what we could learn from the actions of the Egyptians and surrounding people as the famine changed their lives.

1) They first ran out of money to buy back the grain collected by the Pharaoh during the years of plenty.

“There was no food, however, in the whole region because the famine was severe; both Egypt and Canaan wasted away because of the famine. Joseph collected all the money that was to be found in Egypt and Canaan in payment for the grain they were buying, and he brought it to Pharaoh’s palace. When the money of the people of Egypt and Canaan was gone, all Egypt came to Joseph and said, ‘Give us food. Why should we die before your eyes? Our money is all gone.'” – Gen. 47: 13-15, NIV

As this headline from 2008 reminds us, our money today is really credit. When things get tough, credit tightens, meaning there is less available from the banks.

U.S. Banks Tighten Lending Standards, NY Times, January 7, 2008

2) As a solution to this financial crisis during the famine, Joseph established plan #2, and the people sold their livestock, or what we might see today as the businesses of the people.

“’Then bring your livestock,’ said Joseph. ‘I will sell you food in exchange for your livestock, since your money is gone.’ So they brought their livestock to Joseph, and he gave them food in exchange for their horses, their sheep and goats, their cattle and donkeys. And he brought them through that year with food in exchange for all their livestock.” – Gen. 47:16-17, NIV

CreditRiskMonitor_Dec15_BusinessRiskRising

While the Dow and S&P 500 stand at almost the same level they did when arriving here for the 1st time in history last December, giving the impression that American business is healthy, the chart above reflects the fact that the risk from bankruptcy has climbed for 2 years and is already at late 2008 levels (the sampling is based on 10,000 US businesses).

Clearly, the illusion from Wall Street is not reflecting the reality of Main Street. Based on the Wall Street view, we have not even started “the financial famine” yet.

But based on the rising risk of bankruptcies, the state will gain less and less from Main Street businesses in the period ahead. In fact, if more emphasis had been placed on start up and small businesses in the last 7 years, rather than pouring debt into larger global corporations so they could inflate their stock through constant buybacks, the economy would be healthier today. In other words, we would have had more stored up to cushion the severe slowdown that must come from all the money spent on the now even larger debt loads worldwide.

3) When the year was over, the people returned to “the state”, seeking another solution.

“When that year was over, they came to him the following year and said, ‘We cannot hide from our lord the fact that since our money is gone and our livestock belongs to you, there is nothing left for our lord except our bodies and our land. Why should we perish before your eyes—we and our land as well? Buy us and our land in exchange for food, and we with our land will be in bondage to Pharaoh. Give us seed so that we may live and not die, and that the land may not become desolate.’” – Gen. 47:18-19, NIV

4) And another solution to purchase food was found.

“So Joseph bought all the land in Egypt for Pharaoh. The Egyptians, one and all, sold their fields, because the famine was too severe for them. The land became Pharaoh’s, and Joseph reduced the people to servitude, from one end of Egypt to the other.

 

So Joseph bought all the land in Egypt for Pharaoh. The Egyptians, one and all, sold their fields, because the famine was too severe for them. The land became Pharaoh’s, and Joseph reduced the people to servitude, from one end of Egypt to the other.

 

Joseph said to the people, ‘Now that I have bought you and your land today for Pharaoh, here is seed for you so you can plant the ground. But when the crop comes in, give a fifth of it to Pharaoh. The other four-fifths you may keep as seed for the fields and as food for yourselves and your households and your children.’” – Gen 47:20-24

Today, it is impossible for most Americans to consider being in a situation where even buying food would require selling assets and working in servitude to the state just to survive. Yet, whereas the average American spends approximately 6% of their budget today on food, the average Iranian, Indian, and Chinese spends about 25% on food, and the average Russian and Indonesian spends about 33%. For this reason, when their currencies plummet in value against the US dollar or other major currencies, it can place the people of those nations under extreme stress, and working under very harsh conditions are expected as part of surviving in that environment.

The US Spends Less on Food Than Any Other Country In The World, International Business Times, January 23, 2014

Food Prices in Russia Soar As Ruble Tumbles Further, The Moscow Times, Dec 16, 2014

Of course demographic changes like shown in the headline below remind Americans that finding money for some of our most basic needs is becoming more and more difficult.

Record 94,610,000 Americans Not In Labor Force, Breitbart, Oct 2, 2015

One of the most sobering documents I have examined in the 10 years of researching global markets and the global economy, is the US State Department’s annual Trafficking in Persons Report. As the global economy continues to slow from the largest and fastest increase of debt in world history, even more painful stories will follow. Labor conditions are already abominable in various nations around the world today, much like the sons of Israel experienced under the Egyptians a few centuries after Joseph had died. I hate to think how global working conditions could deteriorate even more.

Let’s return to the famine that struck Egypt and Canaan.

At the end of this period of time the people were now in bondage to “the state”. The people had sold everything to “the state” in order to buy food. Because they had food, “the state” had rescued them from the famine.

In Genesis 47:25, the people saw their current juncture as a good thing, much like the public at large has seen deep interest rate cuts and massive bailouts as policies that “returned things to normal”.

“’You have saved our lives,’ they said. ‘May we find favor in the eyes of our lord; we will be in bondage to Pharaoh.'”

The problem, like parts of today’s world, was that people had given up their money, their businesses, their private property, and agreed to work for the state, paying the Pharaoh 20% of what they earned and keeping the remaining 80% for their daily needs.

Happy Ending?

“No one was unhappy in my days, not even in the years of famine, for I had tilled all the fields of the Nome of Mah…thus I prolonged the life of its inhabitants and preserved the food which it produced.” – Ameni, a providential governor under Senwosret I

As anyone knows from reading the book of Genesis and Exodus, the descendants of Jacob (Israel)[Gen 35:10] prospered during the famine while raising their livestock in Goshen [Gen 45:1, 47:6,11, & 27] , land given them by Pharaoh, a few centuries later the Egyptians felt threatened by them, and work conditions for the descendants of Israel became very hard and like slaves.

“Now a new king arose over Egypt, who did not know Joseph. He said to his people, ‘Behold, the people of the sons of Israel are more and mightier than we. Come, let us deal wisely with them, or else they will multiply and in the event of war, they will also join themselves to those who hate us, and fight against us and depart from the land.’ So they appointed taskmasters over them to afflict them with hard labor. And they built for Pharaoh storage cities, Pithom and Raamses…. The Egyptians compelled the sons of Israel to labor rigorously; and they made their lives bitter with hard labor in mortar and bricks and at all kinds of labor in the field, all their labors which they rigorously imposed on them.” – Exodus 1: 8-11, 13-14, NASB

So with today’s financial bubbles starting to burst worldwide since 2014, while the “overseers” of modern finance continue promising even deeper negative interest rates or more intervention into our economic life and markets, we have come to a point in history where the “years of plenty” illusion is quickly running out of steam.

china-index

As the financial famine continues setting in, will we turn to answers outside the gods of modern Keynesian finance and unlimited debt solutions of the past? Once everyone knows we are at another major crisis, what will we be willing to sell or pledge to the state in order to stop the pain? As power centralizes at the global level, will we eventually say, “You saved our lives”? At what costs to us and future generations?

One World, One Bank, One Currency, Daily Reckoning, Addison Wiggins, Oct 1, 2014

 
In Joseph’s time the people came to see the Pharaoh and “the state” as the only solution to their situation. John’s writing in Revelations seems to reveal that the past could have a connection to the future.

“And he causes all, the small and the great, and the rich and the poor, and the free men and the slaves, to be given a mark on their right hand or on their forehead, and he provides that no one will be able to buy or to sell, except the one who has the mark, either the name of the beast or the number of his name.” – Revelations 13:16-17

Since 2008, the powers of central bankers and governments have only grown, thus whether seeking funds from the state through social safety nets or the greatest intervention by central banks into financial markets ever seen, we have already watched the public at large accept that this form of financial socialism has brought things back to “normal”.

However giving over so much power to this small group has reduced our motivation to seek solutions at the individual and local level. The national and global level has become the highest authority in the life of the people. Could this worldwide story be headed into a time of bondage as well?

 

A Skeptical Mind

 

 

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Bridging the Great Monetary Divide

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Top1Percent_McCracken_JournalofEconomics

[The chart above is found on page 9 of Mat McCracken’s piece, The Imminent Financial Reckoning, linked at the end of my August post. The chart was originally released in the Quarterly Journal of Economics.]

Do you notice that the only time in the last century when the top 1% earned more as a percentage of the total nation than they did in 2012 was in 1928?

We all know what happened shortly thereafter, when the U.S. experienced the collapse of its stock market and financial institutions and the Dow plunged from its 1929 high of 380.33 (9/3) to its 1929 low of 198.69 (11/13) in less than 3 months. As the history books make clear for anyone studying this period, this 181.64 point drop (48%) was the beginning of the Great Depression. *

 
Eventually, tens of millions of lives would be changed by this global deflationary depression, the Dow continuing to collapse until its 1932 low of 41.22 (7/8), producing an 89% loss.

But I believe my fellow Americans not only were challenged with the extreme financial and economic conditions, but could see no way out of their current condition without the rapid expansion of the powers of the state. In other words, in the 1930s, the idea of “big government and big debt are needed in a crisis” took root. People started looking more to the state than each other and the Divine.

Now let’s jump forward to lessons we could have been learning these last few years, yet in a world of hurry, hurry, more, more, the idea of a massive expansion of debt and the powers of central banks in our markets seems to have gone unnoticed by the majority of the public. It is if we can not change it, why learn about it or consider the serious of all of these red flags popping up everywhere.

Yet anyone watching current events and history can see that these topics are not going away. There will be consequences.

In 2015, the income and wealth disparity has become a major topic again, due to the tens of trillions in debt that central banks around the world have poured into the global financial system in an attempt to “inflate our way out” of the problems created from the collapse of the last debt fueled bubble collapse in 2008. The issue is not a Democrat or Republican one, since it impacts all Americans, and frankly, the entire global economy.

Ted Cruz Says Top 1 Percent Earn More of National Income Than Any Year Since 1928, Politifact, Jan 30 ‘15

“…Cruz drew his comparison to 1928 from a report by the Pew Research Center citing research by Emmanuel Saez, a University of California, Berkeley economics professor who studies wealth and income inequality.

Saez helps steer the World Top Incomes Database, sponsored by the Paris School of Economics, a research center and conglomerate of French universities.”

And the problem is not merely income disparity, but wealth disparity as well. Once again, I am not promoting or seeking a big government/big bank/big debt solution, since this theme has gone on for decades and the problem only continues to worsen during every subsequent boom.

I believe the answers lie at the local and individual level, and a reboot like the year of Jubilee that the Jews were given in Deuteronomy 25 over 3,000 years ago.

I do not see this as a solution today, since the public at large, even the church, seem to start discussions of global finance at the big bank (central banks)/big government level, so that when the next “crisis is an opportunity” comes, the public should continue to seek answers from the state which has become our “god”.

“But don’t we need more government and central banking assistance?”

Let’s stop and look at the amount of wealth in the world today, backed by historic levels of debt.

A new report on the concentration of wealth was released last week by the Swiss Bank, Credit Suisse. The report states that of $250 trillion in global assets (backed by more than $200 trillion in global debt), the top 1% own 50%, and the bottom 50% own less than 1%.

To say there is no money to solve massive humanitarian needs without more government and more debt is totally insane from looking at these numbers. In my opinion, it comes from redefining human life as a greater investment than material gains, once again, something I do not see changing until another collapse into the tens of trillions in global asset values.

Consider the charts below and comments, pulled from the recent article, Top 1 Percent Own More Than Half of 1 Percent of Wealth (Global Research, Oct 14, 2015). The flood of debt worldwide from central banks since 2008 has done nothing to change these dangerous societal trends.

Wealth

USMillionaires.World

Whether the publication is seen as a supporter of socialism or capitalism, both discuss the same Credit Suisse data and see a problem.

The Top 1% Now Owns Half The World’s Wealth, Fortune, Oct 14, 2015

“Credit Suisse says wealth inequality was actually falling before the financial crisis but has increased every year since 2008. The U.S. created 903 new millionaires between the 2014 and 2015 report, while median wealth has stagnated. Globally the number of millionaires fell, though the strength of the U.S. dollar is cited as the biggest contributing factor to that statistic.”

Going Global Or Local: Could We See Both In the Period Ahead?

David Rothkopf, a global insider and CFR member, released the book, Superclass: The Global Power Elite and the World They Are Making, in 2008. According to Rothkopf, to be super rich in the world today takes a global view, and one that rises above such things like national sovereignty and country loyalty.

“ They will feel more affinity to their fellow global conversationalists thatn to those of their countrymen who are not yet part of the global conversation.” – Walter Wriston, former CEO of Citibank in his book, The Twilight of Sovereignty (pg 11)

 

“Their loyalties – if the term is not itself anachronistic in this context – are international rather than regional, national or local. They have more in common with their counterparts in Brussels or Hong Kong than with the masses of Americans not yet plugged into the network of global communications.” – Christopher Leach in his book, The Revolt of the Elites (pg 11)

As the bust phase in financial history sets in, the world will change for everyone, whether super rich, rich, middle class, or poor. If we are going to keep our civility and “love thy neighbor as thyself” is to be a part of our society, we must know our neighbors and demonstrate true compassion for people of all backgrounds and cultures around us, and that may mean doing things outside of our comfort zones.

For me personally, these ideas, written during the 1st century and taken from the pages of the New Testament, inspire me to consider human life as more important than material gains in the period ahead. It also reminds me how there are examples from that period that are highly relevant to our world today. I hope they touch your heart, no matter where your faith lies.

“ Greater love has no man than this, that one down his life for his friends” – John 15:13

 

“…and they began selling their property and possessions and were sharing them with all, as anyone might have need. Day by day continuing with one mind in the temple, and breaking bread from house to house, they were taking their meals together with gladness and sincerity of heart, praising God and having favor with all the people.” – Acts 2:45-47

 

“Now, brethren, we wish to make known to you the grace of God which has been given in the churches of Macedonia, that in a great ordeal of affliction their abundance of joy and their deep poverty overflowed in the wealth of their liberality. For I testify that according to their ability, and beyond their ability, they gave of their own accord, begging us with much urging for the favor of participation in the support of the saints…

 

For if the readiness is present, it is acceptable according to what a person has, not according to what he does not have. For this is not for the ease of others and for your affliction, but by way of equality at this present time your abundance being a supply for their need, so that their abundance also may become a supply for your need, that there may be equality; as it is written, “HE WHO gathered MUCH DID NOT HAVE TOO MUCH, AND HE WHO gathered LITTLE HAD NO LACK. (Exodus 16:18) II Corinthians 8:1-4; 12-15

A Curious Mind, Desirous of A Compassionate Heart

  • Check out the history of all closing prices in the Dow Jones Industrial Average from October 7, 1896 to the present at Measuring Worth.com.
  • Another source is the 2012 study, Pulling Apart, which examines income disparity across states between 1917 and 2011. The research was assembled by the Economic Policy Institute and the Center on Budget and Policy Priorities. (Once again, I believe the only sustainable solutions are ones that return power to the states and local communities, not an expansion of powers at the global level. A debt based money can only continue to lead to even greater crises in the years ahead, not less. The Special Drawing Rights, the international monetary unit backed by the International Monetary Fund, was expanded 8 fold in 2009 in response to the 2008 crisis. Clearly world financial leaders are expecting a massive change at the currency level as a “solution” to the next major crisis. This is why local community solutions will become very important in the period ahead.)

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