Tag Archives: debt

Global Intervention; The Death of ‘All Men are Created Equal’

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“Greater love has no one than this, than to lay down one’s life for his friends” – Jesus Christ, 1st century AD, John 15:13 [NKJV]

It has been a month now since Hurricane Harvey hit the southern part of Texas, dropping more rain than any storm on record in the U.S. The size and scope are unfathomable when we consider so much change in such a brief time.

15 Trillion Gallons: Putting the Rainfall Total From Hurricane Harvey Into Perspective. Fox 26 Houston, Aug 30 ‘17

 

Harvey and Irma Economic Hit Could Total $200 Billion: Moody’s, CNBC, Sept 11 ‘17

Yet in the midst of such devastation, we saw acts of kindness, courage, and sacrifice from average Americans.

Yet another storm has been building for years. The numbers it has produced are staggering. Many have benefited; many have not. However, this storm differs from Harvey and Irma. As this storm has grown, we have been told that we were in recovery, yet like a Hurricane, if we track the storm, we see it has been building in strength, not diminishing.

Let me take one factor in this storm.

Since the $700 billion bailout announced 9 years ago in September 2008 to solve the worst crisis since the Great Depression, we have watched an ongoing deluge of “financial rain” (or debt to buy up financial assets). As I write this in September 2017, the global total of this ongoing “temporary assistance” for financial markets is already over 15 times the original US bailout the world heard in September 2008.

One side effect from the storm that has been building over the last decade, is that it has produced the widest financial inequalities between the top 1% and bottom 90% of any decade in American history.

According to an NY Times article, Our Broken Economy in One Simple Chart (Aug 7 ’17), when I was leaving college in the early 1980s, the middle class and poor were seeing their take home paychecks rise faster than those in the top 1%. By 2014, the torrent of debt to inflate financial assets had flipped income growth on its head; the bottom 90% were declining while only the tiniest of percentages at the top saw their incomes leaping.

In the last decade, the huge gap has not between the upper middle class and the middle class, but between the middle class and the group that make up less than 1/100th of the population.

Has history always shown that the number at the top is small and the number at the bottom is large? Yes. However, never has the wealth of the world depended on so much debt created in this short of a period!

The chart below from the Wall Street Journal is another view of the enormous income disparity that has developed since the “recovery”….and as the chart states, these numbers are now 5 years old, so the widening is even greater in 2017.

So I ask you, have the financial policies followed by the major central banks since 2008 encouraged the idea that all men are created equal?

This short post should not lead one to label the writer as a Democrat or Republican or a Liberal or Conservative, but merely a human being looking at his nation and world and asking questions from the data.

The most powerful force that has elevated the super rich far beyond the rest of the population, whether national or global, has been the Quantitative Easing model followed by central banks. Repeatedly since 2008 we were told this explosion of debt out of thin air, was an attempt to push inflation (prices) higher.

Central banks contributed $7 trillion to BUY ASSETS (chief recipient of the inflation) across the world between 2011 and 2016. YTD an additional $2 trillion has poured into the global financial system to continue this scheme. Keynesian central planning economists call this “the wealth effect”.

BofA: $2 Trillion YTD in Central Bank Liquidity is Why Stocks Are at Record Highs, Zero Hedge, Sept 15 ‘17

But has all this debt, funneled into financial markets producing the second longest bull market in US history, produced rising wages, leading to more spending, or have debt levels increased as wages have declined since 2009?

Wall Street Hits Record Highs, S&P 500 Pierces 2500, Reuters, Sept 15 ’17

 

Consumer Debt is At a Record High, Haven’t We Learned?, Washington Post, Aug 12 ’17

How can a nation believe “all men are created equal” when month after month their stock markets produce all time highs, yet their economy produces all time highs in the number of Americans out of the workforce?

Yes millions are retired, but with 97 million Americans living paycheck to paycheck, and adults between the working ages of 15 and 64 at 205 million, one can not conclude that overall, the American society is fiscally better off today than when we were lead to believe a $700 billion bailout was enough.

Bush signs $700,000 Financial Bailout Bill, NPR, Oct 10 ’08

Five years after the S&P 500 bottom in October 2002, the public saw that $8 trillion in stock market wealth had been created. 13 months later, the entire $8 trillion was gone.

Since March 2009, we have seen US stock wealth climb $19.2 trillion as of September 20, 2017. We can see from the chart below, 5 of the central banks in the world have grown their balance sheets over $11 trillion since the summer of 2008. This had never happened until the 2008 crisis. The debt used to buy these assets and “assist” market prices for 9 years has not gone away.

Are tens of millions of Americans, whether rich, poor, or middle class preparing for the next major financial storm? Will we talk, listen, and work together as this storm sets in, or place our hope in more debt and more “assistance” from our government, who itself sees debt as “unlimited” and the Federal Reserve as the force to calm the financial wind and waves.

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.” – The Declaration of Independence, 1776

 

A Curious and Confident 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.”

July21_SPBiggestDrops

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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Please “Assist” My Investments

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SustainableBy the year 2024, I am certain no one will think it odd for massive sums of debt to lead to enormously negative consequences across societies. By then, history will be replete with stories from this period. However, after living through the largest growth in global debt in a 6 year period, it seems that most either do not know, or want to consider, how much the nations of the world are depending on central banks to always be ready to pour trillions of debt on top of current levels, thus somehow keeping things “normal”.

Of course, anyone willing to look at world markets from a historical basis understands that what the world has seen since 2008, has never happened at these extremes. To believe that this level of “assistance” has brought things back to “normal”, is to defy the lessons on debt from history.

Look at the chart that opens this piece. Remember the launching of the internet in the 1990s and the explosion in tech and telecom stocks from the late ’90s? From the low in 1994 to the high in 2000, the S&P 500 – a collection of 500 of the largest companies based in America – climbed 1117 points, or 250%. During that time, the national debt grew by $1.16 trillion.

Now look at what has taken place between the 2009 low (March) and 2015 high in the S&P 500 (May). Regarding points gained, this widely used stock yardstick gained 1468 points, adding 31% more than the amount produced in the late ‘90s. However, percentage wise, it was actually 12% less than the late ‘90s run.

But all investors should be focused not on what was made in stock gains, but the skyrocketing costs of “stimulus” added to the US national debt during this period. In the recent 6 year run, the US national debt soared $7.2 trillion, compared to $1.16 trillion during the 6 year run in the late 90s, an increase of 519% over the previous bull market run!

Now THAT is a whale of a lot of “assisting”.

Without the Federal Reserve’s QE I, II, and III, to “stimulate” the markets that were suppose to then stimulate the economy, the debt levels would have never risen this fast.

 

Enjoy the Party Today; the Hangover Can Always Be Stalled… Right?

Most of 2015 we watched the Dow vacillate up and down through its 18,000 level. While the Federal Reserve’s QEIII had stopped last October, there was the belief that the the Bank of Japan and the European Central Bank could pick up the slack this year.This proved to be the case into Q2 in their markets, but the Dow and S&P 500 had been stalling around 18,000 and 2,100 respectively all year.

With major problems hitting China (Q2 ’15), the world’s front runner in increasing its own debt levels, as well as the impact of Greece on the EU, the global slowdown finally caught up with the computer algorithms two weeks ago in global financial markets.

“Kick the can” abruptly fell into a large pothole. The “riskless” market feeling that tens of millions of investors had grown accustomed to, suddenly became the “risk full” market where investors headed for exits quickly, making record redemptions.

‘Total Risk Surrender’: Record 29.5 Billion Yanked From Stock Funds, Morningstar, 8/28/15

Even now, many articles are explaining this as another computer glitch, rather than the normal pattern among human beings that understand that after “all time high” headlines, must come the bust phase, thus seek to sell rather than ride markets back to their third major bottom since 2000.

DowAugust31_2Years_Living2024

The major central banks in this global drama – the Bank of Japan, Federal Reserve, European Central Bank and People’s Bank of China – have fostered a more than 40% increase in global debt levels since 2007 as the “solution” to the 2008 debt crisis. Why would we NOT expect serious consequences across every aspect of our societies from this global financial bubble, like what we saw from the 2008 bust?

 

Thinking and Acting Outside the Box

The problem with mania markets, especially where the state supports wild speculation that can not be sustained, is that history is replete with stories of financial leaders and insiders selling out at the top.

Sadly, the “it’s only a pullback”, and the “recovery” after two 50% plus declines in the S&P 500 since 2000, has tens of millions of retail investors and advisors caught up in the myth that somehow, someway, “the stock market” will always come back to these levels and climb higher. The fact that Greenspan cut rates to 1% in 2003 to create the largest housing bubble in American history seems to be of no importance to one’s personal investment plans. The fact that Bernanke and Yellen have kept a zero interest rate policy in place since December 2008, pouring more cheap debt into the system that at anytime since the nation was founded in the 1700s, seems to be something we don’t even consider when talking about personal or business financial goals over the next 5 to 10 years.

I have often wondered why so few Americans even discuss where the nation is headed financially when discussing their own finances and plans.

Debt.US.GDP

 

Make Changes & Prepare for the Bust; Help Yourself and Others

It should also be clear for anyone concerned about their finances, that when a weekly record is made in redemptions from US equity funds only one month after the highest level on record was made in the NASDAQ, that seeking to learn what the big money has been doing recently would be prudent for the smaller and less informed investors.

Hedge Funds Gear Up For Another Big Short; Some Money Managers Are Looking To Profit From Potential Trouble At Some “Alternative” Mutual Funds and Bond ETFs, WSJ, 7/21/15

Billionaire Stanley Drunkenmiller Loads Up On Gold, Makes It His Largest Position For First Time Ever, Zero Hedge, 8/16/15

What good will it do as trillions in capital are lost again by retail investors and more conventional strategies, while capital continues concentrating in the hands of tiny fraction of the world? Is this really progress? If smaller investors are willing to change, and prepare for the bust rather than merely ride it to the bottom again, would this not be a better option for them and their community?

New Oxfam Report Says Half of Global Wealth Held by the 1%, The Guardian, 1/19/15

No, Billionaires Don’t Drive Economic Growth – and Crony Billionaires Strangle It, The Guardian, 7/15/15

With so much money getting ready to be moved from smaller investors yet again, providing less funds to be spent across our economy, I hope you will share this article with anyone willing to think outside the box. Time is quickly running out to bury our heads in the proverbial sand.

If history repeats itself once again, the uber-wealthy (0.5%) will merely protect or grow their wealth in the bust phase ahead, while tens of millions of smaller investors will watch what they have vanish, placing their hopes on yet one more rescue by the hands of central bankers. If only we could see the value of investing in lives as even more critical to our nation as investing in “assisted” markets.

Americans Not In Labor Force Exceed 93 Million for First Time; 62.7% Labor Force Participation Matches 37-Year Low, CNS News, 4/3/15

“And his master praised the unrighteous manager because he had acted shrewdly; for the sons of this age are more shrewd in relation to their own kind than the sons of light. And I say to you, make friends for yourselves by means of the wealth of unrighteousness, so that when it fails, they will receive you into the eternal dwellings.” – Luke 16:8-9

I believe in the period ahead, we will all want to know that there are others around us who would be willing to make sacrifices for us and they know the same from us.

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

  • On August 24, 2015, the Dow dropped 1,089 points, surpassing the May 6, 2010 flash crash. Because of the extraordinary financial period we are watching, I have linked an interesting piece written by a colleague. Whether you agree or disagree with his conclusions, I believe you will find the piece fascinating when considering the unique period in financial history we are all living through. Click here to read, The Imminent Financial Reckoning, released on August 25, 2015.

A Curious Mind

 

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The Unlimited Mammon Master

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Money“No one can serve two masters; for either he will hate the one and love the other, or else he will be loyal to the one and despise the other. You cannot serve God and mammon.” – Matthew 6:24 , NKJV

To The World of 2024,

In 2010, I wrote a public article titled, John’s Economic Worldview. In the opening pages, I discussed what is known as one’s worldview. Every individual has one, whether they can describe it or not.

The following are four traits of one’s worldview, as presented by Belgium philosopher, Leo Apostel:

1. A futurology – “Where are we headed?”
2. Values and ethics – “What should we do?”
3. A methodology – “How shall we attain our goals?”
4. A theory of knowledge – “What is true and false?”

Since 2010, I have watched with frustration and yet fascination, at how much “faith” most Americans place in our money, a substance that all major nations have been creating through the expansion of their debt loads since the US removed the dollar from the gold exchange standard in 1971. Most individuals have little or no understanding of the history of money, or the fact that the more money is created, the larger the debt load and the greater the drag on the entire economy long term.

Thus, the question, “Where are we headed?”, is most often based on one’s personal experience, rather than a close examination of the history of money.

Since the historical data is the same for every person, and modern money is created by the expansion of debt, let’s take a quick look at the question “How shall we attain our goals?”, and how this has worked since WWII.

Getting Rich Quickly By Rapidly Going into Debt

When my father returned from WWII in 1945, the US national debt stood at $250 billion. It would continue to rise, reaching $394 billion in 1971. During this 26 year period, the United States would exchange its gold for any nation desiring to exchange their U.S. dollars for our gold.

However, as of August 1971, this option was closed to every nation worldwide, and the world’s major industrial powers were no longer willing to exchange their paper money for the gold they were holding. This had NEVER happened in history prior to 1971.

From that point on, it was paper debt based money for paper debt based money, controlled at the highest levels by the most powerful central banks in the world.

Between 1971 and 2000 – the top of the first stock/debt bubble – the US national debt grew by $5,206 billion (1,321%) to reach $5,600 billion.

Remember, under the gold exchange standard between 1945 and 1971 (26 years), the US national debt only grew by $144 billion or 57%. Once the gold exchange standard was removed, the US national debt exploded $5,206 billion (1,321%) in 29 years!

Now what individual or corporate leader would say that growing their debt by 51% is WORSE than growing it by 1,321%? Yet as a society all of this new debt had to go some place, and thus became the fuel to inflate prices everywhere.

For those who had wealth, the new debt became the most powerful source for growing that wealth. How could devaluing our money be bad? For those who did not have wealth, or whose lives were impacted by loss of capital and/or job, the rise in prices caused by this new debt which was devaluing their money moved them more and more down the economic food chain.

Record 93,175,000 Americans Not In the Labor Force, Breitbart, April 3 ’15

The answer to the question, “Where are we headed?” should have seemed obvious in 2000. It should be even more so in 2015, when the US national debt has more than tripled from 5.6 trillion in 2000 to 18.1 trillion today.

However, it wasn’t then, and isn’t today. While most individuals would never encourage an individual or company to rapidly grow their debts in order to become richer, our “faith” in unlimited national debt as the basis for unlimited money boggles the mind.

Once again, our main barometer seems to return to our own personal experience, versus the financial history of the entire nation.

 
Two Bubbles Popped; Waiting for Third One

StockWealth.DebtLevels_May2015

As more and more debt can give an individual an image of wealth, without examining the growing debt levels, one is never looking at the entire picture. The same for a nation.

The chart above uses two metrics; the stock wealth, based on the value of the market capital of the Wilshire 5,000 at any given time – the broadest measure of publicly traded US stock wealth, and the national debt of the United States.

While an individual or group of individuals can say that they are wealthier today than in 2000, comparing the wealth/debt ratio based on these two variables, we find that the stock to debt ratios are substantially lower today than they were 15 years ago in 2000.

By asking the question, “ How do we attain our goals?”, we must differentiate between short term and long-term views. Twice since 2000, US stock bubbles have burst, completely wiping out wealth that took years to build. NEVER since 2000 has the amount of debt carried by the nation gone down. ALWAYS, the solution for a market decline was cut interest rates and print up more money (i.e. debt) to kick start the “recovery”. With 2015 being the seventh year of a zero interest rate policy by the Federal Reserve, cutting rates is out of the question for future slowdowns.

NASDAQ_Stocks.Debt.2000

SP500_2007top

Andrew Carnegie and Jesus

In 2003, a friend suggested I read the book, The Call: Finding and Fulfilling The Central Purpose of Your Life (1998), by Os Guinness. Guinness challenges his readers through the lens of two lives in the chapter, More, More, Faster, Faster.

The first is Andrew Carnegie, one of the wealthiest men in American history.

Andrew Carnegie wrote this famous memorandum in 1868, when he was thirty-three and stuffed it away in a drawer: ‘Man must have an idol – the amassing of wealth is one of the worst species of idolatry – no idol is more debasing than the idol of money.’
But in 1905, President Theodore Roosevelt wrote reluctantly of Carnegie himself, ‘I tried hard to like Carnegie, but it was pretty difficult. There is no type of man for whom I feel a more contemptuous abhorrence than for one who makes a God of mere money- making.’

The second was a closer examination of the words Jesus presented in the Sermon on the Mount, specifically Matthew 6:24, as stated at the opening of this post:

“Jesus’ use of Mammon (Aramaic for wealth) is unique – he gave it a strength and precision that the word never had before. He did not usually personify things, let alone deify them. And neither the Jews nor the nearby pagans knew a god by this name. But what Jesus says in speaking of Mammon is that money is a power – and not in a vague sense, as in the “force” of words. Rather, money is a power in the sense that it is an active agent with decisive spiritual power and is never neutral. It is a power before we use it, not simply as we use it or whether we use it well or badly.
As such, Mammon is a genuine rival to God.”

In 1906, Frederic Clemson Howe published his short work, The Confessions of a Monopolist. Howe, more than a century ago, could see the power of money, a power that could certainly rise to god like status over men and women.

“Long before my election to the Senate I learned two things pretty thoroughly. One was, if you want to get rich – that is, very rich – in this world make Society work for you. Not a handful of men, not even such an army as the Steel Trust employs, but Society itself. The other thing was, that this can only be done by making a business of politics. The two things run together and cannot be separated. You cannot get very rich any other way.”

It would appear that we have created the tools, where the idea of “unlimited debt based money” coupled with computers trading at the speed of light, have truly given individuals the sense that they have attained god-like status, and Mammon has provided a sense of power like nothing else. Yet that concentration of power, has already proven to be a huge negative at the societal level…. and we are still today watching financial markets recording “highest in history” price levels!

 

The Results of Unlimited Mammon

 
Virtu’s Second Attempt At Going Public Reveals Why FX Trading Is Now Impossible, Zero Hedge, April 6, ’15

“As Virtu Financial (a high frequency computer trading firm) stated (shortly before its IPO went public April 2015), ‘The overall breadth and diversity of our market making activities, together with our real-time risk management strategy and technology, have enabled us to have only one overall losing day during 1,485 trading days.’
As we reported back in February, ‘not only did Virtu not have a trading day loss in all of 2014, but on its “worst” trading day, the firm made “only” $800,000 to $1,000,000.’”

5 Big Banks Pay $5.4 Billion for Rigging Currencies, CNN Money, May 20 ’15

“U.S. regulators hit five global banks with $5.4 billion in penalties Wednesday for trying to rig foreign currency markets in their favor.
Citigroup (C), Barclays (BCS), JP Morgan Chase (JPM), and Royal Bank of Scotland (RBSPF) were fined more than $2.5 billion by the U.S. after pleading guilty to conspiring to manipulate the price of dollars and euros…
The first four banks operated what they described as ‘The Cartel’ from as early as 2007, using online chatrooms and coded language to influence the twice-daily setting of benchmarks in an effort to increase their profits.”

Is it possible that Mammon has become the number one god we turn to daily, and if so, could there be severe consequences at the global level in the years ahead from placing so much trust in wealth that depends on ever larger amounts of debt?

Richest 1% To Own More Than Rest of World, Oxfam Says, BBC News, Jan 19 ‘15

 
Goldman Sachs Warns “Too Much Debt” Threatens World Economy, Zero Hedge, May 29, ’15

 
Keynes“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate secretly and unobserved, an important part of the wealth of their citizens….As inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and lottery.” The Economic Consequences of Peace (1919) John Maynard Keynes, pg 233]

“I think, increasingly, they (central bankers) are discomforted. More than anything else I think it’s not just the ex central bankers but increasingly the people that are still holding the levers. They are starting to ask whether they have somehow been backed into a place where they don’t really want to be. Now, I agree with you, Sean, that there’s an element in everybody, although some more than others, where they’re glad to be looked upon as the saviours of the day. But I rather sense that an increasingly large number of central banks are actually looking at what is going on and saying ‘We are being asked to do something that is effectively impossible.'” [William White, former economic advisor to the Bank of International Settlements, in an interview with Sean Corrigan, Chief Strategiest for UK based Hinde Capital, The Road To Nowhere, An Interview with William White, Page 1, The Hindesight Letters, March 2015, pg 5]

 

“You shall have no other gods before Me.” Exodus 20:3

I wonder how individuals and societies will change their views toward debt based money by 2024?

 

A Curious Mind,

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A Centrally Planned Sex and Financial Life

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To the World of 2024,

Today, March 18, 2015, the Federal Reserve is making another announcement. Everywhere in the financial world the debate is between whether interest rates will be raised or stay the same. I believe by 2024 this will seem ridiculous. To think that one organization carried so much power over the financial well being of so many lives. However, today is has been accepted as financially “normal” by the majority.

Today it would seem that societies around the world have embraced this idea, that centrally planning everything from our money to our sex lives has become the standard.

You may think I jest, but read on.

Recently, I came across the following headline from Bloomberg:

The Japanese Government Is Trying To Figure Out How To Get Its People To Have More Sex, Bloomberg, Jan 25 ‘15

Now I ask you, have the political leaders of Japan gone mad? How far will the role of government reach in Japan? Since they have been hyper printing their currency, the yen, over the last three years, shouldn’t politicians be more concerned about the Bank of Japan wrecking their own economy than sending out surveys or doing interviews with groups to make sure their citizens are having enough sex?

Of course, the real concern of the government is the birthrate, which is falling fast:

“The birthrate is falling fast. By 2060, the population is expected to go down by a third, and, by 2100, if trends continue, by 61 percent. In 2011, sales of adult diapers in Japan exceeded those of baby diapers. It’s an urgent national problem: there isn’t enough procreation.”

So is it any wonder that one of the solutions for this is a tax. Yes, a tax.

“Morinaga Takuro, an economic analyst and TV personality, believes this has something to do with attractiveness. He has suggested a ‘handsome tax’: ‘If we impose a handsome tax on men who look good to correct the injustice only slightly, then it will become easier for ugly men to find love, and the number of people getting married will increase.’”

Fortunately, I am not an ugly man, or at least my wife doesn’t think so. But neither am I handsome enough to fall into the “handsome tax” group.

Like the US, Europe, or other nations following the “centrally planned life” model, the Japanese government wants their citizens to know, that money will be spent to find a solution, as though spending money by a government always leads to a solution.

“Whatever the case, it’s an urgent government concern. In 2014, aware of the dangers of becoming a nation of old folks, Prime Minister Shinzo Abe set aside a 3 billion yen ($30 million) for programs aimed at boosting the birthrate, including matchmaking programs.”

Could these studies and programs be taking attention away from the fact that the government has become the “buyer of last resort” for its own stock market – a symbol of “economic growth and opportunity” – literally by printing up trillions in yen solely for the purpose of buying their own government bonds and stock funds?

World’s heaviest burden: Japan’s Debt Tops 1 Quadrillion Yen,
RT, Aug 9 ‘13

jpy-10000-japanese-yens-2

Plunge Protection Team Exposed: Bank of Japan Stepped In a Stunning 143 Times to Buy Stocks, Prevent Drops, Zero Hedge, March 11 ’15

“Since (Bank of Japan) Gov. Haruhiko Kuroda took office in March 2013 and introduced monetary easing of what he called a “different dimension,” the central bank has sharply increased its buying of baskets of stocks known as exchange-traded funds. By directly underpinning the market, officials have tried to encourage private investors to follow suit and put more money in stocks in the hope of stimulating the economy and increasing inflation.

HelpingHandDuring the past two years, the central bank entered the stock market roughly once every three days, picking up a total of ¥2.8 trillion ($23 billion) of ETFs that track Japan’s major stock indexes, according to Bank of Japan records. That distinguishes it from the U.S. Federal Reserve and European Central Bank, both of which have bought bonds to pump up the economy but haven’t directly bought stocks.”[Original source was from the article, BOJ Helps Tokyo Stocks To Soar: Some Within Bank Worry Over Growing Role in Market, WSJ, March 11, 2015]

The speed of change in the world around us today should be alarming. Yet it would appear that since 2008, whether in Japan, or my country, America, that as long as one’s life is moving along a somewhat predictable path, that the massive increase and intervention by the state (central bankers) in financial markets, or “unlimited” ways to spend money fixing society (politicians), is merely accepted as normal, or at least not with any severe backlash.

Yes it has been this way for years and years, but the speed of change that has taken place since 2008, and especially since 2013, makes it clear that these patterns in markets and society are like the declining birthrate in Japan, totally unsustainable.

The comments in William Pesek’s recent book,Japanization.WilliamPesek Japanization: What the World Can Learn from Japan’s Lost Decades (2014), make it clear that epoch changes are coming much faster, larger, and sooner, than the policies implemented to date by central bankers and national politicians to “fix the problem”:

“Only 1.2 million Japanese turned 20 (in 2012), half as many as in 1970 – a reminder that the population is shrinking as the national debt surges…

 

Takeshi Fujimaki, a former adviser to billionaire George Soros, is bracing for a fiscal crisis sometime before the Tokyo Olympics. That risk drove him to recently run for an upper house of parliament seat, which he won. ‘I decided to become a politician because I think a financial crisis will come sooner or later,’ Fujimaki said. ‘This total debt will continue to increase. I don’t think Japan can survive until 2020.’

 

Japan’s debt is approaching 250 percent of GDP. The nation will spend 22.2 trillion yen servicing its debt in the fiscal year begun in April 2013, accounting for more than half of total tax revenue and occupying about 24 percent of the government’s budget.”

Today, it seems that the number one value in society is optimism. I consider myself an optimistic person. But I also believe that when we are facing such incredibly serious social issues like the ones taking place in the world around us, that we must start talking among each other about these serious issues, and seeking answers at the family and local community level, rather than abdicating our sex life and financial futures to the policies being created at the national and international level. Yes these central planners can tap into this “unlimited source of ‘free money'”, but when seen through lessons already written from the story of “unlimited debt to fund unlimited spending by the state” , we know that it has always proven to be an unsustainable path.

It is now March 2015, and the drug of “all time highs” in global wealth indicators seems to have pushed posts like this one to the backburner. But I have also observed a growing crowd that is very concerned about where this is leading all of us, to me, a positive step in the right direction.

We will see where this story in history takes us, as we continue to watch.

A Curious Mind

  • You are encouraged to read my recent public article, Free Money; What Could Go Wrong? It provides financial charts of the Japanese Nikkei, the longest DEFLATING stock market pattern in modern history (its all time high taking place on January 3, 1990), and the explosion of assets on the Bank of Japan’s balance sheet since 2012, caused by their current attempts to literally buy up their sovereign bonds and their stock market. Just google the title to find it on the web.
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Oil Drops: Cheap Gas for U.S. Consumers; Rising Prices for Russians

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Gas.Below2As an American, it has been nice to go the pump and find gas under $2.00 a gallon. In fact, the last time we saw prices at these levels was in the fall of 2008.

Yet what has been saving me money has been a major factor in the slowdown in the Russian economy, and the decline in the value of their currency, the ruble. This in turn has been hurting my friend Vasily. When reading economic data and statistics, it is easy to dismiss others pain by following an “out of sight, out of mind” way of thinking. However, if we both, whether American or Russian, seek to follow the teachings of Christ, then we should want to understand if our neighbor is hurting from something that is benefiting me.

“Teacher, which is the greatest commandment in the Law?”
Jesus replied: “‘Love the Lord your God with all your heart and with all your soul and with all your mind.’ This is the first and greatest commandment. And the second is like it: ‘Love your neighbor as yourself.’ All the Law and the Prophets hang on these two commandments.” – Matthew 22:36 –40 [NIV]

I contacted Vasily right before the New Year and asked him to give me some details about how the sharp drop in the ruble had impacted their daily lives. As you can see, the changes have been substantial recently.

“For many people in Russia, life for recent weeks has been filled with fears and concerns about their future. The ruble plunged, losing about 72% of its value to the US dollar since the beginning of the year [2014]. In the beginning of the year it was 35 R/$, currently it is about 60 R/$, but in the middle of December it fell down to 85 R/$.”

If you are not familiar with currency conversations, consider what Vasily is saying. As the Moscow.Russiaruble devalued, anyone exchanging dollars for rubles had to come up with more and more rubles to exchange for 1 US dollar. The impact has been dramatic on the people in Russia.

“No wonder people rushed to the stores to buy various things from smart phones and flat-screen TVs to furniture and cars. People tried to use the fact that the prices in the stores stayed the same during those days, and buying could protect their money from fast devaluation. Stores, however, caught up within a week or two, and now many prices reflect the devaluated ruble. Milk went from 32 rubles per liter to 53 rubles per liter; meat from 240 rubles per kilogram to 480 rubles per kilogram; bananas from 35 R/kg to 65 R/kg: apples from 35 R/kg to 80 R/kg. Not as many people bought new furniture, TV, or a new car, but all people buy milk, meat or fruit on a weekly/daily basis. Many retail prices even though not directly connected with a dollar, began to reflect the increased dollar rate. So people now have to either spend more rubles if they can afford it, or buy less. People’s salaries stayed the same so far, although the government promised to increase pensions on 7-10% in 2015. It is clear that this crisis has cut in half the standard of living that people had become accustomed to over the last 5 years. The Russian government, the Central Bank, and the President work hard now to stabilize the situation on the financial and stock markets, but so far the prognosis people hear is not too positive, at least for 2015.”

His story could be seen by anyone keeping up with current events too.

Russians flock to stores as ruble remains volatile, Fox News, Dec 17 ‘14

“The Russian government looked at ways of easing the selling pressure on the ruble Wednesday amid fears the country may face a full-blown bank run and as consumers look to buy big-ticket items before prices rise.
Deputy Finance Minister Alexei Moiseyev was quoted by the Interfax news agency as saying that the government is going to sell foreign currency “as much as necessary and as long as necessary.” That, the hope is, would relieve the pressure on the ruble, particularly against the dollar.
The ruble has lost more than 50 percent of its value this year.”

Vasily also shared with me some illustrations, that make it clear that his work with other Russians doing missions work inside and outside the country has been greatly impacted by rising prices.

“Our short term mission trips to Israel became more expensive. For a group we took to serve in Israel for 10 days in November 2014, people paid 28,000 rubles. As the year progressed, a March 2015 trip was going to be more like 45,000 rubles. Some people decided not to go because the cost became prohibitive for them especially with the increased cost of their daily lives. So it is harder now to mobilize Russian believers for foreign missions with a weaker ruble.

Historically we have seen that such crises would lead to a cheaper ruble at first, but in 1-2 years the ruble would catch up and inflate prices in dollars too. That can be seen historically in the cost of e3 trips; for instance, it was $1,100 in 1992, then $1,800 in 1998, then $2,800 in 2004, then $3,800 in 2012.

Currently we are sadly observing panic in the financial markets because of the fall of the ruble, plunge in oil prices, sanctions, and speculative currency trading. We trust the Lord will help us through all this now and in the future.”

RubleFalls.WithOil.VOA

As nations the world over are impacted by a slowing global economy, struggling under increasing trillions in additional debt, most of which has gone toward unsustainable behavior in global markets, may we all remember our neighbors, not only next door, but especially those struggling under conditions far worse than our own in other nations.

May the people of Macedonia under the Roman Empire during the 1st century AD inspire us today. I hope the world of 2024 will read this, and immediately think of examples of this type of behavior by those who claimed to be followers of Christ.

“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…” II Corinthians 8:1-4

On a cold day in January,

A Curious Mind

PS – If you would like to make a financial impact on the lives of people in Russia, I encourage you to check out Vasily’s web page. I continue to believe that an investment in the lives of people is more rewarding that an investment in financial markets.

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Starting at the End of the Story

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Shackleton's Ship in 1914Several years ago, I was told about a book called Endurance: Shackleton’s Incredible Voyage. The book is about Sir Ernest Shackleton’s epic adventure in August 1914 to  Antarctica. As you read these opening words, consider whether you think things are going to go well for these men. Remember, this is the world of 1914, not 2014.

“The order to abandon ship was given at 5 P.M. For most of the men however, no order was needed because by then everybody knew that the ship was done and that it was time to give up trying to save her. There was no show of fear or even apprehension. They had fought unceasingly for three days, and they had lost….

She (the ship) was being crushed. Not all at once, but slowly, a little at a time. The pressure of 10 million tons of ice was driving in against her sides.

Frank Wild, the second in-command, put his head inside the crew’s quarters. ‘She’s going boys,’ he said quietly. ‘I think it’s time to get off’.”

When I had read the first chapter I was ready to stop. Here was a crew of men, who in 1914, found their wooden hulled protection from the brutal outside world being crushed. The ship that brought them to Antarctica would not be taking them home.

Why read the rest of this story? How could anything good come out of this beginning?

Still, the title intrigued me. I quickly went to the final pages of the book and read the ending. Yes, victory!

Now I knew I could go back and read the rest of what today is one of the greatest stories of determination, faith, and courage against all odds to survive.

What Gets Inflated, Can Get Deflated: Remember 2008?

It is also a story, that most of us, including myself, can not relate to at all. We have so many safety nets around us; so many things we depend on every day as though its continuation were as certain as the air we breathe. Yet, if we see any article or news report that scares us, we merely “close the book”, and ignore a larger developing story.

The story coming is the next massive deflationary period of money and financial resources, due to trillions in debt at virtually zero interest, most likely followed by a shift away from the dollar in the global system. The international currency unit, the Special Drawing Rights issued by the International Monetary Fund has had many white papers written about it as a replacement on the global level for the US dollar.

Since the 2008 financial crisis, world central bankers have told us that with trillions upon trillions to “temporarily” assist global markets, things would return to “normal”. As we close out 2014, with history once again breaking many records in extreme behavior and a string of “all time highs” over the last 2 years, deflating financial assets is not the majority view.

Yet powerful forces have been underway during the 4th quarter, producing hundreds of billions in losses already. Let me illustrate my point with two examples. This should be a harbinger to everyone worldwide, that once the largest financial bubble is over, the largest financial bust must commence.

Oil and Argentina

Oil was $94 a barrel at the end of September, and now 11 weeks later, it is in the $50s. This is a massive loss of revenue for major nations around the world, and one of the largest industries in my nation, the United States.

Economic War Goes Mainstream – Oil’s Price Drop is Seen as Proof, Global Economic Warfare,      Dec 7 ‘14

Oil.Dec12.2014

Argentina has seen its stock market plunge 34% since the fourth quarter started.
How quickly the headlines changed from September to October.

Sizzling: Argentina’s stock market is up 100%, CNBC, Sept 10 ’14

Argentine Stocks Plunge As Oversight Tightens on Parallel Market, Bloomberg, Oct 9 ’14

Merv.Argentina

These developments impact so many lives, so many nations. For millions this brings cheaper gas, or is taking place in a country that we think has nothing to do with our own daily life. However, for millions this means a lost of revenue for an entire nation or industry that threatens their own day-to-day lives. These events are also large enough in and of themselves, that they have already started impacted other parts of the global economy and markets.

Where’s The Encouraging Ending?

So let’s jump ahead in this story. Let’s look past elaborate computer models, reams of statistics, and thousands of experts. Let’s look past a debt based currency system that connects us to events across the world, and is necessary for our daily survival.

Is there any story from the ancient world for today’s complex world, that points to a time where headlines and book titles could be 180 degrees opposite of what we are seeing today?

They will hammer their swords into plowshares
And their spears into pruning hooks;
Nation will not lift up sword against nation,
And never again will they train for war – Micah 4:3

 

Thus says the LORD of hosts, ‘Old men and old women will again sit in the streets of Jerusalem, each man with his own staff in his hand because of his age. And the streets of the city will be filled with boys and girls playing. – Zechariah 8:4

I know, I know, none of us alive today have seen a time when the world has been at peace, and certainly not the most controversial religious city in the world, Jerusalem. I know that this is taking the discussion far away from a world the “money makes the world go round” dominant theme of today.

But remember, in 1914, influenza was life threatening, while most strands today are treated like a short term cold. In 1914, Shackleton’s men were closed from the outside world. Today, they would use satellite communications to send out a May Day signal.

So as frightening headlines keep increasing, telling everyone that man has not been able to create a nirvana world free from pain, is it not possible that the historical writings of several Jewish writers could provide hope of a time when the entire world finds what we really ultimately want, peace on earth and true unity between men?

For a child will be born to us, a son will be given to us;
And the government will rest on His shoulders;
And His name will be called Wonderful Counselor, Mighty God,
Eternal Father, Prince of Peace.
There will be no end to the increase of His government or of peace –  Isaiah 9:6-7

The writings of these Jewish men, translated into more languages of the world than any other writings, have been ones I have read repeatedly over the last ten years of my own life, as I have written about the many “first in history” events. They continue to give me peace, even when the world around me is not.

A path to a time of incredible world peace like no one has ever seen, is fraught with many painful scenarios none of us even wants to consider.  Yet without an ending that is more  triumphant than the frightening trends facing us all today, it is easier to close the book, and live in a world of illusion until the sound of breaking timbers forces us out on the ice.

Deep things to think about in a world that has taught us that the experts, thinkers, and planners will make sure our world doesn’t shake our own personal plans. But what if trillions more in debt, and legions of people to centrally plan life for the rest of us started breaking apart again? I know, this time it will be different.
A Curious Mind

December 15 2014

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Why The Dam Can Not Break

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To the world of 2024,

Today I am writing you as the year 2014 is coming to an end. I have been writing my thoughts publicly and privately for the past decade. It has been incredible to have had discussions with people around the world, brought together by a public writing. I have looked at the world through the lens of history, science, and crowd and individual behavior in regards to money and financial markets.

When the world of 2024 reads these comments, I believe we will ask the simple question, “How had entire societies come to the conclusion that doing things totally opposite at the system level than espoused at the individual level, would continue to lead to more ‘prosperity’, or at least return things to ‘normal'”?

Mises_CA_PrintingMoney Let me give you an idea that today is almost taboo and not open to public discussion in the world of money. If I were to tell you to pay down your debts, start living within your means, and saving for the future, this idea would be accepted across cultures around the world. Yet, as the greatest explosion of debt in human history has occurred in the last 6 years, we seem unwilling to consider how this could possibly have a massively negative impact on ALL of our lives in the future.

Debts Exceed $100 Trillion As Governments Binge

As individuals, we espouse one set of ideas regarding debt; as societies, we accept a totally opposite set of ideas. On the individual level, we have experienced limits to debt. On a societal level, for the last few decades the idea of “unlimited debt” has been commonly accepted as the means to correct the latest financial or economic crisis.

Bush Signs $700 Billion Financial Bailout Bill

Bank of Japan Unleashes World’s Biggest Burst of Stimulus in $1.4 Trillion Shock Therapy

I am certain by 2024 this will seem very odd. In fact, it will seem complete madness that entire societies could have accepted the idea of “unlimited debt” as the solution to bringing about “stability” and this being the main idea presented as necessary in order to return our lives to “normal”.  However, you must remember that this idea has been the most widely taught idea in economics and finance, embraced by political leaders, and experienced by the public since 1971. Many people know that in 1971, the United States removed it currency, the US dollar, from being backed by gold. Said another way, we were no longer willing to exchange our paper dollars for the gold we held at the national level if another country grew fearful of our spending and debt levels and wanted gold which can not change, versus the promise to pay with even more debt backed paper (now electronic) dollars. This event opened a period in history that no one had ever seen before, and the concept of “unlimited debt”.

Consider these comments from August 15, 1971: A Date Which Has Lived In Infamy in Forbes on  August 14, 2011:

In their impossibly good book Money, Markets, and Sovereignty (2009), Benn Steil and Manuel Hinds make the point that over the last four thousand years, the only period in which humanity has not consistently based its currency in metal, specifically gold, is the last forty.

More on this in the future. For now we return to perception, which is more powerful than reality.

In 2006, I read Dr. Jared Diamond’s book, Collapse: How Societies Choose to Fail or Succeed. Ten years earlier, I would have never read such a book. The stereotype of “that’s just doom and gloom stuff ” would have stopped me. Yet, between 2000 and 2002, my personal and professional life saw enough pain from the collapse of trillions in wealth, that it lead me to seek answers from many sources, whether economic theories or studies on human behavior in crowds. Studying history was always the common theme of these discussions, as it still is today.

Consider this idea from Diamond’s book, which focuses on the environment, not finance. I believe it will help the world of 2024 to better understand the world of 2014.

The final speculative reason that I shall mention for irrational failure to try to solve a perceived problem is psychological denial. …If something that you perceive arouses in you a painful emotion, you may subconsciously suppress or deny your perception in order to avoid the unbearable pain, even though the practical results of ignoring your perception may prove ultimately disastrous.

Then Diamond uses an illustration I have used many times in the last 8 years.

Consider a narrow river valley below a high dam, such that if the dam burst, the resulting flood of water would drown people for a considerably distance downstream. When attitute pollsters ask people downstream of the dam how concerned they are about the dam’s bursting, it’s not surprising that fear of a dam burst is lowest far downstream, and increases among residents increasingly close to the dam. Surprisingly, though, after you get to just a few miles below the dam, where fear of the dam’s breaking is found to be highest, the concern then falls off to zero as you approach the dam. That is, the people living immediately under the dam, the ones most certain to be drowned in a dam burst, profess unconcern. That’s because of psychological denial: the only way of preserving one’s sanity while looking up every day at the dam is to deny the possibility that it could burst.

This seems to be the easiest way, to understand why we have one view of debt for our personal lives, and yet a totally opposing view at the societal and system level.

We have experienced two financial “dam breaks” since the year 2000 in world markets. It has impacted hundreds of millions of lives around the world. Yet, after both breaks, the consensus belief continues even today that, “unlimited debt will bring things back to normal”.

As I write more, I will share with you why I grow more confident that the world of 2024 will be much brighter and different from the world of 2014. I am not merely thinking solely about money, but about our way of life across the globe.

I know, after this post, this may sound like a person in denial. However, after reading so many stories about the pain that has come to people all over the world since the idea of “unlimited debt” began in the 1970s, I have found incredible hope in the writings the Jewish race in ancient history left our modern world today.

Sincerely,

A Curious Mind

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