The revelation over this past weekend by Hypo Alpe-Adria has been called by some as Austria’s “Lehman moment”. This may very well be on a micro scale, I believe it to be the Credit-Anstalt moment on a macro scale. If you recall history, Austrian bank Credit-Anstalt was the first domino to fall in 1931 which spread across the globe and tipped the banking system into default mode.
There are many similarities to the world today as compared to that world of 1931. Debt had become prevalent leading into the stock market panics of 1929. Margin debt had exploded and caught many offside just as it did in 2007-2009. The more recent episode had even more leverage via the use of derivatives, I point this out because the “leverage ratios” are far higher today than they were 80 years ago.
The world was also in the midst of currency wars. Back in the 1930’s, the global economy had slowed (just as it has today) and consumption was not keeping up with production. This same anomaly exists today in the zones (think China and Asia) where production has been moved to lower costs. What happened in the 1930’s was considered a time of “beggar thy neighbor”. Countries purposely weakened their own currencies in order to undercut the sales price of goods produced by other countries. This morphed into trade wars and ultimately WW II. Other similarities were the fact that after 1929, unemployment rose, economic activity slowed and the financial sector was being squeezed with weakening and defaulting loans. Current day by no means is a carbon copy to where it was back in 1931, but there is a definite “rhyme” to it.
So, what exactly does the current “Hypo moment” mean? For one thing, it means that nothing was really fixed from the last episode. If “things” were good and getting better, how could a bank which was recapitalized (at the bottom) …fall even further? The answer of course is the economy and financial systems are not “better”. As I have tried to write all along, the problems were glossed over and dead bodies swept under the rug. Hypo, is simply the tip of the iceberg and a harbinger of more, similar things to come.
I would be remiss if I did not mention one major difference between the 1930’s, the days of Lehman collapsing …and now. The most dangerous “cure” undertaken in 2008 and onward is governments and their central banks putting their own balance sheets on the line. You see, this did not happen in the 1930’s, if a bank went bad …it went under. Yes, captains of industry did make efforts to save things but the federal government largely stayed out of it. Not so today. Almost nothing was allowed to go under up and until Lehman was “allowed” to fail. No one (very few) dreamed how quickly and completely credit dried up after Lehman failed. THIS is the reason nothing else was allowed to fail afterward, fear of a domino effect taking everything with it.
Last year, the U.S., Europe, Britain, Canada and others all figured out they could not go another round of bailouts. It is not that they had a come to Jesus moment and decided to let losers, lose. No, these governments ALL figured out the simple math they could no longer AFFORD to bailout insolvent institutions, especially the behemoths. This is why the legislation of “bail ins” came forth. But, there is still a big problem with governments allowing market forces to cleanse bad debt and bad banks … the size and scope of the losses involved!
I am not just talking about the size of the losses although this is certainly important. No, I am speaking of the “number” of losses and what “investors” will then decide to do. Allowing bail ins to occur will mobilize investors in a hurry. Once people figure out they are creditors of their bank, they will begin to move. Even though the bail in laws were passed last year, publicized and known about …no one cared because it hadn’t happened to anyone. This will now most likely change with Hypo and people will see a real case of real losses!
A move to “safety” is what we should begin to see shortly. The previous moves had been that of moving to yield because very little was available. Safety, or “risk” did not matter because no one was ever allowed to lose. This of course has changed with the Hypo moment. If made to wager, the Hypo moment may be very much like the Lehman moment in that it may be the last insolvency allowed. This is a very hard one to call because both choices lead to the very same “death” though by different means. We can go the route of bail ins where depositors are spooked into bank runs all over the world …or, resume more bailouts and fund them with QE.
In reality, the original questions back in 2008-09 have not been answered nor really even addressed. Nothing has been fixed, nothing has improved and truth is, nothing has changed. The question, or more to the point the reality of “inflate or die” is still there. Though we watched this fade into the background by the “inflations” of the various and global QE undertakings, the choice must be again made …inflate (again) or die… which poison will be chosen?!
This is a very interesting crossroads because given the choice, inflation will be chosen and thus further currency debasement and destruction. The problem is deflation continues to gnaw away at bank “assets”, Hypo being the first admission. If there are losses taken and “creditors” made to pay, masses will decide they do not want to be in “creditor status”. Bank runs will (and the sale of all sorts of financial credits) follow. The global banking system will become unfunded so to speak in very rapid fashion. All this boils down to is one very simple choice, “choosing your poison”. The only question remaining is whether the choice is allowed or do market forces rule and decide for the central bankers?
What does this mean to you? It means you need to decide whether you want to be a creditor, or whether you want to be an asset holder. Currencies, and the institutions that “hold them” for you will be weakened and “run”. Your obvious alternative is to become your own bank …holding real money that cannot default. The key to this game is not to be defaulted upon. The only way to do this is by having no counterparty risk to your account nor your currency. Gold in hand is your obvious solution, this decision will be obvious very soon.
Bill,
You speak words of truth, but are the sheeple readings and listening? I don’t think they are because their plastic cards (i.e., food cards, credit cards, bank debit cards, etc.) are still working.
But once the plastic cards stopping working, which will be an “…Oh Shit…” moment, the sheeple will then at that time start nashing their teeth.
The sheeple choose starvation and misery as their poison and if they live to be 100, it won’t be possible to ever recoup your loses.
Well, have to go now and see on MSM just how high the stock market is! Isn’t it wonderful we must be in a recovery?
Just think, the stock market setting all time highs and Greece gets a 4 month extension. Greece is just 4 months away from “…Happy Days Are Here Again…”
By the way would you be interested in some swamp land I have for sale?
will be a scary moment when the cards stop working.
Funny you should mention that . Talked to some people the other day about them using their IPhones to pay for everything . ” Never ” touch or have Ca$h on hand ! We are in a ” New age and technology is sooo cool ! ”
Don’t you worry about the inability to purchase anything if problems arise ? ” Nope, it will never happen ! ”
USA , USA , USA !
Rude awakening coming for some Americans !
yes.
Sheeples have no money so do not care. Rich people have never been so rich compared with the rest of the population, so they do not care also…
RD,
If what I think will happen happens, rich and poor will be an antiquated term. Rich will mean owning a month of food. Poor will mean those guys over there in the mass grave. “Income inequality” won’t then and doesn’t now have anything to do with what is coming. Smart versus stupid will determine who survives.
The smart are preparing with food, water, shelter, firearms and PMs. The stupid, whether rich or poor, are simply screwed; as they have been in all social and financial calamities throughout history.
The smart poor (e.g. the Amish) may be the only ones unaffected by the coming catastrophe; and I’m not completely certain THEY won’t be affected. But the survival of the smart poor would seem to put your “income inequality” theory to bed.
Heinlein said it best, “Stupidity is the only universal capital crime; the sentence is death. There is no appeal, and execution is carried out automatically and without pity.”
It is Stupid not to:
prepare for the coming hard times,
obtain and learn to use a firearm,
buy PMs; allowing you to survive and rebuild,
rely on your own resolve to survive,
enlist trusted others in your cause.
It is Stupid to believe that:
the government will take care of you,
any entity can overspend forever,
the collapse is not already baked in.
The latest figures I read stated that a full 1/3 of the US population would perish in the first year of a monetary/credit collapse; these are the stupid and unlucky. For the rest of us, it would get very ugly long before that.
RD doesn’t have to worry though, he is in Belgium and nothing bad will happen there.
Bill,
If I am reading all your article I am interested in what you are writing and share most of your thoughts even I agree 100% with you that what I am thinking has no importance.
Belgium will face tough period like all the west and for lots of Wallonie people, it has begun 3 decades ago with globalization.
I just challenge the timing that the SHTF moment will happen soon (several months or quarters). Jesse from the american cafe also contemplate that current bond and stocks markets could go much HIGHER and that current trends could last for quite longer.
I am not a good timing forecaster to say the least but I think BIG problems you describe will really happen within 50% proability by 2020 and by 90% within 2025.
Brainpowerinuse,
Than you for your post. I agree with you but is less negative for people with assets : if you have a mantion with no debt on the lake leman seafront or in seaside in Monaco you will survive quite well even if the rich net wealth in term of median wage will probably decrease quite a lot.
In the Weimar republic, poor did not suffer the most, it was medium and low upper class.
RD,
The poor always suffer the most, even in good times. In the period of Wiemar hyperinflation, unemployment disappeared; skilled and high-paid workers were reduced to subsistence levels (along with the poor who were already there). Barter became the norm.
The rich were the ones who had prepared early by purchasing land and gold.
A couple of things that existed back then which doesn’t today, was a sense of civility and a lack of the feeling of entitlement. I’m certain heinous crimes were committed in that period, but I believe it will be nothing as compared to what America will experience in the first few months of our own collapse.
History doesn’t repeat but it does rhyme.
yes.
Re: The only question remaining is whether the choice is allowed or do market forces rule and decide for the central bankers?
The other day, Chris Powell penned the following article: Are markets really bigger than governments? Don’t count on it.
In it, Powell comments: “…markets are certainly not bigger than totalitarian governments.” A most sobering thought. From my [K]anadian bunker, all I see are authoritarian governments. Your comments on Powell’s article would be most appreciated.
Much thanks for your refreshing and intelligent articles.
I read the article and agree, all markets are in lockdown. However, control WILL eventually be lost and thus, markets when all is said and done are bigger than the “handlers”.
This bank has been rotten for years and has become a “bad bank”. Like the portugese esperito santo they are too small in oder to trigger a domino effect IMO (I may be wrong of course).
Most people will do anything to avoid “change” or even making a “decision” between several non-traditional choices. Individuals avoiding those choices leave totalitarian governments free to exercise the very option which your article led off with, though in a different era- namely- WAR. Every government can then point to every other government as the “bad guy”, and by distraction, they are all magically off the hook!
We keep forgetting that if the people will lead, the leaders will eventually follow. We’re not leading yet. Don’t wait for the imposed solution- GET OUT OF THE SYSTEM!
GOTS!
I know you’re not a big fan of Rickards, but his new article at Daiky Reckoning makes some sense to me – that the US is manipulating the price of gold lower to placate the Chinese, who will be hurt by dollar devaluation on the $1.1 trillion in treasuries it has. Funny though, I don’t recall Rickards ever claiming the dollar price of gold is manipulated. Now he says it is so obvious it is embarrassing.
a year ago he did not, he has finally come around to the realization.
Bill…your a smart man.
There is a part of me that agrees with that statement.
Richards seems to have turned a corner and I am beginning to believe he is being genuine.
Slowly I am beginning to see reason to follow his writings.
I believe that as a CIA plant, he does give “some” good and valid info. The big lie is “the U.S. has 8,000 tons of gold”.
Yet another excellent piece. Standing O
Let me help, all who care, for some understanding.
Many are so hung up on slamming the US, for the here and now, (ah the rebelliousness of youth, inbred, instinctual, for spreading the bio-seeds) that you cant see the origins, the core reasons why.
Here are two key hints: Witch Burners, and the Bible Belt.
Physicists had the same problem, as a corollary, trying to put the gravity force, the electric force, the magnetic force, the quantum energies, into a unified field theory, enplaning the whole. So, dont let it get you down, if you can not comprehend the whole, and it is very complex.
So, there are still left many in the US who profess to be “belivers”, which is code speak for christian, fearing the use of Christ’s name, may get blow back, in these modern times. Christians live by a moral code, and find rump ranging, for example, as heinous in the extreme, and do judge others. It is difficult to believe fervently in a moral code and not condemn others outside that code, hence the protests, clinic bombings, homophobia, condemnation of Hitler’s gassing of JEWs, which prompts within the christians a tendency to intervene, to save lost ones from damnation and help their fellow brothers. In christianity, jesus taught individual acts, acts of charity. He also spoke to turning the other cheek, and judge not.
Today, we have “religion” acting as a “collective”, and hence, the catholic church encouraging votes for leftist, and “judging”. It is organized religion that takes faith based voting power and places into the political arena, to vote for leftist, because they want to “help” the poor with hand outs, and the moral hazards appended. Biden said it christian to pay taxes. These are of course warped bastardizations of Christ’s teaching. And many fall into the trap of judging others, and certainly not turning the other cheek, as the political extension does time and again.
Along these lines, the moral majority, as nixon would call it, inject their faith into the political arena, and therein lies the problem and the growth of external interventions, the PANAC, the neo-cons in the core of government, judging others, and in good faith, send military might around the world, because they care so much about their earthly brothers. This is just like FDR, trashing the constitution and republic with his raw deal. FDR was not evil, just misguided. BHO for that matter is in the same vein, honestly believing that government should help those in need, and hence, his leftist policy. The roots of foreign entanglements and leftist policies here in the US are based in the Christian-Judeo faith, though warped, when applied to “collectivism”, leading to WARs, totalitarianism, because politicians and religious heads adapt Christian morality to governmental affairs, and that my friends is the root cause of present day totalitarian socialistic fascism at the federal level, and the propensity to cure the world ill’s, rather they like it or not, and by war, if necessary. Some might call this America’s exceptionalism, others might call it a bastardization of Christ’s teachings, the constitution, and founding father principles. But it has its roots in the “caring” for one’s brother, to help thy neighbor, a deep seated notion in the Christian faith.
thanks
bill, I am a student of esoteric knowledge and you are on the right path by comparing it to 1930. our teachers say we face the same situation as 1930. we do have a choice to change the outcome, its up to the people to make a choice. if you also notice that fascism is on the rise just as 1930. if you will also notice that for the past 100 years we have been losing our liberties. that coincides with the beginning of the federal reserve.
yes, we are rhyming with 1930.
Smart phones. They now do almost everything. Pay a bill, transfer money, map directions, nearest steak house, cheapest hotel, hell, you can even use it to talk to someone! Yes, they can do almost anything – until they stop working along with plastic cards.
The amount of circulating fiat cash, the actual physical bills and coins in use, is not all that big. During the early part of a system crash it will still be used, but will suffer a quickly developed price inflation as people lose confidence in it.
Government “feeding stations” will be the carrot dangled in front of the masses to come forth into physical bondage. A starving man or woman will do almost anything for food and if they have children who are starving, they will do anything!
Conscription comes directly to mind. A ready made army of cannon fodder. Hoards of armed, ill trained automatons, being led by those who have no moral fiber, following orders issued by oligarchs.
“World Made By Hand” written by James Howard Kunstler comes to mind. If you have not read it, then I implore you to do so! Your eyes will be opened to what may very well be coming in the near future. Good luck and may the Lord preserve us from evil.
we will not recognize the world.
Bill – A publication I follow agrees with you in what you say with one exception, unless I have misunderstood you. The authors believe that checking accounts will not be included in a bail-in. Their reasoning is that the Fed will make sure currency flows through the system, otherwise, a total freeze will occur and collapse the banks. What are your thoughts?
this is possible.
The big picture is difficult to get into focus because there are too many unknowns.
By unknowns I mean much of the data governments provide is skewed.
Yes, there are some who analyze the data and try to provide clear focused snapshots of the situation world wide.
The problem in the world is the same problem that has always been there.
Those in power want to retain power.
Retaining that power is difficult because we are seeing the shift move from West to East.
Many decisions have been been that were made without considering the long term effects.
The have nots are beginning to overwhelm the power of the haves and now we are seeing more aggressive moves by some in order to stop the flow of power from one to another.
Borrowed money only buys borrowed time.
Temporary fixes are just that and those temporary fixes are beginning to outlast their BEST BEFORE DATE.
There is no easy answer or fix now..
Maintaining power will cost huge hurt and maybe huge loss of life.
For now those of us here are seen as the doom and gloomers and when we are proven right we will become hated and likely targeted.
Yes, powers can delay the outcome by denying the problem but eventually the problem becomes so huge that it can no longer be hid.
Mother Nature.
Thank you guys for given me (and the rest of the worker bees)your take on whats going on. Can`t do something about it but some how i need to know it all. I took the Red Pill back in 2007 and i am very glad i did. Again thank you very much!
Angelo
very welcome Angelo.
Bill – I read the quote below from Harvey Organ’s website. What are your thoughts and how does it fit into the bigger picture for gold?
“…James G. Rickards that the United States and China are cooperating in suppressing the gold price so that China more easily may obtain enough metal to hedge its grotesque foreign exchange surplus in dollars are not necessarily the first ones along those lines.”
Weare not cooperating, we are doing it to delay them from pulling the plug. The Chinese desire to be “paid” and fairly settled upon.
Heads Up, from the obscure minions.
This day I offered to run on Libertarian Party nomination for president in 2016. I know how to quickly fix the problems in the US. I also offered the Kremlin my services as laision to the US Government. If Putin is really the peace guy, I’ll put him to the test. Can anyone, in this hell we live in, spell snowball?
good luck.