It’s simply amazing how many “horrible headlines” appear each day now. And thus, as was the case amidst summer 2011’s Global Meltdown II, I sense that our ability to condense our daily commentary into “five pages of misery” will be put to the test, ad infinitum. Today, it’s difficult to categorize relative importance, as so many dire topics are in the news. However, I’ll give it the old college try.
Let’s start by going back to what we wrote back in November, just weeks before Bitcoin topped at $1,242/oz.; not un-coincidentally, just a few dollars below what gold was trading for at the time. In a nutshell, Bitcoin may one day have merit as an investment – or perhaps even, an alternative currency platform. However, it would NEVER meet the strict, time-tested definition of money. Next, fast forward to last week’s “store of value” article, when we argued that the burgeoning collapse of Mt. Gox – the world’s largest Bitcoin exchange – proved that not only is Bitcoin too volatile and lacking of intrinsic value, to maintain monetary status over time, but that differing prices on different exchanges demonstrated its basic lack of fungibility. In other words – unlike gold and silver coins – “all Bitcoins are not created equal.” In fact, at last weekend’s Liberty Masterminds Symposium, I got into a rather heated debate with a Bitcoin aficionado on the topic – whom smarmily insisted one must have a superhuman IQ to “get it.”
Well, guess what? This morning, Mt. Gox went offline; and worse yet, appears to have abandoned its offices entirely, under an obvious bankruptcy situation that will likely leave “investors” with billions of losses. Laughably, other Bitcoin exchanges have “banded together” to try and distance themselves from Mt. Gox, but give me a break! Now that Mt. Gox is gone, the two “leading exchanges” are headquartered in Bulgaria and Slovenia; and thus, if anyone has illusions of sleeping the “sleep of the just” with their Bitcoin investments, all we can say is this. Good luck with that one, particularly in light of yesterday’s additional Bitcoin news; i.e., that “ponybot” malware has been found to be pilfering Bitcoins from online “wallets” for some time now.
Next up, let’s go back to yesterday’s article – “countdown to crisis” – in which we detailed how not one or two, but three coups were ongoing over the weekend; quite obviously, either directly or indirectly related to the surging inflation of items we “need versus want” caused by out of control Western money printing. And once again, guess what? Said list can be increased to four; as yet another of the “Fragile Five” nations – Turkey – appears on the cusp of same. Given Turkey’s extremely delicate geopolitical position in the Middle East, don’t be surprised if such an event has dire circumstances for an already destabilized region; which quite obviously, would be as positive for Precious Metals demand, as negative for everything else.
And speaking of inflation, which comically, the leading Western Central banks insist is non-existent – it appears that 2013 yielded the third highest global food prices ever. And that was before the massive surge in the CRB agricultural index that commenced after year-end; which no doubt, the historic droughts in California and Brazil have contributed mightily to.
We have for some time spoken of Western exported food inflation as the principal cause of the “Arab Spring” and other civil unrest since the post-2008 money printing orgy commenced; and below, one can see EXACTLY what we are referring to.
Worse yet, given the Ponzi-esque nature of fiat currency – yielding an unending need for expanded money printing – global currency wars have expanded as well. Misguided political attempts to “gain market share” by ruining one’s currency only creates additional inflation; which in turn is exported overseas causing other Central banks to retaliate by devaluing their own currencies. Japan’s “Abenomics” is the most blatant example of such lunacy – as Japan has the world’s highest consumer prices; but rest assured, it occurs everywhere, including here in the States.
However, the most damaging devaluation has been China’s “peg” of the Yuan to the dollar; which over several decades, has entailed the PBOC printing trillions of Yuan to “keep up” with the Fed. Having permanently taken millions of jobs from the U.S. via a combination of the peg and short-sighted U.S. trade laws (no doubt, written by lobbyists), the Chinese have allowed the Yuan to modestly rise against the dollar in recent years. However, it appears the “final currency war” is again worsening – amidst a collapsing global economy; as in the past week, the PBOC has devalued the Yuan by an entire percent, representing its biggest decline since the peg was instituted in 1994. Remember, the PBOC last month printed more money than the Fed and Bank of Japan combined; and thus, if anyone has delusions that China is NOT amidst a deep, steepening recession, you will shortly be proven decidedly wrong.
And then you have the United States of Economic Collapse; where this morning, the “horrible hit parade” was supplemented with a Richmond Manufacturing Index reading of -6 versus last month’s +12 (and expectations of +3); a consumer confidence decline from 80.7 to 78.1 – including a “current expectations” plunge from 80.8 to 75.7; and the second straight monthly decline in the Case-Shiller Housing Index. Moreover, Macy’s reported disappointing fourth quarter sales, putting a final nail in the holiday spending coffin and adding insult to injury, JP Morgan announced another 5,000 layoffs (taking the total to 17,000) in its mortgage-related business – due to a collapsing U.S. housing market, in both the residential and rental segments. As an aside, don’t forget for a second that financial firms like “the Morgue” require exponentially increasing debt levels to survive – and subsequently, to book the non-cash “profits” subsidized by limitless Federal Reserve QE; which, we assure you, can NEVER end.
And finally, under the category of “good for America, but bad for tens of thousands of workers,” the below chart of dying auto industry unionization depicts an inevitable surge in the Food Stamps payrolls, as formerly overpaid workers that were able to handle rising inflation can no longer do so. No problem, we’ll just print the money. I mean, such lunacy can’t possibly impact food prices, right?
Which brings us to the topic du jour; i.e., “Draghi’s Reckoning Day. This highly probable event, which could take place as soon as the March 6th ECB meeting, goes back to his infamous July 2012 statement that the ECB would do “whatever it takes” to save the Euro…“and believe me, it will be enough.” Such bold, dangerous statements were bound to eventually haunt him; and apparently, that time is now.
Ironically, amidst an expanding continental depression, the Euro is actually at a multi-year high against the decrepit dollar. However, much of this strength is due to the unwarranted expectation that “Goldman Mario” will not ramp up the money printing in a Fed-like manner; which, per the title of today’s article, is likely to be universally realized by year-end.
In other words – not un-coincidentally, as a third Greek bailout is about to be enacted – the ECB has painted itself into a corner in vowing to be “conservative” while at the same time, publishing uber-dovish statements such as this one from last month’s annual meeting.
We continue to expect the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on an overall subdued outlook for inflation extending into the medium term, given the broad-based economic weakness of the economy and subdued monetary dynamics. Overall, we remain firmly determined to maintain the high degree of monetary accommodation and to take further decisive action if required.
–ECB.europa.eu, February 6, 2014
Since then, global economic data has all but collapsed; including the Euro Zone’s pathetic 0.3% fourth quarter GDP growth rate – and lo and behold, its comical January “CPI” reading of negative 1.1%. Like Helicopter Ben, “Goldman Mario” has been warning of the deadly prospects of deflation for some time. And now that the IMF is vehemently warning of the same, it appears extremely likely that the March 6th meeting will yield not only a rate cut from 0.25% to 0.00%, but possibly, the introduction of other “available instruments” such as negative interest rates and/or outright QE – or as they call it OMT or Outright Monetary Transactions.
Not if, but when such actions are announced – perhaps next week – it will be a “whole new ballgame” in the realm of global hyperinflationary expectations. Perhaps, John Williams will be right in predicting such a phenomenon this year; but if not, it can’t be too much further into the future. And thus, as gold and silver continue to exhibit not only their strongest fundamentals of our lifetimes, but most powerful trading resiliency in two years, it would seem a prudent move to at least consider the protection of your life’s savings, don’t you think?
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