When historians look back at 2014, they will unquestionably use it as a case study of government foolishness run wild. As a 43-year mad experiment in global fiat currency undergoes its terminal stage, the world is experiencing a greater degree of cumulative political, economic and social turmoil than at any time in history. And sadly, the chaos is just starting; as amidst a rapidly collapsing worldwide economy created entirely by overt and covert government intervention, unprecedented financial bubbles have been created as a temporary “offset” again, entirely due to overt and covert intervention.
Such an unsustainable system must collapse under its own weight; and likely, will do so sooner rather than later. Frankly the best way to describe such “pegged off the scale” risks – and conversely unprecedented precious metals suppression – is by quoting Hannibal Lecter of Silence of the Lambs. Here he refers to the deranged serial killer “Buffalo Bill”; but just as well could be describing 2014’s global economic environment just before the “eye of the 2008 hurricane” passes over.
Our Billy wasn’t born a criminal, Clarice. He was made one through years of systematic abuse. But his pathology is a thousand times more savage and more terrifying.
We all know how it ended for Buffalo Bill, which is exactly what looms for the ill-fated plans of global governments “careening out of control.”
It’s Monday morning, and I’m in awe of the “horrible headlines” described below. When I first started working on Wall Street as a bright-eyed, optimistic lad in 1989, I had no idea how endangered the global economy was. In fact, the situation could be aptly compared to Dan Brown’s Angels and Demons, when the Vatican had no idea an “anti-matter” bomb was lurking beneath it covertly activated and counting down the minutes to its irreversible explosion. Sorry for all the movie reference this morning – which long time readers know, I am quite fond of. However, as today’s title suggests hyperbole is the best way of describing the economic horrors unfolding right under our noses.
Given the potentially cataclysmic developments, I don’t know where to start; but clearly, Iraq is good a place as any. To wit, in last week’s “300 million versus Seven Billion,” we wrote of how America’s rampant imperialism over the course of decades has alienated it against a rapidly developing world containing 23 times more people. The horrific, unjustified decision to bomb Iraq in “response” to 9/11 has wrought millions of deaths, trillions of debt, destabilization of the world’s most dangerous geopolitical region, permanently higher energy prices and unprecedented anti-American aggression. It was only a matter of time before the chaotic puppet state left behind collapsed into civil war; and apparently, that time is now – just two years after U.S. troops officially withdrew.
This weekend, all-out war broke out between the militant Sunni faction ISIS – which not only is intent on taking over Iraq, but flagrantly flaunting the violence it plans for Shi’ites, Kurds and all “infidels” alike. As the battles approach Baghdad and expand toward Syria and Lebanon, anti-Sunni Iranians have already joined the fray, whilst the U.S. has sent a massive aircraft carrier and marine-wielding warships into the Persian Gulf. As I write, West Texas crude prices are above $107/bbl. and Brent Crude $113/bbl.; just in time for the summer driving season, threatening an historic gasoline price surge. And not only are gasoline prices being driven up by geopolitical tensions but Mother Nature herself – via historic droughts in California and Brazil. Throw in the fact that the shale oil “miracle” is rapidly collapsing – as evidenced by last month’s 96% downgrade of the reserves of America’s largest shale oil formation – and the inevitability of surging gasoline prices turns eminently imminent.
Meanwhile the Ukrainian “de-escalation” has become anything but; as over the weekend, some of the most vicious bloodshed to date occurred. Clearly, a violent civil war is underway with Russia aggressively defending its interests in the area. Last night, the Ukrainian government officially defaulted on its natural gas contract with Gazprom; and consequently, supplies have been shut off. Apparently, no agreement was reached between Ukraine’s own government and the EU to “bail it out”; and the prospect of surging energy costs in the war-torn nation are equally imminent. In other words, the aforementioned “de-escalation” propaganda platform is collapsing; with not one but two of the world’s historical geopolitical hotspots on the verge of cataclysmic lasting wars. Remember, Gazprom not only provides 63% of the natural gas consumed in the Ukraine, but 30% of the entire European Union’s supply – of which, roughly half is exported directly via Ukrainian pipelines. Thus, unless European governments want to risk citizens freezing to death this winter, they best let America “go it alone” in its quest to re-commence the Cold War – on Russian turf, no less.
As for the global economy – that is, excluding the impact of the aforementioned geopolitical risks – what better way to describe its precarious state that today’s “top story” on MSM cheerleader Yahoo! Finance, of how the Chinese corporate sector (which we call “corporate” as the Communist government directly or indirectly owns everything) has racked up an astounding $14 trillion of debt? Incredibly, most of this debt has been incurred in the past five years, as per the subtitle below, the PBOC may not be vocal as Western Central banks, but has clearly been more active in “stimulating” the economy with unnecessary construction projects funded by covert money printing. According to Standard & Poor’s, “as much as 10% of global corporate debt or $4-5 trillion is exposed to the risk of a contraction in China’s informal banking sector.” And given last week’s plunge in copper and iron ore prices to multi-year lows – much less, the aforementioned collapse of the Baltic Dry Index and surge in crude oil and food prices – the odds of said contraction have never been higher. I haven’t even discussed the cancerous spread of the Chinese base metal re-hypothecation scandal; which in and of itself, threatens to collapse history’s largest construction bubble.
In Europe, Spain is officially joining the ranks of “careening governments,” desperately trying to put “lipstick on a pig” by fraudulently increasing its GDP calculation via unsubstantiated estimates of underground non-tax paying activities like drug dealing and prostitution. Like the U.S., Italy and Nigeria before it, such economic lies won’t improve Spain’s financial situation one whit; but instead, will further discredit a government already on the financial razor’s edge. Last week’s draconian ECB policy actions speak volumes of the true state of Europe’s collapsing economy; and like the Bank of Japan’s “Abenomics,” the PBOC’s aforementioned “stealth stimulus,” and the Federal Reserve and Bank of England’s respective “QE” programs such actions must be exponentially expanded – permanently – to avoid instantaneous economic collapse.
Here in the States, where our President played his 175th round of taxpayer subsidized golf this weekend – in ultra-expensive Palm Springs, no less – the “most damning proof yet of QE failure” is front-and-center for the world to see; as the Fed blatantly defends the all-important 2.60% yield on the benchmark 10-year treasury yield, terrified that the world will “win its bet” on “QE to Infinity.”
Meanwhile, the “economic hits” keep coming, with Friday’s “unexpected” plunge in consumer confidence followed by this morning’s dramatic reduction in the IMF’s U.S. GDP growth estimate, and a $24 billion collapse in the Treasury International Capital or TIC report. The fraudulent “Empire State manufacturing index” was supposedly “strong”; but what a surprise, the six-month business outlook plunged and the all-important employment component collapsed 50%. In other words, another typically rigged “diffusion index.” Better yet, signs that America’s historic subprime “echo bubble” is collapsing could not be more reminiscent of 2008; which calls into question just who has been boosting stocks to historically overvalued levels and maniacally suppressing precious metals to such historically undervalued levels; particularly at the 10:00 AM EST close of the global physical markets; which just happens to coincide with the Fed’s “permanent open market operations,” when freshly printed cash is injected into “TBTF” banks.
And thus, under the category of “we told you so,” this weekend’s blockbuster news that a study will shortly be published, demonstrating how a “cluster” of government institutions in 162 countries owns $29 trillion of global equities. Not surprisingly, “stealth stimulus” has propelled the PBOC to the position of world’s largest public equity holder; although we’d be extremely surprised if the Fed and Bank of Japan weren’t sporting similar holdings. And with the Swiss National Bank’s Chairman blatantly proclaiming, “we are now invested in large, mid-, and small-cap stocks in developed markets worldwide” whilst the piddling Danish central bank admits to holding a whopping $500 million of equities itself, it could not be clearer that Central banks are inflating history’s largest financial bubble – and simultaneously, history’s largest “anti-bubble” in precious metals. In other words, “QE to Infinity” for the entire world to see in what is shaping up to be the largest Ponzi scheme in recorded history. That is, until one considers the size of the unbacked fiat currencies supporting it. To wit, tell us if you believe a “PIIG” like Portugal can maintain record low sovereign yields (chart below is a 10-year Portuguese bond) with a cumulative 445% debt to (overstated) GDP ratio, its largest bank on the verge of collapse and the European economy in freefall.
This Wednesday, the FOMC holds a regular policy meeting in which “Whirlybird Janet” is expected to maintain the paradoxical course of $10 billion monthly “tapering” increases and “ZIRP to Infinity.” Forget the fact that tapering is a sham – as we categorically proved last year – and focus on the reality that it is but a propaganda scheme supported by the aforementioned stock and bond market support enabled by unfettered Central bank money printing. In the Fed’s view, it can continue lying about economic “recovery” so long as its bubbles remain inflated. However, now that such actions have created the “biggest (manipulated) disconnect of all time,” the Fed’s options are becoming increasingly limited. Already, the Bank of Japan and ECB have cried “uncle”; and thus, with the real U.S. economy unquestionably collapsing, it’s only a matter of time before the Fed, too, is forced to admit it. In February, we predicted “Draghi’s Reckoning Day” four months in advance; and frankly, we’d be shocked if Yellen’s “Jimmy Shaker Day” doesn’t occur by year-end (more on that tomorrow).
Given the aforementioned description of “careening governments” worldwide, why would anyone believe this game can end in any manner other than that of the previous 599 fiat currencies? As I edit this article, Argentine bonds are collapsing as the nation appears on the verge of catastrophic, hyperinflationary default. As we discussed last week, global government efforts to “stave off economic execution” long ago passed the “point of no return”; and thus, the only possible scenario is exponential growth in money printing, debt, and inflation. With precious metals trading well below their respective costs of production, the odds of a material price decline appear infinitesimal whilst the odds of the “New York Gold Pool” being obliterated are sky-high increasing exponentially with each passing day. And thus, if the system’s inevitable collapse occurs whilst you watched a “golden opportunity” to protect yourself waste away we can only say “for shame.”