I have had many people tell me they agree with my thought process on events, but don’t understand “why” or “how” the financial system has held together. Why of course is the easy part, no one wants to see the system come apart at the seams, especially the ones running the casino and benefitting the most from it? I think the better question is “when.” I am constantly asked when I think we will see a systemic cascade and my standard answer is “it should have been two (or more) years ago as the question has not been “if” but when for at least that long. Actually, it was pretty clear in 2012 that QE was not working and not the answer, we should have collapsed then. Were they to have allowed this thing to go over the cliff in 2009, we would be in a real recovery already but no, bailing wire and chewing gum has been used to keep the charade going.
As for how the can has been kicked this far down the road, it is obvious there are two (actually 3) feet that have and are kicking the can furiously. These are all obvious but I will repeat them here. 1. The ability to freely and in unlimited quantities print money (and thus borrow). 2. The availability of derivatives contracts to “make” the price of anything … any price desired and 3. “leverage.” These 3 techniques combined have hidden the reality of bankruptcy …by making us even more bankrupt!
As for “when,” I will point to several events which all point toward the decline of American status into chaos. One huge and obvious clue is our lesser status in international circles. This has been a process over many years and has been speeding up rapidly in recent years. All you need to do is look at the various conferences where the U.S. is no longer put out front and center for photo ops. Another telltale sign is how John Kerry has been received (or not) at several diplomatic meetings. In fact, “disrespect” is the word I would choose to describe his treatment. Please understand that when it comes to diplomacy, nothing ever is done by mistake or oversight. The Chinese in particular are extremely careful in what they do and the messages which they might send. The most recent “Top Gun” like aerial events and then the following statement by China speaks volumes. Can you imagine even 5 years ago the U.S. being called a “disgusting thief spying over his neighbor’s fence?” It appears our relationship with China (and the rest of the world) has taken a very bad turn for the worse. Recently there have been airstrikes into Libya by the UAE and Egypt where the U.S. says they had no foreknowledge of them. Really? If this is true then what in the world are our so called “allies” thinking? Were these strikes carried out because we would not? I find it hard to believe we had no knowledge, but if this is truly the case, our “coalition” is folding. And what of the aid being withheld to Israel? What does or could this mean in the longer run? What of the Saudis? Will they continue taking dollars and only dollars for oil? And our now “new” relations with Russia? My point is this, no matter where you look internationally, the power and “iron fist” of the U.S. is weakening.
That said, I believe we have been “allowed” to continue on and even expand the façade of solvency. You have read my theory that the Chinese are the proxies behind the huge open interest in COMEX silver, this may or may not be so. What is “so” is China has become the largest creditor of the U.S. and also holds the largest dollar reserve position. In my opinion, China could have pulled the plug at any time since the fall of 2008 but they have not. In fact, I believe they have carried us along and even “enabled” us to dig our fiscal hole even deeper, this seems like it may be changing. I believe we have been “milked” for many things over the years from our consumer market purchases to technology and of course our gold. What does the U.S. have left to offer our creditor(s)?
Another thing that’s changing is the Fed. They have boxed themselves into a corner with zero percent interest rates and QE supposedly ending (or not). They cannot ever raise interest to any significant degree without blowing up the derivatives complex. As for QE, they can no longer continue because they have taken too much “collateral” out of the system already. But, they MUST continue pumping free money into the system to keep the bubbles from collapsing, quite a dilemma. I am sure the Fed will in some way or manner figure out how to replace the $85 billion per month that was QE in “public.” Whatever the form, the Fed will now out of necessity need to do it under the table and out of sight. You may recall a year ago, China began last fall calling attention to us becoming “responsible” with our fiscal and monetary policies, have we?
One other area to look at is the fact that the Shanghai metals exchange will be fully live by October. Quite interesting however is the status of their silver inventory. This has now dropped to a tiny 103 tons, down from 1,143 in Jan. 2013, just 19 months ago. How will this exchange settle without inventory? Will the Chinese replenish the inventory from the supposed COMEX stocks? Will the COMEX stocks even make through the September delivery period as more contracts are still outstanding than there is silver for delivery? I assure you, if any exchange anywhere in the world is found not able to deliver, a scramble for metal will ensue where not even the strongest “leg” in the world will be able to kick the can further!
So back to “when,” when do the wheels fall off? If I knew this I would have told you five years ago and not written again until 30 days before the “date.” All I can say is that the U.S. has obviously lost power and prestige internationally and recent displays of a “lack of respect” may very well be a sign. A “sign” that the plug will be pulled soon. The U.S. I believe fully understands this which is why the desire to get a war, any war started as soon as possible.
I have thought over the last 5 years that a complete financial crash could have taken place at any time. In hindsight with 20/20 vision I still believe the same thing. At any time for any variety of reasons our markets and banking systems could have seized up. The Fed (and Treasury) have done anything and everything they could to forestall it …and I believe we had foreign “help.” You must wonder where this “help” will come from going forward as our ability to purchase goods and deliver gold ends? My answer to the question remains the same, our markets and banks can close for an extended and unscheduled holiday on any given day and for any number of possible causes. No one knows when nor what the trigger event will be. I have looked at this from every angle of the Devil’s advocate. I have not seen one single scenario suggesting the system is sustainable for any length of time that is logical. ALL of the math, logic and common sense points towards a train wreck which grows in size for each day that it doesn’t arrive. “It cannot happen because it hasn’t ever happened” does not apply.
Imagine going to your internet banking account and discovering that all your digits aren’t there anymore because the gov’t used them all to help pay off their digit debts.
That is very easy for me to imagine. I don’t think anyone will need to imagine it for very long.
Rather than use a bank, or better a credit union as a place to store wealth, they should now be used as a means to an end. That is, a way to move currency around to pay bills. Currency is actually safer in cash, as long as you have a safe place to keep it. The interest paid on deposits, is no longer worth the risk of keeping them on deposit.
I think most people that read your articles (1% to 2%) realize you are spot on.
I have been expecting the curtain to go up and the fat lady beginning to sing for 3 years now. I can hear her singing behind the curtain and I believe the curtain will raise very soon (maybe before 12/31/2014).
I hope the retail stores are not expecting me to help them keep their doors open this Christmas because my funds are low and my 8 grandchildren and 4 great grandchildren will not see the same Christmas they have seen in years past. Maybe the other 99% can keep the retail stores open. If they are depending on me, they might as well start laying off people now!
When, not if, the USA gets a war going, it will be a lot tougher than any one can imagine and of course the crimes of the bankers will be covered up.
Folks should immediately stock up on food, water, medicine, guns and ammo, and of course gold and silver.
I’m not kidding when I say “GET OUT OF THEIR SYSTEM NOW”!
Any funds, 401k’s, money markets, saving and checking accounts, etc. will become your personal donation to the criminal bankers and it WILL NOT be tax deductible. Of course when the sh*t hits the fan taxes will be the last thing on your mind, but if you don’t have a way to pay your property taxes, then your home will become a donation to the criminal bankers. If bankers are our friends, then leave me out of it.
The USA is “a dead man walking” !!!
you cannot go wrog by preparing for the worst and hoping for the best.
From the Expected Returns blog:
Why Being a Full-Time Bear is Hazardous
As I scour the internet, I sense misplaced bearish sentiment and a growing chorus of people expecting a stock market crash. I don’t think a crash is likely, which puts me in an uncomfortable position. Most of my peers in the “government debt is out of control, gold is going to rally, prepare now or forever hold your peace” crowd are bearish on everything. I just don’t agree, and I haven’t agreed in years. The sad thing is that this wholesale bearishness is about 90% right. It’s just the 10% where these bears are wrong destroys your entire portfolio.
Balance is critical in investing. A balanced approach in recent years would have left you in a very comfortable position. In the back of your mind you know about the debt crisis, but you would have taken the gift of yield and the value that it implied in stocks and real estate. This yield would have given you the patience to sit, shrug your shoulders, and profit during this curious period of no volatility in markets while the world is going haywire. And you would be able to accumulate a cash position for the future panic when dollars are becoming more valuable against other currencies AND on an opportunity cost basis.
Compare this to the “the dollar is going to 0 right here, right now and the market is going to crash 90%” crowd. Perhaps you shorted the market all the way up to new all-time highs. Or you went all-in on gold instead of hedging with yield. This means you might be in an emotionally-charged position right now. You need the market to decline. You need a rally in gold now. If gold drops another 20%, you must sell in panic. This is not a good position to be in and it stems from a lack of balance.
In theory, each investment decision should be based on opportunity costs and expected value culled from current information. In practice, our decisions are influenced by past decisions. And this is the danger most of us face when volatility reappears with a vengeance.
What’s At An Extreme?
You should be asking yourself: What’s at an extreme now? What looks out of place? If nothing looks extreme, you don’t force the action. Patience is one of the hardest traits to learn.
The extremes I see are on the government’s balance sheet and in government bonds. That’s about it. This doesn’t mean short government bonds, it means accumulate assets that will do well if bonds crash.
Stocks and real estate are in the range of fair value. The dollar is probably not crashing, and in fact, is likely to head higher. Gold is undervalued, but the timing isn’t right. You buy gold on true panic sell-offs and on the way up, not on normal corrections down when hardly any gold bugs have thrown in the towel. Long-term, yes, even buying at all-time highs near $2000 will be forgiven. But short-term if gold is the only investment you made, not very good.
The debt crisis will arrive in a blaze of glory. But make sure you are positioned to profit from it. Leverage will not be necessary when the tenor of the market shifts to panic. Dollars will be extremely valuable. This is your ammunition. This trend by no means has expressed itself fully yet. If you missed out on the recovery in stocks and real estate, investments based on short-term deflation (rising dollar) are probably your best bet.
nice diatribe but if it were not for derivatives, “pricing” of many assets would not even resemble the current.
I agree with you, Bill. And the author definitely isn’t against gold and silver. I think he makes a good point, though, that there was/is money to be made in other areas.
…as long as you “bet” in the direction the derivatives are being “used”.
Makes great sense, Bill.
I have been shocked at how long this jalopy has continued to putter along. But, with de facto mafiosos driving and pushing the jalopy, and waving off what few honest policemen (regulators) there may be, the trip has continued.
But, the end of the road ever nears, and it is a cliff.
I think so.
Nice article Bill – Long awaited, but let’s face the facts – Nobody really knows “When”.
Anecdotally, I have heard two very bearish interviews during CNBC’s Power Lunch this very week. Both predict serious market corrections: 50% on S&P, 30 – 60% on the Dow. In the latter case, the interviewee did not duck that he was, essentially, expecting a crash. He enthused about gold and mining stocks.
I know it’s rare to hear such common sense on a major organ of TPTB (CNBC), but it is refreshing. Who knows? Maybe even a mighty front for the PTB, CNBC, can’t help but document what they know must be considered now and then, if only for their future credibility when this all falls.
getting people ready for it?
“When” is now something the BRICS control. They can hold us up till their moment is right. Of course, there might be a Black Swan living in a computer that could move at the speed of light and make it impossible to put Humpty Dumpty back together again.
Considering how stupid the BRICS know the neocons to be, and the nuclear toys at the USA disposal, I imagine our “when” is already well in progress. Like the lobster in the pot on the stove we just don’t feel how hot our water is already getting. Selling new cars to broke people, calling part time burger flippers employed, may fool Americans into thinking about a recovery, but I’m sure the BRICS can see reality.
yes, very good.
I believe the reason the collapse has taken so long is because of the high risks involved in not moving carefully. There are some very dangerous players running the American ship who would not hestitate to start a major war including a nuclear one that would blow up the planet if given half an excuse because they ‘think’ they could win such a war. Carefully moving wealth to the east away from the criminals, carefully building alliances to counteract the west , carefully setting the ‘trap’ by letting the western leaders destroy themselves by looting their allies and alientating them, spending themselves into an even more massive hole until they have isolated themselves from the rest of the world while bankrupting themselves into powerlessness. I think that we are there now. Germany is ready to join the east and leave the
Euro. The end game is now.
I agree with mfields 111. I also think the end game is now, but every time I feel that way, the can gets kicked down the road a little further.
The day is coming when kicking the can down the road is no longer possible, and it might well be now.
I pray we all get through this when that time arrives.
Bill, once again I agree completely. I also agree with most of the above comments except one. I probably don’t need to explain that one. As for “when”; in a day when all the markets are being manipulated by a very few, all rules of engagement are gone and there is INTENTIONALLY no way for the common man to predict the “when”. We are in a chess game where even the Obama’s of this world are but pawns on the chessboard and we, the common folk aren’t even allowed in the room to watch the game, making it impossible to predict the outcome and thus protect ourselves against it. That’s the way they want it. So as you say, plan for the worse and hope for the best.
exactly Lenn, it is a closed game so no one can see…but, as long as you know how it ends, you can prepare.
Remember that it is not just the manipulators, but those willing to be manipulated for the sake of maintaining the status quo.
I am no big fan of Milton Friedman, but I always felt that the two and half most important lines in his 1994 “Money Mischief” book are this:
The United States could barely operate without a common and widely accepted medium of exchange; yet the existence of a common and widely accepted medium of exchange rest on a convention: our whole monetary system owes its existence to the mutual acceptance of what, from one point of view, is no more than a fiction. That fiction is no fragile thing. On the contrary, the value of having a common money is so great that people will stick to the fiction even under extreme provocation. But neither is the fiction indestructible: the phrase “not worth a Continental” is a reminder….
Hang in there
I think these lines speak very well as to why the “when” has gone father than we could have imagined. Let’s face it, we PM investors feel lousy about the current hammered paper value of our metals even though we know the fiat days are numbered. Most of us have a fiat frame of reference crammed in our brains that is hard to break
WOW Dave! Great quote, I had never read this before. Maybe because I have thought of Friedman as an idiot and did not bother to read him. I guess he can go down in history as a shill who at least knew what the real deal was?
When? That’s the $64 Trillion USD question, isn’t it?
I think if we make it through this October, we must count our blessings! October is always a very difficult month for the USA. With the so-called “Super Blood Moon” on Oct. 8 and all the “Black Mondays” throughout the short US history, it’s going to be a cliff-hanger literally and figuratively.
What they are going to do is to preempt it like they did with 9/11. There was a huge market crash around 9/11 along with the 1.2 Trillion USD “missing Pentagon funds” that were demolitioned along with those WTC buildings.
The whole “Bad Russia” narrative that is being laid out in the Presstitute Lamestream Media is for this explicit purpose. Meaning that when they need to launch WW3, the new “Axis of Evil” is hereby denoted. BTW, the “Axis of the Righteous”, if you haven’t noticed by now, is the US/UK/Israel and their All-Lies!
That Milton Friedman quote (what a horrible creature!) by one of the commentators in the comment section to this article about the USD hits the nail dead on the head: When the collective realization happens that the USD is FICTION and more importantly WORTHLESS, it will be extremely sudden, like a collective awakening.
So it’s a question of which explodes first: the USD or all those Trillions of Derivatives.
but they will explode.
actually,it was $2.3 trillion
Answering “when” is not possible in my opinion.
The arithmetic underpinning the system guarantees the concentration of profit thus the concentration of ownership.
The fundamental problem of fiat money is possession. Economic actors exchange skills and knowledge in return for fiat money. But economic actors do not have ownership of the money they receive. In the fiat monetary context, not only does the central bank progressively debase the currency but it can and will withdraw all money in circulation and substitute it with whatever it pleases at whatever value it pleases.
So, in a fiat monetary context, economic actors exchange something of value (skill and knowledge) for the proverbial nothing.
The concentration of profit therefore results in the concentration of ownership of the productive capital.
The point at which the economy and society are fully captured, is also the point at which the monetary authority is pretty much the single largest actor in the global economy.
See this for example:
At this point, once the diminishing marginal utility of debt guarantees that the monetary authority is “pushing on a string”, the present monetary dynamic can only be refreshed through the destruction of manufacturing capacity, infrastructure and the simultaneous thinning of the masses demanding those social benefits that have been expediently promised in an ostensible democratic and civilised society.
In other words.
Answering “when” does the system come crashing down cannot be answered because this system guarantees that coercion which eventually, will manifest in war.
Once at war, the system may not be deemed as having collapsed because we will be too busy fighting some ostensible evil that purportedly threatens our way of life.
pretty much correct.
yes, war has always been used as a distraction.
I think a lot of insiders have a good idea when its going to happen, but the very act of predicting it publicly could possibly capitulate the event. Hence the immense amount of seeming double talk. They are also hiding what tactics the Government is planning to employ in desperation, such as confiscating private wealth. This will result in civil war. This because the people that caused the economic collapse are now stealing everything that’s left and leaving the entire middle class with nothing. The pent up rage will burst forth and I don’t care how much ammo Homeland Security bought they wont be able to stop it. The more they shoot innocent Americans the more enraged the People will become.
it will surely be ugly.