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Peter Schiff Warns: “The Whole Economy Has Imploded… Collapse Is Coming”
Back before 2008 Peter Schiff was harshly criticized and laughed at for his predictions about a coming economic collapse. Among other things Schiff warned that consumer spending had hit a wall, stocks were overpriced and lax credit lending practices would lead to a detonation of the banking system. Rather than heed the warnings, the biggest names in mainstream media tried to discredit him for not toeing the official narrative. Shortly thereafter, of course, Schiff was vindicated and much of the doom he had forecast came to pass.
Pyramid of Capitalism
Today, Schiff continues to argue that the economy is on a downhill trajectory and this time there’ll be no stopping it. All of the emergency measures implemented by the government following the Crash of 2008 were merely temporary stop-gaps. The light at the end of the tunnel being touted by officials as recovery, Schiff has famously said, is actually an oncoming train. And if the forecast he laid out in his latest interview is as accurate as those he shared in 2007, then the the train is about to derail.
We’re broke. We’re basically living off of debt. We’ve had a huge transformation of the American economy. Look at all the Americans now on food stamps, on disability, on unemployment.
The whole economy has imploded… the bottom hasn’t dropped out yet because we’re able to go deeper into debt. But the collapse is coming.
Fundamentally, America is worse off now than it was pre-crash. With the national debt rising unabated and money being printed out of thin air without reprieve, it is only a matter of time.
Schiff notes that while government statistics claim Americans are saving again and consumers seem to be spending, the average Joe Sixpack actually has a negative net worth. But most people don’t even realize what’s happening:
I read a statistic… The average American has less than a $5000 net worth… it’s pathetic… we’re basically broke… but in fact it’s much less… If you actually took the national debt and broke it down per capita, the average American has a negative net worth because the government has borrowed in his name more than the average American is able to save.
What’s happening is pretty much what we would anticipate. I don’t see from the data any real economic recovery, certainly not in the United States.
We’re spending more money, but it’s not because we’re generating more wealth. We’re generating more debt. We’re using that borrowed money to consume and so temporarily it feels that we’re wealthier because we get to spend all that money… but we have to come to terms with paying the bill.
The bills are going to come due. Right now interest rates are being kept at zero which makes it possible to service the debt even though it’s impossible to repay it… at least we can service it. But once interest rates go up then we can’t even service it let alone repay it.
And then the party is going to come to an end.
The problem, of course, is that no one with any real influence over public perception, like our elected officials or the media, will do anything about it. They’ll continue the party until it comes to an abrupt and irreversible end, and anyone who goes against the official narrative will be branded a lunatic gloom and doomer or extremist.
But vilifying those who are blaring the warning sirens will do nothing to change the end result:
We’re going to have a crisis… There are always going to be people who say ‘well, you’re a stopped clocked… you keep predicting doom and eventually it happens’… but you have to back and listen to why… Why are they saying it?
If you look back at things that I’ve said and the things that Ron Paul has said… This is why it’s happening… it’s not like we’re just saying negative things to be negative and then when something negative happens we can claim credit for it happening.
If you look back at the events it bears out that we’re right… unfortunately our opinions are in the minority… and you have governments that have a vested interest in ignoring these opinions because they don’t want to change because they’re at the root cause of the problem. But they don’t want to acknowledge their role in creating the problem. They don’t want to acknowledge that the problem is more government and that we need less government because that’s not how they stay in power. They promise something for nothing… they promise that government is the solution for your problems, not the cause of your problems.
They’re never going to acknowledge people like Ron Paul for what they’re saying… but they’ll try to discredit you by saying ‘well, you’ve been saying this for years and nothing bad has happened.’
But look around. A lot of bad stuff has happened. We just haven’t had the final and complete collapse. But what good is it when that happens? Now it’s too late to do anything about it.
The reality is that the American economy is on its last leg. Black Friday sales were pitiful, some of the world’s leading companies are warning of recession, and U.S. national debt will soon surpass $20 Trillion.
Just as was the case before the Crash of 2008, all of the signs are there. And just like before, the stock market continues to hover near all-time highs.
If you’ve been paying attention you know what happens next.
A former insider at the World Bank, ex-Senior Counsel Karen Hudes, says the global financial system is dominated by a small group of corrupt, power-hungry figures centered around the privately owned U.S. Federal Reserve. The network has seized control of the media to cover up its crimes, too, she explained. In an interview with The New American, Hudes said that when she tried to blow the whistle on multiple problems at the World Bank, she was fired for her efforts. Now, along with a network of fellow whistleblowers, Hudes is determined to expose and end the corruption. And she is confident of success.
Citing an explosive 2011 Swiss study published in the PLOS ONE journal on the “network of global corporate control,” Hudes pointed out that a small group of entities — mostly financial institutions and especially central banks — exert a massive amount of influence over the international economy from behind the scenes. “What is really going on is that the world’s resources are being dominated by this group,” she explained, adding that the “corrupt power grabbers” have managed to dominate the media as well. “They’re being allowed to do it.”
According to the peer-reviewed paper, which presented the first global investigation of ownership architecture in the international economy, transnational corporations form a “giant bow-tie structure.” A large portion of control, meanwhile, “flows to a small tightly-knit core of financial institutions.” The researchers described the core as an “economic ‘super-entity’” that raises important issues for policymakers and researchers. Of course, the implications are enormous for citizens as well.
Hudes, an attorney who spent some two decades working in the World Bank’s legal department, has observed the machinations of the network up close. “I realized we were now dealing with something known as state capture, which is where the institutions of government are co-opted by the group that’s corrupt,” she told The New American in a phone interview. “The pillars of the U.S. government — some of them — are dysfunctional because of state capture; this is a big story, this is a big cover up.”
At the heart of the network, Hudes said, are 147 financial institutions and central banks — especially the Federal Reserve, which was created by Congress but is owned by essentially a cartel of private banks. “This is a story about how the international financial system was secretly gamed, mostly by central banks — they’re the ones we are talking about,” she explained. “The central bankers have been gaming the system. I would say that this is a power grab.”
The Fed in particular is at the very center of the network and the coverup, Hudes continued, citing a policy and oversight body that includes top government and Fed officials. Central bankers have also been manipulating gold prices, she added, echoing widespread concerns that The New American has documented extensively. Indeed, even the inaccurate World Bank financial statements that Hudes has been trying to expose are linked to the U.S. central bank, she said.
“The group that we’re talking about from the Zurich study — that’s the Federal Reserve; it has some other pieces to it, but that’s the Federal Reserve,” Hudes explained. “So the Federal Reserve secretly dominated the world economy using secret, interlocking corporate directorates, and terrorizing anybody who managed to figure out that they were having any kind of role, and putting people in very important positions so that they could get a free pass.”
The shadowy but immensely powerful Bank for International Settlements serves as “the club of these private central bankers,” Hudes continued. “Now, are people going to want interest on their country’s debts to continue to be paid to that group when they find out the secret tricks that that group has been doing? Don’t forget how they’ve enriched themselves extraordinarily and how they’ve taken taxpayer money for the bailout.”
As far as intervening in the gold price, Hudes said it was an effort by the powerful network and its central banks to “hold onto its paper currency” — a suspicion shared by many analysts and even senior government officials. The World Bank whistleblower also said that contrary to official claims, she did not believe there was any gold being held in Fort Knox. Even congressmen and foreign governments have tried to find out if the precious metals were still there, but they met with little success. Hudes, however, believes the scam will eventually come undone.
“This is like crooks trying to figure out where they can go hide. It’s a mafia,” she said. “These culprits that have grabbed all this economic power have succeeded in infiltrating both sides of the issue, so you will find people who are supposedly trying to fight corruption who are just there to spread disinformation and as a placeholder to trip up anybody who manages to get their act together.… Those thugs think that if they can keep the world ignorant, they can bleed it longer.”
Of course, the major corruption at the highest levels of government and business is not a new phenomenon. Georgetown University historian and Professor Carroll Quigley, who served as President Bill Clinton’s mentor, for example, wrote about the scheme in his 1966 book Tragedy And Hope: A History Of The World In Our Time. The heavyweight academic, who was allowed to review documents belonging to the top echelons of the global establishment, even explained how the corrupt system would work — remarkably similar to what Hudes describes.
“The powers of financial capitalism had a far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole,” wrote Prof. Quigley, who agreed with the goals but not the secrecy. “This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basel, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations.”
But it is not going to happen, Hudes said — at least not if she has something do to with it. While the media are dominated by the “power grabber” network, Hudes has been working with foreign governments, reporters, U.S. officials, state governments, and a broad coalition of fellow whistleblowers to blow the entire scam wide open. There has been quite a bit of interest, too, particularly among foreign governments and state officials in the United States.
Citing the wisdom of America’s Founding Fathers in creating a federal system of government with multiple layers of checks and balances, Hudes said she was confident that the network would eventually be exposed and subjected to the rule of law, stopping the secret corruption. If and when that happens — even if it may be disorderly — Hudes says precious metals will once again play a role in imposing discipline on the monetary system. The rule of law would also be restored, she said, and the public will demand a proper press to stay informed.
“We’re going to have a cleaned-up financial system, that’s where it is going, but in the meantime, people who didn’t know how the system was gamed are going to find out,” she said. “We’re going to have a different kind of international financial system…. It’ll be a new kind of world where people know what’s going on — no more backroom deals; that’s not going to keep happening. We’re going to have a different kind of media if people don’t want to be dominated and controlled, which I don’t think they do.”
While Hudes sounded upbeat, she recognizes that the world is facing serious danger right now — there are even plans in place to impose martial law in the United States, she said. The next steps will be critical for humanity. As such, Hudes argues, it is crucial that the people of the world find out about the lawlessness, corruption, and thievery that are going on at the highest levels — and put a stop to it once and for all. The consequences of inaction would be disastrous.
Photo of World Bank headquarters in Washington, D.C.
Alex Newman, a foreign correspondent for The New American, is currently based in Europe. He can be reached at anewman@thenewamerican.com.
The Collapse Of The Petrodollar: Oil Exporters Are Dumping US Assets At A Record Pace
Submitted by Tyler Durden on 04/15/2015 reprinted here in case you missed the epoch eventBack in November we chronicled the (quiet) death of the Petrodollar, the system that has buttressed USD hegemony for decades by ensuring that oil producers recycled their dollar proceeds into still more USD assets creating a very convenient (if your printing press mints dollars) self-fulfilling prophecy that has effectively underwritten the dollar’s reserve status in the post WWII era. Here’s what we said last year:
Two years ago, in hushed tones at first, then ever louder, the financial world began discussing that which shall never be discussed in polite company – the end of the system that according to many has framed and facilitated the US Dollar’s reserve currency status: the Petrodollar, or the world in which oil export countries would recycle the dollars they received in exchange for their oil exports, by purchasing more USD-denominated assets, boosting the financial strength of the reserve currency, leading to even higher asset prices and even more USD-denominated purchases, and so forth, in a virtuous (especially if one held US-denominated assets and printed US currency) loop…
World Currencies
Few would have believed that the Petrodollar did indeed quietly die, although ironically, without much input from either Russia or China, and paradoxically, mostly as a result of the actions of none other than the Fed itself, with its strong dollar policy, and to a lesser extent Saudi Arabia too, which by glutting the world with crude, first intended to crush Putin, and subsequently, to take out the US crude cost-curve, may have Plaxico’ed both itself, and its closest Petrodollar trading partner, the US of A.
As Reuters reports, for the first time in almost two decades, energy-exporting countries are set to pull their “petrodollars” out of world markets this year.
Fiat Currency with QE monry printing
Not long afterwards (and by that we mean “not long” in the sense that three months isn’t really that long when it comes to everyone catching on to what “fringe” bloggers say is likely important), Bank of America took notice in the form of interviews with a half dozen or so in- house economists whose views can be generally summed up as follows: “…the end of the Petrodollar recycling chain is said to impact everything from Russian geopolitics, to global capital market liquidity, to safe-haven demand for Treasurys, to social tensions in developing nations, to the Fed’s exit strategy.”
Here’s Goldman with a bit of color on the projected magnitude of the shifting Petrodollar dynamic:
We estimate that the new (lower) oil price equilibrium will reduce the supply of petrodollars by up to US$24 bn per month in the coming years, corresponding to around US$860 bn over the next three years. The ultimate impact, however, will depend on a number of key current account buffers (goods imports, net factor income and service imports).
Against this backdrop we bring you the following, from Bloomberg which highlights the fact that oil producers are now liquidating their Petrodollar assets at a frenzied pace in the face of today’s “crude” realities:
In the heady days of the commodity boom, oil-rich nations accumulated billions of dollars in reserves they invested in U.S. debt and other securities. They also occasionally bought trophy assets, such as Manhattan skyscrapers, luxury homes in London or Paris Saint-Germain Football Club.
Now that oil prices have dropped by half to $50 a barrel, Saudi Arabia and other commodity-rich nations are fast drawing down those “petrodollar” reserves. Some nations, such as Angola, are burning through their savings at a record pace, removing a source of liquidity from global markets.
If oil and other commodity prices remain depressed, the trend will cut demand for everything from European government debt to U.S. real estate as producing nations seek to fill holes in their domestic budgets.
“This is the first time in 20 years that OPEC nations will be sucking liquidity out of the market rather than adding to it through investments,” said David Spegel, head of emerging markets sovereign credit research at BNP Paribas SA in London…
A concomitant drop in foreign reserves, revealed in data from national central banks and the IMF, is affecting nations from oil producer Oman to copper-rich Chile and cotton-growing Burkina Faso. Reserves are dropping faster than during the last commodity price plunge in 2008 and 2009.
The drawdown reverses a decade-long inflow into the coffers of commodity-rich nations which helped to increase funds available for investment and boost asset prices. Bond purchases have helped to keep interest rates low.
Oil producers recycled a large portion of their petrodollars — a term coined for the dollar-denominated oil trade — by buying sovereign debt of the U.S. and other countries. As they draw down reserves, Middle East countries are likely to sell “low-yielding European assets,” George Saravelos, strategist at Deutsche Bank AG, said in a note to clients.
Available data shows foreign savings by commodity-rich nations are dropping across the board. In Chile, the world’s top copper exporter, foreign savings fell $1.9 billion in February, the biggest drop in three years.
Analysts and officials anticipate that commodity-rich countries will continue selling off foreign assets through the year.
The IMF’s Arezki said that unless they cut spending, resources-rich nations “have no choice but to draw on their financial assets when available” as oil prices are well below the fiscal break-even needed by many exporting nations. The IMF estimates that many oil countries would only balance their budgets if crude prices recover to $75 or higher.
And so the liquidity drain is on, the only question is how far reaching the consequences will be and whether DM central bank largesse can effectively offset the implications of the petrodollar spigot being turned completely off for the first time in nearly two decades, representing a monumental fall from the more than $500 billion in EM Petrodollars that inundated the market just seven years ago. Here’s an interesting take on this from Citi:
The longer crude prices persist at current levels, the more likely it is that these investors stop seeing inflows. And if that were to be the case, then the drop in crude prices could end up effectively offsetting further balance-sheet expansion from the BoJ and ECB.
Naysayers will argue that the two aren’t equivalent: QE is money creation while petrodollars are a zero-sum game. In other words, while petrodollars are being accumulated at a slower rate because crude prices have dropped, other economic actors are experiencing a corresponding windfall.
While that’s certainly the case, what matters is how the savings from lower crude oil prices end up getting invested relative to the investments made by sovereign wealth funds and FX reserve managers. And on that score, we suspect that petrodollar investors generally make conservative investments that are inherently fixed income-friendly, while the savings from lower gasoline prices tend to grow the top line revenue of consumer-oriented companies and the margins of those companies with significant transportation costs. As such, forsaken petrodollars rarely find their way back into fixed income markets.
In a very real sense then, we’d argue that the decline in petrodollar growth is likely to equate to less demand for fixed income securities and make the withdrawal of Fed QE that much more palpable.
As we said back in February, “…few actually grasped the implications of what plunging oil really means in a world in which this most financialized of commodities plays a massive role in both the global economy and capital markets, not to mention in geopolitics, with implications far, far greater than the amateurish ‘yes, but gas is now cheaper’ retort.” In the end, the real question may be this: what happens socially and politically in EM oil producing states when, after years of depressed prices, the coffers finally run dry?
8 Years Into Economic Collapse is Explained by Professor Richard D. Wolff
The costs of capitalism’s crisis and how debt has overtaken citizens, global banks, and all global banks, explained by Professor of Economics Richard D Wolff.
Image copyright Levy Economics Institute of Bard College
American economist Hyman Minsky, who died in 1996, grew up during the Great Depression, an event which shaped his views and set him on a crusade to explain how it happened and how a repeat could be prevented, writes Duncan Weldon.
Minsky spent his life on the margins of economics but his ideas suddenly gained currency with the 2007-08 financial crisis. To many, it seemed to offer one of the most plausible accounts of why it had happened.
His long out-of-print books were suddenly in high demand with copies changing hands for hundreds of dollars – not bad for densely written tomes with titles like Stabilizing an Unstable Economy.
Senior central bankers including current US Federal Reserve chair Janet Yellen and the Bank of England’s Mervyn King began quoting his insights. Nobel Prize-winning economist Paul Krugman named a high profile talk about the financial crisis The Night They Re-read Minsky.
Here are five of his ideas.
Stability is destabilising
Minsky’s main idea is so simple that it could fit on a T-shirt, with just three words: “Stability is destabilising.”
Most macroeconomists work with what they call “equilibrium models” – the idea is that a modern market economy is fundamentally stable. That is not to say nothing ever changes but it grows in a steady way.
To generate an economic crisis or a sudden boom some sort of external shock has to occur – whether that be a rise in oil prices, a war or the invention of the internet.
Minsky disagreed. He thought that the system itself could generate shocks through its own internal dynamics. He believed that during periods of economic stability, banks, firms and other economic agents become complacent.
They assume that the good times will keep on going and begin to take ever greater risks in pursuit of profit. So the seeds of the next crisis are sown in the good time.
Three stages of debt
Minsky had a theory, the “financial instability hypothesis”, arguing that lending goes through three distinct stages. He dubbed these the Hedge, the Speculative and the Ponzi stages, after financial fraudster Charles Ponzi.
In the first stage, soon after a crisis, banks and borrowers are cautious. Loans are made in modest amounts and the borrower can afford to repay both the initial principal and the interest.
As confidence rises banks begin to make loans in which the borrower can only afford to pay the interest. Usually this loan is against an asset which is rising in value. Finally, when the previous crisis is a distant memory, we reach the final stage – Ponzi finance. At this point banks make loans to firms and households that can afford to pay neither the interest nor the principal. Again this is underpinned by a belief that asset prices will rise.
The easiest way to understand is to think of a typical mortgage. Hedge finance means a normal capital repayment loan, speculative finance is more akin to an interest-only loan and then Ponzi finance is something beyond even this. It is like getting a mortgage, making no payments at all for a few years and then hoping the value of the house has gone up enough that its sale can cover the initial loan and all the missed payments. You can see that the model is a pretty good description of the kind of lending that led to the financial crisis.
Minsky moments
The “Minsky moment”, a term coined by later economists, is the moment when the whole house of cards falls down. Ponzi finance is underpinned by rising asset prices and when asset prices eventually start to fall then borrowers and banks realise there is debt in the system that can never be paid off. People rush to sell assets causing an even larger fall in prices.
Image copyright Rex Features Image caption The Minsky moment: Like the moment when the cartoon character realises they’re running on thin air
It is like the moment that a cartoon character runs off a cliff. They keep on running for a while, still believing they’re on solid ground. But then there’s a moment of sudden realisation – the Minsky moment – when they look down and see nothing but thin air. Then they plummet to the ground, and that’s the crisis and crash of 2008.
Finance matters
Until fairly recently, most macroeconomists were not very interested in the finer details of the banking and financial system. They saw it as just an intermediary which moved money from savers to borrowers.
This is rather like the way most people are not very interested in the finer details of plumbing when they’re having a shower. As long as the pipes are working and the water is flowing there is no need to understand the detailed workings.
Image copyright Image caption The 2008 crash brought wider attention to the workings of the financial system
To Minsky, banks were not just pipes but more like a pump – not just simple intermediaries moving money through the system but profit-making institutions, with an incentive to increase lending. This is part of the mechanism that makes economies unstable.
Preferring words to maths and models
Since World War Two, mainstream economics has become increasingly mathematical, based on formal models of how the economy works.
To model things you need to make assumptions, and critics of mainstream economics argue that as the models and maths became more and more complex, the assumptions underpinning them became more and more divorced from reality. The models became an end in themselves.
Although he trained in mathematics, Minsky preferred what economists call a narrative approach – he was about ideas expressed in words. Many of the greats from Adam Smith to John Maynard Keynes to Friedrich Hayek worked like this.
While maths is more precise, words might allow you to express and engage with complex ideas that are tricky to model – things like uncertainty, irrationality, and exuberance. Minsky’s fans say this contributed to a view of the economy that was far more “realistic” than that of mainstream economics.
Analysis: Why Minsky Matters is broadcast on BBC Radio 4 at 20:30 GMT, 24 March 2014 or catch up on BBC iPlayer
DELRAY BEACH, Florida – It’s hot in Florida. Steamy hot. Hair curls and bodies go limp.
The “relief rally” continued yesterday. All over the world, stocks gained. So did oil and commodities. (More on that below in today’s Market Insight.) The Dow was up 369 points – a 2.3% move. Chinese stocks were up by about 5%. Why?
U.S. GDP numbers for the second quarter came out higher than expected. The economy grew by an annual rate of 3.7%. And influential New York Fed chief William Dudley said the argument for a rate increase in September was “less compelling.”
A Decline in Excess of 50%
Oh, ye of little faith… fear not! Things are happening just as they should. It is the end of summer. Markets are giving strong hints of things to come in the fall. Like Vesuvius, a plume of smoke rises… and a cloud of dust hangs over the markets. The economic earth rumbles… and animals take flight.
But in come the cronies to tell us not to worry about it.
And who knows what happens next?
Your editor is a fairly good plumber. He can put the pipes together and unclog the toilet. Alas, his record as a market soothsayer is spotty. He is rarely wrong, but often so early that by the time the event occurs even he has forgotten he ever predicted it.
But today we are encouraged and emboldened. We swagger ahead, like a reedy poet into a rough bar, confident in the knowledge that there are giants behind us. Yes, economist and money manager John Hussman’s forecast is similar to our own. From his most recent note for Hussman Fund clients:
If you roll a wheelbarrow of dynamite into a crowd of fire jugglers, there’s not much chance things will end well. The cause of the inevitable wreckage is not the dynamite, but the trigger is the guy who drops his torch.
Likewise, once extreme valuations are established as a result of yield-seeking speculation that is enabled (1997-2000), encouraged (2004-2007), or actively promoted (2010-2014) by the Federal Reserve, an eventual collapse is inevitable.
By starving investors of safe return, activist Fed policy has promoted repeated valuation bubbles, and inevitable collapses, in risky assets.
On the basis of valuation measures having the strongest correlation with actual subsequent market returns, we fully expect the S&P 500 to decline by 40% to 55% over the completion of the current market cycle. The only uncertainty has been the triggers.
A $12 Trillion Wealth Wipeout
A “decline in excess of 50%” within “less than three years” is our forecast.
We will stick with it, hoping to live long enough to see it proven correct, or in any case hoping to live long enough to see how it turns out.
But this forecast is for real (adjusted for inflation) prices, not nominal prices. Because we have a feeling that the feds will not stay in their seats as the government loses revenues, zombies rise in rebellion, and cronies and campaign contributors lose much of their net worth.
As of this May, the combined market cap of the companies listed on the New York Stock Exchange was $19.7 trillion. A 50% plunge would wipe out about $10 trillion in investor wealth, give or take a few billion dollars. More “reflationary” monetary policies are no doubt in the pipeline. Real estate would most likely go down, too – especially at the upper end.
The house in Florida on the market for $139 million that we reported on last week, for example, would have to be sold at auction. How much would it bring? $10 million? $50 million? Who knows?
Debt in Distress
The junkiest, riskiest part of the bond market would also be destroyed. When the going gets tough, the “spread” (or gap between yields) on junk bonds over U.S. Treasury bonds widens, as bond investors bail out of their riskier positions.
Whole sectors could go broke. Here’s Bloomberg with a report on debt in the oil patch:
At a time when the oil price is languishing at its lowest level in six years, producers need to find half a trillion dollars to repay debt. Some might not make it.The number of oil and gas company bonds with yields of 10% or more, a sign of distress, tripled in the past year, leaving 168 firms in North America, Europe, and Asia holding this debt, data compiled by Bloomberg show. The ratio of net debt to earnings is the highest in two decades.
If oil stays at about $40 a barrel, the shakeout could be profound.
Easy come. Easy go. It doesn’t take too much imagination to see the EZ money of the last seven years going back where it came from – to nowhere.
Forward – to Disaster
And then, what would Saint Janet do?
Even now, under less stressful conditions (let us assume that markets stay calm), will she raise rates next month as expected? Probably not…
Consumer prices, as officially measured, are stable, not rising. And inflation expectations have dropped to a five-year low. Unemployment and GDP numbers make it look as though the economy is running okay. But don’t look under the hood!
And with the stock market so fragile, would Saint Janet risk being the one to cause a worldwide panic? Nah… No rate increase in September.
Instead, when the crash resumes, we will see even EZ-ier money, not tighter money. We are on course for a “hormegeddon”-style outcome. (Hormegeddon is the term I coined in my latest book for “disaster by public policy.”) Backing up is not an option. We must go forward – to disaster. By Bill Bonner, Bonner & Partners
16 comments for “This Market Is a “Wheelbarrow of Dynamite” Waiting to Blow”
ERG
August 29, 2015 at 9:41 am
Please: if the Dow isnt at, say, 9,000 by the end of October, can we ease up on the Sky Is Falling Stuff? In the next two or three months we will get to see if the time is actually ripe for a 40 percent correction and if the Fed will or will not do anything about it – before or after it (maybe) happens.
My interest in this is more along the lines of morbid curiosity as I think our economy has been ruined nearly beyond repair. That means I consider the current process of destroying the middle class to already be so far along that, functionally, the stock market is now mostly an indicator or economic dysfunction. Even if it never crashes.
But wait… if the Dow is at “9000 by the end of October,” WOLF STREET will turn bullish on stocks.
Remember, WOLF STREET turned bearish on stocks in early 2014, after turning bearish on junk bonds in mid-2013 (too early), though I called both in a “bubble” before then. WOLF STREET is not a perma-bear site. But it does try to point at the next crisis.
For example, I started writing about Cyprus 1.5 years before it blew up. When it blew up, NPR said that it “came out of nowhere.” Clearly, they don’t read WS :-]
But I don’t think we’ll be handed this unique trading opportunity of the DOW plunging to 9000 by October. That would be too easy.
I don’t see a bull market in equities yet. They would have to drop a lot further for me to see one. In the US, the S&P 500 is barely in a mild correction, after rallying incessantly since 2011. I’m looking forward to the day that I can see a bull market, but I’m afraid it’s going to be a while.
Meanwhile I think this is the most treacherous market I’ve ever seen before.
Vespa P200E
August 29, 2015 at 10:40 am
Agree – “That means I consider the current process of destroying the middle class”
Global CBs under orders from the bankster cabal handlers are doing just that. Suck blood from middle class while 1% gets wealthier and rising ranks of poor dependent on governments (who in turn tax the middle class more) which are becoming more socialistic (Marx would be proud) even though EU socialist agendas proved to be failure. Bet Government Sacks and alike already know the market is about to tank and already lined up trades against its muppet clients.
Here is an interesting article from conservative American Thinker as it dissects China and market meltdown
1st paragraph: “The ongoing stock market meltdown is just the tip of the iceberg that is the dangerously precarious China economy. The back story — the extraordinary market manipulation that has allowed the global economy to come to this potentially disastrous pass — is what few commentators have yet spelled out.”
Helicopter Benny’s departure was very timely before the excrements hit the fan. So Janet got her wish but alas she was left with molasses to deal with.
She was like deer in headlight being newbie to the job and weight on top of her as leader of global CB cabal and more like circus. So she chose to stand by as why raise the rates and have all banksters come after her head? Fast forward to Aug and she is now stuck in rock and a very hard place with USD spiraling up against just about every currency but raising int rate would only strengthen the USD with so many herd mentality went long on USD. Add to this China Syndrome kicks in full gear in Aug.
Ah to be (raise rate) or not to be but I bet Janet will stand pat till things really fall apart in Sept/Oct then try to unleash QE IV only to see it fail in light of Chinese selling Treasuries in the tunes of $1 trillion countering QE IV’s limp impact.
The market is overvalued and the underlying products and services they represent are also extremely overvalued. The reality is that people don’t have the money anymore to support the price levels these valuations require and there is heavy discounting going on, which is never reflected in the market valuations. If you look at all the mergers gone bad that is where you can really see it. Companies keep trying to buy growth but it is just not there. What is there is the hidden discounting which they think they can consolidate their way out of. Eventually they unload the bad deal as a write-off and they don’t have to admit that they don’t have the revenue or the pricing power.
Also look at the amount of stock purchasing going on. If making a short term profit appear on the quarterly report is more important, if making the stock value stay ahead of the pack, then go ahead Mr. Cif, authorize those buybacks. But if the future well being of your entity is your chief concern then invest in research and development, or your employees but not your own stock. The snake that eats its own tail eventually reaches the back of its own head.
“The economy grew” !? Come on people its not the economy, it’s debt and inflation!
GDP is mostly debt based synthetic growth! Thus the inflation that the banks and the tax man loves so much!
The market believes the “growth” number because it helps them blank out the elephant in the room. Swimming against this current is like battling the tar baby, getting pulled in deeper with each blow. Maybe the sky isn’t falling, but if it walks like a duck and quacks like a duck…it’s probably a DUCK.
That’s my point, friends: the sky does not have to fall re the stock ‘market’ for the process of taking the middle class to the cleaners to continue its advance. Even if you have been wise enough to avoid/minimize your ‘market’ exposure before or since 2008, you’ve still been washed, dried, fluffed, and folded. Just go food shopping or try looking for a job.
I find I have been watching a lot of documentaries on the 1929 crash and the subsequent depression recently, similarities to the current belief in the stock market are scary, especially the purchase of shares on margin.
WASHINGTON, D.C. — Gallup’s Economic Confidence Index was -14 for the week ending Aug. 23, down slightly from -11 the week prior. Growing concerns about China, which devalued its currency and saw major losses in its stock market, led to a global stock sell-off, including in the U.S., where the Dow Jones declined by more than 500 points by market close on Friday.
This is the second time in the past two months in which an international economic event appears to have modestly affected U.S. stocks as well as economic confidence. Last month, as the Greek debt deal was being finalized, U.S. economic confidence also dropped to -14, matching the latest week’s reading as the 2015 low and the worst weekly score since September 2014.
Gallup’s Economic Confidence Index reached positive territory for the first time since 2008 in late December 2014. It remained there until late February, when it began dropping as U.S. gas prices began to rise.
The Economic Confidence Index is the average of two components: how Americans rate current economic conditions and whether they feel the economy is getting better or worse. The index has a theoretical maximum of +100, if all Americans rate the economy as good and getting better, and a theoretical minimum of -100, if all Americans rate the economy as poor and getting worse.
Americans’ perceptions of the economy’s direction became more pessimistic last week, as the outlook component score fell six points to -21, the lowest weekly average since the end of July 2014. This latest average was the result of 37% of Americans saying the economy is “getting better” and 58% saying it is “getting worse.”
The current conditions score was stable last week, averaging -6, similar to what has been found most weeks since late May. This was the result of 24% of Americans rating the current economy as “excellent” or “good” while 30% rated it as “poor.”
Bottom Line
China, the second-largest economy in the world and a major exporter of goods to the U.S. and other countries, has experienced tremendous economic growth in recent years. Now, with the Chinese economy showing signs of weakness, and its government responding by devaluing its currency, investors abroad are showing concern. The questions surrounding China’s economy appear to be a major reason for losses in the global markets, including in the U.S. To date, Americans’ economic confidence does not appear to have been greatly shaken by the events, but the current index score ties the lowest reading this year.
The situation in China may continue to reverberate in the U.S., with U.S. stocks closing much lower on Monday and European markets starting the week with large drops. To the extent stock markets continue to suffer, particularly if this affects broader aspects of the economy, Americans’ confidence could be shaken further in the coming week.
Results for this Gallup poll are based on telephone interviews conducted Aug. 17-23, 2015, on the Gallup U.S. Daily survey, with a random sample of 3,554 adults, aged 18 and older, living in all 50 U.S. states and the District of Columbia. For results based on the total sample of national adults, the margin of sampling error is ±2 percentage points at the 95% confidence level. All reported margins of sampling error include computed design effects for weighting.
Each sample of national adults includes a minimum quota of 50% cellphone respondents and 50% landline respondents, with additional minimum quotas by time zone within region. Landline and cellular telephone numbers are selected using random-digit-dial methods.
Here is Jim Rickards Economic Warnings on his lengthy website Monday Morning. He has wisely promoted non-US and non-dollar investments for a decade. Jim Rickard’s numbers are sound..so lets not quibble about the inevitable fate of this empire.
Many in the U.S. Intelligence Community fear a 25-year Great Depression is unavoidable…
What if Jim’s Right?
(Please review the transcript from today’s interview to discover how you and your family can stay safe from this $100 trillion catastrophe)
STEVE MEYERS:
My name is Steve Meyers.
And I want to thank you for taking part in this exclusive Money Morning interview with Jim Rickards, the Financial Threat and Asymmetric Warfare Advisor for both the Pentagon and CIA.
Recently, all 16 branches of our Intelligence Community have come together to release a shocking report.
These agencies, that include the CIA, FBI, Army, and Navy, they’ve already begun to estimate the impact of the fall of the dollar as the global reserve currency.
And our reign as the world’s leading super power being annihilated in a way equivalent to the end of the British Empire, post-World War II.
And the end game could be a nightmarish scenario, where the world falls into an extended period of global anarchy.
Jim Rickards fears he and his colleagues’ warnings are being ignored by our political leaders and the Federal Reserve, and we’re on the verge of entering the darkest economic period in our nation’s history.
One that will ignite a 25-year Great Depression.
Today, we’re going to examine everything he’s uncovered because the bedlam could begin within the next six months.
Which is why every American should hear his warnings before it’s too late.
Jim Rickards, thank you for joining us.
JIM RICKARDS:
It’s my pleasure, Steve. Glad to be with you.
STEVE MEYERS:
In the early ’80s, you were a member of the team that helped negotiate an end to the Iran hostage crisis.
In the late ’90s, when it was discovered that the Wall Street firm Long-Term Capital Management was about to cause a total collapse of the financial markets, the Federal Reserve had to turn to you in order to stop this catastrophe from plunging America into a recession.
And then, after 9/11, you were tasked by the CIA with investigating potential insider trading that took place prior to the terrorist attacks.
JIM RICKARDS:
That’s exactly right.
The problem was the CIA didn’t have any capital markets expertise.
And why should they?
Prior to the beginning of globalization, capital markets weren’t really part of the battle space.
So the CIA engaged in some outreach, they recruited certain people, myself included, to bring the Wall Street expertise to the agency.
This Led to Project Prophecy
So, what the CIA said was, well, if there’s going to be another spectacular attack…
Using price signals to determine the actions of participants in the market, whether it be terrorists, or strategic rivals of the United States…
Could you spot it?
Could you get the information, and actually break up the plot, and save American lives?
STEVE MEYERS:
This system you built with Project Prophecy actually predicted a terrorist attack that was thwarted in 2006.
JIM RICKARDS:
On August 7, 2006, I got an email from my partner.
She said, “Jim, we’ve got a bright signal on American Airlines.
It looks like a possible terrorist attack.”
We documented that.
I was up at 2:00 in the morning in my study, watching CNN, and all of a sudden MI-5 and New Scotland Yard emerged to break up this terrorist attack.
They were arresting suspects and removing files.
So this showed that the system worked.
However, it’s not just good for predicting terrorist attacks, but also strategic attacks by rivals and enemies of the United States.
STEVE MEYERS:
For years now, you’ve been helping the Pentagon and CIA prepare for a rise in asymmetric warfare and financial threats, because today there are immense fears we’ll be struck by – as you’ve described it before – a financial Pearl Harbor.
JIM RICKARDS:
There’s now concern in different branches of the U.S. government…
Historically in Washington, the Treasury and the Fed take care of the dollar.
The Pentagon and the Intelligence Community take care of other threats, but what happens when the dollar IS the threat?
Americans generally know that:
The Fed has increased the money supply by $3.1 trillion.
You go through the whole list and it goes on and on and on.
There’s no way to pay it.
Debt can no longer be used to artificially grow our economy.
During the boom years of the 1950s and 1960s, every dollar of debt that was created, we got $2.41 worth of economic growth.
So that was pretty good bang for the buck.
But by the “stagflation” of the late 1970s that relationship had actually collapsed.
So now for a dollar of debt in the late 1970s, we were only getting $.41 in growth, so, obviously, that’s a huge drop-off.
You know what that number is today? Today, we only get $.03 in growth for every $1 of debt.
So we’re piling on the debt, but we’re getting less and less growth.
As the trend goes from $2.41 to $.41 to $.03…
It’s soon going to go negative.
This is a signal of a complex system about to collapse.
STEVE MEYERS:
This really speaks to what you wrote about in your new book, The Death of Money, the title strongly alludes to this, the hourglass is now empty.
You warn we’re about to fall into a 25-year Great Depression…
That the stock market could plunge overnight 70%.
JIM RICKARDS:
(Interrupts)
You know, when I use the phrase 25-year depression, it sounds a little extreme, but historically it’s not.
We had a 30-year depression in the United States from about 1870 to 1900. Economists actually call it the Long Depression.
That was before the Great Depression. The Great Depression lasted from 1929 to 1940, so that was quite long.
The U.S. is in a Depression Today
STEVE MEYERS:
A lot of folks might disagree with you that we’re currently in a depression.
That word brings to mind images of the 1930s and soup kitchens.
JIM RICKARDS:
Well, we have soup kitchens today…
They’re just at Whole Foods and your local supermarket, because 50 million Americans are on food stamps.
It’s not that we don’t have distress.
We have enormous distress, but it’s being hidden in different ways.
The unemployment rate today is actually 23% when you calculate it the right way.
STEVE MEYERS:
And you point the finger right at the Fed, Congress, and the White House.
JIM RICKARDS:
(Interrupts)
I was in a meeting in the Treasury and I said:
“The Fed and the Treasury are the greatest threats to national security, not Al- Qaeda.”
Right here in this building with this group…
You people are destroying the dollar and it’s just a matter of time before it collapses.
And I testified before the United States Senate about this.
I warned the Senate, maybe we can’t stop earthquakes on the San Andreas Fault…
But nobody thinks it’s a good idea to send the Army Corps of Engineers out there to make the San Andreas Fault bigger.
But by money printing, credit creation, and reckless monetary policy by the Fed, we’re making the San Andreas Fault bigger every day.
And when you make a complex system bigger – the risk doesn’t go up a little bit – it goes up exponentially. So the risk is unimaginable at this time.
The collapse hasn’t happened yet, but the forces are building up and it’s just about to snap.
Editor’s Note: Because the revelations in Jim Rickard’s book are so important to the everyday lives of Americans,Money Morning is sending free copies of The Death of Money to people who want to get this intellidence in their hands.
STEVE MEYERS:
Jim, your take, and that of many in the Intelligence Community…
Is much different than what we’re hearing out of Capitol Hill.
Which is why the allegations you make in this book are causing quite a controversy in Washington.
JIM RICKARDS:
I was at a recent conclave in the Rocky Mountains with a couple central bankers, one from the Federal Reserve and one from the Bank of England.
They’ll say things privately that they won’t say publicly.
And I was handed a copy of Janet Yellen’s playbook.
The Fed is trying to kind of use propaganda…
Lie to us about economic prospects, talk about green shoots, use happy talk to try to get us to spend our money.
The Fed doesn’t know what they’re doing.
Don’t ever think that they know what they’re doing.
You can print all the money you want, but if people are not borrowing it, if they’re not spending it, then your economy is collapsing, even with money printing.
So you can understand it this way…
Let’s say I go out to dinner and I tip the waiter.
And the waiter takes my tip and he takes a taxicab home.
And the taxi driver takes the fare and puts some gas in her taxicab.
Well, in that example, my dollar had the velocity of three.
$1 supported $3 of goods and services: the tip, the taxi ride, and the gasoline.
But, what if I don’t feel great? I stay home, and watch television.
I don’t spend any money.
Well, that money now has a velocity of zero.
I leave my money in the bank, but I don’t spend it.
Let’s look at what’s actually happening with the velocity of money.
It’s plunging… It’s going down very rapidly.
But compare this decline of velocity today to what we saw leading up the Great Depression.
Now, in the depths of the Great Depression velocity was even lower…
But…
If you compare what’s going on today to what happened in the late 1920s just prior to the Great Depression, there’s a very striking resemblance.
So, it doesn’t matter how much money the Fed prints.
Think of it as an airplane that’s coming in for a nosedive.
It’s crashing… crashing… getting closer to the ground.
The Fed is trying to grab the joystick and pull the plane up out of the nosedive and get it back in the air…
But, unfortunately, it’s not working, we’re heading for a crash.
STEVE MEYERS:
We’ve just covered a lot of these startling numbers, these signals of this coming Great Depression.
Let me see if I can quickly put it all together.
Nobody denies that we have a debt crisis in this country, but you’re saying we can no longer grow our debt without causing our economy to aggressively slow down.
We’re barely above water now.
So that’s signal number one.
Signal number two is this dangerous slowdown in our velocity of money.
It’s already plummeting to levels not witnessed since the Great Depression in the 1930s.
Are there any other signals the Intelligence Community is monitoring that suggest this collapse is right around the corner?
Editor’s Note: Jim Rickards reveals the early warning signs the U.S. Intelligence Community is tracking in advance of this coming 25-year Great Depression in his book, The Death of Money.
Money Morning believes this is a must-read for every American. So you can have a copy rushed to you for free.
JIM RICKARDS:
There are, Steve.
There are a lot of signals out there and they’re very, very troubling.
One of the ones I’m watching closely, and I know people in the Intelligence Community focus on also, because it covers so much ground, is called the Misery Index.
The Misery Index = Real Inflation Rate + Real Unemployment Rate
If you look at the Misery Index today compared to the period of stagflation in the late 1970s and early ’80s that Americans remember so well…
It’s actually worse.
This can lead to social instability…
Take this back to the Great Depression… The Misery Index in the Great Depression was 27.
Today it’s 32.89.
Believe it or not, it’s worse today than it was during the Great Depression.
What happens as a depression worsens?
Businesses can’t pay their debts. The bad losses fall on the banks. The banks ultimately fail.
That’s happened before.
The Fed has had to bail out the banks.
But what happens when the Fed, itself, is in jeopardy?
STEVE MEYERS:
Based on these signals you’ve been tracking, the Federal Reserve is going to fail?
JIM RICKARDS:
The Federal Reserve actually, in some ways, already has failed.
I spoke to a member of the Board of Governors of the Federal Reserve and I said, “I think the Fed is insolvent.”
This Governor first resisted and said, “No, we’re not.”
But, I pressed her a little bit harder and she said, “Well, maybe.”
And, then, I just looked at her and she said, “Well, we are, but it doesn’t matter.”
In other words, here’s a Governor of the Federal Reserve admitting to me, privately, that the Federal Reserve is insolvent, but said, it doesn’t matter, because central banks don’t need capital.
Well, I’m going to suggest that central banks do need capital.
Look at this chart.
What it shows you is that the Fed has increased its capital they currently have about $56 billion.
That sounds good.
You say, “gee, $56 billion is a lot of money, that’s a pretty good capital base.”
But That’s Not the Whole Story
You have to compare the capital to the balance sheet.
How much in the way of assets and liabilities is that amount of capital supporting.
When you look at that it’s a much scarier picture, because the actual liabilities, or debt, if you will, on the Fed’s books is $4.3 trillion.
So you’ve got $4.3 trillion sitting on this little skinny capital base of $56 billion…
That’s very unstable.
Prior to 2008, the Fed’s leverage was about 22 to 1.
Meaning they had $22 in debt on their books for every $1 of capital.
Today, that leverage is 77 to 1.
So, yes, the capital has increased, but the debt and the liability has increased much more.
STEVE MEYERS:
Your warnings haven’t gone completely ignored.
In the budget he presented this year, Senator Rand Paul cited your work and how we’ve driven our economy to the edge of a Roman Empire-like collapse.
In fact, we have footage of Senator Paul instructing Americans to listen to your warnings.
SENATOR RAND PAUL:
Jim Rickards notes the Fed is insolvent on a mark-to-market basis.
The Fed has wiped out its capital on a mark-to-market basis.
Of course, the Fed carries these notes on its balance sheet at cost and does not mark them down to market.
But if they did, they would be broke.
JIM RICKARDS:
First of all, I give Senator Paul Rand credit.
He’s one of the few people who understand the dangers here.
But, the problem is not limited to the Fed.
It’s infecting the private banking system as well.
There’s about $60 trillion of debt on the balance sheets of our banking system.
For a long time, debt and the banks grew at about two times the rate of growth in the economy.
But lately, this has exploded.
Today it’s up to 30 to 1.
In other words, for every dollar of economic growth, there’s $30 of credit being created by the banking system.
The Whole Thing is Unstable
I can give you a very good example of this and this actually comes from physics.
If you had, let’s say, a 35-pound block of uranium shaped like a cube, it would actually be fairly harmless.
It’s what we call sub-critical. It’s radioactive, but it’s kind of tame.
But now imagine you engineer it.
You take that 35-pound block.
You take one piece and shape it into something about the size of a grapefruit.
Take another piece, shape it into something like a bat.
Put the ball and the bat in a tube and fire them together with high explosives.
That sets off a nuclear detonation.
That destroys a city.
The way it’s been shaped and configured is what takes it from what we call sub-critical to super-critical.
STEVE MEYERS:
Jim, are you seeing any signs that our stock market has reached a super-critical state?
JIM RICKARDS:
Well, unfortunately, yes.
We’re seeing a lot of signs of this.
One of the signs that’s really fundamental, and really important, is the ratio of stock market capitalization to GDP.
Because, remember, the value of all the stocks in the stock market, that’s supposed to represent the fundamental economy.
It’s not supposed to be off in a world of its own.
But if you look at what’s been happening to that ratio recently, it’s going sky-high.
It’s 203%.
Just prior to the recession…
That number was 183%.
Go back to the famous tech bubble, the dot com implosion of 2000.
At that time, it was 204%.
And if you want the scariest news of all…
Just prior to the Great Depression that number was 87%.
In other words…
The stock market capitalization, as a percentage of GDP, is twice as high as it was just prior to the Great Depression.
So, that’s a really good metric for saying, “Hey, is the stock market heading for a crash?”
All the data says, “Yes, we are.”
But there’s another metric, another warning sign, if you will, that’s even more frightening, which is the Gross Notional Value of Derivatives.
There are a certain number of shares of IBM that are outstanding, but we know what that number is.
But there’s no limit on the derivatives.
I can write options and futures on IBM stock all day long and all the other stocks on the stock market.
And that’s what’s been going on.
Now, the Gross Notional Value of Derivatives in the world today is over $700 trillion. Not billion.
$700 trillion.
That’s ten times the global GDP.
This collapse is unavoidable.
So, we ask ourselves, how bad can this be?
Well, what happened in 2007, 2008 when the markets collapsed…
We all remember the value of stocks going down…
Real estate going down, housing going down…
All that lost wealth was $60 trillion.
The problem is now the system is bigger, so I would expect the lost wealth this time to be $100 Trillion – possibly a lot more.
We’re in this critical state, getting close to the super-critical state where the system implodes.
But it takes a catalyst, it takes a flashpoint.
There are a number of potential flashpoints I’ve investigated.
Editor’s Note: Jim Rickards’ book, The Death of Money, provides specific guidance that can protect your wealth from this coming collapse.
STEVE MEYERS:
Jim, in a few moments I want to discuss the steps Americans need to take with their investments and personal finances to prepare for everything you and your colleagues are predicting.
But now let’s quickly focus on some of these major flashpoints.
JIM RICKARDS:
One of the key flashpoints we’re looking at is foreign ownership of U.S. government debt.
Now, this is a very important thing to understand.
We all know that the Treasury has issued over $17 trillion worth of debt, the question is who buys it?
A lot of U.S. debt is owned by foreigners. Who owns it?
China, Russia, other countries…
Countries that are not necessarily our friends.
But they can dump it when they want to.
Well, guess what, that’s actually what’s been going on.
Recently, foreign holdings of U.S. government debt have been plummeting.
But it gets even more interesting than that.
We talked earlier about the project I did for the CIA…
Project Prophecy.
And we said, you can see not only market action, but rivals, enemies, terrorists and others, operating in financial markets.
So, we all know that Russia invaded Crimea in the spring of 2014.
Let’s say you’re Putin. You know you’re going to invade Crimea. You can expect U.S. financial sanctions.
So what do you do?
You basically mitigate the impact of the sanctions, start dumping treasuries in advance so that when you make your move and the Treasury tries to come against you, you’ve insulated yourself.
So go back and look at October 2013, here’s Russia dumping Treasuries month after month.
That was a clear signal that they were getting ready to do something…
To engage in financial warfare against the United States.
But guess what? It’s worse than that.
We know the Russians and Chinese are working together.
So is it any surprise that when the Russians started dumping…
The Chinese started dumping also?
STEVE MEYERS:
Does the Intelligence Community have the ability to defend our country in the event that this escalates even further?
JIM RICKARDS:
Believe it or not, there’s an intelligence unit inside the Treasury.
And they actually have a war room.
That tells you that financial warfare is here and it’s real.
So if the Russians are dumping…
The Chinese are dumping…
Who is going to buy all this debt?
Well, a mystery buyer has shown up.
Recently, Belgium has bought enormous amounts…
In the hundreds of billions of dollars of U.S. government securities.
STEVE MEYERS:
So Belgium started loading up on treasuries, coincidentally at the exact same time Russia and China began dumping theirs?
JIM RICKARDS:
(Interrupts)
It’s not the Belgians.
These amounts are bigger than the Belgian current account surplus.
These are not Belgian dentists who are buying these things.
Belgium is a Front
You know, could it be the Fed itself?
That’s the point.
Maybe the public doesn’t know who the mystery buyer is, but the national security community does.
Now, the Treasury, operating through this war room, and the Fed – the mystery buyer in Belgium…
For now, they have managed to prop up the treasury market.
It hasn’t collapsed yet.
But they’re not going to be able to keep pulling these rabbits out of a hat, there’s a limit.
This should be very scary, because if the Fed is tapped out – we talked earlier about how the Fed is leveraged 77 to 1.
So the Fed is at the limit of what they can do.
The foreigners are now dumping treasuries and if no one buys it, guess what, interest rates go up.
That’ll sink the stock market, that’ll sink the housing market.
Higher interest rates mean the debt gets higher, so interest rates go up some more.
So you start a death spiral and there’s no way out of it.
STEVE MEYERS:
An attack on our treasury market is obviously a very serious flashpoint that could ignite this Great Depression you predict in your book.
Let’s talk about another flashpoint.
JIM RICKARDS:
What I call flashpoint number two has to do with the petrodollar.
STEVE MEYERS:
Can you explain what you mean by the petrodollar?
JIM RICKARDS:
It’s basically a system whereby oil exports are priced in dollars.
Oil doesn’t have to be priced in dollars.
It could be priced in euros, Japanese yen, Swiss francs, gold.
It could be priced in a lot of things.
But, in fact, the whole global oil market is priced in dollars.
I was actually very close to the birth of the petrodollar system.
My first visit to the White House on official business was in 1974, with a small group, about five of us.
We met with Helmut Sonnenfeldt, who was the Deputy National Security Advisor at the time.
He was the number two to Henry Kissinger.
And, this was at a time you have to remember…
At the beginning of the ’70s oil was $2 a barrel.
At the end of the ’70s, oil was $12 a barrel.
This Was an Oil Shock
The price of oil was skyrocketing.
Inflation was getting out of control.
There were gas lines.
You know, a certain generation of Americans remembers this very well.
We were in the White House talking about what to do about this.
One of the scenarios we discussed was the U.S. military would invade Saudi Arabia.
We would secure the oil fields and create a military perimeter around them.
We would pump the oil and set it at a price that was favorable to us.
Now, we would give the money to the Saudis.
We didn’t want to steal their money.
We didn’t want to steal their oil.
We just wanted to set the price.
Now, fortunately, that plan was not carried out.
But it shows you how desperate things were at the time.
But what did happen?
Why did we not invade Saudi Arabia?
Well, the answer is Kissinger and the Saudis worked out a deal.
And the Saudis said, “Okay, we’ll price oil in dollars, so that secures the role of the dollar as the global reserve currency.”
But there was a quid pro quo.
We agreed to guarantee the continuation of the House of Saud, the royal family of Saudi Arabia.
And by extension, the national security of Saudi Arabia.
Because they’re a relatively weak military power.
And it’s a bad neighborhood – a lot of enemies in the region starting with Iran and others.
So the question would be, obviously, did this petrodollar deal work?
And it ABSOLUTELY did work.
Once it kicked in, the dollar roared.
This was the period – sometimes people call it the king dollar period, the strong dollar period.
This was after Volcker and Reagan in the 1980s.
But this only continued up to a certain period of time…
Up until around 2000.
And since then, the dollar has been in a decline.
STEVE MEYERS:
So what could cause the fall of the petrodollar?
JIM RICKARDS:
Well, we’re seeing it in real time.
Think of the petrodollar, or the dollar as the global reserve currency…
Think of it as a three-legged stool.
So, here’s the stool and it’s got three legs.
As long as the legs are standing, the foundation is firm and the dollar will remain as a global reserve currency.
But, one by one, those legs are being pulled out.
What are the legs?
Well, the first one is Saudi Arabia.
That was where the petrodollar deal began.
Our side of the deal was we would guarantee the national security of Saudi Arabia.
But lately – going back to December of 2013…
President Obama stabbed the Saudis in the back by anointing Iran as the regional-hegemonic power.
You know, the President has been withdrawing American power from around the world and his view is, well, we’ll leave a friendly cop on the beat.
Every sort of bad neighborhood around the world will have a cop on the beat.
The President has decided that Iran is going to be the cop on the beat in the Middle East.
They’re going to be the heavyweight regional power.
Where does that leave Saudi Arabia? Out in the cold.
So now Saudi Arabia is saying…
“Wait a second, you’ve undermined our national security, you’ve reneged on your side of the petrodollar deal, why should we hold up our end?
Maybe we’ll start pricing oil in gold or euros or maybe Chinese yuan.”
Because now, increasingly, Saudi Arabia is selling more and more oil to China.
So, the first leg of the stool has been pulled out.
The Saudis are going to back away from the petrodollar, because we are no longer guaranteeing their security – we’re playing footsie with Iran.
The second leg of the stool is Russia.
Now, Russia is not a member of OPEC, but they are the world’s largest oil exporter, one of the world’s largest energy exporters, actually bigger than Saudi Arabia.
So even though they’re not a member of OPEC, they also price oil in dollars.
So, they’ve signed onto the petrodollar deal in their own way.
But, we’re now engaged in financial warfare, Russia is ready to fight back.
And this is not classified information.
This is being said publicly.
Andrei Kostin, President and Chairman of Russia’s VTB Bank, it’s one of the largest banks in Russia, he recently said…
“It’s time to change the entire international financial system that considers the dollar the key reserve currency. The world has changed.”
A member of the Russian Parliament, he said…
“The dollar is evil.
We will sell rubles to consumers that rely on gas and later we’ll exchange the rubles for gold.
If they don’t like this, let them not do it.
Let them freeze to death.”
So, two of the legs of the stool, Saudi Arabia and Russia, have already been pulled out.
The third leg is China.
And that is coming out too.
STEVE MEYERS:
As far as Russia and China’s role in taking down the petrodollar…
This recent $400 billion energy alliance they signed, is that the purpose of it?
JIM RICKARDS:
Sure.
Russia is the world’s largest energy exporter, China is the fastest growing economy in the world, they need energy.
So this is a natural partnership between the two. But the dollar is out in the cold.
And, China is actually putting these yuan bilateral trade agreements in place all over the world.
They’re doing them one-by-one.
But once there’s enough trade and enough volume in a certain currency, it can become a reserve currency.
These are all straws in the wind, leading to the collapse of the dollar as the global reserve currency.
STEVE MEYERS:
Jim, in your book, you investigate how nations are now using gold as a financial weapon.
Is this one of the most dangerous flashpoints?
JIM RICKARDS:
It’s absolutely one of the most dangerous flashpoints and, here’s why…
A lot of people look at the dollar and say, “Look, you may not like the dollar, you may worry about the dollar, but you’ve got nowhere else to go.”
But there is another place to go, which is gold.
You don’t have to buy treasuries, you can buy gold.
And countries are actually doing that.
So this is basically a global rebalancing of gold reserves.
This is one of the things that the Intelligence Community is watching most closely.
And China is our number one case.
Here’s why: China has acquired more than 3,000 tons in the past four years.
Now they lie about this.
They officially say they have 1,054 tons.
The reason is, China is using their own military and their own intelligence assets to acquire some of this gold in stealth.
I recently ran into a senior officer of one of the major secure logistics firms in the world.
Secure logistics that means these are people who operate vaults and armored cars.
So they handle the physical metal.
They’re not central banks.
They’re not government agencies.
These are Brinks and G4S and ViaMat.
These are the big players in this field.
One of these officials said he recently brought gold into China at the head of an armored column of the People’s Liberation Army.
In other words, he was in an armored car and they had Armored personnel vehicles bringing gold into China.
I guarantee that did not show up in the official Hong Kong import figures.
Now, why is China doing this?
A lot of people speculate that they want to launch their own gold-backed reserve currency, to take the Chinese yuan, back it with gold, make it a global reserve currency.
That’s extremely unlikely.
That’s not what China is doing.
What they are trying to do is hedge against the collapse of the dollar.
China can’t prevent that from happening.
What they can do is build up the gold reserves.
This is known to the Intelligence Community.
This is NOT publicly revealed.
What if it were publicly revealed?
Here’s what global gold reserves would look like if the amount that China owns were actually suddenly revealed.
This is a dagger aimed at the heart of the dollar.
Editor’s Note: Jim Rickards’ book, The Death of Money, will help you prepare for the frightening American economic collapse many in the U.S. Intelligence Community fear is at our doorstep.
STEVE MEYERS:
Jim, so far all of these flashpoints have involved China.
Isn’t this an economic suicide mission to attack America?
JIM RICKARDS:
There’s something else here, another flashpoint that could meltdown the global financial system.
What if the U.S. doesn’t bring the entire pyramid crashing down, what if it’s China?
Well, it could very well be.
They have a highly leveraged banking system.
But the banking system is just the beginning.
There’s also something called a shadow banking system.
This is now a $7.5 trillion industry and it’s up 4,067% since 2005.
STEVE MEYERS:
This term shadow banking, it’s starting to get play in the press.
How would you explain it?
JIM RICKARDS:
If you put your money in the bank in China, they – it’s just like the United States.
They pay you nothing, zero maybe, one quarter of one percent, something pathetically small.
But, they’re offering these wealth management products that pay five, six, seven percent.
Well, what are they?
Well, they’re actually – they take the money and they buy mortgages on worthless assets, inflated assets and bubble assets that are going to crash.
Before the crash in the United States, before 2008, new construction, as a percentage of GDP growth, that was about 16%.
16% is a pretty big slice.
But, look at China.
In each of the last three years, construction has been 50% of GDP growth.
They’re building white elephants, they’re building trophy projects, they’re building ghost cities.
I’ve been to China – I was with the Communist Party officials and provincial officials, they were trying to get me to bring some businesses there.
I went to one place near Nanjing.
They weren’t building seven buildings, they were building seven cities.
Every city had a whole cluster of skyscrapers, luxury hotels, athletic facilities, housing facilities, high-end shopping, metro stops, highway access…
And an airport to service all seven of these cities.
This construction was going on as far as the eye can see.
It was all empty.
All of it.
Now, here’s the point.
In the U.S. before the crash, it took about 4.3 years of income to buy the typical house .
In China, it takes 18 years of income.
If they’re building apartments, co-ops and condos, and people can’t afford them, you know their prices are going to collapse.
One of the senior banking officials in China said, “This is a Ponzi scheme.”
Those are his words, not my words.
I happen to agree.
But, we all know what happens to Ponzi schemes, eventually you run out of suckers and they collapse.
Once you have enough collapses, there’s going to be a run on the banks.
The bankers are going to say sorry, we can’t pay you, it’s not our problem.
Well, that’s not going to be good enough.
Riots are going to break out.
What does it mean when the world’s second largest economy hits the brakes?
That’s going to be disastrous to global growth; it’s going to pull the rug out from under the sky-high valuations we’re seeing in the U.S. stock market.
This is a set-up for an entire collapse of the global economy.
STEVE MEYERS:
Jim, there’s one more flashpoint I’d like to talk about.
It has to do with a premeditated plan you believe exists inside the IMF, and it involves high-ranking U.S. officials…
To replace the dollar as the world’s reserve currency.
JIM RICKARDS:
It’s not just my belief.
This is actually documented.
It’s a ten-year plan to replace the dollar as the global reserve currency.
The IMF released a report this year, it was called – and get this title – “The Dollar Reigns Supreme By Default.”
And here’s a direct quote…
“The aggressive use of unconventional monetary policies by the Federal Reserve, the U.S. central bank, has increased the supply of dollars and created rifts in the financial system. The dollar status should be in peril.”
Reserves are nothing more than a savings account for a country.
That’s the amount of money they’ve saved.
But, the problem is, when you have it you have to decide what to do with it.
You can’t just stick it under a mattress, so to speak.
A lot of people think that the dollar will prevail because there are no good alternatives.
That’s not true.
The dollar is declining sharply, as a percentage of total global currency reserves.
Imagine if that continued.
The euro comes up.
Swiss franc comes up.
Some of the other currencies come up.
That’s one outcome.
But, there’s another outcome, that’s probably coming a lot sooner.
We have a financial panic in the world.
If a central bank has to re-liquefy the world, where is that money going to come from?
It can’t come from the Fed, they’re leveraged 77-to-1.
There’s only one clean balance sheet left in the world… the IMF’s.
The IMF, believe it or not, is only leveraged 3-to-1.
When the next crisis comes, it’s going to be bigger than the Fed.
The only source of liquidity in the world is going to be the IMF.
Think of it this way.
The Federal Reserve has a printing press, they can print dollars.
The European central bank has a printing press, they can print euros.
The IMF, the International Monetary Fund, has a printing press too.
They can print something called the Special Drawing Right, or the SDR for short.
These SDRs can come along as a new reserve currency.
The reason they came up with the name Special Drawing Right is because if they called it “world money” that would sound a little spooky and scary.
But that’s exactly what it is.
Here’s the point.
This may be a ten-year plan.
We’re not going to make it ten years.
This collapse will happen a lot sooner than that.
So they’re going to have to dust off this playbook and run out these SDRs and print trillions of them to prop up the system.
Now, if the Fed bailed out private credit in 2008…
And the IMF now bails out the Fed in the next financial panic…
Who runs the IMF? Who’s really in charge?
Well, it’s a nice crowd.
We’ve got kings, dictators, communists…
They’re unelected, unaccountable.
And this is the next flashpoint, really, the IMF taking over the world monetary system and becoming the central bank of the world…
Printing “world money” called the SDR.
STEVE MEYERS:
Jim, these flashpoints…
The attacks on our treasury market and petrodollar…
China’s stealth gold run…
China’s inevitable collapse…
Even this alarming inside job to take down our dollar that’s escalating at the IMF…
You’ve only scratched the surface of what you reveal in your book.
However, the most important message I took away from The Death Of Money is:
Regardless of which flashpoint unleashes the 25-year Great Depression, folks need to understand it’s coming, and coming quick.
JIM RICKARDS:
Steve, that’s exactly right.
There is a mission in this book and it’s urgent and it’s important.
We’re talking about:
A prolonged depression…
Massive deflation
Massive unemployment
Rampant bank collapses
A 70% best case scenario stock market drop
This could all start within the next six months.
Look at it this way.
Americans right now are standing at the very bottom of a tall mountain… Mt. Everest, Mt. Kilimanjaro.
About halfway up the mountain, there’s a catastrophic avalanche barreling down towards us.
Determining the one snowflake…
The one flashpoint that’s going to speed this chaos up shouldn’t be our focus.
Recognizing the severity of the situation and moving to safety should be.
So, mission one is helping people hold on to what they’ve got.
That’s going to be more than half the battle ahead.
STEVE MEYERS:
Jim, as you know, Money Morning believes so much in your book…
As well as your mission to warn the public…
That we’d like to send free copies of The Death of Money: The Coming Collapse of the International Monetary System, to everyone who is watching this interview.
Now, it’s on bookshelves, it’s being sold for about $28.
But, I want to point this out.
The version we’re sending folks is different than the one being sold in stores.
JIM RICKARDS:
(Interrupts)
And the reason why is simple.
What we’re talking about today is not light reading material.
The book investigates everything thoroughly, except for one part.
It’s what our government calls – and to be clear, this is what they call it – “the Day After Plan”.
This describes what America and our government will be like when our economy collapses.
Now, I have an unpublished chapter that does outline this situation, it’s called The Day After Plan Declassified.
I didn’t put it in the book that was originally released, because it is controversial.
The picture I paint is far from pretty.
But I am going to include this chapter here…
Because folks watching this interview are more prepared to see this intelligence and these scenarios.
STEVE MEYERS:
You also took another step with this version of the book…
You created a six-part video series you’re calling, The Death of Money Digital Debriefing.
JIM RICKARDS:
Here’s why I put that together.
It’s impossible for anyone, me or anyone else in my line of work, to give you an exact day and time this collapse will begin.
We just know it’s coming and coming soon.
However, there are crystal clear warning signs that will appear in our economy and in our markets.
This is certain.
So, across this video series I walk folks through the seven major signs.
I give you the exact signals to watch for.
I share the charts.
The announcements you’ll hear from certain world governments and the Federal Reserve.
I examine, even further, the flashpoints that could ignite this nuclear meltdown in our economy.
I explore the secret bubbles nobody is talking about.
I share more findings from the Intelligence Community about Russian, Chinese, and Iranian activities against America.
This is very important…
Across this video series I help folks analyze their investment portfolios.
I show them how to adjust their allocations accordingly for numerous scenarios that could unfold, because this is a fluid situation – it’s volatile.
So, I review how much of your portfolio should be in certain sectors of the stock market, precious metals, income opportunities…
Where folks should be looking overseas to invest. It’s a point-by-point examination of each of these areas.
STEVE MEYERS:
Jim, we’d like to rush copies of your book, the unpublished chapter, and this six -art digital debriefing out to everyone watching.
It’s part of a bold initiative you’re taking on, what you’re calling:
You helped lead a CIA mission called “Project Prophecy.”
The goal was to identify the signals in the financial markets and economy that threatened our country.
With this re-launch of Project Prophecy here, you’re applying this same methodology to helping everyday folks build this unbreakable wall around their wealth.
Let’s talk about what you’ve created.
Editor’s Note: Jim Rickards has prepared a comprehensive package that will give you the real story and real solutions for these troubling times ahead.
JIM RICKARDS:
Steve, I realize much of what I’ve revealed today is a shock to the system.
America is facing one of its darkest periods.
There’s no escaping that.
And some of the measures folks are going to need to take to protect themselves may be outside of their comfort zones.
So, I’m going to take a hands-on approach here.
My book, the unpublished chapter, and digital debriefing will give them the big picture.
But, folks also need to know the exact investments to target and the ones to avoid.
They need to rethink how they handle their personal finances.
To help them I’ve prepared a set of intelligence briefings.
The first is called, The Project Prophecy Wealth Defense Blueprint: The Four Directives.
And, with each directive, I have specific investments targeted.
STEVE MEYERS:
Let’s examine each of them.
JIM RICKARDS:
Directive #1:
Seek Shelter From the Dollar’s Fall
The next time the dollar falls – it won’t be the first time.
The dollar almost collapsed completely in the late 1970s.
Between 1977 and 1981, a five-year period, cumulative inflation was 50%.
If you had insurance, annuities, any kind of fixed income, retirement income, savings in the bank, you lost half your wealth in a very short period of time.
What we’re talking about now could be a 70 or 80% collapse, maybe even more.
The best way to handle the dollar’s fall – and this is what I focus on in the briefing – is to invest in the euro.
What people have to understand is the euro is not an economic project.
It’s a political project.
And if the political will is there, directed from Germany, the euro is going to hang together.
We have a chart actually showing the euro’s rise against the dollar.
So just imagine all the talk about the collapse of the euro and yet the euro is actually getting stronger.
And, by the way, everyone knows that the United States has 8,000 tons of gold.
Well, Europe has 10,000 tons of gold.
Europe is the largest gold holder in the world.
So, they actually have the gold to back up the euro.
Now, you don’t have to open a foreign bank account to invest in the euro.
In this Project Prophecy Wealth Defense Blueprint, I’m recommending a specific fund that rises twofold as the dollar falls against the euro.
This is a very strong defense play because you are getting twice the return from both the dollar’s fall and the euro’s rise.
STEVE MEYERS:
So walk us through this second directive in this briefing.
JIM RICKARDS:
Directive #2:
Always Have an Insurance Plan For a Market Collapse
The stock market is going to fall 70%.
Now, does that mean you shouldn’t hold stocks?
Folks should make that decision for themselves.
But, there are ways to use the market itself as a safety net.
I’m recommending we target the sector that will experience the most severe consequences of this collapse, the financial sector.
The companies that are holding all these stock derivatives.
These are going to fall harder and faster than anything else.
So, I examine a specific fund in this briefing that is heavily weighted against the financial sector.
It rises 3% for every 1% the financial sector pulls back.
So, a 25% pull back, that’s a 75% return from this fund.
If it falls 70%, now you’re looking at a 210% return.
What this fund allows you to do is use a small amount of capital to multiply your protection against a market crash.
It’s excellent insurance.
STEVE MEYERS:
So, take us through the third directive.
JIM RICKARDS:
Directive #3:
Invest in What People Can’t Live Without
When America experiences this worst case scenario we are predicting in the Intelligence Community, people won’t stop needing food.
They won’t stop using energy.
They won’t stop using essential goods and services.
This is where folks should be looking now.
So in the briefing I’m recommending water investments, because you can’t live without water.
And we’re already seeing water investments begin to take off.
This sector has been surging since 2009. It’s up about 200%.
I’m targeting a water processing company that operates 47,000 miles of water pipelines across 16 states and 1500 communities.
Now, this is a sleeping giant income play.
This water processor’s dividend has grown every year.
It’s up 55% already.
And, income is something we can’t live without either.
And, besides water, the briefing also focuses on a company that provides emergency medical supplies, because that’s also a necessity.
STEVE MEYERS:
Jim, you have one more directive in this briefing.
JIM RICKARDS:
Yes, Warren Buffet’s secret weapon.
Directive #4:
Target Companies Who Control Hard Assets
You know Warren Buffet has this reputation as the avuncular oracle of Omaha, the stock market investor’s best friend.
But, I say when it comes to billionaires, don’t listen to what they say, watch what they do.
Warren Buffet’s recent acquisitions have been very revealing.
A few years ago he bought the Burlington Northern Santa Fe Railroad.
He bought the whole railroad.
He actually took it private.
But what is a railroad?
A railroad is nothing but hard assets.
They have right-of-ways, mining rights adjacent to the right-of-ways, rail rolling stock, yards, switches, signals; it’s all hard assets.
How does a railroad make money?
It moves hard assets in the form of freight, coal, wheat, corn, steel, cattle, etc.
So a railroad is the ultimate hard asset play. It’s hard assets making money moving hard assets.
What was Warren Buffet’s next big acquisition? He bought oil and natural gas resources, another hard asset.
And by the way, he can move his oil on his own railroad.
He doesn’t need the Keystone Pipeline.
When you line up 100 tanker cars on a railroad, that’s a pipeline on wheels.
So Warren Buffet is a guy who’s dumping paper money, getting hard assets in the form of railroads, oil, natural gas.
If it’s good enough for Warren Buffet, it’s good enough for everyday Americans.
This is the most important of the directives, so I have the top six companies who have built these hard asset escape plans into their business models.
STEVE MEYERS:
The second intelligence briefing you’ve created is called: The Project Prophecy Watch List: 30 Stocks That Will Soon Collapse.
Take us through this.
JIM RICKARDS:
Steve, during the original Project Prophecy for the CIA we built a tracking system, a watch list of the 400 stocks most likely to signal a coming attack on America.
But, in the years that followed, we kept modifying its capabilities so it could identify the companies that were in danger of collapsing.
This intelligence briefing reveals the 30 stocks that are now at the top of that list.
Now, when folks see these stocks, it may shock them.
These aren’t micro caps or small caps, because they don’t have the capability to do widespread damage.
These are 30 of the most widely held stocks in the retirement accounts and 401ks of everyday Americans.
Most are large blue chip.
That means everybody watching today is probably holding one, two, or more of them.
And they are vulnerable to complete annihilation.
Now, inside this list of 30 I’ve singled out the 10 that are currently at a red alert status.
This means if you were holding them today you need to not be holding them tomorrow, because the clock is running out on them.
They’re already at risk of failure before the worst of what’s coming appears.
STEVE MEYERS:
Now, let’s talk about the final intelligence you’ve created: The Project Prophecy Hard Assets and Personal Finance Playbook.
JIM RICKARDS:
I’m advocating people – if they aren’t already and they have the means to do so – to start exploring adding hard assets to their overall portfolio.
This intelligence briefing covers them all, from land, including farmland, to certain antiquities and art that holds value, as well as physical currencies and precious metals.
STEVE MEYERS:
I’d like to focus on one precious metal in particular, gold.
Now, in the book, you reveal how China has successfully manipulated gold’s price to keep it low, while they stockpile it in their reserves.
But you’re bullish on it moving forward.
However, you do write that people may be taking a dangerous approach to gold investing.
JIM RICKARDS:
It has become fashionable in recent years to invest in gold ETFs.
The GLD ticker is the headliner.
The logic on the surface makes sense, you can secure gold without having to acquire it physically and store it.
You can even, theoretically – at least, they tell you – you can cash in your ETF shares for physical gold if you so choose in the future.
This is the problem – that’s not true.
The everyday American does not have that ability.
Here’s how to think about the gold market.
Imagine it’s a pyramid, but it’s inverted.
The point is down at the bottom and wide base is at the top.
There’s a little tiny bit of physical gold at the bottom.
On top you have all these forms of paper gold.
What are they?
Gold leasing
Unallocated gold forwards
Gold futures
Gold options
Gold ETFs
These are all what I call paper gold. They give you contractual rights but there’s no assurance you’ll ever get your hands on physical gold.
Now, what’s happening is this whole pyramid is getting larger and larger, but the amount of physical gold, the floating supply, is disappearing.
When gold moves from the GLD warehouse to the Chinese warehouses in Shanghai, which it is…
It’s been moving from west to east in very large quantities…
Once it goes to Shanghai it’s no longer a part of the floating supply. That gold is never going to see the light of day, at least not for several hundred years.
So, the total supply may be unchanged, but the floating supply is dropping.
That means this little brick at the bottom of the pyramid is getting smaller and smaller.
One of two things has to happen: either that paper pyramid has to shrink, or the whole thing is going to become wobbly and tip over.
So, if you have GLD, you only have shares and you will only ever have shares.
You cannot get your hands on the gold.
So, with this intelligence briefing, I tell folks to stay away from gold ETFs.
Instead, I talk about three specific precious metal coins they’ll want to look into immediately.
STEVE MEYERS:
Now, let’s examine how folks can fortify their personal finances from these dangerous times that are fast approaching.
JIM RICKARDS:
This is very important, because if you protect yourself with your investments, yet don’t take the same measures with your personal finances, you’ll experience the same outcome and it won’t be a good one.
The bank you choose to keep your money in is now a critical decision, because that bank may not be around next year or the year after, as everything escalates.
So, I talk about the safest banks and credit unions, these will not collapse.
You should make sure your money is in one of them.
I show folks which CDs and conservative income opportunities are most shielded from risk.
I talk about the ten safest cities for the future.
These are the ones with the strongest local economies.
They have industries that will continue providing jobs, their crime rates are low now, and they have the best chance of staying that way, even in the darkest times.
Retirees should be looking near these areas.
Plus, I also examine which careers will be the safest, because real unemployment and underemployment is already an epidemic, but it’s going to get much worse.
STEVE MEYERS:
Jim Rickards, what you revealed today in this interview is nothing short of a wake-up call. Thank you for joining us.
JIM RICKARDS:
It’s my pleasure, Steve.
STEVE MEYERS:
Today, Jim Rickards stepped forward to warn you about a coming catastrophe the Intelligence Community fears is at our doorstep.
But, as you saw, he’s also working to help everyday folks across the country prepare for it.
And we at Money Morning want to do our part as well.
That’s why we’d like to send you a free copy of everything Jim has prepared.
What he’s calling the Project Prophecy 2.0 Action Plan.
It includes:
The New York Times best-selling book, The Death of Money: The Collapse of the International Monetary System
The controversial unpublished chapter, The Day After Plan Declassified
The six-part video series, The Death of Money Digital Debriefing
The Project Prophecy Wealth Defense Blueprint
The Project Prophecy Watch List
The Project Prophecy Hard Assets and Personal Finance Playbook
You can click here to claim this Project Prophecy 2.0 Action Plan for free.
And I strongly suggest you do so.
Because if Jim and his colleagues at the Pentagon, the CIA, and across the entire Intelligence Community are right…
There isn’t much time left to protect yourself.
If you’d prefer to claim your copy by phone…
Simply call 1.866.460.9039 or 1.443.353.4384 (for international callers) from 9 am to 5 pm (Eastern Time) – and be sure to mention Priority Code WMMRQ944.
Sleeping on the Streets: DOJ Challenges the Constitutionality of Anti-Homelessness Ordinances
by Nomad
Otherwise ignored by mainstream media, the Washington Post picked up an interesting news article the other day regarding homelessness and a DOJ challenge the local ordinances against vagancy.
To Be Without a Home, Like a Complete Unknown
Boise, like many US cities, passed an ordinance which banned sleeping or camping in public places. That city is by no means unique.
The usual knee-jerk reaction to a visible and embarrassing problem has been to find a way to make it a criminal offense. The idea is basically if we can’t prevent it, we can make it illegal and then we can make it invisible.
According to last year’s report from the National Law Center on Homelessness & Poverty, a survey of 187 cities found that:
24% of cities impose city-wide bans on begging in public.
76% of cities prohibit begging in particular public places.
33% of cities make it illegal to loiter in public throughout an entire city.
65% of cities prohibit the activity in particular public places.
53% of cities prohibit sitting or lying down in particular public places.
43% of cities prohibit sleeping in vehicles.
9% of cities prohibit sharing of food
A recent study by UC Berkeley School of Law noted that more Californian cities have enacted more anti-vagrancy laws than in any other part of the country. with Los Angeles and San Francisco topping the list.
The laws restrict anything from panhandling to sharing food with a homeless person to sitting in public spaces.
Some claim that the laws are applied in an arbitrary manner, targeting the poor.
Co-author of the study, Marina Fisher, feels the laws are discriminatory, stating that “you don’t hear about people camping at night to get the latest iPhone getting affected.”
As we shall see, the charge of arbitrary enforcement of these ordinances is a major problem.
The NLCHP report, “No Safe Place- The Criminalization of Homelessness in U.S. Cities“ noted:
Despite a lack of affordable housing and shelter space, many cities have chosen to criminally punish people living on the street for doing what any human being must do to survive.
The NLCHP, which filed the lawsuit against Boise, alleged that:
All of these laws criminalize the kind of activities — sitting, resting, sleeping — that are arguably fundamental to human existence. When Surviving is an Offense
Last week, the Department of Justice seemed to agree and appears to be willing to challenge such laws in court.
The Department issued a statement of interest which argued that in passing such laws, the city of Boise (and other cities with similar laws) has effectively criminalized homelessness itself in situations where people simply have nowhere else to sleep.
Sleep, the document argues, is a necessity for survival for all of us. Despite that, many homeless people are simply not able to find safe and legal places to sleep. The federal government estimated that last year, there were some 153,000 unsheltered homeless on the street in the U.S. on any given night.
When shelters are inadequate, these individuals – having no option- must sleep on the street. According to the filing, in 2014, 42% of homeless individuals slept in unsheltered, public locations—under bridges, in cars, in parks, on the sidewalk, or in abandoned buildings.
When adequate shelter space does not exist, there can be no meaningful distinction between the status of being homeless and the conduct of sleeping in public.
It is not a matter of choice, it is a matter of survival. The laws therefore target victims and punishes them simply for attempting to survive.
If, the DOJ document states, a person literally has nowhere else to go, then enforcement of the anti-camping ordinance against that person criminalizes that person for being homeless.
Before passing laws against sleeping rough, cities must provide sufficient shelter options for every homeless individual.
The Legal Background
While most of us can appreciate the ethical principles in the DOJ’s statement, what is the legal basis for its opinion?
Anti-vagrancy laws have been on the books for centuries. Don’t city councils have a right – indeed a civic duty- to clean up the streets of undesirables? Business owners and residents concerned about property values demanded something be done about the problem.
Attorneys cited the Eighth Amendment to the United States Constitution states that “cruel and unusual punishments [shall not be] inflicted.” Punishing individuals, they charge, for engaging in behavior necessary to their survival is both cruel and unusual.
For a punishment to fall under the unconstitutionality of the “cruel and unusual” clause of the Eighth Amendment there is one overriding principle: that the punishment must not be “by its severity be degrading to human dignity.”
Courts have also interpreted the clause to mean that it cannot be a form of punishment that clearly and totally rejected throughout society” or “patently unnecessary.” As well, the punishment cannot obviously inflicted in wholly arbitrary fashion.
…enforcement of the ordinance to be unconstitutional … because of inadequate shelter space. The court based its decision on its conclusion that, “[w]hether sitting, lying, and sleeping are defined as acts or conditions, they are universal and unavoidable consequences of being human.”
The statement continues:
Because sleeping is unavoidable, the court then considered whether the plaintiffs had a choice to sleep somewhere other than in public, concluding that they did not: “for homeless individuals in [Los Angeles’] Skid Row who have no access to private spaces, these acts can only be done in public.”
Thus the DOJ isn’t saying that anti-vagrancy laws are in themselves unconstitutional. Only that, in order for the city to pass such ordinances without facing a legal challenge, it must show there to be suitable, humane and legal alternatives to sleeping and living on the street.
The full implications of that opinion are huge. In theory, this rationale could apply to all conduct of the homeless that city fathers might find undesirable. Namely, begging and raiding dumpsters in search of food and perhaps even, public urination.
The city must answer the question: What survival options are provided to the homeless other than the alleged criminal conduct?
How We Got to This Place
One can trace these present day ordinances back to an earlier source.
Two days before Christmas 1988, President Reagan dismissed any suggestion that administration policy bore responsibility for the emerging crisis of homelessness.
In a interview with David Brinkley of ABC News, the president said that ”there are always going to be people” who live in the streets by choice.
”They make it their own choice for staying out there. There are shelters in virtually every city, and shelters here, and those people still prefer out there on the grates or the lawn to going into one of those shelters.”
According to his view, they were homeless. They were just urban campers and love for the great outdoors.
This wasn’t a case of Reagan’s creeping decrepitude late in his second term. In fact he had said the same thing four years earlier.
In early 1984 on Good Morning America, Reagan defended himself against charges of callousness toward the poor in a classic blaming-the-victim statement saying that “people who are sleeping on the grates…the homeless…are homeless, you might say, by choice.”
This was a general excuse for a lack of support on a government level for the poor. Namely, they have only themselves to blame. The responsibility lay not with the government but with individuals.
It was extended to all problems. Reagan pointed to the plethora of job ads in the newspapers, and claimed that jobless workers were unemployed by their own choice. Drug addicts and alcoholics too had made their wrong choices. It was not government’s duty to run lives.
He even claimed that the mentally-impaired were on the streets because they wanted freedom.
The President added that these former mental patients, once released, ”walked away from those institutions – they wanted freedom, but they walked out to where there was nothing for them.”
Who doesn’t want a good helping of freedom. Even convicted murderers want that.
But why was there nothing for the mentally ill?
That was something that Reagan didn’t seem particularly interested in.
It had very much to do with the state budgets. By the end of Reagan’s term in office federal assistance to local governments was cut a staggering 60 percent. His administration eliminated a variety of services for the poor in the much-lauded name of fiscal austerity. As one source notes:
These cutbacks had a disastrous effect on cities with high levels of poverty and limited property tax bases, many of which depended on federal aid. In 1980 federal dollars accounted for 22 percent of big city budgets. By the end of Reagan’s second term, federal aid was only 6 percent.
There was a growing economic and political liability faced by state legislators. Enormous amounts of tax revenues were being used to support the state mental hospitals, and the institutions themselves were increasingly thought of as ”snake pits” or facilities that few people wanted.
There but for the grace of God, go I
In addition, not all homeless individuals are afflicted with addiction or mental illness. In many cases, it is simply a case of being unable to afford proper housing.
The most dramatic cut in domestic spending during the Reagan years was for low-income housing subsidies.
The lower rung of the economic ladder – and we are speaking here about working individuals-simply cannot earn a living wage. Since 1970, real earnings of the median malehave actually declined by 19 percent. Men with less education face an even bleaker picture; earnings for the median man with a high school diploma and no further schooling fell by 41 percent from 1970 to 2010.
During any economic downturn, it is this group that will end up on the streets. Added to the lack of governmental support during hard times, the shifting workforce, the disappearing unions which protected worker rights, the lack affordable healthcare made every working person vulnerable. You could become that that piteous man you saw sleeping on the street.
It will be a little late to realize it wasn’t, after all, a matter of choice.
As more and more seriously mentally-ill (and impoverished) citizens were left to fend for themselves on the streets, the solution wasn’t to provide adequate shelters to house the homeless. The solution wasn’t to spend more in job training or other means of breaking the cycle.
For the most part, state budgets continue to slash funding for the poor.
The answer on a state and local level was a logical- if cruel- one: Make the homeless into criminals.
Criminalize their existence in every aspect, from sleeping to eating. Drive them off the street where the problem isn’t so disturbingly visible. Demonize them as something less than human.
And why not?
As Reagan and his parade of austerity-minded conservatives told us: being homeless was just a lifestyle choice.
Finally- after decades of pointless misery- the US government has finally taken the first steps in challenging that inhumane policy.
– See more at: http://nomadicpolitics.blogspot.com.tr/2015/08/sleeping-on-streets-doj-challenges.html#sthash.ne0YBZsA.YAd2V2dt.dpuf
Please: if the Dow isnt at, say, 9,000 by the end of October, can we ease up on the Sky Is Falling Stuff? In the next two or three months we will get to see if the time is actually ripe for a 40 percent correction and if the Fed will or will not do anything about it – before or after it (maybe) happens.
My interest in this is more along the lines of morbid curiosity as I think our economy has been ruined nearly beyond repair. That means I consider the current process of destroying the middle class to already be so far along that, functionally, the stock market is now mostly an indicator or economic dysfunction. Even if it never crashes.
“the stock market is now mostly an indicator or economic dysfunction”
Agreed. It began to approach something resembling reality on Monday, but didn’t remain there:
http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2015/08-overflow/20150828_EOD1.jpg
But wait… if the Dow is at “9000 by the end of October,” WOLF STREET will turn bullish on stocks.
Remember, WOLF STREET turned bearish on stocks in early 2014, after turning bearish on junk bonds in mid-2013 (too early), though I called both in a “bubble” before then. WOLF STREET is not a perma-bear site. But it does try to point at the next crisis.
For example, I started writing about Cyprus 1.5 years before it blew up. When it blew up, NPR said that it “came out of nowhere.” Clearly, they don’t read WS :-]
But I don’t think we’ll be handed this unique trading opportunity of the DOW plunging to 9000 by October. That would be too easy.
Mr. Richter,
I’ve enjoyed your analysis very much.
Now that valuations are beginning to reflect your worldview, do you see a bull market anywhere? CDs aren’t paying too well.
I don’t see a bull market in equities yet. They would have to drop a lot further for me to see one. In the US, the S&P 500 is barely in a mild correction, after rallying incessantly since 2011. I’m looking forward to the day that I can see a bull market, but I’m afraid it’s going to be a while.
Meanwhile I think this is the most treacherous market I’ve ever seen before.
Agree – “That means I consider the current process of destroying the middle class”
Global CBs under orders from the bankster cabal handlers are doing just that. Suck blood from middle class while 1% gets wealthier and rising ranks of poor dependent on governments (who in turn tax the middle class more) which are becoming more socialistic (Marx would be proud) even though EU socialist agendas proved to be failure. Bet Government Sacks and alike already know the market is about to tank and already lined up trades against its muppet clients.
Here is an interesting article from conservative American Thinker as it dissects China and market meltdown
1st paragraph: “The ongoing stock market meltdown is just the tip of the iceberg that is the dangerously precarious China economy. The back story — the extraordinary market manipulation that has allowed the global economy to come to this potentially disastrous pass — is what few commentators have yet spelled out.”
http://www.americanthinker.com/articles/2015/08/_the_china_syndrome.html
Helicopter Benny’s departure was very timely before the excrements hit the fan. So Janet got her wish but alas she was left with molasses to deal with.
She was like deer in headlight being newbie to the job and weight on top of her as leader of global CB cabal and more like circus. So she chose to stand by as why raise the rates and have all banksters come after her head? Fast forward to Aug and she is now stuck in rock and a very hard place with USD spiraling up against just about every currency but raising int rate would only strengthen the USD with so many herd mentality went long on USD. Add to this China Syndrome kicks in full gear in Aug.
Ah to be (raise rate) or not to be but I bet Janet will stand pat till things really fall apart in Sept/Oct then try to unleash QE IV only to see it fail in light of Chinese selling Treasuries in the tunes of $1 trillion countering QE IV’s limp impact.
The market is overvalued and the underlying products and services they represent are also extremely overvalued. The reality is that people don’t have the money anymore to support the price levels these valuations require and there is heavy discounting going on, which is never reflected in the market valuations. If you look at all the mergers gone bad that is where you can really see it. Companies keep trying to buy growth but it is just not there. What is there is the hidden discounting which they think they can consolidate their way out of. Eventually they unload the bad deal as a write-off and they don’t have to admit that they don’t have the revenue or the pricing power.
Also look at the amount of stock purchasing going on. If making a short term profit appear on the quarterly report is more important, if making the stock value stay ahead of the pack, then go ahead Mr. Cif, authorize those buybacks. But if the future well being of your entity is your chief concern then invest in research and development, or your employees but not your own stock. The snake that eats its own tail eventually reaches the back of its own head.
“The economy grew” !? Come on people its not the economy, it’s debt and inflation!
GDP is mostly debt based synthetic growth! Thus the inflation that the banks and the tax man loves so much!
Debt and inflation go up when the economy is growing
The market believes the “growth” number because it helps them blank out the elephant in the room. Swimming against this current is like battling the tar baby, getting pulled in deeper with each blow. Maybe the sky isn’t falling, but if it walks like a duck and quacks like a duck…it’s probably a DUCK.
That’s my point, friends: the sky does not have to fall re the stock ‘market’ for the process of taking the middle class to the cleaners to continue its advance. Even if you have been wise enough to avoid/minimize your ‘market’ exposure before or since 2008, you’ve still been washed, dried, fluffed, and folded. Just go food shopping or try looking for a job.
Geez Bill…that’s not what my Fidelity guys say…PJS
https://www.fidelity.com/viewpoints/market-and-economic-insights/market-correction-as-stocks-selloff?ccsource=email_monthly
I find I have been watching a lot of documentaries on the 1929 crash and the subsequent depression recently, similarities to the current belief in the stock market are scary, especially the purchase of shares on margin.
Retired investors have to put estate somewhere. While the stock market is suspect so are the alternatives. Cattle anyone?