page-loading-spinner

credit

Image | When The Bubbles Burst…
When The Bubbles Burst…
 PREVIEW
by Chris Martenson

Executive Summary

  • It's Time To Name The Guilty
  • The Gross Global Mis-Pricing Of Risk
  • The New Fed Looks Even Worse Than The Old
  • What You Should Do To Prepare

If you have not yet read Part 1: You're Just Not Prepared For What’s Coming, available free to all readers, please click here to read it first.

So I just want to raise my hand here and say that I am in favor of handing out serious punishments to the central bankers who negligently placed all but a very tiny few directly into harm’s way, knowingly and maliciously.  They knew they were harming pensions, savers, retirees, the young, the poor and the middle-classes.   They knew what they were doing was harming an entire generation of young people, fostering a deeply unfair and ultimately dangers wealth and income gap, and backstopping bank losses even (especially?) when those banks did stupid things that deserved losses. 

Yet they insisted and they persisted.  And here we are, with the third set of bubbles in 20 years and the largest wealth and income gaps in all of history.  I say the people responsible should be held accountable.

This Time Is Going To Be Different?

When these bubbles burst, and trust me they will, the aftermath is going to be especially ugly.  Like all bubbles, we’ll discover that a vast amount of lending took place towards ideas and projects and in support of spending habits that really should not have been undertaken.

Credit bubbles always end up making a pile of loans to really derelict ideas.  This time is no different, except the scale is so much larger.  There are so many bright red warning lights that it’s difficult to figure out which ones to convey.

Like the charts above, each one of these next charts could easily be an entire meditation that, if deeply understood, would reveal the whole story.  So settle in, take a deep breath and please consider the following.

First up, we have this deeply shocking chart for which the data has only gotten more shocking in recent months…

When The Bubbles Burst…
 PREVIEW by Chris Martenson

Executive Summary

  • It's Time To Name The Guilty
  • The Gross Global Mis-Pricing Of Risk
  • The New Fed Looks Even Worse Than The Old
  • What You Should Do To Prepare

If you have not yet read Part 1: You're Just Not Prepared For What’s Coming, available free to all readers, please click here to read it first.

So I just want to raise my hand here and say that I am in favor of handing out serious punishments to the central bankers who negligently placed all but a very tiny few directly into harm’s way, knowingly and maliciously.  They knew they were harming pensions, savers, retirees, the young, the poor and the middle-classes.   They knew what they were doing was harming an entire generation of young people, fostering a deeply unfair and ultimately dangers wealth and income gap, and backstopping bank losses even (especially?) when those banks did stupid things that deserved losses. 

Yet they insisted and they persisted.  And here we are, with the third set of bubbles in 20 years and the largest wealth and income gaps in all of history.  I say the people responsible should be held accountable.

This Time Is Going To Be Different?

When these bubbles burst, and trust me they will, the aftermath is going to be especially ugly.  Like all bubbles, we’ll discover that a vast amount of lending took place towards ideas and projects and in support of spending habits that really should not have been undertaken.

Credit bubbles always end up making a pile of loans to really derelict ideas.  This time is no different, except the scale is so much larger.  There are so many bright red warning lights that it’s difficult to figure out which ones to convey.

Like the charts above, each one of these next charts could easily be an entire meditation that, if deeply understood, would reveal the whole story.  So settle in, take a deep breath and please consider the following.

First up, we have this deeply shocking chart for which the data has only gotten more shocking in recent months…

Image | Ron Paul: We Are Reaching A Point Of No Return
Ron Paul: We Are Reaching A Point Of No Return
by Adam Taggart

Dr. Ron Paul has long been a leading voice for limited constitutional government, low taxes, free markets, sound money, civil liberty, and non-interventionist foreign policies.

As a multi-term member of Congress, Dr. Paul knows the players and policies responsible for the growing unfairness and inequality now rampant in society. He does not expect the offenders will reform willingly. Instead, he predicts the system will collapse under its own unsustainability — offering a rare and valuable chance then for more sound and fair solutions to prevail.
Ron Paul: We Are Reaching A Point Of No Return
 by Adam Taggart

Dr. Ron Paul has long been a leading voice for limited constitutional government, low taxes, free markets, sound money, civil liberty, and non-interventionist foreign policies.

As a multi-term member of Congress, Dr. Paul knows the players and policies responsible for the growing unfairness and inequality now rampant in society. He does not expect the offenders will reform willingly. Instead, he predicts the system will collapse under its own unsustainability — offering a rare and valuable chance then for more sound and fair solutions to prevail.
Image | Richard Sylla: This Is An Inherently Dangerous Moment In History
Richard Sylla: This Is An Inherently Dangerous Moment In History
by Adam Taggart

“The rates we’ve had in recent years, including right now, are the lowest in history. The book that I co-authored on the history of interest rates traces back to the code of Hammurabi, Babylonian civilization, Greek and Roman civilization, the Middle Ages, the Renaissance, and early modern history right up to the present. And I can assure our listeners that the rates that they’re experiencing right now are the lowest in human history.”

So says Richard Sylla, Professor Emeritus of Economics and the Former Henry Kaufman Professor of the History of Financial Institutions and Markets at New York University’s Stern School of Business. He is also co-author of the book A History Of Interest Rates.

We invited Professor Sylla onto the podcast after hearing his work favorably referenced by the panel convened at the recent hearing held by the US Congress titled: “The Federal Reserve’s Impact on Main Street, Retirees and Savings.”

Based on his deep study across the scope of millennia of human history, Sylla warns we are at a dangerous moment in time.

Richard Sylla: This Is An Inherently Dangerous Moment In History
 by Adam Taggart

“The rates we’ve had in recent years, including right now, are the lowest in history. The book that I co-authored on the history of interest rates traces back to the code of Hammurabi, Babylonian civilization, Greek and Roman civilization, the Middle Ages, the Renaissance, and early modern history right up to the present. And I can assure our listeners that the rates that they’re experiencing right now are the lowest in human history.”

So says Richard Sylla, Professor Emeritus of Economics and the Former Henry Kaufman Professor of the History of Financial Institutions and Markets at New York University’s Stern School of Business. He is also co-author of the book A History Of Interest Rates.

We invited Professor Sylla onto the podcast after hearing his work favorably referenced by the panel convened at the recent hearing held by the US Congress titled: “The Federal Reserve’s Impact on Main Street, Retirees and Savings.”

Based on his deep study across the scope of millennia of human history, Sylla warns we are at a dangerous moment in time.

Image | Steve St. Angelo: Prepare For Asset Price Declines Of 50-75%
Steve St. Angelo: Prepare For Asset Price Declines Of 50-75%
by Adam Taggart

Any sense of prosperity in today's economy is based on a falsehood, claims Steve St. Angelo, proprietor of the SRSrocco Report website.

Like we here at PeakProsperity.com, Steve is a student of energy. He shares our worldview that net energy per capita has been in steady decline, and a result, future growth will be limited. Also like us, he notes that the "growth" seen over the past several decades hasn't been due to surplus net energy (which makes being able to do more possible). Instead, it has been fueled by debt  — which essentially steals prosperity from the future and consumes it today.

Any third-grader with a crayon can quickly tell you that kind of scam can't last forever. And it can't. Once the can can't be kicked any further and the next economic and/or financial crisis is upon us, Steve sees today's over-inflated asset prices quickly dropping by a gut-wrenching 50-75%.

Steve St. Angelo: Prepare For Asset Price Declines Of 50-75%
 by Adam Taggart

Any sense of prosperity in today's economy is based on a falsehood, claims Steve St. Angelo, proprietor of the SRSrocco Report website.

Like we here at PeakProsperity.com, Steve is a student of energy. He shares our worldview that net energy per capita has been in steady decline, and a result, future growth will be limited. Also like us, he notes that the "growth" seen over the past several decades hasn't been due to surplus net energy (which makes being able to do more possible). Instead, it has been fueled by debt  — which essentially steals prosperity from the future and consumes it today.

Any third-grader with a crayon can quickly tell you that kind of scam can't last forever. And it can't. Once the can can't be kicked any further and the next economic and/or financial crisis is upon us, Steve sees today's over-inflated asset prices quickly dropping by a gut-wrenching 50-75%.

Image | Steen Jakobsen: 60% Probability Of Recession In The Next 18 Months
Steen Jakobsen: 60% Probability Of Recession In The Next 18 Months
by Adam Taggart

Steen Jakobsen back on, Chief Investment Officer of Saxo Bank, returns to the podcast this week to share with us the warning signs of slowing economic growth he's seeing in major markets all over the world.

In his view, the world economy is sputtering badly. So badly, that he's confident predicting a global recession by 2018 — or sooner.
Steen Jakobsen: 60% Probability Of Recession In The Next 18 Months
 by Adam Taggart

Steen Jakobsen back on, Chief Investment Officer of Saxo Bank, returns to the podcast this week to share with us the warning signs of slowing economic growth he's seeing in major markets all over the world.

In his view, the world economy is sputtering badly. So badly, that he's confident predicting a global recession by 2018 — or sooner.
Image | Why The Markets Are Overdue For A Gigantic Bust
Why The Markets Are Overdue For A Gigantic Bust
by Chris Martenson

As much as I try, I simply cannot jump on the bandwagon that says that printing up money out of thin air has any long-term utility for an economy.

It's just too clear to me that doing so presents plenty of dangers, due what we might call 'economic gravity': What goes up, must also come down.
Why The Markets Are Overdue For A Gigantic Bust
 by Chris Martenson

As much as I try, I simply cannot jump on the bandwagon that says that printing up money out of thin air has any long-term utility for an economy.

It's just too clear to me that doing so presents plenty of dangers, due what we might call 'economic gravity': What goes up, must also come down.
Image | Understanding The Fed’s Endgame Is Key To Protecting Your Wealth
Understanding The Fed’s Endgame Is Key To Protecting Your Wealth
 PREVIEW
by Chris Martenson

Executive Summary

  • Why the Fed’s rate hikes are not actual “hikes”
  • The new debt issuance directly or indirectly enabled by the Fed is staggeringly large
  • Why the Fed’s intervention in the financial markets is creating worrisome instability
  • As the risks mount, what should the concerned investor do?

If you have not yet read Part 1: The Federal Reserve Is Destroying America available free to all readers, please click here to read it first.

When Is A Rate Hike Not A Rate Hike?

The Fed keeps talking about raising interest rates, but they really aren’t doing any such thing.  In fact they are doing the opposite.

I know that’s a controversial statement, so let me explain.  The point of a ‘rate hike’ is not to make the cost of money (interest rates) go up, but to drain excess money from the system.  That’s why a rate hike cycle is called a ‘tightening’ cycle; because it is making the amount of money available for lending to shrink, or for conditions to become tighter.  The same as if you don’t have quite enough money at the end of the month, things are tight.

This means that the interest rate is the derivative, and the amount of money is the main driver.  You don’t set interest rates, you control the amount of money in the system, and the interest rates follow along.  They are the result, not the cause.

Or at least that’s how it used to be.  But not any longer.

In the past, when the Fed ‘hiked rates’ what it actually did was drain money from the system.   Money out = interest rates up.

Now when the Fed hikes rates it removes zero money in the system, and this is why a rate hike is not actually a rate hike at all, but the opposite because it leaves 100% of the money in the system but raises the amount that banks and other financial institutions can charge you for new loans and outstanding credit.

How did we get to this ‘upside down world’ where a rate hike increases money?

To understand let’s be sure we are clear on…

Understanding The Fed’s Endgame Is Key To Protecting Your Wealth
 PREVIEW by Chris Martenson

Executive Summary

  • Why the Fed’s rate hikes are not actual “hikes”
  • The new debt issuance directly or indirectly enabled by the Fed is staggeringly large
  • Why the Fed’s intervention in the financial markets is creating worrisome instability
  • As the risks mount, what should the concerned investor do?

If you have not yet read Part 1: The Federal Reserve Is Destroying America available free to all readers, please click here to read it first.

When Is A Rate Hike Not A Rate Hike?

The Fed keeps talking about raising interest rates, but they really aren’t doing any such thing.  In fact they are doing the opposite.

I know that’s a controversial statement, so let me explain.  The point of a ‘rate hike’ is not to make the cost of money (interest rates) go up, but to drain excess money from the system.  That’s why a rate hike cycle is called a ‘tightening’ cycle; because it is making the amount of money available for lending to shrink, or for conditions to become tighter.  The same as if you don’t have quite enough money at the end of the month, things are tight.

This means that the interest rate is the derivative, and the amount of money is the main driver.  You don’t set interest rates, you control the amount of money in the system, and the interest rates follow along.  They are the result, not the cause.

Or at least that’s how it used to be.  But not any longer.

In the past, when the Fed ‘hiked rates’ what it actually did was drain money from the system.   Money out = interest rates up.

Now when the Fed hikes rates it removes zero money in the system, and this is why a rate hike is not actually a rate hike at all, but the opposite because it leaves 100% of the money in the system but raises the amount that banks and other financial institutions can charge you for new loans and outstanding credit.

How did we get to this ‘upside down world’ where a rate hike increases money?

To understand let’s be sure we are clear on…

Image | Prepare For The Great Global Contraction
Prepare For The Great Global Contraction
 PREVIEW
by charleshughsmith

Executive Summary

  • The repercussions of the Fed's Free Money Machine
  • Why debt-funded state control stagnates productivity
  • The importance of the 8-year cycle
  • What should guide investors' focus and decisions

If you have not yet read Part 1: How Long Can The Great Global Reflation Continue? available free to all readers, please click here to read it first.

In Part 1, we asked these questions: can we just keep doubling and tripling the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?

In the near-term, we asked: is this Great Reflation running out of steam, or is it poised for yet another leg higher? Which is more likely?

Let’s start by looking at the mechanism that funds the government’s deficit spending, i.e. its ability to borrow and spend enormous sums of money year after year.

The Free Money Machine

The state can afford to continue or increase fiscal stimulus (deficit spending) because the central bank (the Federal Reserve) has created what amounts to a free money machine. Here’s how the machine works.

The federal government issues $1 trillion in new bonds to fund another $1 trillion in deficit spending. The central bank (Federal Reserve) creates $1 trillion with a few keystrokes, and buys the $1 trillion in bonds with newly created money.

The Federal Reserve earns interest on the $1 trillion in bonds it now owns, but it returns this income to the Treasury, minus the Federal Reserve’s relatively modest expenses of operation. Let’s say the bonds carry an interest rate of 2.5%.  The government pays the Federal Reserve $25 billion in annual interest, and the Federal Reserve returns $20 billion annually, so the net cost of borrowing and spending $1 trillion is an insignificant $5 billion.

If this isn’t entirely free money, it’s extremely close to free money.

So in ten years, the Federal Reserve owns $10 trillion more in federal bonds (assuming the bonds are long-term and didn’t mature).

It's no wonder that some economist propose…

Prepare For The Great Global Contraction
 PREVIEW by charleshughsmith

Executive Summary

  • The repercussions of the Fed's Free Money Machine
  • Why debt-funded state control stagnates productivity
  • The importance of the 8-year cycle
  • What should guide investors' focus and decisions

If you have not yet read Part 1: How Long Can The Great Global Reflation Continue? available free to all readers, please click here to read it first.

In Part 1, we asked these questions: can we just keep doubling and tripling the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?

In the near-term, we asked: is this Great Reflation running out of steam, or is it poised for yet another leg higher? Which is more likely?

Let’s start by looking at the mechanism that funds the government’s deficit spending, i.e. its ability to borrow and spend enormous sums of money year after year.

The Free Money Machine

The state can afford to continue or increase fiscal stimulus (deficit spending) because the central bank (the Federal Reserve) has created what amounts to a free money machine. Here’s how the machine works.

The federal government issues $1 trillion in new bonds to fund another $1 trillion in deficit spending. The central bank (Federal Reserve) creates $1 trillion with a few keystrokes, and buys the $1 trillion in bonds with newly created money.

The Federal Reserve earns interest on the $1 trillion in bonds it now owns, but it returns this income to the Treasury, minus the Federal Reserve’s relatively modest expenses of operation. Let’s say the bonds carry an interest rate of 2.5%.  The government pays the Federal Reserve $25 billion in annual interest, and the Federal Reserve returns $20 billion annually, so the net cost of borrowing and spending $1 trillion is an insignificant $5 billion.

If this isn’t entirely free money, it’s extremely close to free money.

So in ten years, the Federal Reserve owns $10 trillion more in federal bonds (assuming the bonds are long-term and didn’t mature).

It's no wonder that some economist propose…

Image | How Long Can The Great Global Reflation Continue?
How Long Can The Great Global Reflation Continue?
by charleshughsmith

Given the extraordinary failure of both Keynesian stimulus and private-sector credit growth to create a self-sustaining cycle of expansion whose benefits flow to the entire workforce rather than to the top few percent, what can we expect going forward? Can we just keep doubling and tripling the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?

In the near-term, is this Great Reflation running out of steam, or is it poised for yet another leg higher? Which is more likely?
How Long Can The Great Global Reflation Continue?
 by charleshughsmith

Given the extraordinary failure of both Keynesian stimulus and private-sector credit growth to create a self-sustaining cycle of expansion whose benefits flow to the entire workforce rather than to the top few percent, what can we expect going forward? Can we just keep doubling and tripling the economy’s debt load every few years? What if household incomes continue declining? Are these trends sustainable?

In the near-term, is this Great Reflation running out of steam, or is it poised for yet another leg higher? Which is more likely?
Image | The Mother Of All Financial Bubbles
The Mother Of All Financial Bubbles
by Chris Martenson

The main lesson from Oroville — or Fukushima, or Katrina —  is that governments do a poor job of relating accurate information to their citizens when big threats are involved. Part of that is likely due to a desire to avoid stoking fear. Part probably due to politics and bureaucracy. And part probably due to plain old incompetence.

Regardless of the cause, it means that the public — even the vigilant ones — suffer information deficits when it matters most. Simply put, the authorities do not share all the facts necessary for making informed decisions.

Which brings us to one of the truly great risks we’re facing today. One with much more destructive potential than a single failed dam but, like Oroville, one the authorities are desperate to keep us in the dark about.
The Mother Of All Financial Bubbles
 by Chris Martenson

The main lesson from Oroville — or Fukushima, or Katrina —  is that governments do a poor job of relating accurate information to their citizens when big threats are involved. Part of that is likely due to a desire to avoid stoking fear. Part probably due to politics and bureaucracy. And part probably due to plain old incompetence.

Regardless of the cause, it means that the public — even the vigilant ones — suffer information deficits when it matters most. Simply put, the authorities do not share all the facts necessary for making informed decisions.

Which brings us to one of the truly great risks we’re facing today. One with much more destructive potential than a single failed dam but, like Oroville, one the authorities are desperate to keep us in the dark about.
Total 63 items

Community

Top Conversation

 Prep Now for the Coming Winter Challenges
I’ve been doing a lot of thinking about the needs and sustainability of our family. We have six young children, our oldest just turned 12 and our youngest just turned 3 months old. I love the considerations that the article had above and thought I would add a few things that I have considered for our situation. My...
Image | hgrootveldgmail-com by hgrootveldgmail-com
36 95
View the conversation
Image | eQRP: Self-Directed Retirement

eQRP: Self-Directed Retirement

Learn more
Image | Gold Newsletter

Gold Newsletter

Learn more