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Image | First The Fall…
First The Fall…
 PREVIEW
by Chris Martenson

One of the models of the future that I favor is the Ka-Poom theory put out by Erik Jansen of iTulip.com back in 1999.

Basically it states that the end of a bubble era begins with a sharp deflationary event (the ‘Ka’ part of the title), but ends in a highly inflationary blow-off, (the ‘Poom’).

It’s a one-two punch. Down then up.

First The Fall…
 PREVIEW by Chris Martenson

One of the models of the future that I favor is the Ka-Poom theory put out by Erik Jansen of iTulip.com back in 1999.

Basically it states that the end of a bubble era begins with a sharp deflationary event (the ‘Ka’ part of the title), but ends in a highly inflationary blow-off, (the ‘Poom’).

It’s a one-two punch. Down then up.

Image | A New Way to Hold Gold (2015 Update)
A New Way to Hold Gold (2015 Update)
by Adam Taggart

What if you could carry and exchange gold in the exact same manner as you do with the dollar bills in your wallet?

Last year, we introduced the precious metals community to a company called Valaurum, which has developed a technology that's making this possible.

This week, we check in to see what's new (spoiler alert: Lots), as well as announce the availability of the new 2015 Peak Prosperity aurum note.
A New Way to Hold Gold (2015 Update)
 by Adam Taggart

What if you could carry and exchange gold in the exact same manner as you do with the dollar bills in your wallet?

Last year, we introduced the precious metals community to a company called Valaurum, which has developed a technology that's making this possible.

This week, we check in to see what's new (spoiler alert: Lots), as well as announce the availability of the new 2015 Peak Prosperity aurum note.
Image | The Consequences Playbook
The Consequences Playbook
 PREVIEW
by Chris Martenson

Executive Summary

  • Desperate central banks are dangerous central banks
  • Why wealth disparity will get worse
  • The list of what comes next as central banks lose control
  • What you should do in advance

If you have not yet read When This Ends, Everybody Gets Hurt available free to all readers, please click here to read it first.

What’s really happened since 2008 is that central banks decided that a little more printing with the possibility of future pain was preferable to immediate pain.  Behavioral economics tells us that this is exactly the decision we should always expect from humans. History says as much, too.

It’s just how people are wired. We’ll almost always take immediate gratification over deferred, and similarly choose to defer consequences into the future, especially if there’s even a ridiculously slight chance they won’t materialize.

So instead of noting back in 2008 that it was unwise to have been borrowing at twice the rate of our income growth for the past several decades — which would have required a lot of very painful belt-tightening — the decision was made to ‘repair the credit markets’ which is code speak for: ‘keep doing the same thing that got us in trouble in the first place.’

Also known as the ‘kick the can down the road’ strategy, the hoped-for saving grace was always a rapid resumption of organic economic growth. That’s how the central bankers rationalized their actions. They said that saving the banks and markets today was imperative, and that eventually growth would return, justifying all of the new debt layered on to paper-over the current problems.

Of course, they never explained what would happen if that growth did not return. And that’s because the whole plan falls apart without really robust growth to pay for it all.

And by ‘fall apart’ I mean utter wreckage of the bond and equity markets, along with massive institutional and sovereign defaults. That was always the risk, and now we’re at the point where…

The Consequences Playbook
 PREVIEW by Chris Martenson

Executive Summary

  • Desperate central banks are dangerous central banks
  • Why wealth disparity will get worse
  • The list of what comes next as central banks lose control
  • What you should do in advance

If you have not yet read When This Ends, Everybody Gets Hurt available free to all readers, please click here to read it first.

What’s really happened since 2008 is that central banks decided that a little more printing with the possibility of future pain was preferable to immediate pain.  Behavioral economics tells us that this is exactly the decision we should always expect from humans. History says as much, too.

It’s just how people are wired. We’ll almost always take immediate gratification over deferred, and similarly choose to defer consequences into the future, especially if there’s even a ridiculously slight chance they won’t materialize.

So instead of noting back in 2008 that it was unwise to have been borrowing at twice the rate of our income growth for the past several decades — which would have required a lot of very painful belt-tightening — the decision was made to ‘repair the credit markets’ which is code speak for: ‘keep doing the same thing that got us in trouble in the first place.’

Also known as the ‘kick the can down the road’ strategy, the hoped-for saving grace was always a rapid resumption of organic economic growth. That’s how the central bankers rationalized their actions. They said that saving the banks and markets today was imperative, and that eventually growth would return, justifying all of the new debt layered on to paper-over the current problems.

Of course, they never explained what would happen if that growth did not return. And that’s because the whole plan falls apart without really robust growth to pay for it all.

And by ‘fall apart’ I mean utter wreckage of the bond and equity markets, along with massive institutional and sovereign defaults. That was always the risk, and now we’re at the point where…

Image | Why Our Central Planners Are Breeding Failure
Why Our Central Planners Are Breeding Failure
by charleshughsmith

As counter-intuitive as it may sound, success rather reliably leads to failure and destabilization.

In the macro-economic arena, I think it highly likely that the monetary and fiscal policies of the past six years that are conventionally viewed as successful will lead to spectacular political and financial failures in 2015 and 2016.
Why Our Central Planners Are Breeding Failure
 by charleshughsmith

As counter-intuitive as it may sound, success rather reliably leads to failure and destabilization.

In the macro-economic arena, I think it highly likely that the monetary and fiscal policies of the past six years that are conventionally viewed as successful will lead to spectacular political and financial failures in 2015 and 2016.
Image | 2014 Year in Review
2014 Year in Review
by David Collum

I have not seen a year in which so many risks—some truly existential—piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. Groping for a metaphor—I love metaphors and similes—I feel like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows.
2014 Year in Review
 by David Collum

I have not seen a year in which so many risks—some truly existential—piled up so quickly. Each risk has its own, often unknown, probability of morphing into a destructive force. Groping for a metaphor—I love metaphors and similes—I feel like we’re in the final throes of a geopolitical Game of Tetris as financial and political authorities race to place the pieces correctly. But the acceleration is palpable. The proximate trigger for pain and ultimately a collapse can be small, as anyone who’s ever stepped barefoot on a Lego knows.
Image | Deflation Is Winning
Deflation Is Winning
by Brian Pretti

Remember in the early part of the last decade, long before he was appointed the Chairman of the Federal Reserve, Ben Bernanke penned an article that caught widespread public attention entitled, “Deflation: It Can’t Happen Here” ?

Bernanke was referring to the deflationary pressures Japan had been dealing with for more than a decade. In the article, Bernanke laid out a game plan for how the Fed would respond if the US ever faced deflationary pressures. His miracle antidote for battling deflation? Printing money. Lots of it.

Little did anyone know at the time that this game plan would become the Fed’s exact response to the credit market crisis and deflationary impulse that erupted in 2008 and 2009.
Deflation Is Winning
 by Brian Pretti

Remember in the early part of the last decade, long before he was appointed the Chairman of the Federal Reserve, Ben Bernanke penned an article that caught widespread public attention entitled, “Deflation: It Can’t Happen Here” ?

Bernanke was referring to the deflationary pressures Japan had been dealing with for more than a decade. In the article, Bernanke laid out a game plan for how the Fed would respond if the US ever faced deflationary pressures. His miracle antidote for battling deflation? Printing money. Lots of it.

Little did anyone know at the time that this game plan would become the Fed’s exact response to the credit market crisis and deflationary impulse that erupted in 2008 and 2009.
Image | The Consequences of a Strengthening US Dollar
The Consequences of a Strengthening US Dollar
by charleshughsmith

In early September, I made the case for a rising U.S. dollar. Since then the dollar has continued its advance, and is now breaking out of a downtrend stretching back to 2005—and by some accounts, to 1985.

So what does this mean for the global economy?

 

The Consequences of a Strengthening US Dollar
 by charleshughsmith

In early September, I made the case for a rising U.S. dollar. Since then the dollar has continued its advance, and is now breaking out of a downtrend stretching back to 2005—and by some accounts, to 1985.

So what does this mean for the global economy?

 

Image | Why The Strengthening Dollar Is A Sign Of The Next Global Crisis
Why The Strengthening Dollar Is A Sign Of The Next Global Crisis
 PREVIEW
by charleshughsmith

Executive Summary

  • Understanding the two different ways money flows into the US dollar
  • How currency crises elsewhere can send the dollar skyrocketing
  • Why yen, yuan and euro printing are not the same as dollar printing
  • How these accelerating money flows are creating the next global crisis

If you have not yet read The Consequences of a Strengthening US Dollar available free to all readers, please click here to read it first.

In Part 1, we surveyed the key dynamic that is playing out across the globe: the problems revealed by the Global Financial Meltdown of 2008-2009 were not addressed; they were in effect shifted into the foreign exchange (FX) market. Now the risk bubble is in the FX market.

The complexity of the feedbacks into the FX market is nothing short of mind-boggling, and rather than attempt a comprehensive survey, I’m highlighting the dynamics that hold the greatest risks of triggering instability, not just in finance but in geopolitics, trade and commodities.

Two Kinds of Dollar Flows

Let’s start by differentiating between the two kinds of money flows into the dollar:

  1. Money converted from periphery currencies into dollars to pay back loans denominated in dollars
     
  2. Money flowing out of periphery economies and into dollar-denominated assets such as stocks, bonds, real estate and dollar-denominated bank accounts.

Broadly speaking, both of these capital flows are “risk-off,” but they have different effects.

In the first case, money borrowed on the cheap in dollars and invested in high-yield periphery bonds earned a tidy profit as the dollar weakened. The trader picked up a double profit: the arbitrage on the interest rates (borrow at .25% and earn 4+%) and the FX profit from the rise of the periphery currency and the decline of the dollar.

This currency-arbitrage profit reverses when the dollar starts rising, and it quickly wipes out the entire interest-rate profit as it leaps higher.

The carry trade is “risk-on” because money is being borrowed to speculate in interest-rate arbitrage. Deleveraging this trade is “risk-off” because the only way to stem the potential losses as the dollar strengthens is to…

Why The Strengthening Dollar Is A Sign Of The Next Global Crisis
 PREVIEW by charleshughsmith

Executive Summary

  • Understanding the two different ways money flows into the US dollar
  • How currency crises elsewhere can send the dollar skyrocketing
  • Why yen, yuan and euro printing are not the same as dollar printing
  • How these accelerating money flows are creating the next global crisis

If you have not yet read The Consequences of a Strengthening US Dollar available free to all readers, please click here to read it first.

In Part 1, we surveyed the key dynamic that is playing out across the globe: the problems revealed by the Global Financial Meltdown of 2008-2009 were not addressed; they were in effect shifted into the foreign exchange (FX) market. Now the risk bubble is in the FX market.

The complexity of the feedbacks into the FX market is nothing short of mind-boggling, and rather than attempt a comprehensive survey, I’m highlighting the dynamics that hold the greatest risks of triggering instability, not just in finance but in geopolitics, trade and commodities.

Two Kinds of Dollar Flows

Let’s start by differentiating between the two kinds of money flows into the dollar:

  1. Money converted from periphery currencies into dollars to pay back loans denominated in dollars
     
  2. Money flowing out of periphery economies and into dollar-denominated assets such as stocks, bonds, real estate and dollar-denominated bank accounts.

Broadly speaking, both of these capital flows are “risk-off,” but they have different effects.

In the first case, money borrowed on the cheap in dollars and invested in high-yield periphery bonds earned a tidy profit as the dollar weakened. The trader picked up a double profit: the arbitrage on the interest rates (borrow at .25% and earn 4+%) and the FX profit from the rise of the periphery currency and the decline of the dollar.

This currency-arbitrage profit reverses when the dollar starts rising, and it quickly wipes out the entire interest-rate profit as it leaps higher.

The carry trade is “risk-on” because money is being borrowed to speculate in interest-rate arbitrage. Deleveraging this trade is “risk-off” because the only way to stem the potential losses as the dollar strengthens is to…

Image | Off the Cuff: The Importance Of Global Capital Flows
Off the Cuff: The Importance Of Global Capital Flows
 PREVIEW
by Chris Martenson

In this week's Off the Cuff podcast, Chris and Brian Pretti discuss:

  • Japan's Halloween Massacre
    • The most glaring sign yet that the central banks are desperate
  • Capital Flows Are King Right Now
    • The reason we have record-high markets despite crummy fundamentals
  • Musical Chairs
    • Every (market) player has fun until the music stops
  • Throwing The Bums Out
    • As our lifestyles contract, we vote out the incumbents
Off the Cuff: The Importance Of Global Capital Flows
 PREVIEW by Chris Martenson

In this week's Off the Cuff podcast, Chris and Brian Pretti discuss:

  • Japan's Halloween Massacre
    • The most glaring sign yet that the central banks are desperate
  • Capital Flows Are King Right Now
    • The reason we have record-high markets despite crummy fundamentals
  • Musical Chairs
    • Every (market) player has fun until the music stops
  • Throwing The Bums Out
    • As our lifestyles contract, we vote out the incumbents
Image | What Will Happen When Japan Breaks
What Will Happen When Japan Breaks
 PREVIEW
by Chris Martenson

Executive Summary The data that proves Japan is a ticking time bomb Why the yen may still fall a lot further from here How Japan's contagion can threaten world markets (and yes, the US) Why the contagion is now underway, and what you should do about it If you have not yet read Central Planners…
What Will Happen When Japan Breaks
 PREVIEW by Chris Martenson

Executive Summary The data that proves Japan is a ticking time bomb Why the yen may still fall a lot further from here How Japan's contagion can threaten world markets (and yes, the US) Why the contagion is now underway, and what you should do about it If you have not yet read Central Planners…
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