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Image | “More Stress Is Needed”
“More Stress Is Needed”
 PREVIEW
by Chris Martenson

After Alice fell down the rabbit hole, nothing made sense anymore. A new logic reigned, and she had to adapt to it as readily as she could. Talking cats that disappeared except for their grin, caterpillars perched on magic mushrooms, and other oddities had to be encountered and dealt with.

Similarly, we find ourselves suddenly confronted with a fantastical menagerie. Such as the formerly inconsequential Greek interparty political wrestling matches becoming of critical importance to the fate of the entire world banking system, stock markets mainly discounting the likelihood and size of the next round of magic money-printing, a world that has decided Spain’s 6% deficit matters a lot while the US’s 8% deficit doesn’t matter at all, untrustworthy institutions that just abscond with client money without charge, and stock markets that are now mostly in the hands of robot machines trading in sub-millisecond cycles.

The signs of distress are obvious. The old forms of logic no longer work and the new logic cannot be traded reliably, as it owes its direction to pulses of fresh money and gyrating sentiment. All asset classes trade in lockstep, with nowhere to run and nowhere to hide. It’s either risk on or risk off, and knowing which might prevail at any given moment is now a 24/7 occupation, and a risky one at that.

The entire stock market is now simply living off of expectations of the future quantitative easing (QE) efforts, with another decision or announcement expected tomorrow at 2:15 EST.

This is the world we live in now, and hardly anybody even questions it anymore.
“More Stress Is Needed”
 PREVIEW by Chris Martenson

After Alice fell down the rabbit hole, nothing made sense anymore. A new logic reigned, and she had to adapt to it as readily as she could. Talking cats that disappeared except for their grin, caterpillars perched on magic mushrooms, and other oddities had to be encountered and dealt with.

Similarly, we find ourselves suddenly confronted with a fantastical menagerie. Such as the formerly inconsequential Greek interparty political wrestling matches becoming of critical importance to the fate of the entire world banking system, stock markets mainly discounting the likelihood and size of the next round of magic money-printing, a world that has decided Spain’s 6% deficit matters a lot while the US’s 8% deficit doesn’t matter at all, untrustworthy institutions that just abscond with client money without charge, and stock markets that are now mostly in the hands of robot machines trading in sub-millisecond cycles.

The signs of distress are obvious. The old forms of logic no longer work and the new logic cannot be traded reliably, as it owes its direction to pulses of fresh money and gyrating sentiment. All asset classes trade in lockstep, with nowhere to run and nowhere to hide. It’s either risk on or risk off, and knowing which might prevail at any given moment is now a 24/7 occupation, and a risky one at that.

The entire stock market is now simply living off of expectations of the future quantitative easing (QE) efforts, with another decision or announcement expected tomorrow at 2:15 EST.

This is the world we live in now, and hardly anybody even questions it anymore.
Image | The Most Predictable Next Events
The Most Predictable Next Events
 PREVIEW
by Alasdair Macleod

Executive Summary

  • Why Greece is unlikely to release a new drachma
  • Why globally-coordinated money printing is the most likely resolution to the Greek & Spanish crises
  • Why the magnitude of derivative risk makes a Eurozone collapse much more frightening
  • Why capital flight will get worse, and why gold will benefit from this
  • Why Germany's odds for leaving the Eurozone are lower than most assume
  • Why the time left before extreme action must be taken is than a few months – possibly only weeks

 

If you have not yet read Part I: Abandoning Ship, available free to all readers, please click here to read it first.

 

Here are some key points to bear in mind as the crisis progresses:

Greece: new drachma?

The Greeks would be crazy to embrace a new drachma, as recommended by neoclassical economists. A new drachma would be backed by nothing, unless it comes with full convertibility into Greece’s 111.6 tonnes of gold, assuming that actually exists. The complete lack of faith in any Greek government’s economic credentials would mean a new drachma in the absence of gold convertibility would rapidly descend towards its intrinsic value, which is zero. Interestingly, recent polls suggest that the Greek people understand this and prefer to remain with the euro.

The legality of changing deposits from euros to drachmas is highly questionable. Assuming the Greek government can force this through on domestic deposits that will leave an open question over loans, likely to be challenged through the courts. And in the past non-Greek banks lending money to Greek businesses have as a matter of course stipulated contracts to be governed by the laws of another jurisdiction.

Message: do not buy into the siren attractions of an independent drachma…

The Most Predictable Next Events
 PREVIEW by Alasdair Macleod

Executive Summary

  • Why Greece is unlikely to release a new drachma
  • Why globally-coordinated money printing is the most likely resolution to the Greek & Spanish crises
  • Why the magnitude of derivative risk makes a Eurozone collapse much more frightening
  • Why capital flight will get worse, and why gold will benefit from this
  • Why Germany's odds for leaving the Eurozone are lower than most assume
  • Why the time left before extreme action must be taken is than a few months – possibly only weeks

 

If you have not yet read Part I: Abandoning Ship, available free to all readers, please click here to read it first.

 

Here are some key points to bear in mind as the crisis progresses:

Greece: new drachma?

The Greeks would be crazy to embrace a new drachma, as recommended by neoclassical economists. A new drachma would be backed by nothing, unless it comes with full convertibility into Greece’s 111.6 tonnes of gold, assuming that actually exists. The complete lack of faith in any Greek government’s economic credentials would mean a new drachma in the absence of gold convertibility would rapidly descend towards its intrinsic value, which is zero. Interestingly, recent polls suggest that the Greek people understand this and prefer to remain with the euro.

The legality of changing deposits from euros to drachmas is highly questionable. Assuming the Greek government can force this through on domestic deposits that will leave an open question over loans, likely to be challenged through the courts. And in the past non-Greek banks lending money to Greek businesses have as a matter of course stipulated contracts to be governed by the laws of another jurisdiction.

Message: do not buy into the siren attractions of an independent drachma…

Image | Abandoning Ship
Abandoning Ship
by Alasdair Macleod

It will be no surprise to PeakProsperity.com readers that the news coming out of the Eurozone just gets worse and worse. The reality is that (in no particular order) Ireland, Portugal, Spain, Italy, Belgium, Greece and France are all in debt traps from which there is no escape. A debt trap is sprung when bankruptcy becomes the only outcome. With corporations this usually becomes readily apparent and directors are forced by law to stop trading, but countries conceal this reality by printing money.
Abandoning Ship
 by Alasdair Macleod

It will be no surprise to PeakProsperity.com readers that the news coming out of the Eurozone just gets worse and worse. The reality is that (in no particular order) Ireland, Portugal, Spain, Italy, Belgium, Greece and France are all in debt traps from which there is no escape. A debt trap is sprung when bankruptcy becomes the only outcome. With corporations this usually becomes readily apparent and directors are forced by law to stop trading, but countries conceal this reality by printing money.
Image | Jim Puplava: Oil Is the New Federal Funds Rate
Jim Puplava: Oil Is the New Federal Funds Rate
by Chris Martenson

Jim Puplava has made a decades-long career of interviewing hundreds of notable experts on the economy, energy, precious metals, geopolitics, agriculture, and other sectors that impact our future. 

The outlook he has developed as a result of all this input is less than sanguine. Jim concludes that economic growth will be constrained both by world governments' chronic addiction to spending more revenue than they take in and by the systemically rising costs of fossil-fuel-driven energy.

In terms of growth, he sees political leadership becoming less and less relevant in its ability to effect outcomes. In fact, he declares the price of oil as now being more influential in stimulating or depressing sovereign economies than central bank interest rates. In his words, "Oil is the new Federal Funds rate."
Jim Puplava: Oil Is the New Federal Funds Rate
 by Chris Martenson

Jim Puplava has made a decades-long career of interviewing hundreds of notable experts on the economy, energy, precious metals, geopolitics, agriculture, and other sectors that impact our future. 

The outlook he has developed as a result of all this input is less than sanguine. Jim concludes that economic growth will be constrained both by world governments' chronic addiction to spending more revenue than they take in and by the systemically rising costs of fossil-fuel-driven energy.

In terms of growth, he sees political leadership becoming less and less relevant in its ability to effect outcomes. In fact, he declares the price of oil as now being more influential in stimulating or depressing sovereign economies than central bank interest rates. In his words, "Oil is the new Federal Funds rate."
Image | Off the Cuff: Contagion Within Europe
Off the Cuff: Contagion Within Europe
 PREVIEW
by Chris Martenson

In this week's Off the Cuff with Mish & Chris podcast, Mish and Chris discuss:

  • Desperate Measures
    • The math behind the latest 'rescue' attempts is so broken it falls apart at first glance
  • How Much Time Do We Have Left?
    • The day of reckoning is approaching, but Europe is showing us we still have time left to act
  • Where to Park Capital
    • The options worth considering grow fewer in number, though Europeans should take action soon

Europe continues to figure prominently in Chris and Mish's minds at the moment. The action there is what's driving the world agenda right now, and the decisions taken to address the European crisis will have tremendous impact on the financial markets around the globe. Much is happening right now — but for longtime 'Off the Cuff' listeners, it's important to keep in perspective that little has actually changed. Europe's problem is a mathematical one. Too many bad loans were made. In practically every country. Steep losses will need to be taken. Taking those losses will place painful deflationary pressure on asset prices. The key question is: how much new money will central banks print to service and retire those debts?…
Off the Cuff: Contagion Within Europe
 PREVIEW by Chris Martenson

In this week's Off the Cuff with Mish & Chris podcast, Mish and Chris discuss:

  • Desperate Measures
    • The math behind the latest 'rescue' attempts is so broken it falls apart at first glance
  • How Much Time Do We Have Left?
    • The day of reckoning is approaching, but Europe is showing us we still have time left to act
  • Where to Park Capital
    • The options worth considering grow fewer in number, though Europeans should take action soon

Europe continues to figure prominently in Chris and Mish's minds at the moment. The action there is what's driving the world agenda right now, and the decisions taken to address the European crisis will have tremendous impact on the financial markets around the globe. Much is happening right now — but for longtime 'Off the Cuff' listeners, it's important to keep in perspective that little has actually changed. Europe's problem is a mathematical one. Too many bad loans were made. In practically every country. Steep losses will need to be taken. Taking those losses will place painful deflationary pressure on asset prices. The key question is: how much new money will central banks print to service and retire those debts?…
Image | Bailout Fatigue: The Spanish Bump and Slide
Bailout Fatigue: The Spanish Bump and Slide
 PREVIEW
by Chris Martenson

A while back, I briefly introduced the idea of crisis fatigue, the condition where one tires of the persistent low-level crisis that infests the corners of one's daily experience to the point that doing something, anything else, becomes an attractive proposition.

Now the entire globe is experiencing bailout fatigue, as evidenced by the lifespan-of-a-mayfly duration of the market pops that follow each new bailout announcement.

The most recent example is the 'bailout' of Spanish banks, first leaked and then 'announced' over the weekend to great hoopla and fanfare. The only problem was that no details came along with the announcement.

Where would the money come from, under what terms, and when? Such information was just not available.

The result? A massive futures spike in the global stock markets that did not even last a day:

 
Bailout Fatigue: The Spanish Bump and Slide
 PREVIEW by Chris Martenson

A while back, I briefly introduced the idea of crisis fatigue, the condition where one tires of the persistent low-level crisis that infests the corners of one's daily experience to the point that doing something, anything else, becomes an attractive proposition.

Now the entire globe is experiencing bailout fatigue, as evidenced by the lifespan-of-a-mayfly duration of the market pops that follow each new bailout announcement.

The most recent example is the 'bailout' of Spanish banks, first leaked and then 'announced' over the weekend to great hoopla and fanfare. The only problem was that no details came along with the announcement.

Where would the money come from, under what terms, and when? Such information was just not available.

The result? A massive futures spike in the global stock markets that did not even last a day:

 
Image | Steve Keen: Why 2012 is Shaping Up to be a Particularly Ugly Year
Steve Keen: Why 2012 is Shaping Up to be a Particularly Ugly Year
by Chris Martenson

At the high level, our global economic plight is quite simple to understand says noted Australian deflationist Steve Keen.

Banks began lending money at a faster rate than the global economy grew, and we're now at the turning point where we simply have run out of new borrowers for the ever-growing debt the system has become addicted to.

Once borrowers start eschewing rather than seeking debt, asset prices begin to fall — which in turn makes these same people want to liquidate their holdings, which puts further downward pressure on asset prices:

 
Steve Keen: Why 2012 is Shaping Up to be a Particularly Ugly Year
 by Chris Martenson

At the high level, our global economic plight is quite simple to understand says noted Australian deflationist Steve Keen.

Banks began lending money at a faster rate than the global economy grew, and we're now at the turning point where we simply have run out of new borrowers for the ever-growing debt the system has become addicted to.

Once borrowers start eschewing rather than seeking debt, asset prices begin to fall — which in turn makes these same people want to liquidate their holdings, which puts further downward pressure on asset prices:

 
When Will Reality Intrude and the Stock Market Hit Bottom? Part 1
by charleshughsmith

If we pursue the line of inquiry established by Chris Martenson’s recent call to “Buckle Up–Market Breakdown in Progress,” we come to these basic questions: when will the market reflect the fundamental weakness of the global economy, and when will the market finally hit bottom?
When Will Reality Intrude and the Stock Market Hit Bottom? Part 1
 by charleshughsmith

If we pursue the line of inquiry established by Chris Martenson’s recent call to “Buckle Up–Market Breakdown in Progress,” we come to these basic questions: when will the market reflect the fundamental weakness of the global economy, and when will the market finally hit bottom?
Image | The New Old: Zero Interest Rates Extended
The New Old: Zero Interest Rates Extended
 PREVIEW
by admin-2

Finally, the Federal Reserve noted something correctly, namely that the economy is not in great shape, and even went so far as to note that things probably won't start improving until 2015 or later. In today's Federal Reserve announcement, the Fed dialed back its growth projections by 0.3% to the low to mid 2% range, and made these other observations and promises:

  • FED EXPECTS TO MAINTAIN `HIGHLY ACCOMMODATIVE' MONETARY POLICY 
  • FED SEES `EXCEPTIONALLY LOW' RATES THROUGH AT LEAST LATE 2014 
  • FED TO KEEP REINVESTING HOUSING DEBT INTO MORTGAGE SECURITIES 
  • FED SAYS INFLATION `SUBDUED' 
  • FED SAYS HOUSING `REMAINS DEPRESSED' 
  • FED REITERATES `SIGNIFICANT DOWNSIDE RISKS'

In short, we will be living with zero percent interest rates until 2015, unless they extend the range future at future meetings.

For those expecting deflation to be expressed in stock or commodity prices, today was something of a setback. Oil is well over $110 on the world stage, grains are running again, and gold is up handily on the year and certainly on the day.
The New Old: Zero Interest Rates Extended
 PREVIEW by admin-2

Finally, the Federal Reserve noted something correctly, namely that the economy is not in great shape, and even went so far as to note that things probably won't start improving until 2015 or later. In today's Federal Reserve announcement, the Fed dialed back its growth projections by 0.3% to the low to mid 2% range, and made these other observations and promises:

  • FED EXPECTS TO MAINTAIN `HIGHLY ACCOMMODATIVE' MONETARY POLICY 
  • FED SEES `EXCEPTIONALLY LOW' RATES THROUGH AT LEAST LATE 2014 
  • FED TO KEEP REINVESTING HOUSING DEBT INTO MORTGAGE SECURITIES 
  • FED SAYS INFLATION `SUBDUED' 
  • FED SAYS HOUSING `REMAINS DEPRESSED' 
  • FED REITERATES `SIGNIFICANT DOWNSIDE RISKS'

In short, we will be living with zero percent interest rates until 2015, unless they extend the range future at future meetings.

For those expecting deflation to be expressed in stock or commodity prices, today was something of a setback. Oil is well over $110 on the world stage, grains are running again, and gold is up handily on the year and certainly on the day.
Image | Europe Is On Fire
Europe Is On Fire
by admin-2

The vast imbalances that led to the 2008 crisis are mainly still intact, and in many cases are larger than they were before.

Another difficult thing is constantly reading all the horribly wrong and misleading information out there that is designed to shape opinion almost universally in the direction towards more profligacy and consumption.
Europe Is On Fire
 by admin-2

The vast imbalances that led to the 2008 crisis are mainly still intact, and in many cases are larger than they were before.

Another difficult thing is constantly reading all the horribly wrong and misleading information out there that is designed to shape opinion almost universally in the direction towards more profligacy and consumption.
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