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by
Chris Martenson
The Framework for Predicting Our Financial Future
Wednesday, December 7, 2011
Executive Summary
- Exponential change ‘speeds up’
- When it finally happens, change happens quickly
- Collapse progresses from the outside in
- Complex systems will become simpler when energy is scarce
- We fool ourselves at our peril
- The rules will be changed
- If you can’t accurately assess the risks, don’t play the game
- Investing in a structural bear market
Part I: How to Position Yourself for the Future: Step 1 – Financial Security
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Framework for Predicting Our Financial Future
Okay, assuming you have the basics covered, I now want to share with you my views on the markets and how things will unfold in the future. My assumption is that you have completed the full Crash Course (or one of the shorter versions) and are familiar with the exponential function and how it permeates our everyday life.
This framework is always subject to revision as new experiences and data points become available, but its central themes have been operative for me for several years.
Again, this body of work represents my personal observations, historical readings, and faith in the idea that cultures and laws may change but humans tend to behave in predictable ways. As always, I reserve the right to change my forecasts as new information becomes available.
Exponential Change ‘Speeds Up’
Understanding the nature of the systems in which we live is the centerpiece of our analytical framework. And at the heart of that is the concept that we live in a world dominated by exponential functions and curves.
The Framework for Predicting Our Financial Future
PREVIEW by Chris MartensonThe Framework for Predicting Our Financial Future
Wednesday, December 7, 2011
Executive Summary
- Exponential change ‘speeds up’
- When it finally happens, change happens quickly
- Collapse progresses from the outside in
- Complex systems will become simpler when energy is scarce
- We fool ourselves at our peril
- The rules will be changed
- If you can’t accurately assess the risks, don’t play the game
- Investing in a structural bear market
Part I: How to Position Yourself for the Future: Step 1 – Financial Security
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: The Framework for Predicting Our Financial Future
Okay, assuming you have the basics covered, I now want to share with you my views on the markets and how things will unfold in the future. My assumption is that you have completed the full Crash Course (or one of the shorter versions) and are familiar with the exponential function and how it permeates our everyday life.
This framework is always subject to revision as new experiences and data points become available, but its central themes have been operative for me for several years.
Again, this body of work represents my personal observations, historical readings, and faith in the idea that cultures and laws may change but humans tend to behave in predictable ways. As always, I reserve the right to change my forecasts as new information becomes available.
Exponential Change ‘Speeds Up’
Understanding the nature of the systems in which we live is the centerpiece of our analytical framework. And at the heart of that is the concept that we live in a world dominated by exponential functions and curves.
by
Gregor Macdonald
How the European Endgame Will Be the Death Knell For Modern Economics
by Gregor Macdonald, contributing editor
Monday, December 5, 2011
Executive Summary
- Central banks are running out of options, leaving only increasingly desperate choices
- Why Europe is most likely to begrudgingly print a whole lot more money soon
- The harsh judgment day is approaching for mainstream economists
- Why 2012 heralds the dawn of a new era of economic understanding
Part I: It’s Time To Give Up On Mainstream Economics
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: How the European Endgame Will Be the Death Knell For Modern Central Banking
Central Banks Becoming Increasingly Desperate
Has Europe decided to print its way out of the crisis? The big-bang announcement last week among global central banks suggests as much. Unfortunately, the global US dollar swap solution only patches up the liquidity portion of Europe’s present dilemma and does nothing to address the solvency issue.
As readers know, I take the mildly heretical view that “money-printing” in our present debt deflation actually functions as a status-quo maintainer. It does not risk hyperinflation, but instead keeps social confidence intact — at low levels, of course — as the familiar institutions of Western economies are maintained. Hard defaults, on the other hand, especially hard defaults that appear out of the hands of either fiscal or monetary policy makers, risk a confidence collapse on a large scale.
In my view, hyperinflation typically begins with a broad rejection of a country’s sovereign debt. This is the initial threshold that is crossed on the path to currency rejection, as foreign holders exit first. Domestic institutions are more restricted, slower to react, often bound by investment mandates, and thus left “holding the bag,” as it were, on a country’s bonds. Eventually, domestic confidence in the currency itself is lost, as the public, having watched its institutions fail, rejects the currency.
In my view, Europe is still at very high risk for such a catastrophic outcome. No global central bank, including the European Central Bank (ECB), can change the fact that the debt of Greece, Portugal, Spain, and Italy cannot be supported realistically through economic growth. But there is still time for the ECB to change its charter and buy that debt. The coordinated central-bank actions this past week will have virtually no consequence unless the ECB conducts QE (quantitative easing) on a massive scale.
Probabilistically, I have to favor the idea that Europe was given the lifeline on the condition that the fiscal union discussed in Europe and the permission granted to the ECB to conduct QE are both forthcoming. For the sake of social stability, I hope this happens. But I am not naive. Much of the debt that the ECB would purchase under such a regime, just like much of the junk debt now on the Fed’s balance sheet, will never recover its par (full price) value. Certainly not in real (inflation-adjusted) terms. But if the ECB does not “print money,” then we will move directly to hard defaults. And the hyperinflation risk that is currently masked by the common currency to the Eurozone will eventually be unveiled.
How the European Endgame Will Be the Death Knell For Modern Economics
PREVIEW by Gregor MacdonaldHow the European Endgame Will Be the Death Knell For Modern Economics
by Gregor Macdonald, contributing editor
Monday, December 5, 2011
Executive Summary
- Central banks are running out of options, leaving only increasingly desperate choices
- Why Europe is most likely to begrudgingly print a whole lot more money soon
- The harsh judgment day is approaching for mainstream economists
- Why 2012 heralds the dawn of a new era of economic understanding
Part I: It’s Time To Give Up On Mainstream Economics
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II: How the European Endgame Will Be the Death Knell For Modern Central Banking
Central Banks Becoming Increasingly Desperate
Has Europe decided to print its way out of the crisis? The big-bang announcement last week among global central banks suggests as much. Unfortunately, the global US dollar swap solution only patches up the liquidity portion of Europe’s present dilemma and does nothing to address the solvency issue.
As readers know, I take the mildly heretical view that “money-printing” in our present debt deflation actually functions as a status-quo maintainer. It does not risk hyperinflation, but instead keeps social confidence intact — at low levels, of course — as the familiar institutions of Western economies are maintained. Hard defaults, on the other hand, especially hard defaults that appear out of the hands of either fiscal or monetary policy makers, risk a confidence collapse on a large scale.
In my view, hyperinflation typically begins with a broad rejection of a country’s sovereign debt. This is the initial threshold that is crossed on the path to currency rejection, as foreign holders exit first. Domestic institutions are more restricted, slower to react, often bound by investment mandates, and thus left “holding the bag,” as it were, on a country’s bonds. Eventually, domestic confidence in the currency itself is lost, as the public, having watched its institutions fail, rejects the currency.
In my view, Europe is still at very high risk for such a catastrophic outcome. No global central bank, including the European Central Bank (ECB), can change the fact that the debt of Greece, Portugal, Spain, and Italy cannot be supported realistically through economic growth. But there is still time for the ECB to change its charter and buy that debt. The coordinated central-bank actions this past week will have virtually no consequence unless the ECB conducts QE (quantitative easing) on a massive scale.
Probabilistically, I have to favor the idea that Europe was given the lifeline on the condition that the fiscal union discussed in Europe and the permission granted to the ECB to conduct QE are both forthcoming. For the sake of social stability, I hope this happens. But I am not naive. Much of the debt that the ECB would purchase under such a regime, just like much of the junk debt now on the Fed’s balance sheet, will never recover its par (full price) value. Certainly not in real (inflation-adjusted) terms. But if the ECB does not “print money,” then we will move directly to hard defaults. And the hyperinflation risk that is currently masked by the common currency to the Eurozone will eventually be unveiled.
by
Gregor Macdonald
Few modern economists would, for example, monitor the behaviour of Procter and Gamble, assemble data on the market for steel, or observe the behaviour of traders. The modern economist is the clinician with no patients, the engineer with no projects. ~ John Kay, from The Map is Not the Territory: An Essay on the State of Economics, October 2011
I’m not quite sure what a depression is. ~ Martin Feldstein, in an interview with Kelly Evans of the Wall Street Journal, October 2011
A Failure To See the Obvious
Prior to 2008 it was generally understood that the profession hardly merited its claims of its own predictive utility. So the failure to assign enough risk to such a crisis as befell the developed world in 2008 was, frankly, no surprise. But in the aftermath of the crisis, economics, in its professional form, has revealed itself to be damagingly disconnected from observable reality.
A glaring example of this is how it cannot come to any agreement as to how the debt crisis occurred, and accordingly remains quite confused in its proffered solutions.
It’s Time To Give Up On Mainstream Economics
by Gregor MacdonaldFew modern economists would, for example, monitor the behaviour of Procter and Gamble, assemble data on the market for steel, or observe the behaviour of traders. The modern economist is the clinician with no patients, the engineer with no projects. ~ John Kay, from The Map is Not the Territory: An Essay on the State of Economics, October 2011
I’m not quite sure what a depression is. ~ Martin Feldstein, in an interview with Kelly Evans of the Wall Street Journal, October 2011
A Failure To See the Obvious
Prior to 2008 it was generally understood that the profession hardly merited its claims of its own predictive utility. So the failure to assign enough risk to such a crisis as befell the developed world in 2008 was, frankly, no surprise. But in the aftermath of the crisis, economics, in its professional form, has revealed itself to be damagingly disconnected from observable reality.
A glaring example of this is how it cannot come to any agreement as to how the debt crisis occurred, and accordingly remains quite confused in its proffered solutions.
by
Adam Taggart
Today we are trying something new. We are bringing an investment opportunity to CM.com readers, one that many of you have been quite vocal about finding for years. As an enrolled member, you are learning about this in advance of the general public. Please note that this opportunity is not for everyone, so read carefully. If the CM.com community appreciates being made privy to similar opportunities like this in the future, we'll continue to keep looking for them.
by
charleshughsmith
That the American and global economies are being transformed by the forces of globalization, demographics, and over-indebtedness is self-evident. What is less self-evident is the impact this transformation will have on the future of work, earned income, and financial security.
The key question an increasingly vulnerable workforce is asking is: What skills will be in demand once this transition occurs?
In order to answer this question, it’s necessary to understand the macro trends that will shape the nature of employment in this new era. In our previous look at The Future of Work, we focused on the US economy’s dependence on debt as a driver of growth and found that debt saturation was correlated with declining employment. But there are many other long-term dynamics influencing the economy, and no survey of the future job market would be complete without considering these other factors.
The Future of Jobs
by charleshughsmithThat the American and global economies are being transformed by the forces of globalization, demographics, and over-indebtedness is self-evident. What is less self-evident is the impact this transformation will have on the future of work, earned income, and financial security.
The key question an increasingly vulnerable workforce is asking is: What skills will be in demand once this transition occurs?
In order to answer this question, it’s necessary to understand the macro trends that will shape the nature of employment in this new era. In our previous look at The Future of Work, we focused on the US economy’s dependence on debt as a driver of growth and found that debt saturation was correlated with declining employment. But there are many other long-term dynamics influencing the economy, and no survey of the future job market would be complete without considering these other factors.
The Options for Greece
by
Gregor Macdonald
Understanding Where Gold and Silver Go from Here
by Gregor Macdonald, contributing editor
Monday, November 21, 2011
Executive Summary
- The outlook for precious metals will be heavily influenced by the steps the European Central Bank (ECB) takes in the near future.
- Understanding the likely price trajectories of the precious metals whether or not central banks resume quantitative easing (QE, a.k.a. money printing)
- The specific price targets for both gold and silver under the most likely scenarios
- Underscoring the gravity of our current situation
Part I – The New Price Era of Oil and Gold
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II – Understanding Where Gold and Silver Go from Here
As readers now understand, I am not currently a supporter of higher gold prices as a function of inflation risk. Instead, my view is that we must first move through the various iterations of crisis, collapse, debt default, instability, and policy panic before gold attaches itself to inflation. Yes, I agree with the Paul Brodsky thesis (and the FOFOA thesis) that the foundations of future inflation have already been laid. But it’s also my view that for a severe inflation to unfold, there has to be a collapse in currency demand itself. It would also be necessary for global industrial production to have collapsed down to much lower levels to provide sufficient scarcity of goods. Mind you, I see both of these conditions — rejection of currencies and industrial collapse — as high risk. The two maps I offer here include them.
Mapping the Price Future of Gold and Silver
The first price path I want to share with you is called The Grand QE Cycle. It begins with the resolution to the most pressing question facing markets right here, right now, today: Will the ECB federalize all Eurozone debt?
Based on my own analysis and in consultation with contacts, I concluded for myself weeks ago that the crisis in the EU was becoming increasingly binary. Indeed, it is now fully binary. Either the ECB guides to a new charter or mandate, allowing it to buy unlimited quantities of EU debt, or it follows through on its hard-money threats — and the sovereign debt, which forms the core asset of pension funds, banks, institutions across the EU, will become distressed debt, forcing a cataclysmic purge.
Because this urgent question has not been definitively answered as yet, gold is making its way in volatile fashion towards a price of…
Understanding Where Gold and Silver Go from Here
PREVIEW by Gregor MacdonaldUnderstanding Where Gold and Silver Go from Here
by Gregor Macdonald, contributing editor
Monday, November 21, 2011
Executive Summary
- The outlook for precious metals will be heavily influenced by the steps the European Central Bank (ECB) takes in the near future.
- Understanding the likely price trajectories of the precious metals whether or not central banks resume quantitative easing (QE, a.k.a. money printing)
- The specific price targets for both gold and silver under the most likely scenarios
- Underscoring the gravity of our current situation
Part I – The New Price Era of Oil and Gold
If you have not yet read Part I, available free to all readers, please click here to read it first.
Part II – Understanding Where Gold and Silver Go from Here
As readers now understand, I am not currently a supporter of higher gold prices as a function of inflation risk. Instead, my view is that we must first move through the various iterations of crisis, collapse, debt default, instability, and policy panic before gold attaches itself to inflation. Yes, I agree with the Paul Brodsky thesis (and the FOFOA thesis) that the foundations of future inflation have already been laid. But it’s also my view that for a severe inflation to unfold, there has to be a collapse in currency demand itself. It would also be necessary for global industrial production to have collapsed down to much lower levels to provide sufficient scarcity of goods. Mind you, I see both of these conditions — rejection of currencies and industrial collapse — as high risk. The two maps I offer here include them.
Mapping the Price Future of Gold and Silver
The first price path I want to share with you is called The Grand QE Cycle. It begins with the resolution to the most pressing question facing markets right here, right now, today: Will the ECB federalize all Eurozone debt?
Based on my own analysis and in consultation with contacts, I concluded for myself weeks ago that the crisis in the EU was becoming increasingly binary. Indeed, it is now fully binary. Either the ECB guides to a new charter or mandate, allowing it to buy unlimited quantities of EU debt, or it follows through on its hard-money threats — and the sovereign debt, which forms the core asset of pension funds, banks, institutions across the EU, will become distressed debt, forcing a cataclysmic purge.
Because this urgent question has not been definitively answered as yet, gold is making its way in volatile fashion towards a price of…
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