My unpublished (100,000 word) book “The Financial Jigsaw”, is being serialised here weekly in 100 Issues by Peter J Underwood, author
Quote of the Week: “…Hence, today’s money is not real money. Rather, it is fake money. And this fake money has heinous implications on how people earn, save, invest, and pay their way in the world we live in. Practically all aspects of everything have been distorted and disfigured by it.” – N M Gordon. Read on: https://economicprism.com/
NOTE – If anyone would like a free updated, 3rd edition, electronic copy of the complete book, I should be pleased to email a free pdf on request to: [email protected]. The book has many footnotes linking to relevant and explanatory Appendices, websites and videos.
The theme of the week is of course the assassination of Soleimani and the real reasoning behind this abomination is this: “Michael Hudson sheds light on what is in effect a protracted “democratic” oil war: “The assassination was intended to escalate America’s presence in Iraq to keep control of the region’s oil reserves, and to back Saudi Arabia’s Wahhabi troops (Isis, Al Qaeda in Iraq, Al Nusra and other divisions of what are actually America’s foreign legion) to support U.S. control of Near Eastern oil as a buttress of the US dollar. That remains the key to understanding this policy, and why it is in the process of escalating, not dying down.” http://thesaker.is/financial-n-option-will-settle-trumps-oil-war/
“To those who want to buy gold and Bitcoin or CNY as a hedge vs. US power: ‘Who has all the guns?’ And guess who has just shown it isn’t afraid to use them against those who seek to undermine it? In short, if World War Three kicks off, go long USD as you head for the shelters; and if US muscle-flexing prevents World War Three here, it’s even more the time to remember why the USD is still the USD.”
If this is what “the good times” look like, how nightmarish are “the bad times” going to be [for 2020]? In America today, more than 500,000 of us are homeless, about 40 million of us are living in poverty, 50 percent of all workers make less than $33,000 a year, and 70 percent of us have cried about money.
This is a wonderful satire of the conspiracy theories prevalent today – great read in 2 mins:
AND – not to forget, Repo is back: Worse, any attempts to drain liquidity from the repo market, or generally slow down the shrinkage of the balance sheet, will be met with failure. It is also another indication that the repo market now holds the Fed hostage, with Powell now trapped in not only injecting liquidity via QE4, i.e., the monetization of T-Bills, but continued reliance on repos in the $250BN range.
Of course, should the Fed threaten to pull even a bit more liquidity than the market is comfortable sacrificing, and stocks get it. The flip side too: as long as the Fed keeps growing the balance sheet at a rate of about $100 billion per month, the market melt up will continue.
For those interested in this crazy market, this article is worth a read, especially the screaming confusion and disbelief in the comments:
https://northmantrader.com/2020/01/08/desperation/
This week we continue with completing the ‘Preface’ which is new in the 3rd edition. This final section deals with the impossibility of fiat currencies surviving for any length of time and we appear to be nearing the end of our present global financial regime.
Here is the link to last week: Issue 85
Now that Brexit is certain on 31st January 2020, I will continue to provide weekly updates as events progress:
Brexit Update – 10th January 2020
The Brexit deadline remains 31st January 2020 and Parliament has agreed the new exit plan (WAB): https://www.bbc.co.uk/news/uk-politics-50125338 The bill will progress through several readings in Parliament and the House of Lords before becoming law at the end of the month.
You may follow a daily run-down on the current situation from my friend, Dr Richard North, as Brexit progresses: http://eureferendum.com/ I have said before, Brexit is a process, not an event.
The UK is not only facing the potential of a Brexit-related shock, but there are three other plausible shocks and crises the UK government will face in its five-year term. This will require adept and creative central bank policy – that crucially will have to differ from the post-2008 policies that have led to the coming crisis. Moreover, with the central bank policy toolkit severely constrained, the onus will be on the government to avert or mitigate these. But is it ready to do so?
Parliament is now at work this week. Details of Parliament’s deliberations can be found here:
Now that the UK is definitely leaving EUROPE – I will continue to comment on relevant EU – UK events:
Europe continues its dismal journey to nowhere
European production and new orders dropped in December. Output declined for an eleventh consecutive month. Levels of new incoming work also dropped over the month. Of note: the rate of job losses in December was the sharpest recorded by the survey since 2013.
https://www.zerohedge.com/economics/european-manufacturing-downturn-deepens-december
The ECB continues its failed policy of negative interest rates, having recently lowered them again to minus 0.5 percent to the howls of anguish from the banks who cannot make money in this distorted environment. “As long as people are afraid of liberty and falsely delegate their self-responsibility to a central authority, hope is dim. It’s time to think independently about whether today’s centralized system really makes sense, if it is sustainable and for how much longer. If the answers to these questions scare you, it is pointless to expect solutions to come from above. It is then time to act directly and responsibly, with a solid plan, hard physical assets privately owned, and a long-term strategy that does not depend on the whims and caprices of those in charge.”
https://mises.org/wire/how-todays-central-bankers-threaten-civilization
The 3rd edition of The Financial Jigsaw issued recently includes a Preface, Epilogue and Appendices which I will publish here in advance. First, here is the Preface:
PREFACE
How 1971 Changed Everything in the Economy
This book is not all about money although much of it relies on money as a backdrop. In choosing a Preface I thought about summarising how our financial system of fiat currencies worldwide has come about. It was fortunate that I found this article which the author has graciously agreed for me to edit and reproduce here as an introduction to the history of our money systems.
The full article Via Duino Schiappapietra, may be accessed here: https://medium.com/swlh/from-gold-to-nothing-5bd86c0231be
Continued:
1971 - A New Chapter for the World
Since Nixon took the entire world out of gold in 1971, the world began this experiment of a full FIAT monetary system, backed by nothing. [The Fed will claim that their fiat is backed by the full faith and credit of the USA (and of course its military complex)]
Nobody knows how things will play out in the end, but the fact that this system has been running for almost 50 years now, that historically FIAT system have had a 100% failure rate and that bigger and bigger imbalances are being created are factors worth considering.
To put things into perspective, once that currency is no longer commodity-backed, central banks can create as much currency as they want. [They do this by creating loans in their name through their commercial banks – there is no limit] Even though this comes in handy when there is the need to fight a recession, it seems that it went out of control.
We now have a full FIAT monetary system and central banks can create as much currency as they want. This is a problem for two reasons:
- The purchasing power of the currency gets progressively wiped out
- The monetary expansion creates a high degree of distortion in the economy
The dollar has lost [approximately] 95% of its purchasing power in just 100 years. This situation can only deteriorate and it is a problem for individuals because it makes it virtually impossible to save money. You can’t just save; you are bound to invest at least to keep purchasing power. Given the overall decrease in asset returns, it also forces you to place riskier investments to have some acceptable returns.
This might actually be the real problem because money (or currency today) is one of the most important variables in the economic system and if it gets manipulated this doesn’t come without consequences. When you take a look at the degree of distortion in today’s economy there is a real chance that the situation will run out of control. To get an idea of the massive manipulation of the entire economy that is going on, start by assessing the expansion of the monetary base:
The quantity of currency almost quintupled in a matter of a single decade and this was all currency created in order to keep the economy going. This is crazy and while it helped to postpone a slowdown in the economy, it fostered a huge debt assumption that sooner or later will result in a burden for the economy.
The problem with this monetary system is that can’t balance the forces of the free market. The gold standard had a huge advantage because it was self-balancing since the overall amount of money was fixed.
Without a conscious effort to limit excesses, greater and greater imbalances start to appear, cracks start to show up and the system is under threat. This also caused other distortions, like the push to stock market valuations that are now in bubble territory. [Target 2 balances in the EU are a classic example – Germany is owed almost 1 Trillion euro by other EU countries!]
There is no chance that this is a coincidence. There is almost a perfect correlation between expanding the monetary base and increasing stock prices. As monetary policy tried to start to raise interest rates, uncertainties on the market promptly showed up and now the Federal Reserve Bank has already changed its strategy. We might see soon a new monetary expansion, the problem is that this time it would happen before a crisis and it leaves us with a huge question: What to do then when we enter the real crisis?
Conclusion
Without any connection with a fixed quantity of gold the monetary system currently has no limits for currency creation. The fact that financial crisis is getting bigger and bigger and levels of debt are getting higher and higher is a direct consequence of increases in the monetary base.
Today we find ourselves with an economy that is slowing down with levels of debt never seen before and frighteningly high financial market valuations and LESS TOOLS TO FIGHT THE NEXT CRISIS.
I am not saying that bond issuance and fighting a recession is a bad thing by itself, but without any control, it is a real problem, because it leads to the destruction of purchasing power and the generation of distortions in the economy and markets.
The point is that the economic crisis has a fundamental rebalancing role in the economy and preventing them from working does not come without consequences. It is understandable that governments and policymakers do not want to have a crisis while they are in charge, but forcing the economy through monetary policy to never slow down brings on the risk of a full-blown financial disaster.
Text provided by Duino Schiappapietra with his website at:
https://moderntimesinvestors.com/
To be continued next Saturday
Brexit is not a done deal. Though I am for it I have faith that the Globo Homo remainers are not finished yet.
Yep, overthecliff, thanks, and I am with you 100%. When I mail out my PDFs to readers I always comment:
“……You may find that Chapter 6 puts ‘Brexit’ history into context, although I have always contended from the outset that TPTB would never allow UK to exit the EU – IMO there was too much money and vested interests at stake. Therefore a 2nd referendum would have scotched the whole idea and made sure the UK plebs got back into line! This looks very unlikely now we have the election results so the only hurdle is the upcoming EU trade negotiations to December 2020 or a sudden, no-deal exit. This article explains it well:
The Rule of Thumb is “If you double the money supply, you double the prices”. The lapse is normally one or two years; maybe the Elite are stashing trillions in cash per year now and killing the velocity. Regardless, The End is hyperinflation and the Black Horse is already running lose out of the barn.
Excellent rule of thumb, Robert thank you – I hadn’t thought of it in such simple-to-understand terms. And so true. Not sure where the trillions are but we know that the elite, central banks and mega-billionaires are stacking gold and PMs, land and hard assets. They know as always.