France – Fighting Against the Internet
France goes out of its way to fight the Business Cycle in every aspect. They are now seeking to enact the Anti-Amazon law, who some have regarded as the destroyer of book stores. It may be true that Amazon and the internet in general is contributing to the change in the economy from eliminating local book stores, but this trend is also self-evident in the gradual destruction of newspapers and magazines as well.
Stand behind a young kid in line at Starbucks and they pay by holding out their Google Wallet on their phone. Money is even being eliminated. When cars first appeared, the British enacted a law that you had to hire someone to walk in front of your car waving a flag and warning the public that a car was coming. The British successfully sent the auto industry to the USA and Germany. They have never really recovered from that stupid law.
France is doing its best to fight the Business Cycle. They cannot see that fighting the trend is doing far more harm to their economy than anything else they can possibly do.
European Banking Crisis – Seizing 10% of Everyone’s Accounts – Hello Cyprus
The European Banking Crisis is getting much worse and the whole structure is crumbling to dust. The banks cannot save themselves. The entire crisis is all about the structural design of the Euro, which the politicians will not address. They failed to create a single national debt and in so doing, the banks then used the debts of all member states as reserves. Southern European banks still depend on the steady flow of subsidies coming from the ECB. The politicians and academics are simply lost because they are avoiding anything that would expose the fatal flaw in the Euro design. Therefore, all we get is more of the same and with each band-aid applied failing to stop the blood gushing from the fatal wound. We need stitches at this point and there is nothing in sight that the politicians will even consider that requires them to take any responsibility whatsoever.
These European Zombie Banks, as they are being called, are creating a controversy surrounding a “safety net” that the ECB and European Commission are trying to create. Europe is desperately trying to take the DEFLATIONARY path by simply confiscating assets of all citizens in all Eurozone banks. So much for the hyperinflationists. They just do not get it. The banks are heavily indebted and cannot save themselves especially when they had to buy weakening government debt of member states and derivatives that blew them up offered by New York. The combination of toxic derivative products coming from New York and the fatal design of the Euro, it becomes impossible for many of the Eurozone Banks to survive intact.
The Eurozone is becoming an economic combat zone as this banking crisis merges with the Sovereign Debt Crisis and simply expands exponentially. Mario Draghi has injected about one trillion euros by “Longer-term Refinancing Operation” (LTRO 1 and 2) to support the banks. This, like the Fed, failed to produce inflation the gold promoters swore would happen because they failed to consider the contraction in assets we now face.
This entire bailout idea of maintaining extremely low-interest rates where banks in turn would provide loans to companies jump-starting the economy has utterly failed. The banks in the US refused to lend to small business without 120% collateral and in Europe, these liquidity injections were used to buy more government bonds that have then declined as rates in Europe have risen thanks to the structural defect of the Euro. Then stir in this toxic pot insane taxation that drastically reduces economic growth and you have a future that looks more like a wasteland.
Mario Draghi has simply declared that the Eurozone Zombie Banks need more liquidity but this will do nothing when the reserves are the bonds of member states that are themselves in perpetual escalating debt cycles. The banks will need more and more financial support until the reserve structure of the Eurozone is entirely reformed with the creation of a single debt that may now require the federalization of Europe. The banks cannot pay back the loans already made by the LTRO cash injections to the ECB so this entire design of this solution is just hopeless.
The Spanish banks absorbed €300 billion euros from the ECB with no hope of repayment. The Italian banks took in €255 billion euros also with no hope of repaying anything. The French banks owe €87 billion to the ECB, and the German banks owe €10 billion to the ECB. Then the Irish banks and Portugese banks owe about €80 billion.
Now that Merkel won the election, she will hand-over control of the banks to Brussels. What is on the table now is this idea of creating a common European bank bailout fund.The ESM (European Stability Mechanism) is a permanent crisis resolution mechanism for the countries of the euro area issuing debt instruments in order to finance loans and other forms of financial assistance to euro area Members States. However, the ESM is becoming a “lifeline” for banks in the Eurozone transforming the Union into a bank transfer union through the back door rather than an economic union.The ESM is thus emerging as a legacy for all European banks.
The Sovereign Debt Crisis in Europe is joined at the hip with the European Banking Crisis and this is caused by the failed Euro design structure. The Eurozone banks are burdened with vast amounts of bad loans running into the hundreds of billions of euros and the higher taxes move, the lower the economic growth that fuels the growth in bad loans. The Eurozone banks will need at least €700 billion in euros to meet stress tests.
The European public funds from the ESM are insufficient. The banking rescuers are frantically looking for a “safety net” and this is viewed as now creating a general bailout by seizing 10% of all deposits in Eurozone banks.
The European Commission wants to play games with the numbers. Any bank bailouts they want excluded the their budget deficit. However, these “Zombie Banks” are truly insolvent banks that can only exist by ECB monetary injections. In any case, such banks do not have recourse to the capital markets. Which banks are really “Zombie Banks” no one actually knows because the info is guarded denying the ability of depositors to identify risk assessment. It is not the private loans that mask the problem, but government bonds that are on the books of the banks in the euro periphery countries as well. The problem with government bonds has been simple – they are not backed by anything and are thus unsecured. Private bonds you can get at least something back in a bankruptcy whereas you get nothing in return for government bonds. The ECB does not wish to downgrade banks for holding Eurozone government bonds.
IMF head Christine Lagarde has been suggesting a wholesale seizure of 10% of all accounts throughout the Eurozone because there may be riots and discord if there are bail-ins on a case by case basis. The idea is that a wholesale seizure will prevent a bank-run for if bail-ins take place on a case-by-case basis then this might start a contagion. Consequently, the latest reports from the IMF discuss this super-seizure of 10% on all savings in the Eurozone they are calling a tax. This is argued to be necessary solve the debt problem in most sovereign countries. It would be an alternative of higher taxes or spending cuts. The economists who actually wrote the paper claim it appears to be an efficient solution for the debt problem yet it lacks long-term analysis.
Still, this would not deal with the structural and systemic problems of the Euro by itself and as such will not address the acute bankruptcy risk of the member states themselves. Governments borrow with no idea or design to ever pay anything back.
In the last section of the IMF report, on page 58, right before the appendices, it reads:
The sharp deterioration of the public finances in many countries has revived interest in a “capital levy”— a one-off tax on private wealth—as an exceptional measure to restore debt sustainability. The appeal is that such a tax, if it is implemented before avoidance is possible and there is a belief that it will never be repeated, does not distort behavior (and may be seen by some as fair). There have been illustrious supporters, including Pigou, Ricardo, Schumpeter, and—until he changed his mind—Keynes. The conditions for success are strong, but also need to be weighed against the risks of the alternatives, which include repudiating public debt or inflating it away (these, in turn, are a particular form of wealth tax—on bondholders—that also falls on nonresidents)There is a surprisingly large amount of experience to draw on, as such levies were widely adopted in Europe after World War I and in Germany and Japan after World War II. Reviewed in Eichengreen (1990), this experience suggests that more notable than any loss of credibility was a simple failure to achieve debt reduction, largely because the delay in introduction gave space for extensive avoidance and capital flight – in turn spurring inflation.The tax rates needed to bring down public debt to precrisis levels, moreover, are sizable: reducing debt ratios to end-2007 levels would require (for a sample of 15 euro area countries) a tax rate of about 10 percent on households with positive net wealth(*).(*) IMF staff calculcation using the Eurosystem’s Household Finance and Consumption Survey; unweighted average.
Indeed, Keynes makes his appearance in the report as well.
One should note that the first paragraph of the report right away debunks the myth that politicians and main stream media try to sell, i.e. the crisis is contained and the positive economic outlook for 2014.
High debt ratios amid persistently low growth in advanced economies and emerging fragilities in the developing world cast clouds on the global fiscal landscape. In advanced economies, with narrowing budget deficits (except, most notably, in Japan), the average public debt ratio is expected to stabilize in 2013-14. Yet it will be at a historic peak (about 110 percent of GDP, 35 percentage points above its 2007 level). Simulations show that maintaining the overall budget at a level consistent with the IMF staff’s medium-term advice would bring the average debt ratio to about 70 percent of GDP by 2030, although in a few countries it would remain above 80 percent. However, the large debt stock, the uncertain global environment, weak growth prospects, and the absence of well-specified medium-term adjustment plans in systemic economies like Japan and the United States complicate the task.
Consequently, what lies ahead is anything but plain vanilla. The Eurozone remains the source of the most extreme threat to the global economy.
France is considering Nationalization of Peugeot
The French Solution – if it does not make a profit or is dysfunctional, then Nationalize it. The French car-maker is broke once again and France is considering nationalization defying as always the Business Cycle. I was called in by one of the Top 10 French companies in Germany. This is how government should be barred from any such interference. The company wanted to reduce its work force by about 25%. The government initially said fine. Then at the last-minute they said it was not fair for the company to pick and choose. They ordered the company to make the offer to everyone. The deal was they would receive a buy-out. Human nature then took over and the best people who knew they could get another job took more than 100k and ran out the door. The company lost the best people and was stuck with the unproductive. This is how government ensures the inefficiency of such enterprises.
Gold Promoters Discover the World?
QUESTION: It seems some of the very people who use to interview you now suddenly pretend to be world analysts covering all markets. Everyone tries to mimic you yet ignore you. If people like this will not comprehend what you are doing, are they merely making the future much worse with their cheap imitation of suddenly being a world analyst?
ANSWER: The Wall Street Journal accused Jesse Livermore of turning bullish to influence the Presidential elections in 1924. When they were proved wrong, they refused to ever quote him again. What the Gold Promoters are doing in my case is exactly the same thing. It merely demonstrates that they are anything but real analysts.
You cannot be a world analyst from sitting in some studio in the middle of America. What I have learned is from actually being there as I am in Switzerland right now. It would be like a man trying to write a book about how it feels to go through childbirth. There are some things you just cannot do without experience. I could read a book about brain surgery and sound professional while even memorizing the entire book so I could stump an actual surgeon on some technicality. But would you want to be my first patient while I refer to the book?
Understanding the world economy and trying to forecast when you are already biased with the Goldbug philosophy is outright absurd. They are merely dressing up the pig to pretend it is a child – it’s still a pig. The result will be indistinguishable as they say if all you have is a hammer – then everything will look like a nail. This is what politicians do. They cannot see that their ideas are wrong so the problem is everyone else. Since a politician’s hammer is the pen, they will draft some new Draconian law to demand that you do what they desire. This is the same problem. You cannot be a world analyst if you have a predetermined philosophical expected outcome. Everything will still be interpreted around gold as the center of the universe when it is really a tiny market. They will not admit it is just a fraction of the total value of the US stock market no less all equities. To them it will be the tail that wags the dog rather than the other way around. Gold has its role. But they have caused so many people to lose their savings based upon propaganda designed to sell their vision of the world through gold-colored glasses no different from any religious cult. This is about economic survival and making money. Not promoting something they already have some personal interest in furthering.
The ONLY analyst I have ever respected was Adam Smith who did not begin trying to prove a predetermined idea. Smith alone set out to study HOW the economy worked and wrote his Wealth of Nations in 1776. The competing idea at the time was that of the Physiocrats in France who believed wealth was agriculture and thus land, not gold. The Physiocrats inspired the Age of Empire Building as well as Karl Marx in his concept that real wealth was labor. Smith discovered the Invisible Hand and how each and every one of us collectively combine to create the economy without central planning as we have today. It is the synergy that emerges that creates a society and an economy – the sum of the parts is greater than just a handful of individuals.
The Socialists of today in the USA and Europe hate the Invisible Hand because they do not like the way the economy functions. They attempt to change nature. They see it as unfair that one individual should have more than another and seek to use law to alter nature. This is no different from trying to enact a law that no animal should eat another because it is unfair to the one being eaten. TheBusiness Cycle is drive in part by nature that includes weather, which not merely impacts the quantity of food, but it has been weather that inspired the migration of man as well. If weather did not change and food was always abundant, then mankind would never have left his cave.
The Invisible Hand states that each will pursue his own self-interest and in doing so we create a collective functioning society. Communism merely saw it needed a street-cleaner and you were next in line. It ignored the human ability and sacrificed individualism for state planning and control. Government is delusional. They actually believe THEY are the nation and hence the charge people like Snowden with treason when he is informing the people about illegal activities of Government. They have it ass-backwards. It is thePEOPLE who compose society and the nation – notGOVERNMENT. Government tries to manipulate the Invisible Hand to make it function as they think it should, not much different from the Gold Promoters see conspiracies behind everything.
Marx, Keynes, and today’s economic theories are all manipulative. They try to force the economy to function as they see it. They do not look with unbiased eyes to discover HOW it functions, but only seek to control the Business Cycle transforming it into a flat-line. The system will collapse because of the manipulations that try force upon society their vision of utopia where everyone has the same.
The Gold Promoters talk about hyperinflation and have never done any independent research whatsoever. They fail to grasp even how empires, nations, or city states rise and fall. All they can do is sound professional. That will not change their interpretations because it is all based solely upon personal opinion seen simply through gold-colored glasses indistinguishable from a politicians who see the world only through the reins of his own power.
Clients paid for what the COMPUTER was saying, not for my personal opinion, which I distinguish with the words “I think!” The Gold Promoters will lead many down the path of ruin based solely upon their opinion and belief. In selling their own bias they will create the bull market ONLY when they have destroyed the majority of gold bulls. They will then sell every future rally not believing in a bull market because these people will distort the truth right now through pretending to suddenly understand the world. There is just no individual capable of monitoring the entire world 24/7 and sorting all that out in his head.
If This is Not DEFLATION – Nothing Is!
Now in the news there is discussion of a 10% seizure of ALL deposits in ALL of Europe to cover this failed experiment called the Euro. In the Greek newspaper HEMPHΣIA, they reported today on Sunday that the new deal to surface now that Merkel is in power will be the seizure of 10% of ALL deposits to go toward the Sovereign Debt Crisis because the European politicians refused to create a single currency with a single debt. This whole thing is just getting out of hand. The West’s Marxist Socialism is imploding as did Marxist Communism. Enough is enough. We need serious reform before these people create World War III.
Capitulation by the Gold Bulls?
QUESTION: Why is it that the gold press now refuse to ever interview you? It really seems to show that what they say is totally untrustworthy when they refuse to interview anyone who disagrees with them. You are the only analyst who said gold would drop to $1,000 when it was at least $1,800. They ignore you now like you never existed. Just so dishonest.
Thank you for the education. I see why the major institutions used you and not these charlatans.
BC
ANSWER: Of course, whenever someone has only one product to sell or tout, be it gold or bonds like the bankers, you will NEVER get an objective analysis and you can bet you will lose your shirt in the end. The one thing I learned at an early age that inspired me to begin analysis, was that NO investment was immune from the Business Cycle, I saw the rare coin market collapse in 1966. The stock market crashed then as well. I tried real estate and watched that collapse going into 1970. I soon discovered that nothing but nothing was immune.
Now look at the above chart of monthly cash gold. In January 1970, gold fell BELOW the fixed Bretton Woods value of $35 reaching $34.70. The fundamentalists said then gold could never fall below the gold standard price. They were dead wrong then as well and you will see them dead wrong right here and now for they are always wrong. Markets move to extremes and MUST do so. The fall below $35 takes place before the bull market can begin. We MUST see this same thing right now. The Goldbugs MUST be totally devastated in order to create a REAL bull market.
Any analysis MUST be practical and worldly. If it is not, it will be worthless. No matter what model you use, if there is simply a domestic perspective it will fail. If there is a further isolated perspective in one market only – it will really fail.
For years, people have been touting nothing but gold as the hedge against hyperinflation as if that was actually arriving on the next train. Then they have said they are Contrarian investors, but in fact, this is the same stuff spouted out following the 1980 high when they swore new high would be made any day now. Unfortunately, way too many people have bought this nonsense and they seem to just take the same rantings for every commodity bull cycle and prognosticate the future ignoring any decline for 19 years in the past.
True, the Goldbug press loved to interview me until I said gold would drop to $1,000. After that, they stopped calling for interviews demonstrating that they too are anti-free press and only seek to air those who will preach the same nonsense. When gold fell, their forecasts jumped even higher with some then saying no $30,000 was not high enough it would not go to $50,000. Then anything that takes place is always a conspiracy against only gold.
Gold is NOT ready for prime time. The average person on the street remains clueless that there is even a debt problem. They watch sports and can tell you names of players but not even the name of their own Congressman. Until that changes, the REAL purpose of gold as a hedge against government will not come into play.
A Giant Waste of Time
Starbucks has entered the political arena with its “Come Together Petition” it MADE AVAILABLE FOR customers to sign in 10,000 stores and it took out full-page ads in major newspapers seeking.
Leaders in Washington to actually lead by:
- Reopen our government to serve the people.
- Pay our debts on time to avoid another financial crisis.
- Pass a bipartisan and comprehensive long-term budget deal by the end of the year.
While admirable, this is truly a giant waste of time and money. Get all the signatures in the world and it will make no difference. The agenda is far more devious. This is a political war and the stakes are extremely very high. Obama sees the opportunity to default and blame the Republicans,
A Giant Waste of Time
Starbucks has entered the political arena with its “Come Together Petition” it MADE AVAILABLE FOR customers to sign in 10,000 stores and it took out full-page ads in major newspapers seeking.
Leaders in Washington to actually lead by:
- Reopen our government to serve the people.
- Pay our debts on time to avoid another financial crisis.
- Pass a bipartisan and comprehensive long-term budget deal by the end of the year.
While admirable, this is truly a giant waste of time and money. Get all the signatures in the world and it will make no difference. The agenda is far more devious. This is a political war and the stakes are extremely very high. Obama sees the opportunity to default and blame the Republicans,
Defeating the Business Cycle – A Goal for Thousands of Years
Marxism in trying to defeat the Business Cycle is by no means something new. Sparta in Ancient Greece also sought to create a flat business cycle with a commune type state atmosphere. Gaius Gracchus (154–121 BC) introduced his Grain Laws to “sell a fixed monthly ration of grain at a low and unvarying price to any Roman citizen”. This enraged the Senate for they were convinced such a welfare program would result in the people working less.
Trying to defeat the business cycle has been a goal for thousands of years and dates back to the wage and price controls found in Hammurabi’s (1792-1750 BC) Legal Code in Babylon as recorded on this Stella.
No one in history has ever succeeded in trying to eliminate the Business Cycle. This is why we too must crash and burn. Socialism will never work because part of the economy is driven by nature. Just as in the Bible Joseph tells the Pharaoh there will be 7 years of plenty and 7 years of drought. If you understand the cycle, you can adapt to it. If you fight it with regulation and confiscation, all you will do is create tyranny at the behest of those who do not want to work and expect the state to take assets from the working class to give to them. No such system will ever prevail. The idea that the “rich” have too much and it is not fair that they should have what they have and that justifies taking the property of another, the lowest class in the West will look like a king compared to those in Africa still herding for a living. It is all relative.