Banks Runs in Bulgaria
The financial system is simply imploding because those running the affairs of government are more concerned about retaining power than providing economic stability. There are people who are so polarized on each side of many issues from hyperinflation, global elites, socialists hating the rich, communists who see capitalism as evil, and politicians who blame tax avoiders. There is so much polarization within society that there cannot be any solution for everyone has a fixed opinion and only they are right. This is the exemplified in government. They too only see their point of view and it is simply that they lack 100% control of everything (communism) and this is why it is failing.
Now we have bank runs in Bulgaria. The entire fabric is coming undone and this is part of the fuel that send everything into chaos and the risk of war as tensions rise and people blame someone else be it rich, foreigners, bankers, or corporations. This is the time where clear reasonable thinking and solutions become impossible.
The IMF is now urging the ECB to start buying government bonds of the member states. They have no solutions but the same old bad of tricks. There is nobody even capable of thinking out of the box in a position of power. We are plagued by lawyer-politicians in the total absence of anyone with experience in international money management – the void of experience and statesmanship.
Will Society Ever Wake Up?
QUESTION: Does society ever wake up? Are there any such examples from history?
Thanks
DG
ANSWER: Of course. If society did not wake up now and then, the outcome would always be the same – a dark age. The late 1700s was a revolution against monarchy – i.e. American Revolution. Then there was the overthrow of the kings and birth of Roman Republic in 509 BC. Each of these two events was followed by a contagion where the first inspired the French Revolution and the latter the Athenian revolution giving birth to Democracy. Then there was the collapse of Communism that began in China and spread to Russia and Eastern Europe as a contagion.
There is hope that we can wake before we go to the Dark Age stage – the Mad Max Event. If there were not, I would be building a bunker on an island someplace. This all depends upon society and where it resides at that moment. We have more danger in places like France where people are so reliant upon government which has laid waste to the private sector exactly as communism did in Russia.
The difference between China and Russia is important. In China, they did not try to change the thinking of society, they merely punished those who disagreed openly. Under Stalin, he persecuted people for having a brain. Therefore, China’s rebound has been spectacular because people were NOT reliant upon government. The more a society relies upon government the greater the damage to its economic potential. It requires a control-alt-delete reboot.
It is similar today where we have smart phones. We now push a button to call a friend. Lose the phone and most of us have no idea what phone number to call any more. We become dependent upon the technology. The same is true with government. In Ukraine, the people simply did not trust government and have had an independent streak to always maintain some self-reliance.
The future depends upon that quality. It will vary from region to region even within the same nation. For example, stop the flow of food into NYC and they begin to starve after 10 days. You would see a mass exodus raiding the homes in the suburbs. The city people rely upon someone producing the food 100% and have no land to even grow a tomato. At least in the suburb, they can plant something assuming it is not robbed by another.
This is the problem with all analysis. Only a fool cannot see that there is something beyond a one-dimensional view of the world. Everything they look at they twist into their own view and fail to understand that this is a multi-dimensional world where the same fundamental does NOT produce the same result perpetually. This is a combination of trends, which merge together to create a dynamic future that leaves opinion always trying to justify its errors.
Society will wake up, but not necessarily as a whole on a universal basis. There will always be differences of opinions and culture for everyone’s history dictates their future. Germany demands austerity because of the 1920s hyperinflation after the communist revolution of 1918, and the USA stimulates because of the 1930s deflation. There is NEVER a one size fits all outcome for everyone. They simply fight the last war over and over again blind to the changes because of their prejudice.
Why The European Banking System is Doomed
QUESTION: Hi Martin
You said, that the creation of the Euro was the second worst act. “That undermined the entire European banking system and has led to a serious undermining of the entire global economy.” How has this undermined the entire European banking system. Could you explain this?
Thanks so much!
Regards
WI
ANSWER: The problem of the Euro was the fear that consolidating all the debts at the outset would have created the image that they were federalizing Europe, which was the original intent. Therefore, they left each country with its own debt and only created a single currency driven by an amalgamation of governments. They then used euro bonds of each member state as the RESERVE of the banking system. As the disparity among the member states cracked the system in 2010 starting in Greece, they undermined the banking system within Europe as a whole. The Brussels politicians now argue the only way to save the Euro is to federalize Europe and to save the banking system people have to give up at least 10% of their assets.
This is like creating a vaccine to prevent a disease (world war), and then when you are taken ill because of a bad vaccine, they argue you need a new version. This is not my opinion – just fact. They sent the commission to create the Euro to our World Economic Conference in London. I have first hand knowledge of what was being created from the outset and warned them the lack of a national consolidated debt would doom the Euro. This was not clairvoyance – it is simple economics.
The European banking system has been doomed from the outset. While bankers are to blame for proprietary trading, they are NOT to blame for the poor design of the euro. The success of the USA was mistakenly assumed to be a single currency. It was also a national debt and a single language (albeit now diverting to Spanish in Southern and Western USA that is a bad trend long-term for it prevents a single economy as does the varied cultures within Europe. You do not migrate to China and then demand they speak your language).
The Hamiltonian Model worked in the USA because he consolidated the debts of all states at the outset. We submitted this design back then as the ONLYsuccessful model and why it succeeded. Had the USA not moved to a consolidated debt and the banking reserves would have relied upon state debt, they would have collapse as states defaulted in the 1840s not so dissimilar from the collapse in Europe.
The economies of Greece, Italy and Spain may attract the attention, but the time bomb is France. The French rely upon government intently, whereas in Southern Europe they have traditionally ignored government. When France goes, so will the Euro.
Gold & The Private Wave
QUESTION: Hi Martin
Given the cycle work that you do, it appears that Gold had a 12 year Bull Market Cycle from 1968 to 1980 followed by a 19 year (one metonic cycle) bear market, followed by a 12 year Bull Market from 1999 to 2011. Does that mean we have entered another 19 year Bear Market Cycle?
Thanks,
A
ANSWER: Under normal conditions that would be true. However, our problem is that we are now in a Private Wave and that means confidence will decline in government and shift to the private sector. That inverts this outcome and the eventual high in gold and private assets is more-likely-than-not going to form off in 2032. The private sector will then collapse and thereafter people will turn back to the state.
US & UK Central Banks Look to Rates Rising in Autumn
Part of the real financial crisis from the central bank perspective is that they have been trapped by the excessively low-interest rates that in reality has disarmed them from even trying to steer the economy. The bid on long-term rates has been strong over the last decade thanks to retirement plans. People have been just trying to lock in guaranteed rates of return even when under 3%. Just as Volcker went crazy pushing rates to nearly 20% in 1981, the banks scared the hell out of the central bankers and they pushed rates excessively to the downside. That has relieved the central banks of any leverage to try to manipulate the economy during the next downturn. They KNOW that and are frightened to death about what comes next – hence negative interest rates theory.
We must also realize that the trend toward rising taxation has historically also had a major impact upon interest rates. Politicians have NEVER taken taxation into account. They see taxes as their divine right. Britain is hiring judges as they expect greater legal challenges to their new offensive on tax collection. The battle cry is get the tax avoiders at all costs. They fail to grasp that this will also have an impact upon long-term rates. The yield-curve has been altered several times between taxation and war. When short-term interest rates became taxed in 1918, they rose sharply and that contributed to the Crash of 1919.
Consequently, the Fed’s intention to eliminate its long-term debt buying in the autumn has too many central bankers anticipating that long-term rates will then start to rise sharply when the Fed’s buying has been really minimal – a drop in the bucket within the global economy. As a direct result, many central banks are starting to sell their long-end expecting rates to rise both in US and UK. This will no doubt contribute to a modest rate rise into the end of next year on the long-end given the bid for mortgages as well. However, the bid from the pension side will cap rates more so than it has in the past. Nonetheless, this toxic cocktail that is starting to unfold is more likely than not going to produce a serious crisis in government debt between 2016 and 2020 where they will be unable to sell long-term as more and more pension funds are driven into insolvency. The bid from the long-term buyers is going to reverse and with it, government debt will become highly volatile on the short-end.
As taxation rises, capital invests based entirely upon NET RETURN. The greater the tax increase the higher the gross interest rates will rise. The pension funds tend to be more conservative and as a result they will be the next great crisis as insolvency starts to rise as they have been unable to meet their obligations. Governments are going to find the traditional flight to quality reverse as more and more capital shifts to the private sector fearing even the economic data published by governments is not trustworthy for they will play with the numbers to support their position of control.