Crisis Collapse in World Capital Flows
QUESTION: Marty; You have emphasized how you track world capital flows and conducted your research even in the flows of capital and disparity of interest rates between regions in the Roman Empire. You have mentioned that liquidity has collapsed and that capital has fled from emerging markets that is also putting pressure on Russia before the sanctions. Is this part of the crisis you foresee and explains simultaneously the rise in corporate cash to record levels. It seems what you taught us at the conference appears to be on point connecting these dots. Do I have this correct?
Thanks for your enlightenment in the middle of a very dark age.
JB
ANSWER: Yes. You are seeing everything around you and connecting the dots correctly. The rise in corporate cash is a reflection of the collapse in capital flows that is now even being accelerated by FATCA. Liquidity has also collapsed and this is all reflected in the failure of conventional fundamental analysis to understand that the game has changed entirely.
Those who seriously think that the dollar will be impacted by oil or China will unseat the dollar as the reserve currency are simply living in a world of delusion. Such statements made by people display they have no clue about the depth of international capital flows remaining clueless to the FIRST Golden Rule of international capital flows that dictate why the dollar is even the reserve currency. This is the golden rule of a reserve currency always attributes to the most powerful and largest economy throughout history
The SECOND Gold Rule is that of finance over trade in the modern age that has been really accelerated globalization of the world economy since the fall of Bretton Woods. People fail to even comprehend why Bretton Woods collapsed. It had little to do with trade – it was a current account deficit of the USA caused by the global expansion of the military. Even John F. Kennedy understood this and stated bluntly that the US could end its current account deficit any time it desired. I personally believe Kennedy was assassinated because he wanted to curtail the military to support the dollar. That was the real economic issue that he understood.
This globalization of the world economy is best illustrated by trading in foreign exchange markets. Daily foreign exchange trading has reached over $4 trillion, including spot and forward markets and other foreign exchange derivatives that feature prominently in carry trades (cross currency swaps based upon interest rates). While still in the teens in the late 1970s, the ratio of yearly foreign exchange market turnover over merchandise exports had reached about 50:1 in the 1980s, and has doubled again since that time. The current ratio of around 100:1 implies that only about 1% of foreign exchange trading is actually related to merchandise trade. The bulk of money flowing around the world is INVESTMENT. So just how can China or Russia displace the dollar if trade is a tiny fraction of the world economy?
The conspicuous rise of derivatives has provided yet another indicator and symptom of the fragility of unfettered global finance, including credit derivatives such as credit default swaps and collateralized debt obligations. These instrument have been celebrated as welcome innovations in a new era of cherishing beliefs in self-regulation thanks to bank lobbying and the repeal of Glass Steagal. These products have only proved to be the most lethally destructive instruments ever contemplated far beyond their centers of origin in the developed world. What they have done is leveraged the entire game into a realm that few even contemplate the potential impact.
This is the real state of affairs and it is why in 2032 we could be facing a profound change in our political-social-economy. If we have leveraged the entire system far beyond our rational understanding of our management capabilities, then the correction will be equally leveraged on the downside. This is the danger we face for I cannot rule out a Dark Age as long as we over leverage the entire global economy.
The current economic crisis is truly an unprecedented collapse in international capital flows that has followed years of rising financial globalization since the fall of Bretton Woods. This collapse began with the 2007 turning point on the ECM from which we have witnessed a collapse in liquidity that is coupled with a major retrenchment in international capital flows. This amazingly alarming phenomenon has only been accelerated by the hunt for taxation by governments and their refusal to reform or even comprehend what they are doing. Across time, this astonishingly dramatic collapse in capital flows began in the wake of the Lehman Brothers’ failure. We saw this collapse in flows become manifest in banking flows being the hardest hit due to their sensitivity of risk perception. The collapse in capital flows has impacted emerging markets as capital has been recalled and that has also been accelerated by Russia’s aggressive posture. Therefore, across regional indicators such as emerging economies has been devastating. The retrenchment in developed economies has been the rise in risk in banks, investment, bonds, and escalating taxation.
A clear econometric analysis warns that the magnitude of the retrenchment in capital flows across countries has been linked to the extent of international financial integration and countries reporting to one-another what everyone is doing for tax purposes. Domestic macroeconomic conditions and their connection to world capital flows has been dramatic.
The US is now harassing even our people flying in for meetings from other countries all concerned about taxes and are they being paid in the USA. They are no longer harassing tourists for taxes on trinkets. They are harassing business people looking for money. This is highly destruction of international business and such discretion in the hands of low-level border officers who fail to understand anything is proving massively destructive to the world economy.
US Share Market – Correction Over or Posturing?
The S&P500 elected a Daily Bullish Reversal last week and a rally unfolded thereafter. But we see this as posturing just yet. The volatility will begin with the first week in September and then rise into November.
This market does not appear to be in crash mode – only a correction mode buying time. The directional change last week turned the market back up. However, we have another next week and the week of 09/01 seem to be shaping up as a high with a turn back down thereafter. So some caution is in justified. A high need not be new highs. It may be only a retest of the July high or a double top.
Corporate cash is at record highs so this market is by no means over-priced. We will still see a Phase Transition unfold. The question is timing. Once we get past this October/November people, we should see a trend form. It is possible that mixing this entire situation of a Sovereign Debt Crisis and the War Cycle we may see an extended rally into the 2016-2017 time frame ans government crashes. If the markets peak in 2015 and fall back for 2 years into 2017, then it looks to be off and running into 2024.
The mixture of the Sovereign Debt Crisis and the War Cycle are the key to the future. We will try to do an update in September with a on-line session via a live-stream since that worked well the last time.
EU To Pay Members with Tax Money for Losses in Revenue with Russia
Resistance to the Russian sanctions in the EU has been growing in some regions of the EU. Hungary now has spoken out against the hard-line of sanctions and Brussels now seeks to dampen the rising anger with bribes – paying for the revenue losses with taxpayers’ money from the rest of Europe. The EU is clearly operating as a federalized Europe – the very think they promised would never happen from the outset.
Texas Corruption – Worst in USA?
The video of a drunk District Attorney stumbling and trying to scare the police by saying who she was to get out of it, was outrageous to say the least. What she attempted to do is in itself an abuse of power for which her cronies have indicted Governor Perry. At the very least, this video demonstrates that District Attorney Rosemary Lehmberg is not qualified to investigate corruption because she herself reeks of corruption in office. Lehmberg, 63, was apprehended in April 2013 with an open bottle of vodka in her car and a blood alcohol level of 0.23 — nearly three times the 0.08 legal limit. She later pleaded guilty to driving while intoxicated and was sentenced to 45 days in jail. The head of law enforcement ethically has to resign. I really do not care about Perry and do not give him a real chance of becoming President. But this entire issue illustrates the latent corruption going on in the unelected segment that is controlling government.
Any journalist who is not reporting the absurd charges in the indictment is politically motivated since this drunk District Attorney is a Democrat trying to take Perry out of the race. There are only two counts in this indictment.
Count One says that Perry “knowingly misused government property” – the funds slated for the corruption unit – “with intent to harm another, to wit, Rosemary Lehmberg.” That’s it. A drunk district attorney acting for a political agenda who herself tried to abuse her own power.
Count Two charges that “by means of coercion, to wit, threatening to veto legislation that had been approved and authorized by the Legislature of the State of Texas to provide funding for the continued operation of the Public Integrity Unit…unless…Rosemary Lehmberg resigned from her official position…James Richard ‘Rick’ Perry “intentionally or knowingly influenced or attempted to influence Rosemary Lehmberg…in the specific performance of her official duty….”
For starters, the governor has broad veto powers and can legally veto such funding. For the very people to indict the governor who are the recipients of that money is a conflict of interest.
The problem we face is this is really standard throughout the country. Nobody can report it for they risk charges themselves. This one slipped by because the corrupt District Attorney went to jail.