Can the Euro Survive Beyond 2018?
It is only a matter of time until the Euro collapses sinking into the abyss. The French presidential election could be the straw that starts the disintegration of the Euro. The reason is very clear. The economic abyss with youth unemployment over 60% warns there is the complete failure to create new jobs and overall 20% unemployment in Euroland would mean the end of the single currency with massive civil unrest. The problem is NOT Greece. Greece is illustrating the problem. Brussels is holding on for dear life, but the end-game was began in 2008. That was the fateful year the Euro peaked. It was the end of times for Europe. The mindless people still think that a strong currency is like a stock and it is strength rather than weakness. This stems from the entire mixed up idea of inflation and deflation. The higher a currency in price, the more deflation one sees rather than inflation for assets are on theOPPOSITE side of a currency. Those touting a return to a gold standard are wishing for deflation where assets decline along with wages.
Just from a technical perspective, the Euro closed 2014 beneath the upward channel which stood at 122. The Euro closed 2014 at 120.99. The rally in the DAX is reflecting that the smart money is starting to bet against the survival of the Euro itself. From a timing perspective, the earliest target for the end of the Euro will be 2018. The latest appears to be 2020/2021 on a normal trading cycle. If we were to extend by summary law, since European leaders are so eager to end democratic elections when they know they are dead wrong, that the maximum extension would be to the next half cycle after the ECM peak in 2023 bringing us to 17.2 years from 2008 into 2025.
The economics behind the Euro are a total disaster. The fatal flaw was the refusal to consolidate the debts of members as completing the requirement for a single currency to be a single debt. This is what we get when lawyers run the state. They know how to write laws and punish people who do not comply. They do not understand the economy or human nature.
German debt is soon to explode. Then we have the implosion of the banking system for their entire reserves are based upon politically correct investment into government debt of all members. This is a Greek Tragedy mixed with a comedy of errors and people in Brussels refusing to admit they screwed up big time. They are refusing to concede the ship is sinking.
Rolls Royce Police Cars? Only in Abu Dhabi
US Vows No Default over Debt Ceiling Debate
QUESTION: Marty, will there by a spike high in US sovereign debt or just a low in rates overall? It also is starting to appear your influence is everywhere. Now a lot of people are clearly referring to this as a debt bubble. The media does not quote you, but it looks like a lot of people are mouthing what you say and certainly you are the source. You write something and they mouth it days later. The Fed is even now studying the business cycle formally. You are far more influential than you may even suspect.
Cheers
PT
ANSWER: Part of the entire problem with debt and why we seem to be reaching BIG BANG, is that we are on a perpetual borrowing agenda in every country. The USA has to approve constantly extending the debt ceiling every year. This is getting very tiring to say the least. Senate Majority Leader Mitch McConnell said on Sunday, that they will act in time to avoid Washington defaulting on its debt.
Rates are falling in the private sector, but in the public sector we have this clash with extending the debt ceiling year after year. People are starting to get concerned about government debt as a whole and we are seeing this in Europe as well. Nevertheless, the comments on Sunday are a reflection of the weakness in the market that is being driven by – oh, here we go again.
PS: Yes I am aware of the Fed starting to investigate the business cycle. At last!
China Copies NSA but by Legislation
China will most likely pass a very far-reaching counter-terrorism act which adopts by legislation everything the NSA has been doing illegally behind the scenes and Congress along with Obama have endorsed. China will require technology firms to hand over encryption keys and install security “backdoors” just as the NSA has done secretly.
China is effectively retaliating for the abuse of the NSA, which will undermine US technology firms and essentially cut them off from what will be the biggest market in the world. The new act will be the deathblow to US Technology as they escalate the push-back against the abuse of the NSA.
The cooperation in secret of American firms from Microsoft, Google, down to Apple will be their own self-destruction. The lack of any understanding of economics from those in US Congress has made the future really bad and is laying the ground work for the decline of the USA as the Financial Capitol of the World.
The National People’s Congress has proposed that all companies must also keep servers and user data within China, and supply their law enforcement authorities with communications records and censor terrorism-related internet content. What made the internet work has been the freedom it brought. That is governments are encroaching on and in the process, the exponential growth curve will begin to decline.
What Happens if the FED Does not Raise Rates?
QUESTION: Dear Martin, If the Fed KNOWS that raising rates will cause a problem (to say the least) for 1) Bond Market 2) rates on reserves 3) Debt interest 4) sluggish US economy with numbers turning down now then why should they raise rates just because capital flows are coming here and pushing up stocks? Why does that really matter this time around, as isn’t this what the Fed wants…is for asset prices to rise? People will cheer in the US as assets continue, with the next wave of thinking focused on when companies will restart capital spending…keeping the hope alive.
It is the last good story they can tell to keep things propped up. Right? This is why I have trouble with your argument. Clearly “they” are pumping buy European stocks as the DAX is up 17% in 2 months. They are trying to steer capital to Europe to save Europe and usurp your comments. So what happens if they do NOT raise rates, as isn’t your Bond Bubble scenario based on this?
Best, T
ANSWER: Everything you have articulated makes perfect sense. The problem is you have crossed the road into seeing the world from a more global view. The 99% do not see the world this way and they will look at the Fed and blame it for an asset bubble. Even Milton Friedman’s review of the Great Depression was that the Fed was too restrictive during the Great Depression and the lowering of the rates in 1927 to try to help Europe was seen as the cause of the bubble into 1929. Keep in mind I am EXPLAINING what happened from their perspective. This is NOT my argument. The lowering of rates in 1927 backfired for no reason of the Fed actions. It was simply that capital smelled a rat.
Neither the Fed nor the ECB wanted to see a blast to the upside in the DAX. This is in itself internal capital flows betting AGAINSTthe survival of the ECB and Brussels. This is capital shifting within Europe not for P&E ratios, profits, expectation of a future boom economy or anything of the sort. This is capital within EUROS betting that the EURO will fail so buy assets in Germany and you will in the end get Deutschemarks. This is not bailing out Europe in the least.
The blame that was piled on the Fed for that 1927 attempted manipulation was huge. Prior to 1935, each branch of the Federal Reserve operated independently to manipulate the internal capital flows within the USA. The Banking Act of 1935 forever changed the structure of the Fed changing powers, and functions of the Federal Reserve System as a whole. This issue was the focus of the portion of the act known as Title II, Amendments to the Federal Reserve Act. This portion expanded the powers of the Federal Reserve; shifted power from the regional reserve banks to the Board based in Washington, DC; clarified and codified the relationship between the Federal Reserve and the executive and legislative branches of the federal government; and reorganized the Federal Reserve’s leadership structure.
In other words, the 1927 manipulation was carried out unilaterally by the New York Fed alone. The criticism heap up that act for creating the 1929 Bubble was WRONG, but that does not matter, The Fed would NOT dare to act wisely on a global perspective to help Europe. If they dared to do that ignoring the domestic economy their head would be served on a platter to Congress.
Whenever you hear the rich get richer, what the Democrats talk about is the stock market. They argue it is not fair that the rich get richer and the rest (who do not invest) fail to keep pace. So the top 1% keeps making more and more. This is not wages. This is based upon asset appreciation. This is by no means a goal of the Fed. They will raise rate if the US share market breaks out to the upside as is taking place in the DAX.
Likewise, let the stock market fall and then I get questions from Capitol Hill - “Do you think the Fed should be intervening?”Why? Because that is the ONLY thing that directly impacts those on the Hill – they all have investments and are part of that 1% they pretend to hate so much. HOUSEHOLD income of $400,000 places you in that 1%. It is not the Billionaire’s Club. That income is investment income not wages. It is what Obama wants to tax more – capital gains he touts as the loophole for the rich.
So it may be nice to contemplate that the Fed will not raise rates and be worldly about this entire mess. At the end of the day, Congress and the US media will have their heads if they do not raise rates in the face of a blast up in the US share market values. So yes, the Fed KNOWS what I am talking about. Trust me, central banks read this blog and have attended our conferences. I have sat in the rooms of central banks and saw the red phones that connected them on hot-lines. I have had two on the phone at the same time during a meltdown.
All I am doing is explaining HOW this works. It is not my ARGUMENT for how things should work, it is just a statement of how theyDO WORK. I am not guessing here. I have been there. I have even been the keynote speaker at such gatherings in Paris and sat at the head table with only central bankers. Sometimes 50% of my job is hand-holding in the middle of a crisis for at the end of the day, everyone needs someone to talk to in such moments. So what I write is by no means what I THINK is going on, I have been there and done it first hand – no guessing. During the 1987 Crash, the CFTC asked me to testify on their behalf because the SEC was blaming the futures. It is always a dof eat dog world in Washington.
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