Only A Fool Would Rationalize The Notion That The USA Is Immune To A Financial Crisis, As Has Occurred Throughout History To Many Successful Nations And Empires.

Most, if not all of financial crisis were the result of government mismanagement. No nation in recorded history has abused their currency as we have and not suffered severe consequences. It is human nature to think “it will never happen to you.” 
40% of every printed dollar is borrowed
60% of our bonds are owned by … us and with printed dollars (a shell game)
17 Trillion committed financial debt
70+ Trillion in unrealized commitments
70% of spending on “dependence-creating programs”
The Fed’s entire balance sheet totaled around $800 billion before the 2008 crash
Estimates on the amount of derivatives out there worldwide vary. An oft-heard estimate is $600 trillion. (10 times the world’s annual GDP)

The Biggest Threat to Growth… and Why Money Printing Always Fails

Let’s talk to some history…

Athens – The First Fiat Currency Failure

Athens was the world’s first democracy. It was the strongest city state in Greece for a time. Athens developed free enterprise and a tax system.

When gold and silver become coinage in Athens it helped the city flourish for many years. Like many great civilizations they lost their way and became involved in a power struggle with the Spartanscalled the Peloponnesian War (from 431 to 404 BC).

After twenty two years of war they started to finance the war by debasing their currency (sound familiar?)

They mixed copper with their gold and silver. This deficit spending had disastrous results.

Over the next couple of years the once strong commodity money became practically worthless as it devolved into a fiat currency. Wise investors purchased precious metals and insured themselves against depreciating currency.

Athens was devastated and never become a significant power again.

The Roman Empire

For over 750 years The Roman Empire used currency debasement to pay for wars, public works programs and social programs. There were various methods including:

Coin Clipping - the clippings were melted down to make more coins.

Dilution through lesser metals were used – eg copper mixed into the gold and silver.

Redenomination - the same coins were minted, but at a higher face value. Minting more coins without commodity backing.Today we do the same thing… however with the use of a photocopier! Or a mouse click.

Over time inflation in the Roman Empire went out of control.

The first documented hyperinflation was recorded from the Roman Empire. A pound of gold was worth 50,000 denarii in 301AD.

By mid century it was only worth 2.12 billion denarii. The price of gold had risen approximately 42,000 times. In other words, the currency had become worthless.

Currency debasement and deficit spending for the military, public works and social programs condemned the Roman Empire to the scrap pile of failed empires and nations.

The Weimar Republic Collapse

I have written about Weimar at various times in the blog… most recently when explaining why manyGermans were strongly opposed to the European Central Bank’s monetary policy of unlimited bond buying (ie money printing) to bail out the likes of the PIIGS:

http://adriantout.blogspot.com.au/2012/04/germany-remembers-wiemar-too-well-and.html

For those not familiar with the former German Republic – during the early 1920s after World War 1the German Weimer Republic government had no goods to trade and their gold reserves had been depleted paying war reparations.

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The Most Dangerous & Potentially Fatal Gamble In History

There is no tool except quantitative easing, and trying to force the hoards of cash deposits out of the banking system, in fear of being confiscated, into real estate, stocks, and other parts of the economy, and it is an extremely dangerous gamble.

Marc Faber: “We are creating bubbles and bubbles and bubbles. This bubble will come to an end. My concern is that we are going to have a systemic crisis where it is going to be very difficult to hide.”

from Bloomberg: “When you print money, the money does not flow evenly into the economic system. It stays essentially in the financial service industry and among people that have access to these funds, mostly well-to-do people. It does not go to the worker. I just mentioned that it doesn’t flow evenly into the system. Now from time to time it will lift the NASDAQ like between 1997 and March 2000. Then it lifted home prices in the U.S. until 2007. Then it lifted the commodity prices in 2008 until July 2008 when the global economy was already in recession. More recently it has lifted selected emerging economies, stock markets in Indonesia, Philippines, Thailand, up four times from 2009 lows and now the U.S. So we are creating bubbles and bubbles and bubbles. This bubble will come to an end. My concern is that we are going to have a systemic crisis where it is going to be very difficult to hide. Even in gold, it will be difficult to hide.”

SUSTAINABLE TRENDS & UNSUSTAINABLE ONES

Today I’m going to start off with a look at the big picture. The next chart pretty much says it all.



There is a fundamental reason why gold has been going up for 13 years. That same fundamental is driving the cyclical bull markets in stocks.
For gold the fundamentals are sustainable and that’s why the gold chart is rising almost parabolic inter-spaced with normal corrections/consolidations along the way.
For stocks the fundamentals aren’t sustainable. You can’t drive a true bull market in stocks by printing money. It just creates bubbles and crashes. That’s why each one of these bull markets is followed by a devastating bear market. It’s why the stock market chart has gone nowhere in 13 years while gold has gone up, up and away.
Until the fundamentals change this pattern isn’t going to change. Pretty soon the stock market is going to stagnate and start to drift sideways (followed by another bear market, probably due to bottom in 2016). Pretty soon gold is going to generate another C-wave leg up (followed by another sharp move down into the next 8 year cycle low, also due in 2016).
Gold: Did we bottom two days ago or not? I don’t know. What I do believe is that the QE4 manipulation has basically created a double B-wave bottom. As we saw last summer, B-wave bottoms are frustrating SOB’s that whipsaw back and forth until everyone is knocked off, or dizzy and ready to puke. Then they take off and leave everyone behind.
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The Two Ugliest Charts In The World

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Minack provided these two charts to show the trajectory of GDP and earnings expectations.  Notice the downward slopes.  Except for Japanese GDP, expectations for everything have been deteriorating.  Very ugly.

Gerard Minack, Morgan Stanley

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Scary Derivatives Are Back In A Big Way On Wall Street

Citi leads the way.
The craziness on Wall Street, the reckless for-the-moment-only behavior that led to the Financial Crisis, is back. 
This time it’s Citigroup that is once again concocting “synthetic” securities, like those that had wreaked havoc five years ago. And once again, it’s using them to shuffle off risks through the filters of Wall Street to people who might never know.
What bubbled to the surface is that Citigroup is selling synthetic securities that yield 13% to 15% annually—synthetic because they’re based on credit derivatives. Apparently, Citi has a bunch of shipping loans on its books, and it’s trying to protect itself against default. In return for succulent interest payments, investors will take on some of the risks of these loans.