THE BEST ON US ECONOMY today
In part 1 of this series I’m going to publish works of Chris
Martenson from PeakProsperity.com
In part 2 the best article from Michael Hudson: debates on his book “Killing the Host” : How Financial Parasites and Debt destroy the
economy
In Part 3 Selected art from Latin America, China, Russia,
Iran, India and other in crisis
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CHRIS MARTENSON from : PeakProsperity.com
When This All
Blows Up... post 3
Before
Post 1: Mother Of All Financial
Bubbles.
Post 2: Great Wealth Transfer
...
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What do we mean by a Wealth
Transfer?
It isn't just some academic concept. It's a playbook
that's been used many times in the past by governments to forcibly extract
wealth from the public and use it for the benefit of those in power.
The first part of this Wealth Transfer process is called Financial
Repression. It's an extremely effective -- and nefarious --
financial engineering scheme, which we've discussed here at PeakProsperity.com
many times over the years -- notably here,
here,
here
and here.
Financial Repression is enacted
when governments take on too much debt (which they often do!) and find
themselves with few politically acceptable ways of escaping that situation. So,
in ways both overt and covert, they conspire to use the public's savings to dig
the government out of its debt hole.
The formula for Financial Repression
works like this:
- Step 1: A government (or an entire nation) gets into trouble by borrowing too much.
- Step 2: Rather than pay this debt down honestly via cutting spending (unpopular) or by defaulting (even more unpopular), the government conspires with the central bank to slowly liquidate its stack of obligations by forcing negative real interest rates on everyone -- that's when you get paid less in interest than the current rate of inflation. So if you're getting 0% on your savings, but annual price inflation for the things you need to live is more like 5% (sound familiar?), you lose.
- Step 3: But there’s a problem. Negative interest rates don’t work if people can dodge the Financial Repression by parking their money safely elsewhere. So a ring fence has to be built -- using capital controls and explicit interest rate caps on and across the whole spectrum of interest-bearing securities. Nobody can be allowed access to investments offering positive interest rates. And to prevent people from simply hiding their wealth under their mattresses, cash can be outlawed. (This is what the "war on cash" and the talk of moving to a "cashless society" is really about)
- Step 4: Sit back and watch with glee as everyone with savings silently and steadily has their purchasing power transferred to the debtors, be those public or private entities. You see, lower real interest rates not only reduce the government's costs of servicing its debts, but they erode the real value the debts themselves. The government is deliberately killing the value of the money we've worked hard to earn and save, for the sole purpose of avoiding the consequences of its reckless borrowing. They get a hall pass; we get screwed.
This is theft, plain and simple --
engineered theft of the highest order. It takes from the many, without their
consent. It's not openly debated, put up to a vote, or even openly admitted to.
It's deliberately done behind the public's back.
This is what Janet Yellen and her
merry band of thieves at the FOMC are carefully administering. Seniors
who can't afford to live on their savings? Young adults who can't afford to buy
a home? The central bankers ignore them, as well as the social pain and
economic misery their policies are inflicting on hundreds of millions of
people.
But make no mistake, the loss of
income that the Financial Repression inflicted by these sociopaths has
harmed the elderly, pensioners, savers, and the young. Plus inflated the
biggest asset bubble in history, which will make 2008 look like a picnic when
it bursts. All to prolong the government's out-of-control spending addiction a
little bit longer, and to put even dollars into the pockets of the banks and
the wealthy Elite.
So Financial Repression is Act I
of the Great Wealth Transfer. It’s happening now, and it will likely persist
for a lot longer. Sadly, it will continue for as long as the banks, the
Fed, and the politicians can get away with it -- until the economy collapses
under all the debt and/or the impoverished public breaks out the torches and
pitchforks.
The middle class will experience
this as a steady erosion of their financially security. It’s a drip, drip,
drip style of torture. Every year, your income and savings will buy less. The
value of your money will be in terminal decline.
Those who don’t understand
Financial Repression are probably still confused by Trump’s victory.
But if you realize that the vast majority of the people of the United States
(and Europe and Japan) have been tossed under an economic bus to help serve the
narrow interests of a tiny financial elite, and are barely hanging on to a
middle class lifestyle as a result, electing an anti-establishment firebrand
candidate suddenly makes a lot more sense. It explains the similar rejection of
incumbents we're now seeing across Europe.
Virtually everybody in the bottom
95% is being economically and financially sacrificed to bail out the prior bad
decision of the central banks and their associated governments. And as
that’s deeply unfair, it breeds resentment. Psychology tells us that resentment
breeds contempt. And once there, relationship are doomed to fail. Our leaders
have broken their covenant with the governed, and the governed are increasingly
pissed. Expect that simmering anger to boil over at some point.
But, as mentioned, Financial Repression is just Act I. Act II is a lot more ugly.
Financial Repression is a way to
delay the day of reckoning. That day will still arrive, and be all the
more destructive for the pent-up forces that have built up during the delay.
At the heart of the matter here
is that too many debts, too many claims, have been created. There's a
finite amount of "real stuff" in the world (productive companies,
farmland, mineral ores, timberland, buildings, railways, waterways, etc). But
with each new issue of debt, the claims on that real stuff multiply.
So what's at risk here is an
inflection point where the world realizes it's holding a lot of paper, but
little of substance. At that moment, the value of nearly every financial
asset -- stocks, bonds, mortgages, derivatives -- even and especially our own
currency -- will be sharply, painfully reduced.
In Part 2: Winning The Great Wealth Transfer, we
detail what that re-adjustment process will look like and where the carnage
will be most extreme. More importantly, we explain that even though the paper
losses will be staggering, the number of "real things" -- those
factories, acres and commodities -- won't have changed at all. Merely their ownership
will have changed. And that will make all the difference in determining winners
and losers.
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RELATED CONTENT IN POST 2 The Great Wealth Transfer
Understanding the how & when of the next economic
crash
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Why you should join us at our annual seminar Apr 6-9
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Wisdom & discipline will separate winners from
victims
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Will be unimaginably destructive when it bursts
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2017 may be our last year to prepare before crisis
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Short-term thinking has put lives at risk
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The forces dividing us are overwhelming those that unite
us
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Dark omens are circling everywhere in today's markets
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The social stigma to prepping is fast disappearing
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Shows offering lessons in resilience
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DEBATES
1-
Beware the time scale skipped
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Will there be another episode of
deflation in nominal terms
A question I would like to get members views on is:
Will there be another episode of price deflation in
nominal the prices of assets - stocks, real estate, farms, etc and without the
system/currency collapsing?
Mean reversion is inevitable, but whether it happens in
nominal terms is a key question imo. If one is on the sidelines with
cash, say wanting to buy specific shares or an income/livelihood producing
farm, waiting for a fall in asset prices in nominal terms makes sense -
assuming it will actually come. My concern is that indeed "cash"
won't be allowed to appreciate (at least domestically) - that is, the plan of
holding cash and buying things on the cheap will never pay off b/c the central
banks will never allow nominal prices to fall very far (they will print money
to buy and sustain prices as needed).
Alternatively, understanding the various way asset
deflation will occur in real terms while maintaining elevated nominal prices
could be helpful in positioning assets and deploying capital.
So, what does one do with excess "cash" - buy
overpriced assets or wait for nominal decline in asset prices or ...?
Paying for an overpriced asset may be preferable to being the victim of a
"bail-in".?
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good question gkcjrrt
My calculation is that the next black swan event could
occur at any time. The nature of black swan events is that central banks don't
see them coming. Say you have cash on the sidelines and the real negative
interest rate on it is 5% per year. The purchasing power of that cash halves in
14 years (70/5 = 14). If a black swan event occurs within 14 years that halves
all asset prices then being in cash is a winning strategy. [[ Get Doug Casey on
this regard: Fed coin is coming ]]
From 4 to 20: skipped
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Will There Be Another Episode Of
Deflation In Nominal Terms?
Great question gkcjrrt and one which I'd love to see some
further discussion on. It's really the question at the heart of whether the
'Ka-Poom' strategy is correct (i.e. waiting with cash for a debt-default
deflationary bust, investing in real assets at the lows, then being protected
from the subsequent CB-induced inflation).
Your question is a good one - can the CBs keep using
financial repression to slowly grind their way out from under the debt load, or
is a debt-default deflationary bust inevitable? I'm inclined to think the
debt-default is inevitable, as the debt loads continue to grow. However, I also
think it could take 10 to 20 years for this all to play out. Look how long
things are taking to unfold in Venezuela and the governance there is a complete
disaster. Still no crisis in Japan or the Yen even though it's been predicted
for years.
The time factor has to be considered when deciding a
strategy.
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THE INSIDER
How to end up on the winning side
of the Wealth Transfer
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There are no solid fundamentals
supporting this rally
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How to grow your wealth as our
money dies
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