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In 2009, I
wrote that the stimulus, tarp, and zero interest rates were going to result
in a rally in the stock market, but that the fundamental causes of the 2008
financial crisis, of which the housing bubble collapse was only one outcome,
were still present, and that the financial stimulus, which is effectively a
tax on future generations, would compound those symptoms.
As our
markets slowly melt down again, and we head back towards the 2008 lows in
market values, there is no consolation in being correct. Portfolio values
continue to degrade, and disinvestment en masse is incrementally moving the
world economy back into the state paralysis it entered in September 2008. The
TSX Venture market – in my opinion, the purest indication of risk
sentiment there is on the planet – is now within 500 points of its 2008
record collapse, and the only question is: “How fast will we blow
through that record?”
The fuse
that will ignite the hyperinflation of G20 currencies is smouldering,
still damped by the suffocating effect of mass disinformation replicated and
broadcast from the centrally owned mainstream financial media. But ignition
is approaching, and that is the event that will catalyze the coordinated
collapse of all currencies currently labouring
under the duress of excess.
Some
people think that the idea of the mainstream financial media being a
mouthpiece for illegal activities by government and banking is ridiculous.
Harry Markopolous, the gentleman who tirelessly
pursued the truth behind Bernard Madoff, knows very well how willfully
ignorant we can choose to remain in the face of overwhelming evidence.
I’m not going to try to change any minds in that regard here. The thing
about willful ignorance is its resolve hardens in direct proportion to the
evidence with which it is confronted.
As
predicted, Greece has led to Spain just as certainly as Spain will lead to
Italy, and the half-baked bailouts that are insufficient because the sums
they seek to alleviate are themselves wishful thinking on the parts of
government.
George
Soros on June 24 called for the creation of a European-backed bond fund that
would stand as lender of last resort against any and all union debt crises.
He suggested that the yield would be 1% percent because the entire region
stood behind them.
Billionaire
investor George Soros called on Europe to start a fund to buy Italian and
Spanish bonds, warning that a failure by leaders meeting this week to produce
drastic measures could spell the demise of the currency.
Policy
makers should create a European Fiscal Authority to purchase sovereign debt
in return for Italy and Spain implementing achievable budget cuts, Soros said
in an interview in London yesterday. Funding for the purchases would come
from the sale of European Treasuries, which would have low yields because
they would be backed by each euro member, he said.
This would
essentially be the equivalent of the Fed buying its own Treasuries, which it
does as a self-awarded license to print money ad infinitum. That’s why
the U.S., despite its unsustainable debt and anemic economy, can still hold
yields well below 2%. All the banks they bailed out are obliged to hold
treasuries as Tier 1 capital to some degree, while the sovereign buyers are
forced to participate in the ruse just to keep the value of their sovereign
reserves buoyant. – Bloomberg Businessweek,
June 24, 2012.
With the
United States approaching another debt ceiling in the last quarter of this
year, and with Spain and Italy pointing the way firmly to France, Germany,
the U.K and the United States, its time to stop
pussyfooting around and make a big statement. The only options at this point
are either 1) A massive global stimulus package and bailout fund that will
unequivocally mitigate any sovereign debt crisis (even the U.S.), or 2) An
orderly “restructuring” of the entire global financial system.
Since the
immediate past demonstrates a predilection towards the easiest path
regardless of long term negatives, mightn’t one of these summits
conclude with a $10 trillion IMF-BIS administered Global Credit Facility that
will put the markets back into the gleeful end of their natural bi-polarism? That way, we meaningfully defer the burden of
repayment until a distant future date, instead the perpetual near-term date.
Then at least, all that fresh capital can stimulate a market rally that will
broadcast the perception that everything is okay again…for a while.
There is a
high potential for congress and/or the president elect (assuming its Romney)
to cancel the automatic spending cuts that were the solution to last
year’s debt ceiling date, as a measure to soften the blow and
likelihood of default after the election in November. But we have observed
that the debate on whether or not to raise any such limit is really just
political theater, and when it comes right down to it, there is never any
doubt that it will be raised. Its
this pattern, both in the U.S. and in Europe, that needs to be decisively
ended, to bring a measure of confidence back to markets.
If Obama
prevails, he can’t really cancel the automatic cuts without appearing a
waffler. But in the current climate, nothing is
impossible. We permanently entered the fairy tale realm with the issuance of
trillions in new capital by global central banks to perpetuate that feel-good
delusion.
The fact
that the only option is to fabricate money in one way shape or form is
fundamentally positive for gold, but unfortunately, due to the high degree of
government-sponsored manipulation in precious metals markets, a rising gold
price cannot be expected until the apparatus that supports such market
interference is somehow defeated.
Let’s
be clear: the mainstream financial media has failed to accurately portray the
level of desperation that characterizes each country’s successive
bailout requirement, whether they are Euro zone countries or not. Starting
with the United States who tops the list of unsustainably indebted countries,
and including Iceland, Ireland, Portugal, Greece, Spain, Italy, France, and
through the process of financial osmosis, Germany – all these nations
turn out to have been in far more desperate circumstances than have been
reported in mainstream financial media. As a result, we can deduce that even
now, the level of reporting should be discounted.
The result
is value destruction as disinvestment, deleveraging, and flight to cash,
since all of the real asset markets are so thoroughly compromised. There is
no longer a sense that the markets operate in anything remotely close to
freely, and their regulation is so tremendously partisan that unless you’re
in with the Too Big To Fail institutional or sovereign club, you can’t
possibly use technical or fundamental analytics to invest safely or
successfully.
The very
coincidental confluence of the Mayan end-of-days misinterpretation that
according to some versions will see the world come to an end on December 12,
2012 and the next moment when the United States will once again confront a
debt ceiling is eerie. The world is coming to some kind of inflection point,
to be sure, but it is unlikely that an aligning of celestial bodies is going
to be our undoing.
More
likely, the synchronized collapse of our financial system will catalyze a new
era. What exactly that entails is unknown. Its not going to be dull though.
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