August 4, 2015 at 4:53 am #22952
Wonderful article, Nicole; many thanks. Timing seems to dovetail nicely with Prechter’s cycle studies which point to a significant intermediate low in mid-2016, so this next year may be exciting. Agree with almost all you have said, and also with Trivium’s comments x3. I feel that this site does not fully recognize the NWO, “revolutionary” movement, its long-term strategy in the banking, teaching, religious, national sovereignity, parallel government, judicial, legislative, executive, and communication-propaganda arenas; a highly malignant and powerful force which foments destabilization and chaos for its own best interest and which hopefully with its painfully-obvious over-reach and hubris is getting ready to shoot itself in the foot in the upcoming major cyclic downturn. I agree with Prechter that central banking will likely be blamed for the depression and that for awhile…as you say all this cyclicality is secondary to defects in human nature… central banking will be abolished. I do not believe that the central government will have time to create a system to supplant physical money in the likely time interval before the crash. But they may well institute a “wealth tax” to legally steal the “profits” that people with net positive wealth “earn” as increased buying power in a highly deflationary period. For most Americans, I think it will be best to stay in rural areas of the United States that have clean air and water and relative lack of crime and to keep physical cash in a safe local place (certainly not a bank or SDB). It is true that if your savings are in Treasury Direct you will lose access to it
if all of the banks fail (the US Treasury is not a bank) but the best way to protect yourself against this is to link your TD account with four or five of the strongest banks in your area. You imply Nicole that interest rates will be kept low for the duration of the deflationary period but Prechter believes that yields on 10 year notes will exceed 20% at the bottom (not due to inflation, but due to fear of non-repayment of principal) and this would probably be a great time to buy if you have purchasing power and this scenario does evolve.August 4, 2015 at 5:33 am #22954
What an article, complimented by one of the best comments section as well.
Reader request for more specific views on Gold and Silver and their role in the unfolding situation.
“You won’t be able to buy them later.” “Losses if you have to sell in a few years.” “Hyperinflation later.” Tough for me to get a handle on and pose all sorts of questions in my mind.
Also, as noted in your graphs used in article, Gold did not follow the script of the others, but did “eventually” as was mentioned.
That eventually was approximately four years later. Might that not mean something more important than to merely dismiss as “eventually” getting in to line?
Thanks for considering my request for more Specificity regarding gold and silver. GOAugust 4, 2015 at 5:37 am #22955
I have some difficulty to digest this article. Economic strength used to be measured by steel output and investment in productive infrastructure. China may have overcapacity and misdirected investments but it is a country with capital formation at least.
US-UK is nothing but the consumption and manufacturing of the new financial claims. How can the gargantuan increase in the stock markets of Wall Street (mainly marked by the skyrocketing of the social media dotcom businesses and healthcare/medicare giant bubbles) and the financial products of the City of London are anything more superior than the physical developments in China?
This article has nothing to say about the western model, but joins the growing chorus chanting (wishing?) for China’s doom.
Well, I find those COMMENTS on this article cross-posted at ZeroHedge have more critical thoughts indeed 🙂August 4, 2015 at 6:33 am #22956
To sum up this lengthy article:
– The $USD is the King and will remain so forever and ever.
– Nothing has changed since 2008 (the Lehman’s Day)
– China is crashing – again, but this time for reals…
– There have been no major geopolitical changes; alliances formed, alternative currencies traded, partnerships sealed, etc., and none ever will, The End…
– No one can challenge U.S. military strength and currency superiority – although they’ve never really met a credible threat, The End…
What was it – about 2/3 of this article focused on how bad China is going to crash…?
And it missed to mention the underlying problems:
– Fractional Reserve system
– Naked shorting
– Insider trading
– Front running
– Bankster dollar printing
– PM price suppressing
You know, all those Wall Street Innovative Financial Products.August 4, 2015 at 5:33 pm #22966
Seychelles, I’m not saying interest rates will stay low for the duration, but that in the short term credit spreads will blow out, so that those perceived to be safest get safer, while those perceived to be unsafe are marched off a cliff. Interest rates are indeed a risk premium, as you say, and as such they reflect risk perception. Relative risk perception is one thing, and is responsible for credit spreads, but absolute risk perception is another. At a bottom, when fear is in complete control, interest rates will vary between, high, higher and sky high. And that’s in nominal terms – in real terms they will be even higher. Think the mini-credit crunch of 1981, when interest rates were of the order of 20%. The low interest rate period for those currently perceived to be relatively safe is strictly temporary. It exists to exploit perceived differences in risk, but down the line, when everything is perceived to be risky, interest rates will simply rise across the board.August 4, 2015 at 5:36 pm #22967
Golden Oxen, I’m planning to address gold and energy in separate articles. Gold also topped in 2011, not long after the rest of the commodity complex, so it’s not too far out of step.August 4, 2015 at 6:14 pm #22968
I was not at all arguing that anything in the US/UK model is superior. Both are hollowed out centres about to implode. Hegemonic power is set to shift east as the old centre falls, but not easily or quickly. The interregnem is going to be awful. China is the empire in the ascendency, but they have greatly over-reached themselves. Yes what they built is real, as opposed to the ‘products’ of financial engineering, but they still built far too much far too badly for the majority of it ever to end up of use to anyone. I’m not suggesting everything they built was useful or poor quality, but that enough of it was to make a big difference going forward. Bubble infrastructure is always badly built for quick profit.
China is basically in a similar position to the US at the beginning of the 1930s. The US was also the empire in the ascendancy which over-reached itself. In the case of China, however, the boom was turbo-charged with fossil fuels, so the over-reach is much larger, meaning the bust will also be larger. And of course that bust will drag everyone else down with it. Many of the rest were teetering on the brink already, sitting on ‘service economies’ that consist of taking in each others’ laundry. They were sustained by wealth sucked in from abroad through globalization, but that is about to be cut off, and in the process the extent of the previous catabolism in those economies will be fully revealed. The UK, in particular, has nothing at all to fall back on. It’s future is nothing short of terrifying.
China’s path towards claiming hegemonic power may be derailed by the extreme destruction wrought during the bubble years as a result of access to huge amounts of energy to mis-use. Soil and water have been horribly damaged for instance – so badly so that the carrying capacity of China has been drastically reduced. There is no way that land mass will be supporting 1.3 billion people in the future. That probably means migration and global colonization on a much greater scale than we have seen so far, since that is what empires in the ascendancy do. The question is to what extent does remaining carrying capacity get destroyed on the way down, as that will be a major determinant of migratory pressure.
I wrote about some of these issues surrounding the transfer of hegemonic power many years ago, back at The Oil Drum, in an essay called Entropy and Empire (https://canada.theoildrum.com/node/2381).
Please do not think I am in any way blaming things on China. The global bubble is systemic, with effects all over the world. China’s role has been to suck in commodities and over-build productive capacity in response to an artificial stimulation of demand, itself derived from ‘financial innovation’ both outside and inside of China. The boom required both a consumption boom and a production boom, just as a credit bubble requires both predatory lenders and willing victims.
Addressing your other points:
– “The $USD is the King and will remain so forever and ever.”
No, it is going to experience a temporary spike on a flight to safety. Later it will go the way of all fiat currencies, but in the short term it will be a good bet. Cash, not just USD, will be king during the deleveraging. Cash on hand, of whatever kind one uses in one’s own country, will be necessary in a cash-only economy, which will be the case in a deflationary crash, as in Cyprus and Greece.
– “Nothing has changed since 2008 (the Lehman’s Day)”
We doubled down on our bad bets since then. The systemic risk is now much larger.
– “China is crashing – again, but this time for reals…”
Yes, this time we are going to see China crash, and the impact will be felt globally, just as the Wall Street Crash of 1929 sparked off contagion.
– “There have been no major geopolitical changes; alliances formed, alternative currencies traded, partnerships sealed, etc., and none ever will, The End…”
Entities operating at larger scale will find themselves beyond the trust horizon in a substantial contraction, and therefore beyond effective organizational scale. The geopolitical consequences of this will be felt for a long time, as those larger entities attempt to cling to power through the loss of all political legitimacy. Eventually they will no longer have the resources to project power at a distance and will wither and die, leaving a more multipolar future where effective organizational scale is far smaller and there are therefore far more competing polities. We have covered many aspect of this at TAE before. We like dissecting geopolitics…
– “No one can challenge U.S. military strength and currency superiority – although they’ve never really met a credible threat, The End…”
The US military is well into the period of declining marginal return to complexity. Its power rests on the ability to maintain that complexity, which will only be possible for an uncertain period of time. Martin Van Creveld’s work on the transformation of warfare is very valuable in assessing the nature of military power. Currency superiority, addressed above, is also strictly temporary.
“What was it – about 2/3 of this article focused on how bad China is going to crash…? And it missed to mention the underlying problems:
– Fractional Reserve system
– Naked shorting
– Insider trading
– Front running
– Bankster dollar printing
– PM price suppressing”
All of those aspects are components of the monetary supernova addressed in the article. I was not writing about the details in this piece, as that was not my focus here, but I have covered them in many other articles. As it was, this piece was very long. If I were writing a book, I could cover a far greater range of relevant factors.August 4, 2015 at 6:47 pm #22969
Its been awhile since I have posted…I have been working my tail off to get the liferaft as well-built as I can,with circumstance.
I have seen up-close and personal… deflation hitting.A Neighbor passed recently,[True WW2 war hero,..fighter pilot].He was also a incredible packrat,raised by depression -era family with no trust in any bank…He bought”stuff”…
I have just watch 25-30 trucks ,cars,boats,cranes,trailers…ect..turned into scrap metal…at a deep discount..because NO ONE wanted to mess with a older rig.This was ALL SOLD FOR SCRAP.I found several small treasures…a backhoe,on a small tractor,[needs repairs]…$1500..a hammer mill,old style …$200.a vast quantity of hardware,shackles,cables tools,high end good quality farm gear….for the price of scrap steel[$80/ton]..besides spare engines,garden carts,that were pretty much “Here,take it GET IT AWAY” …
A lifetime accumulation of “Stuff”….torn up by a track-hoe&thumb….80$ a ton
I will see the same thing happen.. next door.. to his Best Friend..also WW2 vet.[He rode the shot-up ammo ship… out of Pearl Harbor] The man is 92,and sharp as a tack,and old-school tough…his relatives are trying to drag him away and loot his estate.[Their treatment of him makes me sorry to be of the same species]
I have kept to myself,and try not to let the little voice in the back of my head worry about the “when”…though I am praying for a few more good years before the darkness falls.The chinese situation has me very concerned as those whom think they are “masters of the universe”..or the members of the various elites…the parallel “Black budget” folks ect. don’t really know what a dragon will do when aroused…or frightened.They think ,with their intelligence pipelines,and real time monitoring,and predictive software..they do..Such Hubris…
I have too much work to do..got to head back to “my slave pit”….I have found,on my small orchard,nursery,apiary,farm,if I don’t do it,It dont get done.I hope life is good for you now,Nicole….I have to spend most of my time making things work…not posting/reading/thinking…I miss my discussions with you & ilargi
snuffyAugust 4, 2015 at 7:01 pm #22970
Snuffy, great to hear from you! We did have great discussion in the comment section of the old TAE didn’t we 🙂August 4, 2015 at 7:35 pm #22971
Noam, I’m curious, since people can post under any name, if you are who you say. If so, that would be very interesting. Assuming for a moment that you are (although the writing style doesn’t seem to fit), I wonder if you remember the radio interview we did together by phone some years ago, with Jim Kunstler, Dimitri Orlov and Richard Heinberg.
I rather wish more of my extended family would pay more attention too. Some of my family do of course, but not all. Some think I’m a raving lunatic.
You said: Yes, deflationary death spirals work , for a while, in nations like Japan, with a homogeneous population, high savings , and good infrastructure. But as we see the social fabric is beginning to tear as the first casualty, the yen is devalued . Good in the short term, but now Mrs. Watanabe is really beginning to strain the purse strings.
I wouldn’t say deflationary death spirals ‘work’, as that seems to be a curious terminology. Deflationary death spirals unfold on the stage has been set for them through a credit hyper-expansion, and they do so independent of the social circumstances in the country afflicted. Japan’s situation is somewhat unique, since they peaked alone in 1989, but were at the time not only the world’s largest creditor, but also an exporting powerhouse exporting into the biggest consumer boom in history. The latter two factors allowed Japan to drag out its pain over more than 2 decades, building 4 lane highways from nowhere to nowhere and enacting failed stimulus after failed stimulus. Japan is now at the other end of the spectrum from everywhere else, and about to embark on the next stage, which will be a currency hyperinflation. The rest of the world has a long way to go, living through mutually reinforcing deflation and depression, before it ends up in Japan’s position.
I wouldn’t say deflation is ‘good in the short term’, although I expect you are using deflation to refer to falling prices, whereas we use the term differently here, defining deflation as a contraction in the supply of money plus credit relative to available goods and services. Falling prices may appear on the face it to be ‘good in the short term’, but if purchasing power is falling faster than price, then prices are falling in nominal terms only, while rising in real terms. In other words, affordability decreases even in the face of falling prices during a monetary contraction.
You said: And we see a nation like the USA with huge energy and Ag. sectors can survive, for quite a while so long as king dollar is bought.
Nothing much functions in a deflationary depression, when the velocity of money plummets so far that it becomes impossible to connect buyers and sellers. Having a major industrial sector is little use if one cannot purchase inputs nor sell outputs.for lack of money in circulation. The agricultural sector in the US struggled mightily in the Great Depression, and not just because of the Dust Bowl. As for the US energy sector, its fate is sealed. The US is a long way into depletion, and the unconventional energy sector is nothing but a gigantic mal-investment in a low EROEI ponzi scheme. The US energy industry has been a mirage for the last several years. This was a major topic of conversation during the aforementioned radio interview.
You said: With China struggling to prop up everything, will they be the event to kick this all off?
The downdraft from China will be large enough to sweep all before it. Much of the rest of the global financial system is tottering on the brink of collapse anyway, so it wouldn’t take much to push it over the edge.August 4, 2015 at 7:41 pm #22973
Snuffy, always appreciate reading your posts. I too see some people discard old tools as if newer are better. And books are trashed because just about anything can be found to read on the Internets. Well, until the power grid crumbles 🙁
BTW, how are your bees?August 4, 2015 at 8:12 pm #22974
Here’s another post we ran here at TAE in 2012: Sunshine and Eclipse (https://www.theautomaticearth.com/2012/02/then-and-now-sunshine-and-eclipse/)
This one contains a very interesting video on the history of being a commodity exporter into a period of credit expansion, and what happens next. In this case, the exporter was Canada in the 1920s. There are many historical parallels.August 4, 2015 at 8:39 pm #22975
seychelles said “It is true that if your savings are in Treasury Direct you will lose access to it if all of the banks fail (the US Treasury is not a bank) but the best way to protect yourself against this is to link your TD account with four or five of the strongest banks in your area.”
In the long term we are all going to lose our money, no matter if it is in stocks/bonds, banks, credit unions, or Treasury Direct…via market crashes, bailouts or bail-ins. In the short term, when setting up a TD account, only 1 financial institution can be online-linked to the account. But with properly signed paper forms by additional FI’s, they too can be attached to the TD account. Seems rather time consuming!
Anyway, it is best to always have some cash stored creatively in one’s house. Or live within a few miles of several financial institutions to access the ATMs.August 4, 2015 at 8:40 pm #22976
I have had my ups and downs…and lots of stings[my,my yes]..I am working with a couple of local guys for clover…and raspberries.I had the incredible good fortune of learning Queen production from one of the a world-class Bee expert..Dr.Sue Colby at her Queen rearing seminars at WSU..(She threatened to make me teach the course if I took it again)She is a wonderful ,genuinely nice person,..I have 20 or 25 hives now…(i need to check a outyard of mine with a couple of splits for a firm number)
or Bee careful
snuffyAugust 4, 2015 at 9:57 pm #22977
Q: Why is it that the Govs/Feds of the world can not bypass the deflation and go straight to hyper inflation?
VolvoAugust 4, 2015 at 10:45 pm #22978
It is not a big deal getting additional bank account linkage authorization forms from Treasury Direct, either by phone or email request. It is most efficient to phone the bank or credit union you are considering hooking up with to make sure that they are receptive to linking up with Treasury Direct. Many do not and many will allow you to transfer funds from TD but not to TD. So speak with the operations manager before wasting your time and gas money going physically to the institution. Remember that if you have four linked bank accounts you can make rounds on one day and withdraw, say $1500 from each without eyebrows being raised and you have added $6000 to the padding in your safety blanket. Twenties or lower; the cashiers seem to be getting less friendly about disbursing cash by the day. I never leave more money in my banks than I will need to cover usual monthly living expenses, with a slight cushion. If you have large bills, such as cc bills, to pay, you can transfer the funds from your liquid CofI at TD to your bank account and they will be available in two business days. Yes, it does look like they will try to rob us all blind, but that doesn’t mean we shouldn’t try every reasonable means possible to keep possession of our savings as long as we can. Failing to understand our legal options and fully use them to protect ourselves will be a recipe for early disaster as our system implodes.August 4, 2015 at 11:51 pm #22979
@seychelles – Thanks for the info about adding additional banks/credit unions to Treasury Direct. Definitely good idea to keep only a limited amount of money at the financial institutions. The CofI at TD is very liquid and can easily transfer funds. However, the CofI is just a placeholder for everyone’s money together. Nothing there is titled to anyone specifically. Whereas short term Treasury Bills are titled to an owner who can revolve their T-bills in-and-out of the CofI, or to transfer back to their financial institution.August 15, 2015 at 6:14 am #23169
Hi Nicole. I hope I am not too late for you to respond.
What confuses me in all this – is where you get certain people like you saying one thing – and then I just read a blog from John Mauldin – who seems to have made a name for himself – say pretty much the complete opposite (https://www.mauldineconomics.com/frontlinethoughts/?utm_source=newsletter&utm_medium=email&utm_campaign=frontline)
My instinct lies with you. But its so difficult to be so sure. And timescales seem to critical. Are we talking 10 years or 50? till things start to implode? I’m 55 that makes a big difference. Plus I am sitting on a property in London – probably not the best place to be if things go belly up. So what I believe has a massive impact on what I think I need to do (according to Maudlin nothing – according to you quite a bit).
btw – are you speaking in the UK anytime soon?
Any response would be great.
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