stormThe wall of fiat money created over the last five years is staggering, offset only by the stasis that pervades its exchange. Money velocity is the key variable that will signal the character of confidence and the next wave of inflation.
We’ve created a thousand 100 year storms that threaten the entire global economic system. The movement of this money into the depressed conditions that (unknowingly) await its arrival will leave no one untouched.
The time for life boats is now – while the storm can be contemplated, the energy observed, and the acceleration is calm.
The world will continue its printing experiment and we may look like the cleanest shirt for a while – as long as confidence and brainwashing can hold.
The storm has been created. The time needed for it to arrive is what we should be most concerned about. Acceleration will happen when it comes closer to shore.
Silver and gold, of course, will float along with the rising tide.


By Dr. Jeffrey Lewis, Silver-Coin-Investor:

Money Mechanism for Money Velocity

One common denominator for all documented hyperinflations, including those of so-called reserve currencies, has been an increase in the velocity of money.

Velocity of money is the speed with which money changes hands in the economy; or more specifically for modern times, the financial system.

Government spending, in the form of basic services, will provide the fuel to bid prices.

Economically Speaking…

Organic growth is abysmal, especially when one considers the gross national product, or the production that occurs within geographic borders. The difference is magnified by the great explosion of fiat in the worldwide race to debase currencies, where foreign exchange
distorts the true productive capacity of the underlying economy.

Job growth, of course, remains abysmal. Wages are stagnant and the labor participation rate continues at multi-decade lows.

The currency being created by the latest experimental bond buying program continues to pile up as excess reserves in the Fed’s account.

The banks are not lending money into the economy at nearly the same rate that it is being created by the Fed.

The Un-Rideable Storm

To the extent possible, we’ve avoided dropping ocean analogies into these letters. However, the lessons learned from studying the ocean and directly experiencing its energy can be appropriate on occasion.

The train of ocean energy that every surfer dreams about is called a ground swell. A large storm forms thousands of miles away, with hundreds of miles of sustained high wind for days. It is the
equivalent of dropping a large bolder into a calm lake. As the energy radiates outward, the waves organize into groups of traveling trains. The groups are often separated by long periods or lulls that induce a false sense of complacency.

When the energy is expended where local conditions are calm, we experience an organized form of chaos, accessible for those who choose to take part in the energy.

But when the local conditions are unstable, or if the swell comes in with a storm, the last place anyone should be is in the zone of exploding wave energy. This is because the local wind causes the organized train to accelerate geometrically.

There are two lessons applicable to the current state of monetary dynamics.

The first is that the storms have formed all over the world. Staggering amounts of money have been dropped like a thousand boulders into the ocean of existing liquidity.

The second is that like all storm energy, information (like current position and size) are readily available. The unknown variable is the timing of its arrival and its velocity.

As Money Velocity Accelerates

Acceleration is added when the local conditions are stormy; creating the veritable “Victory at Sea” that threatens everyone in its vicinity.

No one entity or body has the ability to understand a non-linear system like the U.S. or world economy. Some argue that if it is able to go on everyday like it has, that is a sign of its robustness or sustainability.

Again, there is no way that the planners have a total grasp of what they are doing. Complex systems can be tweaked, but the effects are impossible to predict – except that they unravel in a geometric sense. There is no way to alter the weather, much less a storm of this
magnitude.

The Final Countdown

We’ve created a thousand 100 year storms that threaten the entire global economic system. The movement of this money into the depressed conditions that (unknowingly) await its arrival will leave no one untouched.

The time for life boats is now – while the storm can be contemplated, the energy observed, and the acceleration is calm.

The world will continue its printing experiment and we may look like the cleanest shirt for a while – as long as confidence and brainwashing can hold.

The storm has been created. The time needed for it to arrive is what we should be most concerned about. Acceleration will happen when it comes closer to shore.

Silver and gold, of course, will float along with the rising tide.

 

1 oz Gold OPM Bars As Low As $14.99 Over Spot at SDBullion!

  1. Excerpt: “Money velocity is the key variable that will signal the character of confidence and the next wave of inflation.”

    ‘Velocity’ be damned. Deployment of already hyper-inflated credit into circulation is a foregone conclusion. That it will most certainly translate to crushing elevation of the general Cost of Living is pre-destined.

    This is the foolishness of misusing the term ‘inflation’ in confused reference to its consequences. Like plumbing the Challenger Deep in a standard oil drum. Everything … seems okay … until the compression inevitably crumples vessel and contents in a relative instant.

    It is the inflation of either money or credit which simulates the depth encountered, not the light still visible from the surface. Those few hopeful rays yet able to penetrate the waters are a mortally disarming gauge to employ.

  2. Who will buy all those Treaury’s now the Fed is tapering??? Those Treasury’s that allow US to run these deficits and service debt so cheaply???
     
    Given that the pendulum of “foreign” / Fed vs. domestic (US non-Fed) purchases of Treasury debt has become so skewed and so dependent upon these “foreigners” to maintain their purchasing in the wake of the Fed’s taper(s), seems a good time to determine who will buy the new issuance and who will rollover all that existing debt.  And why.
     
    Background
    US has $17.3 T in Treasury debt. 
     
    $5 T is in intra-government debt (SS and the like).  This portion is barely increasing as SS surpluses have ceased but the government will continue to roll this over without any issues.
     
    That leaves $12 T in public outstanding debt.
     
    Nearly $2 T is in ultra short duration Bills that can be viewed almost as a cash substitute.  These are held by institutions and the like and although yielding nothing to next to nothing (and very vulnerable in an interest rate shock) are likely to continue to find a home as a cash substitute. 
     
    That leaves $10 T in Notes / Bonds (plus TIPS) comprising all the medium to long term (over 1yr to 30yr) Treasury debt.  This debt was primarily held by domestic buyers up to ’00 (pensions, insurers, etc.) but since that time to now, this has radically changed.
     
    Reliant on the good will of “Foreigners”
     
    While the public outstanding debt has increased from $3 T in ’00 to $12 T+ now, the total amount owned by domestic sources has remained relatively unchanged.  So, if $9 T in debt was added and relatively no more was purchased by American sources, who bought it?  “Foreigners” and the Fed combined to purchase approximately 80%-90% of the increase of Notes / Bonds.  “Foreigners” now hold $5.6 T and the Fed $2.25 T in Notes / Bonds…or in other words, they hold $7.85 T of the $10 T medium/long term US debt. 
     
    The Fed’s motivation is clear but why “foreigners” have bought and continue to buy and hold ever greater amounts of ever lower yielding US debt that is sure to be paid back in devalued US currency is a vexing question?
     
    Some may do it to weaken their currency or park large dollar trade surplus’.  However, Luxemboug, Belgium, Ireland, Singapore, etc. etc. are truly mysterious gigantic holders of Treasury debt.
     
    Now that the Fed has begun it’s taper and for sake of argument will continue to fully taper to zero monthly purchases and ultimately will stop rolling over the $2.25 T in Treasury’s it currently holds (consider this a theoretical exercise…but maybe not).  Who will buy these $10 T and still growing US Treasury Notes/ Bonds?  Domestic buyers have shunned these Treasury’s due to their extremely low yields and purchased relatively more attractive options.  Absent yields moving up significantly above inflation, domestic buyers will maintain their boycott.
    WHO ARE THESE “FOREIGNERS”???
     
    This leaves “foreigners” to rollover their $5.6 T and buy nearly all new issuance ($500 B + annually @ the minimum) and subsequent to the Fed’s taper, begin buying up the $2.25 T of notes/bonds the Fed will not continue rolling over.  What is being suggested is that “foreigners” will grow from the current 50%+ and become 80% to 90% owners of all medium/long term US debt.  And the suggestion is they will continue to buy despite yields remaining low and despite the $ becoming an ever lower % of global trade as Euro and Yuan based trade continues increasing. 
     
    Who are these benevolent “foreigners” who love our debt so much?  According to the Treasury’s TIC report, ”foreigners” is simply the term TIC applies to Treasury’s purchased / held in “overseas custody accts”, the data is provided by US based “custodians”, data “may not be attributed to actual owners”, and ”data may not provide “precise” accounting”… (see TIC FAQ #7 at: http://www.treasury.gov/resource-center/data-chart-center/tic/Pages/ticf…).
     
    In essence, the TIC report explains how many Treasuries are purchased and when and where they were purchased (Belgium, HK, China, Canada, etc.) but does not claim knowledge of “who” (or that who’s nationality) purchased the Treasury’s.  To wit, a German or Japanese or American can purchase Treasury’s in Canada or Luxembourg or the UK and these purchases are attributed to the country where the purchase occurred, not the nation of the purchaser. 
     
    So What???
     
    The “red flag” in this was the Fed tapering. The Fed in it’s recent QE3 were buying nearly all medium term Notes / Bonds issued (up to their 70% limit) plus significant % of rollovers.  But on their stated exit from QE, “Foreigners” who double the Fed’s total holdings, should have seen rates would be rising and prices falling absent this buyer…typical “investors” would have been selling to front run the Fed’s exit. The Fed would have known this taper would cause a rate shock. But no selling…no yields to the moon. Rather “foreign” holdings have hit a new record high as of December.  Seems these “foreigners” are not typical “investors” and upon the exit from the “market” of a buyer of 70% of issuance, they are unconcerned. Typical “investors” would be concerned w/ the likelihood of losses. 
     
    I have a sneaking suspicion that debt ravaged Ireland did not buy $106 B in Treasuries since ’08. And Norway did not add $77 B, nor did Belgium add $244 B since ’08…and on and on. I don’t doubt the Treasury’s were purchased nor that the purchase occurred in these locations…I simply question where the money came from and who actually owns these?
     
    I believe there is a good likelihood of a shadow QE at least as large as the on the books QE and maybe this shadow QE is double the size of “QE”. Whether this is via currency swaps, ESF, Fed authorized agents, or whatever manner…there are likely many more dollars than acknowledged to maintain a “market” for ever more US treasury debt @ ever lower yields. This would also seem consistent w/ collapsing velocity of money since new money isn’t loaned or multiplied…just conjured and retired in debt that will be rolled for “eternity”.

  3. Cheatsheet to “foreign” Treasury ownership / trends
     
    Global

    2000 —> 2007 —-> 2013

     
    $1 T  —>  $1.6 T —> $5.6 T
     
     ASIA
     
    China $60 B  —>  $400 B —> $1.27 T
     
    Japan $315 B —>  $600 B —> $1.18 T
     
    Taiwan $35 B —>  $38 B  —> $182 B
     
    HK       $39 B —>  $52 B  —> $159 B
     
    Singapore $30 B->  $30 B  —> $86 B
     
    India        $15 B  —> $69 B
     
    Thailand $13 B ->  $16 B  —> $52 B
     
    TOTAL   $497                         $3 T (600% increase, ’00-’13)
     
     AMERICAS
     
    Brazil   $54 B  —> $245 B
     
    Canada $15 B  —> $28 B  —> $56 B
     
    “Carribean banking centers”
     
            $      35 B —> $68 B  —> $291 B
     
    TOTAL  $55 B                    $592 B  (1100% increase)
     
     MENA
     
    “oil exporters” 
     
            $45 B —> $112 B —> $238 B  (500% increase)
     
     EUROPE
     
    Russia   $9 B   —> $139 B
     
    Norway  $20 B  —> $97 B
     
    UK    $50 B  —>  $100 B —> $164 B
     
    Switzerland $18 B> $34 B  —> $175 B
     
    Turkey $25 B  —> $52 B
     
    TOTAL    $83 B                       $627 B  (750% increase)
     
     BANKING EURO
     
    Ireland $5 B —>  $19 B  —> $125 B
     
    Belgium $28 B –>  $13 B  —> $257 B
     
    Luxemburg $60 B –> $134 B
     
    TOTAL    $38 B                         $516 B  (1350% increase)
     
    CORE EURO
     
    Germany $54 B —> $50 B —> $67 B
     
    Italy      $20 B   —> $14 B —> $30 B
     
    Netherland $13 B-> $15 B —> $37 B
     
    France   $27 B  —> $10 B —> $54 B
     
    Spain    $20 B   —> $ $23 B
     
    TOTAL   $134 B                   $211 B  (57% increase)
     
     
     
    BANKING CENTERS
     
    “Carribean banking centers”
     
            $      35 B —> $68 B  —> $291 B
     
    Switzerland $18 B> $34 B  —> $175 B
     
    HK       $39 B —>  $52 B  —> $159 B
     
    Singapore $30 B->  $30 B  —> $86 B
     
    Ireland $5 B —>  $19 B  —> $125 B
     
    Belgium $28 B –>  $13 B  —> $257 B
     
    Luxemburg $60 B –> $134 B
     
    TOTAL    $160 B                    $1227 (767% increase)
     

  4. http://finance.fortune.cnn.com/2014/02/21/why-myra-is-not-the-way-to-save/?source=cnn_bin

    MORE: Why gold might drop another 50%
    In theory, these 75 million employees are legally entitled to open an IRA, which offer contributors substantial tax benefits. However, less than 5% of these 75 million employees actually open a tax-advantaged IRA. Why?  Inertia. It takes time and energy to go to a financial institution, fill out an application and make a few choices.
    Countless studies have shown that participation rates are much higher if employees are automatically enrolled in a retirement plan, but then given the opportunity to opt out.
    Here’s what a bill to establish the automatic IRA could look like:
    1. All employers above a certain size ( e.g., over 10 or 20 full-time employees ) would be required to link their payrolls electronically to a qualified financial institution offering an IRA meeting certain criteria. But this requirement would not apply to any employer already offering a retirement plan.
    2. Participating employers would presumptively deduct a specific percentage ( e.g., 2% ) of the monthly salaries of full-time employees as contributions to an IRA.  However, these employees would have several months to decide to opt out, or choose a lower level, of these presumptive contributions to an IRA.
    3. To constrain administrative costs, all contributions to an Automatic IRA would be at least $25 per pay period. To defray the start-up costs for the new program, each participating employer would receive a modest one-time tax credit ( e.g., $300 ).
    Corzine is going to oversea this new program also. Wow! No Jail time for theft of 1.6 Billion dollars of others peoples money. 

    • copy that NetRanger808   This is the way MYRA will go. It will be money stolen directly  It will not be  intergenerational transfer of wealth like social security  or medicare, despite the fact that taxes were lelied against the people to run this SS pension plan.

      Each MYRA  pool will present a perfect target for theft.
       The government giveth.  the government will taketh away.
       this honey pot of enforced purchases of BBB minus UST securities will be theft from the Millenials, plain and simple.
       every government since time immemorial that offered a fund like this ended up stealing it eventually.
      the MYRA will  be completely enforced and involuntary. It will be stolen in due time.

    • @AGXIIK
       
      “Each MYRA  pool will present a perfect target for theft.”
       
      Indeed so, AG.  But I wonder… will they replace all that money with “special” UST bonds, as they did with SS, or just an entry on a spreadsheet as they abscond with all the cash?
       

  5. I’m not sure if it was Jim Sinclar or Jim Willie, but it was said that 2008 was the front of the hurricane and it was a cat3. We have been in the eye and are going into the back of the storm, and it’s a cat 5.

  6. Confidence and Brainwashing   Those two words stood out.  What comes first?  Confidence?
      The act of conning someone is taken from that word.
     Being confident is a condition that results from a careful examination of the facts at hand and then making a decision involving action
    If brainwashing eliminated the ability to think critically and thereby reducing the ability to make confident decisions, then brainwashing works.
    I think the latter, Brainwashing, is the order of the day.  Even the most confident people are likely to make bad decisions in light of the present situations

  7. I don’t blame Pat for being nostalgic about the 18th century.  For a brief time, the founding fathers conceived that “all men are created equal”.  The rest of history is a sad and sorry parade of the hereditary Psychopathic Elite .01% crushing the rest of us under their boot heels. 

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