empire revoltAfter six years of monetary and tax policies that could have not been better designed to destroy savings and the savings ethic, you’d think governments might have learned some sort of lesson. They are having none of it. Instead Japan is hell-bent on monetary kamikaze, and the ECB is now warming us up for negative interest rates and/or QE.
The problem is far from being understood: if anything the destruction, even confiscation of savings, and the creation of yet more money are set to accelerate in a futile attempt to buy off the inevitable.
Many decades of Keynesian-inspired economic and monetary corruption have left advanced economies with a legacy of debt and low savings. In a nutshell, that is the problem which is driving us into another financial crisis. 
And bond yields are telling us to batten down the hatches for the next crisis: it could be worse than 2008.


 

 

Submitted by Alasdair Macleod, GoldMoney:

Many decades of Keynesian-inspired economic and monetary corruption have left advanced economies with a legacy of debt and low savings. In a nutshell, that is the problem which is driving us into another financial crisis. That moment could be drawing upon us, signalled by the recent collapse in bond yields.

This nearly happened in 2008. It was bought off by an open-ended central bank guarantee of infinite quantities of cash and credit, initially by the Fed, rapidly followed by all the other major central banks. Six years later, monetary medicine is still being applied globally in unprecedented quantities. And in some countries bank credit has finally begun expanding more rapidly than before.

The counterpart to bank credit is debt, which is fuelling economic growth wherever it can be found. Even exports are on tick, with the ultimate buyers around the world also heavily dependent on credit. Indeed, the more one looks at the current business cycle, the more its current state resembles 2007-8 and 2000-01 before that.

Credit cycles unbacked by substance start like this: print some money to inflate asset prices. Collateral values then increase, stimulating bank lending. Borrowers buy property and stocks, increasing prices and spreading the feel-good factor. Now that personal balance sheets are “repaired”, they buy new cars, new holidays and second homes, all on tick. Welcome to this point in time: the accumulation of debt has stopped us from increasing demand any further. The progression of events from here varies but the end result is easily predicted: it runs out of steam and turns into a financial crisis.

So how do we get away from this depressing and predictable cycle of events? The answer is simple: stop relying on the expansion of money and credit. We have forgotten that before Keynes told us to borrow to spend, debt was only taken on by entrepreneurs and businesses for very specific purposes as a last and not a first resort, and certainly not for everyday consumption.

This was the reasoning behind Says Law, which states very simply that people produce things so that they can buy other things. Keynes replaced this logic with a different story: there’s no need to make things in order to spend, so long as the state ensures you have the money available.

Understanding Keynes’s mistake is the key to changing course away from repetitive cycles of economic destruction. Instead of printing money and encouraging borrowing, people should instead be encouraged to save. The truth of Say’s Law can then operate, with people only spending what they can truly afford. Instead cash-strapped governments are likely to increase taxes on savings when they should be dropping them altogether.

After six years of monetary and tax policies that could have not been better designed to destroy savings and the savings ethic, you’d think governments might have learned some sort of lesson. They are having none of it. Instead Japan is hell-bent on monetary kamikaze, and the ECB is now warming us up for negative interest rates and/or QE.

The problem is far from being understood: if anything the destruction, even confiscation of savings, and the creation of yet more money are set to accelerate in a futile attempt to buy off the inevitable. And bond yields are telling us to batten down the hatches for the next crisis: it could be worse than 2008.

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  1. Alisdair Macleod lays it out as well as anyone.  Bottom line, unfortunately is, there is no plausible solution.  The train has gone of the cliff.  We just haven’t hit bottom yet.  TPTB opine that the view remains beautiful.  Enjoy the ride.  Nothing to be concerned with.  All while they develop their remote fortified personal compounds.
     
    Very interesting and potentially telling how so many different downward economic cycles are converging at this moment in history.  You can feel the cadence quickening.  The tempo and trajectory of the world is changing on so many fronts.
     
    We think we have choice in America, but we’re just kidding ourselves.  Six men control 90+% of the media.  Ten companies control 90+% of consumer products found in stores.  Four banks control 80% of all deposits.  Choice has become an illusion. 
     
    So what to do.  I taught our sons to survive you’re going to need the 6G’s:  God, Gold, Guns, Groceries, Gasoline, and a Gal.  Then, maybe, you got a chance.

    • I agree, and the 5+ years of delaying the bottom merely prolongs the pain for the unemployed and underemployed. You simply cannot get organic economic growth until you clear out all the “dead wood”. Yet our social safety nets are based on a dynamic free market economy where recession should be sharp but brief. By using the “extend & pretend” strategy we are prolonging the pain on workers who’s unemployment benefits expire and they drop out of the labor force.
      We can’t even call these poor souls statistics because they aren’t even counted as unemployed by the common measure (U-3) of unemployment. These people will become liabilities in the future because they’ll have no retirement money and of course the young are not finding any meaningful employment. You’re simply not buying your first house when you are living unemployed in your parent’s basement. So the result will be slower future growth due to lower household formation, which makes up much of our consumer economy (70%).

    • @UglyDog
       
      “Choice has become an illusion.”
       
      There are MANY illusions today, all very comforting, and this is just one of them.  Another is “control”.  Hell, most people cannot even control themselves at an adult level, yet they presume to control the lives of others via their adolescent political views and policies.  :-/
       
      @Missiondweller
       
      Well said.  I agree and have been saying similar things for some time now.  Recession IS the natural purge of a capitalist system that includes an excess of misallocated resources.  It is the function of a recession to redirect those resources into more productive channels via the bankruptcy of poorly run businesses and the reallocation of their resources to other businesses that are better run. Unfortunately, those in political power do not want a recession to occur on their watch.  They view a recession as a bad thing because they do not understand its necessary purpose.  A recession is the economic equivalent of a fever.  The higher temperatures of the fever do great damage to the infection (resource misallocation) we have at the time.  But politicians are stopping the necessary recessions from happening in the hope of getting more votes.  The Fed is complicit in this and is making economic decisions for political reasons.  As we saw with the USSR and other socialist countries, this approach is doomed to fail.  Economic decisions MUST be made for economic and not political reasons if they are to be successful.  It is this last point that is being ignored and there WILL be a high price paid for that ignorance.
       
      “So the result will be slower future growth due to lower household formation, which makes up much of our consumer economy (70%).”

      It also astounds me that so many people think that an economy, 70% of which consists of consuming, is stable and / or sustainable. It is neither of these things. A vibrant economy is one that produces MORE than it consumes. It is the difference between production and consumption that leads to savings and investments, both of which give rise to real wealth. These form the bedrock foundation upon which a REAL economy can be built. The current economy is nothing more than a house-of-cards simulation of an economy that the Fed and Gov have created for their own purposes. They are an image of a real economy but not a real economy in and of itself. Like a picture of a good meal, there is no comparison between it and a REAL good meal served up hot and tasty when one is hungry.

  2. Excerpt: “The answer is simple: stop relying on the expansion of money and credit.” … “The problem is far from being understood … the destruction … of savings, and the creation of yet more money are set to accelerate in a futile attempt to buy off the inevitable.

     
    I’ve expended (far too) many years studying Law under the disciplinary Common Law Maxim of “The act of the law does no one an injury.” 5 Coke 116, which compels examination of seemingly unjust verdicts until a keenly precise recognition is narrowed down to which Law was applied and upon what pivotal element of a case it turned … to shut the door.

    In many ways, Economics is similar to Law. There are different ‘Theories of Economics’ on the one hand and ‘Divisions of Jurisprudence’ on the other. In both matters, confusion or exclusion of their relative departments, leads to misdirection.

    The point is raised because most of today’s analyst-commentators attempt applying a mixture of mutually exclusive economic theory to their inquiries. Worse, this kaleidoscopic gaze is pointed toward a media-form no longer in existence. In other words, despite the obvious fact that today’s imitation monetary scheme is a completely separate paradigm from the former ‘mixed media’ version … itself a separate paradigm from the preceding metallic scheme, each is confabulated and subjected to a hodgepodge of Theories combined to suit the observer’s inclinations.

    By accounting for the sharply unique paradigm comprising the banknote scheme, deducing how its core operation ‘grows’ all its succeeding layers of shells and applying focused economic analysis paired strictly to that scheme from an ‘inside-out’ vantage, more realistic and useful insights can be gleaned. The only popular commentator who’s firmly taken hold of this approach, to my knowledge, is Mike Maloney, whom we hear far too little from, as I’m afraid he’s being subjected to a ‘media-stigmatization’ effort.

    For one to even raise an allusion to “stop relying on the expansion of money and credit.” (falsely premised on ‘money’ and credit as distinct things in this banknote paradigm), is a blatant constructive impossibility, only recognized by those who discern and then comprehend the thoroughly alien fundamental nature of what it is that they’re viewing and consciously deciphering it as such.

    So, I’m forced to agree with our friend, Mr. Macleod, “The problem is far from being understood”. Banknotes beget debt, which begets banknotes … exponentially reverberating ad infinitum. Where is there any choice to ‘stop relying’ on that which has proven uncontrollably automatic by design?

  3. More than just the economic outlook is darkening.
    In the Ukraine, Jews are being told to register or dace being deported.
    Link:
    http://news.yahoo.com/kerry-condemns-call-jews-register-ukrainian-city-170306288.html;_ylt=A0SO80QvVVBTxnIA3HRXNyoA;_ylu=X3oDMTExc2hvYms0BHNlYwNzcgRwb3MDOARjb2xvA2dxMQR2dGlkA1VJQzFfMQ
    Is this Kiev trying to make the Russians look bad, official Russian anti-Semitism, or just neo-nazis taking advantage of the chaotic situation?  Either way – this increases the likelihood of other countries – and NATO – becoming involved in this conflict.
    Never Again!
     

    • You’ve got to know this is intentional theatrics. Slowly from stage left, Nosferatu creeps into the sleeping young beauty’s bedroom … and the thoroughly anticipated audience response … sure enough … turns to a trembling forebodence.

      Not to say such sick demented ghouls, possessed by blood lust, don’t stalk mankind … but as it always comes to light at length, they’re a small hand full who’ve so completely captured the organs of ‘public influence’ that their brainwash comes off as ‘popular opinion’

      By no ‘coincidence’ the two ‘gurus’ of such ‘social engineering’ were the Russian, Pavlov, and the American, Skinner. So, whichever government’s agency is plying this poison, sincerely impartial investigators would do well to hunt down and stamp out the little cabal behind the ‘big mouth’ causing the brouhaha … not ‘take the bait’ of generalized condemnation for any anomalous whole People.

    • Agree 100% @PatFields.  That was my very thought upon first hearing this balderdash.  What better way to gain money, arms, and sympathy than to play the “Jews Will DIE, unless…” card?

  4. “After six years of monetary and tax policies that could have not been better designed to destroy savings and the savings ethic, you’d think governments might have learned some sort of lesson.”
     
    Actually, I would not think that.  We are confronted by people who refuse to recognize reality and whose only response to their plans not working is to do more of the same.  Educated idiots like Krugman are illustrative.  When QE fails and fails miserably, their only response is “It failed because it was not enough”, as if doing more of a BAD idea will suddenly and mysteriously transform it into a good idea.  It won’t because it never has and never will.  Japan is also illustrative.  They have pursued their own QE-like programs for more than 2 decades, yet they are still mired in a collapsing economy.  If QE and its like were going to succeed, would they not have already done so in Japan?  Most certainly, yet they have not, which leads the sensible among us to conclude that these wrong-headed policies have not worked because they cannot work.  This fact, however, will not dissuade those who have hitched their political futures to this crummy old cart.  They will stick with these nonworking and unworkable policies until they simply can no longer do so, no matter the cost to the rest of us.  This is why it is our responsibility to transform our own finances from their failing paper world into the coming PM-based world… BEFORE the collapse of the paper world, of course.
     
    “And bond yields are telling us to batten down the hatches for the next crisis: it could be worse than 2008.”
     
    Manipulated bond yields are not much of an indicator of anything, IMO.  Time was when the Fed controlled the short term rates while the bond market (aka ‘the bond vigilantes’) controlled the long rates via competitive bidding.  But that is no longer the case.  The Fed has seized control of the long rates by becoming “the buyer of last resort” for as many bonds as the US Treasury cares to sell, so now controls both ends of the rate curve.  There is no bidding for these bonds either.  The Fed pays whatever the UST asks.  Because of this, there is no way for the bond market to effectively control the Fed’s ability to print money or the US Gov’s ability to spend it. Both of these entities are wildly out of control.   This is like a train that is heading down the grade at increasing speed.  There are curves ahead, chasms on both sides of the track, and no one at the controls.  It will not end well.
     
    Not only could the next crisis be worse than 2008 but it MUST be worse than 2008.   I say this because nothing that was broken in the 2008 crash has been repaired.  Too big to fail, insolvent banks, and vast amounts of derivatives are not only still with us but are bigger than ever.  All of the cracks in our financial system have been papered over via massive amounts of cheap freshly printed currency… but that is not a cure.  It merely delays the inevitable crash.  If economic history teaches us anything it is that a crisis delayed only becomes worse and not better.  2008 saw the birth of the worst recession since the 1930s.  The next one will not only be worse, it will be MUCH worse.  
     
    Got preps?
     

  5. It is in this realm/age/world/Babylon where we are brought to a consensus, it is our own reasoning individual and collective perceived from that which is outside of self becomes our duality of mind/heart. This  confusion of face is  symbolised by  truth being nailed to a tree, which represents truth cast down by our duality of mind symbolised by two sons, although GOD has but ONE son, who we are  
     
    There is only  ONE law, and it is in this  breath {point in time} where it is written into the fabric of our soul ………………..    

  6. On a personal note…… We cannot pay our mortgage off in the next ten years without a miracle! We have no other outstanding debt, no store cards, no credit card debt, no personal loans or vehicle loans. We want to be completely out of debt, does anyone recommend selling and renting?? We are willing to do this to completely get rid of our debt, with the way things are going the economy could tank at any time. This whole thing could drag out for a few more years but what if it doesn’t?? Any advice from anyone in silver doctor land would be appreciated!!

    • Julie—
      Would encourage you to keep stacking/prepping and everyday bring your own sunshine!
      TPTB really could drag this thing out a long time. I don’t think it’s very likely that things will all come crashing all at once and a very strong case can be made we have been struggling/sinking for a long time as it is.
      Make today count. find the beauty in simplicity;  Cherrish the small things each day! 
      ;^)

    • Julie,  My wife and I just went through this, and our answer was to refinance at a lower fixed rate. We got 4.6% 40 year fixed and we are saving almost $1000 a month on our payment.  Reasons:  1st, we simply didn’t want to move, and pay all the money to do it.  2nd, we expect interest rates to go up eventually, and wanted to be locked in.  3rd, like 4oz says, we wanted to immediately start buying maple leafs.  Let me tell you, like I am sure others here would say:  When you “clink” your first shiny Maple Leaf, you feel that finally, there is something REAL in your life.  Certainly more real than any lease you would sign.  4th, rents will go up too!  Do you really want that kind of life?  My wife sure didn’t.

    • JJ…Home ownership today is not what it was twenty years ago.  Going forward I expect there will be no huge gains in appreciation like there was during the boom.  Instead, when interest rise home values(measured in fiat) will plummet as there will be no buyers.  If you are going to sell, then sell now because the housing market is cresting (unless you live in the Wash DC area).  But, you have to have somewhere to live.  And, for myself, I enjoy my house.

    • Juicey-Julie … “We cannot pay our mortgage off in the next ten years without a miracle!”
       
      Then make your own miracle, Julie. Devote a ‘special stack’ toward paying off the debt in the eventuality of monetary collapse, whether sudden or extended.

      Decide where you might most reasonably expect silver to trade at in the occasion and assemble the appropriate number of ounces … ASAP. Considering what the unadjusted linear labor equivalent is … 160 banknotes an ounce, which is arguably higher due to population increase and un-naturally forced inflation … that might be a good minimum figure to plan with. Then, once you’ve saved that minimum, as you ‘add ounces of insurance’, you’ll have peace of mind that some other danger, like complete loss of employment, can be immediately and completely offset … voila! A magic, miracle!

      There’s a great deal to be said for having property in land and an abode, because the stability it provides opens countless opportunities nearly impossible in an uncertain environment of situation; so if you’re pleased with your house, given you’ve already contributed about 30% equity in it, unlikely to net out from a sale, it’s worth keeping your claws firmly dug into it.

    • @Juicey-Julie
       
      There are multiple answers to this question.  But first, congrats on only having mortgage debt and no other debt.  That is quite an accomplishment in and of itself these days!  :-)
       
      I don’t usually recommend renting for most people.  If it was cheaper than owning, landlords would not do it.  Generally people who cannot maintain a house or afford to pay someone else to do it for them are good candidates for renting, IMO.  Before my wife and I paid off our mortgage in Feb. of this year, we were paying around $1150 a month on our mortgage.  For that money, we could rent a decent apartment of about 1000 sq. ft.  That is just over 1/4 of the amount of space we have now.  Finally, the big difference between renting and buying is that mortgage payments end.
       
      As has been said, we do have to live somewhere and a home of our own is one of the better places, IMO.  In order to pay off this debt faster, you can either spend less on other things or earn more money via a better job or adding a part-time job.  Renting is something that works best for young folks without kids or for professionals who move to new jobs in other locations every couple of years.  A less expensive home, such as a mobile home or manufactured house can be a viable alternative, although probably not in areas that are subject to extreme winds.  Such lightly constructed homes may not be as safe as a more solid structure.
       
      While there are may variables in all this, as AGXIIK points out, we do know some things for sure.  We know that the US Gov will continue to spend and print money irresponsibly and that as a result of this, inflation will cause everything of intrinsic value to rise in price as the money gets ever less valuable.  Gold and silver maintain their purchasing power over time because they do not usually participate in the fiat game of inflation.  Only a massive new rich ore deposit can inflate silver or gold.  This has been seen a few times in US and world history, such as when the Comstock Lode was discovered or when Spanish ships were carrying huge amounts of gold and silver from the new world to Europe.  Given all this, a long-term savings program that uses these metals could be a wise choice.
       

  7. @Juicy-Julie , is it possible to configure part of your house as a rental, with a separate kitchen, bathroom & entrance?
    I am a landlord and my dilemna is whether to use the rental income to pay down the mortgage or build up the stack – ha!
    -Mammoth

  8. Juicey-Julie  
    I have several questions before I can answer you.
    Do you have a positive equity that is worth saving?
    What is your interest rate today and will it change upwards in the near future?
    Will you note mature with a balance due?
    Is your equity negative? 
    Do you really like or love this home?
    Is the P&I payment more than you can comfortably pay–in other words is it an excessive burden?
    One of my post back around August 2012 makes clear one option that you might consider if you are excessively burdened by debt.
    Pat Fields made the comment that you start stacking some silver and gold There is a really good chance that in the next 2, 5 or 10 years these precious metals will rise substantially in value. We stacked both gold and silver with several purposes in mind.
    One of those was the sale of precious metals to pay off the mortgage. 2015 would be a good year if PMs go up 300%.
     

  9. JJ
    Consider Ajx comments, as every decision is complex.
    The debt to equity ratio going forward should be at the top of the list.
    Like a good doctor , its the patient you treat not so much the disease. So be honest with yourself and family and make the decision based on your needs and preferences.
    Cheers

  10. Thank you so much to all who replied!! I have read every one and appreciate the time taken. We have many things to consider at least we do have equity in the home, we also love having our own home, as opposed to renting. The fixed portion of our mortgage is up in 6 mths, so shopping for a good rate if we stay is a guarantee. We already have it split variable/fixed, but are hating the debt!!!! 
     
    We are stacking and will continue to do so, that’s one thing I can guarantee!!! 
     
    Thanks again JJ
     
     

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