The destruction wrought by the endless creation of fiat money is reaching a terminal phase. As spreads and carry trades are unwound, the effects have been devastating to individual commodities and this will soon spill over the entire global “economy”.
What started as a selloff/correction, perhaps initiated as a covert sanction regime against Russia, has become an outright bloodbath.
Submitted by T. Ferguson, TFMetals Report:
This site and others have been chronicling the decline on crude oil for over six months. Prices have fallen from $108 to $44 in seven months…nearly 60%!…and the impacts, the unknown unknowns and unintended consequences are just now coming over the horizon. On a price chart, it looks like this:
But it’s not just crude oil. Take a look at these industrial metals:
And no one is shipping any of this stuff anywhere, witness the multi-year lows of the Baltic Dry Index:
What does this have to do with QE and money-printing? Everything!
You see, since The Fed began QE in March of 2009, they’ve created from thin air over $3T. Notwithstanding that these dollars have been levered multiples higher, the predictability of the ongoing U.S. QE led “investors” around the globe to use carry trades to finance their speculations. Buy the yen/short the dollar OR buy the euro/ short the dollar were global risk funding vehicles and the resulting spiral led to increases across the board for dollar-priced assets.
However, over the past two years, several changes have altered this landscape:
- Japan began their own, very aggressive QE program
- The US decided to taper and eventually end its overt QE program
- The ECB is expected to announce it’s own QE program next week
These three changes have had a disastrous impact on commodity prices and the downward moves appear to be far from over. And when did all of this begin and then accelerate? Note the two, distinct declines in the yen which coincide with the start and subsequent increase of Japanese QE, also known as “Abenomics”:
And with ECBQE expected to be announced next Thursday, note the collapse in the euro…down over 7% in just the last month:
As “traders” around the globe continue to unwind these “carry trade” positions, expect the declines in the yen and euro to persist. This will cause further drops in commodity prices. Not only will this have a devastating impact on various global industries, the global economic impact will be great, as well. Additionally, as Raoul Pal warned back in November, extreme currency movements such as the kind we’re seeing will, no doubt, add additional unknown unknowns to the global financial daisy chain of derivatives and counter-party risk.
In the end, the US Fed will likely find no other escape hatch than the resumption of overt QE. Will it be too little, too late to reverse the trends and “save” the global economy? Probably…but you know they’ll try. (Though as stackers of physical metal, it doesn’t really matter to you and I.) Just as the Keynesian solution to the debt crisis is to add more debt, the Keynesian solution to this currency crisis will be to add more currency. You can count on this just as surely as you can count upon night following day.
Physical gold and silver will always be the only money and store of wealth that cannot be diluted and devalued by the Keynesian central planners. They are your only protection against this economic madness and you should continue to use this time to prepare accordingly for The End of The Great Keynesian Experiment.