Economic Crisis: Governments And Central Banks In Panic Mode
It’s truly incredible how much ground I have to cover each and every day, given the relentlessly expanding tsunami of horrible – or better put, “PM bullish, everything-else-bearish” – headlines as the terminal phase of history’s largest, most destructive fiat Ponzi scheme plays out. Frankly, it’s getting more and more difficult to condense my daily thoughts into just a few pages; but since I’ve already taped two epic Audioblogs this week, and three podcasts yesterday alone – all of which, are available at milesfranklin.com – I’m not going to tape an Audioblog today.
My Wall Street tenure made me quite adept at cramming in important information into tight spaces, which is exactly what I plan to do this morning, starting with a quick summary of some of the myriad lies, “mis-truths,” and propaganda engulfing the globe – starting with the most insolvent state of the Union, Illinois, which prototypically represents the apocalyptic state of the global pension fund Ponzi scheme, in purporting that its $78 billion fund, now unfunded by a whopping $130 billion, or 63%, can somehow pay out. This, as tens of thousands of citizens flee the state, as Illinois rapidly raises taxes, in turn destroying what’s left of its rapidly imploding business community. And the funny thing is, “analysts” actually believe higher interest rates to be a “good” thing, ignoring the logic that rising rates destroys pension fund equity and fixed income assets; whilst conversely, lower rates raise the net present value of pension liabilities. Throw in the horrifying, unyielding demographics that make it impossible for future generations to receive enough contributions from current workers, and you get an industry mathematically certain to fail, destroying hundreds of trillions of pension assets.
Then you have the Central banks that created this mess by inexorably lowering rates to zero and below, and monetizing everything in sight; and better yet, as in the dying BOJ’s case, trying to tinker monetary policy so precisely, like arrogantly attempting to “control” the yield curve. To that end, consider that this week’s post-Trump bond market carnage has already wiped out all the BOJ tried to accomplish with its Frankenstein monster-like yield curve control scheme, causing it to, for all intents and purposes, abandon this dead on arrival “strategy” yesterday with full-blown “helicopter” JGB, or Japanese Government Bond, bidding. In turn, putting downward pressure on rates – and subsequently, upward pressure on the net present value of the very pension liabilities they intended to “save.”
And how about Ford’s CEO blatantly, starkly warning of the “huge (negative) impact” Trump’s proposed import tariffs will have on not just Ford, but the entire U.S. economy? This, in one of the few remaining industries that still does some manufacturing in America; which has admittedly passed “peak sales,” amidst declining demand, exploding incentives, and record-high inventories. To that end, I made it quite clear from the second Trump won – in last week’s “Turning on Trump” Audioblog, and countless other publications – that not only are the “renegotiation” of trade deals Trump promises impossible, but that manufacturing jobs ceded long ago to points overseas are long gone, NEVER to return. In this particular case, if Trump actually went forward on a 35% import tariff of Mexican-built (by U.S. companies) automobiles, Ford (and GM, for the second time) would unquestionably go bankrupt; whilst the Mexican Peso would crash far more than it already has, given that automobiles are its number one export. Which may well push us toward war with Mexico – let alone, if Trump actually intends to act on his anti-immigration rhetoric.
While on the topic of election promises impossible to enact, how about yesterday’s TIC, or Treasury International Capital report, confirming what I have said all along; i.e., foreign Central banks are accelerating their sale of morbidly overvalued U.S. Treasuries, as Ponzi schemes as diverse as the Petrodollar and “Sino-Dollar” collapse? Yes, we are now up to $375 billion of such sales in the past 12 months alone, the highest figure to date; led by China, which is desperate to staunch exploding capital outflows due to the very Yuan devaluation they initiated; in turn, catalyzed by the very “rate hike” jawboning the Fed has misled markets with, compounded by misguided belief that Trump can actually enact massive “supply-side” fiscal stimulus without blowing the deficit, and the dollar’s purchasing power, to Kingdom Come. To that end, the PPT’s suicidal gambit of hyper-inflating the “Dow Jones Propaganda Average” post-election – first, to reverse the initial, correct reaction of plunging prices; and second, to create a false meme of impending, stimulus-fueled “growth” – has dramatically backfired; as now the Fed will be forced to raise rates December 14th, simply to prevent looking like fools, given that the now inflation-fearing bond market has already done it for them.
And oh yeah, after China, Saudi Arabia was the second largest Treasury seller, accelerating its 2016 sales of, to date, 30% of its total Treasury holdings – partly due to collapsing oil prices; and equally, I surmise, anger about America passing the JASTA, or Justice Against Sponsors of Terrorism Act. To that end, today and tomorrow are the dates of the latest OPEC propaganda scheme – again, commenced just as oil fell to the low $40s last week; i.e., a “meeting” in Doha, Qatar between several OPEC and non-OPEC nations, to try and support prices ahead of the November 30th deadline for actually producing the production cut “deal,” that is in fact, dead as a door nail. To wit, we learned yesterday that the leadership of Iran, Iraq, and Nigeria aren’t even attending; and thus, given that their lack of cooperation was the principal reason no agreement has actually been proposed yet, I’m not sure why anyone but short-squeezed algorithm traders would care.
As for the information the “data dependent” Fed is watching – considering, of course, that the Obama Administration ran up the national debt by $350 billion in the three months ahead of the election, to generate the false “growth” that ultimately failed to win Hillary Clinton the election; fake data has been mixed at best (like LOL, the lowest initial jobless claims in 43 years, given that in today’s “gig economy,” few people have jobs eligible for unemployment insurance); whilst real data like flat industrial production, plunging mortgage applications, and weak Wal-Mart sales have plain and simple, stunk.
However, when “bond vigilantes” are starting to fear the hyperinflation we long knew would arrive – in this case, in the form of lunatic fiscal spending – it doesn’t matter what the data says, the Fed must hike rates to remain “credible” – even if the quarter point they will undoubtedly increase them by is well below the 45 basis points the actual market rose by this week. Which is probably why Whirlybird Janet and company are hoping and praying for an “external” or “black swan” reason to avoid this catastrophic fate before their December 14th meeting. As given that the dollar already breached its 13-year high (yesterday), the impact of higher rates – whilst global economic activity collapses – will be to destroy trade, catalyze debt defaults, and accelerate Treasury selling. In turn, turbo-charging the PBOC’s Yuan devaluation, further destroying U.S. economic activity and already plunging corporate earnings.
Which brings me to today’s all-important principal topic – of how global Central banks’ and governments’ dire monetary and economic predicaments (and thanks to Trump’s election, political as well) are catalyzing the enactment of the type of desperate, draconian measures witnessed only during times of crisis. Like, for example, the BOJ abandoning its insane QQEWYCC, or Qualitative Quantitative Easing with Yield Curve Control scheme, mere weeks after launching it; or governments from Australia to India officially launching the “war on cash” we – as in we, the readers of the Miles Franklin Blog – knew was coming. Which I assure you, is just the onset of the Acute Totalitarian Syndrome the world is about to experience, including financial repressions like cash bans, capital controls, and IRA confiscation; along with political repressions like censorship, as political, economic, monetary, and social conditions inexorably decline in 2017.
Regarding the “war on cash,” I cannot emphasize enough that this is not a “trial balloon” – like the one launched earlier this year here, when the topic was bandied around by Atlas Shrugged insiders like Larry Summers and Ken Rogoff. In Europe, the 500 Euro note was in fact discontinued in May; and just last week, the government ruling the soon-to-collapse financial Apartheid of India killed off more than 80% of the nation’s hyper-inflating currency, following a completely unanticipated prime time address the very morning of the U.S. election (presumably, to keep it out of the headlines).
As in the U.S., the ridiculous “reasons” given are the “criminal activity” supposedly trafficked in cash, as well as the catch-all excuse of tax evasion. However, the real reason is to control the population further; monitor its every move; and of course, set the stage for bail-ins, bank fee increases, and other means of confiscating wealth should actual “crisis” conditions occur. Like for instance, the plunging global trade that has caused the RBI, or Reserve Bank of India, to recently, “unexpectedly” lower rates, despite the Rupee already sitting near its all-time low. Or for that matter, the Precious Metal “black market” exploding further, despite 10-plus percent import tariffs – which went into hyper-drive following the cash ban, as thousands of fearful, angry, fiat-currency-hating Indians flocked to coin shops, selling out all available product, and driving gold premiums over the fraudulent, COMEX-dictated paper prices as high as 100%. And FYI, if you think this week’s Bitcoin surge, to nearly an all-time high market capitalization, is not at least partly due to Indian buying – as well as Chinese buying, given yesterday’s all-time low Yuan/dollar peg – you are missing the point of how such capital controls will, and are, causing real world people to act.
Trust me, the political ramifications of last week’s “BrExit times ten” election will hyperbolically accelerate in the coming months – starting with Italy’s December 4th Constitutional Reform referendum; which will undoubtedly fail, yielding the resignation of pro-EU Prime Minister Matteo Renzi, Italy’s fourth PM since 2008, in lieu of violently anti-EU, anti-Euro leadership; to the point that current money market “odds” of an “ItalExit” are above 60%. Economically, the accelerating collapse of history’s largest fiat Ponzi scheme – coupled with the aforementioned, until last week “unexpected” political shocks – will only continue in 2017, prompting the aforementioned draconian government responses and them some; as well as the only “response” Central banks still have; i.e, hyper-inflation and helicopter money.
Thus, the reasons to own Precious Metals, particularly in light of the violent post-election suppression operation that is starting to stretch an already tight physical market to its limits, have never been stronger. To that end, Andrew Maguire, one of the most connected physical market insiders in the world, in this interview yesterday claimed he is “absolutely sure” the artificial suppression will end in 2017. I wholeheartedly agree, as there are just too many factors forcing reality to the blinding light of reality.
The Central Bankers Make The Economy Look Great Right Before The System Crashes
Initial jobless claims are at all time lows even though more and more people are being laid off. Wells Fargo account opening are way down. Housing starts surge at mortgage apps decline. The housing bubble is getting ready to pop. Australia drops the TTIP and move to Chin’a free trade deal. Trump must shutdown the Federal Rerserve to end the control of a foriegn corporation. Foreign central banks are dumping Treasuries at an alarming rate.
Those of you familiar with my thoughts on the economy will know I feel the entire concept of globalization, a term which was popularized under the presidency of Bill Clinton to glam
orize the corporativist agenda that had just come into being with creation of the World Trade Organization in 1994, is fundamentally a destructive rigged game of the few hundred or so giant “global players. Globalization destroys nations to advance the agenda of a few hundred giant, unregulated multinationals. It’s based on a disproven theory put forward in the 18th Century by English free trade proponent David Ricardo, known as the Theory of Comparative Advantage, used by Washington to justify removing any and all national trade protectionism in order to benefit the most powerful “Global Players,” mostly US-based.
The faltering US project known as Trans-Pacific Trade Partnership or the Trans-Atlantic Trade and Investment Partnership, is little more than Mussolini on steroids. The most powerful few hundred corporations will formally stand above national law if we are foolish enough to elect corrupt politicians that will endorse such nonsense. Yet few have really looked closely at the effect that surrender of currency sovereignty un
der the Euro regime is having.
Collapse of IndustryThe nations of what today is misleadingly known as the European Union follow a concept ratified by a then-far-smaller number of European members–twelve versus 28 states today–of what had been the European Economic Community (EEC). A European version of giganto-mania appeared during the EEC Commission presidency of French globalist politician Jacques Delors when he unveiled what was called the Single European Act in February 1986.
Delors overturned the principle established by France’s Charles de Gaulle, the principle which de Gaulle referred to as “Europe of the Fatherlands.” De Gaulle’s concept of the European Economic Community–then six nations including France, Germany, Italy and the Benelux three–was one in which there would be periodical meetings of the premiers of the six Common Market nations. There, with elected heads of states, policies would be formulated and decisions made. An assembly elected from members of national parliaments would review the actions of the ministers. De Gaulle viewed the Brussels EEC bureaucracy as a purely technical administrative body, subordinate to national governments. Cooperation should be based on the “reality” of state sovereignty. Supranational acquisition of power over individual nations of the EEC was anathema for de Gaulle, rightly so. As with individuals so with nations—autonomy is basic and borders do matter.
Delors’ Single Act proposed to overtur
n that Europe of the Fatherlands through radical reforms to the EEC aimed at the destructive idea that the diverse nations, with diverse histories, cultures and diverse languages, could dissolve borders and become a kind of ersatz United States of Europe, run top down by unelected bureaucrats in Brussels. It in essence is a Mussolini-style corporativist or fascist vision of a non-democratic, non-responsible European bureaucracy controlling populations arbitrarily, answerable only to corporate influence, pressure, corruption.
It was an agenda developed by the largest multinationals of Europe, whose lobby organization was the European Roundtable of Industrialists (ERT), the influential lobby group of Europe’s major multinationals (by personal invitation only) such as Swiss-based Nestle, Royal Dutch Shell, BP, Vodafone, BASF, Deutsche Telekom, ThyssenKrupp, Siemens and other giant European multinationals. The ERT, not surprisingly, is the major lobby in Brussels pushing adoption of the TIPP trade deal with Washington.
The ERT was a major driver for the 1986 Delors Single Act proposals that led to the Frankenstein Monster called the European Union. The idea of the EU is creation of a top-down central unelected political authority that would decide the future of Europe without democratic checks and balances, at heart a truly feudal notion.
The concept of a single United States of Europe, dissolving national identities that went back more than a thousand years or more, can be traced back to the 1950’s when the Bilderberg Meeting of 1955 in Garmisch-Partenkirchen, West Germany, first discussed the creation out of the six member nations of the European Coal and Steel Community of “a common currency, and…this necessarily implied the creation of a central political authority.” De Gaulle was not present.
The project to create a monetary union was unveiled at a 1992 EEC conference in Maastricht, Holland following the unification of Germany. France and Italy, backed by Margaret Thatcher’s Britain, forced it through over German misgivings in order to “contain the power of a unified Germany.” British Tory press railed against Germany as an emerging “Fourth Reich,” conquering Europe economically, not militarily. Ironically, this is what has very much de facto emerged from the structures of the Euro today. Because of the Euro, Germany economically dominates the entire 19 Eurozone countries.
The problem with the creation of the European Monetary Union (EMU) prescribed in Maastricht Treaty is that the single currency and the “independent” European Central Bank were launched without being tied to a political single legal entity, a genuine United States of Europe. The Euro and the European Central Bank is a supranational creation without answerability to anyone.
It was done in absence of a genuine organic political union such as that created when 13 states, with common English language and following a commonly-fought war of independence from Great Britain, created and adopted the Constitution of the United States of America. In 1788 the delegates from the 13 states agreed to establish a republican form of government grounded in representing the people in the states, with separation of powers between the legislative, judicial and executive branches. Not so the EMU.
The EU bureaucrats have a cute name for this disconnect between unelected central bank officials of the ECB controlling the economic destiny of the 19 member states with 340 million citizens of the so-called Eurozone. They call it the “democratic deficit.” That deficit has grown gargantuan since the 2008 global financial and banking crisis and the emergence of the not-sovereign European Central Bank
Collapse of IndustryThe creation of the Euro single currency since 1992 has put the Euro member states into an economic strait-jacket. The currency value cannot be changed to boost national exports during economic downturns such as that experienced since 2008. The result has been that the largest industrial power in the Eurozone, Germany, has benefited from the stable euro while weaker economies on the periphery of the EU, including most notably, France, have endured catastrophic consequences to the rigid Euro rate.
In a new report, the Dutch think-tank, Gefira Foundation, notes that French industry has been contracting since the adoption of the euro. “It was not able to recover after either of the 2001 or 2008 crises because the euro, a currency stronger than the French franc would be, has become a burden to France’s economy. The floating exchange rate works like an indicator of the strength of the economy and like an automatic stabilizer. A weaker currency helps to regain competitiveness during a crisis, while a stronger currency supports consumption of foreign goods.”
The study notes that because of this currency strait-jacket, ECB’s policy has created a Euro too high versus other major currencies to enable France to maintain exports since the economic downturn of 2001. The Euro has led to increased imports into France and because France had no exchange rate flexibility, her industry “could not regain international competitiveness in the world’s market after the 2001 crisis, so its industry has been slowly dying ever since.” They lost the economic stabilizing tool of a floating exchange rate.
Today, according to the Eurostat, industry makes up 14.1% of the French total gross value added. In 1995 it was 19.2%. In Germany it is 25.9%. Most striking has been the collapse of a once-vibrant French car industry. Despite the fact that world car production almost doubled from 1997 to 2015 from 53 million to 90 million vehicles annually, and while Germany increased its car production by 20% from 5 to 6 million, from the time France joined the Euro in 2002, French car production almost halved from nearly 4 million to less than 2 million.
Euro Bail-in LawsThe same Euro strait-jacket is preventing a serious reorganization of troubled banks across the Eurozone since the 2008 crisis. The creation of the supra-national, non-sovereign European central Bank has made it impossible for member countries of the Eurozone to resolve their banking problems created during the excesses of the pre-2008 period. The case of Italy with its request to make a state bailout of its third-largest bank, Monte dei Paschi, is exemplary. Though draconian layoffs and closings have for the moment eased panic, Brussels refused to permit a $5 billion Italian state rescue of the bank, instead demanding the bank revert to a new EU banking law called “Bail in.” While they may not yet dare to implement bail-in just yet in Italy, it is EU law and will certainly be the instrument of choice by the unelected Eurogroup when the next banking crisis hits.
Bail-in, while it sounds better than taxpayer bailout, actually requires that a bank’s depositors be robbed of their deposits to “rescue” a failed bank, if Brussels or the unelected Eurogroup decides such a bail-in of deposits is needed after bank bond holders and stock holders and creditors have not been able to meet the losses. This bail-in confiscation was applied in Cyprus banks in 2013 by the EU. Depositors there with over €100,000 either lost 40% of their money.
If you are a depositor in, say, Deutsche Bank, and the stock shares are tanking, as they have been, and legal troubles threaten their existence, and the German government refuses to talk bailout, but rather leaves the bank to potential bail-in, you can be sure every depositor with an account over €100,000 will begin to look to other banks, worsening the crisis for Deutsche Bank. Then all other remaining depositors would be vulnerable to bail-in as was initially proposed by the Eurogroup for Cyprus banks.
Surrender of monetary sovereigntyUnder the Euro and the rules of Eurogroup and ECB, decisions are no longer sovereign but central, taken by not-democratically appointed faceless bureaucrats like Holland Finance Minister, Jeroen Dijsselbloem, President of Eurogroup. During the Cyprus bank crisis Dijsselbloem proposed confiscating all depositor money, big or small, to recapitalize the banks. He was forced to back down at the last minute, but it shows what is possible in the coming EU bank crisis that is pre-programmed by the defective Euro institution and its fatally flawed ECB.
Under current Eurozone rules, effective January, 2016, EU national governments are prohibited from taxpayer rescue of their banks, preventing orderly resolution of bank liquidity problems until too late. Germany has adopted a bank bail-in law as have other EU governments. The new bail-in rules are the result of a bureaucratic directive from the unelected, faceless bureaucrats of the EU Commission known as the EU Bank Recovery and Resolution Directive (“BRRD”).
In 1992 when Swedish banks went into insolvency as a real estate bubble popped, the state stepped in with Securum, a bad-bank/good bank rescue. The bankrupt banks were temporarily nationalized. Non-performing real estate loans in billions were put into the state corporation, Securum, the so-called bad bank. The risk-addicted bank directors were dismissed. The nationalized banks, minus bad loans, were allowed, under state management, to resume lending and return to profit before being reprivatized as the economy improved. The non-performing real estate became again profitable as the economy recovered over several years, and after five years the state could sell the assets for a total net profit and liquidate Securum. Taxpayers were not burdened.
ECB Prevents Bank ResolutionsNow, as the EU faces a new round of bank solvency crises with banks like Deutsche Bank, Commerzbank and major banks across the Eurozone facing new capital crises, because the EU lacks a central taxation power, no flexible tax-payer or bank nationalization is possible. New national bank rules adjusted to local circumstances are not possible. Measures to give troubled banks time such as allowing a temporary moratorium on foreclosures and repossessions if people fall behind on their payments, outsourcing national electronic payment system to commercial banks, are not possible.
The EuroZone has no central fiscal authority, so such solutions cannot be implemented. Banking system problems are only being solved by monetary authorities, by the insane ECB policy of negative interest rates, so-called Quantitative Easing where the ECB buys endless billions of Euros in dodgy corporate and state debt with no end in sight, and in the process making insurance companies and pension funds insolvent.
The answer is definitely not that proposed by the kleptocratic George Soros and others, namely to give the unelected Brussels super-state the central fiscal power to issue Brussels Euro bonds. The only possible solution short of destroying the economies of the entire Eurozone in the coming next European bank solvency crisis, is to dismantle the Frankenstein Monster called the European Monetary Union with its ECB and common currency.
The individual countries in the 19 country Euro Zone do not form what economists call an “optimum currency area,” never did. The economic problems of a Greece or Italy or even France are vastly different from those of Germany, or of Portugal or Spain.
In 1997 before his death, one of my least-favorite economists, Milton Friedman, stated, “Europe exemplifies a situation unfavorable to a common currency. It is composed of separate nations, speaking different languages, with different customs, and having citizens feeling far greater loyalty and attachment to their own country than to a common market or to the idea of Europe.” On that, I have to say, he was right. It’s even more so the case today. The Euro and its European Central Bank are murdering Europe as effectively as the Second World War did, only without the bombs and rubble.
and is a best-selling author on oil and geopolitics, exclusively for the online magazine “New Eastern Outlook”