3 Minute Gold News
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Where’s the Inflation?
Global Collapse Trigger
starting at 3:40 – 11:40 min.
September 17, 2014
If it’s a “Yes” vote then it’s going to be an economic earthquake – very bad for Sterling.
Jim’s been saying for some time that Sterling has been vulnerable to a currency crisis. It’s been strong as a cross rate but that’s different than a crisis.
A crisis happens all of a sudden and can result in extreme volatility.
Even if it’s a “No” vote the issue isn’t going away, and they’ll have another referendum in the future. So that will cast a cloud over Sterling.
If it’s a “Yes” vote then where will Scotland go?
The Bank of England has made it clear that Scotland is not welcome into a currency union with the U.K. Pound Sterling.
Scotland will either have to come up with their own currency, which is possible, but do they have any gold? Will they get any from England? Probably not.
They might join the Euro.
The Euro has expanded in recent years so Scotland joining the Euro would be consistent with that expansion.
The U.S. is the only strong currency, but that cannot last. The U.S. cannot have a strong currency because they are desperate for inflation.
The U.S. has done all the QE, cut interest rates to zero, and issued forward guidance.
They’ve done everything possible. The only thing left is to cheapen their currency.
The Federal Reserve (FED) wouldn’t have minded a stronger dollar six months ago, because the economy looked like it was getting stronger.
Europe was slipping into recession and Japan’s economy collapsed in the 2nd quarter. You could see the FED saying that the U.S. would have a stronger dollar and give Europe and Japan a break.
Now the U.S. data is coming in lousy and the U.S. are the ones who need a break. The only way to get it is to have a cheaper dollar.
Jim says to look for a cheaper U.S. dollar in the months ahead.
Stimulus in China is the one long currency war getting into more of a confrontation.
Jim says that China’s growth is at about 4%.
He says the print says it’s about 7%, but half of that GDP they produce is wasted. For example, buildling a $5 billion train station is $5 billion GDP but the ten people who are going to use it are not going to pay for it, so it’s wasted.
The ghost cities in China and the white elephant projects are all wasted GDP, so their real GDP growth is closer to 4%, and Jim believes it’s lower than that.
We are in a depression. It’s a global depression. It started in 2007 and it’s going to continue indefinitely.
The problems are structural and the monetary solutions are cyclical.
You cannot solve a structural problem with a cyclical remedy.
Monetary policy won’t work. What it could do, eventually, is cause inflation.
WHERE’S THE INFLATION
We printed trillions of dollars which would have brought inflation, but we would have had extreme deflation if not for the money printing.
So the QE did produce inflation to the extent that it off-set the deflation.
But now we’re getting to the outer limit of that.
The only clean balance sheet left is the International Monetary Fund (IMF).
The next time we have a liquidity crisis, and it’ll be sooner rather than later because they happen every 5 – 7 years, the only source of liquidity in the world left is the IMF.
They can print their “world money” called Special Drawing Rights (SDRs) – you might see them print up 3 1/2 trillion SDRs.
That’s the only place liquidity can come from.
Basically the world is in a depression and we’re not getting out of it.
GLOBAL COLLAPSE TRIGGER
The problem will erupt somewhere but it will spread globally.
There are a couple of candidates for the trigger of the eruption. One is U.S. stocks which are in a bubble. Also, China’s economy is slowing down and that might be it – that’s the best case.
The worst case is that the credit bubble collapses. Chinese savers – and they are a wealthy country – don’t have many places to go.
They can’t invest in foreign stocks, and they don’t trust their own stock market. The banks pay them nothing, so they’ve been pouring their money into real estate.
The real estate is a bubble, and when that bursts people will want their money and the banks will tell them no because it was invested as a Wealth Management fund. Then they’ll “burn the bank down”.
Jim says the Chinese probably have enough money to bail out of their own banking system. But they’re very slow to make decisions and meanwhile they’ll be trying to sell U.S. equities and U.S. treasury bonds in order to pay off some of their depositers.
This will very quickly spread around the world.
So, the trigger could be a collapse of the U.S. stock market bubble, could be a collapse of the China credit bubble, could be a geopolitical event, or it could be a natural disaster, kind of like the Fukushima earthquake that knocked out a reactor and started a melt down.
It almost doesn’t matter.
What does matter is that the structural instability is there, it’s growing, and all the banks that were too big to fail in 2008 are now bigger today.
The banks now have a higher concentration of the total banking assets and much larger derivatives books. There’s more leverage and easy bank lending for large private equity funds.
All the symptoms we saw in 2005 – 2006 are there again in larger scale.
And this time it’s going to be bigger than the FED.
Another Week on Wall Street
words and music Elaine Diane Taylor
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from the album Coins and Crowns available on iTunes