GLOBAL CRASH PESSIMISM IS THE ONLY SANE POSITION TO ADOPT. DEBT FORGIVENESS REMAINS THE ONLY SANE WAY TO PREPARE FOR IT.
Following on from last night’s Slogpost about the world being upside down and pointing slightly to the left (thus ensuring a mess in the bathroom) I want to answer a perfectly reasonable comment thread from a couple of days back: a lady asked me if I’d “gone cold” on the concept of Crash2, and I replied in the negative – the Crash2 alternatives have taken on so many potential guises since 2008, one would be better dubbing what’s ahead ’12 Crashes’.
But the truth is, I’d just forgotten to use the branding in the helter-skelter pellmell of signs getting more numerous and obvious with every month. I withdrew the last of my pension and other investment dosh from the markets three months ago on that basis. You can lose money-growth by leaving the bubble too early, but the loss of shirt factor is reduced to 0% . It’s an adage I’ve always stuck to, because I’m an observer, not a gambler.
So, Crash2. Why is it inevitable? Well, the truth is that nothing is inevitable, but most things are eventual. The eventuality of Crash2 seems so real to me now that I suspect the more relevant question any opinion-leader should be asked is “Why would it not happen?” But they’ve always got an answer to that one, so on further reflection the best approach is simply to go through the table of doubts one by one, and show why it stands about as much chance of flying commercially as Howard Hughes’s Spruce Goose.
I’m calling this the risk list. It’s like a wish list for depressive Marxists. Here it comes:
1. Based on no commercial rationale whatsoever, the US Dollar is heading for the stratosphere.
2. Based on zero belief in the empty Eunatic promises, the Euro is plummeting – and stands this morning at 1.42 to the Pound.
3. Based on no fundamentals whatsoever, the stock markets are at record highs.
4. Nobody has as yet been able to gauge how many derivative bets on the eurozone will go wrong, but whichever way things develop, we’re talking a figure in the trillions of dollars.
5. The bailin alternative to banking bailout is already being shown up as a nonsense in the case of Austria.
6. Despite its 100% failure rate to date, QE is about to be splurged into the eurozone. In Japan it is being applied on a scale that reeks of insane desperation.
7. Against all the market rules about safe havens in the context of things looking wobbly elsewhere, the price of gold is falling. But sales of the metal available to the general public are booming.
8. In line with a global depression (about which every government on Earth is in denial) the price of oil is falling. But its rate of decline has been alarmingly sudden – based entirely on a geopolitical row-cum-mutivariate-pissing-contest involving Saudis vs Frackers, Texas vs ISIS, and Russia vs The West.
9. With rising levels of unrepayable debt – and an acceleration in the rise of deficits across the West – most Sovereigns lack either the State funds or the consumer confidence to consume Asian goods.
10. Liquidity for business and consumers remains an enormous problem with no solution in sight: in the barmy model of capitalism being put forward, every signal, bourse and statistic relies totally on cheap credit to keep the show on the road. But interest rates have to rise: and that will run the Circus into the ditch.
11. With record wealth destruction at the bottom end and the financial power shrinking against that of rich capital, who’s going to consume the mid priced mass-market goods?
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So, there’s the list: where’s the risk? Fasten your seat belts please.
a. If the US Dollar is rising and the euro is falling, how is America going to export its goods – and thus lower its deficit…especially as domestic consumption of US goods isn’t cutting it? The answer is, it won’t. Some facts to ponder: The EU countries rank 2nd as an export market for the United States – 16.6% of overall U.S. exports go there. Already, the U.S. goods trade deficit with the EU is $125.1 billion….and growing at the rate of 7% per annum. A strong Dollar will devastate that trade. (Hence my view that Draghi could well be working for Wall Street, and towards a Eurodollar at parity with the US).
b. What happens when businesses trading in the eurozone come to buy raw materials next time – and find they have to pay 30% more? Answer: old fashioned upstream price inflation. “Great,” says Draghi, “that’ll counter the the deflation”. No it won’t, because they have different causes: all sales of imported goods using ex-EU materials will fall, more jobs will be lost, more faith in the euro will be lost….viciously circling into hyperinflation, and depressing US exports even more. (See above re eurodollar: hyperinflation attracts carpetbaggers).
c. The reasons the bourses have been booming are first, QE, second, more QE, third, yet more QE, and fourth lack of reliable returns from anywhere else – gold, commodities, bonds and so forth. But the US Fed continues to taper off the cocaine supply. Already, Forbes, the Daily Telegraph, Jim Rickards and even the CIA are on the record as saying the Dow is “an over-leveraged ticking time-bomb”. The sell-off two days ago has not as yet managed any kind of rally. The FTSE plunged too, although it’s now looking better. However…
d….this is where Bank shakiness becomes a serious factor. Derivative bets on the euro generally, I’d imagine, are relatively skewed towards success rather than failure. We are no more than 10 weeks away from its failure becoming obvious: not just because of the bad signs now spreading from Greece to Austria and France, but also the reality sinking in that the ECB/Frankfurt/Berlin axis have run out of time with which to bluff. Nobody knows for certain how it will pan out, but IF Troika2 decides to squeeze Greece into submission – and Syriza says “Fine, we default”- Resistance Contagion will spread very rapidly. Then we will see Greek banks fail, derivative bets hitting US banks, and a Major League panic on the bourses.
e. The Austrian bailin currently falling apart in a storm of intra-member litigation is no way going to be enough to cover the losses. But it’ll be a ride in the park compared to problems in Deutsche Bank…and others I could mention; however, being a French resident I don’t want a €25,000 fine for saying so. Je ne suis pas un Charlie.
f. For the ECB, there are no downsides to the Dragula QE bonanza. But there are huge risks on other dimensions. Pushing the Swissy back up in value has already helped cause the Austrian situation. It’s also left the Gnomes looking for revenge. Don’t ever, ever mess with the Swiss or the Jews.
g. The very fact that the perceived value of gold is being destroyed with accelerating persistence means we have to ask the question, “Why would anyone want gold to be cheap?” In a confused and totally abnormal environment where you’d expect folks to be hoovering it up, the folks who would have done that very thing are being persuaded that it’s not safe…that gold is dead for eternity as a safe place for your increasingly worthless fiat money.
So who are the directionalisers, and why are they doing it? I think it’s a combination of Western central banks wanting gold ready to distribute among ‘ordinary’ banks, and then suddenly revaluing the stuff…to stop bank failures once the crash comes. But in the ‘war’ against Russia’s oil exporting business, the move is counter-productive: Putin is gleefully amassing all the bullion he can get hold of. Either way, the move is not happening for the good of investing humanity – QE and Zirp proved that. It means some VIPs want their arses saved. Which can’t be good news for the rest of us.
I wrote five days ago that gold through $1160 and testing $1150 would be a very bearish signal. It tested the second level yesterday, but has rallied overnight. When the NYSE opens, we’ll see what’s what.
h. Falling oil prices in the pursuit of geopolitical ends would be great if there was consumer demand for the manufacturers using it to make products. But there isn’t. So the glut-price plummet vicious cycle will continue to the bottom. The point here is that oilcos will cease exploration, see profits slashed, and watch their share prices falling…and that creates nerves. In reality, manipulating an already falling energy form further down to the sewers is almost like doing anti-QE: it makes a stock market rally impossible to rationalise. It will also trigger tens of millions of Bullish derivative bets. And so we’re back to Tsunamis hitting banks, and CBs needing to grab all the gold, give it to locals, and then ban it for use as a legal trade before whacking up the price.
i. The trouble with mercantile globalism is that it is by definition a pandemic waiting to happen. Globally aligned banks are a suicidal idea, but the same applies to globally marketed products. If western consumers and their governments have no money for genuine Keynesianism or welfare help, nobody buy Chinese product. Nobody buy Chinese product gives Beijing big problem with stagnant economy and indignant glorious Chinese Worker. (As for the military consequences of this versus Japan and with Russia, I don’t want to go there).
j. When those not singing from the NATO hymn-sheet (China, Russia, South America, north Africa and perhaps even Australia or Canada….or Greece) decide they need to get new money to invest and rebuild their destroyed economies, the best weapon they will have by far is interest rates: especially when no investor anywhere on the planet can make a turn on other things any more. We’ve already seen this in Russia: the fish didn’t bite because things aren’t bad enough yet. But when the stock markets go from wobble to dive – and goldbugs say to hell with the warnings, let’s BUYBUYBUY, then we are going to see everyone in NATO having to pay more to borrow money. Be they bond yields or interbank bridging loans, rates will go up, liquidity will dry, fear will stalk Wall Street and banks will fail. As soon as gold rises and the bank failures start, the market will easily overrule the directionalisers: thus, not having cheat-metal on their balance sheets, yet more banks will fail.
US debt maintenance will go out of control, and the most likely eventuality is….yet more hyperinflation. That solves the Washington elite’s debt problem, but leaves the rest of us etc etc, see earlier. Don’t even try to calculate what derivative bets will have gone wrong by then: they’ll be like stars in a giant nebula streaming into the biggest Black Hole in the Universe.
k. The final point about wealth inequality begins to look irrelevant in such a Domesday cataclysm, but actually it isn’t. Because once everything is levelled and smouldering, two things will happen. One, enough enlightened people will abandon neoliberal claptrap and say, “Right, let’s forget all the promises of jam tomorrow, scale down everything to a manageable level, and switch the emphasis from the f**king rich model to the mutualist consumption alternative”. And two, at some stage either before or after that, the nothing-to-lose poor will suggest eating the rich. There will be no shortage of opportunistic pols offering to effect that outcome. Whether that can be done peacefully is anyone’s guess; clearly you can’t eat people peacefully, but then the victims in this case might represent an overdue cleansing of the gene-pool.
I jest, of course. But no oligarchy in history (except oddly, the latter-day British Empire) ever voted to abolish itself. And even in that case, American arm-twisting and huge management costs were probably bigger factors than Socialist idealism.
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I’m not saying this analogy really works for sure, but the contemporary Greece/Troika2 struggle could be regarded as an early sign of the coming end of neoliberal self-serving sanctimony. My point in writing this essay, however, is partly to put the Greek debt into some kind of sane perspective. People at my end of Europe constantly parrot the “we most not encourage default” line. But it is based on self-interest among the few, and ignorance among the many. To outline why the ignorance should be addressed and the Establishment lies revealed, I shall close with these points:
* Greek debt is a tiny speck of dust in the coming sandstorm: better to have it out of the way and Greece functioning as a proper economy again rather than waste time on such a trivial issue. Any other approach, frankly, would be pure spite. With which, of course, Wolfie Wheelchair is suffused.
* Only by clearing out the seriously nasty cabal in Spain and the UK can some impetus be given to ditching the elite in favour of a more Benthamite approach: such would mean Spain defaulting eventually, and Britain seceding from the Union. The destruction of the euro and the EU are must-haves in that process.
* The Greek debt was run up as a result of mad Wall Street and ECB lending policies, greedy elite borrowing, oligarchic corruption on a grand scale, and fraud used by Goldman Sachs to keep Brussels in the dark. Not a penny of it was borrowed by the ordinary Greek citizen. We should not starve the People as a solution: we need to destroy the US elite and its Wall Street drivers who were behind a great deal of it.
* Finally – and for the last time – no cost whatsoever to the ECB, other central banks or any EU citizen is going to emerge from Greek default: the only effect will be a positive epidemiology in favour of reform to hand power back to the taxpayer.
Also connected from Yesterday’s Slog: The Troika myths debunked
The Slog 