Birth Pangs Of The Coming Great Depression

The signs of the times are everywhere – all you have to do is open up your eyes and look at them.  When a pregnant woman first goes into labor, the birth pangs are usually fairly moderate and are not that close together.  But as the time for delivery approaches, they become much more frequent and much more intense.  Economically, what we are experiencing right now are birth pangs of the coming Great Depression.  As we get closer to the crisis that is looming on the horizon, they will become even more powerful.  This week, we learned that the Baltic Dry Index has fallen to the lowest level that we have seen in 29 years.  The Baltic Dry Index also crashed during the financial collapse of 2008, but right now it is already lower than it was at any point during the last financial crisis.  In addition, “Dr. Copper” and other industrial commodities continue to plunge.  This almost always happens before we enter an economic downturn.  Meanwhile, as I mentioned the other day, orders for durable goods are declining.  This is also a traditional indicator that a recession is approaching.  The warning signs are there – we just have to be open to what they are telling us.

And of course there are so many more parallels between past economic downturns and what is happening right now.

For example, volatility has returned to the markets in a big way.  On Tuesday the Dow was down about 300 points, on Wednesday it was down another couple hundred points, and then on Thursday it was up a couple hundred points.

This is precisely how markets behave just before they crash.  When markets are calm, they tend to go up.  When markets get really choppy and start behaving erratically, that tells us that a big move down is usually coming.

At the same time, almost every major global currency is imploding.  For much more on this, see the amazing charts in this article.

In particular, I am greatly concerned about the collapse of the euro.  The Swiss would not have decoupled their currency from the euro if it was healthy.  And political events in Greece are certainly not going to help things either.  Economic conditions across Europe just continue to get worse, and the future of the eurozone itself is very much in doubt at this point.  And if the eurozone does break up, a European economic depression is almost virtually assured – at least in the short term.

And I haven’t even mentioned the oil crash yet.

There is only one other time in all of history when the price of oil collapsed by more than 60 dollars, and that was just prior to the horrific financial crisis of 2008.

Since the last financial crisis, the oil industry has been a huge source for job growth in this country.  The following is an excerpt from a recent CNN article…

The oil sector has added over a half million jobs — many of them high paying — since the recession ended in June 2009. That’s 13% of all US job growth over that period. 

Now energy companies and related sectors are laying off thousands. Expect that trend to continue, bears say.

But losing good jobs is just the tip of the iceberg of this oil crisis.

At this point, the price of oil has already dropped to a catastrophically low level.  The longer it stays at this level, the more damage that it is going to do.  If the price of oil stays at this level for all of 2015, we are going to have a complete and total financial nightmare on our hands…

For the first time in 18 years, oil exporters are pulling liquidity out of world markets rather than putting money in. The world is now fast approaching a world reserve currency shift. If we see 8 to 12 months at these oil prices; U.S. shale industry will be wiped out. The effect on junk bonds will cascade to the rest of the stock market and U.S. economy. 

…and this time there will be nothing left to catch the falling knife before it hits the American economy right in the heart. Not the FED nor the U.S. government can stop what’s coming. Liquidity will freeze up, our credit will be downgraded, the stock market will start to collapse, and then we can expect the FED to come in and hyper-inflate the dollar. This will cause the world to finish abandoning the world reserve currency in the last rungs of trade. This will be the end of the petrodollar.

Something that I have not discussed so far this year is the looming crisis in emerging market debt.

As economic problems spread around the world, a number of “emerging markets” are in danger of having their debt downgraded.  And many investment funds have rules that prohibit them from holding any debt that is not “investment grade”.  Therefore, we could potentially see some of these giant funds dumping massive amounts of emerging market debt if downgrades happen.

This is a really big deal.  As a Business Insider article recently detailed, we could be talking about hundreds of billions of dollars…

Russia this week became the first of the major economies to lose its investment grade status from Standard & Poor’s, falling out off the top ratings category for credits deemed to have a low risk of default for the first time in a decade. 

If Moody’s and Fitch follow, conservative investors barred from owning junk securities must sell their holdings. JPMorgan estimates this means they may ditch $6 billion in Russian government rouble and dollar debt. 

Russia may have company. Almost $260 billion worth of sovereign and corporate bonds – nearly a tenth of outstanding emerging market (EM) debt – is in danger of being relegated to junk, according to David Spegel, head of emerging debt at BNP Paribas, who calls such credits “falling angels”.

And no article of this nature would be complete without mentioning derivatives.

I could not possibly overemphasize the danger that the 700 trillion dollar derivatives bubble poses to the global financial system.

As we enter the coming Great Depression, derivatives are going to play a starring role.  Wall Street has been pumped full of funny money by global central banks, and our financial markets have been transformed into the greatest casino in the history of the world.  When this house of cards comes crashing down, and it will, it is going to be a financial disaster unlike anything that the planet has ever seen.

And yes, global central banks are very much responsible for setting the stage for what we are about to experience.

I really like the way that David Stockman put it the other day…

The global financial system is literally booby-trapped with accidents waiting to happen owing to six consecutive years of massive money printing by nearly every central bank in the world. 

Over that span, the collective balance sheet of the major central banks has soared by nearly $11 trillion, meaning that honest price discovery has been virtually destroyed. This massive “bid” for existing financial assets based on credit confected from thin air drove long-term bond yields to rock bottom levels not seen in 600 years since the Black Plague; and pinned money market costs at zero—-for 73 months running. 

What is the consequence of this drastic financial repression along the entire yield curve? The answer is bond prices which keep rising regardless of credit risk, inflation or taxes; and rampant carry trade speculation that can’t get out of its own way because  central banks have made the financial gamblers’ cost of goods—the “funding” cost of their trades—-essentially zero.

Of course I am not the only one warning that a new Great Depression is coming.  For instance, just consider what British hedge fund manager Crispin Odey is saying…

British hedge fund manager Crispin Odey thinks we’ve entered an economic downturn that is “likely to be remembered in a hundred years,” and central banks won’t be able to stop it. 

In his Odey Asset Management investor letter dated Dec. 31, Odey writes that the shorting opportunity “looks as great as it was in 07/09.” 

“My point is that we used all our monetary firepower to avoid the first downturn in 2007-09,” he writes, “so we are really at a dangerous point to try to counter the effects of a slowing China, falling commodities and EM incomes, and the ultimate First World Effects. This is the heart of the message. If economic activity far from picks up, but falters, then there will be a painful round of debt default.”

Even though most average citizens are completely oblivious to what is happening, many among the elite are heeding the warning signs and are feverishly getting prepared.  As Robert Johnson told a stunned audience at the World Economic Forum the other day, they are “buying airstrips and farms in places like New Zealand“.  They can see the horrifying storm forming on the horizon and they are preparing to get out while the getting is good.

It can be very frustrating to write about economics, because things in the financial world can take an extended period of time to play out.  Sadly, most people these days have extremely short attention spans.  We live in a world of iPhones, iPads, YouTube videos, Facebook updates and 48 hour news cycles.  People no longer are accustomed to thinking in long-term time frames, and if something does not happen right away we tend to get bored with it.

But the economic world is not like a game of “Angry Birds”.  Rather, it is very much like a game of chess.

And unfortunately for us, checkmate is right around the corner.

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The Surprising Consequences Of The Global Frenzy For Positive Yield

As central banks rush to depreciate their currencies and push yields into negative territory, what's becoming scarce globally is real yield in an appreciating currency. Real yield is yield adjusted for inflation/deflation: if inflation is 3% and bonds yield 2%, the real yield is negative 1%. If inflation is negative 1% (i.e. deflation), and the yield on bonds is .1%, the real yield is 1.1%.

 

What's the real yield on a bond that earns 1% annually in a currency that loses 10% against the U.S. dollar in a year? Once the foreign-exchange (FX) loss/gain is factored in, the investor lost 9% of his investment.

 

Needless to say, the real yield must include the foreign-exchange loss/gain. An investor earning 10% in a currency that's losing 20% annually against other currencies is losing 10% annually, despite the apparent healthy nominal yield.

 

An investor earning 1% in a currency that's appreciating 10% annually against other major trading currencies is earning a yield of 11%.Clearly, the nominal yield is deceptive; the real yield can only be calculated by factoring in both inflation/deflation in the issuing economy and the appreciation/depreciation in the issuing currency against major tradable currencies.

 

Now we understand why what's scarce globally is real yield in an appreciating currency: the only major trading currency that's appreciating is the U.S. dollar. Any nominal yield on bonds issued in euros or yen turns into a loss when measured in U.S. dollars. Even the Chinese renminbi, which is pegged to the U.S. dollar, has slipped against the dollar as Chinese authorities have responded to the devaluation of the Japanese yen and other Asian-exporter currencies.

 

One result of the global scarcity for real yield is high demand for U.S. Treasuries, which are denominated in U.S. dollars. High demand pushes bond yields down, effectively replacing the Fed's quantitative easing (QE) bond-buying programs, which the Fed ended last year.

 

The U.S. gets the benefits of strong demand for its bonds (i.e. low interest rates) without having to issue new money (QE).

 

Another factor is the reduced issuance of new Treasury bonds as the U.S. fiscal deficit declines. This effectively reduces supply as demand remains strong.

 

This is a self-reinforcing feedback loop: as the U.S. dollar strengthens and the U.S. fiscal deficit declines, the Fed has no need to buy Treasury bonds (with freshly issued money) to keep interest rates low. Since the U.S. central bank isn't issuing new money while every other major central bank is printing massive amounts of new money to depreciate their currencies, this pushes the U.S. dollar even higher.

 

And as the dollar soars, so does the real yield on bonds denominated in dollars. That may not surprise everyone, but few can support a claim of predicting this a few years ago.

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How Wall Street Killed Entrepreneurs

Since it conflicts with Americans’ widely-held image of self-reliance, the fact that new business creation has fallen to the point that even Hungary has a higher rate of starting new ventures than the US hasn’t gotten the attention it warrants in the mainstream media.

Unfortunately, many of the explanations for why that happened are more than a bit off.
The original report came in Gallup last week. Key section:

The U.S. now ranks not first, not second, not third, but 12th among developed nations in terms of business startup activity. Countries such as Hungary, Denmark, Finland, New Zealand, Sweden, Israel and Italy all have higher startup rates than America does. 

We are behind in starting new firms per capita, and this is our single most serious economic problem. Yet it seems like a secret. You never see it mentioned in the media, nor hear from a politician that, for the first time in 35 years, American business deaths now outnumber business births.

Business startups outpaced business failures by about 100,000 per year until 2008. But in the past six years, that number suddenly reversed, and the net number of U.S. startups versus closures is minus 70,000.

This change is critically important because small and medium sized businesses are the creators of new jobs. Large corporations have in aggregate been in liquidation mode for well over a decade, net saving and net shedding employees. You can see this behavior in the regularity with which the business press reports on headcount-cutting exercises, as if they are mere cost cutting exercises, as opposed to a sign of how deeply unwilling large corporations are to invest in their workers and their futures.

Notice how the change dates to the crisis? This is no accident. While correlation is no proof of causation in and of itself, it’s not hard to fill in causal drivers.

The Gallup article lays on thick the mythology of American entrepreneurship, as if its some sort of value or character attribute we are losing, like the old Roman virtue, and that it rests on “innovation”. The problem is that the cultural hype is based on high-flying, often venture-capital funded startups. Worse, not just journalists but also even academics have fixated on venture-capital backed young companies, even though they account for only 1% of total new ventures in most years and only 25% of the Inc. Magazine 500 roster of most successful high-growth companies.

So what about the understudied overwhelming majority of startups that are the real job engine of America? What are they like?

In his landmark study, The Origin and Evolution of New Ventures, Amar Bhide found that the most common path for successful entrepreneurs was that they had worked for large, established industry players and noticed a market niche that wasn’t served well. The most common way these new businesses were funded were savings, borrowing from friends and family, and credit cards.

Now if you think for a bit about what has been happening in our economy, and in the business world overall, you can see how the impact of the crisis and its aftermath would lead anyone with an operating brain cell to be cautious about hanging out their own shingle.

First, a classic balance sheet recession means a slow and weak recovery, as we have seen all to well. Coddling Wall Street has exacted a high toll on Main Street, and the players at risk like small business most of all. Only recently have small businessmen expressed a decent level of optimism about the economy and hiring. But even with that, there are a lot of headwinds, such as a questionable outlook for retail, which is one of the most popular targets for new ventures.

Second is that a lot of people had their savings depleted or wiped out during the crisis due to job losses or hours cutbacks. And older people who have some capital are still facing a low interest rate environment, and questionable prospects for capital gains. While that may make some more willing to take a flier, many people respond instead by working to save even more (if they are still working), trying to find not horribly risky income producing assets, and being careful about risk taking. In general, when times are robust, most investors have higher risk tolerances than when times are bad or uncertain. So the savings and friends and family route for getting funding also is not what it used to be.

Third is that credit card companies slashed credit lines during the crisis, felling a lot of ventures that relied on seasonal credit. And two important small business credit card lenders have exited the business or cut back on their offerings. Advanta failed, and American Express, which used to offer a suite of small business funding products, such as a capital lines, has eliminated some of its products and has become more stringent on how much credit it provides on its business card products.

There is an additional development which is longer term and was exacerbated by the crisis, which is short job tenures. It’s hard to get enough insight about customer behavior and what it might take to compete with or sidestep industry incumbents if you don’t spend enough time at a company to understand its operations and processes. Related to that is that many companies now make workers sign highly restrictive non-compete agreements as a condition of employment, making it hard for them not just to join other companies but go out on their own.

So while Wall Street isn’t the sole perp in the decline of American entrepreneurship, it is still a leading perp. And that’s why it is important not to give up on the effort to cut our hypertrophied finance sector down to size.

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The Shemitah: The Biblical Pattern Which Indicates That A Financial Collapse May Be Coming In 2015

Does a mystery that is 3,500 years old hold the key to what is going to happen to global financial markets in 2015?  Could it be possible that the timing of major financial crashes is not just a matter of coincidence?  In previous articles on my website, I have discussed some of the major economic and financial cycle theories and their proponents.  For example, in an article entitled “If Economic Cycle Theorists Are Correct, 2015 To 2020 Will Be Pure Hell For The United States“, I examined a number of economic cycle theories that seem to indicate that the second half of this decade is going to be a nightmare economically.  But the cycle that I am going to discuss in this article is a lot more controversial than any of those.  In his most recent book, Jonathan Cahn has demonstrated that almost all of the major financial crashes in U.S. history are very closely tied to a seven year pattern that we find in the Bible known as “the Shemitah”.  Since that book was released, I have been asked about this repeatedly during radio appearances.  So in this article I am going to attempt to explain what the Shemitah is, and what this Biblical pattern seems to indicate may happen in 2015.  If you are an atheist, an agnostic, or are generally skeptical by nature, this article might prove quite challenging for you.  I would ask that you withhold judgment until you have examined the evidence.  When I first heard about these things, I had to go verify the facts for myself, because they are truly extraordinary.

So precisely what is “the Shemitah”?

In the Bible, the people of Israel were commanded to let the land lie fallow every seven years.  There would be no sowing and no reaping, and this is something that God took very seriously.  In fact, the failure to observe these Sabbath years was one of the main reasons cited in the Scriptures for why the Jewish people were exiled to Babylon in 586 BC.

But there was more to the Shemitah year than just letting the land lie fallow.

On the last day of the Shemitah year, the people of Israel were instructed to perform a releasing of debts.  We find the following in Deuteronomy chapter 15…

At the end of every seven years you shall grant a relinquishing of debts. This is the manner of the relinquishing: Every creditor that has loaned anything to his neighbor shall relinquish it. He shall not exact it of his neighbor, or of his brother, because it is called the Lord’s relinquishment.

This happened at the end of every seven years on Elul 29 – the day right before Rosh Hashanah on the Biblical calendar.

So what does this have to do with us today?

Well, if you go back to the last day of the Shemitah year in 2001, you will find that there was an absolutely horrifying stock market crash.

On September 17th, 2001 (which was Elul 29 on the Jewish calendar), we witnessed the greatest one day stock market crash in U.S. history up to that time.  The Dow fell an astounding 684 points, and it was a record that held for precisely seven years until the end of the next Shemitah year.

At the end of the next Shemitah year in 2008, another horrifying stock market crash took place.  On September 29th, 2008 the Dow plummeted 777 points, which still today remains the greatest one day stock market crash of all time.  It turns out that September 29th, 2008 corresponded with Elul 29 on the Jewish calendar – the precise day when the Bible calls for a releasing of debts.

So on the very last day of the last two Shemitah years, the stock market crashed so badly that it set a brand new all-time record.

And now we are in another Shemitah year.  It began last fall, and it will end next September.

Could it be possible that we will see another historic market crash?

Author Jonathan Cahn has correctly pointed out that we should never put God in a box.  Just because something has happened in the past does not mean that it will happen again.  But we should not rule anything out either.

Perhaps God is using His calendar to make a point.  Cahn believes that if we are going to see something happen, it will probably occur as the Shemitah year comes to an end…

Cahn has pointed that, according to his research, the worst of the worst usually happens at the end of the Shemitah year, not at the beginning. In fact, the last day of the year, Elul 29 on the Hebrew calendar, which will occur on Sept. 13, 2015, is the most dreaded day. 

The pattern revealed in “The Mystery of the Shemitah” is that the beginning of the Shemitah’s impact is often subtle, but leads to a dramatic climax. 

“The beginning may mark a change in direction, even a foreshadow of what will come to a crescendo at the Shemitah’s end,” he said.

And this time around, far more people are paying attention.  Back in 2001 and 2008, most Americans had absolutely no idea what a “Shemitah year” was.  But now it is being talked about on some of the most prominent alternative news websites on the Internet.  For example, the following is what Joseph Farah of WND has to say about the Shemitah year…

Farah believes the date Sept. 13, 2015 bears close watching – though he is quick to admit he has no idea what, if anything, will happen in America. 

“A clear pattern has been established,” he says. “I don’t believe it’s a coincidence what happened in America on Elul 29 in 2001 and 2008. It would be foolish to ignore the possibility that a greater judgment might be in the works – especially if America continues to move away from God and His Word.”

The Shemitah year that we are in now does end on September 13th, 2015 – and that falls on a Sunday so the markets will be closed.

But what it comes to the Shemitah, we aren’t just looking at one particular day.

And it is very interesting to note that there will also be a solar eclipse on September 13th, 2015.  Over the past century, there have only been two other times when a solar eclipse has corresponded with the end of a Shemitah year.  Those two times were in 1931 and 1987, and as Jonathan Cahn has told WND, those solar eclipses foreshadowed major financial disasters…

In 1931, a solar eclipse took place on Sept. 12 – the end of a “Shemitah” year. Eight days later, England abandoned the gold standard, setting off market crashes and bank failures around the world. It also ushered in the greatest monthlong stock market percentage crash in Wall Street history. 

In 1987, a solar eclipse took place Sept. 23 – again the end of a “Shemitah” year. Less than 30 days later came “Black Monday” the greatest percentage crash in Wall Street history. 

Is Cahn predicting doom and gloom on Sept. 13, 2015? He’s careful to avoid a prediction, saying, “In the past, this ushered in the worst collapses in Wall Street history. What will it bring this time? Again, as before, the phenomenon does not have to manifest at the next convergence. But, at the same time, and again, it is wise to take note.”

So what is going to happen this time?

We will just have to wait and see.

But without a doubt so many of the same patterns that we witnessed just prior to the financial crash of 2008 are happening again right before our very eyes.

It has been said that those that do not learn from history are doomed to repeat it.

Perhaps you believe that there is something to “the Shemitah”, or perhaps you think that it is all a bunch of nonsense.

But at least now you know what everyone is talking about.  What you choose to do with this information is up to you.

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About That "Strong Dollar" - Corporatism Speaks

There hasn’t been much of Treasury Secretary Jack Lew around the mainstream newsfeed in a long time, maybe even going back to his confirmation. However, he caused a lit bit of wrinkle by proclaiming his love for a “strong dollar” while placing it within the context of perhaps ECB criticism.

“The strong dollar, as all my predecessors have joined me in saying, is a good thing. It’s good for America. If it’s the result of a strong economy, it’s good for the U.S., it’s good for the world,” he said during an interview at the World Economic Forum in Davos, Switzerland. “If there are policies that are unfair, if there are interventions that are designed to gain an unfair advantage, that’s a different story.”

So he’s all for the “strong dollar” as a matter of actual economic progress (without wages) but not in the manner of a currency war or some other perceived financial transgression. The Japanese have been openly abetting a lower yen, but nothing much is made of that (likely because it has had the opposite effect on Japanese exports and imports). Might the timing of something like this (which will spread throughout this earnings season and those to come) explain the sudden interest in the currency:

To think that multi-national companies are not complaining to government officials at this very moment is to be fully naïve. I would not doubt, given where the Treasury Secretary is, if he hasn’t been waylaid repeatedly about “doing something” about that “strong dollar.” Unfortunately, he cannot come right out and say that corporatism despises it so the administration, like those before, would prefer it sinking like a rock. Like monetarism, the fiscal side prefers not currency stability but their own, specific brand of instability.

They talk about a “strong dollar” as something that might actually exist, but in this financially-dominated economic reality it doesn’t relate. This is why it is so easy for policymakers to say that while openly courting the opposite – better for IBM, so they believe, not to have to take such negative currency “pressure.” Secretary Lew might continue to talk about it in the same manner as his predecessors, but the dollar is not what it used to be and neither are the implications of its “strength.”

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This Is The Beginning Of The End For The Euro

The long-anticipated collapse of the euro is here. When European Central Bank president Mario Draghi unveiled an open-ended quantitative easing program worth at least 60 billion euros a month on Thursday, stocks soared but the euro plummeted like a rock.  It hit an 11 year low of $1.13, and many analysts believe that it is going much, much lower than this.  The speed at which the euro has been falling in recent months has been absolutely stunning.  Less than a year ago it was hovering near $1.40.  But since that time the crippling economic problems in southern Europe have gone from bad to worse, and no amount of money printing is going to avert the financial nightmare that is slowly unfolding right before our eyes.  Yes, there may be some temporary euphoria for a few days, but it is important to remember that reckless money printing worked for the Weimar Republic for a little while too before it turned into an utter disaster.  Now that the ECB has decided to go this route, it is essentially out of ammunition.  The only thing that it could potentially do beyond this is to print even larger quantities of money.  As the global financial crisis begins to unfold over the next couple of years, the ECB is pretty much going to be powerless to do anything about it.  Over the next couple of months, we can expect the euro to continue to head toward parity with the U.S. dollar, and eventually it is going to go to all-time lows.  Meanwhile, the future of the eurozone itself is very much in doubt.  If it does break up, the elite of Europe will probably try to put it back together in some sort of new configuration, but the damage will already have been done.

Over the next 18 months, the European Central bank will create more than a trillion euros out of thin air and will use that money to buy debt.  The following is how this new QE program for Europe was described by the Telegraph…

“The combined monthly purchases of public and private sector securities will amount to €60bn euros,” said Mr Draghi at a press conference following a meeting of the ECB’s governing council. 

“They are intended to be carried out until end-September 2016 and will in any case be conducted until we see a sustained adjustment in the path of inflation,” he added, meaning the package will amount to at least €1.1 trillion. 

Mr Draghi’s package of asset purchases, including bonds issued by national governments and EU institutions such as the European Commission, is intended to boost the eurozone’s flagging economy and to ward off the spectre of deflation.

When you print more money, you drive down the value of your currency.  And the euro has already been crashing for months as you can see from the chart below…

As I write this, the euro is down to $1.13.  And most analysts seem to agree that it is likely heading even lower.

How low could it ultimately go?

One prominent currency strategist recently told CNBC that he believes that it is actually heading beneath parity with the U.S. dollar…

The euro plunged to an 11-year low on Thursday, after the European Central Bank announced that it would begin a 60-euro monthly asset purchasing program. But it could still have a ways to fall. 

Brown Brothers Harriman global head of currency strategy Marc Chandler predicts that the euro, which fell as low as 1.1362 on Thursday after trading near 1.4000 in May, is heading below 1.0. That widely watched level is the point at which it will just take a single U.S. dollar to purchase a euro, a condition known in the currency markets as “parity.”

I totally agree with Chandler.

In fact, I believe that the euro is ultimately going to break the all-time record low against the dollar.

I also believe that the current configuration of the eurozone is eventually going to fall to pieces.  The euro may survive as a currency, but Europe is ultimately going to look a whole lot different than it does right now.

In fact, we could see things start to come apart for the eurozone as soon as Sunday.  If Syriza wins a decisive victory in the upcoming Greek elections, it could create all sorts of chaos…

The polls put Alexis Tsipras and Syriza ahead of the ruling New Democracy party of Greek Prime Minister Antonis Samaras. 

Tsipras has vowed to convince the ECB and euro zone to write down the value of their Greek debt holdings to allow him to increase public spending and stimulate job growth. 

“There is a good chance they could win, and if they begin moving away from fiscal austerity, other members of the EU are going to say: ‘No more lending, no more life support.’ On Monday morning you’ll know,” De Clue said.

But of course Europe is far from alone.  Financial problems are erupting all over the planet, and central banks are getting desperate.

Over the past week, seven major central banks have made moves to fight deflation.  But the more that they cut interest rates and print money, the less effect that it has.  And eventually, the people of the world are going to seriously lose confidence in these central banks as they realize what a sham the system really is.

I think that these recent words from Marc Faber are very wise…

“My belief is that the big surprise this year is that investor confidence in central banks collapses. And when that happens — I can’t short central banks, although I’d really like to, and the only way to short them is to go long gold, silver and platinum,” he said. “That’s the only way. That’s something I will do.”

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Benchmarking the ECB’s QE Program

German opposition to government-bond purchases by the European Central Bank is solidifying ahead of the programme’s likely announcement on January 22. Elections in Greece that could bring a government that will seek to negotiate the country’s debt with official creditors puts the ECB’s decision under even greater scrutiny. The fact that the ECB did not share losses in the previous round of Greek debt restructuring highlights the problem of sovereign QE, which is not feasible or will be ineffective if fiscal implications are excluded. The design of the programme is therefore crucial.

ECB is falling far short of fulfilling its mandate of keeping inflation below but close to 2%

With the euro-area inflation rate at minus 0,2% and an increasing de-anchoring of inflation expectations, the ECB is falling far short of fulfilling its mandate of keeping inflation below but close to 2%. Many German economists and politicians downplay this failure by trying to re-define price stability as an inflation rate above zero. This is wrong for a number of reasons. A third of the sectors in the euro area, including in Germany, is in deflation. Low inflation is harmful because it makes price adjustment harder, undermines investment and renders debt service more difficult.

Monetary policy alone cannot fix all the problems of low growth and low inflation as many Germans rightly point out. Significant structural reforms and investment to stimulate higher demand will pay off rather quickly. A strong commitment to such reforms is essential for exiting the crisis. Nevertheless, the ECB should not and cannot hide behind slow government progress on reform, but should instead fulfill its mandate.

The more and longer that inflation expectations remain unanchored, the harder it will become for the ECB to regain credibility

The reason for the growing German opposition to a sovereign QE programme is the fear that it could result in illicit monetary financing of governments. A QE programme would have to be combined with an implicit understanding that the ECB accepts losses on the same terms as private creditors in case of a debt restructuring. Otherwise, the purchase of low-rated government debt would be largely ineffective and could even lead to an increase in sovereign yields.The ECB has four options.

The first is to wait and hope for the best. This is the preferred strategy of many Germans, but would be dangerous and irresponsible. The more and longer that inflation expectations remain unanchored, the harder it will become for the ECB to regain credibility and achieve price stability, and the higher will be the real economic costs for the euro area and for Germany.

The second option would be to allocate the potential losses from purchases to the individual national central banks in the euro area. This might sound like an attractive option, but would be counter-productive by increasing sovereign spreads and worsening financial fragmentation within the euro area. And it would send a devastating signal that the single monetary policy would be single in name only.

The third option is to focus government bond purchases on highly rated debt only to limit the balance sheet risks to the ECB. This strategy could succeed, but the ECB would have to buy large amounts of already low-yielding, “safer” euro area sovereign debt and hope that private investors subsequently rebalance their portfolios towards riskier euro-area countries.

The fourth option– while accepting that the founding fathers of the euro might not have foreseen that monetary policy has to accept some fiscal risks – would be for the ECB to purchase sovereign debt according to the capital key of individual euro-area countries, with adjustments for those without sufficient amounts of privately held sovereign debt. The Treaty does not prohibit such purchases in secondary bond markets. The ECB’s governing council has expressed its intention to expand the balance sheet by €1 trillion. As this will hardly be possible with private sector assets only, the ECB could buy a portfolio of government debt combined with a portfolio of private debt.

The ECB needs to urgently show its uncompromising determination to fulfil its mandate and repair monetary transmission in the euro area.

The ECB needs to urgently show its uncompromising determination to fulfil its mandate and repair monetary transmission in the euro area. Accepting some fiscal risks is reasonable and unavoidable. The fourth option is the most promising strategy for the ECB to raise inflation expectations credibly and durably, avoid stagnation and help end the debt crisis. It is a risky strategy, but the other strategies are riskier.

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11 Facts That Won't Be In Tonight's State Of The Union

When President Obama ascends to the podium this evening to deliver his State of the Union address, he’ll undoubtedly shine a spotlight on the many strengths of America.

And to be fair, he’s right: the United States has a lot going for it.

Cheap energy, rapid innovation, quality universities, reasonably low crime rates, abundance of arable land, highly productive culture, etc.

The real issue, however, isn’t where the United States is today. The problem is where it’s going. And quickly.

• Today’s young Americans, for example, are the first generation to be poorer than their parents.
   
• They will also pay all their lives into a retirement system that won’t be there for them when they get there.
   
• Young Americans indebt themselves more than anyone else on the planet to attend university, requiring them to spend a large part of their careers paying off debt.
   
• Americans of all ages are earning less than they did two decades ago when adjusted for inflation. Yet they’re paying more in taxes.
   
• And US taxation is an increasing burden not only in quantity but complexity.
  According to the IRS itself, “tax requirements have become so confusing and the compliance burden so great that taxpayers are giving up the US citizenship in record numbers.”
   
• But despite record levels of tax collection, the national debt keeps increasing. It now stands at more than $18 trillion, well over 100% of GDP.
   
• In fact over 14% of all federal tax revenue collected goes to pay interest on the debt. Another 20% goes towards destruction, war, bombs, drones, and spying.
   
• They also create roughly 200 pages of new rules and regulations every single day. These rules govern something as sacred as what you can/cannot put in your own body, or often make it more difficult to do business.
   
• Many of these regulations carry severe civil and criminal penalties; this is why the rate of civil asset forfeiture is skyrocketing, and why America leads the world in the number of people incarcerated.
   
• More people rot away in US prisons than did in the Soviet gulag at the height of communism. And many Americans are serving hard times for victimless crimes of failing to abide by some obscure regulation.
   
• In total, there were 79,066 pages of new regulation passed last year, with a total regulatory cost of $181.5 billion (based on the government’s own estimate).
   

Years of such absurd mismanagement and arrogance (FATCA, endless wars) are causing the US dollar to lose its clear dominance as the world’s currency of choice.

This will have enormous consequences for the US and Americans’ standard of living.

It won’t happen overnight, but the consequences are already unfolding. The train has left the station.

That’s precisely the point. It’s not where you are today, it’s where you’re going. And the trend is pretty obvious for anyone paying attention.

We know deep down that there are consequences to waging endless wars.

There are consequences to racking up $18 trillion in debt.

There are consequences to treating people like milk cows and regulating every aspect of their existence.

There are consequences to awarding total control of the money supply to an unelected central banking elite.

And the primary consequence is this: despite the enviable number of Starbucks and iPads per capita, Americans are working harder to make ends meet, and are far less free, than they used to be.

That’s not progress. It’s precisely the opposite (which I suppose is congress). And we haven’t even scratched the surface.

Government debt grows every year, far outpacing GDP growth.

And thanks to this debt, plus all the wars, terrorizing of foreign banks, excessive money printing, spying, etc. America is rapidly losing its goodwill in the world.

The real consequences are not apparent yet. They’ll come when the dollar loses a substantial share of its global reserve status.

Make no mistake– it’s possible that could only be a few years away.

And despite all the obvious warning signs that we’ve been seeing for years, it’s going to catch most people with their pants down.

The truth is that you cannot fix your bankrupt government. But you can make a conscious decision to reduce your exposure to what’s obviously a failed system.

Standing in the street with signs and leaflets trying to raise awareness is a noble endeavor, sure. But it’s not going to change the system. It won’t make you more free.

Going to the voting booth is what we’re programmed to do, yes. But casting your ballot isn’t going to safeguard what you’ve worked for your entire life to build.

These are steps that you can take yourself.

You can choose, for example, to move your savings from a highly illiquid domestic bank to a new bank offshore that is objectively ten times safer, and pays forty times more interest on your savings.

You can begin using international structures to protect your assets and minimize your tax burden– legally slashing what you are currently forced to contribute in order to fund their wars and illegal spying.

You can look into establishing an alternative residency, so that if things get so bad that you need to leave, you’ll already be set up. You might even want to explore investing and doing business in thriving places around the world.

These solutions all make sense no matter what happens.

Even if you don’t agree with my assessment of the State of the Union, you’re not going to be worse off if you take some basic precautions and hedge your bets.

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Is the TransPacific Partnership Being Brought Back From the Dead?

With a new Republican Congress, and Obama himself a Republican who occasionally wears Democratic clothing, the Administration is making noise that the TransPacific Partnership and its ugly sister, the Transatlantic Trade and Investment Partnership, are moving forward in a serious way.

But the Administration tried that sort of messaging last year to keep up a sense of inevitability about these regulation-gutting, mislabeleed trade deals, when reality was very different. Democrats, joined by a not-trivial block of Republicans, revolted due to the unheard levels of secrecy being maintained around the deal (for instance, the Administration refused to provide current versions of draft language) as well as, for many of them, what they had inferred about the content.

Needless to say, the Republican majorities may well change that dynamic. But what about the considerable opposition for the TransPacific Partnership’s hoped-for foreign signatories, particularly Japan? You’d think the negotiations were full steam ahead based on a Japan Times article last week, Japan, U.S. target reaching broad TPP agreement at March meet. Key sections:

Japan and the United States have agreed that 12 countries discussing a Trans-Pacific Partnership free trade deal should hold a ministerial meeting in the first half of March to reach a broad agreement, informed sources said on Friday… 

Japanese and U.S. officials signaled that the two sides narrowed gaps over auto trade, during the latest Tokyo session. Deputy chief TPP negotiator Hiroshi Oe said he strongly feels that the United States is serious about concluding talks successfully. 

But Japan and the United States remain apart over farm trade. Elsewhere in the broader TPP talks, the United States and emerging market economies such as Malaysia are in dispute over intellectual property protection.

Yves here. If you read the text closely, there is less here than meets the eye. The two sides have agreed to talk again. And Oe’s remark is wonderfully ambiguous. It’s only about US eagerness, not about where the Japanese are.

We decided to check in with NC’s man in Tokyo, Clive. His report:

There’s been some on-and-off speculation in the Japanese press about what U.S. lawmakers in the post-midterms Congress could or couldn’t do, might or mightn’t do, how it does change the prospects for TransPacific Partnership, how it leaves things much as they were… and so on. As you’d expect with speculation on that subject, you never get any definitive conclusions. But once in a while you get pieces like the Japan Times’ one rehashing the “U.S. really wants to conclude a deal very soon” line – but without saying why the long-standing areas of disagreement might magically be resolved. 

And for each vaguely encouraging article which is in the JP media, you get several ones like this from last Friday’s Mainichi newspaper which is representative of a now increasingly downbeat set of reports appearing. The headline reads “TPP: For an Agreement, the US is ‘Really Serious’… Furthermore Japan Shares a Sense of Impending Crisis” which sets the negative tone for what is drawn out in the remainder. The feature goes on to explain that the well understood areas of disagreement between the U.S. and Japan in the TPP negotiations such as agriculture remain unresolved and quotes Japanese negotiators again trotting out the familiar phrases saying that “more serious problems remain, there is still considerable [negotiating] work to do”. 

Once you go outside of Japan’s MSM (where verifiable facts get, um, a bit thinner on the ground – but of course that can often be where the real stories can be found!) the TPP negotiations are being reported as being in an even more dire impasse. The Iza news blog – amongst many others – had this from late December last year which is credited to the Sankei newspaper (a reasonably respectable outlet) which then dropped the story and is no longer listed in its online archive, but it was still carried extensively in the news aggregator sites. The article says that Japan’s chief negotiator Amari reportedly shouted at USTR Froman “Japan isn’t a vassal state of the U.S.!” (which I’d also translate as “Japan isn’t a U.S. colony”) with the December TPP negotiation meeting turning into a right old slanging match – real handbags at dawn stuff. Some very unkind things were apparently said about Froman and his “negotiating” “skills”. 

I’d say that the Japan Times story is more an attempt by official channels (either in the U.S. or Japan – or perhaps both) at damage limitation to counter the increasingly dire stories leaking out about the level that the TransPacific Partnership negotiations have sunk to than anything to be taken too seriously.

Even though the degree to which Froman has overplayed his hand is turning out to be a huge benefit to US citizens, relying on his continued ineptitude is still taking a risk. When you have time, please call or write your Representative and Senators and tell them how you and people you know are clued into how terrible the TransPacific Partnership is. Remind them it will be used to weaken banking regulations and you don’t want them to be approving pro-bailout policies by supporting the TTP and the TTIP. 

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ECB Stimulation: The Trap Closes

European Economy ... No More Excuses for Draghi ... For months, European Central Bank President Mario Draghi has hinted that he's ready to announce a full-blown program of quantitative easing. [Now] the EU Court of Justice's advocate general cleared away a possible legal obstacle. With prices in the euro area now falling, any further delay would be inexcusable. The euro zone has gone from bad to worse, and it is dragging the world economy down with it. The World Bank just slashed its 2015 growth forecast for the euro area to 1.1 percent, down from June's estimate of 1.8 percent. The forecast for global growth was cut to 3 percent from 3.4 percent. Europe's economies desperately need an injection of demand, and the ECB can deliver that with QE. – Bloomberg

Dominant Social Theme: Only the European Central Bank can save us now.

Free Market Analysis: So now it begins. Last week the EU Court of Justice advocate general ruled that the central bank could purchase sovereign debt.

One by one, the hurdles are toppling and the reality of ECB market purchases grows closer. Of course, last year the German constitutional court ruled – understandably – that such purchases are NOT constitutional. This is setting up a significantly adversarial environment and one wonders how it will end.

According to Bloomberg editors who penned the above editorial, the "end" should come quickly with Draghi implementing a quasi-QE as fast as possible. There is apparently no time to waste.
Here's more:

Legal finding said that ECB purchases of sovereign debt are permissible. It referred to an existing ECB program called Outright Monetary Transactions -- which isn't quite QE but which does involve purchases of government bonds. The court won't rule for another four to six months, but it's likely to follow the advocate general's guidance. That's good enough for Draghi to act now.

Many in Europe, especially in Germany, remain opposed. They see QE as a ruse by which the richer members of the currency bloc will end up paying for the fiscal misadventures of their neighbors. They point out that Europe's single-currency treaty forbids "monetary financing of the member states." Hans-Werner Sinn, head of Germany's highly regarded Ifo economic institute, this week accused the ECB of scaremongering about deflation to justify bailing out the weaker economies.

These reservations are understandable, but when the treaty was drawn up, nobody envisioned a recession as severe as the one Europe now finds itself trapped in. This is an economic emergency, and exceptional measures are needed. The U.S. Federal Reserve has shown that QE can provide needed monetary stimulus when interest rates cannot be cut any further. No plausible alternative presents itself.

The new legal finding isn't as permissive as it should have been. It opposes bond buying in the so-called primary market, restricting the program to secondary-market purchases of existing securities. That's a pity, because it narrows the ECB's options. The finding, again needlessly, warns about price distortions resulting from the ECB's holding on to bonds until they mature. But its main point -- that monetary policy should be for the ECB rather than the courts to design -- is wise.

Above, we read what we have already explained numerous times: That emergency situations inevitably expand government power. In the West, the constant expansion of government power has been achieved by creating environments that are essentially unbalanced and will fall into crisis sooner or later.

Here's Mario Prodi explaining the plan to Euronews back in 2012.

Prodi: "Well, the difficult moments were predictable. When we created the euro, my objection, as an economist (and I talked about it with Kohl and with all the heads of government) was: how can we have a common currency without shared financial, economical and political pillars? The wise answer was: for the moment we've made this leap forward. The rest will follow ... Then instead came the Europe of fear: fear of China, fear of immigrants, fear of globalisation. So it was clear that this crisis would arrive. But the euro is so important, it's so convenient for everyone — especially Germany — that I've no doubt that the euro won't just survive, but it will be one of the landmarks for the world economy." – Euronews

EU's Prodi Admits Leaders Knew Euro Would Cause Ruin but Hoped Political Union Would Follow \

Prodi says that once a common currency was installed, "the rest will follow." And he follows up by saying, "It was clear this crisis would arrive."

Now we have Bloomberg triggering the very events that Prodi anticipated. "This is an economic emergency and exceptional measures are needed," write the Bloomberg editors.

And then there is this statement, above: "When the treaty was drawn up, nobody envisioned a recession as severe as the one Europe now finds itself trapped in." These editors obviously don't read Euronews. Prodi says bluntly three years ago, "It was clear that this crisis would arrive."

This is the kind of directed history that we often write about. But rarely do we have the chance to compare mainstream rhetoric as the media seeks to implement yet more economic globalism.

Internationalism advances regularly. But the power to interfere directly with markets throughout the EU is a really big step forward.

Throughout most of the 20th century, the idea that European countries would not have their own currencies would have been considered absurd. And the idea that a single central bank would have the ability to further distort markets and interest rates by buying and selling fixed income instruments would have been seen as questionable if not more so.

Yet that is what is happening. Bloomberg writes, "There's a risk that, despite this green light, the ECB will still act too cautiously ... The next ECB meeting is on Jan. 22. Markets expect Draghi to act. Anything short of an open-ended commitment to buy government debt in impressive quantities will disappoint investors and worsen the euro area's plight."

Who are these investors? Central banks have been doing a terrible job in stimulating economies since the Crisis of 2008. Why would investors believe that doing more of the same will create the prosperity that has so far eluded bank strategists?

This presents us with an ideal VESTS paradigm to consider. On the one hand we have elitist institutions promoting economic solutions that further concentrate financial power and have proven dysfunctional in the past. On the other hand, we have investors involved in a variety of instruments, commodities and physical holdings who will have to evaluate the success of elite formulations.

Those with interests in Europe or around the world will watch this latest stimulation closely, recalling that even failure will likely be treated as a success. There will be ramifications no matter what occurs.

Conclusion: 
It is an open question as to whether established interests will be able to maintain these programs and the rhetoric surrounding them. If control slips unexpectedly away, the results could be powerful and chaotic indeed.

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Why Our Central Planners Are Breeding Failure

Success, we’re constantly told, breeds success. And success breeds stability. The way to avoid failure is to copy successful people and strategies. The way to continue succeeding is to do more of what has been successful.

This line of thinking is so intuitively compelling that we wonder what other basis for success can there be other than 'success'?

As counter-intuitive as it may sound, success rather reliably leads to failure and destabilization. Instead, it’s the close study of failure and the role of luck that leads to success.

In the macro-economic arena, I think it highly likely that the monetary and fiscal policies of the past six years that are conventionally viewed as successful will lead to spectacular political and financial failures in 2015 and 2016.

How can success breed failure?  It turns out there are a number of dynamics at work.

Survivorship Bias

Survivorship Bias is the natural tendency to look at the survivors for the keys to success rather than to examine those who didn’t survive, many of which disappear without a trace. If 100 restaurants are founded and five of the new eateries achieve rip-roaring success, business schools usually study the decisions and strategies of the five survivors, not the 95 failures which closed their doors and left no trail of decisions and strategies to study.

As David McRaney observes in his excellent account of survivorship bias, by focusing solely on survivors rather than those who failed, the causes of failure become invisible. And if the causes of failure are invisible, the critical factors that determine success also become invisible.

Even worse, we draw faulty conclusions from the decisions of the survivors, as we naturally assume their decisions led to success, when the success might have been the result of luck or a confluence of factors that cannot be reasonably duplicated.

We are often reassured by the financially successful that perseverance and the willingness to accept risk are the key factors in success.  But as McRaney explains, this is the equivalent of asking the one actor from a rural state who achieved Hollywood stardom for the key factors of his success, on the assumption that anyone else following the same path will reach stardom.

But magazines never track down the 100 other aspiring actors from the same region who went to Hollywood and persevered and took risks but who failed to become stars. 

Examining the few hundred miners who succeeded in finding enough gold in the Klondike in 1898 and returning with enough of their newfound wealth to make a difference in their life prospects while ignoring the experiences and decisions of the 100,000 who set off for the gold fields and the 30,000 who reached the Klondike but who returned home penniless (if they survived the harsh conditions) will yield a variety of false conclusions, for luck is never introduced as the deciding factor.

The narrative that success breeds success has no role for luck, which is by definition semi-random and therefore uncorrelated to the stratagems of the survivors. Here is McRaney’s summary of the role of luck:

In short, the advice business is a monopoly run by survivors. As the psychologist Daniel Kahneman writes in his book Thinking Fast and Slow, “A stupid decision that works out well becomes a brilliant decision in hindsight.” The things a great company like Microsoft or Google or Apple did right are like the (World War II) planes with bullet holes in the wings. The companies that burned all the way to the ground after taking massive damage fade from memory. Before you emulate the history of a famous company, Kahneman says, you should imagine going back in time when that company was just getting by and ask yourself if the outcome of its decisions were in any way predictable. If not, you are probably seeing patterns in hindsight where there was only chaos in the moment. He sums it up like so, “If you group successes together and look for what makes them similar, the only real answer will be luck.”

Drawing Over-Arching Conclusions from Single Examples

A similar form of bias appears when commentators attribute China’s great developmental success to its command economy, or Silicon Valley’s enduring role as a center of innovation to America’s military-industrial-academic-research complex and the U.S. culture’s broad acceptance of risk-taking.

Who can say with certainty that another model of development might have duplicated China’s growth record but avoided the endemic corruption, environmental destruction and widening wealth inequality that are the negative consequences of the command-economy model?  No one can say, as there are no other Chinas to refer to for comparison.

If duplicating Silicon Valley were just a matter of government support of research and close ties between corporations and universities, there would be dozens of Silicon Valley rivals, as billions of dollars have been expended globally to duplicate the Silicon Valley model. But Silicon Valley remains in a class of its own.  Clearly, Northern California’s engine of innovation cannot be distilled down to a simplistic model that can be duplicated by policies and investment.

The conventional conclusion that the major central banks—the Federal Reserve, the Bank of Japan, the European Central Bank and the Bank of China—succeeded in saving the global economy from depression in 2008-09 is another example of drawing over-arching conclusions about success from single examples.

Since each nation/region is unique, any claim that the policies of any one central bank can be applied to other nations/regions with equivalent success is a highly questionable assumption.  Since there is only one European Union, Japan, China and U.S.A., there are no opportunities to test the assumption that the central bank recipe used in 2008-09 can be applied with equal success in future financial crises in these very different economies.

Previous Policies Have Changed Conditions

One reason we cannot draw over-arching conclusions about the drastic monetary policies enacted in 2008-09 is that those policies have changed the financial-political landscape. As a result, what worked in 2008-09 may not succeed in the next financial crisis because those policies only worked in the specific set of conditions of that crisis. If the conditions have changed, then the strategies that were 'successful' in the previous set of conditions will not yield the same outcome.

For example, central banks lowered interest rates to near-zero in 2008-09 to spark borrowing and refinancing of existing debt. Now that rates are still near-zero, this policy and outcome cannot be duplicated.  Lessons drawn from successes that cannot be repeated are suspect.

Previously successful policies may fail in the next crisis due to diminishing returns: for example, policies that extend credit to marginal borrowers to bring demand forward (i.e. subprime auto loans) eventually reach all but the riskiest borrowers.  Extending those policies essentially guarantees rising defaults as people with no business borrowing money are given credit to maintain consumption.

As defaults soar, lenders record losses and sales decline, as consumption was already brought forward.

Due to diminishing returns, a policy that was successful at first fails when extended.
In effect, successful policies may be time-stamped; not only do they only work in specific circumstances, they only work for a limited length of time in those specific conditions. Beyond those conditions and timeline, the supposed factors of success no longer work.

Are the Outcomes of Monetary Policies Truly Predictable?

As noted above, any policy identified as the difference between success and failure must pass a basic test: When the policy is applied, is the outcome predictable?  For example, if central banks inject liquidity and buy assets (quantitative easing) in the next financial crisis, will those policies duplicate the results seen in 2008-14?

The current set of fiscal and monetary policies pursued by central banks and states are all based on lessons drawn from the Great Depression of the 1930s. The successful (if slow and uneven) “recovery” since the 2008-09 global financial meltdown is being touted as evidence that the key determinants of success drawn from the Great Depression are still valid: the Keynesian (or neo-Keynesian) policies of massive deficit spending by central states and extreme monetary easing policies by central banks.

Are the present-day conditions identical to those of the Great Depression? If not, then how can anyone conclude that the lessons drawn from that era will be valid in an entirely different set of conditions?

We need only consider Japan’s remarkably unsuccessful 25-year pursuit of these policies to wonder if the outcomes of these sacrosanct monetary and fiscal policies are truly predictable, or whether the key determinants of macro-economic success and failure have yet to be identified.

The Seeds of Failure Are Sown in the Initial Flush of Success

Even more troubling is the possibility that these monetary policies have sown the seeds of systemic failure in their pursuit of the extremes that yielded the initial flush of success.

That this initial success might be brief and transitory rather than enduring is rarely considered.  If this is the case—and the slowing global “recovery” suggests this is indeed so—then the success of these extreme policies is illusory, and the truly key determinants of success and failure remain elusive.

In Part 2: The 6 Reasons The Next Economic Rescue Will Fail, we examine why the current unstable "recovery" must topple despite the central planners' best efforts to sustain it. They simply don't have an accurate awareness of the true situation, nor have the right tools and skills to address it -- and so, in their ignorance and fear, are pulling levers that are inconsequential (at best) or will hasten the destabilization of the system.

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