Global Meltdown of Historic Proportions & A Fork in the Road

"With continued volatility in many of the key global markets, 40 year veteran, Robert Fitzwilson wrote this exclusive piece for King World News.  Fitzwilson is founder of The Portola Group, one of the premier boutique firms in the United States.  Here are Fitzwilson’s observations:  “The Central Banks have been pursuing a very flawed strategy.  Unfortunately, full speed ahead might be the only remaining alternative.  Printing money to stimulate growth, in the face of declining/aging workforces and falling productivity, will result instead in lowering aggregate real returns for investors and exponential depreciation of fiat currencies..."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/5/9_Global_Meltdown_of_Historic_Proportions_%26_A_Fork_in_the_Road.html

German Manufacturing PMI Back in Contraction, New Orders Plunge, Price Inflation Up

"As expected (by me anyway), the Markit/BME Germany Manufacturing PMI® shows Germany is back in contraction.

Weaker new order intakes lead to deteriorating manufacturing business conditions in March.

Key Points:

• Output growth slows to only marginal pace
• Sharpest fall in new work for three months
• Cost inflation highest since July 2011..."

at  http://globaleconomicanalysis.blogspot.com/2012/04/german-manufacturing-pmi-back-in.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+MishsGlobalEconomicTrendAnalysis+%28Mish%27s+Global+Economic+Trend+Analysis%29

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Ongoing European Crisis to Result in Higher Inflation and Higher Gold Prices – Here’s Why

"On the surface things may appear to be calm, but I don’t think the European crisis is anywhere near its conclusion. Losses still have to be taken from Ireland, Spain, Portugal and possibly even Italy…There are a number of ways out of Europe’s problems. One of them is higher inflation…[which] is going to be very positive for gold… because the central banks will be under pressure to print..."

at http://www.munknee.com/2012/04/ongoing-european-crisis-to-result-in-higher-inflation-and-higher-gold-prices-heres-why/

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John Williams - Consumers Crushed & Economy Collapsed

 

"Investors have expressed confusion recently because parts of the economy are clearly collapsed, but restaurants remain packed in many areas. John Williams clears up the confusion by demonstrating that real GDP remains collapsed, and that the hype from Wall Street about a recovery is a lie. Williams, who founded ShadowStats, also illustrates, in reality, how the consumer remains “crushed.” Here is what Williams had to say about the situation: “Broad U.S. business activity remains far from being recovered, despite the ongoing GDP-reporting nonsense that shows inflation-adjusted economic activity above the peak levels that preceded the 2007 recession.”

John Williams continues:

“In an environment where politicians and Wall Street increasingly are hyping an economic recovery ... Main Street U.S.A. usually has a pretty good sense of actual business activity, irrespective of the hype out of Wall Street or Pennsylvania Avenue.

As discussed in the hyperinflation report, a major reporting problem in the system is the understatement of inflation used in deflating the economic series. The use of understated inflation in deflating data results in an overstatement of the inflation-adjusted numbers. Following are graphs that represent official reporting or that have been corrected, at least partially, for inflation understatement. These graphs are updated from the referenced hyperinflation report..."

at  http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/3/31_John_Williams_-_Consumers_Crushed_%26_Economy_Collapsed.html

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RICHARD RUSSELL: A Massive Stock Market Collapse Will Wipe Out 60 Years Of Inflation And Leveraging

"Richard Russell, writer of the Dow Theory Letters, is just looking for the right time to buy stocks.
But that time isn't now. And until that time comes, Russell will be keeping his wealth in gold.
He writes in King World News:

What I want to illustrate is that great fortunes are made at super-bear market lows. But you must have the money at the lows. Which is why gold is so singular and valuable. If you have gold at the bottom of the next bear market, you can exchange it for a collection of great common stocks or funds, and then sit back and relax.

You are then betting on the lasting power of the US. If the US comes back, you will be rich beyond your wildest dreams. But you have to have the guts to hang on to your gold. And you need patience -- the patience of ten men.

And when the time comes, things will get messy before they get good.

And I wonder -- is there a super bear market waiting for us somewhere in the future? The great ride from the end of WWII to today has never been fully corrected. Some day it will be. And impossible bargains in stocks will be lying around -- with very few willing or solvent buyers.

...My thinking is that sooner or later we will be subject to a major correction (bear market) that will wipe out or correct 60 years of inflation and leveraging. When that happens, I want to own the only kind of money that the Fed can't destroy."

at http://www.businessinsider.com/richard-russell-stock-market-collapse-2012-3#ixzz1qhiKgurq

Farage - Western World Collaborated in Giant Ponzi Scheme

“What’s happened and we’ve seen it with the ECB, in America and around the Western world, is the central banks have acted in a very concerted manner and have created a whole new, fresh load of money. 

We call it quantitative easing in the United Kingdom, others might even call it a giant Ponzi scheme. But we’ve created all of this fresh credit, and for the moment we’ve kicked the can down the road.

So we are just getting deeper and deeper into problems. Leaving our children and grandchildren with loans that could well take decades to finish (paying) off. I fear we are now stoking up the conditions, at some point in the future, for serious inflation..."

at http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2012/3/28_Farage_-_Western_World_Collaborated_in_Giant_Ponzi_Scheme.html

Financial repression: Then and now

"Rich nations worldwide have a problem with debt. In the past, such problems have been dealt with by several tactics, including 'financial repression'. This column explains how the tactic works and documents its resurgence in the wake of the global and Eurozone crises.

In light of the record or near-record levels of public and private debt, debt-reduction strategies are likely to remain at the forefront of policy discussions in most of the advanced economies for the foreseeable future (Reinhart and Sbrancia 2011).
Throughout history, debt-to-GDP ratios have been reduced by:

• Economic growth.
• Fiscal adjustment and austerity plans.
• Explicit default or restructuring of private and public debt.
• “Surprise” inflation.
• Steady financial repression accompanied by steady inflation.

As coined by Ronald McKinnon (1973), the term “financial repression” describes various policies that allow governments to “capture” and “under-pay” domestic savers. Such policies include forced lending to governments by pension funds and other domestic financial institutions, interest-rate caps, capital controls, and many more. Governments have typically used a mixture of these to bring down debt levels, but inflation and financial repression typically only work for domestically held debt (the Eurozone is a special hybrid case). In the current policy discussion, financial repression comes under the “macroprudential regulation” rubric.
Most governments would only contemplate default or surprise inflation in truly desperate economic conditions. In Europe, austerity is being pursued but in the countries that need it most, falling growth tends to offset much of the progress. Little wonder, then, that financial repression is back on the policy menu.
Financial repression, teamed with a steady dose of inflation, cuts debt burdens from two directions:

• Low nominal interest rates reduce debt servicing costs.
• Negative real interest rates erode the debt-to-GDP ratio (it is a tax on savers).

Here, inflation need not take market participants entirely by surprise and, in effect, it need not be very high (by historic standards).
Financial repression also has some interesting political-economy properties. Unlike other taxes, the “repression” tax rate (or rates) is determined by financial regulations and inflation performance that are opaque to the highly politicised realm of fiscal measures. Given that deficit reduction usually involves highly unpopular expenditure reductions and/or tax increases of one form or another, the relatively “stealthier” financial repression tax may be a more politically palatable alternative for authorities faced with the need to reduce outstanding debts..."

at http://www.voxeu.org/index.php?q=node/7767

Why money-printing is like 'global warming'

"Here's a must-read post by Aussie blogger Jo Nova – and it's not on her usual topic climate change. The title says it all: The Ground Zero of Global Corruption: it starts with The Currency.

It’s like this. The governments and their central banks make as much free money from thin-air through fractional reserve banking and other methods as they can get away with — it benefits those who “spend that new money first”. They spend it at current prices, and pay it back later, after inflation has decreased its value. The people who pay the difference are those who saved and held money while its purchasing power fell. Speculators grow rich, while retirees and savers get poorer.
In a free market this would quickly lead to inflation, and people would rush to the only currencies the government can’t inflate (or “print” for free) — they’d buy and hold gold or silver and keep their purchasing power. Remember, gold and silver are the currencies that evolved in the marketplace over the last 5,000 years and are not directly under the control of government. (And “so?” you say?). The point is, if the prices of gold and silver rise fast, people would abandon bonds and get into metals instead, thus correcting the situation by making the printing and speculating game vastly less attractive while saving and production became more attractive. Essentially, people dump the government money and go for the competitor, which means the government (and or Fed) has to increase the interest rate and pay more for its money, and nobody wants that: God forbid that Governments or Banks should pay people a fair rate for borrowing “their” money.
Bonds and “treasuries” (US Treasury Bonds) are fancy words for loans to the government. But if no one wants to buy them, then the government has trouble raising funds for its massive pork barreling vote-buying schemes, and the investment bankers pay higher interest payments which takes all the fun out of Grossly Huge and Obscene Mergers, the SubPrime Parties and the High Frequency Festivals.

I had a similar awakening a few months back when I went to see Detlev Schlichter talk to a small group of (somewhat terrified) MPs about his book Paper Money Collapse in a meeting organised by the Cobden Centre. Here is Schlichter explaining why Ben Bernanke's, George Osborne's and the European Central Bank's money printing experiment will only prolong the depression..."

at http://blogs.telegraph.co.uk/news/jamesdelingpole/100146037/why-money-printing-is-like-global-warming/

Gold Going to Parabolic Top of $10,000 by 2012 For Good Reasons

"No wishful thinking here! As I see it gold is going to a parabolic top of $10,000 by 2012 for very good reasons - sovereign debt defaults, bankruptcies of “too big to fail” banks and other financial entities, currency inflation and devaluations - which will all contribute to rampant price inflation..."

at http://www.marketoracle.co.uk/Article20267.html

Investors Face Long-term Structural Changes of Lower Growth, Higher Volatility and Unemployment

"...What do we get when we put the three structural breaks together? Higher volatility and lower trend growth produce more frequent recessions. More frequent recessions and stubbornly high unemployment rates mean that recoveries will not be long-lasting enough to put everyone back to work who would like to work. This in large part explains why high unemployment is currently so problematic.
What are the investment implications for the Muddle Through Economy? Investors will have to adjust to this new reality. Reducing leverage is one way. Another is to reduce the average holding period of investments. Investors will have to become more nimble. This in itself may add to market volatility.
For longer-term investors, this change of paradigm will mean achieving consistent returns is even more difficult. However, investors with a shorter-term, more tactical outlook may find these new, more volatile conditions a source of great opportunities.
The End Game
John Mauldin and I are writing a book called The End Game, about how government policies around the world will likely play out.
The End Game will be about the structural changes affecting the US and many other developed economies and how this impacts you, the reader. Currently the world is caught in a tug of war between deflation and inflation. The global economy faces powerful deflationary forces, which have induced equally powerful responses from governments around the world. Governments have ratcheted up the creation of monetary reserves and increased public spending across the board. Much of the spending is unsustainable, and the monetary reserves may eventually become a problem, resulting in inflation. The outcomes are binary, and they are not good.
Policymakers have not even begun to deal with the problems. As Chairman Bernanke has pointed out, "A variety of projections that extrapolate current policies and make plausible assumptions about the future evolution of the economy, show a structural budget gap that is both large relative to the size of the economy and increasing over time." He stated that "the federal budget appears to be on an unsustainable path." Those are strong words for a Fed chairman. I hope Congress is listening.
In the current economic environment, there are bad choices and worse ones. We hope governments around the world will know how to choose wisely..."

at http://www.marketoracle.co.uk/Article20249.html