Simon Black
Bangkok, Thailand
When I arrived to Bangkok the other day, coming down the motorway from the airport I saw a huge billboard-and it floored me.
The billboard was from the Bank of China. It said: "RMB: New Choice; The World Currency"
Given that the Bank of China is more than 70% owned by the government of the People's Republic of China, I find this very significant.
It means that China is literally advertising its currency overseas, and it's making sure that everyone landing at one of the world's busiest airports sees it. They know that the future belongs to them and they're flaunting it.
And it's true. The renminbi's importance in global trade and as a reserve currency is increasing exponentially, with renminbi trading hubs popping up all over the world, from Singapore to London to Luxembourg to Frankfurt to Toronto.
Multinational companies such as McDonald's are now issuing bonds in renminbi, and even sovereign governments are issuing debt denominated in renminbi, including the UK.
Almost every major global player out there, be it governments or major multinationals, is positioning itself for the renminbi to become the dominant reserve currency.
But here's the thing. Nothing goes up and down in a straight line. And China is in deep trouble right now. The economy is slowing down and the enormous debt bubble is starting to burst.
A lot of people, including the richest man in Asia, are starting to move their money out of the country.
So while the long-term trend is pretty clear - China becoming the dominant economic and financial superpower - the short-term is going to look incredibly rocky.
We talk about this in today's short podcast with Sovereign Man's Chief Investment Strategist, Tim Staermose, which includes a few ways to actually make money from China's short-term unwinding.
Please listen to the audio here
Until tomorrow,
Simon Black
Founder, SovereignMan.com
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Mike Savage
"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The only alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."- Ludwig von Mises
There are no examples in history of von Mises being wrong.
It appears that we have chosen the total catastrophe route since we "printed up" 17 trillion dollars to save the financial system in 2009 and have since added over 57 trillion in debt to make it appear that all is well globally.
The chart above shows just how dependent the current rally in the stock markets have been on cheap debt. Of course, this is only margin debt- that debt with which gamblers can increase gains with leverage. This chart does not include the $2 trillion dollars of stock buybacks engineered by companies that have occurred since 2009 according to David Stockman.
This chart also shows another phenomenon. The market (S&P and Dow) is nominally higher than it has ever been. The level of margin debt is also off the charts and has never been higher.
Many people look at the market action and assume that things must be looking up- that is what the market is saying anyway.
Of course, with just a little diligence one can easily find out how fragile this market is and why I say it is built on sand.
First of all the theory that the market is forward looking has been hijacked by central bank "money-printing" and asset purchases. These actions make it so the only thing the market "says" is what the powers that be want it to say that day. This creates vast differences in perceived value and actual value when there is this type of interference. One day, in my opinion soon, there will be a major reality check and major re-pricing off assets.
In reality, a quick look at the Baltic Exchange Dry Index shows it is at its lowest level in history (shipping rates) and Maersk Line- a major shipper said that weakness is because of "falling demand in nearly every market".
What this says is that economic activity is falling around the globe even as American markets hit new highs. Is it more likely that we have a worldwide boom in economic activity to confirm that the market is right or is it more likely that the market falls to confirm that the economy is much weaker than it is reported to be?
Many people will point to the European Central Bank and say that they are going to purchase nearly 2 trillion dollars of Eurobonds and that will add even more liquidity!
Personally, I don't see this having much of an impact at all if they follow through with their initial plan. They are planning to buy European bonds. Many of these bonds are already trading with negative yields. For those of us who speak English it means you earn no interest and get back less than you put in at the end of the term. Now that is an investment that only someone who gets their money for nothing would buy!
So what exactly will the ECBs purchase of bonds do? Reduce yields further that barely exist already? Will it help banks to lend to companies who aren't borrowing because of a lack of demand so there is no need to expand? Will it induce individuals to throw caution to the wind and increase the debt that they owe while their incomes are stagnant? It is likely that none of these outcomes will take place.
At the end of the day there will be more debt, more Euros created out of nowhere and less economic activity because the extra debt will lay like an albatross on already over-indebted countries, companies and individuals. The ECB is late to the game and already have two failures of QE in the USA and Japan that should serve as a warning. It will likely help no one but major banks.
In my opinion we are very near a time where the central banks will be exposed for what they are - serial bubble blowers with money and debt creation as their last trick after zero interest rates- now negative interest rates and market interventions.
Another issue that I expect to rear its head shortly is underfunded pensions.
Mike Shedlock put out a piece that shows that public pensions in Illinois are 39% funded. He opines that taxpayers will be on the hook for over $150 billion dollars. Of course, they can't pay that so the circus that will take place there should be something to watch.
While Illinois may be the poster boy for making promises that can't be kept there are many other plans that are underfunded- if not most. And this is at a time where stock markets are at historical highs and bond yields are historical lows (making bonds trade at all-time highs also).
With yields at next to nothing many pension fund managers have had to become like hedge fund managers rather than taking prudent low risk strategies because this environment of low rates makes it necessary to take larger risks to get any type of a reward.
Even with stock and bond markets marching higher many pension plans are seeing their liabilities rising even faster. This, in my opinion, is similar to all of the money "printing" taking place around the globe as deflationary pressures are exerting themselves even with massive financial infusions from the central banks. With the level of derivatives and debt already out there whatever the central banks may do in the future may not be enough. Think about that when you are "sure" of anything in these Frankenmarkets.
Many people may be thinking -so what? It won't affect me. I believe it will.
If, at some point, pensioners are forced to take less of a payout to save the plan- those folks will have less to spend and have a lifestyle haircut that they weren't expecting. If taxes rise to pay interest on the massive amounts of debt being created around the world people will have less to spend on other things. As insurance companies are unable to earn a reasonable rate of return on the bonds in their portfolio (or worse- rates rise and cause large losses) rates for all insurance will increase and there will be less to spend elsewhere.
These are a few of the reasons that money "printing" doesn't work. Eventually the bill comes due.
By the way, in many parts of the world pensioners have been forced into pay cuts (think Detroit close to home and many countries including Greece right now). Taxes for the most part haven't risen only because of ZIRP (Zero interest rate policy) and now NIRP (Negative interest rate policy) in many areas. Of course, because of that prudent savers are punished and cannot earn a decent return therefore they are unable to have purchasing power from interest earnings and purchase less anyway. It is really an unrecognized tax!
There was a reason that when Benjamin Franklin produced the first paper money in the American colonies it was inscribed with "To counterfeit is death".
There have been no natural laws that have been changed- only manipulated to a point where truth appears to be a lie and that lies appear to be truth.
Even if you have the world's reserve currency you can create too much of it and "print" it into oblivion.
I have often said that many problems show up in the weakest areas first and then show up in stronger areas. The fact that currencies are plummeting in Russia, Turkey, Brazil, Argentina, Canada and many other places should be getting your attention. Of course, it is not because our wonderful media outlets don't think you need to know anything like that.
There are plenty of warning signs that I am seeing that you should be aware of. This is no time to be complacent but a time to Be Prepared!
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Jay Taylor
Gold Manipulation & War Are All About the Petrodollar Empire
I talk frequently in this letter and on my radio show about gold market manipulation. David Jensen has provided some of the best insights into how powerful interests who own the Federal Reserve Bank are able to use dollars created out of thin air to bomb both the futures and spot gold paper market to deny price discovery to the yellow metal. It is no secret why this manipulation of the gold market is carried out. Both Alan Greenspan and Lawrence Summers have clearly provided the incentive for doing so. Greenspan succinctly pointed it out in his article published in Ayn Rand's "Objectivist" newsletter in 1966 and Lawrence Summers in a paper he coauthored on Gibson's paradox. Both men knew that in order for governments to rule tyrannically over the populace, you had to force the masses to use government decreed money and not choose for themselves what they use as a medium of exchange. If any of you doubt that the price of gold is manipulated in a downward direction, then you need to listen to my interviews with David Jensen at http://jaytaylormedia.com/audio/ and explore the massive evidence of gold market manipulation at www.Gata.org.
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The Paper Gold & Silver Fraud
(What you see is not what you get!)
I am indebted to my friend David Jensen for the table shown above. It was constructed from research he carried out and, more specifically, from information provided by the LGMA, before speaking on several podcasts in which David explained HOW gold bullion price discovery is denied the markets by the economic fascists/Military Industrial Complex who own the Fed and rule over the Anglo-American Empire.
Notice that the daily trading volume (second column from the left) is 10 times larger than the net clearing volume. In other words, 90% of the trades conducted during the day are closed out before the end of the day. Only 10% of the trades are netted out at the end of the day (first column on the left). On average, then, 207 million ounces of paper gold is traded during a given day, compared to only 20.7 million ounces netted out during the day. In other words, sell orders can be executed in one minute and then taken off, based on computer trading models, thus creating a price that has little or nothing to do with the actual sale or purchase of gold. Also, note the size of gold trading in a given day (207 million ounces) compared to the total amount of gold produced in a given year (90 million oz.). Of course, as the next-to-last column shows, there is allegedly 1.2 billion ounces of gold sitting in the vaults of central banks. No one knows for sure how much of this gold is actually in the vaults of central banks, or to the extent it is, no one knows who really owns it or thinks they do own it. It has been alleged that much of the same gold sitting in central banks may have been leased out multiple times. Do you see why it would be a good idea to audit the Fed?
The main thing the Powers That Be (PTB) are concerned about is maintaining the con job to keep people believing they own gold without actually taking delivery of it, much the same as they want you to believe your paper money is really in the bank for you, when the bank in fact has nowhere nearly enough money to meet all demands of depositors if they all wanted their money at the same time. So, gold and silver markets are not unique in that regard. They are unique in that gold and silver are real money with real value, while the dollar has zero intrinsic value.
The problem the PTB are guarding against-and the reason they need to maintain a lid on the price of gold-is that if confidence in the existing dollar monetary system is lost, the massive amount of demands to buy gold (noted above as "Open Interest," which ranges from an estimated average of 414 million ounces to 621 million ounces) could quickly threaten gold stockpiles and drive prices dramatically higher if all those people chose to take delivery of gold rather than be satisfied with settling out in intrinsically worthless paper dollars.
If you are thinking that such an eventuality is out of the question, then think again. In fact, yours truly witnessed a run from the dollar into gold beginning to unfold in 1980 when gold began to rise exponentially in price as people were very quickly losing faith in the dollar. Gold rose from $35 in just a few years to a blow-off $850. A panic out of the dollar was very rapidly developing by January 1980. It was only double-digit interest rates paid by the U.S. Treasury to savers, orchestrated by the Volcker Fed, that saved the dollar in 1980.
Since then, or at least following the stock market crash of 1987, the President's Plunge Protection Team has been increasingly involved in the manipulation of all financial markets, including gold. But none is more important than gold, because if there is a flight out of paper into gold, not only does the dollar head toward its intrinsic value of zero, but the entire empire comes tumbling down too!
On Silver
Because gold is the driver in the precious metals markets, I did not mention silver. But note from the numbers in the chart above, silver has a much more serious physical shortage than does gold. The daily trading volume for silver is 1.72 billion ounces, compared to only 0.9 billion ounces from official central bank stockpiles and a mere 0.8 billion ounces produced annually.
Jay Taylor
www.jaytaylormedia.com
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Ed Steer
Gold has worked for Indians, billionaire investor Thomas Kaplan says
Telling Indians not to buy gold is like asking Americans not to consume liquor, billionaire investor Thomas Kaplan has said.
Appreciating Indians' appetite for gold, Kaplan said the precious metal has historically been a very good way to store wealth for India and pointed out that China is "specifically and overtly" encouraging its people to buy gold.
India is one of the largest consumers of gold in the world and imports as much as 800-1,000 tonnes of gold each year.
"I think trying to ban gold or to ban gold imports, you know, would have about as much success as trying to tell Americans not to drink alcohol. And prohibition did not work and eventually someone had to accept the reality," he told PTI on the sidelines of a CII event when asked whether India's efforts to curb gold imports would work.
This commentary, filed from New Delhi, showed up on The Economic Times of India website at 12:22 p.m. IST yesterday afternoon---and it's another story I found embedded in a GATA release. It's definitely worth reading.
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GoldSeek Radio Interviews Dr. Marc Faber
Dr. Faber believes the People's Bank of China may have accumulated thousands of tons of gold bullion reserves, many fold the official figure, in anticipation of a gold backed Yuan/renminbi. China boasts the most trading partners of any nation---124; making a sound and readily acceptable currency an essential ingredient for global expansion. The modus operandi includes a gradual weakening of the Yuan, to the benefit of the manufacturing and exporting sectors, followed by the introduction of gold backing.
En passant, the Yuan devaluation will be offset by the increased value of the massive PBoC gold stockpile.
This 29-minute audio interview showed up on the goldseek.com Internet site yesterday---and it's the second offering in a row from reader Ken Hurt.