Thursday, February 27, 2014

This Will Stun The World & Bring Chaos To Global Markets

In China they have just drained liquidity again with an $8 billion repo. The Chinese financial system is a massive bubble, and now the authorities are trying to restrict lending. But they will also fail because the banking system and the shadow banking system are full of debt that will default. That will just lead to even more QE in China.
The Fed is still optimistic about the US economy and confident about the tapering decision. They continue to focus on the 6.5% unemployment rate, when the real unemployment rate is 23%. But I can see US authorities continuing to insist that US unemployment is near 6% levels even as tens of millions of people in the United States line up to the modern-day soup kitchens of the food stamp program.

If we look at housing starts in the US , they had their biggest fall in three years, and mortgage applications were the lowest in 19 years. The US economy is only showing some temporary strength due to increases in government and household borrowing.

We know that government debt and the Fed’s balance sheet are growing exponentially, but household debt is also rising rapidly. We have just seen the highest rise in six years to $11.5 trillion. Mortgage debt is also up, and so is auto debt. So the US is continuing its spending based on debt. This very unsound and untenable trend will soon lead to the US dollar losing its value.

If we move to the emerging markets, for them to survive they will need growth in industrialized countries, which will not happen. So emerging markets will be another catastrophe not only economically but also socially.

Eric, I’ve stressed many times to get money out of the banking system and pension system. Country after country are planning to introduce bail-ins and forced savings systems. In Australia the treasurer has suggested instead the ‘Superannuation’ pension funds for financing government projects. The US has the ‘myRA’ system now and there will be more of this in coming years.

I’ve talked about protectionism previously, Eric, and it will happen around the world. In 2016, the US will require all foreign banks to keep capital in the US, which will be frozen. Thus the US regulator will, beginning in 2016, control foreign banks. If European banks reciprocate and do the same, bank lending will be reduced substantially worldwide. This of course is extremely deflationary, and the consequences of that will be even more QE eventually.

- Source, Egon Von Greyerz via King World News, read more here: