"The End Game: 2012 And 2013 Will Usher In The End" - The Scariest Presentation Ever?

"The End Game: 2012 And 2013 Will Usher In The End" - The Scariest Presentation Ever?:
If Raoul Pal was some doomsday spouting windbag, writing in all caps, arbitrarily pasting together disparate charts to create 200 page slideshows, it would be easy to ignore him. He isn't. The founder of Global Macro Investor "previously co-managed the GLG Global Macro Fund in London for GLG Partners, one of the largest hedge fund groups in the world. Raoul came to GLG from Goldman Sachs where he co-managed the hedge fund sales business in Equities and Equity Derivatives in Europe... Raoul Pal retired from managing client money in 2004 at the age of 36 and now lives on the Valencian coast of Spain, from where he writes." It is his writing we are concerned about, and specifically his latest presentation, which is, for lack of a better word, the most disturbing and scary forecast of the future of the world we have ever seen....
And we see a lot of those.
Consider this:

• We are here...
  
• We don’t know exactly what is to come, but we can all join the very few dots from where we are now, to the collapse of the first major bank…
• With very limited room for government bailouts, we can very easily join the next dots from the first bank closure to the collapse of the whole European banking system, and then to the bankruptcy of the governments themselves.
• There are almost no brakes in the system to stop this, and almost no one realises the seriousness of the situation.
• The problem is not Government debt per se. The real problem is that the $70 trillion in G10 debt is the collateral for $700 trillion in derivatives…
• Yes, that equates to 1200% of Global GDP and it rests on very, very weak foundations
• From an EU crisis, we only have to join one dot for a UK crisis of equal magnitude.
• And then do you think Japan and China would not be next?
• And then do you think the US would survive unscathed?
• That is the end of the fractional reserve banking system and of fiat money.

• It is the big RESET.

It continues:

• Bonds will be stuck at 1% in the US, Germany, UK and Japan (for this phase).
• The whole bond market will be dead.
• Short selling on bonds - banned
• Short selling stocks – banned
• CDS – banned
• Short futures – banned
• Put options – banned

• All that is left is the Dollar and Gold

It only gets better. We use the term loosely:

• We have around 6 months left of trading in Western markets to protect ourselves or make enough money to offset future losses.
• Spend your time looking at the risks of custody, safekeeping, counterparty etc. Assume that no one and nothing is safe.
• After that…we put on our tin helmets and hide until the new system emerges

And the punchline

From a timing perspective, I think 2012 and 2013 will usher in the end.

Enjoy:

Simon Johnson: The End of the Euro: A Survivor's Guide

Simon Johnson: The End of the Euro: A Survivor's Guide

Evaluating responses to India's macroeconomic crisis

Evaluating responses to India's macroeconomic crisis:
by Shubho
Roy and Ajay Shah.

The macroeconomic setting

India's macroeconomic
woes consist of a high inflation, low GDP growth and a drop in
asset prices. The loss of momentum is visible in the seasonally
adjusted data:

Indicator	Early 2009	Latest
GDP growth (QoQ, saar)	9.83 Q2-2009	4.25 Q4-2011
Inflation (CPI-IW, pop, saar, 3mma)	7.5 Feb 2009	12.9 Mar 2012
INR/USD	48 Jan 2009	56 May 2012

The picture is not uniformly bleak. The most important asset price
of the economy, Nifty, has not dropped across this period. On 1
January 2009, Nifty was at 3033. Today, it is at 4920, which is a
good 62% higher. More generally, stock prices have held up rather
well so far. The trailing P/E
of the broad market index, the CMIE Cospi, stands at 17.3, while
the median value across its full history (from 6/1990 to 4/2012) is
17.83. We may think that conditions in India are difficult, but the
stock market is saying that they're roughly median conditions in
terms of the outlook for earnings growth.

The current account deficit

In recent years, the fiscal condition of the government + PSUs has
worsened. This has led to a large gap between savings and investment
(the worsening in public finance has diminished savings). There is an
accounting identity: The gap between savings and investment is
the amount of capital that has to be imported. This is the current
account deficit. We have a capital shortfall within India, so we are
importing capital.

It is likely that in the coming year, we will have a current
account deficit of 4% of GDP, or $80 billion a year, or Rs.1700 crore
a day. This means that we have to worry about how foreign capital
views India. Under these conditions, if there is even a short hiccup
in capital inflows (as appears to have come about after the government
proposed to modify the Mauritius route, and more generally with the
problems of governance in India), it yields sharp rupee
depreciation.

We import a lot of capital; government policy actions interrupt
that flow of capital; the rupee depreciates. This is not
mis-behaviour of the financial system. The system is not
malfunctioning; it is behaving as it should.

What should the responses be?

There are five sensible paths for government to take, in this
situation:

1. We need to see that at heart, this is a problem of
   macroeconomics. The root cause of the current account deficit is the
   fiscal deficit. If we want a lower CAD, we need a lower fiscal
   deficit.
   
   
2. To ensure the smooth flow of Rs.1700 crore a day into the
   country, we should not spook foreign. We should not interfere with the
   de facto residence-based taxation framework which India is
   giving foreign investors, as long as they come through
   Mauritius. This policy framework is, in fact, in
   India's best interests.
   
   
3. Deeper problems about the loss of confidence of foreign investors,
   owing to governance problems, need to be solved by strengthening
   governance.
   
   
4. In the face of these difficulties, it would make little sense
   for RBI to trade in the currency market, to try to block the rupee
   depreciation. There is good reason for rupee depreciation; the
   currency market is doing a pretty good job of translating the
   fundamentals into a price. And, in any case, even if RBI desired to
   do something about it, its weapons are puny when compared with the
   size of the currency market and the Indian economy.
   
   
5. It is an opportune time to continue with the liberalisation of
   the capital account. However, it is useful to think deeply about how
   to proceed with this. Some kinds of liberalisation can be
   dangerous. It is important to think about sequencing, and at all
   times, to worry about unhedged currency exposure. A good deal of
   expertise has built up on the subject, through the Raghuram Rajan Committee and the UK Sinha Working
   Group.

An evaluation of what has been done

There are three features of recent policy responses which
appear to be on track:

1. By and large, RBI's trading on the currency market appears to
   be at a low scale, nearing zero in many recent months. This is
   wise. It increases respect for the brainpower at RBI.
   
2. The government raised the price of petrol, so as to cut the
   fiscal deficit. This increases respect for the brainpower and
   political capabilities of the government.
   
3. The government decided to defer the attack on the Mauritius
   treaty by a year (though not to shelve it altogether). In the
   absence of clear policy statements about the importance of
   residence-based taxation, this shelving does not increase respect
   for the government.
   

Apart from these three good moves, a slew of dubious ideas have
been afoot.

A. Enlarging the scope for dollar-denominated borrowing by Indian firms

On 20^th April, 2012: external Commercial Borrowings regulations were amended to:

1. Increase the limit on power companies to refinance their borrowings in Rupees
   with foreign currency loans (also called External Commercial
   Borrowings or ECBs).
2. Allow companies to borrow in foreign exchange to make capital
   expenditure for maintenance and operations of toll systems
   (See here)
3. Companies were allowed to refinance their ECBs
   with subsequent ECBs at higher interest rates
   (See here).

Evaluation: Do we really want Indian firms to hold dollar denominated debt? In particular, firms in the field of infrastructure who have cashflows in rupees? Sensible firm should see the high ex ante currency volatility and stay away from borrowing in dollars without hedging; so the impact upon capital flows will be small at best. And firms that do borrow in dollars and keep it unhedged are probably not going to fare well.

B. Enlarging the scope for dollar-denominated borrowing by banks

On 4^th May, 2012: The maximum interest payable on forex deposits by NRIs in Indian banks was increased (See here):

1. For deposits between 1 to 3 years the increase was 75 basis points.
   
2. For deposits between 3 to 5 years the increase was 175 basis
   points.
   

Evaluation: Banks are disaster-prone 19th century institutions. Do we really want them to hold more unhedged foreign currency exposure? Of all places in the economy, this is the worst place to keep unhedged currency exposure. The wise ones will not borrow in this fashion, so the impact upon capital flows will be small at best. And the unwise ones, that borrow in dollars and keep it unhedged, are probably not going to fare well.

C. Reducing the economic freedom of exporters

On 10^th May, 2012: the right of exporters to hold foreign exchange was reduced by 50% (See here):

1. Exporters were allowed to keep their forex earnings in
   special accounts called EEFC accounts. They were not mandated to
   convert it into Rupees. This allowed them the ability to fund
   imports for their business without going through costly conversions.
   
   
2. Now only 50% of their export earning will be allowed to be kept
   in forex. The rest will be converted into Rupees against their
   wishes.
   

Evaluation: In the old India, FERA made ownership of foreign exchange an exotic and rare thing. Many businessmen in India engaged in import/export misinvoicing and tried to hold assets outside the country. In the early 1990s, C. Rangarajan's RBI embarked on a modern arrangement. Exporters were given greater economic freedom. We are now rolling the clock back by 20 years; we are tampering with current account liberalisation. The number "50%" has not been justified in the RBI notification. Any exporter, with significant raw material import cost will now pay unnecessary transaction charges. In global trade, where every country takes the utmost effort to keep their exports competitive, any small distortion impacts on export competitiveness; this is pushing in the other direction - it is an attempt to reduce India's export competitiveness. This is a new low in Indian economic policy. Every internationally oriented household in India will now be more keen to hold assets and liquid balances outside India, safe from the clutches of Indian capital controls. This measure will thus exacerbate capital flight and worsen the problems of the rupee. Success in the marketplace will tend to accrue to businessmen who break laws as opposed to the law-abiding ones.

D. Damaging the currency futures market

On 21^at May, 2012: restrictions were put on exchange-traded derivatives (See here):

1. The net overnight open positions that the banks hold shall
   not include positions in the exchanges.
   
   
2. The positions in exchanges cannot be used to offset
   positions in the OTC market for
   
   
3. The position of banks in currency exchanges shall be
   limited to $100 million or 15% of the market (whichever is
   lower)
   

Evaluation: The world over, there is a clear understanding that the exchange is a superior way to organise financial trading. When compared with the OTC market, the exchange has superior transparency and risk management. Policy makers need to continually modify policies so as to favour a migration of all standardised products away from the OTC market to the exchange-traded contracts. RBI's moves go in the wrong direction. How do we ensure that the price on a financial market is driven by fundamentals? The answer : We must have a deep and liquid market, and a broad array of sophisticated speculators. RBI's actions are going in the exact opposite direction. They are trying to make the market illiquid. But it is in an illiquid market that we will get market inefficiencies and weird behaviour of the price. They are increasing the chance that something nutty happens on the rupee. This circular is also a reminder about poor legal process at RBI. Every action by a regulator must articulate a rationale. Financial regulations are motivated by exactly two possibilities - consumer protection or micro-prudential regulation. The government agency that wields the power of financial regulation must show the clear rationale, describing what is the market failure that this regulation is seeking to address. The government agency must show the cost-benefit analysis, explaining why the costs of this action outweigh the benefits. As is typical of financial regulators in India today, RBI's documents show no rationale. It is possible to conjure one conspiracy theory. The attempts at damaging the liquidity of the currency futures market should be seen in connection with previous work on damaging the liquidity of the OTC market. Perhaps there is a grand plan here. The scale of RBI's trading on the currency market is implausibly small when faced with the size of the Indian economy, with the size of India's cross-border interactions and the size of the currency market (both onshore and offshore). Perhaps these recent moves are designed to damage the liquidity of the market, so as to get to a point where RBI intervention can make an appreciable dent on the price. Perhaps the game plan is to gnaw away at the capability of the currency market through a series of moves, and then take off doing large scale manipulation of the market. If this is the game plan, it reflects very poorly on the economic policy capability at RBI. It would also generate massive profit opportunities for the speculators of the world, who would short the rupee when the large scale manipulation commences.

Rumours about other bad ideas abound. E.g. it is suggested that RBI
will sell dollars to exporters directly. How is this different from
selling dollars on the market?? It is suggested that the currency
futures and the OTC markets should be completely cutoff by banning the
arbitrage. How would this solve the macroeconomic problems which
bedevil the rupee?

Microeconomic distortions are not a good way to address
macroeconomic problems

What does one make of this spectacle? A simple principle worth
reiterating is:

Problems rooted in
macroeconomics must be addressed using macroeconomic
instruments.

We got into this mess because of inappropriate fiscal and monetary
policy. We need to solve these -- monetary policy must get back to the
business of delivering low and stable inflation, we have to fight
inflation until we see y-o-y headline inflation (i.e. CPI-IW
inflation) going to the 4-to-5 per cent range. Alongside this, fiscal
policy needs to correct itself. Each of these has a clear direction to
move in, and movement on any one is valuable regardless of what the
other does.

A big element in the picture is the loss of confidence, in the eyes
of the private sector, on an array of issues ranging from ethical
standards to the sophistication of fiscal, financial and monetary
policy. This is an important problem and it needs to be addressed. The
spectacle of a government flailing at the macro problems using micro
instruments is worsening matters. Perhaps there is constant pressure
to announce `new measures' to solve the problem. Deeper solutions are
hard, and there is enthusiasm for `doing something' (large or small)
[example].

We've seen this movie before. In the last decade, again and again,
RBI tried to wield capital controls as a tool for macroeconomic
policy. They
failed. It is disappointing to see the lack of learning.

Some of the moves above have come out of the reflexive socialism
that lurks within the Indian bureacracy. Perhaps, in a crisis
environment, the ordinary immune system within each government agency,
which keeps the sub-clinical socialism under check, is not working as
well. This hurts from two points of view. It betrays the lack of
capability of these government organisations; it reminds us that the
Indian State is strewn with people who have a low knowledge of
economics and a taste for dirigiste. It also reminds us of the
policy risk: Precisely when the best capabilities are required (in a
crisis), we seem to be slipping into the lowest quality policy
initiatives.

Everyone who sees the government / RBI engaged in one ill thought
out measure after another gets worried about India's future. How can a
$2 trillion economy flourish while such immense powers are placed with
individuals and institutions with such weak capabilities? This further
damages confidence, which deepens the macroeconomic crisis.




Acknowledgements: We are grateful to Apoorva Ankur, Sumathi
Chandrashekaran, Pratik Datta and Kaushalya Venkataraman for useful
suggestions.

Why Stability Stalwart Singapore Should Be Seriously Scared If The Feta Is Truly Accompli

Why Stability Stalwart Singapore Should Be Seriously Scared If The Feta Is Truly Accompli:

We have discussed the probability (around 50%) and possibility of a Greek exit from the Euro ad nauseum; how the post-election anti-austerity rage is bringing the world to a new realization that this is probable not possible and the widespread risk aversion of this event is much more of a global event than local - no matter how many times you are told how small Greece is. Critically, as BofAML notes, it is the systemic threat of an untamed banking and sovereign crisis in Europe which makes multiple-sigma events less 'tail' and more 'normal'. With money due to run out at the latest by July, new elections mid-June (that show massive support for the anti-bailout party), and the impacts on the real economy, exchange rate and inflation fears, and default and ECB balance sheet implications; it seems there are also strong incentives to keep Greece in. However, there is a political line of compromise and austerity that will be hard to cross for both parties which, if it failed - and it doesn't have much time - would mean a very fast 'ring-fencing' would need to occur for this not to thermonuclear with the three main channels of volatility transmission to the rest of the world being: banking and finance, trade, and confidence - all three of which are active already with Asian trade (and banking exposure) seemingly under-appreciated in our view with Singapore dramatically exposed with a stunning 60%-plus of GDP tied up in European bank claims.
Widespread risk aversion linked to fears of a Greek euro exit underscores the global nature of the European crisis. As we argued in the new year, the systemic threat of an untamed banking and sovereign crisis in Europe would push reluctant outsiders to preventively bolster IMF funding. This indeed materialized in March. However, both IMF and European firewalls still fall short of the amounts needed to protect Italy, Spain and the rest of the periphery. Global markets thus remain sensitive to rising probabilities of tail-risk scenarios. So how would the global economy be affected in the event of a serious adverse shock in Europe?
There are three main channels through which the volatility in Europe could hit the world economy: (i) banking and finance; (ii) trade; and (iii) confidence. These channels have already been active, transmitting the ongoing pull-back in European banks’ international exposure as well as the significant downturn in euro area activity seen since mid-2011. So far the retrenchment of global European banks from emerging markets has proved less disruptive than feared, while the damage to Asian exports appears worse than expected. The trade hit, however, may have been greater in Asia. But the greatest danger remains the threat of a severe blow to global sentiment.


Risk reassessment
The much more significant risk comes if market panic and financial contagion runs ahead of the European response. A sharp withdrawal of reserves from other peripheral countries could lead to global liquidity concerns. European banks pulling out of the US market could be an opportunity for domestic lenders, but in a financial crisis, overall lending is likely to fall. The resulting flight to safety should strengthen the US dollar and push Treasury yields even lower. However, it would almost certainly produce an equity market sell off. More than half of the big moves in the stock market since the end of February have been at least partly the result of events in Europe, and European news looks likely to continue to dominate movements in the US stock market regardless of the resolution to the latest Greek drama. The resulting worsening of financial conditions and softer activity data would likely get the Fed to respond with additional easing, in our view. The key factor would be collateral damage to the US outlook. The Fed knows QE doesn’t do much to help Europe. (For more discussion, see this week’s Fed Watch.) Only a very bad outcome in Europe would be enough to trigger a US recession.
The bigger risk comes year-end, when US fiscal dysfunction will likely have its biggest negative impact on growth. If the US and European crises interact, and feed on one and another, a recession becomes a real risk. This would be a replay of Japan’s experience of the mid-1990s, when a combination of premature fiscal tightening and the Asian crisis triggered a recession and deflation.
Overall, we see about a one-in-three chance of a recession starting sometime in the second half of this year and the first half of next year.
This will be the third year in a row that uncertainty should rule the day in the spring and summer months — and the risk is that, given the fiscal debates in the US and Euro zone, a risk-off environment will drag on further. We foresee at least one more year of living dangerously.
The risks of a Grexit
The recent political paralysis has now brought Greece to what could prove to be the worst stage of its crisis. Following the failure of the elections of May 6, another election has now been called for June 17. The latest polls suggest the risks of a coalition government against the austerity programme, or no agreement on a government at all – are increasing. Although polls in Greece show very strong support for the euro, we believe that the current situation could trigger a chain of events that could lead Greece to exit on its own.

If Greece were to exit, the implications would be profound both for Greece and the Euro area economy. This suggests euro zone policy makers would go a long way to keep Greece in the euro.
Real economy
Although Greece is currently expected to run a primary deficit of 1% in 2012, in the event of a Euro area exit the fiscal contraction would likely be more severe as receipts would fade away as households and corporate try to increase their savings. Consumption and investment would contract sharply. Exports would fall but imports would likely stumble even more. By comparison, when the Czech Republic departed from the Slovak Republic (1991), consumption contracted by 21%, investment 29%, and imports 33%. Overall, GDP contracted nearly 12%.
Greece has never known such a severe contraction. The worst recession was in 1974, when GDP contracted 6.4%. The IMF estimates Greece would go through a 10% GDP contraction in the first year of departure from the euro zone.
Exchange rate and inflation
The same IMF report estimates the real effective exchange rate for Greece could depreciate by 50% before recovering (over the course of four years) to about 85% of its initial level, thus boosting inflation by about 35% in the first year, recovering slowly to below 5% in about 4-5 years.
Default and the ECB
The ECB is exposed to Greece through two channels, repo operations of various maturities and emergency liquidity assistance (ELA). The respective amounts are €109bn and ca. €60bn. Should Greece default, we think it is highly likely that the ECB would terminate the repo operations. And, the ECB could veto the ELA, which would cause the Greek banks to run out of liquidity.
In this case, looking at examples from various emerging market precedents suggests two types of measures may help to avoid a massive run or limit the liquidity crunch: 1) Close exit channels, i.e., ring fencing the banking system, limiting access to cash and prohibiting transfers to foreign banks; and 2) using the central bank, in this case, the Bank of Greece, to provide liquidity by becoming the lender of last resort. That being said, it could also be the case that the ECB decides to keep some liquidity lines open to avoid a bank run (with possible spillovers to other euro periphery countries), or to let Greece pursue ELA under some monitoring.

Finance Private sector balance sheets would be damaged by cross-exposure (which is very difficult to estimate), and then subsequently by inflation. Greek banks, significantly exposed to their sovereign would collapse in the wake of bank runs, the collapse of capital values and not having access to ECB liquidity (see below for a discussion of costs to the private sector in the euro zone).
For the Euro area, we assume that a forceful set of policy measures would be implemented, but they would nevertheless result in elevated costs. Greek assets of around €450bn could also be at risk of significant losses in the immediate aftermath of a Euro exit. In addition, a Greek exit could spill over to other countries, resulting in deposit flights threatening the stability of banking sectors and destabilising sovereign bond markets. As policymakers assess the effect of Greece leaving the euro, the high costs and risk of contagion will, in our view, raise the impetus to keep Greece in.
In our view, the situation in Greece is distinct from elsewhere in the periphery. So while expectations of spillovers may be understandable, they might not be rational. The euro governments may look to use pan euro deposit guarantees and capital injections to contain the potential contagion through the banking sector.
The ECB may commit to provide liquidity to banks and act as a backstop on the sovereign bond markets, provided the Bank was backed by the 16 euro governments.
And The Implications across asset class...

The Forthcoming Hellenic Curse

The Forthcoming Hellenic Curse:
Via Mark J. Grant, Author of Out of the Box,
Tragedy (Ancient Greek:, tragoidia, "the-goat-song") is a form of drama based on human suffering that invokes in its audience an accompanying catharsis or pleasure in the viewing. While many cultures have developed forms that provoke this paradoxical response, tragedy often refers to a specific tradition of drama that has played a unique and important role historically in the self-definition of Western civilization.

                                                           -Wikipedia


The Synopsis of a Greek Tragedy

The days have passed since January 13, 2010 when I first expressed my opinion that Greece would default. Weeks and months have come and gone; Athens has been rescued by the Troika, private bondholders were forced into a Draconian swap as the Germans attempted to soothe their citizens and boatloads of money has been dumped into the Greek economy and into the Greek banks. The demands for “austerity measures” heaped upon the citizens and the economy of Greece has sent the marginally poor into the streets and into bread lines and caused a Depression in Greece based largely upon the imposition of the Troika’s demands that Greece must curtail the standard of living which was initially granted by Greece joining the European Union. The hand that fed the beast became the hand that began the slaughter and as the lifeblood was sprayed upon the concrete floor; the rest of Europe tries to decide when to turn off the life support while the patient agonizes between life and death in its present condition. Greece is, in fact, in the death throes of its existence as brought about by its addiction to the cash that was offered and then is being restricted. It is the bleakest of nights in Troy and the soldiers are slipping out from the horse.

“The god of wine looked around at the assembled crowd. “Miss me?”

The satyrs fell over themselves nodding and bowing. “Oh, yes, very much, sire!”

“Well, I did not miss this place!” Dionysus snapped. “I bear bad news, my friends. Evil news. The minor gods are changing sides. Morpheus has gone over to the enemy. Hecate, Janus, and Nemesis, as well. Zeus knows how many more.”

Thunder rumbled in the distance.

“Strike that,” Dionysus said. “Even Zeus doesn’t know.”

                         -Rick Riordan, The Battle of the Labyrinth

While some with knowledge of the actual conditions liken the situation to some sort of Armageddon, the markets largely ignore what is about to happen because they have been told and re-told a series of lies about the fiscal state of Greece and have focused upon the small size of the country which will turn out to be one grave mistake in judgment. The markets have had a slew of propaganda directed at them informing them that the horned goat was a passive sheep but the veil of deceit is about to be lifted which is why I think that the reality of what is about to take place is nowhere close, not in one hundred leagues, of the coming actuality which has not been priced into the markets with any sort of accuracy. I shall endeavor to explain.

Almost everyone has focused upon the sovereign debt, that it is no longer placed at the European banks and that it is resident at the European Central Bank which is protected by all of the nations in Europe. This is true, as far as it goes, but the summation does not go nearly far enough. The hit, when it comes, will require the ECB to be recapitalized, will be felt at the IMF where the United States will take 16% of the hit or around $16 billion which will be trumpeted in the Press by the Republicans and waved like a banner in the Press. The recapitalization of the ECB will require hard cash from the nations in Europe which is quite different than promises and contingent assurances so that nations may get downgraded as a result of their capital outflows. The EIB will also take a hit and it may get downgraded but all of this just focuses upon the sovereign debt and is non-inclusive of the rest of the story or even of the truth of the sovereign debt.

Greece has $90 billion in derivative contracts that will likely default and the losses will then have to be taken at the French, German and American banks. The contractual obligations of the nation will probably get revoked which will impact the health providers, Greek companies providing goods and services to the country and the Greek banks which have been lending money on these obligations. The number here is someplace between 20-40 billion dollars as far as I can find data to understand the breadth of the problem. The banks will probably renounce their obligations to other European banks which is not included in the sovereign debt figures and will certainly have a significant impact. The Greek banks who have their debt guaranteed by the sovereign in an amount just shy of $100 billion will also likely default and this $100 billion is NOT counted as a part of the Greek sovereign debt as it is a contingent liability and hence not counted by Europe except that the contingent is about to become a quite real liability and an additional hit to the ECB so that the number bandied about in the Press for the Greek liability at the ECB is nowhere close to reality. Then there is the municipal debt which is found throughout the European banks and insurance companies. Next is the loans, the mortgages and other debts that have been securitized and pledged to the ECB and other European banks which then rehypothecated the securities and also pledged them to the ECB as collateral so that there is a cubed effect that is going to be set-off as the house of cards implodes in upon itself.  The number is approximately $1.3 trillion in total and all of it is going to default as Greece heads back to the Drachma and thumbs its nose at those that placed them in the “iron maiden” demanding not only confession but absolution which, in the end, will be denied.

"The god on the cross is a curse on life, a signpost to seek redemption from life; Dionysus cut to pieces is a promise of life: it will be eternally reborn and return again from destruction”
                                                               
                                                     -Friedrich Nietzsche

Mish Interview on the "Daily Bell": Rise of Money Metals, Why Credit Matters

Mish Interview on the "Daily Bell": Rise of Money Metals, Why Credit Matters: On Sunday, May 06, 2012 I gave an Exclusive Interview to the "Daily Bell" with Anthony Wile that I would like to share with my readers.



The Daily Bell is pleased to present this exclusive interview with Mish Shedlock.



Introduction: Mike "Mish" Shedlock blogs at Mish's Global Economic Trend Analysis, for which he has won awards from the New York Times, Time Magazine, Bloomberg, CNBC and Strategist News. Mish is
a contributing "professor" blogger at the economic and financial
education site Minyanville and offers podcasts every Thursday on
HoweStreet. He's a registered investment advisor representative for
SitkaPacific. He says that unlike many free-market "Austrians," he
emphasizes credit impacts and deflationary trends within larger
business-cycle manifestations. When not writing about economics, Mike
enjoys photography; 80 of his photos have become magazine and book
covers.



Daily Bell: Give us some background.



Mish Shedlock: My background is actually in computer
programming and engineering. I worked for banks for 20 years primarily
as a computer analyst working on the technical end of applications. I
was an assistant vice president for Harris Bank for most of that time.
AVP was as high a position as technicians could get. When Bank of
Montreal bought out Harris, I left to become a consultant.

Shortly after 9/11, contracts dried up and I was out of work for
three years with literally no income. When the economy was doing well, I
wasn't. My message at the time was cash is not trash and be prepared to
lose your job. Needless to say, few listened.



I started a blog in 2005 hoping to be discovered as an economic
writer. Given there are millions of blogs the success of which are
near-zero, one might even think such a chance would be impossible since I
had no background in either economics or investing.



However, I had some excellent teachers, primarily but not exclusively
Austrian-economic minded. A person named Heinz Blasnik from Germany
taught me Austrian economic
fundamentals. I picked up many ideas about debt from Australian
economist Steve Keen. More recently, Michael Pettis from China taught me
nearly everything I know about trade. I blended those views into my own
model on credit.



I received lots of help from others at numerous spots along the way.
Barry Ritholz at the Big Picture Blog promoted some of my material and
Calculated Risk created the first template for my blog.



Daily Bell: How did you get interested in investing?



Mish Shedlock: Shortly before I lost my job, I
started hanging out on stock message boards. I met some pretty smart
minds on a place called Silicon Investor and I ran one of the most
popular boards on the Motley Fool.



Daily Bell: Why do people call you "Mish"?



Mish Shedlock: Every bank I worked at formulated
user IDs out of a combination of one or two characters from first names
and six characters of last names. Thus my login to many banks where I
worked was Mishedlo. I used that name on the Motley Fool and Silicon
Investor. In stock message chat rooms, people truncated that to "Mish."
I thought "Mish" had a nice ring to it and adopted it as my "brand."



Daily Bell: Tell us about your relationship to Sitka Pacific and how it was formed.



Mish Shedlock: Sitka Pacific was founded by Brian
McAuley. His background is not stocks or the economy, either. Rather,
Brian worked for a biotechnology firm. I met Brian on the Motley Fool
in early 2000. At the time he was trading for himself, then himself and
family, then friends of family. Once you get above ten, you need a
license. He got that license and decided he no longer wanted to work in
biotechnology but rather the investment community by putting their needs
first. Indeed, Sitka always puts client needs first. That does not mean
we will always be right but rather we will never do anything that puts
our interests first. I am proud of the fact that our backgrounds are not
Wall Street oriented.



Daily Bell: Tell us about Minyanville.



Mish Shedlock: Shortly after I started my blog John
Succo, a Minyanville "professor," asked the founder, Todd Harrison, to
post my columns. There was some concern by the Minyanville staff that I
did not have a Wall Street or hedge fund background. However,
eventually, my work stood for itself. I have always believed that being
an outsider and not having preconceived notions about money supply,
money multipliers, buy-and-hold strategies and efficient market theory
(which I think is nonsense) to be to my advantage. I was the first
industry outsider (I was not yet at Sitka) to make "professor" status.
The term simply means regular contributor.



Daily Bell: What is your relationship to Dollar Collapse?



Mish Shedlock: Many of the ideas I write about come
from articles I read elsewhere. Dollar Collapse and Bloomberg were at
the top of the list. Currently I get many stories from Financial Times.
Also, writers from around the world send me links. "Brisbane Bear"
sends me stories every day from Australia. "Bran" sends me links every
day from Spain. I get email updates from Michael Pettis in China and
from Steen Jakobsen, the chief economist from Saxo bank in Copenhagen,
to name a few. Literally I am swamped with links from all over the
world. My goal is to make sense of the news. Sometimes I agree with
those I quote and sometimes I am very harsh. Either way, I try to add
something to the conversation, not just copy a story.



Daily Bell: How were you able to find the time to do so much incisive writing?



Mish Shedlock: When you are out of a job, with no
income, you have plenty of time on your hands. That is how it all
started. Now blogging and Sitka Pacific are full-time jobs. I am reading
and writing 14 hours a day on many days. However, it does not seem like
a job. Many times I am laughing my head off at what I write and hope
others do, too. One of the best compliments I ever received was when
someone asked me to please remind them to not drink coffee while reading
my blog. That request came from someone who spit coffee out his nose
trying to suppress laughter while reading my blog.



Certainly I am not always humorous. Sometimes I am sarcastic, angry
or questioning. There is no particular slant I try for. However, my role
is always the same: to make sense out of the news in an educational way
that people can easily relate to. I am pleased the New York Times
recognized that effort, naming my blog, along with Calculated Risk and
the Big Picture, as their number one idea for the year. (See "NYT 10th Annual Year in Ideas - #1 Idea of the Year 'Do-It-Yourself Macroeconomics.")



Daily Bell: Do you consider yourself an Austrian in some sense?



Mish Shedlock: Absolutely I am Austrian. Money
supply and credit are paramount in economic analysis. However, many
Austrians missed the mark badly by failing to consider credit. To me,
inflation is an increase in money supply and credit with credit marked
to market. Deflation is the opposite. Those who predicted massive "price
inflation" based on rapidly rising base money supply or M2 missed the
boat and missed it badly. Many Austrians called for treasury yields to
go to the moon. When oil hit $140 in 2008 I called for record low yields
across the entire yield curve. Most thought I was crazy. My rationale
was based on credit, the demand for more credit and the value of credit
on the balance sheets of banks. The demand for credit plunged, the value
of debt as an asset on balance sheets plunged and in response, yields
plunged.



This set of events was very predictable but many called for
hyperinflation based on rapid increase in base money supply and the
misguided money multiplier belief that increases in money supply get
lent out ten times over. In practice, the money multiplier theory is
nonsense and the $1.5 trillion in excess reserves at the Fed proves
it. Banks lend under three conditions, all of them required: 1) Banks
are not capital impaired. 2) Banks believe they have credit-worthy
borrowers. 3) Credit-worthy businesses and individuals want loans. If
any of those conditions fail, credit expansion goes nowhere (at best)
and is negative if defaults rise.



Except for student loans, credit expansion has indeed gone nowhere in
this recovery. I wrote about credit expansion recently, complete with
nice charts, in my post, The Real Consumer Credit Story: Virtually No Recovery in Revolving Credit, No Recovery in Non-Revolving Credit.



Daily Bell: What is your position relative to Bill Still, Ellen Brown and others who espouse public central banking?



Mish Shedlock: Should populist Ellen Brown get her
way, I would have to rethink my US hyperinflation position. Sadly, Brown
is another one of those who understands various problems with the Fed,
but proposes a solution that is worse, putting state politicians in
charge of printing presses. When push comes to shove, the Fed would
protect the banking system. Politicians would not. Moreover, the idea
that North Dakota, a small, loosely populated farm state is in good
shape because it has a state bank is preposterous. Worse yet, Brown
takes that absurd position to the extreme, with a proposal to end the
Fed and put California politicians (state politicians in general) in
charge of printing money to support union causes. For further discussion
please see "Lawmakers Threatenn to Take Over Monetary Policy."



Daily Bell: You want to end the Fed don't you? What would you put in its place?



Mish Shedlock: One word: nothing. The free market can easily set interest rates.



Daily Bell: Do we need government bureaucrats to dictate the production or the price of cement, oranges, automobiles, computers or copper?



Mish Shedlock: Anyone proposing such an insane idea
would be laughed out of the room yet we expect a bunch of academics,
with no real world experience, to do something far more difficult: set
the proper amount of money and the interest charged on it. The idea is
as ludicrous a Russian central planners setting steel production levels.
Results speak for themselves: a series of economic bubbles and
collapses with increasing amplitude in both directions. The result is a
shrinking middle class and increasing wealth concentration at the top.



Daily Bell: Does Greenbackerism lead to inflation? If not, why not?



Mish Shedlock: Before there can be intelligent
discussion, one must define the terms "Greenbackerism" and also
"inflation." Let me ask a simple question: What's more important to the
economy, home prices falling from $600,000 to $250,000 or the price of
steak going from $4.99 to $5.99 or gasoline from $2.50 to $4.00. People
constantly moan about the latter, but economically speaking, the plunge
in home prices is far more important. I discussed this at length in "How Far Have Home Prices 'Really' Fallen? HPI and the CPI."



I suspect the answer to your "Greenbackerism" question is, "Yes, eventually," with an emphasis on eventually.
It is safe to say, regardless of your definitions, that printing is
unsound and ultimately, printing money leads to bigger boom-bust cycles
or other economic distortions that crucify the middle class.



Once again, my definition of inflation is an increase in money supply
and credit, with credit marked-to-market. Deflation is the opposite.



Let's compare the practicality of my definition vs. a definition that
involves prices or a definition that involves money supply in
isolation.



If the definition of inflation is a nominal rise in the CPI, then the
inflationists have allegedly been correct. However, treasury yields are
at record lows, home prices are at record lows, jobs have languished
and credit has stalled. Simply put, most of the things one would expect
to see in inflation have not happened. The same holds true for those who
only look at exploding base money, forever predicting the money will
multiply ten times over and treasury yields will soar.



On the other hand, my credit-view of deflation has accurately called
for most of these things, including the rise in the price of gold and a
collapse in the value of houses. Like Humpty Dumpty, people can define
the term inflation however they want, but those who miss the boat on
credit are left wondering why the economy is not acting as generally
expected by their definition.



Most Austrians completely missed the ramifications of collapsing
credit and the collapsing value of credit on bank balance sheets.
Similarly, virtually all Keynesians missed the boat on the housing bust.
In general terms, Keynesians missed the inevitability of a collapse
that must follow a reckless expansion of credit. Only those who focused
on credit have been properly aligned with what is actually taking place.



Daily Bell: What's the future for the EU?



Mish Shedlock: No currency union in history has ever
survived without there being a fiscal union as well. Since there will
not be a fiscal union, the Eurozone must break up. The ideal way would
be for Germany and the Northern countries to exit. The painful way will
be a piecemeal exit. I expect this to be long and painful.



Daily Bell: How about China?



Mish Shedlock: China is due for a "hard landing"
which I define as less than 3.5% growth for the rest of the decade. I
expect commodity prices will likely crash and the commodity producing
currencies such as Australia and Canada will take a big hit as well.  



The Economist
believes China will be the world's largest economy by 2018. I suggest
2030 may be optimistic and Chinese growth will average 3% or less for
the rest of the decade. For a discussion of the implications, please see
"12
Predictions by Michael Pettis on China; Non-Food Commodity Prices Will
Collapse Over Next Three to Four Years; Nails in the Hard Landing
Coffin?"



Daily Bell: If China goes into a meltdown, the world faces a full-scale depression. What's your take?



Mish Shedlock: The US will actually fare relatively
well in a collapse of China. It is the trade surplus nations and
commodity produces that will take the biggest hit as noted in the
previous link.



Daily Bell: Where is the US headed?



Mish Shedlock: The US is headed for recession. The
US recession will not be as bad as Europe, but corporate earnings will
sink like a rock. The US dollar
will strengthen much to the dismay of the hyperinflationists. Then,
after Europe, China, and Japan take big hits, then and only then will
the final plunge in the US dollar occur.



Daily Bell: Where is Japan headed?



Mish Shedlock: Japan is all but guaranteed to blow
up before the US. A mere rise in long-term interest rates from 1% to 2%
would consume nearly all government revenues. Ironically, I like
Japanese equities but only hedged against a plunge in the Yen. After
20-plus years of deflation, Japanese companies have almost no debt but
the currency risk is huge.



Daily Bell: Are you confident of your businesses success in the US?



Mish Shedlock: If you mean me personally, yes,
pretty much so, but not overconfidently so. I am debt-free. We paid off
our mortgage this month. The key will be to catch the turn. I will not
be bearish forever.



Daily Bell: Are you thinking of traveling abroad?



Mish Shedlock: Personal difficulties make overseas
travel problematic. I am now involved in a fundraiser for ALS research
(Lou Gehrig's Disease). My wife is in the late stages and nearly
immobile. She has been on a feeding tube for over a year and cannot eat
or drink anything, including water. So far, people from at least 22
countries have made donations. I ask everyone to please consider making a
contribution. To learn how you can help, please read "My Wife Joanne Has ALS, Lou Gehrig's Disease."



Daily Bell: What do you think of US monetary policy?



Mish Shedlock: It's hopeless. We should get rid of
the Fed specifically and all central bankers in general. As noted
earlier, central bankers are nothing but serial bubble blowers. The
irony is they purport to be "inflation fighters." In reality, central
banks are the very cause of inflation. Bernanke even wants a 2%
inflation target. Economically speaking, it's crazy. Eventually asset
prices and wages do not follow consumer prices and all hell breaks
loose, which is precisely where the global economy is today. I have some
nice charts of inflation targets and real disposable income in "Huge Problem With Bernanke's 2% Inflation Target Explained in Pictures."



Daily Bell: On US government statistics?



Mish Shedlock: Any statistics that need to be
produced, the free market can do better and cheaper. For example, Gallup
does monthly surveys on unemployment and they do a very good job. Do we
need a mountain of highly paid government bureaucrats to gather
unemployment stats? I think not. Most do not believe the stats anyway.



Daily Bell: What's in the future for gold and silver?



Mish Shedlock: Gold is money. When available, the
free market has always selected gold as money. Government decree cannot
change that fact. Silver, however, has a huge industrial component.
Sometimes silver acts like money but most of the time it acts more like a
commodity plaything. Would the free market accept gold and silver as
money right now if allowed? I don't know but I sure would like to find
out. What sets me apart from the Prechter deflationists is my
recommendation that people hold 10-30% of their investment capital in
gold. I do not have a price target but strongly believe another big
surge is coming.



Note that gold does not necessarily respond to movements in the US
dollar. For example, the US dollar index is near 80. The dollar index
was at 80 in late 2004 and gold was just over $400. If gold is not
responding to moves in the dollar then what is it responding to? I
suggest gold has responded to central bank efforts to revive credit. It
has also responded well to sovereign credit stress.

The Fed wants home prices to rise. The Fed also wants another credit
lending spree. Neither happened. Clearly, the Fed can provide liquidity
but it cannot determine where (if anywhere) liquidity goes. Since more
liquidity efforts are surely on the way, and gold is the likely
beneficiary, I highly doubt that gold has peaked. Eventually there will
be a huge currency crisis and gold will soar.



Daily Bell: Tell us more about the performance of your firm.



Mish Shedlock: Sitka Pacific manages portfolios that
look across asset classes in an effort to generate absolute returns
without exposing the portfolio to catastrophic drawdowns. You can find
more information including our 6-plus year performance track record at sitkapacific.com.



Daily Bell: What's your investment strategy?



Mish Shedlock: Sitka Pacific is very cautious right
now. Our Absolute Return strategy currently has a position in gold, but
is otherwise essentially market neutral. Our current mission is risk
avoidance with a focus on avoiding the next big decline. We feel risk is
high and if we avoid big drawdowns we will more than make up for it by
hopping in when valuations are more attractive. To be fair, I said the
same thing over a year ago. Sometimes the market has other ideas. That's
why we do not use leverage, and we are never net short.



My personal views on risk and valuations are reflected in my post, "Misty Water-Colored Memories, Dirt-Cheap Stocks, and Patient Opportunism."
 I also believe there is a strong likelihood of "Negative Returns for a
Decade." There are numerous references in the preceding link.



Daily Bell: Do you believe there's a power elite that wants to create global government?



Mish Shedlock: Yes. One can easily see it in Europe.
Many are angling for what I call the European "nanny zone." One can
also see the idea in various IMF Special Drawing Rights proposals.



Daily Bell: Is that a good idea?



Mish Shedlock: Obviously not. It will fail for the
same reasons the Euro will fail. Europe is the big test and I think the
Eurozone splinters. Should the Eurozone actually hold together, expect
zero growth for at least a decade. Germany will take a huge hit
regardless. Either Germany provides more capital, or the Southern states
default leaving Germany holding the "euro bag." Expectations that
Germany will decouple from the rest of the Eurozone are thus
nonsensical.



Daily Bell: What about this tax situation? Why the current emphasis on tax revenue?



Mish Shedlock: Hiking taxes in the midst of a global
recession is foolish at best. Europe and the US need work rule reforms
and pension reforms, not higher taxes. I strongly support ending
collective bargaining of public unions, scrapping Davis-Bacon and all
prevailing wage laws and instituting national right-to-work laws. Many
US cities are effectively bankrupt by making pension promises that
cannot be met. Greece is bankrupt for that reason (and others) as well

.

Raising taxes is not the answer. So what's the solution? I have an eight point proposal in "Public
Unions Bankrupt Illinois: Unpaid Bills Top $9 Billion as Comptroller
Reports 'State Treading Water'; Mish's Eight-Point 'Bold' Plan to Save
Illinois."



Daily Bell: Where do you go from here?



Mish Shedlock: I am thinking about writing a book on
the direction the US should take. I have lots more ideas. However, the
problem is finding the time to do it.



Daily Bell: Thank you for taking time from your busy schedule for this interview, and our best wishes to you and your wife.



Mish Shedlock: Thank you for the invitation.

Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
Visit http://www.sitkapacific.com/account_management.html to learn more about wealth management and capital preservation strategies of Sitka Pacific.

Hear That? It’s The Sound Of The Doors Closing For Americans

Hear That? It’s The Sound Of The Doors Closing For Americans:
We hate being right.
After all, we have been predicting that people in the US and most of the western world will soon find themselves living in a Terminator-esque world where they will be tracked every moment of the day (US Government Builds World’s Biggest Domestic Spy Complex), 1 the US Government can jail indefinitely and even kill its own citizens (NDAA Bill Can Send Americans to Prison Indefinitely Without Trial), that the assets of westerners will be taken and consumed by their vampire overlords (France mulls 100% tax rate), they will be restricted in their ability to travel outside the country (Congress about to pass a bill that restricts travel and revokes passports with no trial) and it will be impossible to get your money outside of the country to protect it from confiscation (capital controls).

On the topic of capital controls we had predicted what is now happening. We’ve been writing about it for some time. The only thing that has surprised us is the speed in which it is all happening. We are rarely shocked but we have been surprised at the speed with which the world’s banks have stopped accepting US citizens as clients.
It was only a few weeks ago that we penned, “International Banking Options for Americans Closing Down Fast” and stated that our sources had notified us of at least one bank (in Latvia) which has stopped accepting US clients because of the rules put in place by the IRS in the Foreign Account Tax Compliance Act.
That was then, this is now. Here is just one man’s recent statement:

“I don’t open U.S. accounts, period,” said Su Shan Tan, head of private banking at Singapore-based DBS, Southeast Asia’s largest lender, who described regulatory attitudes toward U.S. clients as “Draconian.”

The phone has been ringing off the hook at TDV Media and Service’s headquarters. Nearly hourly word has come in of another bank that has stopped accepting US clients. Some have even started closing accounts for US clients… a trend we definitely expect to continue.
Don’t believe us? Check out this article from the San Francisco Chronicle. They only got one thing wrong. The title of the article is “U.S. Millionaires Shunned by Banks as Tax-Evasion Law Looms”. But, it’s not just millionaires. It’s all US citizens with a foreign bank account.
BLOODBATH
It’s a bloodbath. People who make their living off of helping US citizens set-up foreign bank accounts to diversify some of their assets outside of the country are closing shop… all in the last few weeks. They are walking away from their honest, often decades-old business like victims of a bomb blast… in shock.
We feel very bad for them but we knew this was coming and have been hiring people almost daily to help out with the demand. If you are a US citizen and have money in a foreign bank account that you would like to keep there, expect a call any moment. It’ll be the bank and they’ll tell you that you have 72 hours to close your account and to tell them where to send the funds. If you don’t want to send it back to the US where Barack O’Bomber already has grand plans for how to spend it then your options are seriously limited.
But, here’s the good news, there is still options. Here are just a few options that are still on the table:

• There is at least one bank in the Caribbean that is still willing to accept US clients. If you get a call from your bank that you must move funds immediately and do not want to repatriate them then you can open an account with them. We have already identified the bank and have set-up relationships to get your account opened and processed all via the internet within 24-48 hours . Contact info1@tdvoffshore.com for more information
• You may still have a few months before your bank contacts you. In that time, we have found a number of ways to get a second, foreign passport inside of 30-60 days. Once you have a passport other than a US passport you can then convert your foreign bank accounts to your new citizenship and avoid having your accounts closed or reported to the IRS. Contact info1@tdvpassports.com for a consultation on the best solution for you.
• You can also convert a significant portion of your cash into precious metals… which is a very smart move to begin with… you can easily buy and/or transport these assets to a number of international destinations where property rights are respected and the governments are not in massive debt and in need of confiscating your assets. This includes Singapore, Switzerland, Hong Kong, Uruguay and many more. See “Getting Your Gold Out Of Dodge” for specific, detailed actionable info on doing this.

Even if you don’t need any of these types of services at this time, but it is finally dawning on you that the fiscal cliff is approaching very quickly and want to be prepared for what is to come, all of this type of information is the main focus of The Dollar Vigilante newsletter. Subscribers are regularly updated with news, analysis and info for how to survive the coming western financial system collapse.
SELF INTERESTED SCARE MONGERING?
You may be thinking, “this guy just seems to be trying to scare us and promote his own products”. If you’ve followed my writing for any length of time you will know that I’ve been writing about these events for years. And, up until recently we didn’t even offer products. We began writing The Dollar Vigilante two years ago because the writing on the wall had become clear and we wanted to help as many as possible to survive the coming western nation-state and financial system collapse… but we were inundated with emails asking us, “Ok, we agree with your prognosis but what can we do to protect ourselves?”
It was then that we began scouring the world looking for second passport and offshore bank account services and found them lacking. We looked for other information such as is included in Getting Your Gold Out Of Dodge and came up empty. That’s when, as good entrepreneurs and capitalists, we decided to offer the products ourselves. That’s what good capitalism is about… finding ways to help people in need.
The monetary system that the world has lived under for the last 41 years, since the US went off the pseudo-gold standard in 1971, is entering the end game. And we are sorry if we need to be so abrupt in trying to wake you up to it. But, to show you the kind of brainwashing and psychological issues we are regularly up against, here is a conversation we recently had from a woman who had called us to see if she really needed to make her move to protect herself ASAP:
Jane: I just don’t believe it is that urgent. There is nothing on the nightly news about this… and my financial advisor says there are green shoots and we are in recovery.
TDV: What would it take you to realize that it was time to get out of the US?
Jane: I’m not leaving until they shut down the border.
We sat there speechless for about a minute after that one. She has normalcy bias. And, normalcy bias is very dangerous in times like these when everything is about to change.

We suggest you don’t wait until the borders close to get out. And, this is not just a US phenomenon. The entire west will follow in its footsteps… and other nationals as well, such as the Chinese, also should see the need to internationalize themselves (and they do, “China’s Millionaires Looking For Way Out”). There is already a wall around China, don’t wait until there is one around you before you start taking the steps necessary to protect yourself from leviathan.
Regards,
Jeff Berwick
Hear That? It’s The Sound Of The Doors Closing For Americans was originally featured on Whiskey and Gunpowder. Visit Laissez Faire Books for the best selection of libertarian book titles.

Hugh Hendry On Europe "You Can't Make Up How Bad It Is"

Hugh Hendry On Europe "You Can't Make Up How Bad It Is":
At The Milken Institute conference yesterday, Hugh Hendry delivered his usual eloquent and critical insights on the state of Europe. Beginning with the statement that "All of Europe has defaulted", the canny-wee-fella (translation: shrewd and cautious young chap) explained that "The political economy in Europe is such that the politicians chose to default on their spending obligations to their citizens in order to honor the pact with their financial creditors and so as time goes on, the politicians are being rejected." Between France's election of Mr. Hollande and Luxembourg's 'when times get tough you have to lie' Juncker, Hendry says the only inspiration for Europe is fiction as "you just can't make up how bad it is" as he goes on to discuss the precedent for a way forward, the grotesque distortions of fixed exchange rate regimes, why Weimar happened, why the transfer union will never happen, Ayn Rand's reality, and fear politicians are feeling.
The entire discussion is well worth watching for a sense of the underlying reality in Europe.

The underlying reality that what the European monetary union is about is not about preventing a third so-called European civil war, it is essentially about making someone (France, Germany or both) a Great Power, a European Hegemon, and a global player.

Starting at around 12:00, Hugh begins his must-watch discussion...
And begins again at around 30:00, Hendry discusses the British perspective on the impeccable logic of the German mind and why the transfer union will never happen in Europe...and why Wiemar happened...
At around 46:00, Hendry addresses Germany's emerging housing bubble (and why it won't occur) and the two forms of leverage in the world.
From 52:40, Hendry takes on the view of (disagreeing with) a weak USD and the US being supplanted as a global leader
Hendry confesses to not being able to finish reading Ayn Rand's Atlas Shrugged at around 1:02:00 and explains why (apart from its length and lack of pictures)...noting that is too depressingly real in its description of the world we live in today...

We have reached a profound point in economic history where the truth is unpalatable to the political class - and that truth is that the scale and magnitude of the problem is larger than their ability to respond - and it terrifies them.

Concluding at 1:10:10 - "we are single-digit years away from the most profound market clearing moment"
(h/t Stock Bitch)