A Fireside Chat

Just WIthhold Judgment For A Minute and Watch

2012-01-07T21:35:00.001-07:00

Ambrose Evans-Pritchard's Predictions for 2012

2012-01-04T09:33:00.003-07:00

2012 could be the year Germany lets the euro die

There will be no Chinese credit explosion this time, no real help from post-bubble India or over-stretched Brazil.It will be a global downturn on all fronts, aborting what remains of recovery even before industrial output in the OECD bloc has regained its pre-Lehman peak.

The second wave will hit with youth unemployment already at 45pc in Greece and 49pc in Spain; and with the US labour participation rate already at depression levels of 64pc.

We will hear more about Italy's Red Brigades, Greece's Sect of Revolutionaries, and America's militia groups, and how democracies respond. Proto-fascism in Hungary is our warning.

China's surgical soft-landing will slip control, like Fed tightening in 1929 and 2007, or Japan's squeeze in 1990. Once construction has run amok, bears will have their way.

Since the purpose of New Year predictions is to stick one's neck out, let me hazard that China will devalue the yuan in 2012. It will export yet more spare capacity into a deflationary world, until the West retaliates and starts to turn its back on globalisation. Capital outflows will accelerate. The idea that China can rescue anybody will seem quaint.

The strong yen has already pushed Japan back into deflation, and fresh recession. Public debt has reached one quadrillion yen, as noted acidly by Tokyo's R&I rating agency when it stripped Japan of its AAA rating last month. That is $12.8 trillion, or Italy plus Spain times four.There is a graveyard full of Gaijin commentators who wrote off Japan too soon. Will the dam break this year at last, with tax covering less than half of spending, public debt at 237pc of GDP, ever fewer workers, and a state pension fund now selling government bonds? Perhaps. As R&I warns, Europe's woes have brought sovereign debt into very sharp focus.

America will look resilient for a few months. The payroll tax deal has averted a fiscal shock, but that is all. Money growth (M3) has sputtered out, and velocity is falling.Politics on Capitol Hill will restrain Ben Bernanke from launching QE3 until the Tea Party can see the eye-whites of deflation. Six-month PCE inflation was 2.9pc in August, 2.4pc in September, 1.6pc in October, and 1.2pc in November. Not there yet. Prepare for a Wall Street squall first.Whether the scare of early 2012 turns seriously ugly depends on the nerve of policy-makers. Shock absorbers are worn thin, but not exhausted.Central banks have the means to prevent a 1930s outcome, even with rates at zero, if willing to deploy Fisher-Friedman monetary stimulus with conviction, buying assets from non-banks and targeting nominal GDP growth of 5pc. But policy defeatism is in the air, and Austro-liquidationists are winning the popular debate.

The second leg of our Kondratieff Winter comes at an awful moment for Euroland, just as the North-South split turns deadly.The European Central Bank has guaranteed trouble by letting M3 money contract. Fiscal tightening into the downward slide will make matters worse. A credit crunch as banks shrink loan books by €1 trillion to meet capital ratios will do the rest. All policy levers are set on deep recession, and deep recession is what Europe will get.Monetary union is too damaged to parry these blows. The ECB's Mario Draghi will cut interest rates to 0.5pc by February, just to keep pace with passive tightening. Half-hearted purchases of Italian and Spanish bonds will drift on, doing more harm than good. By reducing existing bond-holders to junior status, the ECB will ensure a slow exodus. Draghi knows this. His hands are tied.

The Bundesbank will wage guerrilla war against money printing through the pages of Die Welt and Handelsblatt, paralyzing the ECB's Council until Angela Merkel orders Jens Weidmann to desist.By then it will be too late, deliberately so. Contraction will play havoc with budgets in Italy, Spain, Portugal, and France. Austerity alone will seem a Sisyphean task. Club Med leaders will not be able to command popular assent for such 1930s scorched-earth strategies.

Politics will fracture further, splintering to the hard Left and Right. The Front National's Marie Le Pen's will beat Maréchal Sarkozy into the French run-off invoking 'terroir' and the ancient franc. Escalating levels of coercion will be needed to uphold the Project, with EU commissars eating alone in the administered territories of Greece and Italy.

Far from protecting credit ratings, Europe's self-defeating policies will bring a blizzard of downgrades. France's AAA will go, obviously. So will Austria's as banking woes deepen in Hungary, Ukraine, and Croatia. Vigilantes will take a closer look at Holland's household debt, off the charts at 270pc of disposable income.The shrinking AAA core will leave Germany propping up the EFSF bail-out fund, until the weight of contingent liabilities endangers Germany itself. That will concentrate minds.France's President Hollande will "triangulate", playing the pan-Latin card to discomfit Berlin and force a policy change. Portugal's Troika sacrifices will prove as futile as Greek efforts before. Lisbon's second bail-out will come just as Greece graduates from riots to insurrection, and Italy's Silvio Berlusconi will try to snatch power again by whipping up fury against Tedeschi. Bundestag patience will snap at such disorder everywhere.

Germany will not be able to fudge EMU any longer. It must either immolate itself, accepting a debt union and internal inflation to save a currency it never wanted and doesn't love; or opt instead to uphold fiscal sovereignty and the essence of its own democracy, and let the Project die.The shrewd, equivocating, ice-cold Chancellor will quietly oust arch-europhile Wolfgang Schauble and let the Project die, always pretending otherwise.Just an idle hunch. Guten Rutsch.

If Only We Had A Few of These Over Here

2011-12-31T17:04:00.001-07:00

Let the Depression Burn Itself Out

2011-12-26T05:25:00.000-07:00

12/21/11 Baltimore, Maryland – The year is winding down. The sun is low in the sky. There soon won’t be anything left of 2011.

The Dow put in a good performance yesterday — up more than 300 points when we last looked. Housing starts were at a 19-month high…which caused investors to think recovery is right around the corner.Christmas is coming too.

But at least we know what we want for Christmas — a depression…a merry little depression.Paul Krugman says we already have one:“It’s time to start calling the current situation what it is: a depression.”

We should be so lucky!
The nice thing about a depression is that it cures a depression. Stocks collapse. Businesses go broke. Speculators jump from tall buildings. Wages fall. Prices drop. Interest rates sink. And then, with the cost of assets, labor and credit at rock-bottom levels, the scrap dealers, recyclers and entrepreneurs get to work. They pick up the pieces, dust them off, and find ways to make them productive again.

Some years ago, forestry experts realized that trying to prevent or put out forest fires was not always a good thing. Forest fires are natural events. Lightning hit dry tinder. It burnt off the underbrush, laying down valuable ash. The forest was cleared…and fertilized…and ready for new growth.Today, most foresters believe it is better to protect lives and property, but otherwise let forest fires burn themselves out.

Like forest fires, depressions seem to be natural occurrences. Few people like to see them coming. They call the feds. Within minutes the smoke jumpers are out of their planes…and the feds are on the scene with their water cannons and water bombs.As we saw a few days ago, the feds put $29 trillion to work fighting the Great Correction. If money were water, they flooded the world with a Lake Erie of liquidity. And what did they get for it? One very soggy economy.

The Crash of ’21 was followed by the Depression of ’20-’21. In terms of lost GDP, it was about the same as the decline of 2008-2009. But in terms of prices it was much worse. Prices fell as much as 18% in a single year. Unemployment approximately doubled. The stock market collapsed 50% and industrial production fell 30%.Instead of throwing cold water on the depression fire, the government actually poured oil on it. It did exactly the opposite of what our government does today. It did not respond with a program of counter-cyclical spending. It cut spending.

According to the Keynesian geniuses of our time — including the aforementioned Nobel Prize winner, Krugman — they made the situation worse.But it worked! The Great Correction has been smoldering for 5 years. It will probably go on for at least another 5 years…maybe 10 or 15. But the depression that began in January 1920 was over by July of 1921 — just 18 months later. Soon, the economy was booming again.Why? A depression cleans up mistakes. It burns off bad debt. It lays down a thick blanket of mineral-rich cinders, providing the perfect bed for planting new businesses and hiring new workers.

Oh Santa…give us a real depression in 2012!

Bill Bonnerfor The Daily Reckoning

Read more: Let the Depression Burn Itself Out http://dailyreckoning.com/let-the-depression-burn-itself-out/#ixzz1hduNHIeq

Cicero's Solution to an Empire in Decline

2011-12-19T09:52:00.001-07:00

* "The budget should be balanced,
* the Treasury should be refilled,
* public debt should be reduced,
* the arrogance of officialdom should be tempered and controlled, and
* the assistance to foreign lands should be curtailed lest Rome become bankrupt.
* People must again learn to work, instead of living on public assistance."~Cicero...55 BC

Krugman Uses the D Word

2011-12-13T23:16:00.001-07:00

Well it must be official. If the New York Times' favorite Keynesian (as opposed to their favorite Kenyan) has proclaimed that we are in a depression, then we must be in a depression. In a Dec 11 editorial column, Krugman wrote:

It’s time to start calling the current situation what it is: a depression. True, it’s not a full replay of the Great Depression, but that’s cold comfort.

Personally I reached that conclusion about 5 years ago, but I'm glad that people with high IQ's and many letters after their names are agreeing with me. Makes me want to go out and predict some more.

Krugman is right that this isn't a "deep depression." Things aren't as bad as they were for awhile at the depths of the 1930's. That'll happen when Europe implodes, probably taking several major American banks with it, but probably not until after Christmas. Expect Europe to disintegrate in earnest in late January or early February. Until then expect governments to continue to throw their populations under the bus in order to keep the bond speculators happy. That will last until everyone realizes that there's not enough money on the planet to keep the bond speculators happy.

There is one lone bright spot. Horizontal drilling combined with hydraulic fracturing has dramatically increased U.S. oil production and is serving to keep a limit on price increases. The development, particularly of natural gas as a motor fuel, could provide a real boost to the economy. Of course the EPA is busy trying to screw it up for everyone. Par for the course. Some people will not only shoot the goose that lays the golden egg, they'll also fine you for having a dead goose on your property.

My advice is my advice. Debt is bad. Saving is good, but lots of banks are going bad, so keep it somewhere else. Gold and silver good, though we are probably getting ready for another downleg in gold and silver. And of course God is good. All the time.

Euro Risk, Part 2 - CNBC

2011-11-30T09:34:00.000-07:00

Euro Risk, Part 2 - CNBC

Euro Risk, Part 1

2011-11-30T09:29:00.000-07:00

Euro Risk, Part 1

Only Days Til Europe Implodes?

2011-11-29T09:33:00.001-07:00

I'd repost this article here, but the Financial Times has decided they don't want people reposting their stuff, even with correct attribution and citation. Annoying and hopelessly anachronistic, but nonetheless I'll accede to their wishes. Go to their website and read the article from the link below.

The Eurozone Really Has Only Days to Avoid Collapse

If and when Europe dies, they take the U.S. banking system (and probably good portions of the Asian banking system) with them. At least for awhile. Get ready. Cash in your pocket, food in your pantry, any necessary medications laid up in the medicine chest, and a full tank of gas are what is needed now.
The push now from within Europe is for an even more tightly integrated and controlled Europe. The Devil's plans... oops! I mean George Soros and his cronies' plans for the world require the various crises to force everyone into unions with less and less freedom. This whole thing is being done intentionally, using the dialectic process. The current crisis will serve to show that this way of doing things is unsustainable and the Powers That Be need more power and authority to control things and protect us. The sheep will bleat for safety and security and give it to them. The Powers That Be will take the new power and use it to create the next crisis. It's the product of more than a century of planning, and its end was completely forseeable by the architects of the current system and their critics.In his Essay, "Is Progress Possible: Willing Slaves of the Welfare State," C.S. Lewis wrote:

I believe a man is happier, and happy in a richer way, if he has 'the freeborn mind'. But I doubt whether he can have this without economic independence, which the new society is abolishing. For economic independence allows an education not controlled by Government; and in adult life it is the man who needs, and asks, nothing of Government who can criticise its acts and snap his fingers at its ideology. Read Montaigne; that's the voice of a man with his legs under his own table, eating the mutton and turnips raised on his own land. Who will talk like that when the State is everyone's schoolmaster and employer? Admittedly, when man was untamed, such liberty belonged only to the few. I know. Hence the horrible suspicion that our only choice is between societies with few freemen and societies with none.

Germany Can't Sell Its Bonds... The Collapse is Almost Here

2011-11-25T10:15:00.001-07:00

It's all falling apart, folks. Get ready. Germany tried to auction some of its sovereign debt today. These would be the German equivalent of the 10 year U.S. Treasury Bond. Germany is one of the strongest economies on the planet, and it is certainly the strongest economy in the Eurozone. Basically it's Germany's deep pockets that have kept the Euro from imploding. Everyone was looking to Germany to backstop their plays and bail out the rest of Europe.

The Germans were only able to sell about 2/3 of their bond offerings at auction today. Bond buyers do not want German debt. This is unprecedented. And bad. Very, very bad.

If the bond buyers don't want German sovereign debt, then they don't want the Euro, which means they don't want Europe at all. Which means Europe collapses and disintegrates. Which means the rest of the world goes down with it, thanks to our interconnected, derivative-happy world monetary system.

As one analyst said,

“This auction is nothing short of a disaster for Germany,” Mark Grant, a managing director at Southwest Securities Inc. in Fort Lauderdale,Florida, said by e-mail. “If the strongest nation in Europe has this kind of difficulty raising capital, one shudders concerning the upcoming auctions in other European nations.”

The deflationary collapse is happening right now. Can the politicians and the banksters stop it? It's extremely doubtful that they can put a temporary stop to it. It's certain that they cannot put a permanent stop to it.

What will happen?

1. Everyone will flee to the U.S. dollar. Every other class of asset will plummet. Gold and silver will get whacked pretty hard. Stocks will plunge. Bonds (other than U.S. Treasuries of a very, very short term maturity) will be worthless. The only thing that's worth holding right now is cash.

2. The whole banking system will be disrupted. There will be bank holidays and banks going belly-up. It's entirely possible that the FDIC's deposit insurance fund will be overwhelmed by demand for funds from the bad banks. The ATM's will not work for awhile, and neither will your credit card. You need to have cash money somewhere safe that you can get to it.

3. There will be panic buying for necessities, and the transportation and distribution infrastructures will be disrupted at least temporarily. We've been here before, in 2008. The whole system almost came tumbling down. It was within hours of doing so. The government suddenly found itself in the midst of trying to figure out how to feed several million people. Hopefully they've learned from that experience and are ready this time, but you cannot count on it. One thing is for sure. New York City will get help before Western South Dakota (and places like it) do. So keep your gas tank full. Keep some fuel in your gas cans in the garage. Have some non-perishable staples on the pantry shelf.

Now is not the time to play around with your family's wellbeing. And really, what's the downside if I'm wrong? Put the gas from the gas cans in your car, drive to the bank and redeposit your money, and then go home and eat the canned green beans.

Now, this probably all seems A) a bit surreal and unbelievable, and B) quite frightening. Sorry, there's not much I can do about the surreal and unbelievable part. If you've never experienced something it's pretty difficult to avoid that surreal and unbelievable feeling. However this sort of thing has happened before. It happened to the whole world in the 1930's. It's happened in various countries around the world.

Which leads me to the quite frightening part. This is not the end of the world. We will get through this. There will be discomfort, and adjustments, but we will get through this, and things will be better again someday. This is the time for neighbors to band together and help each other.

Most of all, it's a time to trust God.

Watch the European Bond Rates

2011-11-20T23:55:00.001-07:00

The Bond Vigilantes are running riot through Europe, and countries besides the PIIGS are suddenly seeing their borrowing costs rise. France and Finland have had very dramatic rises in borrowing costs. The Netherlands is next, it seems, along with Belgium.

The powers that be in Europe are saying "more Europe is what we need, not less." Yes, give the banksters in Brussels more power to print money. That will fix everything. It is doubtful whether the common people will accept "more Europe." But what the common people want in Greece hasn't seem to matter to these folks, so maybe they will continue with that theme.

When Europe implodes, that will bring a worldwide stock market and banking collapse, along with deflationary forces. Get ready. It's coming. It's probably 8 weeks away (let's get ourselves past Christmas before we blow up the world!)

The deflation will be severe, but relatively brief. It will create the political will to create massive amounts of money. Then we will have a great inflation in earnest. Nimbleness is what is called for here. You want cash and cash equivalents right now. A well stocked pantry wouldn't hurt either. Your bank could well be closed for several weeks "restructuring." Keep gas in a gas can in the shed and keep the car full. If you have firearms, load and ready them.

It's probably not going to be very nice, but you can tell your grandkids about it.

It's coming.

This Cartoon Predicted the Future in 1948

2011-11-16T22:59:00.001-07:00

When the Wheels Come Off In Europe

2011-11-09T17:54:00.001-07:00

Just a quick post this evening. The Greek Contagion is beginning to spread in earnest. Sooner or later the wheels are going to fall off in Europe. When they do, it will be like 2008, only magnified. Prepare for every kind of asset to get whacked hard, with the only exceptions being the dollar and US Treasuries. Today the 30 year Treasury was bid up sharply, as investors fled to the "safe haven" of U.S. Government debt.

Batten down the hatches. The storm is here.

If You Don't Agree With Me, You're Anti-Intellectual

2011-10-18T09:10:00.000-06:00

There is a Neo-liberalism arising within evangelicalism. It grows out of an attitude of accommodation with the world and a desire to be seen as "respectable" by the world. In order to accomplish that goal, these Neo-liberal leaders ask us to embrace theistic evolution, gay rights, and gay marriage.They also generally want us to accept the Marxist critiques of capitalism. If you ever hear someone say that God has a preference for the poor, or that on the cross Jesus was identifying with the poor and oppressed and suffering everywhere, the speaker is asking you to accept the critiques of Marxism as they were appropriated by liberal theology in the last century.

Think about what that means. One of the things it means is that Christ's suffering on the cross wasn't designed to atone for the sins of his people. He was not being punished in their stead. Most Neo-liberals have a very muddled theology of the Atonement, and most of the older liberals they read to get their inspiration categorically rejected the penal substitutionary model of the Atonement. Therefore, what was Christ doing on that cross? Well, he was proving that he was against suffering, and that he hasn't forgotten the sufferers. God is, in effect, saying "Fear not, oppressed gay man in San Francisco who can't have his medication at public expense. Fear not illegal immigrant who is in danger of being arrested and deported. Fear not Muslim woman living in Manchester England who still can't leave the house without her husband's permission, In your suffering, I am like all of you, and you are all like Me." A view of the cross used to make the sinner fall down in awe and wonder that God would pay such a price to rescue him. Now the cross teaches us how wonderful we already are, provided we can find a way to see ourselves as victims. Fortunately it's not hard for even the most pampered among us to find some small victim niche.

It also means that if we set a middle class American elect person at the table with a reprobate poor person and ask the question "Whom does God prefer?" We get a curious answer. God does not prefer the overfed, spoiled, bratty oaf of an American, even though God chose him from before the foundation of the world and Christ died to purchase him, and guarantees that he will see him safely home to heaven where he will be revealed as one of the most blessed creatures in the created order. No, no. God has a preference for the poor person.

How, exactly? He has not elected him, and saved him from hell. And God is not providing him with even those temporal blessings that he gave to Esau and many other reprobates throughout history. The Evil in the world is too strong for God to do that now, somehow. Here's how God has favored him. He has commanded the left wing theologians to agitate against the government of the overfed oaf of an American Christian until that government chisels some money out of the oaf, keeps a large portion of it for "government expenses" and give the remainder to the poor person, preferably in the way that is most destructive to his work ethic and human dignity, and creates dependence, thus depriving him of any real good from even this warped temporal blessing.

Of course God hasn't commanded that in the Bible, but nobody reads the Bible anymore in an intelligent and systematic way. When we actually examine what the prooftexts say in context, we find there is no divine mandate for such a thing, but that's ok. All it takes is someone with a PhD to say, "Thus saith the Lord..." and it's as if the Prophet Elijah, or even the Pope himself has spoken.

The interesting thing is that these Neo-liberal leaders generally don't get up in front of crowds of evangelicals and try to convince us that we ought to change our views. Safely ensconced in their tenured positions at XYZ Christian College, the pretend to be in us, but they are not of us. They write books that nobody will read, except their own students, because they will require them as textbooks for the courses they teach. They will therefore cheerfully pollute our childrens' minds when we send them to XYZ Christian College to get a Christian education, but they don't get in our faces. That might shut off the flow of money to XYZ Christian College.

They will, however, put articles in places like the NY Times. This is so that the world can applaud them. Because there's nothing safer and more rewarding than going to the group that hates the group you ostensibly belong to and saying, "Hey, I've been listening to what you've been saying about my group, and now I want to parrot it back to you and place myself at your disposal to use in your propaganda campaign against my group. I want to tell you how wonderful you all are, and how much my group sucks."Hence you get articles like this.

I would like to put the turncoats on notice that there are other evangelicals who aren't stupid and anti-intellectual. We also aren't pro-gay marriage and pro-theistic evolution. We are quite happy to say that the world might well be less than 10,000 years old. We've actually read Hegel. And history. And Isaac Watts on Logic. And theology. We see the epistemological quagmire you and the rest of the world is sinking down in. We're not jumping in with you. We're not "nice" in the wussy, middle class way that's expected of us. Most of all, we know what you're doing. We've seen it before and we know that healthy churches and people's souls are on the line.

How Poor Are the Poor In America?

2011-10-17T11:29:00.001-06:00

Economist Gary Shilling Predicts Deflation and Recession

2011-09-28T14:18:00.002-06:00