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JAPAN: A New Currency War Front

25 Minutes, 34 Slides

At 512% Total Debt to GDP and 226% Sovereign Debt to GDP Japan's Debt levels are alarming even compared to the EU 'GIIPS'. The IMF recently warned that Japanese debt was now "unstable". This is IMF code for unpayable and inextinguishable. So what is the solution? According to the new "ABE-nomics" policy it is to double-up.

Japan has replaced the Bank of Japan Governor and mandated a 2% inflation rate within 2 years. This defies logic at the current levels of debt since if they are successful, a mere 1% rise in borrowing costs (usually rises with inflation) would cost them 25% of their tax revenue. Japanese debt is presently 24X central government revenue and Japan is already spending 25% of tax revenue on interest payments.

As incredulous as this seems it becomes particularly frightening when you consider that Japan has been able to finance its debt because:

• Japan ran a trade surplus which generated lots of outside cash,
• Japanese citizens had high savings rate and were willing to buy government bonds.

Both of these advantages are now ending.

• Baby boomers are retiring, so savings rate is heading for zero,
• Trade surplus has turned into deficit. $8 billion trade deficit in February

WHAT YOU NEED TO KNOW

• Debts are 23X your tax revenues which means Insolvency,
• Doubling Monetary in 2 years is extremely experimental with these existing debt levels,
• "the BoJ is monetizing at a rate around 75% of the Fed on an economy that is one-third the size of the US!"
• What they are trying to do is devalue the currency to attempt to become more competitive while holding their rates market flat,
• Japan will lose control of rates, since leaving the zone of insolvency is impossible now,
• A 1% increase in interest rates would cost 2% of tax revenue = Insolvency
• How could Bond investors expect that they will get their money back at the value it is presently being placed at??
  

ABE-nomics has all the ingredients of igniting a global crisis but with the already 25% YTD devalued YEN, Japan has established a new front in the raging global Currency Wars.

EXPECT CHINA TO REACT
China is not going to tolerate the aggressive debasement of the Yen. With 20% of Japanese exports going to China they have the abilities to retaliate. Chine and Japan have a history of conflict as the recent escalation over two insignificant islands (rocks) clearly demonstrated.

 

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SPECIAL GUEST HOST: JOHN RUBINO, Author & Publisher of DollarCollapse.com

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CYPRUS: Crumbling Property Rights

30 Minutes, 30 Slides

The endless EU Bank Stress Tests ALL Cleared Cypriot Banks - Why? How Could This Be? The problems have been clear for a long time as the charts to this video point out.

Two weeks ago there was no indication of the urgency of the problem, then suddenly Cyprus is in crisis? Why? What was the catalyst? The short answer is the EU's ELA was pressuring the Cypriot government and it 'leaked' that the government was considering a depositor tax. Was this a planned leak? The financial world is thrust into a dilemma over the sanctity of Property Rights, Due Process of Law, unlawful confiscation and the meaningless of deposit insurance. A perfectly executed media event if the goal was to weaken these impediments to the next stage of Financial Repression.

There is much more going on here than what the media is hyping and focused on.

• GERMANY & IMF Expect the Cypriot Contribution (of the 17.5B Euro Total) to be:
• 5.8 Billion Euros
• Equivalent to 30% of GDP,
• Equivalent to 40% of Bank Deposits
• Total Country Debt to GDP will then rise to 92.6% (from 48.9% in 2008)

SEQUENCE OF SOLUTIONS OFFERED:

PLAN A - Steal Cash from Depositors (Wealth Tax Versions 1 & 2)

PLAN B - Steal Cash from Pension Plans, Sell Sovereign Assets & Facilities to Russia

PLAN C - A Solidarity Fund (CCO- Collateralized Cypriot Obligations) to buy Good Bank/Bad Bank with associated Capital Controls implemented to guarantee investors.

• This fund was to be collateralized by state assets, possibly including natural gas revenues, church property, and social security fund reserves.
• Though some form of deposit tax was 'apparently' not ruled out, it seemed the next last best hope for Cyprus was begging the Russians to extend a loan and begging the world to fund more debt from a nation about to see huge capital outflows.
• The approach was, it appears, a 'solidarity' approach - rather than tax the current wealth of depositors (and hand it over to Troika), 'tax' the future possibility of wealth creation and sell that to the next greater fool sovereign wealth fund (or would it be the ECB that decided these CCOs are acceptable collateral?)

PLAN D - Double Dip on Large Depositors over E500,00 (12.2%) and E100,000 (9.46%).

• Shift bad assets to a bad bank (along with the large uninsured depositors) and wound down (meaning 20-40% losses) and still face the initial large-deposit-tax - leaving the Russians large depositors with 50%-plus losses.

PLAN E - FINAL PLAN

• The final plan appears to protect insured depositors below €100,000 but stick it to the uninsured depositors.

• Uninsured depositors at the Bank of Cyprus are likely to get 40% 'haircuts' while Laik Banki depositors are most likely going to be wiped out.

• The fall out for Cyprus is going to be horrendous since the economy has become dependent on being an offshore banking center. That is over. Money has fled and all the business connected to this sector will experience a devastating shock. Expect the problem to not go away but to deteriorate further.

Cyprus should never have been allowed to have a banking sector that was 7 X times (below) the economy with low levels of equity and engaged in risk assets. The EU Bank Stress tests have been shown to be the fraud they were.

This suggests there are still major hidden problems across the EU.

 

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SPECIAL GUEST HOST: CHARLES HUGH SMITH , Author & Publisher of OfTwoMinds.com

 

A MARKET CLEARING EVENT

32 Slides, 25 Minutes

Gordon T Long and Charles Hugh Smith raise and debate six central notions and questions stemming from present global central banking policy. There are ramifications of prolonged Monetary Malpractice that are becoming clearer by the day.

QUESTIONS ON THE TABLE

1- How Large can Central Bank's Balance Sheets actually get before too much is too much?
2- Is Public Debt Monetization A Realistic Possibility or the Only Possibility?
3- Is Austerity ever a real possibility in a democracy? Especially, in today's 'spoiled' adolescent culture?
4- What is a "Market Clearing Event"? How can mispricing and malinvestment ever be realistically reset?
5- Is Anarchy a real possibility?
6- The problems are obvious. Is there a possibility that the government is aware and planning for it?

 

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SPECIAL GUEST HOST: CHARLES HUGH SMITH , Author & Publisher of OfTwoMinds.com

 

PEAK JOBS

23 Minutes, 25 Slides

Gordon T Long and Charles Hugh Smith raise and debate seven key notions, that along with unsound money, are central to the understanding of the structural economic problems facing the globe today.

The world is being brutally impacted by a slowing rate of growth in jobs and is now showing the attributes of it being a peak. Innovation advances today are dominantly technology centric, which are normally significant productivity improvements. This is feeding what Gordon T Long refers to as the Productivity Process Paradox. The faster the technology advancement, the faster and greater is Schumpeter's Creative Destruction.

The Productivity Process Paradox comes as nearly 2 billion of the globes 7 billion people have been freed by communist regimes to pursue a higher standard of living. The advent of global labor arbitrage, coupled with massive advances in productivity improving technology, is leaving high paying job growth a serious casualty. These advances are crippling middle class incomes in developed economies while emerging economies are expanding their middle class. The surprising result is a net reduction which is reflected in a shrinking real global GDP (NOTE: presently real global GDP growth is disguised because it does not use a deflator that properly reflects actual inflation rates).

Both participants fully agree that they raise more questions than they answer, but hope to explore all the notions during future videos.

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The MACRO ANALYTICS: Technical Update

24 Minutes,31 Slides

Forecast in March "Beware the Ides of March" public article and the last monthly "The MACRO ANALYTICS: A Technical Update"

"Ides of March" Close

 

THIS MONTH WE DISCUSS :

• REVISIT “IDES OF MARCH” PREDICTIONS,

• “DON’T FIGHT THE FED” & MONETARY EXPANSION,

• CONTINUOUSLY GROWING TECHNICAL DIVERGENCE,

• 2013 EARNINGS ARE A SERIOUS CONCERN,

• CORPORATE CASH WILL SOON BE DEPLOYED,

•  GOLD SENDING A SLY MESSAGE

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WARREN BUFFETT

Master of the Austrian

"Indirect Exchange"

21 Minutes, 18 Slides

"Price is what you pay. Value is what you get."

Buffet's BIG Problem is enormous CASH flow from previous INDIRECT exchanges.

• He is sitting on $50 billion dollars of constantly DEBASING currency's being printed endlessly,
• This is not a way to STORE WEALTH and Value, or CREATE cash flow! Storing wealth in PAPER is a RECIPE for CONFISCATION of your WEALTH! 

There is NOTHING SAFE or RISK FREE in Storing wealth in Fiat currency or Sovereign Bombs er BONDS! 

Buffet however plays this illusion like a BANJO!

BUFFETT'S INVESTMENTS:

1. Will Reprice regardless of the currency in which they are denominated IE. Green backs to Blue backs,
2. Will survive redenomination and official devaluation,
3. Will have customers in the largest economic booms or busts (the indirect exchange: protects wealth, creates opportunity and cash flows during BOTH periods),
4. Insurance customers will constantly LOSE in a fiat currency and credit financial system!

"I never attempt to make money on the stock market.

I buy on the assumption that they could close the market the next day and not reopen it for five years."

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HYPERINFLATION: A Currency Event

28 Minutes, 28 Slides

 

First and foremost HYPERINFLATION is a Currency Event. Prices rise because it becomes widely understood that the currency is being intentionally debased and it is no longer a store of value.

Secondly, Hyperinflation is not a protracted affair. It happens very quickly, causes massive dislocations and social upheaval, but is over in a relatively short period of time. Often measured in weeks and months. However, the devastation it wrought is felt for decades and generations.

Hyper-inflationary is considered as starting in the month that the monthly inflation rate exceeds 50%, and it ends when the monthly inflation rate drops below 50% and stays that way for at least a year. These percentages seem almost inconceivable, but nevertheless the reality for the 56 documented examples of Hyperinflation where:

• None of the currencies survived intact.
• None of the 56 occurred during an era of Global Fiat Currency regimes.

Additionally none faced the almost inconceivable headwinds of:

• Fiat Currency Regimes
• Sovereign Debt Levels
• Total Global Debt Levels (Public & Private)
• “Unlimited’ / “Uncapped” Monetary Policies
• World Trade Organization (WTO)
• Universal Problem due to Globalization

“This first stage of the inflationary process may last for many years. While it lasts, the prices of many goods and services are not yet adjusted to the altered money relation. There are still people in the country who have not yet become aware of the fact that they are confronted with a price revolution which will finally result in a considerable rise of all prices, although the extent of this rise will not be the same in the various commodities and services. These people still believe that prices one day will drop. Waiting for this day, they restrict their purchases and concomitantly increase their cash holdings. As long as such ideas are still held by public opinion, it is not yet too late for the government to abandon its inflationary policy.”                          Ludwig Von Mises

VELOCITY OF MONEY

During Hyperinflation, Money Velocity explodes upward as everyone attempts to get the remaining purchasing power out of their money before it disappears. Presently however Money Velocity is plummeting.

The is because of FEAR, due to the current business climate, eroding earning potential, existing malinvestments & debt levels and the ongoing destruction of capital. We have a Crisis of Trust also occurring.

Hyperinflation is not imminent, but it is clearly on the horizon. Escalating Currency Wars are a strong indicator of its approaching presence.

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SPECIAL GUEST HOST: CHARLES HUGH SMITH , Author & Publisher of OfTwoMinds.com

 

THE GLOBAL END GAME

25 Minutes, 30 Slides

Charles Hugh Smith's recent article "The Global End Game in Fourteen Points" is the basis for this discussion on the traditional Business Cycle, the Credit Cycle and the emerging version sought by the Central Bankers.

FOURTEEN POINTS:

1. "Boost Phase" of Credit Expansion
2. Overextended Credit Expansion and Over Capacity
3. Financialization and Collateral
4. Era of Financialization
5. Growing Malinvestment
6. Phantom Collateral from Asset Bubbles
7. Bubble Implosions
8. Impaired Debt and Policy Decisions
9. Stalled Consumption
10. Cheap Money Offered
11. Shrinking Loans and Bank Speculation
12. Search for Yield from Shrinking Pool of Productive Assets
13. Increasingly Speculative Investments with high Risk
14. Stagnation - Over-indebted, overcapacity with limited growth.

HOW THEY MAP TO THE CYCLE OF DEFLATION

 

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ROUND TABLE

SPECIAL GUEST HOST: CHARLES HUGH SMITH , Author & Publisher of OfTwoMinds.com

SPECIAL GUEST: BILL LAGGNER , Co-Founder, Bearing Asset Management

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ROUND TABLE

with SPECIAL GUEST

 

BILL LAGGNER

CHINA, JAPAN & CENTRAL BANK OMNIPOTENCE

Bill Laggner shares his views on China and Japan through the Austrian Lens. Having positioned Bearing Asset Management to take advantage of the 2008 US Housing Bubble Collapse, and prior to that the dot.com bubble, Bill now has his eyes on China and Japan.

Part I - China & Japan - 25 Minutes, 34 Slides

Part II - Central Banks: Perception of Omnipotence - 27 Minutes, 43 Slides

With the aid of 77 slides, THE THREE WAY ROUND TABLE discusses the issues facing China and Japan in the context of Central Bank actions. The false perception of Central Bank omnipotence, both within these sovereign countries and globally is also explored.

Bill Laggner highlights some serious reservations he has about the prognosis for China and Japan based on the degree to which credit has expanded. This is a direct result of the Shadow Banking structures and investments in real estate construction, which he senses is now showing a top to be in.

Many of the issues facing China are poorly understood due to opaque and misleading reporting, in addition to false perceptions by western investors.

OVERAL GLOBAL EXPECTATIONS FOR 2013

1. Profit Recession Likely
2. Expect Credit Spreads to Widen
3. Sovereign Debt Levels to Continue to Increase Unabated
4. Continued & Growing Fiscal Deficits Around the world
5. Looming Tax Revenue Problems
6. A Shrinking REAL Economy
7. Profits have Peaked for this Cycle Fewer and
8. Fewer Places to Speculate In the Chase for Yield

Investor confidence in the omnipotence of central bankers is misplaced in Bill's eyes, and investors will pay the price in the not to distant future.

PART I

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PART II

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