The Federal Reserve Is Setting Up Trump For A Recession, A Housing Crisis And A Stock Market Crash?


TheEconomicCollapse

How The Federal Reserve Is Setting Up Trump For A Recession, A Housing Crisis And A Stock Market Crash

By Michael Snyder

Most Americans do not understand this, but the truth is that the Federal Reserve has far more power over the U.S. economy than anyone else does, and that includes Donald Trump.  Politicians tend to get the credit or the blame for how the economy is performing, but in reality it is an unelected, unaccountable panel of central bankers that is running the show, and until something is done about the Fed our long-term economic problems will never be fixed.  For an extended analysis of this point, please see this article.  In this piece, I am going to explain why the Federal Reserve is currently setting the stage for a recession, a new housing crisis and a stock market crash, and if those things happen unfortunately it will be Donald Trump that will primarily get the blame.

On Wednesday, the Federal Reserve is expected to hike interest rates, and there is even the possibility that they will call for an acceleration of future rate hikes

Economists generally believe the central bank’s median estimate will continue to call for three quarter-point rate increases both this year and in 2018. But there’s some risk that gets pushed to four as inflation nears the Fed’s annual 2% target and business confidence keeps juicing markets in anticipation of President Trump’s plan to cut taxes and regulations.

During the Obama years, the Federal Reserve pushed interest rates all the way to the floor, and this artificially boosted the economy.  In a recent article, Gail Tverberg explained how this works…

With falling interest rates, monthly payments can be lower, even if prices of homes and cars rise. Thus, more people can afford homes and cars, and factories are less expensive to build. The whole economy is boosted by increased “demand” (really increased affordability) for high-priced goods, thanks to the lower monthly payments.

Asset prices, such as home prices and farm prices, can rise because the reduced interest rate for debt makes them more affordable to more buyers. Assets that people already own tend to inflate, making them feel richer. In fact, owners of assets such as homes can borrow part of the increased equity, giving them more spendable income for other things. This is part of what happened leading up to the financial crash of 2008.

But the opposite is also true.

When interest rates rise, borrowing money becomes more expensive and economic activity slows down.

For the Federal Reserve to raise interest rates right now is absolutely insane.  According to the Federal Reserve Bank of Atlanta’s most recent projection, GDP growth for the first quarter of 2017 is supposed to be an anemic 1.2 percent.  Personally, it wouldn’t surprise me at all if we actually ended up with a negative number for the first quarter.

As Donald Trump has explained in detail, the U.S. economy is a complete mess right now, and we are teetering on the brink of a new recession.

So why in the world would the Fed raise rates unless they wanted to hurt Donald Trump?

Raising rates also threatens to bring on a new housing crisis.  Interest rates were raised prior to the subprime mortgage meltdown in 2007 and 2008, and now we could see history repeat itself.  When rates go higher, it becomes significantly more difficult for families to afford mortgage payments

The rate on a 30-year fixed mortgage reached its all-time low in November 2012, at just 3.31%. As of this week, it was 4.21%, and by the end of 2018, it could go as high as 5.5%, forecasts Matthew Pointon, a property economist for Capital Economics.

He points out that for a homeowner with a $250,000 mortgage fixed at 3.8%, annual payments are $14,000. If that homeowner moved to a similarly-priced home but had a 5.5% rate, their annual payments would rise by $3,000 a year, to $17,000.

Of course stock investors do not like rising rates at all either.  Stocks tend to rise in low rate environments such as we have had for the past several years, and they tend to fall in high rate environments.

And according to CNBC, a “coming stock market correction” could be just around the corner…

Investors are in for a rude awakening about a coming stock market correction — most just don’t know it yet. No one knows when the crash will come or what will cause it — and no one can. But what’s worse for most investors is they have no clue how much they stand to lose when it inevitably happens.

“If you look at the market historically, we have had, on average, a crash about every eight to 10 years, and essentially the average loss is about 42 percent,” said Kendrick Wakeman, CEO of financial technology and investment analytics firm FinMason.

If stocks start to fall, how low could they ultimately go?

One technical analyst that has a stunning record of predicting short-term stock market declines in recent years is saying that the Dow could potentially drop “by more than 6,000 points to 14,800″

But if the technical stars collide, as one chartist predicts, the blue-chip gauge could soon plunge by more than 6,000 points to 14,800. That’s nearly 30% lower, based on Friday’s close.

Sandy Jadeja, chief market strategist at Master Trading Strategies, claims several predicted stock market crashes to his name — all of them called days, or even weeks, in advance. (He told CNBC viewers, for example, that the August 2015 “Flash Crash” was coming 18 days before it hit.) He’s also made prescient calls on gold and crude oil.

And he’s extremely concerned about what this year could bring for investors. “The timeline is rapidly approaching” for the next potential Dow meltdown, said Jadeja, who shares his techniques via workshops and seminars.

Most big stock market crashes tend to happen in the fall, and that is what I portray in my novel, but the truth is that they can literally happen at any time.  If you have not seen my recent rant about how ridiculously overvalued stocks are at this moment in history, you can find it right here.  Whether you want to call it a “crash”, a “correction”, or something else, the truth is that a major downturn is coming for stocks and the only question is when it will strike.

And when things start to get bad, most of the blame will be dumped on Trump, but it won’t primarily be his fault.

It was the Federal Reserve that created this massive financial bubble, and they will also be responsible for popping it.  Hopefully we can get the American people to understand how these things really work so that accountability for what is coming can be placed where it belongs.

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Two Ways The Government Is Lying to You Right Now


I don’t normally post any financial/investment articles as I have no interest in this particular subject either to become a player or market observer. What attracted me to this article was its headline.

Michael Lewitt is a well known financial and market expert, and author. He’s made spot on predictions of the market trends and what’s interesting to me is his anti-establishment stance and how he gets to profit by it from looking and finding the bugs in the system and passing it on to his clients to take advantage of the information and enrich themselves.

I like the opening lines which fit my own view of the establishment and the overview of the rotten system as a whole.


SureMoneyInvester.Com

Email Michael
January 12, 2017

We live in an inauthentic world, yet people perceived to be telling the truth are demonized and shunned by the establishment. The fact that it took everybody so long to figure out that mainstream media promoted “fake news” to support their own political agenda is testimony to the fact that we claim to seek authenticity but settle for insincerity, falsehood and duplicity in our personal, business and civic relationships. Those of us who refuse to settle are considered “difficult.”

The question I keep asking (because I am decidedly “difficult”) is whether these people are wrong because they are stupid or because they are lying. I’ve come to conclude that the two alternatives are not mutually exclusive though one of the worst sins our society commits against itself is confusing educational achievement and wealth for intelligence or good intentions.

The U.S. government is a major promoter of fake news. It lies to its citizens about virtually everything, but one of its specialties is the publication of phony economic statistics to justify failed economic policies. Whether this will change under the new administration remains to be seen (I’m not holding my breath and neither should you), but the last eight years were characterized by one false narrative after another bolstered by phony government statistics.

These two outright lies should concern you the most.

Lie #1: Our Unemployment Numbers Are Spectacularly Low

Lie #2: Inflation Keeps Getting Lower And Lower

Read further

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The False Economic Recovery Narrative Will Die In 2017


This is the first posting of 2017 for this blog. Have been observing the same old BS of last year flowing through this year, what with all the #FakeNews getting more and more rampant. This is the kind of news I wish to see and post from now on…


Alt.Market.Com

Yes, the narrative of the “new normal” has been around for so long now that many people have simply grown used to it. The assumption is that the fiscal “new normal” has become the fiscal “normal,” and though the fundamentals continue to strain under the weight of poor global demand and historic debt levitated by extraneous fiat stimulus, the masses feel far less fear than is warranted. Hey, why should they? We’ve managed around eight years skating on thin ice, why shouldn’t we expect eight more years of the same?

The banking elites have done the job they set out to do, which was to drive the economy to the very edge of the financial cliff, and then keep it suspended there until the general public became comfortable living next door to the abyss.

Why do this? Well, the greater dynamic at play here is something the average person will not understand or refuses to examine — economics today is about mass psychology. The economy is a tool, or a weapon, by which international financiers can influence the public mind and the emotions of the mob. In order to grasp the mechanics of economics it is not enough to deal in statistics and trade principles; one must also grasp human behavior and how it is manipulated. One must acknowledge that in economics we witness the transmutation of societies by word and by force, by chaos and by order. Economics is alchemy.

The globalists (in their twisted view) seek to change lead into gold, and just as in alchemy, these elements are a metaphor for psychological evolution. For the globalists, social engineering is a form of witchcraft; they see it as creation, or a grand form of architecture.

But it is not creation. The globalists are incapable of such art because true art requires wisdom and empathy. All they know is how to deconstruct existing systems generated by nature and free men and rearrange the shattered pieces into something more oppressive and ultimately less interesting than what existed before. Give the internationalists a Mona Lisa and they will shred it, reconstitute it and regurgitate a paint by numbers coloring book.

The globalists only know how to turn gold into lead.

If you do not understand the reality of globalist influence in markets and the nature of economics as a weapon; if you actually believe that the economy operates purely on some kind of free-roaming free market principles, then you will never be able to wrap your head around the otherwise absurd behavior of our financial structure.

The psychology of fiscal “recovery” is a vital tool for change and for developing false dichotomies. For example, I recently came across this article from the pervasive propaganda hub of Bloomberg. In it, Bloomberg outlines a story we are by now very used to hearing from the mainstream — that the presidential era of Barack Obama has left the economy of the U.S. in particular in “far better shape” as he leaves office than when he entered office.

Now, anyone who has been reading my analysis for at least the past six months (if not the past ten years) knows exactly what I think about the current state of the economy and what is likely to happen in the near future. For those new to my position, here is a very quick summary along with linked evidence supporting my claims:

From the 1990’s leading into the year 2007, the Federal Reserve engineered a massive debt and derivatives bubble through the use of artificially low interest rates in the housing market. Alan Greenspan, the presiding Fed chairman at the time, openly admitted in interviews that the central bank KNEW an irrational bubble had formed, but claims they assumed the negative factors would “wash out.” This is a constant meme set forward by the Fed — that they were essentially too stupid to foresee a collapse of the bubble they knew they had created. They prefer that the public believes that the Fed was “incompetent” rather than deliberately destructive.

The low rates fueled a machine of mortgage backed securities and derivatives based on trillions of dollars in loans to people that had no ability or no intention of ever paying them back. The Fed had aid in this program from the ratings agencies, which labeled obviously toxic debt as AAA for years, and the SEC, which refused to investigate any legitimate claims of asset manipulation and ill intent. This corrupt behavior on the part of the SEC was showcased in the testimony of SEC whistle blower Gary J. Aguirre, who warned of dangerous debt pools and manipulation within the banking industry in 2006 before the derivatives collapse and also warned that the SEC interfered with any investigation attempts into the problem.

This led to the well known “Great Recession” triggered in 2007/2008. The Fed along with numerous other central banks around the world had conjured a crisis and then offered their own solution to that crisis. Namely, the solution of massive fiat stimulus programs purchasing toxic debt, treasury bonds, corporate stocks and anything else that wasn’t nailed down.

The “bailouts” and quantitative easing projects, however, were actually cover for a far larger program of untold trillions in overnight loans to corporations, domestic and foreign.  A never-ending river of dollars created out of thin air and pumped into companies for near zero interest. It was these free overnight loans that allowed international conglomerates to sidestep the monstrous black hole of derivatives debt they were circling and purchase their own stocks through stock buybacks, thus reducing the number of existing stocks on the exchanges and artificially boosting the price of the remaining stocks. This caused stock markets to skyrocket from near death to historic highs.

In the meantime, government bureaucracy has worked tirelessly to manipulate statistics to falsely reflect an overall recovery. The stock market is much easier to manipulate than the fundamentals, so, the fundamentals must be misrepresented.  While some numbers slip through the cracks and issues of true supply and demand continue, the vast majority of the populace has little clue that the collapse of 2008 never actually stopped, it was just shifted into a state of slow motion.

The Fed’s low interest rates, specifically on overnight loans, has allowed the economy to sputter along for eight years, and has greatly enriched the top .01% in the process. But now, their strategy is changing.

The problem is that stimulus has a shelf life, and while certain stats can be skewed and the stock market can be inflated for a time, eventually, consequences must be accepted in the real economy for attempting to defy gravity for so long.

The initial collapse was designed to foster an even greater event. Without the derivatives bubble, the central bankers never could have convinced the masses to accept the idea of a fiat stimulus bubble which would eventually put the dollar at risk, along with the overall U.S economy. Taking the brunt of the 2008 crash would have been painful, but not insurmountable. But with eight more years and tens of trillions in added debt along with increased geopolitical tensions and an equities bubble for the ages, the scale of the final stage of collapse will be truly unprecedented.

The purpose of this final event will be to generate so much chaos and desperation that the public will be compelled to search for extraordinary solutions. The globalists will be ready with those solutions, including those they have openly outlined decades in advance in publications like The Economist.

The end game? The formation of a single monetary and economic authority under the management of the International Monetary Fund, and the establishment of a single global currency using the IMF’s Special Drawing Rights as a “bridge” for locking national currencies into a harmonized exchange rate until they eventually become pointless, interchangeable and replaceable.

The problem is, the globalists cannot possibly initiate this end game in a vacuum, otherwise, they would take the blame for the inevitable collateral damage to people’s lives as their “great global reset” is undertaken. The globalists need a scapegoat.

Enter Donald Trump, the Brexit Referendum, and the rise of “populist” movements. For the entire first half of 2016, globalists were “warning” non-stop that a rise in populism (conservatives and sovereignty champions) would result in international financial catastrophe. It was as if they KNEW that the Brexit would succeed and that Donald Trump would win the election…

This has been my position for the past half year — that globalists were planning to allow conservative and sovereignty movements to take the reins of power, that they would allow the passage of the Brexit and the rise of Trump, just before they pull the plug on the system’s life support. The Federal Reserve in particular has already launched the final phase by beginning a series of rate hikes which will remove the safety net of free and cheap overnight loans to companies, thereby sabotaging equities markets. I specifically warned about this over a year ago when most analysts were stating that negative rates and QE4 were “just around the corner.”

And this is where we are today. As noted above, Bloomberg writes an interesting bit of propaganda starting with a bit of truth. Here’s the beginning quote from their article:

“Research suggests factors beyond the control of any U.S. president, not their actual policies, set the course of the economy. Yet with voters, President-Elect Donald Trump will secure much of the praise or blame when it comes to the impact of his agenda over the next four years.”

The recovery narrative from 2008 to today was imperative to the globalist’s greater agenda. For a considerable portion of the public must be made to believe that under a socialist and decidedly globalist president (Barack Obama) the general trend in the economy was positive and that “things were getting better.” The rise of conservative movements today sets the stage for the final collapse and the IMF’s great reset, in which conservatives and sovereignty activists will be blamed, whether there is any evidence of culpability or not, for the crash that the globalists have spent the better part of two decades setting in motion.

After the dust has settled, the argument will be that the world was “on course” before the Brexit, before Trump and before populism. The argument will be that globalism was working and conservatives screwed it up with their selfish nationalist endeavors. After the final crash and perhaps numerous deaths from poverty and violence, the argument will be that the only conceivable solution must be a return to globalism in an extreme form; or total global centralization, so that such a tragedy will never happen again.

Bloomberg helps to set up the scenario, by claiming that Trump is “inheriting” a stable and improving economy compared to the economy that Barack Obama inherited:

“While today’s economy is a mixed bag by historical standards, one thing is clear: Obama has left Trump a 2016 economy in a better state, by many measures, than when he was first elected president in 2008 in the middle of the worst downturn since the Great Depression.”

Of course, Bloomberg fails to mention that the standards and statistics by which they measure economic “improvement” are entirely fraudulent.

For example, real GDP is at -2 percent, not +2 percent as Bloomberg claims, when one calculates for distortions such as government spending, which is counted towards GDP even though government does not actually produce anything. Government can only steal productivity from citizens and reassign that wealth elsewhere.

Bloomberg also cites a vastly improved unemployment rate. They once again refuse to bring up the fact that over 95 MILLION Americans are no longer counted as unemployed by the Bureau of Labor Statistics because they have been jobless for so long they do not qualify to be included on the rolls. This lie of reduced unemployment has been pervasive through the entirety of the Obama Administration.

Bloomberg then mentions a greatly improved housing market that Trump will enjoy when he takes office. They certainly do not include the fact that pending home sales are now plummeting and home ownership rates in the U.S. are so low you have to go back to 1965 to match them.   They do not mention that the majority of the boost in home sales during Obama’s two terms was due to corporations like Blackstone buying up distressed mortgages and turning the homes into rentals. The housing market is NOT being supported by individuals and families seeking home ownership, but corporations snatching up real estate on the cheap and driving up prices.  Wall Street is now America’s landlord.

And there you have it. The globalist setup continues with mainstream outlets telling Americans that the economy is in ascension as Trump and populists move into positions of power, when in truth the economy is as dire as it ever was if not worse off. To add to the theater, Donald Trump has ventured to take credit for the sharp rise in stocks and the impression of improving economic stats.  In one of his latest tweets just after Christmas, he had this to say:

“The world was gloomy before I won – there was no hope. Now the market is up nearly 10% and Christmas spending is over a trillion dollars!”

Now, if you know anything about the true fiscal situation, you would think this statement is a severely idiotic move by Trump.  No incoming president with any sense would try to take credit for the largest equities bubble in history.  But, take credit is essentially what he did.  That said, if you ALSO understand that the globalist narrative is engineered so that conservatives take the blame for the coming crash, AND if you believe that Trump is knowingly participating in this narrative (as I now do after he lied about “draining the swamp” and front loaded his cabinet with banking elites), then Trump’s statement makes perfect sense.  Trump is playing the role of a future bumbling villain, the populist maniac who gets too big for his britches and brings disaster down on people’s heads.

The false recovery narrative will indeed die in 2017, and it will be because the globalists WANT it to die while nationalists are at the helm. This is perhaps the biggest con game in recent history; with conservatives as the fall guy and the rest of the public as the gullible mark. One can only hope that we can educate enough people on this scenario to make a difference before it is too late.

 

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Major Economic Warning Sign: The Euro Is Heading For Parity With The U.S. Dollar


TheEconomicCollapse

The collapse of the euro is accelerating, and it looks like we could be staring a major European financial crisis right in the face early in 2017.  On Thursday, the EUR/USD fell all the way to $1.0366 at one point before rebounding slightly.  That represents the lowest that the euro has been relative to the U.S. dollar since January 2003.  Ever since 2011, I have been relentlessly warning that the euro is heading for parity with the U.S. dollar.  When the EUR/USD was trading at about $1.40 that must have seemed like crazy talk, but I never wavered.  I just kept warning people that the euro was going to weaken greatly relative to the U.S. dollar.  Here is one example from March 2015: “How many times have I said it?  The euro is heading to all-time lows.  It is going to go to parity with the U.S. dollar, and then it is eventually going to go below parity.”  After Thursday, we are almost there, and once we do hit parity that is going to be a sign that all sorts of chaos is about to erupt in Europe.

For years, so many people that write about our coming economic problems have been proclaiming that the death of the U.S. dollar is imminent.

But I have always taken a different approach.  I have always maintained that the collapse of the euro comes first, and that the death of the U.S. dollar happens some time later.

So many people have wanted to get rid of all of their dollars in anticipation of the coming crisis, but that is a huge mistake.

First of all, without exception everyone needs an emergency fund that can cover at least six months of expenses in case there is a job loss, a health emergency or all hell breaks loose for some reason.

Secondly, cash is going to be king during the initial stages of the coming crisis.  Later on the U.S. dollar will rapidly lose value, but at first it will pay to have significant amounts of cash available to you.

Most people out there seem to think that a strong dollar is great news and that it is a sign of good things to come under Donald Trump.

But the truth is that an overly strong U.S. dollar is actually very bad news for the global economy.

For the U.S., a strong dollar hurts our exports and tends to drag down our GDP.

For the rest of the world, a strong dollar makes it more expensive to borrow money.  The economic boom in the developing world following the last financial crisis was fueled by mountains of cheap dollars that were borrowed at ultra-low interest rates.  But now the U.S. dollar is surging and interest rates are spiking, and that is starting to cause major problems.

It now takes much more local currency to pay back those dollar-denominated loans that were made in emerging markets during the boom times.  If the U.S. dollar continues to rise we are going to see a staggering number of defaults, and a credit crunch in many areas of the globe seems inevitable at this point.

Of course the big thing to keep an eye on over the coming weeks is the rapidly unfolding crisis in Italy.  The Italians have the 8th largest economy on the entire planet, and we are in the process of watching their entire banking system completely implode.

In fact, their third largest bank is in imminent danger of collapse, and according to Reuters this could trigger “a wider banking and political crisis in Italy”…

Italy’s government is ready to pump 15 billion euros into Monte dei Paschi di Siena (BMPS.MI) and other ailing banks, sources said, as the country’s third-largest lender pushes ahead with a private rescue plan that is widely expected to fail.

The world’s oldest bank has until Dec. 31 to raise 5 billion euros ($5.2 billion) in equity or face being wound down by the European Central Bank, potentially triggering a wider banking and political crisis in Italy.

If needed, the government will pump 15 billion euros into the Siena-based lender and several other smaller banks to prevent that, two sources close to the matter said on Thursday.

This is so much more serious than the ongoing economic depression in Greece.

Greece is just the 44th largest economy on the planet, and we saw how much trouble Europe had trying to bail them out.

So what is the rest of Europe going to do when financial collapse hits Italy?

Here in the United States very few people are interested in hearing about a “global financial crisis” right at this moment, because in the aftermath of the election most people are feeling really good about where things are heading.  Just consider the following three facts that I pulled out of a Bloomberg article

#1 “The National Association of Homebuilders’ index of sentiment soared to an 11-year high in December, despite the sizable rise in bond yields since the election.”

#2 “The University of Michigan’s December index of consumer confidence also continued its upward post-election trend, rising to 98. A sub-index that tracks respondents’ opinion of the government’s economic policies spiked to levels not seen since 2009.”

#3 “The National Federation of Independent Businesses’ index of optimism among small businesses posted its sharpest surge since 2009 in November to reach 98.4. An expected improvement in business conditions among small business owners surveyed after Nov. 8 was the largest contributor to the improvement in the headline print.”

Hopefully happy days will stick around for a while.

But it won’t last forever.

As I have warned so many times, the coming crisis is going to hit Europe first, and the United States will join the party not too long after.

And a key marker that we have been watching for is almost here.  The euro is going to hit parity with the U.S. dollar just like I have been warning, and once that takes place expect events to start accelerating significantly.

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Former CEO Of UBS And Credit Suisse: “Central Banks Are Past The Point Of No Return, It Will All End In A Crash”


ZeroHedge

Remember when bashing central banks and predicting financial collapse as a result of monetary manipulation and intervention was considered “fake news” within the “serious” financial community, disseminated by fringe blogs?

Good times.

In an interview with Swiss Sonntags Blick titled appropriately enough “A Recession Is Sometimes Necessary“, the former CEO of UBS and Credit Suisse, Oswald Grübel, lashed out by criticizing the growing strength of central banks and their ‘supremacy over the markets and other banks’. The former chief executive officer claimed that the use of negative interest rates and huge positive balance sheets represent ‘weapons of mass destruction’. He calls for an end to the use of negative interest rates.

Oswald Grübel, 72, led both UBS and Credit Suisse.

Sounding more like a “tinfoil” blog than the former CEO of the two largest Swiss banks, Grübel warned that central banks have “crossed the point of no return” which will ultimately “end in a crash.”

Joining Deutsche Bank in slamming NIRP, Grubel said that banks are losing hundreds of millions of francs each year to negative interest rates paid to central banks.

Worse, he warned that central banks will eventually lose their credibility in the markets but that this could take 10 years or more, at which point it will “all end in a crash.” What happens then? The former CEO believes that the final outcome will be wholesale financial nationalization: “after that all banks could belong to the state”

Grubel also the doubted the wisdom of the Swiss National Bank’s balance sheet: “the Swiss National Bank’s balance sheet now accounts for 100 percent of GDP. Japan is also 100%, but mainly invested in its own state paper. The ECB and the Fed are 30%. Switzerland is far, far, far ahead. Is that wise?”

The former CEO also touched on a point we have made ever since 2010 when we said that in a world of unprecedented political polarity, politicians now control the world almost exclusively through monetary policy, to wit: “After the financial crisis, politics has taken power in the banking sector: It has bound the banks into a regulatory corset and now they can no longer move. Politicians have told central banks: now you determine what is going on with the economy.”

What are the implications of this power shift? “Previously, the risk was distributed to thousands of banks. They had to pay for their mistakes. The risk lay with the shareholders. Today, more and more the state carries the risk.” Which, of course, is another word for taxpayers. In other words, the next crash will be one where central – not commercial – banks are failing, and the one left with the bill will once again be the ordinary person in the street.

In a tangent, Grübel gave his thoughts on what makes a man rich: “rich is a man when he goes to bed in a carefree manner and wakes up without care.” He is then asked if, by that definition, a billionaire is rich to which he replied: “No. Money has little to do with wealth. The real rich are carefree. Those who are healthy, are not dependent. The greatest wealth is independence.

Grubel takes issue with the unprovable claim that only trillions in central bank liquidity injections prevented the entire world from sliding into a 1929-type depression: “It is said that without this money we would fall into the worst recession since 1929. This is a typical utopian-socialist interpretation of the economy, which knows no limit of government debt.

His damning summary: “a recession is sometimes necessary to abolish old structures and to bring renewal.” Alas, this critical point remains lost on virtually everyone in a position of control, and as a result the delay assures that the day of reckoning will be far worse.

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When will the great stock market crash begin?


TheTelegraph

So, when will the crash begin?

When will the huge sell-off – in both shares and bonds – convulse world markets, obliterating trillions of dollars within weeks and triggering a domino-effect collapse of banks, other financial institutions, pension funds and even governments?

When?

There is certainly a growing chorus of voices claiming the inevitability of this Armageddon. Many think it is nigh.

You know their argument: a tsunami of money has swept through the markets in pursuit of returns. But, in a world where returns have been crushed by years of central bank intervention, the outcome has been to rocket-propel the prices of everything from government bonds to property and shares.

We’re at a point where valuations of swathes of the stock market here and elsewhere are frighteningly high in comparison with long-term average measures.

The price of government bonds issued by Britain, Germany and the United States may have fallen in recent weeks, but their yields remain as negligible as a few months ago.

Sky-high valuations are in themselves worrying enough, but they come at a time when the economic outlook is uncertain at best.

The ability of many British companies to maintain dividends – arguably one of the main reasons for driving their share prices to such heights – has rarely been less secure.

So it is quite natural to give time to those who cry doom.

One is Bill Bonner, an American-based financial author and publisher, and founder of the blog The Daily Reckoning, who wrote in recent days:

“The crisis will move too fast for policymakers and investors. Stock investors will tell themselves they will get out, but when a real panic starts, it’s too late.

“A rerun of the panic of 2008 could erase $30 trillion in a few weeks. If the panic is caused by rising inflation, the bond market would be walloped, too. Our advice: panic now, before everyone else. Evacuate overpriced and dangerous assets.”

That sounds terrifying.

I get the argument, but I for one will not sell any of my share-based investments in my Isa and pension on the strength of it. Here are three reasons why.

1. When would I buy again?

Say I heed Mr Bonner and sell. Sitting in my broker accounts is then a pile of cash, earning nothing, and waiting for … what?

The graph below tells a familiar story but one worth revisiting. The danger of not being in the market is that you miss those significant, but sometimes brief, bounces.

chart

Big market movements take place in short periods. Algorithmic models have been developed to detect rising volatility as signals to get in or out at the perfect moment, but these are doubtful. The reality is that no one knows when the big up (or down) days will arrive. What we do know for certain is that not participating at all can be costly.

2. Yields on many British shares are not that low

The FTSE All Share still yields 3.5pc, a huge number, given that some government bonds yield less than nothing. While share prices as multiples of earnings (p/e ratios) may have shot up alarmingly in some sectors, that’s not the case across the whole market.

Our big dividend payers – such as oil and pharmaceuticals – suffered earlier this year because of doubts about their ability to pay dividends. They’ve mostly reiterated their dividend commitments since, yet still don’t trade on the scariest multiples.

Company boards can, of course, be committed to dividends yet still unable to deliver: but markets and commentators are notorious for predicting recessions and other disasters that do not materialise.

3. Yield isn’t everything, anyway

Most investors, like me, own in the end tiny stakes in multiple companies, many of which are healthy, growing enterprises whose operations won’t screech to a halt just because share prices bomb. As veteran investor Terry Smith writes, why else invest?

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Euro is a ‘house of cards’ ready to collapse, key single currency architect warns


Independent

Professor Otmar Issing says the European Central Bank betrayed the principles of the currency project by bailing Greece out in 2008

otmar-issing

Professor Issing says Greece should have been allowed to crash out of the Euro and readopt the drachma AFP/Getty Images


The Euro currency project is unworkable in its current form and at the risk of “collapse”, its principal architect has warned.

Professor Otmar Issing, the European Central Bank’s first chief economist who helped create the single currency at the turn of the century, has warned that the Euro cannot survive in its current form.

He said the ECB had become dangerously overextended as it tries to manage the 19 economies using the single currency.

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Speaking to trade journal, Central Banking, he said: “One day, the house of cards will collapse”.

He said the experiment with a single currency went from the moment it was introduced in 2002 and said it had been betrayed by the politics of the region.

“Realistically, it will be a case of muddling through, struggling from one crisis to the next. It is difficult to forecast how long this will continue for, but it cannot go on endlessly”, he explained.

He believed that the ECB had made a fatal error in agreeing to bailout bankrupt states like Greece and Ireland.

He said: “The Stability and Growth Pact has more or less failed. Market discipline is done away with by ECB interventions.

“So there is no fiscal control mechanism from markets or politics. This has all the elements to bring disaster for monetary union.”

Prof Issing said there is no escape from the currency union’s problems without a political union which is unlikely to happen.

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He also condemned the first Greek bailout in 2008 as a bailout for French and German banks who had loaned to them.

He said it would have been better to force Greece out of the Euro and offer them generous support after they had restored their exchange rate stability on the drachma.

In 2015, Greece finally agreed a third bailout deal with the troika – the ECB, the European Commission and the International Monetary Fund – after a prolonged stand-off between the ruling party, Syriza, and the country’s creditors.

The left wing party attempted to negotiate more favourable terms after it was voted into office to fight the harsh austerity policies the troika asked for leading to the country running out of cash.


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