Macro Analytics -10-16-12 WHEN LEVERAGE FAILS - Part II
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Excessive use of Leverage has brought the world to the financial abyss. Untested Monetary Policies by Global Central Banks have heralded in a world of Mispricing and Malinvestment, where financial markets have disconnected from the real economy and the productive use of capital. Our forefathers warned us of this and Ludwig von Mises spelled it out that "there is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved". Ty Andros and Gordon T Long discuss how we have reached the point where, just as the Fed could never again substantially shrink its balance sheet after 2008, it now, along with the ECB, BOJ and BOE, will never be able to stop the flow of printing without destroying the economy. This two part series walks the listener through how this has come to be, where it is leading, what should have been done earlier and the likely outcomes that are ahead.
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Macro Analytics -10-16-12 WHEN LEVERAGE FAILS - Part II
- 1. Macro Analytics October 16th, 2012 WHEN LEVERAGE FAILS Listen to the original podcast for this slide at www.GordonTLong.com/Macro_Analytics 1 The content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of this slide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
- 2. Macro Analytics October 16th, 2012 WHEN LEVERAGE FAILS Gordon T Long GordonTLong.com Listen to the original podcast for this slide at www.GordonTLong.com/Macro_Analytics 2 The content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of this slide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
- 3. Macro Analytics October 16th, 2012 WHEN LEVERAGE FAILS Ty Andros Tedbits.com Traderview.com Listen to the original podcast for this slide at www.GordonTLong.com/Macro_Analytics 3 The content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of this slide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
- 4. When Leverage Fails! 4
- 5. Unwilling or unable to meet the world’s central banks’ DEMANDS for the gold that backed the dollar, Nixon and the US Treasury DEFAULTED on the promises of Bretton Woods I by removing the GOLD reserves that backed the world’s reserve currency and thereby converted the functions of the US dollar from: A medium of exchange A store of value A measure of value A standard of value No one else’s liability Moving purchasing power through time and space To… 5
- 6. …FIAT currencies. The dollar and all developed-world currencies were no longer GOLD-backed and became nothing more than: A medium of exchange A promise to pay, also known as an IOU of fiscally and morally bankrupt politicians & central banks Redeemable in NOTHING Worth no more than the paper on which it is printed At the time, the United States and G7 were the world’s wealthiest nations and its greatest CREDITORS. Now they are the world’s greatest DEBTORS. 6
- 7. The Worlds top ten economies are in death…er…debt spirals! Unfunded liabilities are 200 to 500% greater. Debt is compounding at 7 to 10% and Income is NOT GROWING! When will CREDITORS say NO? 7
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- 10. The Worlds top ten economies are in death…er…debt spirals! Unfunded liabilities are 200 to 500% greater. Debt is compounding at 7 to 10% and Income is NOT GROWING! When will CREDITORS say NO? 10
- 11. This is the face of TOXIC assets being financed by central banks, $10 trillion dollars since 2006, a doubling or tripling to follow. 11
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- 17. Properly adjusted for inflation, growth in the US and Europe has been NEGATIVE for 10+ years 17
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- 22. INVESTING IN THE BOTTOM LINE (THE “RONA MENTALITY”) Not Happening! Off Balance Sheet Securitized Debt as an ASSET Bottom Line ONLY Orientation Leverage Debt for Best RONA Listen to the original podcast for this slide at www.GordonTLong.com/Macro_Analytics 22 The content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of this slide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
- 23. FOOD PRICES - Crushing Global Disposable Incomes = SOCIAL UNREST 23
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- 27. GROWTH in G7 economies became a function of CREDIT GROWTH which fuels consumption of wealth rather than production of wealth. How much of this money was SPENT for consumption rather than self-liquidating capital investments? Unimaginable amounts are due and unpayable & inextinguishable! 27
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- 30. Total Global Debt - All sectors (financial, corporate, government and private) growing at 11% compounded annually since 2002 Cumulatively, no deleveraging has actually occurred since the global financial crisis in 2007 There is no growth in the developed world Properly measured, growth is compounding at a NEGATIVE 4-10% per year Inflation is being misreported Credit markets are Blowing Up 30
- 31. “There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” - Ludwig von Mises Ludwig von Mises We are in the latter; catastrophe looms All FIAT currency and credit-based financial systems die in waves of insolvency… 31
- 32. In the developed world there is only ONE path… Inflate or Die Wealth creation & income growth are dead in the developed world; they have been regulated & taxed out of existence. Tax receipts will not go up, even though taxes have risen, because private-sector incomes will fall faster. Keynesian G7 leaders are about to learn a lesson in human behavior. Combined borrowing of the financial sectors, and of government, are many multiples of GDP (350 to 900%)…coming due & payable in the coming years. Refusal to restructure the developed-world economies to foster private-sector wealth & income generation and to shrink government/welfare states. Off balance & unfunded liabilities are another 300 to 1000% of GDP. Structural deficits of up to 13% of GDP in economies which are not growing outside statistical fictions. 32
- 33. Macro Analytics October 16th, 2012 WHEN LEVERAGE FAILS Ty Andros Tedbits.com Traderview.com Listen to the original podcast for this slide at www.GordonTLong.com/Macro_Analytics 33 The content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of this slide is considered to be your explicit acceptance of the Disclosure Statement and the Terms of Use found on the last page of this document.
- 34. DISCLOSURE STATEMENT AND TERMS OF USE THE CONTENT OF THIS SLIDE PRESENTATION AND ITS ACCOMPANYING RECORDED AUDIO DISCUSSION ARE INTENDED FOR EDUCATIONAL PURPOSES ONLY. This slide presentation and its accompanying recorded audio discussion are not a solicitation to trade or invest, and any analysis is the opinion of the author and is not to be used or relied upon as investment advice. Trading and investing can involve substantial risk of loss. Past performance is no guarantee of future returns/results. Commentary is only the opinions of the authors and should not to be used for investment decisions. You must carefully examine the risks associated with investing of any sort and whether investment programs are suitable for you. You should never invest or consider investments without a complete set of disclosure documents, and should consider the risks prior to investing. This slide presentation and its accompanying recorded audio discussion are not in any way a substitution for disclosure. Suitability of investing decisions rests solely with the investor. Your acknowledgement of this Disclosure and Term of Use Statement is a condition of access to it. Furthermore, any investments you may make are your sole responsibility. THERE IS RISK OF LOSS IN TRADING AND INVESTING OF ANY KIND. PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. Listen to the original podcast for this slide at www.GordonTLong.com/Macro_Analytics 34
Editor's Notes
- An example of real money is a silver dollar; in 1965, when us dollars where still backed by gold and silver, you could exchange a paper dollar for a silver dollar. At the time you could buy 5 gallons of gas or 4 loaves of bread in exchange for the paper or silver dollar…today that same silver dollar buys 10 gallons of gas or 10 loaves of bread. Real money buys approximately the same amount of goods and services tomorrow as it does today.When the dollar was backed by gold and silver it was REAL money. Gold and silver is timeless pure wealth. It hasn't been produced by any bank, corporation or printing press, thus gold doesn't have a counter-party, nor does it need one. Gold can't be devalued or thrust into bankruptcy. Paper money backed by gold or silver is what is called SOUND money. It resists debasement. This is the fact that gold-haters seem incapable of understanding. Of course they hate gold because it CAN’T be printed out of THIN Air and unmasks the government and central bank fraud that FIAT money really is. Thus, it is a reliable store of value and unit account for the exchange of goods and services in trade. And has been REAL money for thousands of years.******************
- In 1971, when Nixon and the signatories to Breton Woods II removed the gold and silver behind the dollar, it became a system for confiscating wealth by Public Servants and Banksters, the paper dollar today buys 1/3 of a gallon of gas and less then ½ of a loaf of bread. The dollar is now an IOU, as are all the currencies in the world, this is also known as credit… and CREDIT IS NOT MONEY, it is a promise to pay and in this world it is a promise to pay of a government which makes a lot of promises. In this case the United States has made over 125 trillion of them. In the UK and European Union, trillions more promises are yet to be redeemed.In currencies where the dollar is a reserve, the debasement is domestic first and reserve currency second, so it is a double dose of debasement.The reason we live a world where relative returns are the norm in investing and every thing is mispriced is because NO ONE knows what these currencies are worth. When gold and silver were removed as reserves behind the paper money, money as a store of value and reliable unit of exchange ceased to exist.So many have been printed that calculating their purchasing power is a GUESSING game and when you exchange them for goods and services their future purchasing power will always be lower.You never know whether the goods & services you are trading for are worth the goods & services you are receiving, as you did with sound money.Fiat paper currencies ARE NOT a reliable unit of exchange for trade like gold & silver-backed money is.They are certainly not money…as J.P. Morgan once said, “Gold is money and nothing else”.**********
- This is a picture of Ponzi finance supporting and creating a illusion of GDP and asset growth.How much of this brought future demand forward through below-REAL market interest rates, home owners tax credits, cash for clunkers and zero money down offers? Robbing the coming years of demand which should have emerged at the proper time?LET’S SEE, no REAL ECONOMIC growth since 1990, no REAL employment growth since 1996, but debt on all levels of society: personal, corporate, and government debt is up 300 to 500% since then.Much of it spent for consumption, excess real estate of all types, welfare benefits, municipal and state boondoggles and government spending buffoonery with NO HOPE of the income necessary to repay it. Much of this lending was not for self-liquidating investments, which pay for themselves and are profitable after debt is repaid.The last time leverage approached these levels in 1933 it took 20 years to resolve, this time, it will take less time as the financial regulation, new taxes and the healthcare bill will hasten its collapse.As a good portion of this debt falls into default, the central bank will print the money to prevent the failure of the financial system and keep the lenders and investors still standing from FREEZING up.Every time they crank up the presses to fill in the holes in lenders’ balance sheets with money from Helicopter Ben and central banks in Europe, we edge closer to the day paper asset holders bolt for the door. Creating the seeds of the coming “CRACK-UP BOOM” and hyperinflation.******************************
- We are firmly in the total catastrophe of the currency and financial systems of the developed world, this is a battle between goliaths, it is King Kong (mother nature and Darwin) versus Godzilla (the most powerful public serpents and central bankers). The struggle will be enormous, with rallies in economies like we have just witnessed but in the end like King Canute the tide will engulf the elites. My bet is on mother nature, as she has fought hundreds of battles in history and has never in the long run been defeated by MEN, not once.Keep in mind - All FIAT currency and credit-based financial systems die in waves of insolvency and this is the greatest episode of this nature in history… The depression will be equally as big…*****************
- This is the only avenue they can pursue, Public serpents, their elite supporters and their something for nothing constituents have killed income growth. They Could tax every bit of income produced and still not deal with their insolvencies and future liabilities.This is the only path they can pursue and it will fail when the “Crack up Boom” appears and the masses wake up and the con game is recognized. This is the biggest episode of fiat currency and credit creation in history, hundreds and maybe thousands of times bigger then previous episodes in history, and there are hundreds you can look at. The bang will be a nuclear blast exploding in every G7 currency and financial system so it is slow death now and ultimately*****************