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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.

Published in: Economy & Finance
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Macro Analytics -10-16-12 WHEN LEVERAGE FAILS - Part II

  1. 1. Macro Analytics October 16th, 2012 WHEN LEVERAGE FAILS Listen to the original podcast for this slide at www.GordonTLong.com/Macro_Analytics 1The content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide 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. 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 2The content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide 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. 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 3The content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide 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. 4. When Leverage Fails! 4
  5. 5. Unwilling or unable to meet the world’s central banks’ DEMANDS for thegold that backed the dollar, Nixon and the US Treasury DEFAULTED onthe promises of Bretton Woods I by removing the GOLD reserves thatbacked the world’s reserve currency and thereby converted thefunctions 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 spaceTo… 5
  6. 6. …FIAT currencies. The dollar and all developed-world currencies were nolonger 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 printedAt the time, the United States and G7 were the world’s wealthiest nations andits greatest CREDITORS.Now they are the world’s greatest DEBTORS. 6
  7. 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. 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. 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. 17. Properly adjusted for inflation, growth in the US and Europe has been NEGATIVE for 10+ years 17
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  22. 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 22The content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide 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. 23. FOOD PRICES - Crushing Global Disposable Incomes = SOCIAL UNREST 23
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  27. 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 wasSPENT for consumption ratherthan self-liquidating capitalinvestments? Unimaginable amounts are due and unpayable & inextinguishable! 27
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  30. 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. 31. “There is no means of avoiding the final collapse of aboom brought about by credit expansion. Thealternative is only whether the crisis should come sooneras a result of a voluntary abandonment of further creditexpansion, or later as a final and total catastrophe of thecurrency 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. 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. 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 33The content of this slide should not be considered investment advice of any sort, nor should it be used to make investment decisions. Use of thisslide 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. 34. DISCLOSURE STATEMENT AND TERMS OF USETHE CONTENT OF THIS SLIDE PRESENTATION AND ITS ACCOMPANYING RECORDED AUDIO DISCUSSION AREINTENDED FOR EDUCATIONAL PURPOSES ONLY.This slide presentation and its accompanying recorded audio discussion are not a solicitation to trade or invest, andany analysis is the opinion of the author and is not to be used or relied upon as investment advice. Trading andinvesting can involve substantial risk of loss. Past performance is no guarantee of future returns/results. Commentaryis only the opinions of the authors and should not to be used for investment decisions. You must carefully examinethe risks associated with investing of any sort and whether investment programs are suitable for you. You shouldnever invest or consider investments without a complete set of disclosure documents, and should consider the risksprior to investing. This slide presentation and its accompanying recorded audio discussion are not in any way asubstitution for disclosure. Suitability of investing decisions rests solely with the investor. Your acknowledgement ofthis Disclosure and Term of Use Statement is a condition of access to it. Furthermore, any investments you may makeare your sole responsibility.THERE IS RISK OF LOSS IN TRADING AND INVESTING OF ANY KIND. PAST PERFORMANCE IS NOT INDICATIVE OFFUTURE RESULTS. Listen to the original podcast for this slide at www.GordonTLong.com/Macro_Analytics 34

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