Banking Crisis 2.0 – Hyperinflation Everywhere?

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Since the start of the year, the stock markets around the world have begun their slow grind into Japanese style retrenchments.

And yet, there has been precious little commentary in the MSM, about this, who prefer to discuss train derailments, Russia’s involvement in Syria and the middle-east or current and former celebrities’ antics or the machinations of Brexit, or the refugees walking their way across Europe, from the middle-east to new lives throughout northern Europe and Britain.

However, to return to the title of the piece, it appears that cracks are once again appearing in the Banking edifice, that legislators and those who fund them have built, and sometime in the not too distant future, a minor tremor, will bring this edifice down around our ears.

Indications that this was going to happen became evident, and were laid down over a four decades ago, with the end of the Bretton Woods Agreement, in August 1971, but in recent months, evidence that we are peering over the precipice has emerged, in some wonderfully inciteful interviews. Hugo Salinas-Price – a Mexican National, who grew up in the U.S. and made his money in Mexican Retail. In recent days and months has been involved in a number of interviews. At 82, he owes no allegiance to anyone including the U.S. where he was born. He does however, show support to the people from where he came – the poor Mexican community. For those who don’t know him, Hugo Salinas Price, built a chain of stores – Electra – in Mexico, which made him a billionaire. In the first interview I saw with Greg Hunter, he talked about the reintroduction of money (not currency) made from silver, which had a fineness and a weight stamped on it, not a value – once upon a time, a British Pound Sterling was exactly that… a pound weight of sterling [925] silver, which closely equated to a one ounce gold coin, which for many years was called a Golden Guinea, and was valued at 21/- (i.e. 21 shillings, i.e. £1.05). He talked about a price “Quote” that could be announced by the Treasury…

Of course human nature could mean that the price would be quoted to perhaps 5 digits, and over time an unimaginably small amount could be taken from those 5 digits to devalue the money over time, because that is what Governments and Treasuries and Bankers do. Steal from the people stealthily. Did you notice the two words Steal and Stealthily? They have the same root. But he is right, Precious metals will need to be revalued upwards to eliminate the world debt of some $200TRILLION, or the debt will never be repaid. So anyone who holds this wondrous substance, will have it revalued up against other things of value.

In a later interview, he talked about China’s devaluation, to keep the Chinese export market humming. Salinas-Price felt that the devaluations were insufficient to keep Chinese factories at full tilt, and that perhaps 40% might be needed. However he also talked about the Banking System, being so out of kilter, that impossibilities were being expected. For example Greece had a population of 11,000,000 people, but the bank bailout, to Greece, amounted to some €400 BILLION which was impossible to pay – because it means that every man, woman and child, owes €36,363.63, and Greg reminded us, that Puerto-Rica, which had a population of 3,500,000 people, owed $71,000,000,000. and the state of North Carolina, has about 10 million people, and close to $1 billion of debt.

In a more recent interview Salinas-Price showed a chart of the World’s Central Banks assets (physical reserves + interest bearing instruments etc) over time. Since the 1940s, this showed the asset base rising, gently at first, but increasing during the 1950s, 60s and 70s, as Gold was revalued over a ten year time frame, to its 1980 high, then as bonds became the preferred method of financing deficit spending governments, to the point where the chart line went almost vertical peaking in August 2014. Since that time however, there has been a gradual decline of Central Bank Assets in a slow arc, which levelled off then began to turn down in recent weeks. The fall went from 12.032 trillion, to 11.025 trillion over 18 months (to Feb 2016) His interviewer – Greg Hunter, made a reference to the “Hockey Stick”, moment,  of which I have mentioned in one of my earlier posts (the J Curve). Salinas Price, then talked about the revaluation of Gold to some figure, which various commentators have suggested would range from $8,000 to $50,000 per ounce for Gold. (I myself suggested some years ago, that we might see $8,500/oz Gold) With Gold amounting to 183,000 tonnes worldwide, which will need to be all be revalued. (no matter in what form that takes whether that be in vaults or around someone’s neck, or finger)

Greg then went on to ask the question, “Could this pick up, and go down as fast as it went up?” and I think Salinas-Price recognising the seriousness of the question said “I think it will go down faster than it went up.” I suspect he didn’t want to state outright, that when it did, it would be the end of the western hegemony in world affairs, as the Central Banks funding governments through deficit spending, have allowed governments to buy arms, and munitions for the last 5 decades – since the start of the Vietnam war – to punish those with which it disagreed. And on that fateful day in August 1971, the die was cast.

Paper Currency – no going back?

Beginning in late 1997, we saw the far east undergoing financial problems as small national currencies collapsed. The beginnings of the crisis were caused by overheated economies, primarily as I see it because these countries were manufacturing electronic components going into PC systems, that western nations were replacing on a wholesale basis as the Y2K issue grew ever closer. The U.S. economy too was selling huge amounts of consultancy services, hardware and software to replace non-compliant systems that required all applications, operating platforms, and device drivers to be rebuilt on 32bit hardware to ensure compliance. This surge in income led to overheating of their respective economies, and led investors to over-estimate the underlying strength in particular of the far-eastern economies, until events turned south as that surge receded. As hardware needed to be replaced first, the surge should have been anticipated upto circa 1997/8, to allow time for programmers, to rewrite applications ready for that fateful day, when some believed the hype, that some in the media who were ignorant of events in the I.T. world had created. The IMF came to the rescue of those 3 countries, but all they did was postpone the inevitable.

The problems began starting with the Thai Baht, causing ripples throughout the international financial system spreading throughout Vietnam, China, and moving on to Russia causing the collapse of the rouble.

The decline in these eastern economies, led to a decline in oil demand, and this impacted the Russian economy, already stretched due to the war in Chechnya, and a strike by Russian coal-miners on 12th May as their wages had gone unpaid. The inability to meet government expenses, lowered investor confidence, and this put additional pressure on an already falling rouble.
The Russians learned a valuable lesson, and have since been raising their Gold reserves levels using dollars, that were gained by selling oil and gas to Europe and the world, and converting them into Gold. Their debt to GDP level on the last figure I saw was just 11% of GDP compared with Britain’s 97% and America’s over 105%.

However, a return to a gold backed currency in the 1970s, would seriously have curtailed U.S. military spending, in Vietnam, just as the Soviet Empire was brought to heel by undermining its financial strength, by driving down the price of its main export – oil, which has also happened in recent years by oil from fracked wells, to undermine Vladimir Putin’s regime. Of course we can never be absolutely sure when the precipice fall moment will arrive, but one possibility, appeared on the Max Keiser show recently. Max talked with Stacy Herbert, about the current financial strength of Deutsche Bank. Had the board of Directors expressed their full support for the strength of the business, just like a Premier League Football team board,who announce support for the Team Manager just days before he is ousted, and fired?

In Germany, the German Finance Minister said that the Bank was sound. In reality, in Max Keiser’s words – “It’s a dead man walking”.  Deutsche Bank has a derivatives book, which is leveraged just like the Federal Reserve beyond its capabilities, and will likely come unstuck if events unfold as can be reasonably expected. The trigger? Probably Greece, which has a population of 11 million, but owes over €400 billion. Can this small south European nation, who historically made their money from shipping, with the Baltic Dry Index at all time lows, and with an increasing number of migrants turning up on its shores, in boats, in dinghies, with over 100,000 so far this year and all in desperate need. Can it pay back this huge sum? And if or rather when, it says NO – We can’t. What then?

Many believe this will be the straw that breaks the camel’s back, and crashes the Euro, the ECB, and the European dream. It was Goldman Sachs, who of course cooked the books, by hiding a 12% deficit, and making it look like they were meeting their Euro obligations, when in reality they should have limited debt to 3% of GDP.

In recent weeks, from a technical analysis perspective, Gold has risen through several major Moving Averages – all the way up to, and through, the 600 day Moving Average (SMA- Simple Moving Average) Of course it has to remain there, above that threshold, to hold the thesis that the upturn has started. Silver meanwhile has still to confirm such a move, but usually, the silver price is like it is tied with elastic, to the gold price, so that the move is delayed, but accelerates far faster as those who have chased the price of gold higher, switch to silver because the price of gold is out of reach of many, and silver catches up.

And silver which had huge stockpiles that have been sold off over the last 70 years, is now just off its most recent lows, and likely to go higher… much higher.

See the Hockey Stick Moment turn south…

— Hugo Salinas Price…

…and Bo Polny – says —– THIS YEAR is the year that PMs re-value —–

And if you want an intellectual education on the monetary systems of the world, then this is probably one of the better ones I’ve seen…

Mike Maloney has a series of You-tube videos (Episodes 1-5) on the history of money, and currency (currency is not money as he explains) Of the 5 episodes, number 4 is perhaps the most informative for those without the motivation to sit through them all, though, the others certainly inform as to the extent of control and manipulation by Bankers. Knowledge of money and how the Central Banks, have gained control of the monetary system, and used it to feather the Banker’s nest and control politicians will perhaps enrage you, but it will show you how you have been deceived and what you can do about it.
And whilst researching this piece, I came across a piece from August 2005, written by Marc Faber, for the Daily Reckoning.

This should serve as a reminder that we have been here before, and it didn’t end well…

by Marc Faber

“Everything in the world may be endured except continued prosperity.”
– Goethe

In the late 1970s, investors became increasingly concerned about accelerating consumer price inflation. Since consumer prices were rising at more than 10% per annum, the prevailing view was that cash was depreciating by approximately 10% per annum.

People rushed into precious metals and drove the price of gold and silver to $850 and $50 respectively in January 1980. At the same time, investors were dumping bonds, which became known as “certificates of confiscation”. US long-term government bond yields soared to more than 15% in September 1981. I would argue that there was at the time a real panic about the role of paper money as a store of value.

Today, we have a similar situation. However, people are not concerned about paper money losing its purchasing power as a result of consumer prices rising, but as a result of paper money losing its value because of rising asset prices.

If real estate prices rise for an extended period of time at a faster rate than incomes and interest rates on cash deposits, it is only natural that people become concerned that they won’t be able to afford to purchase their own home in future. Their concern about future affordability, which is nothing else than the fear of their income and savings losing their purchasing power, then induces them to purchase their homes now rather than later.

This incremental demand drives prices even higher and attracts speculators who want to capitalise on the rise in prices, which is driven first by the genuine buyers and later by themselves as well.

As a result, prices then overshoot and lead to even deeper apprehension about the loss of purchasing power of paper money on the side of the household sector. A general rush from liquid assets to “illiquid assets” inevitably follows and creates a bubble.

This is nothing new. The first well-documented instance of such a loss in the purchasing power of paper money was John Law’s Mississippi Scheme. In 1716, John Law had opened, under the patronage of the French regent, a bank (Banque Generale), which issued paper money backed by gold. With the help of the regent, the bank became an immediate success. Its banknotes were very convenient, since the government accepted them for tax payments.

Based on this first success, in 1717 Law managed to convince the regent to grant his new venture, the Mississippi Company, a monopoly on all commerce between France and its French territories in North America, which included the present states of Louisiana, Mississippi, Arkansas, Missouri, Illinois, Iowa, Wisconsin and Minnesota, in return for accepting outstanding notes of the French government in payment for the Mississippi shares.

This arrangement basically amounted to nothing other than a partial conversion of France’s government debt into shares of the Mississippi Company.

The operations of the company didn’t prove to be profitable, partly because when it issued shares it hadn’t received cash, but debts of the French government, which had been converted into shares of the Mississippi Company, and partly because very few French wanted to emigrate to the territories in America.

Still, the shares of the Mississippi Company performed well after the regent took over Law’s bank and began to run its money printing press around the clock. (Presumably, Law gave him the bank in exchange for having obtained so many privileges.)

But, whereas John Law had always maintained a small balance of gold reserves to back up the paper money the bank issued, he now advised the regent that the public had gained sufficient confidence in paper money and, therefore, gold reserves in the bank’s vault were no longer necessary.

As a result, in 1719, the government increased the money supply dramatically and lowered interest rates by lending money for as little as 1-2%. The vast increase in the supply of paper money, combined with the ability to purchase shares in the Mississippi Company on margin, led not only to the shares rocketing towards the end of 1719 to over 20,000 livres (from 300 at the beginning of the year), but also to rapid price increases across France.

The cost of bread, milk, and meat had risen six-fold, while cloth was up by 300%. The horrendous inflation made the holders of Mississippi Company shares and of paper money nervous.

In January 1720, just two weeks after John Law had been appointed as comptroller general of finance (minister of finance), a number of large speculators decided to cash out and switch their funds into “real assets” such as property, commodities, and gold. This drove down the price of the Mississippi Company shares since the speculators could only pay for real assets with banknotes.

As confidence in paper money was waning, the price of land and gold soared. This forced Law, who still enjoyed the backing of the regent, to take extraordinary measures. He prevented people from turning back to gold by proclaiming that henceforth only banknotes were legal tender. By then the Banque Generale had practically no gold left. Thus, payments in gold and silver above 100 francs were prohibited; in addition, the ownership of gold exceeding 500 livres in value was declared illegal. Severe penalties were imposed on people who hoarded gold. To enforce this most blatant expropriation, Law encouraged the public to turn informer by handing out large rewards to those who assisted in the discovery of gold, which was then confiscated. At the same time, he stabilised the price of the shares of the Mississippi Company by merging the Bank Generale and the Mississippi Company, and by fixing the price of the Mississippi stock at 9,000 livres.

With this measure, Law hoped that speculators would hold on to their shares and that in future the development of the American continent would prove to be so profitable as to make a large profit for the company’s shareholders.

However, by then, the speculators had completely lost faith in the company’s shares and selling pressure continued. In fact, instead of putting a stop to the selling, the fixed price acted as an inducement to sell, which led the bank once again to increase the money supply by an enormous quantity.

The result was another round of sharply escalating prices. In four years, the supply of circulating medium had been trebled. John Law suddenly realised that his main problem was no longer his battle against gold, which he had sought to debase, but inflation. He issued an edict by which banknotes and the shares of the Mississippi Company stock would gradually be devalued by 50%.

The public reacted to this edict with fury, and shortly after Law was asked to leave the country. In the meantime, gold was again accepted as the basis of the currency, and individuals could own as much of it as they desired.

Alas, as a contemporary of Law’s noted, the permission came at a time when no one had any gold left. The Mississippi Scheme, which took place at about the same time as the South Sea Bubble, led to a wave of speculation in the period from 1717 to 1720 and spread across the entire European continent. When both bubbles burst, the subsequent economic crisis was international in scope.

Today, I am a firm believer that Mr Greenspan, Mr Bernanke, and their colleagues in other central banks around the world are modern-day John Laws. They, like him, will not only manipulate and intervene in markets but, over time, will also totally destroy the value of paper money. In fact, I believe that, given the very high levels of debt we have in the US and other industrialised countries compared to the size of their economies, the central banks have no other option now but to print an ever-increasing quantity of money.

Whereas John Law tried to fix the price of the Mississippi Company by printing money, the Fed chairman has tried – and managed, at least so far – to inflate asset prices through an extraordinary money and credit expansion. But in the same way that asset price inflation replaced consumer price inflation in the early 1980s – unexpectedly, I might add – in the near future CPI inflation and rising commodity prices could begin to exceed asset inflation rates, and in particular home price inflation.

This would likely depress long-term bond prices and lead to a very unappealing global economic and financial environment. It would eventually discredit central bankers and bring about the end of central banking as we know it today.


Marc Faber
for The Daily Reckoning

Rob Kirkby – The ESF is behind the mess…

This financial problem, is expanding into the surveillance state – 1984, just got ugly…

This is how they do it…

And The Financial Elite, will use WAR to cover up their mess…

And the antidote to all this is?

GOLD and SILVER, because when the people have that, Government has to raise taxes, and justify every penny spent.

But what about food, water and having people around you who are self-reliant, and will help each other… Where’s the best place to live in the U.S. when the SHTF?

This audio, discusses the expected timeline for the coming financial reset…
Senator Ron Paul, is a medical doctor, who spent almost 40 years in politics. A man, who stood for free markets, and against the Federal Reserve, and stood for the Presidency first as a Libertarian, and latterly as a Republican, but his greatest achievement, was together with Lewis Lehrman, they wrote a comprehensive 245 page report advising the government of the day back in 1982, on the monetary system, and how they could get the U.S. back on track. The report – “The Case For Gold”, was buried for years, in congressional records office, but now you can download a copy of the Ron-Paul-Case-For-Gold-Report for free.

And you can listen to him on his 80th Birthday, in fine voice, when perhaps he gave his best speech ever.


You have been warned!