The FED will determine the extent of the collapse

[KDave]

A good watch to refresh the macro picture or a good starting point if new to it. Its a recent talk, last week I think.

I had a read of this today while checking up on the BoE pension fund (still almost all in on inflation linked assets) - Q3 = Banks are not lending to business;

https://www.bankofengland.co.uk/credit-conditions-survey/2019/2019-q3

This is what the FED printing is all about, trying to reverse tightening and provide liquidity to stave off another 2008? 

From Chart of the Day thread;

As we can see, the FED tightening and interest rates rises started 18 months ago or so, as Schiff says they raised rates and started selling assets and nothing happened, so they did it again and nothing happened, so they kept doing it. It has taken that length of time for liquidity problems to arise, there is a lag between what the FED does as policy and the effect on the system. Which means they can print all they want but its too late, they print and nothing happens - we are entering recession and their printing will have no effect for several months. 

As we enter recession despite the printing the powers that be including the FED will ramp up the already turbo printing, likely to levels greater than the last QE programme. A good deal of this will flow into commodities, if the markets crash and bonds go with them, then commodities will do very well again, everything real will be in demand and dollars will not. Long story short this in turn will lead to consumer price inflation, eventually interest rate rises to stave off inflation and prevent dollar collapse, and this activity will clear the system of debt through a combination of an almost hyper inflated dollar, inflation of existing debt and bankruptcies and default on the rest driven by interest rates. The extent of the inflationary collapse will be determined by the extent of the printing as we enter recession.

The last time something like this happened in history was perhaps the 'Great Inflation', which played out from 1972 all the way into the 1980's, though the conditions were different - if history rhymes then our great inflation would translate roughly into late 2020's for us to come out of the other side. A lot of people will be taken out financially. It is a reset event. 

Am I jumping the gun and being too bearish perhaps? Does the FED have everything under control, and if you think so, why are they printing? 

What are your thoughts?

[5huggy]

Fed stated tother day - "THIS IS NOT QE"  WTF - -

printing is printing ! devaluation of currency because they are scared WITLESS as the "Velocity of currency" is slowing too fast for them to handle - -

ergo the serious issues over the "REPO's " last week!

 

 

[5huggy]

IMHO  - - - This can only (eventually)  lead to

Kaiser Wilhelm II - "WEIMAR REPUBLIC"  - - HYPER INFLATION 

[KDave]

7 minutes ago, 5huggy said:

IMHO  - - - This can only (eventually)  lead to

Kaiser Wilhelm II - "WEIMAR REPUBLIC"  - - HYPER INFLATION 

Agreed it will almost lead to hyper inflation but I don't think the dollar will collapse as it is critical to the current system - it will be stopped from doing so by interest rate rises, likely at the expense of the public and economy. I believe in the 70's the FED raised rates to save the dollar knowing it would lead to recession.

[5huggy]

50 minutes ago, KDave said:

Agreed it will almost lead to hyper inflation but I don't think the dollar will collapse as it is critical to the current system - it will be stopped from doing so by interest rate rises, likely at the expense of the public and economy. I believe in the 70's the FED raised rates to save the dollar knowing it would lead to recession.

Yep - I go along with that sentiment!

This sort of thing makes one think a little deeper tho!

The Dutch Central Bank Endorses The Gold Standard

from here - - http://news.goldseek.com/GoldSeek/1571076793.php

 

[sixgun]

When there was QE under Bernanke the currency never got out into the system. The Fed created the currency which was handed to the banks and they were supposed to lend it out. This was intended  to stimulate the economy - but it didn't, they didn't lend as intended and it was used to enrich the banks and inflate asset bubbles. This time round the currency will have to go out into the system - they need to stimulate demand - people are broke. We may even get to helicopter money where we are all give X amount of currency with the intention that we spend it. The thing is people often pay off debts (which destroys currency) or stash it away. So there will be negative rates to discourage saving and encourage consumption. They are on a certain path to the end of the present fiat system - however they twist and turn it is the end. All the central banks in the West are doing QE so all their currencies go down to zero together. This is when gold and silver come into their own - if ever there is a time to hold the precious metal it is in times like this - they are real money.

[5huggy]

10 minutes ago, sixgun said:

This is when gold and silver come into their own - if ever there is a time to hold the precious metal it is in times like this - they are real money.

MEGA WELL SAID @sixgun  - I totally concur bud! 

[tallyhojim]

13 minutes ago, sixgun said:

We may even get to helicopter money where we are all give X amount of currency with the intention that we spend it.

More fool them if they do. Any free fiat they give me will be getting spent straight on the shiney stuff!!!! 😉

Fek 'em and keep stacking! 😁

[KDave]

Another thing to consider is the reaction of government. Already we are hearing the 'end of austerity' and plans to spend, this will generate a lot of the demand for printing which in turn will enter the economy, I believe that is the mechanism that will be used to 'stimulate' the economy. If its not investment into commodities, then consumer inflation will be generated via this mechanism. Either way we are not going to see austerity when this recession hits.  

Perhaps if things get bad enough there will be helicopter money, perhaps a second wave of PPI (the first wave of PPI was peoples QE running for several years imo). The beauty of PPI is that you are giving money to people who have a history of spending on credit and will likely do so again. Its no good giving money to people who don't use credit, as they are more likely to save. It is stealth helicopter money.  

[HawkHybrid]

the printing of currency is not directly linked to gdp.

if for some reason(any reason) the flow of currency

stalls/threatens to stop, then the fed must print

more currency to encourage it to flow.

(currency facilitates trade, it's designed to flow)

bigger economies require larger currency flows.

it's currency printing greater than that of growth

that might cause problems.

 

HH

 

[KDave]

That is a good way of thinking about, the flow of currency is like the river that drives the mill, it is not GDP itself but it facilitates the activity. You can't produce much flour when the river is dry. The FED has reduced the flow over the last 18 months to the point now that businesses can't refinance or borrow from the banks, this has dire consequences seen in the recent bankruptcies (TC), and failures to raise capital that is stalling economic ventures (there is a thread here about a mine failing to raise capital for example). 

Officially we don't declare a recession until we see two quarters of economic decline. If the printing starts two quarters in to a recession to facilitate business and trade, by then the damage is already long done. Hence why the FED are printing now - they think that by printing ahead of the curve then can stave off recession, the issue I see is that there appears to be a lag between tightening and its effects on the market, and in turn there will likely be a lag between printing and getting those funds to where they need to be - hence why recession is inevitable. I am expecting then that they will then panic and ramp up the printing further. 

[5huggy]

4 minutes ago, KDave said:

The FED has reduced the flow over the last 18 months to the point now that businesses can't refinance or borrow from the banks, this has dire consequences seen in the recent bankruptcies (TC), and failures to raise capital that is stalling economic ventures

"ZOMBIE BUSINESSES" 

4 minutes ago, KDave said:

I am expecting then that they will then panic and ramp up the printing further. 

The "wiemar" scenario!

[KDave]

Yes the businesses that will be going under need to be going under, over leveraged, addicted to debt, a few would have gone under already if not for cheap debt, TC was one - but it will lead to problems nether the less. A lot of TC employees are now not spending on whatever they were spending on before, which in turn has knock on effects on those businesses and so on. The zombies need to go out of business, bad debt and business needs to be cleared out but it will come at a cost. All the FED did in 2008 was delay the inevitable, it is attempting to do so again and will fail imo. 

[5huggy]

The bit that scared me the most of the TC debacle was - a few "interviewees" said "I've worked for the company for 30 plus years and have NO SAVINGS!" WTF!

hand to mouth (or payday to payday) existence amongst a lot of the younger generation is a frightening prospect for them - AND THEY DON'T SEE IT!

[KDave]

1 minute ago, 5huggy said:

The bit that scared me the most of the TC debacle was - a few "interviewees" said "I've worked for the company for 30 plus years and have NO SAVINGS!" WTF!

hand to mouth (or payday to payday) existence amongst a lot of the younger generation is a frightening prospect for them - AND THEY DON'T SEE IT!

Consider the number of people who have bought houses in the last 5 years on government help to buy. If interest rates hit near double digits in a few years those are the people that will be bearing the cost of 2008.

Consider the sleep easy portfolio of someone invested in dollar denominated bonds, perhaps of someone just entering retirement. That will be worthless in a few years. 

A lot of people will be wiped out. Like I say, its a reset event.  

Perhaps this won't happen and the FED saves the day, lets hope so. 

[5huggy]

3 minutes ago, KDave said:

A lot of people will be wiped out. Like I say, its a reset event.  

Perhaps this won't happen and the FED saves the day, lets hope so. 

Totally agree @KDave  - but faith in the FED is like having faith in "FIAT" - it will disappear! 😉

[Pete]

A friend of mine is approaching the end of her interest only mortgage.
She had this for decades or certainly a very long time.

The bank now requires payment of the house purchase price and she cannot afford this so will have to sell and downsize but this could prove difficult because she really doesn't live in a house that you could downsize from in terms of its resale value when considering purchasing something else.

So many people right now have bought a house on either an interest only mortgage or certainly a very low rate interest mortgage.
At the same time they are living beyond their means, decent car, Saturday nights out in bars, holidays etc. whilst not realising that a tweak in interest rates will cause big problems and although they live in nice houses they do not own these properties. Scary

[Abyss]

Real Vision Finance, Published Oct 15, 2019, Building Empires Out of Gold (w/ James Turk and Grant Williams). Related to @KDave Peter Schiff video but historical perspective of debt and Gold.

 

[TheGeneral]

15 hours ago, 5huggy said:

The bit that scared me the most of the TC debacle was - a few "interviewees" said "I've worked for the company for 30 plus years and have NO SAVINGS!" WTF!

hand to mouth (or payday to payday) existence amongst a lot of the younger generation is a frightening prospect for them - AND THEY DON'T SEE IT!

A family member recently was suspended from a high paid job. When I first started my current career on minimum wage 17 years ago he would boast of £8k a month pay Checks after tax. He has moved up the ranks a few times since then so must be on decent wedge. 

His wife was complaining when he was suspended they they were struggling to pay bills like Mortgage etc. as they have no savings! 

I Was amazed that someone earning so much could be living in debt!

we really should start to teach kids how to manage money in school.    

[KDave]

 

[5huggy]

GOTTA be a "RAM on" iceberg cometh!!😉👍

[KDave]

Balance 2nd October;

Balance 5th December;

 

[StackerCollector]

My humble opinion - the FED through interest rates can and does control the economy and booms and recessions. And the next crisis will destroy most people's wealth.

I am following the smart money: JP Morgan buys silver, central banks are buying gold like never before. I have an average income but I am living with 40% of my salary, unlike many of my colleagues who waste their salary as soon as they get it; like there is no tomorrow. So I keep stacking both gold and silver and when we do have a crash I am looking to buy blue chip stocks at bargain prices. Let's see what happens. I prepare for the worst and hope for the best.