When Leverage Fails & Hope Turns to Fear

Theodore (Ty) Andros / Gold Seek

In today’s TedBits we will be outlining a lot of smoke signals.  They signal fires burning and about to break out.  As everyone is aware, the Federal Reserve has been tightening monetary policy for almost a year now and has been joined by the Chinese central bank.   The Federal Reserve has been reducing its balance sheet expansion from $85 billion a month (85,000 million) to zero in mid-November.  While the fed does not characterize it as a tightening, it is one.  Numerous studies have put the amount of interest rate reduction to -3 % when QE3 was at full bore.  Now that the reduction is approaching zero negative interest rates are ending, they have raised rates by about 3% in real terms.  We are Austrians at TedBits and believe in all of the core truths from Ludwig Von Mises:
 
 

“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 the 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        

This is the state of the world today.  The financial system and governments would collapse if credit could not expand and steal from the future.  It is their lifeblood.  They have created a world where they always can borrow, but have made no provision for the repayment.  It is a Ponzi scheme.  The math can no longer work anywhere you look.  Since the math can’t be made to work it is obvious that covert techniques of money printing are fully engaged and no one within the system dares yell, “Fire!” and call them out on their betrayals.   Since Bretton Woods II in August 1971 when our leaders betrayed us by substituting IOUs for money, our world has become one big credit expansion, everywhere and always, REAL growth has INCREASINGLY ceased.  If there wasn’t lending for consumption called growth, the world’s economies would rightly be called in a depression.  It truly is INFLATE or DIE.  Without it, our Ponzi economies and welfare states would collapse in the insolvency they inhabit.  It is why our economies have become financialized to extract every penny in one way or another that they can from the public and transfer it to the government and the financial systems which control them (central banks and the their shareholders).  We are debt slaves and serfs to global socialist elites, which are morally and fiscally bankrupt.
 

Easy money creation out of thin air has allowed politicians to cover up poor policy decisions and buy votes for decades, and the accumulated poison is now overwhelming the ability of the global economies to grow.  Clearing out those DECADES of bad policies choices will be almost impossible.  To do so has turned what would have been a roadside bomb of POLICY adjustment into a NUCLEAR BOMB of systemic changes.  The governments that have put these anti-growth policies in place now have no memory of the policies required to create growth. Freedom and free markets, Capitalism (more for less) sound money and private property rights have all gone the way of the DODO bird: EXTINCT.  Thus, the restoration of these things is INCONCEIVABLE to them.  Nothing less will avoid the demise Von Mises speaks of.  Debt cannot compound relentlessly without the economic growth to service it.  It is called debt spirals and imminent leverage failures and it is everywhere.  We will show you several today.
 
Janet Yellen has been on a honeymoon since becoming fed chairperson and that situation is about to change in my opinion.  If you look back at the history of new fed chairmen they have always faced a challenge and Janet’s challenge is coming to the plate.  It will be Bigger than 2000 and 2008 I believe.  Keep in mind one of Ben Bernanke’s recent comments that he believes interest rates will not rise again in his lifetime.  Why? You ask?  Because the leverage in the system will collapse the very financial assets and governments which underpin the global financial systems.  It is INFLATE or DIE and it provides the additional benefit of feeding insolvent welfare states and the socialist politicians to feed their Useful Idiot supporters.  Today’s missive will put some meaning into that observation. 
 

First, let’s look at some parts of the global banking systems as a percentage of GDP in their respective economies:

Notice the average in the Eurozone is a GIGANTIC 349% of GDP in 2013 (600% in the Swiss banking giants).  If those assets declined in value by a mere 10% (hardly a correction), the average checks those governments would have to write is 35% of a year’s GDP.  Where would that money come from as these countries have surrendered the printing press to the ECB (a political exercise to gather power).  Their financial systems would collapse instantly.  Since those same banks also have gorged on Eurozone debt, their toxic assets would be quite a bit larger.  Although, keep in mind the Eurozone has passed laws calling sovereign debt risk free so it wouldn’t cause them to have to raise reserves.  But the falling prices of everything outside will.  In reality, I believe some of that decline has already occurred and a regulatory approved cover up is underway.

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