Sleepwalking Toward A Crisis – Got Gold?

“By sticking to the new orthodoxy of monetary policy and pretending that we have made the banking system safe, we are sleepwalking towards that crisis.” – Mervyn King, former head of the Bank of England in a lecture at the IMF’s recent annual meeting

The market levitates higher on phony economic data from the Government, Trump tweets, Fed money printing and hedge fund algorithms chasing headline and twitter sound bites. Currently the stock market, dulled by money printing and official interventions, could care less about economic reality and rising global systemic geopolitical and financial risk. Corporate headline earnings “beats” are considered bullish even if the earnings declined YoY or sequentially.

But for those who don’t have their head in the sand, clinging desperately to the “hope” offered by the misdirecting Orwellian propaganda, it’s difficult to ignore the message signaled by the legendary levels of insider selling.

Someone is not telling the truth – The Fed once again last week increased the size of both the overnight and “term” repo operations. Starting Thursday (Oct 24th) the overnight repos were increased from $75 billion to “at least” $120 billion and the term repos (2 week term) of “at least” $35 billion were extended to the end of November, with two “at least $45 billion” term repos thrown in for good measure. The Fed is also outright printing helicopter money for the banks at a rate of $60 billion per month (via “T-bill POMOs).

At the height of the last QE/money printing cycle, the Fed was doing $75 billion per month. So whatever the problem is behind the curtain, it’s already as large or larger than the 2008 crisis.

That escalated quickly – When the repo operations started in September, the Fed attributed the need to “relieve funding pressures.” At the time the public was fed the fairytale that corporations were pulling funds from money market funds to pay quarter-end taxes. Well, we’re over five weeks past that event and the repo operations have escalated in size and duration three times. Someone is not telling the truth…

The rapid increase in Fed money printing in just five weeks reflects serious problems developing in the global financial system. Actually, the problem is easy to identify:   At every level – government, corporate and household – the level of debt has become unsustainable, with not insignificant portions of that debt in non-performing status (seriously delinquent or in default). Thus, the Central Banks have had to resort to money printing to help the banks manage the rising level of distress on their balance sheet and to monetize the escalating rate of Treasury debt issuance.

The quote at the beginning is from the former head of the Bank of England, Mervyn King. King is warning that the global financial system is headed toward a crisis and that money printing ultimately won’t save it.  While it’s pretty obvious that a disaster waits on the horizon, when the former head of a big Central Bank delivers a message like that instead of Orwellian gobbledygook, the world should pay heed.  I would suggest that the Fed’s money printing signals that the risk of a crisis intensifies weekly.  Got Gold?

6 thoughts on “Sleepwalking Toward A Crisis – Got Gold?

  1. The ESF is buying stocks and S&P futures to keep gunning the stock market higher to record levels. They believe (as Allen Greenspan had recently stated) in the “wealth effect” that a rising stock market provides a big boost to the economy. That this alone can prevent a recession with “trickle down” economics for and from the top 2 percent.

    People are looking at their 401(k)s and rejoicing also. Have you heard anyone on Financial TV wanting this to end. They say, with bonds giving 1-2%, this can only bode well for stocks going higher and higher. It’s goldilocks.

    Max Kaiser just came out and said that China is coming out with a cryptocurrency backed by gold. If and when? Who knows if that is true. He says he has China sources. I am ready right now.

  2. The title of this article includes the word “gold”.

    In the body of text ” Actually, the problem is easy to identify: At every level – government, corporate and household – the level of debt has become unsustainable…”

    This article talks about gold and debt, and our defective monetary system. It was written…. in 1948 by Warren Buffet’s father; at the time a Congressman from Nebraska:

  3. The health of a debt-based monetary system is only as good as it’s sponsor – the sovereign state. When government, corporate, and consumer borrowing exceed the ability of the economy to service all that debt, it’s just a matter of time before implosion. All this legerdemain of zirp, nirp, mmt, and other bullshit, is useless and only delays the outcome. When that outcome arrives is, of course, anyone’s guess. It will occur when all real capital (savings, working capital, net capital, whatever you want to call it) has been consumed. I’d say we are there now.

    Sure, fixed assets don’t go away. But what the fuck is a piece of machinery worth if hasn’t power or maintenance? Nada. Working capital to an economy is like power to a factory – no have, no work.

    So, when then phony money is only good for toilet paper, or lighting fires, and your government’s credit is as good as the the turd circling the toilet, what is the only prime collateral acceptable for trade credit – globally, nationally, and locally. Anyone? Bueller? Anyone? (Hint – it’s more than one precious metal)

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