Go for it Southace!
Here are some good reasons to get off the grid. Bit of a read but interesting...
End of Fed Cred
It must be scary to be a Federal Reserve governor. You have to pretend that you know what you???re doing when, in fact, Fed policy appears completely divorced from any sense of consequence, or cause-and-effect, or reality ??? and if it turns out you???re not so smart, and your policies and interventions undermine true economic resilience, then the scuttling of the most powerful civilization in the history of the world might be your fault ??? even if you went to Andover and wear tortoise-shell glasses that make you appear to be smart.
The Fed painted itself into a corner the last few years by making Quantitative Easing a permanent feature of the financial landscape. QE backstops everything now. Tragically, additional backdoor backstopping extends beyond the QE official figures (as of December 2013) of $85 billion a month. American money (or credit) is being shoveled into anything and everything, including foreign banks and probably foreign treasuries. It???s just another facet of the prevailing pervasive dishonesty infecting the system that we have no idea, really, how much money is being shoveled and sprinkled around. Anything goes and nothing matters. However, since there is an official consensus that you can???t keep QE money-pumping up forever, the Fed officially made a big show of seeking to begin ending it. So in the Spring of 2013 they announced their intention to ???taper??? their purchases of US Treasury paper and mortgage paper, possibly in the fall.
Well, it turned out they didn???t or couldn???t taper. As the fall equinox approached, with everyone keenly anticipating the first dose of taper, the equity markets wobbled and the interest rate on the 10-year treasury ??? the index for mortgage loans and car loans ??? climbed to 3.00 percent from its May low of 1.63 ??? well over 100 basis points ??? and the Fed chickened out. No September taper. Fake out. So, the markets relaxed, the interest rate on the 10-year went back down, and the equity markets resumed their grand ramp into the Christmas climax. However, the Fed???s credibility took a hit, especially after all their confabulating bull**** ???forward guidance??? in the spring and summer when they couldn???t get their taper story straight. And in the meantime, the Larry-Summers-for-Fed-Chair float unfloated, and Janet Yellen was officially picked to succeed Ben Bernanke, with her reputation as an extreme easy money softie (more QE, more ZIRP), and a bunch of hearings were staged to make the Bernanke-Yellen transition look more reassuring.
And then on December 18, outgoing chair Bernanke announced, with much fanfare, that the taper would happen after all, early in the first quarter of 2014 ????? after he is safely out of his office in the Eccles building and back in his bomb shelter on the Princeton campus. The Fed meant it this time, the public was given to understand.
The only catch here, as I write, after the latest taper announcement, is that interest on the 10-year treasury note has crept stealthily back up over 3 percent. Wuh-oh. Not a good sign, since it means more expensive mortgages and car loans, which happen to represent the two things that the current economy relies on to appear ???normal.??? (House sales and car sales = normal in a suburban sprawl economy.)
I think the truth is the Fed just did too darn much QE and ZIRP and they waited way too long to cut it out, and now they can???t end it without scuttling both the stock and bond markets. But they can???t really go forward with the taper, either. A rock and a hard place. So, my guess is that they???ll pretend to taper in March, and then they???ll just as quickly un-taper. Note the curious report out of the American Enterprise Institute ten days ago by John H. Makin saying that the Fed???s actual purchase of debt paper amounted to an average $94 billion a month through the year 2013, not $85 billion. Which would pretty much negate the proposed taper of $5 billion + $5 billion (Treasury paper + Mortgage paper).
And in so faking and so doing they may succeed in completely destroying the credibility of the Federal Reserve. When that happens, capital will be disappearing so efficiently that the USA will find itself in a compressive deflationary spiral ??? because that???s what happens when faith in the authority behind credit is destroyed, and new loans to cover the interest on old loans are no longer offered in the non-government banking system, and old loans can???t be serviced. At which point the Federal Reserve freaks out and announces new extra-special QE way above the former 2013 level of $85 billion a month, and the government chips in with currency controls. And that sets in motion the awful prospect of the dreaded ???crack-up boom??? into extraordinary inflation, when dollars turn into hot potatoes and people can???t get rid of them fast enough. Well, is that going to happen this year? It depends on how spooked the Fed gets. In any case, there is a difference between high inflation and hyper-inflation. High inflation is bad enough to provoke socio-political convulsion. I don???t really see how the Fed gets around this March taper bid without falling into the trap I???ve just outlined. It wouldn???t be a pretty situation for poor Ms. Janet Yellen, but nobody forced her to take the job, and she???s had the look all along of a chump, the perfect sucker to be left holding a big honking bag of flop.
We???re long overdue for a return to realistic pricing in all markets. The Government and its handmaiden, the Fed, have tweaked the machinery so strenuously for so long that these efforts have entered the wilderness of diminishing returns. Instead of propping up the markets, all they can accomplish now is further erosion of the credibility of the equity markets and the Fed itself ??? and that bodes darkly for a money system that is essentially run on faith. I think the indexes have topped. The ???margin??? (money borrowed to buy stock) in the system is at dangerous, historically unprecedented highs. There may be one final reach upward in the first quarter. Then the equities crater, if not sooner. I still think the Dow and S &P could oversell by 90 percent of their value if the falsehoods of the post-2008 interventions stopped working their hoodoo on the collective wishful consciousness.
The worldwide rise in interest rates holds every possibility for igniting a ****storm in interest rate swaps and upsetting the whole apple-cart of shadow banking and derivatives. That would be a bullet in the head to the TBTF banks, and would therefore lead to a worldwide crisis. In that event, the eventual winners would be the largest holders of gold, who could claim to offer the world a trustworthy gold-backed currency, especially for transactions in vital resources like oil. That would, of course, be China. The process would be awfully disorderly and fraught with political animus. Given the fact that China???s own balance sheet is hopelessly non-transparent and part-and-parcel of a dishonest crony banking system, China would have to use some powerful smoke-and-mirrors to assume that kind of dominant authority. But in the end, it comes down to who has the real goods, and who screwed up (the USA, Europe, Japan) and China, for all its faults and perversities, has the gold.
The wholesale transfer of gold tonnage from the West to the East was one of the salient events of 2013. There were lots of conspiracy theories as to what drove the price of gold down by 28 percent. I do think the painful move was partly a cyclical correction following the decade-long run up to $1900 an ounce. Within that cyclical correction, there was a lot of room for the so-called ???bullion banks??? to pound the gold and silver prices down with their shorting orgy. Numerous times the past year, somebody had laid a fat finger on the ???sell??? key, like, at four o???clock in the morning New York time when no traders were in their offices, and the record of those weird transactions is plain to see in the daily charts. My own theory is that an effort was made ??? in effect, a policy ??? to suppress the gold price via collusion between the Fed, the US Treasury, the bullion banks, and China, as a way to allow China to accumulate gold to offset the anticipated loss of value in the US Treasury paper held by them, throwing China a big golden bone, so to speak ??? in other words, to keep China from getting hugely pissed off. The gold crash had the happy effect for the US Treasury of making the dollar appear strong at a time when many other nations were getting sick of US dollar domination, especially in the oil markets, and were threatening to instigate a new currency regime by hook or by crook. Throwing China the golden bone is also consistent with the USA???s official position that gold is a meaningless barbaric relic where national currencies are concerned, and therefore nobody but the barbaric yellow hordes of Asia would care about it.
Other nations don???t feel that way. Russia and Switzerland have been accumulating gold like crazy at bargain prices this year. Lat year, Germany requested its sovereign gold cache (300 tons) to be returned from the vaults in America, where it was stored through all the decades of the cold war, safe from the reach of the Soviets. But American officials told the Germans it would take seven years to accomplish the return. Seven years ! ! ! WTF? Is there a shortage of banana boats? The sentiment in goldville is that the USA long ago ???leased??? or sold off or rehypothecated or lost that gold. Anyway, Germany???s 300 tons was a small fraction of the 6,700 tons supposedly held in the Fed???s vaults. Who knows? No auditors have been allowed into the Fed vaults to actually see what???s up with the collateral. This in and of itself ought to make the prudent nervous.
I think we???re near the end of these reindeer games with gold, largely because so many vaults in the West have been emptied. That places constraints on further shenanigans in the paper gold (and silver) markets. In an environment where both the destructive forces of deflation and inflation can be unleashed in sequence, uncertainty is the greatest motivator, trumping the usual greed and fear seen in markets that can be fairly measured against stable currencies. In 2014, the public has become aware of the bank ???bail-in??? phenomenon which, along with rehypothication schemes, just amounts to the seizure of customer and client accounts ??? a really new wrinkle in contemporary banking relations. Nobody knows if it???s safe to park cash money anywhere except inside the mattress. The precedent set in Cyprus, and the MF Global affair, and other confiscation events, would tend to support an interest in precious metals held outside the institutional framework. Uncertainty rules.
Miscellany
I get a lot of email on the subject of Bitcoin. Here???s how I feel about it.
It???s an even more abstract form of ???money??? than fiat currencies or securities based on fiat currencies. Do we need more abstraction in our economic lives? I don???t think so. I believe the trend will be toward what is real. For the moment, Bitcoin seems to be enjoying some success as it beats back successive crashes. I???m not very comfortable with the idea of investing in an algorithm. I don???t see how it is impervious to government hacking. In fact, I???d bet that somewhere in the DOD or the NSA or the CIA right now some nerd is working on that. Bitcoin is provoking imitators, other new computer ???currencies.??? Why would Bitcoin necessarily enjoy dominance? And how many competing algorithmic currencies can the world stand? Wouldn???t that defeat the whole purpose of an alternative ???go to??? currency? All I can say is that I???m not buying Bitcoins.
Elsewhere in the World
Globalism, in the Tom Friedman euphoric sense, is unwinding. Currency wars are wearing down the players, conflicts and tensions are breaking out where before there were only Wal-Mart share price triumphs and Foxconn profits. Both American and European middle-classes are too exhausted financially to continue the consumer orgy of the early millennium. The trade imbalances are horrific. Unpayable debt saturates everything. Sick economies will weigh down commodity prices except for food-related things. The planet Earth has probably reached peak food production, including peak fertilizer. Supplies of grain will be inadequate in 2014 to feed the still-expanding masses of the poor places in the world.
The nervous calm in finance and economies since 2008 has its mirror in the relative calm of the political scene. Uprisings and skirmishes have broken out, but nothing that so far threatens the peace between great powers. There have been the now-historic revolts in Egypt, Libya, Syria, and other Middle East and North African (MENA) states. Iraq is once again disintegrating after a decade of American ???nation-building.??? Greece is falling apart. Spain and Italy should be falling apart but haven???t yet. France is sinking into bankruptcy. The UK is in on the grift with the USA and insulated from the Euro, but the British Isles are way over-populated with a volatile multi-ethnic mix and not much of an economy outside the financial district of London. There were riots in ??? of all places ??? Sweden this year. Turkey entered crisis just a few weeks ago along with Ukraine.
I predict more colorful political strife in Europe this year, boots in the street, barricades, gunfire, and bombs. The populations of these countries will want relief measures from their national governments, but the sad news is that these governments are broke, so austerity seems to be the order of the day no matter what. I think this will prod incipient revolts in a rightward nationalist direction. If it was up to Marine LePen???s rising National Front party, they would solve the employment problem by expelling all the recent immigrants ??? though the mere attempt would probably provoke widespread race war in France.
The quarrel between China and Japan over the Senkaku Islands is a diversion from the real action in the South China Sea, said to hold large underwater petroleum reserves. China is the world???s second greatest oil importer. Their economy and the credibility of its non-elected government depends on keeping the oil supply up. They are a long way from other places in the world where oil comes from, hence their eagerness to secure and dominate the South China Sea. The idea is that China would make a fuss over the Senkaku group, get Japan and the US to the negotiating table, and cede the dispute over them to Japan in exchange for Japan and the US supporting China???s claims in the South China Sea against the other neighbors there: Vietnam, Indonesia, Malaysia, and the Philippines.
The catch is that Japan may be going politically insane just now between the rigors of (Shinzo) Abenomics and the mystical horrors of ****ushima. Japan???s distress appears to be provoking a new mood of nationalist militarism of a kind not seen there since the 1940s. They???re talking about arming up, rewriting the pacifist articles in their constitution. Scary, if you have a memory of the mid-20th century. China should know something about national psychotic breaks, having not so long ago endured the insanity of Mao Zedong???s Cultural Revolution (1966-71). So they might want to handle Japan with care. On the other hand, China
Just my opinion.
Southace, if you've got kids buy property, if you don't, buy a big boat and live aboard.
