An Unexpected Systemic Crisis Is For Sure

Alasdair Macleod – Re-Blogged From Gold Eagle

Downturns in bank credit expansion always lead to systemic problems. We are on the edge of such a downturn, which thanks to everyone’s focus on the coronavirus, is unexpected.

We can now identify 23 March as the date when markets stopped worrying about deflation and realised that monetary inflation is the certain outlook. That day, the Fed promised unlimited monetary stimulus for both consumers and businesses, and the dollar began to fall.

The commercial banks everywhere are massively leveraged and their exposure to bad debts and a cyclical banking crisis is now certain to wipe many of them out. In this article we look at the global systemically important banks — the G-SIBs — as proxy for all commercial banks and identify the ones most at risk on a market-based analysis.

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The Pound’s Future In A Dollar Collapse

By Alasdair Macleod – Re-Blogged From GoldMoney

In recent articles for Goldmoney I have pointed out the dollar’s vulnerability to a final collapse in its purchasing power. This article focuses on the factors that will determine the future for sterling.

Sterling is exceptionally vulnerable to a systemic banking crisis, with European banks being the most highly geared of the GSIBs. The UK Government, in opting to side with America and cut ties with China, has probably thrown away the one significant chance it has of not seeing sterling collapse with the dollar.

A possible salvation might be to hang onto Germany’s coattails if it leaves a sinking euro to form a hard currency bloc of its own, given her substantial gold reserves. But for now, that has to be a long shot.

And lastly, in common with the Fed and ECB, the Bank of England has taken for itself more power in monetary matters than the politicians are truly aware of, being generally clueless about money.

Conclusion: the pound is unlikely to survive a dollar collapse, which for any serious student of money, is becoming a certainty.

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2020 Vision

By USAGOLD – Re-Blogged From Gold Eagle

Five charts to contemplate as we prepare for the New Year

 1. Gold’s annual returns 2000 to present

In the February edition of this newsletter, we ran an article under the headline:  Will 2019 be the year of the big breakout for gold? Though we would not characterize gold’s move to the upside so far this year as ‘the big breakout,’ 2019 has been the best year for gold since 2010 even with the recent correction taken into account.  Back in September when the price gold reached $1550 per ounce – up almost 22% on the year – 2019 was looking more like a breakout year. Now with the move back to the $1460 level, the market mood has become more restrained. As it is, gold is up 15 of the last 19 years and still up 14.45% so far this year.

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The Dollar is Central to the Next Crisis

By Alasdair Macleod – Re-Blogged From GoldMoney

Introduction And Summary

It is now possible to pencil in how the next credit crisis is likely to develop. At its centre is an overvalued dollar over-owned by foreigners, puffed up on speculative flows driven by interest rate differentials.  These must be urgently corrected by the European Central Bank and the Bank of Japan if the distortion is to be prevented from becoming much worse.

The problem is compounded because the next crisis is likely to be triggered by this normalisation. It can be expected to commence in the coming months, even by the year-end. When flows into the dollar subside and reverse, bond yields can be expected to rise sharply in all the major currencies. There will also be a number of other unhelpful factors, particularly rising commodity prices, the timing of the Trump stimulus and trade tariffs pushing up price inflation. Coupled with a declining dollar, price inflation and therefore interest rates are bound to rise significantly.

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A Roman Lesson On Inflation

By Alasdair Macleod – Re-Blogged From

While it is the duty of the citizen to support the state, it is not the duty of the state to support the citizen” – President Grover Cleveland

The point President Cleveland made back in the 1880s was that individuals and vested interests had no rights to preferential treatment by a government elected to represent all. For if preference is given, it is always at the expense of others.

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Monetary Update for the Dollar

By Alasdair Macleod – Re-Blogged From GoldMoney

A dispassionate look at the quantities and flows of fiat dollars tells us much about the current state of the US economy, and therefore prospects for the dollar itself. This is a starting point for understanding the dynamics likely to affect the dollar’s purchasing power after the next credit-induced crisis, which are now beginning to clarify. That is the purpose of this article, which starts by updating the most recent developments in the quantity of fiat money (FMQ), the greatest of all monetary pictures.

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Caught in a Crisis Abroad

By Scott Stewart – Re-Blogged From

The past week, a “non-coup” forced Zimbabwe’s Robert Mugabe from power. And while the Kenyan Supreme Court certified the re-election of Uhuru Kenyatta, it is almost certain the country’s political unrest will continue. But this turmoil is not really that unusual; there almost always are crisis events of one type or another roiling some part of the world during any given week. And this means that at any given time there are travelers or expatriates who find themselves caught in tense situations in a foreign country. We thought it would be helpful to provide some guidance on how to react when caught in such a situation.

Residents of Harare, the capital of Zimbabwe, thank soldiers on the street after the resignation of President Robert Mugabe.


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Follow The Money

By Alasdair Macleod – Re-Blogged From

Since 2009, equities and other financial assets have climbed a wall of worry. Initially, it was recovery from the threat of a complete financial collapse, before the Fed saved the system once again. Systemic collapse continued to be on the cards, with European banks at risk of bankruptcy. We still talk about this today. More walls of worry to climb.

The global economy has not imploded, as the bears have consistently warned. Systemic and other dangers still exist. The bears now point to excessive valuations as the reason for staying out of the market. But this misses the point: the general level of asset valuations depends not on fundamentals, but on credit flows. It matters not whether there is cash sitting on the side-lines, or whether speculators borrow to invest, so long as the credit keeps flowing into financial assets. Just follow the money.

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This is the Way the Climate Scare Ends; Not With a Bang, But a Whimper

By Ian Aitken – Re-Blogged From

What does the future hold for the climate change debate? Will there ever come a day when we see the headlines across the globe, ‘It’s Official – There Is No Climate Change Crisis’? Hardly – for unless we find some way to leap ahead in the currently highly immature science of climate change and manage finally to pin down the exact direct and indirect (via feedbacks) warming effect of adding greenhouse gases to our atmosphere and the exact effects of natural changes in our climate the outcomes will remain uncertain. The eminent scientist Stephen Koonin has stated that, ‘Today’s best estimate of the sensitivity [of the atmosphere to the addition of carbon dioxide]… is no different, and no more certain, than it was 30 years ago. And this is despite an heroic research effort costing billions of dollars.’

Basically, unless the ‘Uncertainty Monster’ is slain (and there is absolutely no reason to believe that will happen in the foreseeable future) neither the believers nor the skeptics can ‘prove’ their case. In which case we seem to be in a ‘wait and see’ position. But for how long? Even if the current global warming Slowdown persisted for decades it would still be possible that dramatic and dangerous warming was just about to resume. Indeed in 2015 The UK’s Royal Society expressed the view that it would take 50 years of divergence between the observations and the climate models before they would be convinced that the theory of anthropogenic climate change was flawed. We cannot be absolutely sure that there will be no climate change crisis – only that it is becoming increasingly unlikely. So the politically-correct scientific shibboleths of the ‘climate change crisis’ idea may well persist for a great many decades.

Having persuaded the world to spend trillions of dollars on fighting man-made climate change is the Intergovernmental Panel on Climate Change (IPCC) really going to admit that the causes of climate change are actually far more complex than they originally thought and so they may have been fundamentally mistaken about both the attribution and quantification of warming? And what about the UK’s Royal Society and the American National Academy of Sciences, those most renowned of scientific institutions; are they going to admit that they may have put political correctness and scientific funding concerns before scientific objectivity?

What about all those climate scientists who have been so careful to tacitly collude with the IPCC and not rock the climate change crisis boat; are they going to admit that their judgments may have been skewed by considerations of the self-interest of retaining their jobs, careers, incomes and pensions? And the many climate research units around the world; are they going to say, ‘Well we must go where the science takes us – if the science says that there actually isn’t a problem then we’ll just have to shut up shop.’ What about all of the senior politicians in the western world who have foisted an avalanche of regulations, taxes and controls on their electorates to ‘fight climate change’; are they going stand up and admit that their scientific illiteracy led them to be completely fooled?

Are all those prestigious environmental organizations, such as the WWF, Greenpeace and Friends of the Earth going to admit they had only ‘signed up’ to the global warming scare because it happened to suit their agendas, attracted donations and increased their influence? Is the BBC, that globally respected bastion of impartiality and objectivity, going to admit to the people of Britain that it abused its position of trust by simply taking on face value the selective and spun science fed to them and taking an irresponsible and unjustifiably partisan editorial approach to the climate change debate? What about all those newspaper journalists who for years have been repeating NASA and IPCC Press Releases as ‘objective facts’, neither subjecting them to critical analysis nor asking any awkward questions?

What about all those celebrities who have lined up to pledge their support for fighting climate change by flying less frequently in their private jets to reduce their ‘carbon footprint’? What about all those school teachers who (willingly or unwillingly) taught their pupils about the climate change crisis as though it was an undisputed fact? No, it just isn’t going to happen – far too many reputations and far too much money is at stake.

There is also the strange culture in science explained by the scientific historian Thomas Kuhn as, ‘Once it has achieved the status of a paradigm, a scientific theory is declared invalid only if an alternative candidate is available to take its place’. Note that he is not suggesting that this is right; instead he is saying that history shows it to be case. A credible alternative theory today is the ‘cosmic ray flux theory’; but for every dollar in research funding that goes into that theory and for every mention in the media of that theory there must be ten thousand that go into the IPCC theory. It just cannot compete. And anyway it is too late – the IPCC theory grabbed the high ground decades ago and has never surrendered it. Furthermore skeptical scientists are not suggesting that there is any single, simple theory to supplant the IPCC’s anthropogenic climate change theory, the ‘Climate Change Orthodoxy’.

Instead they offer a theory that climate change probably derives predominantly from natural ocean-atmosphere oscillations and/or by natural solar variations (irradiation and cosmic ray flux) and/or by natural cloud cover variations and/or the Milankovitch Effect, i.e. it is probably predominantly just natural. On the one hand you have something that is superficially simple, certain and easy for the public and journalists and politicians to understand (‘our carbon dioxide emissions are definitely the cause of dangerous climate change and reducing them will definitely solve the problem’) and on the other hand something that is complex, nuanced, uncertain and requires a considerable knowledge of science to understand (‘various complex and interlinked phenomena in nature, none of which is well understood, are probably the predominant cause of climate change that in some ways will probably be beneficial but in others may not’).

It is a very easy to understand, very alarming problem with a very ‘simple’ solution (‘decarbonize globally’) vs. a very hard to understand, very unthreatening problem with no man-made solution (since we are at the mercy of nature). Which is more likely to get the media headlines, sell newspapers and grab the public imagination? And simply admitting that our knowledge of climate change science is too slight to know ‘what causes climate change’ is never likely to supplant the dominant paradigm of the Climate Change Orthodoxy. Perhaps the Climate Change Orthodoxy theory lives on for little better reason than the failure of a simple, certain, compelling alternative theory to supplant it – and if the skeptical scientists are right then no such theory is ever likely to be found. Add to the huge vested interests of the media the huge vested interests of the scientists, the scientific authorities and the army of people who profit hugely from subsidized renewables and the dominant paradigm appears secure for the indefinite future.

Instead we may find the years rolling by with rising man-made greenhouse gas emissions yet modest, nonthreatening, global warming (and perhaps some temporary global cooling). In the fullness of time the inability of the climate change models to predict climate states generally, and atmospheric temperatures specifically, will become increasingly inescapable, the funding for climate change science research will quietly peter out (at first research into physical climate science, then later research into climate change mitigation, then finally research into climate change adaptation), the climate change researchers will quietly move on to other things (perhaps researching natural climate variability – or global cooling), the journalists and politicians will quietly stop talking about the climate change crisis – and the whole issue will quietly fade from the public consciousness. Basically, the man-made climate change crisis idea will probably simply follow a trajectory, not dissimilar to that of many other ‘man-made global crises’ (such as the DDT or BSE ‘crises’), of

1) Scientists misreading the evidence, confusing correlation, cause and effect – and then, long before the science is sufficiently mature to warrant it, leaping to alarmist conclusions

2) Scientists then exaggerating the risks (and suppressing uncertainties and contradictory evidence) in order to attract government funding to investigate the potential scare properly

3) Journalists hyping the potential scare in order to drum up public alarm (and sell newspapers)

4) The public, unable to understand the science, over-reacting and clamoring for political action

5) Politicians, unable to understand the science, over-reacting and responding to public alarm by rushing in ill-considered policies to mitigate the perceived risks

6) Politicians increasing scientific funding in order to find more evidence in support of the scare in order to confirm the rightness of their policies

7) Scientists duly supplying more evidence in order to attract further government funding (this evidence being used by journalists to drum up even more public alarm)

8) A rising awareness by scientists that the problem is actually much more complex (and the causes much more ambiguous and uncertain) than they originally surmised – and, anyway, far less risky

9) A rising awareness by the public and politicians that the risks have been exaggerated and the scare is not materializing – and the policies have done, and are doing, more harm than good

10) Scientists, journalists and politicians quietly retreating from association with the scare

11) The scare fading from the public consciousness

Today we are at about point (8). The trouble is that at this point the investment in the ‘cause’ has been so vast (both in terms of money and reputation/ego) that calling a halt has become virtually impossible (although Trump’s withdrawal from the Paris climate accord would be a good start). After (11), in the 2030s or 2040s perhaps, we may start to see many PhD theses being written by psychology graduates about the great global delusion of the catastrophic climate change scare of the early 21st century and the extraordinary story of how a small group of highly politicized scientists and computer modelers brought science into public disrepute as never before by corrupting the scientific process in order to achieve their hubristic and utopian goals.