Central Banks Start Major Change

By Mark O’Byrne – Re-Blogged From http://www.Gold-Eagle.com

– Bank of England raised interest rates for the first time in ten years
– President Trump announces Jerome Powell as his choice to lead the U.S. Federal Reserve
– Most investors outside the US Dollar and Euro see gold prices climb after busy week of central bank news
– Inflation now at five-year high of 3%
– Inflation, low-interest rate, debt crises and bail-ins still threaten savers and pensioners

This week has been a significant week for central banks. The Bank of England raised interest rates for the first time in ten years, the Federal Reserve indicated that a December rate hike may happen and President Trump named Powell as his choice for leader of the Federal Reserve.

Gold reacted positively to Trump’s announcement as markets see little change ahead with a Powell-led Federal Reserve.

The interest rate decision is arguably the most interesting at present. Announcements on both sides of the pond suggest that the age of easy money is coming to an end, albeit slowly.

Since the financial crisis central banks have flooded markets with easy money, kept interest rates near zero and bought trillions of dollars in government and corporate bonds. Now most central banks (excluding Japan) have indicated that the party must soon stop.

The problem is, no one is sure how economies will cope when the moreish juice of central bank assistance will be taken away. None of the financial centres have managed to meet inflation targets which they were all so vocal about. Instead, they are suddenly aware that the encouraged financial excesses of the last ten years may well lead to another crash and something must be done to curb their enthusiasm.

Adding to the uncertainty is the issue that three of the world’s four most important central bank chiefs are nearing the end of their terms and may be well replaced. The jump in the gold price and fall in the dollar is just the first indication with how markets feel about such changes.

But is the age of easy money really coming to an end and are interest rate hikes a sign that central bankers have confidence in the economic recovery? Yesterday’s drop in the pound suggests markets aren’t buying it. They weren’t helped by Mark Carney’s dovish comments regarding the UK’s post-Brexit future.

All in all, anyone hoping they might finally earn some interest on their savings, see a slowdown in the devaluation of their wealth or a reduction in the counterparty risk their cash is exposed to, needs to think again. The UK along with the rest of the world remain very vulnerable and will take investors along for the ride.

A Whole New World With Little Hope

Here in the UK a whole generation of homeowners are waking up to a world where interest rate rises can really happen. There are 8 million homeowners, many of whom will have bought in the last ten years and as a result have never experienced a rate rise in their adult lives.

Bloomberg explained how much the world has changed since the Bank of England last increased interest rates:

The world was drastically different the last time the Bank of England hiked interest rates: the iPhone was less than a week old; Gordon Brown was Prime Minister; the average price of a home in London was £261,000 (it’s now  £470,632).

In interest rate terms how much has changed? Very little. The rise merely cancels out the cut that happened following the Brexit referendum.

It’s likely the hike in interest rate could do more harm than good. Previously savers, pensioners and investors suffered as a result of (arguably) negative real interest rates. Now the rate hike makes little difference to their current situation but propels debtors into further issues.

Those on variable mortgages will be facing rate hikes whilst the millions who have personal, unsecured loans will also be facing increased payments. All to contend with against a backdrop of rising inflation, pressure on wages and a slowing economy.

No Change, Nothing To See Here

A decade of damage by easy monetary policy has caused unforeseen damage which cannot be undone by a few quarter-percent hikes over the next two years.

Low rates have created problems for savers and pensioners around the globe. Pension funds are in trouble with rising levels of unfunded liabilities. Consider the 2016 PWC report that found pension fund deficits have expanded by £100bn over the past year to total £700bn. This gives a “debt” of £26,000 per UK household.

Debt levels continue to rise from unsustainable to even more unsustainable. Here in the UK we are facing a £1 trillion crisis as pension deficits and consumer loans snowball out of control.

And lest we forget how low rates have distorted financial markets and created asset price bubbles in shares, property and investments across markets.

Easy monetary policy came at a time when governments should have been implementing policies that dealt with an ageing population. Instead they have increased inflation and discouraged conservative money management –  creating incentives in totally the wrong direction.

The rise in inflation to 3% today also means that even those who have opted to keep cash in the bank have seen its value slowly eaten away. Those who chose to embrace low rates are inevitably in a debt-hole that is increasingly difficult to climb out from.

No Faith In Post-Brexit Britain

Interest rate hikes are ideally supposed to be an indicator that a central bank has faith in the economy’s recovery but the Bank of England statement yesterday suggested this wasn’t the case for post-Brexit Britain.

Carney expressed his concerns over the strength of the UK’s economic recovery heading into and following our departure from the EU. He is also likely to be considering the risks the weak exchange rate poses to Britain’s ability to finance its current account deficit.

So bleak is Carney et al’s outlook that they are only considering a two further rate rises by the end of 2020. Even this might not be guaranteed. Consider the state of the global financial system and where that could drag the UK.  Last time the BoE increased rates, it was soon forced to cut  them by 4.75 percentage points in the following 18 months as the global financial crisis dragged the UK into a recession.

Little Hope For Savers

The EU has already set the precedent of official negative interest rates, but in truth inflation combined with low rates does mean we are already in negative territory. Now, a 0.25% interest rate hike to 0.5% won’t do much to contend with the forces of excess money supply and falling value of the pound.

Add to this the ongoing threat of bail-ins, courtesy of the EU government. Even if interest rates were hiked up to levels of the early 1990s then savers’ cash is still not safe.

Investors need to be prepared for the ongoing threats that exist in our banking system whether thanks to Brexit or our own governments.

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America’s Stagflation

By Alasdair Macleod – Re-Blogged From http://www.Gold-Eagle.com

The accumulation of monetary policy errors by the Fed is increasingly certain to culminate in the credit crisis that always marks the end of the credit cycle. Credit crises are the result of globally coordinated monetary policies nowadays, so the timing of the forthcoming crunch is not only dependant on the Fed’s actions, but is equally likely to be triggered from elsewhere. Candidates for triggering a global credit crisis include economic and financial developments in Europe, Japan and China.

The next crisis is set to be more serious than the global crisis of 2008/09, given the greater level of debt involved, and the exceptionally high rate of monetary inflation since. It is a story I have covered elsewhere. This article will concentrate on the prospects for the US economy ahead of the next credit crisis, and the implications for the dollar and its associated financial markets.

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Fragmenting Countries, Part 1: Catalonia Is Just The Beginning

By John Rubino – Re-Blogged From Dollar Collapse

Picture a life where you do most of your shopping through Amazon.com and the local farmers’ market, most of your communicating through Facebook and Instagram, much of your travel via Uber, and much of your saving and transacting with bitcoin, gold and silver.

Do you really need an immense, distant, and rapacious central government? Maybe not. Perhaps your region or ethnic group would be better off forming its own independent country.

This question is being asked — and answered — in a growing number of places where distinct cultures and ethnic groups within larger nations now see their government as more burden than benefit. The result: Secession movements are moving from the fringe to mainstream.

In just the past couple of weeks, Iraqi Kurdistan and Spain’s Catalonia declared their independence. Neither succeeded, but the fact that they felt free to try illustrates how times have changed.

This is fascinating on a lot of levels, but why discuss it on a gloom-and-doom finance blog? Because secession is about the messiest event a country can experience short of civil war. And few things are more financially disruptive for an already over-leveraged society than potential dissolution.

Today’s fiat currencies depend for their value on the belief that the governments managing them are coherent and competent. Let a major region break away and plunge a debtor country into political/civil chaos and the markets will abandon its currency in a heartbeat. Note the sense of panic in the following article:

EU TURMOIL: Finland preparing to go against Spain and RECOGNISE Catalonia’s independence

(Express) – FINLAND could be the first country to officially recognise Catalonia as a republic state, in a move that would put the Scandinavian country in direct opposition to the European Union (EU).

The country’s MP for Lapland Mikko Karna has said that he intends to submit a motion to the Finnish parliament recognising the new fledgling country.

Mr Karna, who is part of the ruling Centre Party, led by Prime Minister Juha Sipila, also sent his congratulations to Catalonia after the regional parliament voted earlier today on breaking away from the rest of Spain.

Should Finland officially recognise the new state of Catalonia this will be yet another body blow to the the EU which has firmly backed the continuation of a unified Spain under the control of Madrid.

European Commission President Jean-Claude Juncker warned today that “cracks” were appearing in the bloc due to the seismic events in Catalonia that were causing ruptures through the bloc.

Mr Juncker spoke in favour of unity. He said: “I do not want a situation where, tomorrow, the European Union is made up of 95 different states. We need to avoid splits, because we already have enough splits and fractures and we do not need any more.”

The Scottish Government has also sent a message of support, saying that Catalonia “must have” the ability to determine their own future.

Scotland, of course, is itself considering secession from the UK, which recently voted to leave the European Union.

The political class, meanwhile, is trying to figure out where it went wrong. See the New York Times’ recent What Is a Nation in the 21st Century?

If the combination of long-term financial mismanagement and sudden technological change really has made large, multi-cultural nations dispensable, then some of them are going to fragment. This in turn will contribute to the failure of the fiat currency/fractional reserve banking system that’s ruining global finance. Poetic justice for sure, but of an extremely messy kind.

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Globalism in the Eyes of Two Beholders

By Rodger Baker – Re-Blogged From https://worldview.stratfor.com

The relative peace and prosperity in Europe may have shaped an idealistic approach to globalism.

The world over, the topic of globalism rarely fails to elicit a strongly held opinion. At its extreme in Europe, the march of globalization is accepted as a near-inevitability: In that view, it is no longer merely a path that should be taken, but the inexorable destination of humanity. As such, there is little room for assessing, much less understanding, alternative perceptions about the structure of the world, either internationally or domestically. Whether talking with a German economist, a British investor or an expatriate businessman in Spain, there is a near-bewilderment as to why anyone would want to pursue nationalism over globalism. As such, the bump in popularity for the Alternative for Germany party, the independence referendum in Catalonia and the Brexit are all seen as anti-historical trends. To them, the European Union remains the moral and political compass for the world, the guiding principle upon which the nation-state will be subsumed and a new global society will emerge.

In Asia, globalization is seen as a potential path, but not an inevitable one, and is viewed more often in economic than political terms. The nation-state firmly remains the unit of political and social organization, and while there are numerous initiatives to enhance cooperation among national entities, there is little movement toward the creation of a pan-national umbrella along the lines of the European Union. The Association of Southeast Asian Nations (ASEAN), one of the most aggressive Asian attempts at pan-national cooperation, explicitly promotes a policy of noninterference in national politics, recognizing the very different systems in each member country, rather than seeking to replace them with a regionwide political and economic structure.

Over the past 12 months, I have engaged with business leaders, government officials, researchers and members of the media in London, Berlin, Paris, Rome, Barcelona and The Hague, and in Auckland, Seoul, Beijing, Hong Kong and Singapore. Over the course of those discussions, a distinct difference in worldview between the “elites” of Europe and those of Asia became apparent. I use the word elite loosely here to describe the thin layer of society with the economic and social freedom to observe and assess the world in a manner disconnected from daily life. These are the economists, political scientists and bankers, the pundits, heads of major corporations, politicians and journalists. Their views shape much of the popular narrative, but one that often misses the underlying realities and beliefs held by a large portion of the societies in which they reside.

Now, all such broad-brush assessments are, by their nature, simplistic and superficial. There are certainly those in Asia who subscribe to the ideals of extreme globalism, and some among the European elite who recognize clearly that the Continental vision is just that — a vision and not an inevitability. But nonetheless, I noted the striking difference in tone between those I met in Europe and those in Asia. In part, the geopolitical developments in each region over the past several decades could explain this dichotomy.

 

Whereas Europe views the United States in ideological terms, Asia sees it in transactional terms.

Following the end of the Cold War, with the exception of the breakup of Yugoslavia, Europe has experienced perhaps its most stable multidecadal period in centuries. The European experiment appeared to be working. The peace and prosperity that spread across the continent allowed for the European Union to spread in kind, absorbing elements of the former Soviet bloc and even parts of the former Soviet Union itself. In guiding the economic and political directions of individual European nations, the European Union sought to erase the underlying nationalism that had riven Europe for millennia. But that noble goal failed to take into account the realities that remained below the surface. These were exposed dramatically with the global financial crisis in 2008, which forced the differences between the economic, social and political predilections underlying its systems to the surface once again, leaving the Europeans struggling with the growing gap between the globalized ideal and the national realities.

In Asia, no substantial periods of post-Cold War peace and cooperation ever really materialized. Even as it emerged as the region’s dominant economic regional power, China’s attention focused inward as it sought to manage internal social upheavalJapan fell into economic malaise. The two Koreas (despite a brief moment of sunshine) continued to spar. Extra-constitutional political change swept across Southeast Asia. The financial contagion that spread throughout the Asia-Pacific in 1997 sharpened many of these trends, leaving simply no long space of regional economic prosperity and political integration. Moves toward regional economic cooperation never went so far as seeking a common currency or centralized economic authority, and they certainly avoided linkage of economics and domestic politics.

Those differences in fortune play into the way each region views and reacts to both the perceived changes in U.S. policy direction and to rising nationalist sentiment around the world. In Europe, U.S. President Donald Trump is seen as globalization’s greatest threat, caricatured as the dangerous buffoon — a mirror image of the U.S. perception of North Korean leader Kim Jong Un. European nations have found it difficult to manage relations with the United States because they cannot accept that it may be sliding away from the extreme vision of globalization. In Asia, there are concerns about the direction of U.S. policy, but less in regards to globalization and more in terms of its direct economic and security effects. Whereas Europe views the United States in ideological terms, Asia sees it in transactional terms. Thus Asian leaders like Japan’s Shinzo Abe and even China’s Xi Jinping have been more adept at interpreting and engaging with Trump.

The geopolitical currents that have brought the continental neighbors to these dichotomous viewpoints will continue to shape the perceptions of their thought leaders, who in turn influence the political, economic and social directions of their societies. It’s clear that globalism will continue to evolve, both as an ideal and as a reality. Where it ends up may be a matter of perspective.

 

Rodger Baker leads Stratfor’s analysis of Asia Pacific and South Asia and guides the company’s forecasting process. A Stratfor analyst since 1997, he has played a pivotal role in developing and refining the company’s analytical process, internal training programs and geopolitical framework.

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Stop hyping Harvey and Irma!

By Dr. Neil Frank, former Director National Hurricane Center

Re-Blogged From http://www.WattsUpWithThat.com

Over the past several weeks numerous articles suggest Harvey and Irma were the result of global warming. The concept is a warmer earth will generate stronger and wetter hurricanes. A number of people have said Irma was the most intense hurricane in the history of the Atlantic while Harvey was the wettest and both were good examples of what we can expect in the future because of global warming. What does a fact check reveal about these two hurricanes?

Irma was indeed a very powerful Cat 5 hurricane when it moved across the Leeward Islands and the 185 mph winds reported by a recon plane at 10,000 ft. were among the strongest recorded in Atlantic hurricanes. How does Irma compare to other intense Atlantic hurricanes? To answer that question, we must first look at the history of the methods used to determine the strength of a hurricane because it changed early this century.

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Pensions And Debt Time Bomb

By Mark O’Byrne – Re-Blogged From http://www.Gold-Eagle.com

£1 trillion crisis looms as pensions deficit and consumer loans snowball out of control
– UK pensions deficit soared by £100B to £710B, last month
– £200B unsecured consumer credit “time bomb” warn FCA
– 8.3 million people in UK with debt problems
– 2.2 million people in UK are in financial distress
– ‘President Trump land’ there is a savings gap of $70 trillion
– Global problem as pensions gap of developed countries growing by $28B per day

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The Forthcoming Global Crisis

By Alasdair Macleod – Re-Blogged From http://www.Gold-Eagle.com

The global economy is now in an expansionary phase, with bank credit being increasingly available for non-financial borrowers. This is always the prelude to the crisis phase of the credit cycle. Most national economies are directly boosted by China, the important exception being America. This is confirmed by dollar weakness, which is expected to continue. The likely trigger for the crisis will be from the Eurozone, where the shift in monetary policy and the collapse in bond prices will be greatest. Importantly, we can put a tentative date on the crisis phase in the middle to second half of 2018, or early 2019 at the latest.

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