THOUGHTS ON “THE GEARS ARE GRINDING DOWN” By JC Collins
norman ball (@BallNormanD) JANUARY 20, 2015 AT 10:22 PM “The danger in this natural progression of quality capital from stocks and bonds to saving accounts is underscored by the bail-in threat posed by the larger institutions and governments.
But it is these same banking and investment institutions and governments which deflation will harm the most.” This is the central predicament for regular folks.
Cash should be king in a deflation. However the December Dodd-Frank rule changes imperil FDIC-insured accounts (unsecured creditors– and low on the totem pole to boot).
Those accounts are housed by precisely the entities that will do the seizing in the event of a derivatives complex collapse (due to commodity (oil!) deflation).
Matt McBride (@MattMhmmcbride) JANUARY 21, 2015 AT 12:30 AM Hi Norman, In the 1929 depression, people learnt quickly that only hard physical cash was king. If their banks did not fold, there was a bank run for the limited physical cash.
Passbooks or script was invented as a form of currency by banks and businesses to help with the scarcity of cash.
However, passbooks/script was not accepted in all places (or even overseas) so it ended up having a 40-60% discount compared to real cash.
This secondary physical currency market problem was not magnified with the current bail in provisions.
Currently in Australia, Auto Teller Machines dispense between $800-1000 per account per day. Bank branches dispense at most $5000 per day.
Like we are seeing in Greece…or even Switzerland these limits can reduce at the stroke of a pen.
At current dispense limits, if an average aussie had $200,000 in cash (after liquidating stocks, bonds etc) it would take them anywhere between 40 and 200 business days to get their cash.
In 2008, I worked at the main bank in the centre of Sydney CBD. On the first day of the market crash, the line for cash was large, and people could get $10,000 – $20,000 out at a time.
The following day, the line got bigger, as account holders transferred money to family members accounts to allow greater dispensing amounts with the daily limits.
By day 3 the limits had been halved due to the withdrawals. I would suggest to all get as much physical cash as you can whilst there is still time. I have told friends that a person with $
Beadrock JANUARY 20, 2015 AT 11:41 PM Thanks for another amazing article.
Daneackerman JANUARY 21, 2015 AT 1:04 AM Man I don’t know how you continue to deliver excellent essays JC with such pressures all around you. Thank you for making the time to share your vision on things during these busy days.
Its saddening to know so many will suffer. Lets hope the transition is speedy so folks can find work in the new system as soon as possible.
JC Collins JANUARY 21, 2015 AT 1:32 AM Thanks brother. The pressure will increase on all of us as things progress further. I’m expecting the world will see sustainable growth with large infrastructure projects in the years after the transition.
By 2030 the imbalances and unsustainable growth should be back in force. The next large expansion of capital will likely pay for strip mining the moon and the ocean floor. Low tide and high tide should be somewhat different after that. Water will be the big financial bubble in the future. Sorry, I have my science fiction hat on tonight.
Daneackerman JANUARY 21, 2015 AT 1:56 AM Lol. Here’s a little Sci Fi snack for you since your in the mood:) “Google Is About To Make A Major Investment In Elon Musk’s SpaceX”
And half of your Sci Fi prediction is already taking place…
Matt McBride (@MattMhmmcbride) JANUARY 21, 2015 AT 2:51 AM Moon based Helium-3 mining No ETF for that yet :)
Dripfood JANUARY 21, 2015 AT 8:01 AM I’d say it’s your Sience Fact hat :-)
Daneackerman JANUARY 21, 2015 AT 1:13 PM You probably didn’t intend this thread to take this sci fi direction but I can’t help but wonder how SpaceX’s new low satellite internet will tie into Googles loon project (balloon internet).
Surely Googles huge investment into SpaceX is obvious but wasn’t Elan Musk the CEO of Google when they began the loon project which was then called GoogleX?
Some interesting similarities unfolding. GoogleX….SpaceX with a common denominator of Elan Musk who if I’m not mistaken is also heavily invested in the trans-humanism movement. I wonder if he liked the Borg from Star Trek? http://en.wikipedia.org/wiki/Project_Loon Who mentioned Sci Fi?????
Daneackerman JANUARY 21, 2015 AT 3:49 PM Sorry guys didn’t mean to mislead anyone. The half thats almost already happening is the sea floor mining:)
So no ETF on the moon mining Matt. I wouldn’t put it past Elon’s thinking though. He wants conscious robots for something…..
matt (@speedspirit42) JANUARY 21, 2015 AT 2:30 AM JC Love your grasp of the situations. These two latest events the new low in oil and the Swiss peg have caused much carnage in the financial world.
You state that somehow the oil sands industry had foreknowledge of low oil prices. Now was this insider info or intelligent reasoning? And what’s your thoughts on the new younger elite are posturing for position against the older obsolete crowd?
JC Collins JANUARY 21, 2015 AT 2:55 AM It’s very clear in hindsight that their contingency plans were heavily focused on cost reductions in preparation for $30 oil. So its a bit insider info and logical reasoning. Not sure about the generational divisions.
irrelevant111 JANUARY 21, 2015 AT 2:14 PM One must understand law n binding contracts. Guess honesty n international law from U.S. left the room…:)
Matt McBride (@MattMhmmcbride) JANUARY 21, 2015 AT 2:55 AM Just further preparing the RMB for inclusion in the SDR China, Switzerland to sign financial deal on offshore RMB market in Zurich
dripfood JANUARY 21, 2015 AT 7:53 AM JC, thank you for this illuminating article.
There is one statement that unfotunately is not yet as obvious to me as it should be:
“The inevitable fragmentation of the euro, and potentially even the European Union, should be obvious to most at this point. ”
Maybe it’s because I am within Europe, but I’ve missed all those signs. Can you please point to them?
Do you also have an idea as to the overall global strategy for breaking up Europe and its Euro? How does it fit into the trend of global consolidation of commerce, finance, governance and policing?
Thank you for your time, DF
Cobus Hechter JANUARY 21, 2015 AT 8:01 AM Thank you for some more brilliant thoughts on this transition, dear JC!
There are, as always, some potent yet temporarily invisible variables to show themselves in the very near future (within 10 years), after which a flood of new variables will certainly transform our thinking in remarkable ways. When our formulas allow for these, the construction of a great future is in our hands.
Luminita Muresan JANUARY 21, 2015 AT 9:42 AM OK, besides the usual thanks for a great writeup, I have some issues (probably stemmed from my ignorance).
The example with the model of restructuring, I think is the worst possible in providing an optimistic outlook for any professional. I would like to think that the business world has a better plan than making the business bait size (yet again) in order for the markets to digest them.
Besides the fact that this will create the derivative of derivatives financial gurus now betting on the potential of stocks moving based on nothing more than a gut feeling or fortune teller advice,
the real know how (read professional workforce) will be obliterated in less than one calendar year, equivalent of a Davos or Bilderberg cycle.
What am I saying, we are actually witnessing that… as the majority of businesses have only the minimum expenditure maximum profit achieved in the shortest possible time with the least or (preferably) no tax implications.
There has to be another way or another outcome envisaged than mere liquidity. Liquidity alone without know how is as good as having a room full of batteries and no torch during a blackout.
Will a multilateral context provide the torch for the partner’s batteries? Well, if so, who will still know to appreciate the darkness and that they have to actually push a button to work out the torch, assuming that the torch is … working.
In the wake of the transition to the next … Whatever… personally I refuse to settle to the old … normal. I am sick and tired to digest the same mechanistic directives which in fact are poor excuses for complacency in ignorance and incompetence.
I hope I have not offended anyone and I want to thank you JC for your wake-up calls.
Daneackerman JANUARY 21, 2015 AT 3:45 PM Luminita we seem to share some emotional characteristics. Unfortunately this cycle is most likely doomed to recur until each one of the participants in the cycle has found the strength to look inward to discover and correct or find ways to work with the fractional characteristics of our natural psyche.
Doing this through the maze of social engineering, CSI and just day to day personal locked views of things makes it a very challenging task which most just give up on.
JC has hinted at his view of what it will take, so far I am inclined to follow suit as I cannot find a flaw in this line of thinking.
irrelevant111 JANUARY 21, 2015 AT 5:05 PM Lum, Understand frustration… Tap your heels and go back to Kansas…:)
Cooper (@coopersmith648) JANUARY 21, 2015 AT 4:27 PM I read and re-read your content JC, along with all the comments and perspectives presented by your readers. Great stuff!
Just now, pondering the ECB QE decision, I stumbled upon “Emerging mkts need to rely less on outside finance”: Report — Davos January 21, 2015
and realized they must be reading this site too… quote:
“…The white paper on the ‘New Global Context’ for the World Economic Forum (WEF) emphasised the need to avoid high, inconsistent, and changing regulatory burdens…
…According to the report, central banks must make use of new instruments at their disposal, particularly MACRO-PRUDENTIAL oversight, to ensure a sustainable recovery.”
I read the whitepaper and immediately remembered your article “THE LAST AMERICAN ALAMO” May 3, 2014
http://philosophyofmetrics.com/2014/05/03/the-last-american-alamo/ which really shed some further light on my understanding of SDRs & IMF reforms. Looks to me like your reading base is really quite large!
Does the ECJs decision on the OMT allowing for the ECB to conduct “limited” QE constitute the more substantial element for why the SNB suddenly unpegged from the Euro?
Much gratitude mr. Collins for your New Years Resolutions! I am one of a multitude of people grateful for the existence of this site.
p.s. as an avid reader of this site i only have one small problem. Many comments throughout this website refer to the “Bretton Woods” system being called for AFTER World War II. This is technically incorrect. It was suggested as early as 1939 by CFR economist & author, Eugene Staley. Even earlier…
Google Book – “Forgotten Foundations of Bretton Woods: International Development and the making of the Postwar Order”.
JC Collins JANUARY 21, 2015 AT 5:17 PM Thanks for the comments Cooper, and the link regarding the earlier origins of Bretton Woods. Together we all create a broader understanding of where we’ve been and where we are likely going.
In regards to the ECB and limited QE, let’s see if the leaked information actually matches with the realities presented tomorrow. The decision by the Swiss on the franc peg is definitely part of a larger process involving the fragmentation of the current exchange rate structure.
How all the pieces fit together is becoming clearer but there are still some unknown puzzle pieces. The sudden decrease of liquidity today in the euro FX market is very telling of what will happen tomorrow as the systemic imbalances become more visible.
Today the Bank of Canada dropped the benchmark interest rate to 0.75% on concerns of financial instability due to oil depreciation.
We are beginning to see monetary policies moving in opposing directions from the large macro-prudential mandates which are beginning to flow from the top. The eventual consolidation of monetary policies should come on the tail end of a major systemic shock. Lot’s left to happen yet.
Cooper (@coopersmith648) JANUARY 21, 2015 AT 4:44 PM UBS WEF whitepaper:
daneackerman JANUARY 21, 2015 AT 6:04 PM How does the S & P’s lack of deep culture by “misrepresenting the rigour and conservatism of its ratings on mortgage securities as recently as last summer, according to a legal settlement with regulators announced on Wednesday” play into things?
norman ball (@BallNormanD) JANUARY 22, 2015 AT 12:14 AM As Lagarde so ominously reminded us last January: “I do what I’m told.”
Queen of the Loan Sharks or if you prefer, their dutiful Babylonian concubine (for lack of a cruder more biblical word).
Speaking in Ireland to the idea of Greek debt renegotiation/restructuring: “a debt is a debt and it is a contract,” As the Irish Mirror noted yesterday:
“She and her friends in Europe robbed around €10,000 a year out of the pocket of every Irish citizen to save the rich on the continent and to ensure no French or German bank would collapse for lending to the bankrupt Irish banks. And then she has the cheek to tell us we are the real heroes of the recovery.”
Third-world IMF nightmares are about to come to YOUR neighborhood.