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Following the 2008 Credit Crisis and subsequent bail-out programs that were meant to not only save insolvent European banks, but also insolvent sovereign governments, the entity that would become known as the Troika emerged as one of the most powerful organizations in the Eurozone.Read More
25 bps. That was how small the proposed and forecasted rate hike was supposed to be last Thursday. Yet when the Federal Reserve chose to keep interest rates where they were, it signaled something much greater and much more terrifying... the beginning of the end of the current system is now commencing.Now, many will of course respond with thoughts that this statement is just more hyperbole, and economic doom porn, but with the rest of the world already in a deflationary recession, and under the auspices of a currency war that has gone on for at least four years, the stability of the global financial system is too far gone to ever see a change to central bank policies that are willing to use Quantitative Easing to prop up every asset in nearly every market for eternity.
Bank of Japan: New round of QE scheduled for October
Last night on CNBC, talk has already begun for Japan to institute a new round of QE that will be scheduled for October in another attempt to stimulate inflation under Abenomics. However, since the BOJ has already purchased close to 70% of their entire stock market, and nearly every bond available at the cost of hundreds of trillions of Yen, this measure will not only have a hard time finding new assets to buy, but will inevitably bring about the trigger that finally destroys what is left of their economy.
Even Domestic U.S. banks know the end of the dollar is coming
Major banks in the West are not stupid... they may be utterly corrupt, but they nearly always have a contingency plan to protect themselves from catastrophic events. And whether its through the owning of politicians and regulators, the backstopping of their risk onto the taxpayers, or as we have seen in just the past few months, the accumulation of physical metals after years of keeping down spot prices, banks, like the market, are forward looking in their actions.
Back in August we began to see major banks like Goldman Sachs and HSBC purchase a combined 7.1tons of gold, while at the same time J.P. Morgan was buying millions of ounces of silver. And because of this drain we are now seeing paper contracts outnumber physical inventories by more than 250:1.
The reasons are simple for banks who have used their sycophants in the media to downplay gold and silver as relics and even 'pet rocks' while covertly accumulating every single possible ounce they can get their hands on. The dollar is soon to disappear and the world is returning to a state where those who have the gold will reign in the new system.
Bank of England calls for negative rates, and an end to cash
Just one day after the Fed announced no change to ZIRP, the Bank of England came out and doubled down on this move by calling for negative interest rates and a proposal to end cash in the economy. This was not some knee jerk reaction by the BOE to the U.S. central bank's decision to do nothing, but a calculated move that could only have been planned with considerations made from the Fed, and with the Brits already knowing what the Fed's policy was going to be.
Australia and ECB call for Helicopter money printing
Britain was not alone in being quick to call for more of the same, and in much greater quantities. On the same day the BOE was dropping hints of negative interest rates, both Australia and the ECB began talking about new Quantitative Easing programs that would dwarf what has already been done in most Western economies, and could even include pumping liquidity directly into the general economy.
There is not a single central bank that is not manipulating their currency, or printing vast sums of fiat money in an attempt to delay and stave off what is coming to the global financial system. And as we have talked about in the past, five years of unsterilized debt pumped into the machine has long reached the point of diminishing returns, with estimates of 14 new dollars of printed money being required to create just 1 dollar of GDP growth.
They say that insanity is doing the same things over and over and expecting a different result, and if that is the case, then those who run the global banking system are the most psychopathic and insane men and women the world has ever seen. Yet for all they are doing to make things worse by increasing QE and lowering interest rates to the point where no one should keep any cash in a bank, behind the scenes they have accepted the fact that the jig is up, and are simply keeping up the facade of monetary policy to the public knowing that this is the end game, and most people aren't going to survive it.
When the economy truly became global, no longer was it simply a case of if the U.S. sneezed, the rest of the world caught a cold. Nowadays, it is the American economy that can fall ill when economies in Asia or Europe skin their knees, bump their noggins, or catch a fever.And this paradigm cannot be more evidenced where just this last week, China did three relatively minor monetary moves to their currency that caused panic in some quarters of the U.S. and European markets, despite the fact that these adjustments were in most cases less than 5%.
The People's Bank of China allowed the yuan to depreciate by nearly 2% against the U.S. dollar, the largest devaluation in two decades. China described the move as a one-off piece of market-reform, but many see it as a way to boost exporters and its cooling economy.
The move rippled through global markets and slammed stocks of many companies that sell goods in China, though some companies are set to benefit. The move also affected the exchange rates of several global currencies. - Money.CNN
China would later devaluate their currency one more time, while then backtracking and raising it on a third day by a tiny margin.
Pundits of course tried to downplay these moves as being a natural part of China's economic cycle as their growth rate has slowed over the past quarter due to an overall slowdown in global consumer confidence and overall global demand.
However, behind the scenes Western central banks know that this Yuan devaluation is just the next phase of the ongoing global currency war that V forecast several years ago. And already the Fed, BOJ, and the ECB are queuing up a new round of Quantitative Easing to try (failing of course) to stimulate the economy out its current deflationary spiral.
In particular, financial developments in China could have a larger than expected adverse impact, given this country’s prominent role in global trade.
Consider that, and consider the following statement sent to Bloomberg by an adviser to Japanese PM Shinzo Abe:
If [the Chinese move to devalue to yuan] suppresses external demand in Japan too much, the BOJ may further relax monetary policy.
Clearly, the ECB meeting took place ahead of China’s FX shocker, so the governing council’s reference to "financial developments in China" likely referred to the stock market collapse that was unfolding at the time, but the takeaway is the same: if developments in China’s financial markets serve to further undercut Japan and Europe’s quest to boost growth and stoke inflation (i.e. if China succeeds in exporting its deflation to trading partners), more QE and more easing will be just around the corner. - Zerohedge
The significance of this is... suddenly, the West is no longer controlling global monetary policy but is instead reacting to the actions taken by China, who seems to have wrenched that control from the impotent Western central banks.
Corporate Bond Crash worst since Lehman after Yuan Devaluation
Since China announced an update to their gold reserves, they have been prodding the U.S. and Europe with small pin pricks to see what reactions it would have on the fragile Western economies and monetary systems. In fact, if China had really wanted to do some serious damage to the global economy they could have instituted more drastic corrections such as announce much higher gold reserves, increase their dumping of dollars, lowered their interest rates (which are still at or above 5%), and or as an extreme measure, completely un-peg their currency from the dollar.
The problem for the U.S. is that they have already played most of their cards, and are left resorting to military responses in retaliation of economic threats. The sudden explosion last week of the Chinese port of Tianjin has many speculating that the West had a hand in this horrific event, and may have been in retaliation to China's devaluation moves earlier in the week.
China has relied upon the American and European consumers for their lifeblood of trade and commerce for many years, but the days of needing to appease this segment of their economy is quickly coming to an end. Declines in global consumer spending, coupled with the overall deflationary indicators showing we are now in a worldwide recession, has left China with no need to hold a stable relationship with the dollar and with the U.S., especially as the world accelerates its own 'beggar thy neighbor' policies to protect their own, and bring about a new cycle of protectionism.
Plans are only as good as the drawing board when the first shots are fired, and then the battlefield becomes a fluid enterprise of adapt and change. And just like in chess, one rarely moves out the queen and rooks when they can accomplish strategic advantages simply by blocking an opponents moves with the positioning of pawns. And make no mistake, recent actions by China and the PBOC have been minor stratagems done with minor pieces, but when your enemy is already down half his artillery, the smallest of moves can achieve severe and catastrophic damage.
While making its devaluation announcement, Beijing said that it wanted its currency “to reflect fundamentals” and to no longer simply mirror the movement of the dollar. It acknowledged the fact that its peg to the dollar was problematic and that it wanted a better, more natural mechanism. This is the key to understanding the announcement: The Chinese are preparing for a time in which the financial world does not spin in orbit around the dollar. Such a reality must make us think about the future. - Peter Schiff