Wednesday, December 2, 2015

Next Financial Crisis: Bullets in Gun

- "Gold is the money of kings; silver is the money of gentlemen; barter is the money of peasants; but debt is the money of slaves."

- Norm Franz from his work, Money & Wealth in the New Millennium.

No one gets a prediction totally correct, although their overall view contains true elements of an event. With that understanding, I feel the bullets are being loaded into the gun as you read and I write.
War on Cash
is part of it. If everyone demanded their cash from banks, defaults would happen overnight. Even with all the debt and credit out there, believe it or not, there is not enough cash in circulation to answer our claims on it. Then, again, there is a certain safety in not having to exchange large amounts of money for things like rent, homes, cars and other high priced items. However, Gresham's Law is taking effect: bad money drives out good money. We no longer have the value of gold and silver behind our currency. You can't find a silver quarter, anywhere. Silver has been driven out by what we now have in circulation. Now, Pay Pal and Square and whatever else will drive cash from our society. This is a totalitarian's dream. We are losing our financial independence. Laws are being passed that no sane citizen would approve and they all limit cash.
*Italy made cash transactions over $1,000 Euros illegal.
*France lowered its law on cash transaction from $3,000 Euros to $1,000 Euros.
*Spain banned cash transactions over $2,000 Euros.
*Russia banned cash transactions over $10,000 Rubies.
Sweden could be the first nation to eliminate cash. Ironically, they first introduced paper money to Europe in 1661.
Do you remember what happened in Cypress? Mexico joined the circus and now, no cash payments of more than $200,000 pesos. Uruguay banned transactions over $5,000 in whatever money they use. In the US, if you withdraw $10,000 or more, you will be treated like a criminal and the government will be notified of your transaction. Individual financial freedom is vanishing along with cash.
Negative Rates
is another bullet in the gun. Banks will charge you to hold your money. They will still use it as they desire, but the liability will be passed to government under FDIC. They will use the fees that they charge you to pay into the FDIC system. So, in effect, you are paying twice. This is happening now.
Funny, in our so-called free capitalist society which is based on saving and building capital to foster a better standard of living to use as we like for a car, home, farm, business, education, etc. is no longer in vogue. Negative interest rates opposes the concept of a free market. This will punish savers as this policy endorses the idea to spend NOW!
Currency Devaluation
is what the global community is doing. Nations are devaluing their currency to gain market niche in exports. A race to the bottom. If US rates rise, China will stop its peg to the dollar and devalue its currency, AGAIN! Target practice is happening everywhere with more ammo on the way. By the way, the IMF has already instituted a plan for a new world reserve currency which will put inflation in the US off the charts. Special Drawing Rights(SDR) money now includes China and thus, everything is in place when and if the US currency collapses. Not only will US citizens suffer financially, but our nation will lose sovereignty to a bureaucratic bank that we started under Bretton Woods Agreement.
Junk Bonds
is going to be the first misfire by the gun. I believe the trigger is already being squeezed. When the Fed raises rates that it foolishly lowered to nothing, the misfire will happen. To recap, junk bonds are issued by shaky companies or whose industry is under duress like oil. Last Monday, one of the biggest junk bonds ETFs(JNK) hit its lowest level in over six years. The Financial Times reported half of all corporate bonds have a junk rating. Companies are defaulting at the highest rate since the financial crisis. At present, 99 global companies have defaulted this year. This is the second highest only to the 222 defaults of 2009. US companies make up 62 of the 99 with more on the way. The Wall Street Journal reported corporate downgrades are at their highest level since 2008. Standard and Poor's downgraded 297 US companies in the first nine months of this year. A downgrade is a lowering of the credit risk of an entity. The Fed is responsible by offering cheap money and of course, greed which is demonstrated by buybacks. When the gun fires, these same companies will expand stock to raise money and this will crater the market. US companies owe $7.7 trillion in debt. That is 50% more than a decade ago. US corporate bonds rated CCC or below have exploded up 15.74%. Risk is in the air. When society reads that they are slaves to debt, a rock will fly. After the first rock is thrown, others will follow. A gun firing leaves smoke and where there is smoke, there is fire. This is not good and another reason to End the Fed!   

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