Monthly Archives: September 2016

Why the coming wave of defaults will be devastating

From Charles Hugh Smith at

Without the stimulus of ever-rising credit, the global economy craters in a self-reinforcing cycle of defaults, deleveraging and collapsing debt-based consumption.

In an economy based on borrowing, i.e. credit a.k.a. debt, loan defaults and deleveraging (reducing leverage and debt loads) matter. Consider this chart of total credit in the U.S. Note that the relatively tiny decline in total credit in 2008 caused by subprime mortgage defaults (a.k.a. deleveraging) very nearly collapsed not just the U.S. financial system but the entire global financial system.

Every credit boom is followed by a credit bust, as uncreditworthy borrowers and highly leveraged speculators inevitably default. Homeowners with 3% down payment mortgages default when one wage earner loses their job, companies that are sliding into bankruptcy default on their bonds, and so on. This is the normal healthy credit cycle.

Bad debt is like dead wood piling up in the forest. Eventually it starts choking off new growth, and Nature’s solution is a conflagration — a raging forest fire that turns all the dead wood into ash. The fire of defaults and deleveraging is the only way to open up new areas for future growth.

Unfortunately, central banks have attempted to outlaw the healthy credit cycle. In effect, central banks have piled up dead wood (debt that will never be paid back) to the tops of the trees, and this is one fundamental reason why global growth is stagnant.

The central banks put out the default/deleveraging forest fire in 2008 with a tsunami of cheap new credit. Central banks created trillions of dollars, euros, yen and yuan and flooded the major economies with this cheap credit.

They also lowered yields on savings to zero so banks could pocket profits rather than pay depositors interest. This enabled the banks to rebuild their cash and balance sheets– at the expense of everyone with cash, of course.

Having unleashed tens of trillions of dollars in new credit since 2008, the central banks have simply increased the likelihood and scale of the coming default conflagration. Now the amount of deadwood that’s piled up is many times greater than it was in 2008.

Very few observers explore what happens after defaults start cascading through the system. Defaults mean loans and bonds won’t be paid back. The owners of the bonds and debt (mortgages, auto loans, etc.) will have to absorb massive losses.

Recall that banks rarely own the debt they originate: mortgages and auto loans are bundled and sold to investors such as pension funds, insurance companies, mutual funds, etc. So banks aren’t the only institutions at risk: every institutional owner of debt-based assets is at risk.

Two things happen in a default/deleveraging conflagration. One is that lenders get very wary of lending more money to anyone or any entity other than those with the lowest-risk profiles. That constricts lending to the bottom 95% who are already over-indebted.

Please note the Federal Reserve and other central banks cannot force banks to lend to uncreditworthy borrowers. Low interest rates put additional burdens on lenders: why issue a loan to a risky borrower when the yield on the loan is so meager?

The second thing that happens is that owners of debt-based, interest-bearing assets such as mortgages and bonds not only lose the principal that will never be paid back — they also lose the future income stream. So let’s say a pension fund owns $1 million in auto loans that default. The fund must book that loss on their balance sheet as a $1 million reduction in assets.

But the truly devastating hit is to future earnings. All the interest that would have been collected on those loans also vanishes. Now the fund has two losses to book: a loss in assets and a loss in future earnings.

At today’s low rates around 4%, over the course of a 30-year mortgage, borrowers end up paying around 100% of the initial mortgage as interest on the original mortgage: in other words, the borrowers pay $200,000 over the 30-year period: $100,000 in interest and repaying the $100,000 principal.

So a fund doesn’t just lose 100% of the loan principal — it loses all the interest income it was counting on.

Where is the fund going to find high-yielding, low-risk debt-based assets to replace the ones lost to default? There won’t be any such assets available: the only debt that will be available will be zero-interest (or negative-interest) rate sovereign bonds that pay no interest at all. Since lenders have no incentive to make low-interest loans to borrowers at a high risk of default in a global recession, debt issuance dries up.

Without the stimulus of ever-rising credit, the global economy craters in a self-reinforcing cycle of defaults, deleveraging and collapsing debt-based consumption,

Charles Hugh Smith is a top selling independent financial writer. His Of Two Minds blog was listed No. 7 in CNBC’s top alternative financial sites. His commentary has been featured on Zero Hedge, The Daily Reckoning, and Peak Prosperity.

We recommend his new book, which just hit #6 on Kindle short reads -> politics and social science: Why Our Status Quo Failed and Is Beyond Reform ($3.95 Kindle ebook, $8.95 print edition). For more, please visit the book’s website.

Gold or Currency

The real debate is USA should not be so much about Hilary Clinton and Donald Trump but more about where to exchange US dollars for Pure Gold.
With record audiences watching the first presidential debate between Hillary Clinton and Donald Trump, the sad truth is that both candidates differ very little on the issue that should be of the highest importance to Americans. As president, both will surely seek to expand the power of government while continually curtailing individual liberty. Though we can vote against the candidate we feel will accelerate this trend, our votes will do nothing to change the direction.

But there is one vote that may actually make a difference. The real source of government power is its monopoly over money. Working hand in glove with the Federal Reserve, the Federal government has been able to finance permanent deficits by creating purchasing power out of thin air. The public thinks government spending in excess of official taxation means they get something for nothing. But the unofficial inflation tax is not only more expensive it does even more damage to our economy. Fortunately, now there is a way to vote to reject this tax, take control of our savings, put the brakes on big government, and actually make America great again.

While government taxation and regulation have worked to limit productivity, private sector investment and innovation have worked to enhance it. But the recent rise and acceptance of activist central banking has tilted the balance in favour of government. As a result, living standards for the majority of Americans have spiralled downward. The dissatisfaction this creates is clearly reflected in the tone and tenor of the current election. But Americans really want to take the country back, they need to start by taking the monetary system back.

The United States was built on a foundation of sound money. A constitutional gold standard served us well for nearly 200 years until Richard Nixon decided to do away with it “temporarily” in 1971. It’s been 45 years and we are still waiting for the return. As the Federal Reserve prepares to stamp out any remaining integrity that our currency may still possess, I suggest that we can’t afford to wait any longer for our government to honour Nixon’s promise. We must do it ourselves. Using a brand new platform provided by Karatbars, we can individually reject fiat money, and return in mass to the gold standard one American at a time. Without firing a shot, we can win a second American revolution.

Karatbars is a 7 year old German company that has rebooted the traditional gold standard with 21st Century technology. The result is a new super-charged gold standard that works better than the original. It provides all of the conveniences of money substitutes, such as paper currency, bank accounts, credit cards, etc., with none of the disadvantages. It’s a Gold Standard 2.0 that everyone can adopt today. It doesn’t matter which candidate wins this election. Elections only change the players. But Karatbars really allows everyone in every part of the world to change the game.
Start earning and saving in gold today! Click the button below to open your Karatbars “Personal” account, which includes a free bonus gold offer with your first deposit.

With Karatbars, consumers can buy gold instantly and inexpensively using a laptop or cell phone. It’s real gold that you own. You can take delivery whenever you want, in quantities as small as 1 grams You are not a creditor of Karatbars. You own your gold, which is stored free of charge or have it delivered direct to your door. Karatbars provides a platform that gives you 24/7 accesses to your gold, enabling you to spend or transfer any portion of your gold … free of charge. In addition, Karatbars will provide all account holders with debit cards, enabling you to convert your gold into the currency of your choice, and spent it wherever MasterCard is accepted, including cash withdrawals from ATMs.

Gold beat out all commodities to become the free market’s choice for money, and it served that function spectacularly for thousands of years. Along the way, governments have tried to force people to accept paper instead of real money but their efforts have always ended in failure. Now you can help Karatbars make sure this recent attempt fails as well.

Just as FedEx once disrupted the U.S. postal monopoly, and companies like Airbnb and Uber are now upending the hotel and taxi industries, Karatbars will be a game changer for the Federal Reserve and its irredeemable notes. Money needs to be a reliable store of value, and the Fed’s product fails that test miserably. In fact, their product is designed to fail, as official policy now mandates at least 2% annual inflation, with 0% interest rates ensuring that savers have no way to recover their loss. 2% inflation means your savings lose 2% of their value every year. But experts guess the 2% floor will be moved higher over time, so the annual rate of loss will accelerate in the years ahead. Gold, on the other hand, can not be debased, as its supply is extremely scarce and mining output will not even come close to matching the rate at which new Federal Reserve notes will be conjured into existence.

When the Federal Reserve was at least perceived to be an inflation fighter, and savings accounts paid interest of 5% per annum, the convenience of fiat money and a modern banking system made a gold standard seem expensive and obsolete. But with the Fed now an unapologetic inflation creator, banks paying 0% (and potentially negative) interest rates, the looming threat of bank failures and “bail-ins” in the traditional financial system, combined with Karatbars’s revolutionary platform, makes the case for opting out of fiat money and into gold all the more compelling. The ability to do so has never been easier..

Karatbars lets everyone easily save, earn, and spend in gold. Don’t be the last one to make the transition. Being an early adopter has its advantages. The sooner you make the switch to gold, the sooner the government will no longer be able to tax you with inflation
It’s not just about preserving the purchasing power of your own savings, but about helping your friends protect theirs. Through the Karatbars referral program, you can earn free gold every time one of your friends opens an account as a result of your invitation. It’s as easy as sending a text or an email. You can easily add to your Karatbars Gold account with additional purchases using your debit or credit card. Start inviting your friends to open accounts, and sit back and watch your personal gold holdings grow.

The decision to open a Karatbars account is not only a good financial decision for yourself but a good political one for your country. Voting may be a waste of time as no matter who wins the USA elections nothing ever seems to change. A vote for gold is a vote politicians will not be able to ignore. If enough of us reject their flawed monetary system, then governments around the world will have no choice but to bow to the competition. To compete with Karatbars, and win back lost market share, government will be forced to cut spending, balance its budget, and raise interest rates. Just as the gold standard of yesterday restrained the growth of government and preserved individual liberty, a new gold standard can deliver the same benefits today. Your government will not voluntarily surrender its power. We will need to take it from them ourselves. Thanks to Karatbars we now have the means to do it!

Hyperinflation is Coming

Hyperinflation is inevitable… Here’s what you need to know

This world money has existed for some time, but it’s about to become a lot more important.

In 1944, John Maynard Keynes proposed a form of world money, which he called the “bancor,” at the Bretton Woods international monetary conference.

In 1961, Nobel Prize winner Robert Mundell said, “the optimum currency area is the world,” laying the theoretical foundation for world money in his classic article “A Theory of Optimum Currency Areas.”

In March of 2009, U.S. Treasury Secretary Timothy Geithner supported greater issuance of Special Drawing Rights (SDRs) at the depths of the financial crisis.

And as recently as October 2015, the former undersecretary general for economic and social affairs (ECOSOC) of the United Nations, José Antonio Ocampo, wrote an op-ed calling for new issues of SDRs, with a disproportionate share going to emerging markets.

The list of prominent international monetary elites calling for greater use of SDRs as world money keeps growing. It’s critical you to understand this new trend.

The SDR has the power to reduce the dollar to the status of a local currency no different than the Mexican peso. Understanding SDRs will also help you avoid losses from inflation and benefit from new opportunities that will be created by their use.

Hyperflation you need KaratbarsHyperinflation on the Horizon

Much has been written about the collapse of the dollar.

We define collapse as a spontaneous loss of confidence in the dollar as a store of value resulting in sudden hyperinflation.

The source of such hyperinflation is not money printing (that happened already) but the rapid turnover of money. Those who lack confidence in dollars as a store of value will quickly dump dollars for other assets.

In this scenario, the alternative to the dollar can be as familiar as gold or land. It could be one of the new digital assets such as Crypto Currency like YoCoin. The dollar alternative could even consist of natural resources such as oil or water.

When it comes to hyperinflation, the alternative doesn’t matter that much…

What matters is that investors will dump dollars as fast as they get them. The resulting turnover (what economists call velocity) will feed on itself and lead to skyrocketing dollar prices. It is important not to think of hyperinflation as prices “going up” (although that is literally true).

A better understanding is that assets, goods and services have a constant real value, while the dollar itself is collapsing.

That dollar devaluation is the real source of “higher prices.”

After all, gold is gold, land is land and water is water.

When you see hyperinflation, you are really seeing the collapse of the dollar relative to everything that dollars can buy.
Thanks to Jim Rickards, Editor, Currency Wars Alert for this post


Recession has started in September 2016 with World Governments printing cash like confetti – making it the same value as confetti – WORTHLESS

It's time to wake up and buy Karatbars Pure Gold; contact the person who sent you to this site or go to contact us for more information