Vulnerability to Higher Interest Rates:
Now the world has landed in the situation of increased systemic risk. The concern is that central bankers have painted themselves into a corner, and there is no easy exit from their policy mistakes. Since these issues have not been dealt with effectively, and political leaders show no sign of doing so, the systemic risk has greatly increased. Sooner rather than later there must be a reckoning — the math doesn’t work, and history has demonstrated the outcome of such fiscal crises numerous times. With more Central Bank interventions without a real recovery, the day of reckoning has been pushed into the future – and the whole correction process is now turned into a long, painful episode of little growth, high unemployment and periodic financial crises.
The economy right now is incredibly vulnerable to higher interest rates. While the top 1% is making money like bandits – raking in millions and even billions on Wall Street with the Fed’s newly printed money. – The other 99% are not so lucky. Despite governments claims to the contrary, inflation for food is raging and rising at the rate up to 13% per year depending the kind of food. The Central Banks’ action post 2008 was only effective in kicking the can down the road. This allowed governments to ignore the structural issues undermining any recovery. Instead, the Fed’s zero-interest-rate policy and successive rounds of QE only facilitated bigger debt and asset bubbles. The efforts to stop the progress of capitalism will have some spectacular consequences. The collapse will start when the bond markets implode, sending yields through the roof, for nations addicted to debt cannot sustain a credit crisis for long.
Meanwhile, “we’re now emerging from the figurative eye of the storm.” Says Doug Casey, “it’s likely that it will be much, much worse than even he can imagine. It will make the 2008 correction look like a walk in the park.” The outstanding amount of debt is mind-boggling and is one of the main ingredients of today’s huge inflated financial bubble. When this bubble bursts, most people will completely be caught off-guard. They will be wondering why their retirement money is cut in half. Surely they will be angry, and even more when more people lose their jobs. They will discover that their saved money has severely lost on purchasing power while they cannot buy any longer things at reasonable prices.
The western world decided to harm their own economies by financial scams and greed for which they want to start another war against Russia about the Ukraine and another one in the Middle East, to make the chaos complete. Under the argument these countries are unfriendly to the West, but surely they have not committed any fraud or attack. If these wars are going to happen, we in the west will be forced to pay even higher prices for everything, because in denying these people the choice to run their own country as they like, US puppet nations put more sanctions on Russia and are banned buying oil from Iran.
But once credit bubbles go to extremes, they always burst and deflate – resulting in a sudden tightening of money supply –read credit- followed by deflation as massive amounts of debt are written off and financial wealth disappears when markets crash. It happened in the 1930s. It happened again in Japan in the 90s. Because no government can counteract that kind of overwhelming debt with any amount of stimulus without making its currency next to worthless, it’s very much likely to happen again as this economic cycle continues to unfold.
A severe tightening of credit, the write-off of tens of trillions in loans and entitlements, means less money in the system, less spending, less demand, falling prices, and ultimately depression and deflation. In deflationary times, cash is king. Because unlike what happens during inflation, money actually gains value when there’s deflation. It’s simple supply and demand. Money supply shrinks when there’s less lending as debts are paid down and written off.
This at last in the longer term will have a positive effect for the economy as a whole. As deflation helps to “shake out the excesses” and encourages a massive restructuring of debt, writing off of losses, trimming back of the supply chain, shifting of market share to the strongest and most efficient companies that can keep prices down in the future, and more.
Experts think the markets will peak around the end of 2014 as result of the greatest stimulus injections in history. “Mid-2015, the risk of a next great crash accelerate… with the increased chance that the Dow will begin its slide to 6,000 by late 2016 or early 2017… and then likely as low as 3,300 by 2020 – 2022. We’ll see banks once again tighten up their purse strings and return to even more stringent loan policies than they implemented after the ’08 collapse. Many will not lend at all.”
“All research points out to a very serious correction – a crash – it’s essential that readers take emergency measures to prepare, for the coming hurricane. Investors should be guided by reason, not emotion, and the reasons for owning gold right now are bigger than just persevering until the start of the next bull phase.”
Central bank actions of historic money printing, runaway debt levels, and interest-rate suppression – were initially positive for gold, but their impact has faded. There are multiple reasons why that’s the case, but investment in precious metals is now based less on those actions and more on the risk those actions have introduced into the system. And those risks are expanding, not shrinking, despite some positive economic indicators. In other words, the need for precious metal insurance has escalated.
Even if precious metals prices temporarily slip further, keep in mind that it’s less about the exact price and date of the bottom for this market and more about how you will protect yourself against the risks outlined above—they are real, in spite of what is read in mainstream headlines. If any transpire, they will wreak havoc on your investment portfolio and your ability to maintain your current lifestyle. That’s worth insuring. This is the major reason why you shouldn’t give up on gold and silver. It’s not a speculation on rapid gains, but essential wealth insurance. In fact, the need to own gold and silver now is greater than it was in 2008.
Investor Jim Rogers always delivers his bitter medicine with a touch of humor but his recent comments are chilling. “This is the end of the bull market. Stocks will fall 20%,” he told RT. Twenty percent on top of recent pullbacks wouldn’t be a minor correction, that would be the prelude to a full-on crash. While most investors can agree that we’ll suffer some sort of a correction, what makes Rogers think we’re in for a full-scale crisis? He points to waning market breadth, a lower number of stocks hitting all-time highs and the 10% correction in small caps.
Here’s how Rogers sums it up: “They are doing this at the expense of people who save and invest. They are doing it to bail out the people who borrowed huge amounts of money. The consequences are already being felt. I know that the bear market will come. When the people in Washington and New York tell you there will never be a bear market again…when you hear that, you run for the hills. You run for your life…”
So, get out as fast as you can. “The next bear market is going to be much worse than the last one because the debt has gone through the roof. The debt worldwide has skyrocketed and we’re going to have to pay a terrible price for all of this money printing.” This current crisis will finally prove him right on the price of gold.
As result of Central Banks ZIR policies, interest rates have fallen so low that investors have been “reaching” for yield. People have been buying much riskier investments – high-yield bonds – expecting to earn 6% just to get a bit more interest to live on. And that’s dangerous – they don’t expect to lose money. But if interest rates rise eventually on high-yield bonds – these people will lose money.
Mr. Fridson – the world’s speculative bonds specialist says: “…in the worst of it – the interest rate on high-yield bonds will soar to more than 10 percentage points above Treasury bonds. Remember, bond prices go down when interest rates go up – so investors will lose a lot of money as that happens. And Fridson is predicting $1.6 trillion in defaults over the course of the next junk-bond implosion. – Nobody wants to be holding the bag when that happens.”
A sudden rise of interest rates could start on the January 28 of 2015, the first meeting of the Fed, as they see that they no longer are able to keep interest rates low as the circumstances have driven the Central Bank in the corner. Stocks, bonds and real estate all will go down in value. Because of six long years of near-zero interest rates, as Wall Street has risen to levels not seen just before the Great Recession and bankers and investors were cashing in on the flood of nearly free money that the U.S. Fed and other central banks around the world have provided.
When the bubble bursts:
Governments are helpless to stop an economic collapse. In 2008 when the economy collapsed, they created a safety net with the biggest government bailouts of all time. This time there is no safety net left. There is no money. The national debt has nearly doubled since 2008. There is no popular support for bailouts. To the contrary: Huge numbers of voters and taxpayers are still seething over the massive bailouts Washington gave Wall Street the last time around. The Fed must raise rates because price inflation is beginning to eat consumers alive.
The Fed must raise rates before the artificial bubbles they created in stocks and bonds become more dangerous than they already are. Most importantly, the Fed must raise rates because, if it doesn’t, bond investors around the world will simply dump their bonds, effectively forcing interest rates to go even higher — with or without the Fed. So, Wednesday 28th of January 2015 will light a fuse on the greatest economic implosion ever.
Fed insiders know the truth: Consumer prices are rising. Voters and taxpayers are screaming about soaring food and fuel prices. Investors were throwing caution to the wind and created the biggest speculative bubbles of all time. And all of the numbers show that the beginning of 2015 is when all of this is coming to a head. They MUST stop printing money and start raising interest rates — and the sooner the better. They simply announce that it will no longer print as much money to buy bonds — the mechanism that has held interest rates to near zero.
So, higher interest rates are coming. They’re coming as sure as tomorrow’s sunrise. And the last two times the world saw rising interest rates, the economy barely survived. What’s more, these rate increases will continue for YEARS. And this sequence of multiple, over-and-over hikes will be like machine gun fire for the markets. How high will interest rates go? Well, just to reach historical norms, interest rates would have to at least double. But because they’ve been held so low for so long, they easily could over-shoot to the upside, effectively tripling or even quadrupling from today’s levels.
The impact of soaring interest rates will be devastating. The first victims will be bond investors. Why? Because the value of all their existing lower yielding bonds AUTOMATICALLY plunges when new, higher yielding bonds are issued. Next, rising rates will hammer the real estate markets, slashing demand and home values across the board. Low mortgage rates are the key factor that has triggered the latest housing bubble. Take away low mortgage rates – and that bubble immediately bursts. The next victims will be millions of companies all over the western hemisphere who will get hit hard as their cost of borrowing money explodes higher. Consumers will likely retreat in horror as credit card, revolving charge and auto loan rates skyrocket. Company earnings will be slashed across the board — and with them, stock prices.
In a desperate attempt to stem losses, major companies will lay off millions of employees. Unemployment will explode. Millions of former workers will suddenly find themselves dependent upon the government just to feed their families.
Meanwhile, according to the Congressional Budget Office, rising interest rates will ultimately add more than $1.5 trillion to the US debt, and won’t be much different in the EU. This, plus crashing bond prices will kill global demand for U.S. Treasuries. The governments will have no choice but to make major spending cuts. Millions of bureaucrats will suddenly find themselves out on the street. Millions more who depend on welfare and other programs will be threatened with benefit cuts or all together cancellation.
Advice: Own mankind’s greatest crisis hedge: GOLD and SILVER. Gold is a hedge against disaster, against out-of-control governments, and central banks. Volatility in the gold price is really a reflection of the volatility of currencies, as controlled by central banks. It is not so much the gold that is volatile as the currency in which it is priced. Invest in physical gold for the long term; everyone should hold about 20% to 25% in gold and or silver.
For years governments and central bankers sponsored the instability of their currency. They piled debt on top of debt. Bailed out after bailout. Banks created derivatives and put these on top of other derivatives. Now any wrong move — could cause the whole system to come crashing down. This would bring the entire economy to a screeching halt. Companies would lose hundreds of billions in paper profits, leading to a major collapse in the stock and bond market. Since virtually all-stock trading is done electronically, stock exchanges would shut down automatically. Panic would take over and investors would withdraw their money from the market, accelerating the collapse. Cascading an avalanche of events into epic proportions – causing more collapses until the house of cards is completely broken down – wrecking the financial system in the process.
Central Bankers wouldn’t be able to bail out the system – they already have planned to replace the dollar with SDRs from the IMF that worldwide would be implemented. And many under us know meanwhile that this collapse is made on purpose by the cabal to implement the last item of their agenda the NWO – meaning world dictatorship by the Illuminati. Only – if at forehand other currencies are backed by gold could derail their agenda.
Switzerland is No Longer a safe haven; Time to build your own gold standard:
Peter Schiff responds to the results of the “Save Our Swiss Gold” initiative two weeks ago. He explains why he thinks it is bullish for gold and might haven even marked gold’s bottom.