Credit deflation and the reflation cycle to come (part 2)

[nirvana]

41 minutes ago, Panda said:

Might double up to average down tomorrow if she goes sub 2...

yeah I'm in for more if they go sub 2 BUT the dip in OIL was bought.....as were the Yankee markets for the time being so I don't think it's going there tomorrow.....

I think I'll start a BTFD thread and see how much money I can lose 

[JREWING]

3 minutes ago, 5min OCD speculator said:

yeah I'm in for more if they go sub 2 BUT the dip in OIL was bought.....as were the Yankee markets for the time being so I don't think it's going there tomorrow.....

I think I'll start a BTFD thread and see how much money I can lose 

At these prices. Five years time you'll look back and think. 

Nah. It weren't real. 

Be brave now while the weak sell off and fall by the way side....

Opportunity of a generation. And I'm over 50..

[leonardratso]

go large or go home.

[nirvana]

Just now, leonardratso said:

go large or go home.

blimey I used to say that! Maybe we once met in a London bar?

I've got a great animated gif but it's too big, have this instead

 

[nirvana]

Every time I buy another 'bag' be like.....

[christh]

3 hours ago, leonardratso said:

pity i only bought £250 worth, ah well, could easily have done a ukog.

Haha. Alien aka Arian Silver, good luck with that. At least the Williams are long gone now; those bozos cost a lot of people a lot of money...

[Viceroy]

14 hours ago, jamtomorrow said:

Right now, boils down to fear.

If you know any Russians or have been there, you'll know it just "feels" European, and Russia certainly has the science, technology and culture to play a leading role economically.

The problem is the risks involved in playing with their big boys - go off-message or spill the beans and you'll "mysteriously" end up like Skirpal/Navalny/Litvinenko/Magnitsky, or one of the journos with exploding apartment syndrome.

Morals aside, it's arguably a misplaced fear - my observation is they save the worst stuff for other Russians, whereas it's mostly light intimdation for foreign outfits.

But for the time being, this makes Russia look a bit more like "them" than "us" (unless you're Italian)

I've fallen down a Magnitsky rabbit hole.  2 documentaries by independent filmmakers ;

 

'The Magnitsky Act - Behind the Scenes' by Andrei Nekrasov - a big critic of Putin.  

He set out to make a sympathetic documentary about Bill Browder's lawyer Magnitsky's ordeal+murder in a Russian prison. Read Browder's book 'Red Notice-A True Story of High Finance Murder' all about it. HOWEVER, Nekrasov tried to re-enact the scenes and found he could not; they did not make sense, timeline-wise, logistically etc. and his movie turned 180 degrees and actually frames Browder instead.  In the movie you witness Nekrasov querying the events and Browder warns him not to delve any further or there would be consequences.  Vimeo have banned the movie but you can watch it http://www.magnitskyact.com.

Magnitsky is always stated to be his lawyer, but he was actually an accountant by training and did the books for Browder whilst he was at Hermitage Capital embezzling..Magnitsky was murdered (or left to die of an illness as mentioned in the movie) because he knew too much, but not by the Russians who actually needed him alive to testify against Browder.

The actual US Magnitsky Act law blocks certain Russian Govt officials from entering the US - why? In reality it's so they cannot come to the US with proof / to testify about this scandal.

 

'The Forecaster' https://vimeo.com/ondemand/theforecaster was made by German doc-maker Marcus Vetter about the events that lead up to Martin Armstrongs decade long incarceration.

Background August 1999; Yeltsin is blackmailed by the US Big Banks+IMF with the Clinton's permission in order to take over Russia.  Armstrong is invited to join in this take-down but he refuses, does not want to get involved, but also because his computer forecasts and warns that capital flows coming out of Russia at that time meant it was about to collapse in 8 days. The Big Banks lose big time, Yeltsin is replace by Putin and they come for Armstrong and his source code... 

 

Edmund Safra who worked with Bill Browder at Hermitage Capital is murdered in Monaco (probably by the Russians). 

As Armstrong says, he's had a front row seat to all of this.

Great to watch both this weekend if you have the time.

[leonardratso]

1 hour ago, christh said:

Haha. Alien aka Arian Silver, good luck with that. At least the Williams are long gone now; those bozos cost a lot of people a lot of money...

hehe, did read some shit about it, its a rubber bandder/momo gambler, stretch it far enough and it will snap and be useless.

[Erewhon888]

37 minutes ago, Viceroy said:

I've fallen down a Magnitsky rabbit hole.  

 you will also want to read Alex Krainer's book https://www.goodreads.com/book/show/40894109-grand-deception 

Lots of relevant reading at https://www.thekomisarscoop.com/ The Off Guardian article will give you a way into the Der Spiegel analysis https://off-guardian.org/2019/12/06/the-der-spiegel-expose-of-bill-browder/

J'accuse News covers the story from time to time https://jaccuse.news/

If still investigating, you could read "The Hermitage Effect: How Bill Browder Went from Ally to Enemy of Russia" by Regina Mouradian. 

Then there is Danish investigator Birgitte Dyrekilde's book https://www.amazon.com/Man-Power-Browder-Laundering-Manipulation-ebook/dp/B08B4MTFQ3/ref=sr_1_1?dchild=1&keywords=Birgitte+Dyrekilde&qid=1601289438&s=books&sr=1-1. 

Once you start down this rabbit hole you won't stop.

[wherebee]

https://www.zerohedge.com/markets/china-sells-dollar-bonds-directly-us-buyers-first-time-gets-record-demand

ties in with what was said up thread about china being short of USD to service existing debts.  This doesn't exactly fit in with the 'china is going to decouple from the USD and issue gold backed YUAN' idea though.

Unless - you issue these bonds knowing you are going to crater the USD value in 3 years.  Who cares if you are paying 2.5% interest if the value has halved against the Yuan.

[Tingles]

14 hours ago, Loki said:

I am hesitant to post this, but it specifically mentions documented Fed policies, and we talk about the Fed on this thread.   I am posting it as I am Interested in others thoughts on this vid, rather than it being 'proof' of anything.

 

@Loki Since mid April I have been coordinating my investment strategies (and research) to factor the possibility that Covid-19 (aside from being potentially highly lucrative for Big Pharma) is a catalyst to bring about the following:

1)  A social credit system.

2)  Mandatory vaccination (probably incorporating biometric identification).

3) A digital currency.

4) Universal Basic Income.

George's video covers three of the above.  So my thoughts on said video are that it's plausible and on point.  I think that we may be witnessing the controlled demolition of existing global economic systems and a systematic assault on the freedoms that we have historically taken for granted.  Control certainly seems to be the order of the day.

To be clear I am not pitching or bogged down by 'conspiracy theory', I am simply and objectively interested in how the above interacts with the macro economic picture.  Equally I understand your hesitancy in posting but appreciate it nonetheless.  We live in fascinating times. 

[Loki]

@Tingles I appreciate your post, you understand what I meant.  Your last paragraph says it brilliantly. I am curious as to how compatible the reflation with Fed as key player, is with the digital dollar etc in that vid.

I don't like the sound of it at all, but that's for my own reasons which you pretty much listed anyway.

I wanted a return to some sort of fit for (my) purpose economy and all I got was this lousy great reset

[nirvana]

this is the problem I have with crypto....

Woman uses mobile to convert crypto to FIAT and ooh check the machine out, it's contactless 

So with that £5 she buys

a - another coffee

b - down payment on another tatt

c - nail job for her shitty little dog

until she can 'shop direct' in crypto I don't see the point, it's just another 'asset class'.....but an illiquid one at that

 

[Castlevania]

12 hours ago, leonardratso said:

who was it didnt like the wanky names of companies, hehehe;

avg:

0.671p

curr:*1.875p

rise:179.45%

I preferred the old name. Arian is Welsh for both money and silver. So silver silver or money silver. It was a good name.

[Lightscribe]

11 hours ago, 5min OCD speculator said:

Every time I buy another 'bag' be like.....

The techno Viking... ahh the memes of yesteryear before the internet was used as an all encompassing global elite subversion tool. 

 

[jamtomorrow]

23 minutes ago, 5min OCD speculator said:

until she can 'shop direct' in crypto

Can't see that ever happening natively with BTC - there's just no way for the blockchain to accommodate the necessary scaling in the transaction rate. This kind of thing:

My BTC bet is it'll end up functioning as a reserve banking layer, and transactions will increasingly become large, infrequent and institutional. Well that's the upside at least - downside: goes to zero on some timescale I care about.

[Lightscribe]

16 minutes ago, jamtomorrow said:

Can't see that ever happening natively with BTC - there's just no way for the blockchain to accommodate the necessary scaling in the transaction rate. This kind of thing:

My BTC bet is it'll end up functioning as a reserve banking layer, and transactions will increasingly become large, infrequent and institutional. Well that's the upside at least - downside: goes to zero on some timescale I care about.

Transactions speeds of 1m plus are touted as possible with cryptocurrencies 

https://medium.com/predict/the-worlds-fastest-blockchain-exceeds-1-million-transactions-per-second-8931df09320d

But yes BTC will remain as an illiquid digital gold as a reserve value.

That is of course is if the global government doesn’t introduce its own digital cryptocurrency and bans all traditional exchanges and issues any confiscation orders of BTC like in 1933 with gold. 

[wherebee]

14 hours ago, leonardratso said:

who was it didnt like the wanky names of companies, hehehe;

avg:

0.671p

curr:*1.875p

rise:179.45%

The one I threw noise at was Kessel Run.  Wanky star was fan name.

[Noallegiance]

Sorry in advance for the lengthy post, but for those who aren't subscribed to the following letters, feel free to play 'Guess the Source'.

Answer to be provided later!:

Dear Reader,

If you don’t remember the inflation of the 70s, you’ll have heard about it.

Shortages. Rationing. Strikes. Prices surging out of control.

And then interest rates raised ever higher to try and bring the inflation back under control. By the end of the decade, they peaked at 17%!

And that’s the Bank of England’s base rate – add in the bank’s profit margin and you’ll get a nosebleed.

Borrowing became a dangerous business, back then. The cost of your mortgage could spike fast. Businesses went bust under their own debts, destroying jobs. The price for bringing inflation under control was immense.

But, today, the setup for inflation is far worse. And, if we do get inflation, I believe it will run even more rampant than it did in the 70s.

The reason why is simple. There is so much debt in the economy this time, that interest rates cannot be raised fast enough to rein in inflation, if we get it. Not without crushing the economy and its many, many, many borrowers.

If we can’t rein in inflation with higher rates, that suggests inflation will be allowed to get out of hand when it does come. It’ll be the lesser of two evils, given higher rates to stop inflation would crash the economy.

That means history will take a different path to what happened in the 70s and 80s. For a while, at least.

Borrowers won’t be sacrificed with higher interest rates to combat inflation, as they were in the 70s.

Savers and consumers will be sacrificed to protect borrowers instead. Inflation will be allowed to run out of control, deliberately. Interest rates won’t be raised enough to compensate savers for the falling value of money in our bank accounts.

Sound alarmist? Surely the Bank of England, the US’s Federal Reserve and the European Central Bank are legally required to keep inflation low?

Well, lately, they’ve been taking a different line. They want to meet the inflation target of around 2% on an “average” basis instead of trying to hit it.

What does that mean? It means that, after years of undershooting inflation targets, they want to “overshoot” for a while. The average rate of inflation over a long period of time will thereby hit their legal mandate.

Now the legal mandate is clear – it doesn’t mention any averages. But that won’t stop the central banks from letting inflation run surprisingly high. And, once it does, it’ll be hard to stop.

The value of your money will tumble. And the interest on your savings won’t make up for it.

If you want to your wealth to be robust to the inflationary risks and trials of the future, you need it to be inflation proof. We explain the first step you can take in our report about investing in gold.

But, for today, let me explain what has me so convinced it’s worth preparing for a high inflation future…
 

Why inflation would spiral out of control

When debts in the economy are so high that nobody realistically expects us to pay them down, there are only two options left.

Default, meaning not paying your debt back.

Or inflation, meaning reducing the value of that debt by making money worth less. (Or worthless, if they overdo it.)

Governments and their cronies at central banks like the Bank of England prefer the inflation option. That’s how we paid down our government’s war debts – by printing money so that the burden of the debt was easy to repay.

That’s how I expect things to go again. But a bit of inflation is not what I’m worried about. It’s too much. Or, to put it better, it’s the inability to put the inflation genie back in the lamp once we let it out.

The way in which central banks are supposed to bring inflation under control is well known. They raise interest rates, making debt more expensive. This slows down the amount of money in the economy, which slows inflation.

Sounds simple. But that’s an inexact science to begin with. The fact that they’ve undershot inflation for so long proves they’re less capable of getting it right than you might think. And some economists are even beginning to doubt whether higher interest rates really do reduce inflation at all…

But here’s the thing. If central bankers do raise rates to stop inflation, we have so much debt in our economy that it’ll cause a crisis.

It was reported in June that the government’s debt is now larger than our economy. That means a small increase in interest rates can turn into a huge interest bill for the government.

But the real concern is for the private sector. Households and businesses are badly indebted too. It’s tough to pull together the figures, but economicshelp.org estimates that when you pool all of the UK’s debts, you get a mountain about five times the size of our economy.

At these levels of debt, even a small interest rate increase means a huge increase in borrowing costs. And, with interest rates starting out so low, at 0%, the rate of increase itself is dangerous. Let me explain that…

At 5% interest rates, a 1% change in the interest rate by the Bank of England means a 20% change in a borrower’s interest bill. (Because 1% is a fifth of 5%.)

At 1% interest rates, the same 1% increase in the interest rate is a 100% increase in the cost of borrowing – doubling the cost of borrowing.

At 0% interest, a 1% increase is an enormous change.

The point is, borrowers are more sensitive than ever before to any interest rate change. If the Bank of England does raise rates even slightly to rein in inflation, it’ll trigger economic chaos. Borrowers won’t be able to repay their debts. There will be mass mortgage foreclosures, house prices will crash and businesses will go bust.

For decades, interest rates have been falling. Borrowers are used to debt becoming cheaper. They’re not used to rising rates for any long period of time.

On an international level, each time rates did rise, it ended in a financial crisis. And then the rates had to resume their downward trend again, to protect borrowers.

The point is, there’s simply too much debt to raise rates. So the Bank of England won’t be able to. And that’s why inflation will run out of control, once it begins.

Of course, they might try. But raising rates was difficult enough in the 70s. When debts were a fraction of today’s levels. And rising rates still caused economic carnage back then. The Winter of Discontent, strikes and plenty more. That’s what it took to get inflation under control.

But, this time, raising interest rates would do even more damage to the economy because debt levels are far higher. Which means the economic price for reining in inflation will be higher.

And I’m not sure central bankers will be willing to pay it. I think they’d prefer to let inflation run out of control, rather than experience the stagflation of the 70s and the economic contraction it took to bring inflation under control.

It didn’t go so well north of Watford in the 70s and 80s…

If I’m right about this, then having an inflation proof set of investments will prove crucial for your financial future. That’s one of the many things we’ll cover here. But don’t forget to check out our gold report in the meantime. It’s the best place to start.


 

[JMD]

23 hours ago, jamtomorrow said:

My filter is pretty simple, and riffs on the familiar themes from this thread (so I doubt any of this is "news"):

- sectors: energy, commodities, telco or "basic products"

- divis: *must* have a track record of sustainable divi yield - I'm buying primarily for income, and I want companies that are likely to pay an income. I suspect divis will come back into fashion with a vengeance anyway and this filter will turn out too conservative, but I don't have a better crystal ball at this stage (footnote: I was surprised at how discriminating this filter is)

- BK survival chances: market cap, debt profile etc

Non-oilies shopping list in no particular order: Anglo, BASF, BHP, Lyondellbasell, Norsk Hydro, Rio Tinto, SSE, Vodafone, Weyerhaeuser, Bayer, Deutsche Telekom, Dow, Eon, Heidelberg Cement, K&S, Lafarge, National Grid, Saint Gobain, Siemens, Telia, Telefonica, Nutrien, Mosaic

Won't be touching PM miners, plenty of exposure to PM prices through physical holdings already.

Thanks Jamtomorrow for your comprehensive reply, always interesting to see personal strategies.

What would be your buy price for those reflation stocks? I'm thinking under a BK scenario, buy a 50% allocation/1st-ladder if stock reaches its March-time-low, then use further ladders if/when stock falls further.  

[JMD]

1 hour ago, Noallegiance said:

Sorry in advance for the lengthy post, but for those who aren't subscribed to the following letters, feel free to play 'Guess the Source'.

Answer to be provided later!:

Dear Reader,

If you don’t remember the inflation of the 70s, you’ll have heard about it.

Shortages. Rationing. Strikes. Prices surging out of control.

And then interest rates raised ever higher to try and bring the inflation back under control. By the end of the decade, they peaked at 17%!

And that’s the Bank of England’s base rate – add in the bank’s profit margin and you’ll get a nosebleed.

Borrowing became a dangerous business, back then. The cost of your mortgage could spike fast. Businesses went bust under their own debts, destroying jobs. The price for bringing inflation under control was immense.

But, today, the setup for inflation is far worse. And, if we do get inflation, I believe it will run even more rampant than it did in the 70s.

The reason why is simple. There is so much debt in the economy this time, that interest rates cannot be raised fast enough to rein in inflation, if we get it. Not without crushing the economy and its many, many, many borrowers.

If we can’t rein in inflation with higher rates, that suggests inflation will be allowed to get out of hand when it does come. It’ll be the lesser of two evils, given higher rates to stop inflation would crash the economy.

That means history will take a different path to what happened in the 70s and 80s. For a while, at least.

Borrowers won’t be sacrificed with higher interest rates to combat inflation, as they were in the 70s.

Savers and consumers will be sacrificed to protect borrowers instead. Inflation will be allowed to run out of control, deliberately. Interest rates won’t be raised enough to compensate savers for the falling value of money in our bank accounts.

Sound alarmist? Surely the Bank of England, the US’s Federal Reserve and the European Central Bank are legally required to keep inflation low?

Well, lately, they’ve been taking a different line. They want to meet the inflation target of around 2% on an “average” basis instead of trying to hit it.

What does that mean? It means that, after years of undershooting inflation targets, they want to “overshoot” for a while. The average rate of inflation over a long period of time will thereby hit their legal mandate.

Now the legal mandate is clear – it doesn’t mention any averages. But that won’t stop the central banks from letting inflation run surprisingly high. And, once it does, it’ll be hard to stop.

The value of your money will tumble. And the interest on your savings won’t make up for it.

If you want to your wealth to be robust to the inflationary risks and trials of the future, you need it to be inflation proof. We explain the first step you can take in our report about investing in gold.

But, for today, let me explain what has me so convinced it’s worth preparing for a high inflation future…
 

Why inflation would spiral out of control

When debts in the economy are so high that nobody realistically expects us to pay them down, there are only two options left.

Default, meaning not paying your debt back.

Or inflation, meaning reducing the value of that debt by making money worth less. (Or worthless, if they overdo it.)

Governments and their cronies at central banks like the Bank of England prefer the inflation option. That’s how we paid down our government’s war debts – by printing money so that the burden of the debt was easy to repay.

That’s how I expect things to go again. But a bit of inflation is not what I’m worried about. It’s too much. Or, to put it better, it’s the inability to put the inflation genie back in the lamp once we let it out.

The way in which central banks are supposed to bring inflation under control is well known. They raise interest rates, making debt more expensive. This slows down the amount of money in the economy, which slows inflation.

Sounds simple. But that’s an inexact science to begin with. The fact that they’ve undershot inflation for so long proves they’re less capable of getting it right than you might think. And some economists are even beginning to doubt whether higher interest rates really do reduce inflation at all…

But here’s the thing. If central bankers do raise rates to stop inflation, we have so much debt in our economy that it’ll cause a crisis.

It was reported in June that the government’s debt is now larger than our economy. That means a small increase in interest rates can turn into a huge interest bill for the government.

But the real concern is for the private sector. Households and businesses are badly indebted too. It’s tough to pull together the figures, but economicshelp.org estimates that when you pool all of the UK’s debts, you get a mountain about five times the size of our economy.

At these levels of debt, even a small interest rate increase means a huge increase in borrowing costs. And, with interest rates starting out so low, at 0%, the rate of increase itself is dangerous. Let me explain that…

At 5% interest rates, a 1% change in the interest rate by the Bank of England means a 20% change in a borrower’s interest bill. (Because 1% is a fifth of 5%.)

At 1% interest rates, the same 1% increase in the interest rate is a 100% increase in the cost of borrowing – doubling the cost of borrowing.

At 0% interest, a 1% increase is an enormous change.

The point is, borrowers are more sensitive than ever before to any interest rate change. If the Bank of England does raise rates even slightly to rein in inflation, it’ll trigger economic chaos. Borrowers won’t be able to repay their debts. There will be mass mortgage foreclosures, house prices will crash and businesses will go bust.

For decades, interest rates have been falling. Borrowers are used to debt becoming cheaper. They’re not used to rising rates for any long period of time.

On an international level, each time rates did rise, it ended in a financial crisis. And then the rates had to resume their downward trend again, to protect borrowers.

The point is, there’s simply too much debt to raise rates. So the Bank of England won’t be able to. And that’s why inflation will run out of control, once it begins.

Of course, they might try. But raising rates was difficult enough in the 70s. When debts were a fraction of today’s levels. And rising rates still caused economic carnage back then. The Winter of Discontent, strikes and plenty more. That’s what it took to get inflation under control.

But, this time, raising interest rates would do even more damage to the economy because debt levels are far higher. Which means the economic price for reining in inflation will be higher.

And I’m not sure central bankers will be willing to pay it. I think they’d prefer to let inflation run out of control, rather than experience the stagflation of the 70s and the economic contraction it took to bring inflation under control.

It didn’t go so well north of Watford in the 70s and 80s…

If I’m right about this, then having an inflation proof set of investments will prove crucial for your financial future. That’s one of the many things we’ll cover here. But don’t forget to check out our gold report in the meantime. It’s the best place to start.


 

 

Noallegiance - no teasing please!! (only full transparency allowed on this thread), i think you may even be transgressing house rules!?!

Anyway, i have consulted the FSA and they have advised absolutely never do, no, no, no, no, no, no, no, no!!! (for the avoidance of doubt please see FSA's full legal response below; excuse the 'naughty language' at end)

 

[Craig]

3 hours ago, jamtomorrow said:

Can't see that ever happening natively with BTC - there's just no way for the blockchain to accommodate the necessary scaling in the transaction rate. This kind of thing:

My BTC bet is it'll end up functioning as a reserve banking layer, and transactions will increasingly become large, infrequent and institutional. Well that's the upside at least - downside: goes to zero on some timescale I care about.

Indeed. Though many second- and third-generation cryptos can handle the sort of volumes Visa are doing quite comfortably. Two-coin setups and off-chain transactions have shifted the goalposts considerably. Bitcoin does seem to be settling down into the store of value use case it's often touted for, it's never going to be suitable for payments unless something pretty drastic is done to the code.

[Noallegiance]

1 hour ago, Noallegiance said:

Sorry in advance for the lengthy post, but for those who aren't subscribed to the following letters, feel free to play 'Guess the Source'.

Answer to be provided later!:

Dear Reader,

If you don’t remember the inflation of the 70s, you’ll have heard about it.

Shortages. Rationing. Strikes. Prices surging out of control.

And then interest rates raised ever higher to try and bring the inflation back under control. By the end of the decade, they peaked at 17%!

And that’s the Bank of England’s base rate – add in the bank’s profit margin and you’ll get a nosebleed.

Borrowing became a dangerous business, back then. The cost of your mortgage could spike fast. Businesses went bust under their own debts, destroying jobs. The price for bringing inflation under control was immense.

But, today, the setup for inflation is far worse. And, if we do get inflation, I believe it will run even more rampant than it did in the 70s.

The reason why is simple. There is so much debt in the economy this time, that interest rates cannot be raised fast enough to rein in inflation, if we get it. Not without crushing the economy and its many, many, many borrowers.

If we can’t rein in inflation with higher rates, that suggests inflation will be allowed to get out of hand when it does come. It’ll be the lesser of two evils, given higher rates to stop inflation would crash the economy.

That means history will take a different path to what happened in the 70s and 80s. For a while, at least.

Borrowers won’t be sacrificed with higher interest rates to combat inflation, as they were in the 70s.

Savers and consumers will be sacrificed to protect borrowers instead. Inflation will be allowed to run out of control, deliberately. Interest rates won’t be raised enough to compensate savers for the falling value of money in our bank accounts.

Sound alarmist? Surely the Bank of England, the US’s Federal Reserve and the European Central Bank are legally required to keep inflation low?

Well, lately, they’ve been taking a different line. They want to meet the inflation target of around 2% on an “average” basis instead of trying to hit it.

What does that mean? It means that, after years of undershooting inflation targets, they want to “overshoot” for a while. The average rate of inflation over a long period of time will thereby hit their legal mandate.

Now the legal mandate is clear – it doesn’t mention any averages. But that won’t stop the central banks from letting inflation run surprisingly high. And, once it does, it’ll be hard to stop.

The value of your money will tumble. And the interest on your savings won’t make up for it.

If you want to your wealth to be robust to the inflationary risks and trials of the future, you need it to be inflation proof. We explain the first step you can take in our report about investing in gold.

But, for today, let me explain what has me so convinced it’s worth preparing for a high inflation future…
 

Why inflation would spiral out of control

When debts in the economy are so high that nobody realistically expects us to pay them down, there are only two options left.

Default, meaning not paying your debt back.

Or inflation, meaning reducing the value of that debt by making money worth less. (Or worthless, if they overdo it.)

Governments and their cronies at central banks like the Bank of England prefer the inflation option. That’s how we paid down our government’s war debts – by printing money so that the burden of the debt was easy to repay.

That’s how I expect things to go again. But a bit of inflation is not what I’m worried about. It’s too much. Or, to put it better, it’s the inability to put the inflation genie back in the lamp once we let it out.

The way in which central banks are supposed to bring inflation under control is well known. They raise interest rates, making debt more expensive. This slows down the amount of money in the economy, which slows inflation.

Sounds simple. But that’s an inexact science to begin with. The fact that they’ve undershot inflation for so long proves they’re less capable of getting it right than you might think. And some economists are even beginning to doubt whether higher interest rates really do reduce inflation at all…

But here’s the thing. If central bankers do raise rates to stop inflation, we have so much debt in our economy that it’ll cause a crisis.

It was reported in June that the government’s debt is now larger than our economy. That means a small increase in interest rates can turn into a huge interest bill for the government.

But the real concern is for the private sector. Households and businesses are badly indebted too. It’s tough to pull together the figures, but economicshelp.org estimates that when you pool all of the UK’s debts, you get a mountain about five times the size of our economy.

At these levels of debt, even a small interest rate increase means a huge increase in borrowing costs. And, with interest rates starting out so low, at 0%, the rate of increase itself is dangerous. Let me explain that…

At 5% interest rates, a 1% change in the interest rate by the Bank of England means a 20% change in a borrower’s interest bill. (Because 1% is a fifth of 5%.)

At 1% interest rates, the same 1% increase in the interest rate is a 100% increase in the cost of borrowing – doubling the cost of borrowing.

At 0% interest, a 1% increase is an enormous change.

The point is, borrowers are more sensitive than ever before to any interest rate change. If the Bank of England does raise rates even slightly to rein in inflation, it’ll trigger economic chaos. Borrowers won’t be able to repay their debts. There will be mass mortgage foreclosures, house prices will crash and businesses will go bust.

For decades, interest rates have been falling. Borrowers are used to debt becoming cheaper. They’re not used to rising rates for any long period of time.

On an international level, each time rates did rise, it ended in a financial crisis. And then the rates had to resume their downward trend again, to protect borrowers.

The point is, there’s simply too much debt to raise rates. So the Bank of England won’t be able to. And that’s why inflation will run out of control, once it begins.

Of course, they might try. But raising rates was difficult enough in the 70s. When debts were a fraction of today’s levels. And rising rates still caused economic carnage back then. The Winter of Discontent, strikes and plenty more. That’s what it took to get inflation under control.

But, this time, raising interest rates would do even more damage to the economy because debt levels are far higher. Which means the economic price for reining in inflation will be higher.

And I’m not sure central bankers will be willing to pay it. I think they’d prefer to let inflation run out of control, rather than experience the stagflation of the 70s and the economic contraction it took to bring inflation under control.

It didn’t go so well north of Watford in the 70s and 80s…

If I’m right about this, then having an inflation proof set of investments will prove crucial for your financial future. That’s one of the many things we’ll cover here. But don’t forget to check out our gold report in the meantime. It’s the best place to start.


 

This is from Fortune and Freedom, courtesy of Mr Nigel Farage.

[jamtomorrow]

49 minutes ago, JMD said:

Thanks Jamtomorrow for your comprehensive reply, always interesting to see personal strategies.

What would be your buy price for those reflation stocks? I'm thinking under a BK scenario, buy a 50% allocation/1st-ladder if stock reaches its March-time-low, then use further ladders if/when stock falls further.  

Yeah, there's the question. March lows are handy as "proof" of how low the market is capable of going, but also beware significant developments in the interim (especially: expanded monetary base), and how to factor in David Hunters meltup->bust roadmap.

Short answer: I'm using March lows as a rough guide to establish ladders, but I'm now figuring out how to finesse from there. Oilies are living proof of "could go even lower".

[Castlevania]

2 hours ago, Noallegiance said:

Sorry in advance for the lengthy post, but for those who aren't subscribed to the following letters, feel free to play 'Guess the Source'.

Answer to be provided later!:

Dear Reader,

If you don’t remember the inflation of the 70s, you’ll have heard about it.

Shortages. Rationing. Strikes. Prices surging out of control.

And then interest rates raised ever higher to try and bring the inflation back under control. By the end of the decade, they peaked at 17%!

And that’s the Bank of England’s base rate – add in the bank’s profit margin and you’ll get a nosebleed.

Borrowing became a dangerous business, back then. The cost of your mortgage could spike fast. Businesses went bust under their own debts, destroying jobs. The price for bringing inflation under control was immense.

But, today, the setup for inflation is far worse. And, if we do get inflation, I believe it will run even more rampant than it did in the 70s.

The reason why is simple. There is so much debt in the economy this time, that interest rates cannot be raised fast enough to rein in inflation, if we get it. Not without crushing the economy and its many, many, many borrowers.

If we can’t rein in inflation with higher rates, that suggests inflation will be allowed to get out of hand when it does come. It’ll be the lesser of two evils, given higher rates to stop inflation would crash the economy.

That means history will take a different path to what happened in the 70s and 80s. For a while, at least.

Borrowers won’t be sacrificed with higher interest rates to combat inflation, as they were in the 70s.

Savers and consumers will be sacrificed to protect borrowers instead. Inflation will be allowed to run out of control, deliberately. Interest rates won’t be raised enough to compensate savers for the falling value of money in our bank accounts.

Sound alarmist? Surely the Bank of England, the US’s Federal Reserve and the European Central Bank are legally required to keep inflation low?

Well, lately, they’ve been taking a different line. They want to meet the inflation target of around 2% on an “average” basis instead of trying to hit it.

What does that mean? It means that, after years of undershooting inflation targets, they want to “overshoot” for a while. The average rate of inflation over a long period of time will thereby hit their legal mandate.

Now the legal mandate is clear – it doesn’t mention any averages. But that won’t stop the central banks from letting inflation run surprisingly high. And, once it does, it’ll be hard to stop.

The value of your money will tumble. And the interest on your savings won’t make up for it.

If you want to your wealth to be robust to the inflationary risks and trials of the future, you need it to be inflation proof. We explain the first step you can take in our report about investing in gold.

But, for today, let me explain what has me so convinced it’s worth preparing for a high inflation future…
 

Why inflation would spiral out of control

When debts in the economy are so high that nobody realistically expects us to pay them down, there are only two options left.

Default, meaning not paying your debt back.

Or inflation, meaning reducing the value of that debt by making money worth less. (Or worthless, if they overdo it.)

Governments and their cronies at central banks like the Bank of England prefer the inflation option. That’s how we paid down our government’s war debts – by printing money so that the burden of the debt was easy to repay.

That’s how I expect things to go again. But a bit of inflation is not what I’m worried about. It’s too much. Or, to put it better, it’s the inability to put the inflation genie back in the lamp once we let it out.

The way in which central banks are supposed to bring inflation under control is well known. They raise interest rates, making debt more expensive. This slows down the amount of money in the economy, which slows inflation.

Sounds simple. But that’s an inexact science to begin with. The fact that they’ve undershot inflation for so long proves they’re less capable of getting it right than you might think. And some economists are even beginning to doubt whether higher interest rates really do reduce inflation at all…

But here’s the thing. If central bankers do raise rates to stop inflation, we have so much debt in our economy that it’ll cause a crisis.

It was reported in June that the government’s debt is now larger than our economy. That means a small increase in interest rates can turn into a huge interest bill for the government.

But the real concern is for the private sector. Households and businesses are badly indebted too. It’s tough to pull together the figures, but economicshelp.org estimates that when you pool all of the UK’s debts, you get a mountain about five times the size of our economy.

At these levels of debt, even a small interest rate increase means a huge increase in borrowing costs. And, with interest rates starting out so low, at 0%, the rate of increase itself is dangerous. Let me explain that…

At 5% interest rates, a 1% change in the interest rate by the Bank of England means a 20% change in a borrower’s interest bill. (Because 1% is a fifth of 5%.)

At 1% interest rates, the same 1% increase in the interest rate is a 100% increase in the cost of borrowing – doubling the cost of borrowing.

At 0% interest, a 1% increase is an enormous change.

The point is, borrowers are more sensitive than ever before to any interest rate change. If the Bank of England does raise rates even slightly to rein in inflation, it’ll trigger economic chaos. Borrowers won’t be able to repay their debts. There will be mass mortgage foreclosures, house prices will crash and businesses will go bust.

For decades, interest rates have been falling. Borrowers are used to debt becoming cheaper. They’re not used to rising rates for any long period of time.

On an international level, each time rates did rise, it ended in a financial crisis. And then the rates had to resume their downward trend again, to protect borrowers.

The point is, there’s simply too much debt to raise rates. So the Bank of England won’t be able to. And that’s why inflation will run out of control, once it begins.

Of course, they might try. But raising rates was difficult enough in the 70s. When debts were a fraction of today’s levels. And rising rates still caused economic carnage back then. The Winter of Discontent, strikes and plenty more. That’s what it took to get inflation under control.

But, this time, raising interest rates would do even more damage to the economy because debt levels are far higher. Which means the economic price for reining in inflation will be higher.

And I’m not sure central bankers will be willing to pay it. I think they’d prefer to let inflation run out of control, rather than experience the stagflation of the 70s and the economic contraction it took to bring inflation under control.

It didn’t go so well north of Watford in the 70s and 80s…

If I’m right about this, then having an inflation proof set of investments will prove crucial for your financial future. That’s one of the many things we’ll cover here. But don’t forget to check out our gold report in the meantime. It’s the best place to start.


 

I’m assuming this is Nigel Farage’s new newsletter