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

[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

[CVG]

The Money Morning email today carried an interview with DB (well could have been) about the Energy sector right now and ended with.....

"Moreover, as Cris Sholto Heaton points out in the current issue of MoneyWeek, out today, the oil price doesn’t have to be high for oil producers to make money. If the majors are no longer squandering money in the hunt for new oil, and are instead just hunkering down and running down their existing resources – well that could be very profitable indeed. The oil stocks could be like the tobacco stocks were – unpopular, dirty, but absolute cash machines."

[janch]

Max Keiser's latest suggests digital currencies are likely to be introduced imminently in China and US:

/www.rt.com/shows/keiser-report/503499-central-bank-digital-currency/

 

 

[feed]

4 minutes ago, janch said:

Max Keiser's latest suggests digital currencies are likely to be introduced imminently in China and US:

/www.rt.com/shows/keiser-report/503499-central-bank-digital-currency/

 

 

China have lunched their digital currency.  Test bed in Shenzhen. 

China's central bank has issued 10 million yuan ($1.5m; £1.1m) worth of digital currency to 50,000 people in the Shenzhen area via a lottery.

https://www.bbc.co.uk/news/business-54519326

 

[DoINeedOne]

45 minutes ago, CVG said:

The Money Morning email today carried an interview with DB (well could have been) about the Energy sector right now and ended with.....

"Moreover, as Cris Sholto Heaton points out in the current issue of MoneyWeek, out today, the oil price doesn’t have to be high for oil producers to make money. If the majors are no longer squandering money in the hunt for new oil, and are instead just hunkering down and running down their existing resources – well that could be very profitable indeed. The oil stocks could be like the tobacco stocks were – unpopular, dirty, but absolute cash machines."

 

was just reading it

 

[janch]

Some quotes relating to China's digital currrency:

 

"DCEP is the antithesis of Bitcoin. The ultimate goal of a cryptocurrency is the separation of money and state," says Stewart Mackenzie, a cryptocurrency expert based in Hong Kong. "It's easy for them to say that it's like Bitcoin when it's worlds apart."

Linghao Bao agrees. "DCEP is built on an idea of centralised control. The value of Bitcoin lies in its decentralisation nature and its isolation from the financial system," Mr Bao says.

https://www.bbc.co.uk/news/business-54261382

 

So whereas BTC is completely independent of any government, digital caurrencies give governments more control over their populations.

[geordie_lurch]

16 minutes ago, janch said:

Some quotes relating to China's digital currrency:

 

"DCEP is the antithesis of Bitcoin. The ultimate goal of a cryptocurrency is the separation of money and state," says Stewart Mackenzie, a cryptocurrency expert based in Hong Kong. "It's easy for them to say that it's like Bitcoin when it's worlds apart."

Linghao Bao agrees. "DCEP is built on an idea of centralised control. The value of Bitcoin lies in its decentralisation nature and its isolation from the financial system," Mr Bao says.

https://www.bbc.co.uk/news/business-54261382

 

So whereas BTC is completely independent of any government, digital caurrencies give governments more control over their populations.

It's EXACTLY like the guy in the video @Lokiwas talking about above

[NogintheNog]

1 hour ago, janch said:

Some quotes relating to China's digital currrency:

 

"DCEP is the antithesis of Bitcoin. The ultimate goal of a cryptocurrency is the separation of money and state," says Stewart Mackenzie, a cryptocurrency expert based in Hong Kong. "It's easy for them to say that it's like Bitcoin when it's worlds apart."

Linghao Bao agrees. "DCEP is built on an idea of centralised control. The value of Bitcoin lies in its decentralisation nature and its isolation from the financial system," Mr Bao says.

https://www.bbc.co.uk/news/business-54261382

 

So whereas BTC is completely independent of any government, digital caurrencies give governments more control over their populations.

Just got this email from Glint;

Another week, another creep of state control.

The Financial Conduct Authority (FCA), has just announced it will ban from 6 January the sale and promotion of derivatives of bitcoin and other cryptocurrencies to retail investors.

The ban is prompted because the FCA reckons that retail investors are at risk of “sudden and unexpected losses”. If protecting investors against sudden and unexpected losses is a mission for the FCA then it has failed a number of times since 2008.

I am all for protecting people from unexpected disasters that are not their fault, but equally I am at heart a libertarian. People should have as much freedom as possible. There is a tension between protecting the defenceless and allowing people to judges for themselves what risks they want to run.

In the UK, about 4% of the population have a cryptocurrency holding, 75% of them owning less than £1,000.

The FCA is going to prevent retail investors from buying and selling the likes of cryptocurrency futures and options, which people often use as a way of hedging their bets on an underlying asset. For example, you might buy an option to sell a certain number of bitcoin at today’s price if the price falls by 10%, giving you an insurance policy in case the market moves against you. That seems a reasonable and indeed self-protective thing to do, given the extreme volatility of cryptocurrencies. Derivatives make markets more efficient by allowing investors to hedge their bets, which is one way they can protect themselves against rapid extreme movements. Derivative markets exist in just about everything, from aluminium to hogs.

But people will not be allowed from January to hedge cryptocurrencies within the UK. The vast majority, 83%, use exchanges outside the UK. So it’s easy enough to avoid the FCA’s jurisdiction.

The FCA acknowledges that “technical knowledge appears high among most cryptocurrency owners”. Around half of the people the FCA questioned about cryptocurrencies said they bought them as “a gamble” and 89% of them correctly thought they had no regulatory protections. That’s a pretty sophisticated audience.

Given the relentless moves towards governments creating their own cyptocurrencies, so-called Central Bank Digital Currencies (CBDCs), and the moves by the G7 club of the world’s seven biggest economies to oppose Facebook’s own digital currency, Libra, the cryptocurrency world – which started as a movement to develop a form of money free from government interference – seems all set for the kind of distortions it wanted to free itself from.

Cryptocurrencies are indeed difficult to value and in many ways are similar to fiat or paper money – the value is all related to how much confidence you have in the issuer. Which is why the digital money I use for my spending and saving is Glint’s gold – no-one controls gold, and it is much less volatile than Bitcoin.

Disclaimer! I own some Bitcoin with Coinbase However less than £1000 worth. I have moved it to my PC, my phone, exchanged it for Litecoin and then paid for my VPN service with it. I think Bitcoin will remain as a top layer 'Gold' crypto, with another crypto being the currency layer which peeps will use at payment level.

[DoINeedOne]

Latest End Game Podcast With Felix Zulauf: https://podcasts.apple.com/gb/podcast/the-grant-williams-podcast/id1508585135

 

[UnconventionalWisdom]

What are people's thoughts on transport like go-ahead, stagecoach, national express? 

There was a lot of talk after corona hit and the they took a drumming. I didn't get any as I wasn't sure things would be good in the short term. The price then recovered but is now heading back towards the march lows. Long term I do think there will be demand. The only way governments can save the economy from our debt- reliant position is infrastructure improvements fueled by fiscal spending. Take on debt and then inflate it away. 

That would require getting people working and moved around- big demand for transport. 

Covid is now not new so I think they want take such a loss as before (lockdowns are now done in stages so there's more time for them to plan) but they could go down a lot when the BK hits.

I have no exposure so will prob get some soon, just not sure if Covid is going to cause them too much pain in the short-term.

[Bricormortis]

16 hours ago, Tingles said:

@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. 

Interesting video, I cant see the "Banking for all Act" getting through and becoming a thing, too many vested interests in maintaining the existing banking system.

When George Gammon goes on about communism, I think he does not understand the nature of the game being played by technocrats and their masters who disdain democracy...nature of the game being  is about power and control not Marxism in my opinion.

As infants we have basic drives beyond food and warmth,  these being approval, security and a sense of control, these remain massive complexes for us through out our lives, and some people are just unbalanced when it comes to the distribution of these drives.

Technocrats,   for example see chunks of the EU administration, or people like Mandelson, Claus Schwab, or Soros, are an example of people so poisoned by their arrogance and neurosis it manifests as an insane need for control and possibly combines with a lust for  personal wealth,  so I dont agree with Gammons reds under the bed conclusions so much, though I do see where he is coming from and I agree it is evident from the avove mentioned Bill that there is a desire in some high quarters to transfer banking functions to the government.

Someone last week posted a very interesting snippet from Martin Armstrong saying a power grab would come from the United Nations...I will watch with interest and concern. Certainly I think democracy is in danger of being replaced with a pseudo democracy, just not necessarily a communist one.  Does depend on your definitions though.

[BurntBread]

54 minutes ago, NogintheNog said:

Just got this email from Glint;

As soon as I read that central banks were thinking of issuing digital currencies - and in particular digital currencies that are not block-chain based - my immediate reaction was: isn't that what we already have?

Am I missing something here, or is the only novel aspect of these currencies the fact that there is no way to remove them, even temporarily, from a bank? If so, that's not too far from what we have now, as only a small fraction (1%?) of currency circulates as coins and notes, and if the bank wants to charge (for example) a negative retail interest rate, that would be no harder, and no less likely to induce a bank run, than implementing a wealth tax. We already have negative real interest rates anyway.

On a related matter: this fca intention to prevent retail investors playing with blockchain derivatives. I had an immediate conspiraloonery reaction, that this may be an attempt to prevent a deep and liquid derivatives market, which could stabilise crypto currencies. This is part of my wild speculation that a stable, non-inflationary currency could compete with, and replace, fiat in business transactions (and ultimately retail transactions), thus severely hampering governments' ability to inflate.

I then thought that, somewhat uniquely, we now have a way to do that very easily, without using crypto. Since the last great inflation in the 70's, it has become very easy to hold (for example) a gold ETF on a digital trading platform, and write contracts with other parties that are settled in terms of a certain number of ETF units. The exposure to fiat and therefore inflation during the momentary transactions would be minimal. We therefore have a situation now, where we have access to a fairly convenient form of hard money, which is independent of government. The idea suggested by Hazlett (in some sense of the opposite of Gresham's law, because only one is legal tender) that a hard currency could out-compete a treacherous one, could at last be tested in practice.

If so, that would rein in government spending during the next 10 years, making us eat some of the deflation before everything goes to pot in 2030.

Sorry: just some vague thoughts I'm trying to find a home for. Please pick holes...

[Loki]

24 minutes ago, Bricormortis said:

Interesting video, I cant see the "Banking for all Act" getting through and becoming a thing, too many vested interests in maintaining the existing banking system.

When George Gammon goes on about communism, I think he does not understand the nature of the game being played by technocrats and their masters who disdain democracy...nature of the game being  is about power and control not Marxism in my opinion.

As infants we have basic drives beyond food and warmth,  these being approval, security and a sense of control, these remain massive complexes for us through out our lives, and some people are just unbalanced when it comes to the distribution of these drives.

Technocrats,   for example see chunks of the EU administration, or people like Mandelson, Claus Schwab, or Soros, are an example of people so poisoned by their arrogance and neurosis it manifests as an insane need for control and possibly combines with a lust for  personal wealth,  so I dont agree with Gammons reds under the bed conclusions so much, though I do see where he is coming from and I agree it is evident from the avove mentioned Bill that there is a desire in some high quarters to transfer banking functions to the government.

Someone last week posted a very interesting snippet from Martin Armstrong saying a power grab would come from the United Nations...I will watch with interest and concern. Certainly I think democracy is in danger of being replaced with a pseudo democracy, just not necessarily a communist one.  Does depend on your definitions though.

I think he just uses it to mean centrally-planned and administered economy, which is a fair use of the term.  You can see how the need for approval would line up perfectly to be 'weaponised' with a system that can deduct from or freeze accounts at liberty.  

There can't be too many vested interests in the current system - or it wouldn't be on track to implode in a decade! 

[Craig]

30 minutes ago, Loki said:

I think he just uses it to mean centrally-planned and administered economy, which is a fair use of the term.  You can see how the need for approval would line up perfectly to be 'weaponised' with a system that can deduct from or freeze accounts at liberty.  

There can't be too many vested interests in the current system - or it wouldn't be on track to implode in a decade! 

Indeed. I'd imagine the ability to determine what people can spend their money on has a great deal of appeal to governments too. 

[Loki]

1 minute ago, Craig said:

Indeed. I'd imagine the ability to determine what people can spend their money on has a great deal of appeal to governments too. 

Tasty tasty bugs have got the green light

https://agfundernews.com/uk-government-earmarks-10m-for-industrial-insect-farming.html

[Loki]

 

[UnconventionalWisdom]

Trunp is fully behind a big fiscal stimulus. It may be to get votes but now the shift from Wall Street to Main street is starting. Prob the ripple that will spread through the Western world. Article also states people paying off debt.

https://www.marketwatch.com/story/trump-says-im-ready-to-sign-a-big-beautiful-stimulus-but-it-doesnt-look-like-many-americans-are-counting-on-it-2020-10-16?mod=home-page

President Donald Trump is ready to sign a “big, beautiful stimulus,” he said during a Thursday night town hall, despite ongoing talks that include skeptics in the Republican-controlled Senate and, earlier in the month, when he said he was done negotiating.