Hell Week For The Global Economy Gives Signs Of Things To Come

February 13, 2016

The developing Epocalypse will become the super-volcano of economic history, and this week revealed cracks in the surface that give hints of the eruption to come.

It was a week of crumbling throughout global stock markets that has challenged records. Thursday, Hong Kong stocks suffered their worst start of a Chinese New Year since 1994 in a day of monkey business for the year of the monkey. Traders fled falling stocks and took cover in safe-haven investments, bringing the Hang Seng index down 742 points (3.9%). 

Concern is that China’s banking problems could break out into financial upheaval eight times more devastating than the economic crisis the US experienced in the Great Recession. Some are estimating Chinese bank failures are likely and could result in a further 30% drop in the value of the yuan against the US dollar.

Japanese stocks went into free fall for an entire week, cratering more than 900 points in one day, then falling another 760 shortly thereafter. What a testimony to the disastrous and immediate failure of negative interest rates, which kicked Japan’s market into a full-blown panic.

Nevertheless, central banks in their groupthink manner still believe negative rates will seal the globe’s economic cracks and stop the volcano from exploding, though I am certain they will make things far worse because the very concept is evil, stripping money away from people for giving banks the privilege of holding and investing their money.

Major bank stocks continued to crash into the caldera with Deutsche Bank’s breakaway looming larger because negative interest rates in Germany are creating fissures in already weak banks. If Deutsche Bank fails entirely, it will take many other banks out with it in a domino effect. We’re right back to too-big to fail, but this time the risks and likelihood are global in development.

Civilization seems to have no concept of the peril it has created for itself, but this past week gives us a glimpse of the forces that are brewing beneath the surface. Many people may think I make these statements for effect, but I believe that, in the end, they will not appear as overstatements at all. They will simply look factually correct wind up on the other side of these events in a completely different world.

Investors run for cover in safe havens

On Thursday, treasuries in the US hit their lowest yield since the end of 2012 when the Treasury’s money presses were heating up their bearings. Investors are now fleeing to treasuries, more than willing to accept lower yields. Megacorp Pimco stocked up, increasing its Total Return Fund from 22% investment in US debt to 26%.

US bonds attracted investors with 1.65% yields. However, Germany and Japan did much better, financing their debts at 0.2% and 0.02% respectively due to their push into negative interest rates.

Gold surged around the world on Thursday with lines around the block, pushing prices up 4% higher in London, easily breaking well above that $1,200/oz level that gold hasn’t seen in years (about $1,240/oz midday). With bullion rising 19% for the year, gold is entering bull market territory. The lowering yield on US treasuries made gold a more attractive safe haven. Other precious metals also rose this week.

Where China restricts outflow of capital from the nation, people are particularly buying gold as their vehicle for fleeing the crashing Chinese stock market. Chinese demand for gold grew 25% in the final quarter of last year (y on y). India is another place where people are most likely to move to gold jewelry when the economy is falling. (They can save their money, please their girlfriends or wives and enjoy wearing their saved wealth. So, more bangles, bobbles and golden beads.) So, gold purchases grew in India this week, too, as the financial crush is felt around the world.

Said JP Morgan on Thursday, “It’s hard to imagine an uglier morning.” Bankers hate to see gold rise because its the biggest threat to their own proprietary product on which they have national monopolies — money! Thus, an outstanding morning for gold was a hangover for JP.

Bank stocks took some of the worst hits this week due to pressures created by negative interest rates imposed on banks as a cost they have a hard time passing along. The cracking up of banks stocks made for Thursday morning’s humming heads, but there was no coffee and no aspirin for the banksters. (Banks stocks have fallen more than twice as fast as the S&P 500 this year, with Bank of America taking another 6.5% hit on Thursday.)

One can only imagine another central bank dump of gold is coming through a proxy somewhere soon to take the fire out from under the gold smelters. Why else do central banks own so much of the thing they claim is a poor investment, except to mitigate the threat of their product’s main competitor?

A bad day for banksters is a good day for me, though, regardless of its impact on the economy.

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Article first published at http://thegreatrecession.info/blog/hell-week-for-global-economy/

David Haggith

David Haggith started writing about the economy after he predicted The Great Recession half a year before it hit and was puzzled as to why no economists or stocks analysts saw it coming. In the months after the crisis broke out, he started to write humorous editorials in a series titled “Downtime,“ which chided the U.S. government and bankers who should have seen the economic collapse coming but whose cronyism, greed and ineptitude caused them to run the world into a ditch. Those articles were published in The Hudson Valley Business JournalThe Valley City Times-Record (North Dakota), and The Daily Herald in Tennessee. Haggith is dedicated to regularly criticizing the daily news — not just the content but the uncritical, unthinking nature of almost all of the reporting. He now writes his own blog, The Great Recession Blog, to break down the news as an equal-opportunity critic toward both Republicans and Democrats / Conservatives and Liberals … since neither kind of politician has done anything worthwhile to plot a better economic course. His articles are regularly carried by several economic websites.

Minting of gold in the U.S. stopped in 1933, during the Great Depression.