Will There Be Another 2008 Style Crash?

I think there is going to be a point where QE will become ineffective. There will be a point when countries with a more sane approach, like China, stop buying US bonds and instead start selling them. That would lead to higher interest rates and have a negative impact on stocks. We have already seen the effects of the rise in interest rates on home and auto sales – the two biggest motors of the US economy since the beginning of QE3.

On top of that, I believe that the US government is insolvent. In fact, everybody knows the US is broke but people will stand by and let it happen.

An analogy for the Federal government is the city of Detroit. Five years ago, they already knew that they were broke. But it is not until they finally had to write a check that they could not write that they declared bankruptcy.

Even though the bankruptcy was inevitable, it shocked people. The City of Detroit recently announced that pensioners would get 16 cents on the dollar. Had Detroit faced its budget problems five years earlier, pensioners may have gotten 60 cents on the dollar. Allowing the situation to get worse led to great disappointment and damage.

The Federal government looks about as bad as Detroit five years ago. In financial year 2013 it brought in $2.8 trillion in revenues and spent 3.5 trillion, as reported by the Treasury department. Their current liabilities are something like 87 trillion with a national debt of 17 trillion. The situation is hopeless.

It is propped up by the Fed. When the Fed does an open-market operation, the stocks go up. When they are not doing any such operations, overall, they go down.

- Source, Eric Sprott:

http://sprottgroup.com/thoughts/

The Biggest Bubble in Human History?

by lewrockwell.com

Dow up 125 points yesterday, to a new all-time record.

Why? What's behind it? The economy is not so hot. Why the red-hot stock market?

China is back in the news. A new report from CBS's "60 Minutes" documents the extent of the ghost cities in China – miles and miles of empty highway, office towers, apartments and malls. Analysts are talking about the biggest real estate bubble in history!


Is China a bubble? We don't know.

Does it matter? Well... yes... maybe. If China melts down or blows up the demand for oil and other resources goes down. The Chinese have pumped vast sums of money into development projects. That money helped to keep people on the job... and also kept the ships full of stuff, going back and forth across the world's oceans.

Cyprus and the Unraveling of Fractional-Reserve Banking

by Joseph T. Salerno

[Originally posted on Circle Bastiat, the faculty blog of the Mises Institute. Read Circle Bastiat for Austrian analysis of current economic events from today’s top Misesian and Rothbardian economists.]

The “Cyprus deal” as it has been widely referred to in the media may mark the next to last act in the the slow motion collapse of fractional-reserve banking that began with the implosion of the savings-and-loan industry in the U.S. in the late 1980s.
This trend continued with the currency crises in Russia, Mexico, East Asia, and Argentina in the 1990s in which fractional-reserve banking played a decisive role. The unraveling of fractional-reserve banking became visible even to the average depositor during the financial meltdown of 2008 that ignited bank runs on some of the largest and most venerable financial institutions in the world. The final collapse was only averted by the multi-trillion dollar bailout of U.S. and foreign banks by the Federal Reserve.

Should Bernanke Park the Helicopter?

by Frank Shostak

According to Ben Bernanke, pulling back on aggressive policy measures too soon would pose a real risk of damaging a still-fragile recovery.
The Fed chief is of the view that, for the purposes of financial stability, a continuation of the central bank’s aggressive stimulus, conducted through purchases of Treasury and mortgage securities, remains the optimal approach.
In response to the financial crisis and the deep recession of 2007–09, the Fed not only lowered official rates effectively to zero, but also bought more than $2.5 trillion in assets in an effort to keep long-term rates low.

Outlook for 2013

By Alasdair Macleod

I have not faced the prospect of a new year with so much trepidation as when I contemplate what is in store for 2013. Systemic risks abound, which of themselves are not the main story, only milestones on the road to final currency destruction, unless governments somehow regain their senses.
To help understand the perils of 2013 I shall give them their background context first before listing them individually. No such list can be exhaustive or temporally sequenced, but all on it have the same root: the long-term accumulation of a burden of unsupportable debt.
This is a story that started with the end of the First World War, and involves a world which replaced laissez-faire with political motivation in economic and monetary affairs, moving away from wealth-creation into wealth-destruction in the cause of the common good.