Economic Danger in the short-term

There are simultaneous issues around the globe:

In China,  Their liquidity is under tremendous pressure.  “The shadow banking system is now at $2 trillion and 50% of debt is rolled over every 3 months, and 75% of China’s debt is rolled over every 3 to 6 months.”  This is very high leverage and credit has grown in China from $9 trillion to $23 trillion since 2008, over 200% of GDP.  Home prices are 16 to 18 times income.  In the U.S. prudent lending says 3 times income is the high-end parameter.  Credit creation is producing diminishing returns.  1 new Yuan of credit creates only .15 Yuan of GDP.  In 2008 that same credit created .85 Yuan of GDP.  China is in the midst of high inflation.

In Japan(3rd largest economy in the world), the Balance of Payments is collapsing as well as the personal savings rate.  The population is collapsing.  Population will go from 125 million to 90 million over the next 35 years.  There won’t be enough young people to support transfer payments to the old.  The bond markets are falling and will eventually collapse.  There is surging debt with all of the money printing.  Japan cannot afford rates now, but interest rates are headed higher anyway.  The result? A collapse of the Japanese yen.  The problems in Japan cannot be solved and will eventually lead to a problem for the rest of the globed.  This will lead to a huge global crisis.

In Europe, the Greek bond market plunging again and now the IMF is suggesting that they are going to pull the plug.  Germany is now finding itself under economic pressure and it cannot save the entire group of weak countries of Southern Europe.

In the US, if you adjust properly for inflation since 1973, the weekly wage has been reduced in half, a staggering 50% loss of purchasing power over 4 decades.  The food stamp usage is up to 50 million, and real unemployment is at 23% in the US according to

Last week, we saw the stock market respond negatively to Bernanke’s speech indicating that Quantitative Easing is nearing an end.  The market did not like that position.  Simultaneous to his speech, the gold price was slammed again in the same manner as the last attempt to convince the market that the U.S. Dollar was the place to be.  There was one huge trade during the off hours that sent the gold price off of the cliff.  No individual trader would make such a trade.

All of the above events point to highly volatile times ahead.  This roller coaster ride could be “heart-pounding”, “jaw-dropping”, and “heart-stopping”.  Get the defibrillator paddles out and be ready to yell “Clear”!

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