The World Passes From The Fall Season Of Debt Based Prosperity Into The Kondratieff Winter Of Debt Servitude On The Death Of Money

Financial Market Report for the week ending Friday November 16, 2012

The business cycle is passing from the Fall Season of debt based prosperity into the Kondratieff Winter of debt servitude on the death of money.

Doug Noland writes When money dies. It’s been 14 years of chronicling history’s greatest Credit Bubble. For much of the past 14 years, while I have been documenting the greatest Credit inflation the world has ever experienced, policymakers and Wall Street strategists have been fixated on the “scourge of deflation.” The “Keynesians” (aka Inflationists) have used post-Bubble “mopping up” strategies to repeatedly resuscitate and promulgate history’s greatest Credit inflation. Amazingly, the disease has been misdiagnosed virtually from day one. More amazingly, no one will even contemplate a reexamination; just stronger narcotics. The great risk has not been,  and it’s not today, either deflation or inflation. The risk has fully materialized,  and it’s the unavoidable downside of a runaway global Credit Bubble and financial mania. Over the years, I’ve often been asked to predict how this will all end: will it be either hyperinflation or deflation?

There is a reasonable chance that we are again near a critical Credit Bubble inflection point. Inflations need ongoing monetary fuel. Indeed, it is the nature of major inflations that they require ever increasing amounts of “money” and Credit. Today’s aged global Credit Bubble requires massive and ever-increasing quantities of global Credit expansion. For three years now, we’ve watched the unfolding downside of the Credit cycle in Europe. More recently, developing economies have weakened, especially in China, India and Brazil. Perhaps there will even be a little fiscal tightening here at home. As such, it is not a sure thing that sufficient new global Credit will be forthcoming.

For the past two years, Europe has been playing the role of “marginal” Credit provider. Private-sector Credit growth has plummeted throughout much the region, although this has been countered by aggressive policy interventions. First, there were the Greek, Irish and Portuguese bailouts – and later more Greek bailouts. Then a bigger EFSF and an ESM. This was followed by the $1.3 TN long-term Refinancing Operations (LTRO) – with a notably short half-life. As the European – and global – crisis began to spiral out of control this past summer, the world was introduced to the “do whatever it takes” Draghi Plan and “QE infinity” from the Bernanke Fed (and others). And a not-so-funny thing happened: global risk markets rallied abruptly – only then to trade unimpressively.

I  have in the past noted an important peculiarity of this global inflationary cycle: Rather than the more conventional currency printing press, the Global Credit Bubble has been fueled in large part by (electronic-entry) marketable debt instruments. This has created key advantages in terms of this cycle’s durability and longevity. For one, it has tended to isolate the greatest inflationary effects within the global securities and asset markets. Second, this dynamic has provided policymakers with incredible power to intervene in the markets to bolster confidence and spur the ongoing inflation of financial instruments (both quantity and price).

But any inflationary cycle “advantage” comes with a significant downside. For one, never in the history of mankind has an inflationary cycle so spurred and rewarded financial speculation. Global risk markets have evolved into essentially one historic policy-induced speculative Bubble. Financial speculation was nurtured into one gigantic “crowded trade,” which manifested into the dysfunctional “risk on, risk off” trading dynamic. Increasingly aggressive policy responses over too many years created a speculation monster that will not be easily contained or tamed.

As noted above (and in previous CBBs), a Credit Bubble is sustained only through ever-increasing quantities of “money” and Credit. The greater the Bubble, the greater the required policy response to sustain the inflation. But, importantly, the greater the policy measures imposed the greater the market reaction – and the greater the market reaction the greater the necessity for even bigger policy interventions in the future. I’ve posited that there’s an element of central banks “fighting a losing battle.”

The Economist Magazine turns the spotlight onto France as it writes, The time-bomb at the heart of Europe: Why France could become the biggest danger to Europe’s single currency. While Greece is the most extreme form of socialism, France is a Socialist Nation as well. This as Kumaran Ira of WSWS writes French Greens, Stalinists staggered by President Hollande’s unpopularity. France’s Stalinists and Greens are issuing criticisms of their ally, the ruling Socialist Party, as it collapses in the polls due to its austerity policies.

The twin standard bearers of economic development Socialism and Crony Capitalism came through the global debt trade, particularly, Sovereign Debt, BWX, Emerging Market Debt, EMB, Senior Bank Loans, BKLN, Leveraged Buyouts, PSP, and Junk Bonds, JNK, as well as through carry trade investing led by the speculative leveraged investment community, IXG, particularly JP Morgan, JPM, and Goldman Sachs, GS, all of which was based upon the Milton Friedman Free To Choose Floating Currency Regime, and goosed up by the lords of credit liquidity, Alan Greenspan, Ben Bernanke and Mario Draghi.

In Europe, the matter is twofold, first insolvency, and second a massive trade deficit with Germany. Insolvent sovereigns, GREK, EWI, EWP, EIRL, and insolvent banks, EUFN, are intertwined throughout Europe.

The link between banking crises and sovereign debt crises cannot be redeemed by any structural reforms such as cutting taxes, shrinking the size of governments, removing the restrictions on businesses to operate, and lowering wages. Furthermore, Germany is such an industrial powerhouse, that no European country can be reorganized enough to out compete it, as Germany is light years ahead of all others in technology and skilled labor; no one, that is nobody, is going to be investing in factories in any of the peripheral nations.

The global economic outlook is really a matter of Jesus Christ carrying out his administration plan for the fullness of times and passing the world from credit, that is debt based prosperity to diktat, that is debt based servitude, as highlighted by the Apostle Paul in Ephesians 3:10, and by the prophet Daniel in Daniel 2:30-33, where the Statue of Empires shows the hegemony of the iron legs of the UK and the US waning, and the toes of iron diktat and clay democracy of the ten toed kingdom of regionalism, rising. Confirmation of this comes from the Apostle John in Revelation 13:1-4, who foretells the Beast Regime emerging out of the Mediterranean nation of Greece, to establish totalitarian collectivism in the world’s ten regions and heading up all of mankind’s seven institutions.

In the Eurozone, leaders will meet in summits to waive national sovereignty and pool sovereignty regionally. as they announce regional framework agreements. Germany will rise as preeminent in a Federal Super State and rule over client peripheral countries

Stewart Fleming writes in European Voice The complexities of a banking union. The Transition Report recently published by the European Bank for Reconstruction and Development (EBRD), a specialist, government-owned lender to the region’s private sector, has some answers. It points out that 72% of the banking assets in those countries are actually controlled by big international institutions in the West, including banks in Italy, EWI, Austria, EWO, and the Nordic, EWN, NORW, countries.  What is being proposed by eurozone leaders is a far-reaching restructuring of the financial and economic governance of the eurozone. This implies shifts in national sovereignty, most eye-catchingly with the plan to shift the ultimate authority for the supervision of 6,000 banks in the eurozone from national supervisors to the European Central Bank in Frankfurt.

There is waiting in the stage of Europe’s wings, the most capable of sovereigns. Soon the Almighty Lord God, Ephesians, 1:1-23, will open the curtains, and into the limelight will step the Sovereign, the EU’s Leader, Revelation 13:5-10; and he will be accompanied by the Seignior, the EU’s Finance Minister, Revelation 13:11-18. Yes, a king and monetary pope are coming to rule Europe. The word, will and way of these two will be the rule of law replacing all historical and constitutional law; these will be the greatest tyrants that the world has ever seen.

Bible prophecy of Daniel 7:8, describes Europe’s leader as the Little Horn, that is one of seemingly little authority. Candidates for the Sovereign include Olli Rehn, Herman van Rompuy, Jean-Claude Juncker, Wolfgang Schaeuble, and Guido Westerwelle, who in an interview with Le Figaro, said, “We need to discuss without taboos the ways to strengthen Europe and make it more effective and capable to act.” And Daniel 8:23, communicates that the Eurozone leader will be one skilled in schemes, specifically regional framework agreements.

Candidates for the Seignior include Jens Weidmann and Mario Draghi.

As inflationism is pivoting to destructionism, Choice is being replace by diktat. The fiat money system is being replaced with the diktat money system where diktat will serve as currency, credit and wealth.

In the news

Fox News reports Stryker cuts 1,170 jobs, citing ObamaCare. Stryker together with its subsidiaries, operates as a medical technology company. The company operates in three segments: Reconstructive, MedSurg, and Neurotechnology and Spine. Stryker, SYK, and Medical Device Manufacturers, IHI, are seen trading lower in this ongoing Yahoo Finance Chart.

Isabel Reynolds and Takashi Hirokawa of Bloomberg report Japanese Prime Minister Yoshihiko Noda will dissolve parliament tomorrow, triggering an election that polls show his party will lose three years after ending the Liberal Democratic Party’s (LDP) half-century grip on power. The ruling Democratic Party of Japan decided the national vote for the lower house will be held Dec. 16. An LDP win would reinstate Abe, who advocates a tougher policy toward China and greater central bank monetary stimulus, to the premiership he quit in 2007 after 12 months. An election means three of Asia’s four largest economies will have new governments in 2013. South Korea’s vote for president is Dec. 19, with the winner taking office in February. The lower house today approved the bill to issue 38.3 trillion yen ($477bn) in debt to cover about 40% of government spending for the year ending in March, and the opposition-controlled upper chamber will vote tomorrow. The yen, FXY, today sank to a six-month low against the dollar after Abe called on the Bank of Japan to provide unlimited monetary stimulus until deflation is overcome. The next government will get a chance to reshape the central bank’s leadership, with Governor Masaaki Shirakawa’s term scheduled to end in April and his two deputies’ tenures set to end in March.” Shaun Richard relates, I am discussing negative interest rates acrosss the board as opposed to taxes which mimic that effect or rates just for foreign players. I relate this is a very much needed discussion. Japanese Banks, SHG, MFG, MTU, and SMFG, are driving Japan, EWJ, lower from September 14, 2012, as is seen in this ongoing Yahoo Finance Chart, and Brazil Banks, BSBR, ITUB, and BBD, are driving Brazil, BRF, EWZS, EWZ, lower, as is seen in this ongoing Yahoo Finance Chart. Japan Government 10 Year Bonds are trading at 0.73%. I fully expect Japan Shares, EWJ, which jumped 1.2% this week, to fall lower and the Japanese Interest rates to soar, as no one outside of the Japanese banks will buy into Unlimited QE.

The WSJ reports Investment Falls Off a Cliff. U.S. Companies Cut Spending Plans Amid Fiscal and Economic Uncertainty. U.S. companies are scaling back investment plans at the fastest pace since the recession, signaling more trouble for the economic recovery. Half of the nation’s 40 biggest publicly traded corporate spenders have announced plans to curtail capital expenditures this year or next, according to a review by The Wall Street Journal of securities filings and conference calls. Nationwide, business investment in equipment and software, a measure of economic vitality in the corporate sector, stalled in the third quarter for the first time since early 2009.

World Stocks, VT, traded 1.5% lower for the 10th week, that is since the week ending September 10, 2012.  Sectors falling lower included
GDXJ 10.5
URA 9.8
GDX 8.3
SIL 7.7
XME 5.6
COPX 5.5
XSD 4.5
SLX 4.2
ITB 3.7
PXN 3.7
FAA 3.5
QABA 3.3
RWW 2.5
IWM 2.4
REMX 2.1
KRE 2.1

Countries falling lower included
ARGT 6.0
EWZ 3.2
CHII 3.9, YA0 2.7, FXI 1.8, CAF 1.6, HAO 1.6
EZA 2.2
INP 2.1

Commodities, DBC, traded unchanged.
UNG +8.6
JJA -3.0
RJA -1.8
CUT- 2.0
GLD -1.1 and SLV -1.1

Total Bonds, BND, rose 0.06%, to a new weekly high. The US dollar, $USD, UUP is rising and is no longer the world’s reserve currency, as the US Federal Reserve, the ECB, and the other world central banks have lost monetary authority to the bond vigilantes who have been calling interest rates higher globally, as reflected in the Interest Rate on the US Ten Year Note, ^TNX, closing at 1.58%, which began rising since July 24, 2012, despite the Steepner ETF, STPP, falling to a record low as is seen in the chart of 10 30 US Sovereign Debt Yield Curve, $TNX:$TYX. The value of Mortgage Backed Bonds, MBB, International Treasury Bonds, BWX, Emerging Market Bonds, EMB, Junk Bonds, JNK, Leveraged Buyouts, PSP, as well as Mortgage Backed Bonds, MBB, are now falling in value. The spread between benchmark MBS and 10-year Treasury yields widened 4 bps to a 2-month high 56 bps.

Competitive currency devaluation continued this week as Doug Noland reports, the U.S. dollar index, DYX, $USC, (traded by the 200% ETF, UUP) added 0.3% to a 10-wk high 81.26 (up 1.3% y-t-d). For the week on the upside, the Mexican peso increased 0.2%, the Swiss franc, FXF, 0.4%, the Danish krone 0.2%, the euro, FXE, 0.2% and the Canadian dollar, FXC, 0.1%. For the week on the downside, the Japanese yen, FXY, declined 2.3%, the Brazilian real, BZF, 1.9%, the South African rand, SZR, 1.8%, the Norwegian krone 0.7%, the Taiwanese dollar 0.7%, the Swedish krona, FXS, 0.7%, the Australian dollar, FXA 0.5%, the South Korean won 0.4%, the Singapore dollar 0.2%, the New Zealand dollar 0.2%, and the British pound, FXB. 0.1%. I add that emerging market currencies, CEW, traded 0.2% lower.

The Fred M2 (narrow) “money” supply was up $36.4bn to a record $10.291 TN; as is seen in this chart, it has risen parabolically from 11/12009 to 11/05/2012.

David Goodman and Brian Parkin of Bloomberg report “Germany sold two-year notes at a negative yield for the second time on record… The nation auctioned 4.3 billion euros ($5.5bn) of the debt at an average yield of minus 0.02%… It’s the first time since July the rate has been below zero. A negative yield means investors who hold the security until it matures will receive less than they paid to buy it.”

John Glover of Bloomberg report “Europe’s corporate bond market is shrinking as redemptions outstrip issuance, banks borrow and lend less, and companies stockpile cash rather than invest in their businesses. Banks have sold about 335 billion euros ($427bn) of bonds in the common currency and pounds this year, down from 443 billion euros last year, 503 billion euros the year before and a record 671 billion euros in 2009. Banks cut their lending to euro-area companies by 45 billion euros in the third quarter from a year earlier…”

Dalia Fahmy of Bloomberg reports “German home prices may be in danger of overheating in some regions, even though the nationwide risk is low, the Bundesbank said. Banks are increasing their lending as demand for residential property accelerates, the German central bank said… Germany’s residential property boom is being fueled in part by low interest rates and a lack of investment alternatives.”

Sarika Gangar of Bloomberg writes: “The fiscal cliff may have arrived early in the $1 trillion market for U.S. junk bonds. Companies sold at least $2.6 billion of speculative-grade debt this week, down 81% from the prior period and below the 2012 average of $6.9 billion… Investors are demanding higher interest rates to lend to the neediest borrowers as JPMorgan Chase & Co. says the U.S. will tumble into recession if lawmakers fail to avoid $600 billion in mandated spending cuts and tax increases… Sales of speculative-grade debt in the U.S. this year totals $312.5 billion, more than the $243.8 billion sold in all of 2011 and topping the previous record of $288.2 billion in 2010… Issuance in October reached $48.3 billion, a monthly record.”

Andrew Mayeda and Theophilos Argitis of Bloomberg write “Canadian existing home sales slipped in October from the previous month while prices were little changed on the year, adding to evidence of a cooling in the country’s real estate market…”  I relate that the Canadian Dollar, FXC, topped out in early September, 2012, taking Canada, EWC, Canadian Energy Income, ENY, and Canada Small Caps, CNDA, lower. The age of carry trade investing is over and done.


The seigniorage, that is the moneyness, of the Banker Regime, that is the Milton Friedman Free To Choose Floating Currency Regime, is passing away on the failure of the sovereign authority of nation states, the exhaustion of the monetary authority of the world central banks, and the inability of the International Banking System, IXG, and Mortgage REITS, REM, to securitize debt. Stocks are unable to leverage higher on debt as is seen in this ongoing Yahoo Finance chart of closed end funds CSQ and PFL.

The seigniorage of the Beast Regime, Revelation 13:1-4, is rising on totalitarian collectivism and regional governance which features seigniorage coming from sovereign bodies such as the ECB and its monetary pope Mario Draghi as documented by Christoph Dreier of WSWS writes The troika calls for further cuts in Greece.  Soon public private partnerships, that is combines of state and corporations will rule in regional fascism.

The world is passing through peak wealth, peak credit and peak capital as global growth and trade ebbs away on the failure of neoliberal finance, specifically debt creation and carry trade investing. Credit, that is trust has traditionally been between lender and debtor; now a new trust will come out of regional framework agreements to establish a New Europe. Crony Capitalism and European Socialism are being replaced by Regionalism. The global economy is being supplanted by economic production and trade within regions. As Jean-Christophe Maur of the World Bank Growth and Crisis Blog notes, the Nobel Peace Prize was awarded to Milton Friedman, whose Free To Chose doctrine underwrote Neoliberalism; now the Prize was awarded for regional integration. Traditional money is dying; the new money of diktat is rising to provide security, stability and sustainability in a New Europe, which will come as leaders meet in summits to waive national sovereignty and pool sovereignty regionally. Regionalization is a process that is commencing worldwide, as China Media News reports Chinese FM inaugurates new economic cooperation department.

When one rejects the subjective view of Austrian Economics and Socialism which comes from the worship of one’s own will, Colossians 2:23, and then looks with the objective vision of Christ, Ephesians 4:17-21, which comes from accepting God’s Sovereign will, Philippians 2:12-13, and comes to the global economics viewpoint of Christ, Ephesians 1:10, and takes the perspective of bible prophecy, Daniel 2:30-33, then one can see the vision of John the Revelator for a Federal Europe rising from the Mediterranean PIGS sourced sovereign debt crisis; it’s as DailyFX writes Draghi Backs Move Towards Federal Europe. Finland with its AAA debt rating might be able to escape the black hole of a European Super State, as Reuters reports Finland to resist any rush to federal Europe. It’s very likely that the United Kingdom, having its own banks, the City of London Financial District, and its own currency, the British Pound Sterling, will depart a Brussels and Berlin centric Europe. There be many European Federalists; these write books like For Europe: A Manifesto for a Post-National and Federal Europe, by Guy Verhofstadt, president of the European parliament’s liberal ALDE group and Daniel Cohn-Bendit, co-president of the parliament’s Green group. We are moving very quickly towards a Federal Europe which will see a budget czar and monetary pope appointed and taking effective control of all European member state budgets. Jean Pisani-Ferry asks in Project Syndicate, Federalism or Bust for Europe? I reply that God determined in eternity past that there will be no democratic Federal Europe, only a Federal Europe characterized democratic deficit; Greeks cannot be Germans, yet all will be one living in austerity and debt servitude, in the totalitarian collectivism of a One Euro Government; the EU will be a type of revived roman empire where authoritarians rule over the entire continent from Brussels and Berlin. Nigel Farage in King World News has it right as he relates We are headed to a One World Government.

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