Investors need to prepare for a terrifying world of debt binges and credit freezes.
October 22 (King World News) – Gregory Mannarino, writing for the Trends Journal: Core law… the system runs only on new debt. PERIOD.
Debt must grow exponentially to keep prices, payrolls, and asset values from stalling. If the flow slows… credit freezes, cards/settlements fail, and the machine locks up.
Why there’s never enough.
Perpetual deficits (politics/central banks wants low rates to service and expand debt).
Low rates allow corporations to roll maturing debt for near zero, and borrow for buybacks when rates are suppressed.
Shadow banking (MMFs, repos, primary dealers, private credit) supplies day-to-day oxygen (banking without banks) for the system. (Moreover, the shadow system is already showing cracks).
The tricks to keep debt growing.
Rate cuts/QE = cheaper money, higher asset prices, currency debasement. (inflation is the bill).
War & emergencies = the fastest tap into more debt. Supplemental bills now, Treasury issuance tomorrow. The Fed keeps the pipes open, (repos/QE/“facilities” etc.), and is ready to supply even more.
KEY POINT: Fed Repo/RRP are the “pawn shop” for US Treasuries… they move cash to simulate liquidity, so assets aren’t dumped.
Off-budget illusions (hide the true tab).
Guarantees/loans to allies = government co-signs (and We the People are the collateral/guarantee of the loan(s).
So, no deficit hit today, but taxpayers will pay if the “government” loans do not get paid back/default. This is called (contingent liabilities).
SPV’s (Special Purpose Vehicles) + “emergency funding” = big leverage with little to no public scrutiny. (Result… real obligations grow), but headline deficits look smaller.
KEY POINT: Why it ends ugly…
Exponential debt meets real world limits = more currency debasement, lower/artificially suppressed rates, and vastly more debt. Eventually the credit/debt market seizes-up.
KEY POINT: Currently banks/financial institutions are being deregulated, which will allow again for wild speculation in the market.
(More troubling though, are the roll-backs of public protection(s), which were put in place after the “financial crisis” to prevent another public bailout of the banks). These roll-backs now shift risk from lenders back to the public AGAIN.
(NOW, EXPECT ANOTHER FINANCIAL SYSTEM PUBLIC BAILOUT)….
KEY POINT: Moving forward… expect “government officials” to use “Politics of Urgency” as an excuse to keep piling on debt. Expect things like “National Security” framing. This = higher prices on further currency debasement. Funding it with rate cuts/QE = financial repression… (negative real rates).
KEY POINT: Expect emergency bills/funding, price controls, and more bond/debt issuance… and the bill will land where it always does… on We the People through much higher inflation and a freefall economy.
KEY POINT: Core of the problem.
The system is debt-based meaning that it REQUIRES perpetual debt expansion which debases the currency moreover…it also amplifies boom-bust cycles. (And the next “crash” will begin and end in the debt market). This will be THE most extreme Meltdown in history.
THE DEBT PARADOX…
“The System” can only run on ever-growing credit/debt… if this mechanism even slows = seize-up/systemic failure. So, to push-off a seize-up/systemic failure, expect cut rates, vast debt expansion, and currency suicide.
KEY POINT: Is There A Solution?
Yes…
And it begins with RETURNING purchasing power to the currency. NOT TAKING MORE OF IT AWAY.
KWN Gold Special!
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Friday’s Pullback In Gold & Silver
To listen to Alasdair Macleod discuss Friday’s pullback in gold, silver and the mining stocks as well as what to expect next CLICK HERE OR ON THE IMAGE BELOW.
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