Today King World News is sharing a piece from a top European firm which just warned, “We expect to see significant upheaval in coming years.”
“Markets don’t have a purpose any more—they just reflect whatever central planners want them to. Why wouldn’t it lead to the biggest collapse? My strategy doesn’t require that I’m right about the likelihood of that scenario. Logic dictates to me that it’s inevitable.” — Mark Spitznagel
By Ronald-Peter Stoeferle, Incrementum AG Liechtenstein
(King World News) – Throughout history, people who were involved in the production of money have tried to improve their situation by counterfeiting it. Those who were engaged in mintage used to lower the percentage of the coins’ purity and thus pushed the material value more and more below the nominal value. Later the banks, which originally kept the coins of their depositors and issued bank notes in return, began lending their depositors’ money to others, thus putting excessive banknotes in circulation. In each case the property rights of money owners were infringed, who received less than they were entitled to or were exposed to the risk of a bank run.
The development culminated in the counterfeits being legalized and that banks de jure were allowed to issue much more banknotes than they held in form of deposits. By this process, new money can be can be created through the granting of loans. That enriches – at the expense of others – the recipients of these loans as well as the banks which receive interest payments for lending money that they create from nothing.
The result is a house of cards made of loans whose architecture becomes all the more fragile the higher it is built: Defaults in payment can cascade around and cause the entire construction to collapse…
In order to prevent a contraction of money supply, a proactive monetary policy is required that creates permanent price inflation and growing money supply. The early recipients of new money will profit at the expense of the later ones, so debtors will be relieved at the expense of the creditors. This means that the maintenance of the credit money system, which is already based on the fact that property rights are infringed, leads to ever-increasing redistributive measures – and hence to an escalating infringement of property rights – as well as to an increasing systemic fragility as a result of the expanding amount of money.
In 1971, the US dollar was unanchored from Gold and the modern fiat money system was born. Money supply expansion was accelerated. Price inflation was structurally depressed, which allowed for even looser monetary policy. As a result, interest rates declined. Combined with financial innovations, the expansion of money supply entered a new dimension. However, during the global financial crisis the system was close to a collapse that could only be avoided by concentrated efforts of the governments and central banks.
After the GFC, the maxim of the central banks was the same as before the crisis: An even looser monetary policy should prevent a contraction in money supply and stimulate lending. As interest rates were reduced to zero to mitigate the crisis, the arsenal of monetary policy had to be expanded, e.g. by quantitative easing.
Since then, the world has obviously been caught in an exceptional monetary situation from which central banks want to escape in order to regain some leeway to react in case of another crisis. The Fed is the first central bank which dares to tighten its monetary policy by raising interest rates step by step.
But will the exit from the low interest-rate policy really succeed? With asset prices having reached dizzy heights due to low interest rates, can markets survive the withdrawal of monetary tailwind? Can central banks normalize monetary policy without causing the next crisis? Or is the world already caught in the zero interest trap?
We believe that zero interest rates are the end of a monetary impasse. Low interest rates have a number of distorting side effects for the economy. The following graphic gives an overview……More Here