Financial ‘bread & circuses’ and the approaching Global fiscal storm

As the Financial Circus continues today, pushing down the precious metals prices, millions of Americans are going to get wiped out when the collapse of U.S. net worth begins in earnest. Anyone with a bit of common sense must realises that the financial markets today are totally disconnected from reality.

With new stories of 40 million Russians to take part in “Nuclear Disaster” drill, the Philippine President telling President Obama “To Go To Hell”, and suggesting that he is buying weapons from Russia, U.S. Suspends Diplomatic Relations With Russia based on the mess that is Syria, U.S. Ends Fiscal 2014 With $1.4 Trillion Debt Increase the third largest in history, Deutsche Bank troubles raise fear of global shock, so it’s completely ‘mysterious’ that the gold and silver prices are falling. Surely this is totally contrary to normal financial orthodoxy?

With 90% of the U.S. media now in control by six large mega-corporations, Americans have no idea just how bad the U.S. financial system has become. News stories today that would have caused a stock market crash and a spike in the precious metals years ago… no longer are a realistic barometer of the market today. Instead, the broader Stock, Bond and Real Estate Markets where 99% of Americans are invested, continue to be propped up.

How propped up? Well, let’s say by a staggering $31 trillion in the past six years. According to the wonderful folks at the Federal Reserve, U.S. net worth increased from $57.9 trillion Q2 2010, to a stunning $89 trillion Q2 2016:

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THE HOW OF FISCAL ARMAGEDDON: Part II. The China factor

Much of the preceding article THE HOW OF FISCAL ARMAGEDDON:Part I was concerned with the mechanisms of fiscal collapse in the West. Implicit was what the trigger for this might be. A major political or fiscal crisis in the EU or a sudden collapse of the Chinese financial systems, may be two of the more likely triggers. In this article we will explore the current ‘house of cards’ that is the Chinese Financial system.

 

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China is a statistical ‘out-lyer’ when it comes to industrialisation. The sheer size and pace of what has happened in just the past 20 years dwarfs all preceding industrialisation models. China initial near term industrialisation is a hundred times as large as any new industrialisation model we have seen previously, and it has happened in a hundredth the time. Buried in the rise and rise of this remarkable industrial behemoth however are deep systemic flaws, that have the potential of bringing down the whole Chinese enterprise, and along with it the world economy. It is not a case of if the Chinese economic ‘bubble economy’  will burst, it is matter of when that will happen. But first let us explore what is really going on inside the Chinese economy.

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The How of Fiscal Armageddon: Part I:How Governments pandered to political interests while Central Banks ran out of Fiscal ‘ammunition’

During and immediately after the deep Recession of the 1980s, First World Governments began to cede economic control to Central Banks. In part, governments realised that there were political constraints on what measures democratically elected administrations could actually carry through, and remain in power. There appeared to be a realisation, within the political class, that government couldn’t be trusted with the levers of interest rate manipulation and power, because of the contradictions around carrying out of  economically logical policies, and the political policies constraints that ensured their continuance in power. Most politicians outsourced economic control to unelected bureaucrats in Central Banks, thereby abrogating their responsibilities to the people.

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For two decades this strategy seemed to work after a fashion. There were the nominal rise and fall in economic indicators but politicians trusted the Central Bankers not to wreck the ship of State. Alas it also absolved the political class from any serious attempt at Economic Policy initiatives and regulation. For twenty years pressure grew as Central Bankers battled economic harbingers with a very limited set of fiscal tools, and Politicians did nothing to fix underlying economic problems. The 2007’s crisis came and went, as a band-aid of public money postponed any real requirement to fix the underlying economic problems. Then Central Bankers’ limited set of fiscal tools began to run dry. This is where we find the world’s economy in 2016.

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The EU Rot sets in: The Full Details Behind Italy’s Monte Paschi’s €5 Billion Bail Out

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After the close on Friday, the European Banking Authority did what it does every other year: it released the results of what it calls a “stress test” which is simply an annual exercise in boosting confidence. Case in point, the 2016 edition did not even “test” for Europe’s two biggest threats, namely negative interest rates or “Brexit.” It also did not test any banks from Greece or Portugal, knowing well what the results would have been. However, in order to retain some credibility, the same test which in previous years passed such failed institution as Dexia, Bankia and Novo Banco, had to fail one bank, and this year the honors fell to Italy’s Monte Paschi a bank that goes back to before Columbus sailed to the Americas.

However, as we reported earlier on Friday, the EBA only failed Monte Paschi after the bank announced it had obtained a private bailout from a consortium of banks. The Monte Paschi bailout, a €5 billion capital increase, was unique in several ways, not least representing 5.6x BMPS’s market cap.

In a nutshell, the plan can be summarized in the following three steps:

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Iran’s President Rouhani enriches himself and his core supporters in government and business

Since late May, a series of media leaks and allegations of corruption has rocked Iran’s banking and financial sectors. The scandal has revealed, among other things, that civil servants and business executives are being paid as much as $230,000 a month.  Hossein Fereidoun, Rouhani’s brother, played a role in the appointment of some of the recently dismissed corrupt bank directors, which has further tainted Rouhani with the suggestion of familial corruption. Rouhani however is only a newcomer to the financial corruption endemic within Iranian society.

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This expose of corruption, reaching the highest levels of Iranian power has placed the 2017 re-election of Rouhani in question. The hard line Politico-religious opponents of the Rouhani administration, and followers of the Apocalyptic ‘Twelver Cult’ within Shi’s Islam, appear to be rising once more, after the departure of the cultist former President Ahmadinejad stood down. All this at a time when Iran is rushing to install Russian S-300 integrated Air Defence missile systems around its nuclear weapons processing sites and laboratories. With Iran now fast becoming a nascent nuclear power, with only a 6-12 month timeline to field an operational nuclear warhead, such a turn of events can only further destabilise the whole Middle East.

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