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Is the ‘Mother of All Bubbles’ About to Pop?
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When the New York Federal Reserve began pumping billions of dollars a day into the repurchasing (repo) markets (the market banks use to make short-term loans to each other) in September, they said this would only be necessary for a few weeks. Yet, last Wednesday, almost two months after the Fed’s initial intervention, the New York Federal Reserve pumped 62.5 billion dollars into the repo market.

The New York Fed continues these emergency interventions to ensure “cash shortages” among banks don’t ever again cause interest rates for overnight loans to rise to over 10 percent, well above the Fed’s target rate.

The Federal Reserve’s bailout operations have increased its balance sheet by over 200 billion dollars since September. Investment advisor Michael Pento describes the Fed’s recent actions as Quantitative Easing (QE) “on steroids.”

One cause of the repo market’s sudden cash shortage was the large amount of debt instruments issued by the Treasury Department in late summer and early fall. Banks used resources they would normally devote to private sector lending and overnight loans to purchase these Treasury securities. This scenario will likely keep recurring as the Treasury Department will have to continue issuing new debt instruments to finance continuing increases in in government spending.

Even though the federal deficit is already over one trillion dollars (and growing), President Trump and Congress have no interest in cutting spending, especially in an election year. Should he win reelection, President Trump is unlikely to reverse course and champion fiscal restraint. Instead, he will likely take his victory as a sign that the people support big federal budgets and huge deficits. None of the leading Democratic candidates are even pretending to care about the deficit. Instead they are proposing increasing spending by trillions on new government programs.

Joseph Zidle, a strategist with the Blackstone investment firm, has called the government — or “sovereign” — debt bubble the “mother of all bubbles.” When the sovereign debt bubble inevitably busts, it will cause a meltdown bigger than the 2008 crash.

US consumer debt — which includes credit cards, student loans, auto loans, and mortgages — now totals over 14 trillion dollars. This massive government and private debts put tremendous pressure on the Federal Reserve to keep interest rates low or even to “experiment” with negative rates. But, the Fed can only keep interest rates, which are the price of money, artificially low for so long without serious economic consequences.

According to Michael Pento, the Fed is panicking in an effort to prevent economic trouble much worse than occurred in 2008. “It’s not just QE,” says Pento, “it’s QE on steroids because everybody knows that this QE is permanent just like any banana republic would do, or has done in the past.”

Congress will not cut spending until either a critical mass of Americans demand they do so, or there is a major economic crisis. In the event of a crisis, Congress will try to avoid directly cutting spending, instead letting the Federal Reserve do its dirty work via currency depreciation. This will deepen the crisis and increase support for authoritarian demagogues. The only way to avoid this is for those of us who know the truth to spread the message of, and grow the movement for, peace, free markets, limited government, and sound money.

(Republished from The Ron Paul Institute by permission of author or representative)
• Category: Economics • Tags: Federal Reserve, Wall Street 
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  1. Svevlad says:

    Instead of biting the bullet and downscaling the economy, they did the opposite.

    Ashes to ashes, dust to dust, trash to trash.

  2. onebornfree says: • Website

    “Is the ‘Mother of All Bubbles’ About to Pop?”

    “For various underlying, fundamental reasons, the “big picture” financial and economic future must always remain unknown.And yet,despite the fact that the economic future cannot be reliably/consistently predicted by anyone, it is still possible to easily protect the future value of your savings against the ravages of that unknowable economic future”

    Regards, onebornfree

  3. Here’s a serious question:

    If a collapse is possibly imminent, what short term strategy one should apply to prepare for it?

    Precious metals, gold, silver?

    Does paying down debt make sense in light of the possibility of inflation?

    Should one focus on acquisition of durable assets? Even “prepper” assets like food, guns, water, solar, etc?

    Real estate seems inflated, prices likely to collapse in the short term? Could devaluation of currency/inflation neutralize any collapse in current real estate value in the medium to long term?

    • Replies: @MarkinLA
    , @Miro23
  4. Gold and guns. Or simply leaving this sinking boat might be an option, before things turn really ugly. And they will.

    • Replies: @Realist
  5. JasonT says:

    When this bubble pops, the ability to eat (and stay warm in the colder climates) will be at a premium. The only way to avoid the resulting social collapse is for people to collectively take over all forms of food production and other essential services in their immediate region so that people can actually survive without coming after each other with guns, knives and teeth.

  6. Realist says:
    @Melotte 22

    Or simply leaving this sinking boat might be an option, before things turn really ugly.

    And go where? Where are you going?

    • Replies: @loren
  7. Anonymous[264] • Disclaimer says:

    Why does gold maintain its value? What makes it inherently valuable?

    • Replies: @Gunga Din
  8. Federal Reserve pumped 62.5 billion dollars into the repo market.

    But at this point, that’s chump change where FED is concerned.

  9. MarkinLA says:

    What holds real estate up is the borrowing costs. I don’t see 2008 happeneing since people are getting 3.5% fixed rate loans. Given that, the only way for it to collapse is massive job losses, which I also don’t see if the Fed keeps pumping money in.

  10. loren says:

    I lived in hawaii.
    Visited Mexico and asia.

    One must look for a better place.

  11. Milton says:

    This crisis could end tomorrow if TBTB would simply cancel all foreign aid (beginning with Israel and Saudi Arabia), and give a one time cancellation to all personal debt. Fuck the banksters, war profiteers and Neocon traitors.

    • Agree: Iris
  12. Miro23 says:

    “It’s not just QE,” says Pento, “it’s QE on steroids because everybody knows that this QE is permanent just like any banana republic would do, or has done in the past.”

    This is another way to finish off the US middle class. They’re the ones with some savings, pensions etc. In Weimar Germany they ended up in the street selling off their heirlooms.

  13. Miro23 says:

    Here’s a serious question:

    If a collapse is possibly imminent, what short term strategy one should apply to prepare for it?

    Following the example of Weimar Germany, buy the maximum of quality real estate possible on long term fixed rate mortgages – then pay them back in devalued dollars (what Weimar Germans called “Confetti money” D Mark). You gain the property legally without actually paying for it.

    This accounted for the massive transfer of German city centre property into Jewish hands during the Weimar hyperinflation of the early 1920’s. It helps if you control the banks..

  14. Realist says:

    I lived in hawaii.
    Visited Mexico and asia.

    One must look for a better place.

    I missed your point. Hawaii is part of the United States and full of shitlibs. Visiting a place is not the same as moving there…again your point?

  15. Gunga Din says:

    Who knows? It’s like my father used to say, “what’s the big thing about gold? Can you eat it?”

  16. @Gunga Din

    Having an edible currency is not a particularly good idea, Mr. Din. I just ate a bunch of candy corn. I don’t feel any poorer, though my tummy might soon.

    OK, seriously, you can’t eat 20 dollar bills either. To answer Anonymous’ legitimate question, as of now, you can’t make gold in any serious amount. Unlike plenty of other rare elements, compounds, whatever that you possibly can’t make, gold has been around and know for its scarcity, for all of known history.

    A currency that can’t be produced cheaply, can’t be duplicated, can be easily divided, and doesn’t corrode or otherwise degrade makes it into the definition of REAL MONEY, not just a currency like these green “bank notes” we carry around or worse yet, the digital bits on a server that most of the US dollars are in the form of.

    • Replies: @MarkinLA
  17. @Gunga Din

    BTW, if you’re getting at the idea of something to barter with after the SHTF, then I agree that canned-goods and the like can be a part of good prepping. The point of a currency, though, is to get past the cumbersome process of bartering.

    I may need more .223 ammo, and you need canned soup. I’ve got canned soup, but you don’t have any .223 (what kind of prepper are you?!) This other guy’s got .223, though, bu he doesn’t need any canned soup. Maybe we could all get on Facebook, but I personally thing real silver (pre-1965) coins would do great in a pinch as money.

    The more-valuable money may do no good for a while, but is still a store of value for when civilization returns … hopefully. Otherwise, I guess you’re gonna have to learn to digest gold coins…

  18. MarkinLA says:
    @Achmed E. Newman

    Silver was once percieved to be more rare than it is today such that Germany was on the silver standard (I believe I saw that somewhere). Once news of the Comstock Lode hit, Germany took itself off the silver standard.

    And of course there is that old Twilight Zone episode where it is just a waste product for the aliens in their nuclear reactors.

    • Replies: @Achmed E. Newman
  19. @MarkinLA

    Ha! I saw that Twilight Zone episode on youtube, Mark, just based on an internet thread like this. That poor bastard.

    It still takes energy to get that silver (and gold too) out of the ground. That’s basically what the idea of crypto money (blockchain software) is about, but it’s got its own flaws, and a few advantages.

    As for gold, the only time that there’s been inflation in gold in recorded history that I’ve read, is when the Spanish shipped all that gold they stole from the pre-Columbian people in Mexico and Central/South America back to Europe in the 1500s. Hell, the Sun King wasn’t making good use of it as money anyway, so, fuck him.

    (You’ve got to be careful about the definition of “inflation”. I mean inflation in the supply of money, causing prices of goods/services to rise in that currency. Just gold going up and down wrt to the dollar or pound is not what I mean. An oz of gold is still an oz of gold.)

  20. This is OT Mr Paul, but should be of interest to Unz readers. I am referring to Rodney Reed of Bastrop TX who is scheduled for execution November 20. A Time Magazine story by Josiah Bates carries most of the details concerning the case. Reed who is black, was accused of raping and then murdering a young white woman, leaving her body on the side of a country road in Bastrop County. This took place in 1996 and Reed was found guilty of the crime by 12 white jurors, and finally sentenced to be executed. Lately there has been extreme pressure on the governor of Texas to declare a stay of execution so new evidence of his innocence can be brought to light. The case has generated national and even international attention with celebrities such as Oprah Winfrey weighing in. For those interested the Time article is available on the internet and to my mind is fair and balanced.
    For readers information, Mr Paul was once the congressional representative for Bastrop County.

    • Replies: @MarkinLA
  21. MarkinLA says:
    @Simply Simon

    Lately there has been extreme pressure on the governor of Texas to declare a stay of execution so new evidence of his innocence can be brought to light.

    Does this mean there is actually new evidence or just we need more time to try and find it. From what I understand Texas will deny an appeal if the trial was considered “fair” even if new evidence becomes available. I believe there was a white guy who was in the same position where there was actual evidence of his innocence but his appeal was denied on the basis that he got a fair trial.

    • Replies: @Simply Simon
  22. @MarkinLA

    It all depends on what you call new evidence. It’s mainly people who maintain they overheard Jimmy Fennell say he would kill his girlfriend if she were sleeping with a black man.

  23. The ‘outlook’ for the world economy is quite good?
    “High growth of real broad money is associated with rising asset prices and healthy balance sheets, and tends to precede above-growth trend in demand and output. In the five months to September US M3 (as measured by Shadow Government Statistics) increased at an annualised rate of 9.2%, in the context of sub-2% inflation. Real money growth was therefore unusually high, the highest in fact since 2007. In the Eurozone also recent money growth has been robust. In the six months to August the annualised rate of growth of M3 was 7.3%, with inflation at about 1%. Since the USA and the Eurozone together account for 40% of world output (in current prices and at current exchange rates), these developments argue against a recession in 2020. They suggest that, on the contrary, the world economy should start 2020 in good form. Admittedly, money growth may slow from here. (Money growth has also picked up in the last couple of months in Japan and the UK, but from low levels, and they of course matter less than the USA and the Eurozone.)

    In China and India banks continue to expand their balance sheets at not much less than double-digit annualised rates. But in both these two big developing countries regulatory officialdom is disciplining the financial system, with attacks on shadow banks in China and on non-performing loans in India. (Moreover, India seems to suffer at present from a supply-side malaise [due perhaps to the over-active BJP government], with the car industry undergoing a sharp reverse.) Overall a sensible central assessment is that during 2020 the world economy will see roughly trend growth, with inflation staying at very low levels. If money growth remains close to recent highs in the USA and the Eurozone, a more positive forecast would be justified.”

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