Tuesday, May 10, 2016

Doug Casey:
We Are In The Greater Depression
"The U.S. government is way beyond bankrupt. Anything unsustainable will come to an end. When it does, it will result in what most people recognize as a depression. That’s as per a second definition of a depression, which is a time when economic distortions and misallocations of capital are liquidated. When that happens, you have widespread bank defaults, corporate collapses, and massive unemployment. The economy itself will change, as people shift from providing goods and services for an artificially high standard of living to those needed for a much lower one. This can impact commodity prices—things like rice and beans can go up, because that’s all people can afford, while filet mignon goes down, because people can’t afford it anymore .. My view of The Greater Depression is that it’s not an exact prediction of when everything comes unglued, it’s a view of a civilizational process—a secular process, not just a cyclical change in the markets .. I do think that we’re on the edge of a genuine precipice. We could see the long-term economic decline become an acute financial collapse. It could have happened in the early 80s, when even the U.S. government was paying 15% to borrow. It should have happened in the financial crisis, but they were able to paper it over by creating trillions of new currency units—most of which haven’t yet entered the economy. The long-term depression trend has been, as I say, disguised by the benefits of technological advance, but the acute collapse will be obvious to everyone. The chances of it becoming obvious before the end of this calendar year are very high .. The most dangerous thing is that this is an election year. I expect the U.S. economy will be going into full collapse by the time voters go to the polls in November. Unfortunately, people have become accustomed to looking for political solutions to economic problems—problems that are caused by the politicians in the first place .. There are no political solutions. The solution is to get politics completely out of the economy, just as we separate church and state. But that’s not going to happen. The average U.S. citizen’s mind has been totally corrupted by dependency on the state."
LINK HERE to the interview transcript

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Anonymous said...

BIS Channels Raghuram Rajan as Claudio Borio Calls for New Global Monetary Order

Dollar-denominated system has inherent instability: Borio
Most ambitious fix would involve global monetary coordination

The world’s dollar-dominated monetary order has serious instabilities that can best be fixed by central banks explicitly coordinating policy, Claudio Borio, the chief economist of the Bank for International Settlements, argued in a new paper.

“The Achilles heel of the international monetary and financial system is that it amplifies the key weakness of domestic monetary and financial regimes, i.e. their inability to prevent the build-up and unwinding of hugely damaging financial imbalances,” Borio wrote. The “most ambitious possibility would be to develop and implement new global rules of the game that would help instill greater discipline in national policies.”

As the global economy shudders at the prospect of a simultaneous slowdown in China and tightening of monetary policy in the U.S., more attention is now being paid to the cost that countries pay when monetary or fiscal policy in other jurisdictions changes direction. Most prominently, Reserve Bank of India Governor Raghuram Rajan has argued that policy needs to be explicitly coordinated to avoid such harmful spillovers.
Dollar Dominance

“How far away is the international community from finding adequate solutions? The answer is a long way,” Borio said. “There is no doubt that the dominance of one currency creates challenges” for the global system, he said.

The paper cites research showing that the dollar is involved in about 90 percent of all foreign-exchange transactions, accounts for 60 percent of official foreign-exchange reserves as well as debts and assets outside the U.S. The euro came in a distant second at about 25 percent, Borio wrote.

As the interests of domestic policy usually give little space to consideration of the spillovers to others, Borio argued that this gives rise to financial imbalances elsewhere that can “take the form of unsustainable credit and asset-price booms that overstretch balance sheets on the back of aggressive risk-taking.”