Economic Devastation

[coinits]

I predict that before there is another election in the USA that rogue elements within the US Military Industrial Complex will detonate a nuclear device in a populated area and blame it on a foreign power or group.

On a side note - here is a WTF moment complements of Walmart:

https://www.youtube.com/watch?v=N7FqKMKh2WA

Every store being shut down for 6 months for 'plumbing' repairs where no city permits have been issued, all fall in areas that will be included in Operation Jade Helm

https://www.youtube.com/watch?v=zHTFXRJ8mcM

Nuclear bomb detonation in a populated area....omg why are predicting such a situation? That will be devastating. How can you think something like this.

Why? Because the powers that be are that desperate.Twice in recent history certain elements of the US Military have tried to jack nukes. One as recently as 2014.

[CoinCube]

Finance Part II: The Parasitic Cycle

When banks start to squeeze (often in response to inflation) the party quickly ends and there is a critical economy wide liquidity shortage. By definition there is never enough money to pay off debt. Without sufficient new debt what existing liquidity exists must be redirected towards an ultimately unpayable debt. Assets must be sold and prices drop.  Investors suddenly find their projects are unsustainable; banks call in loans and then seize the underlying collateral capturing the work and effort of the investor. Some investments made during the artificial monetary boom were inappropriate and "wrong" from the perspective of the long-term financial sustainability. Others should be sound but nevertheless fail due to the economic distortion and contraction triggered by sudden credit tightening.

The boom is revealed for what it is, a period of wasteful malinvestment, a "false boom" where the investments undertaken during the period of fiat money expansion are revealed to lead nowhere but to insolvency and unsustainability. Seizure of collateral and general price deflation or reduction in inflation ensues. The longer the false monetary boom goes on, the bigger and more speculative the borrowing, the more wasteful the errors committed and the longer and more severe will be the necessary bankruptcies, foreclosures and depression.

Have Banks Started The Squeeze?

Are Banks Shutting Down Lending
IMF Warns Regulators to Brace For Global "Liquidity Shock"
http://www.gordontlong.com/Articles/art-2015-04-A-Macro_Insights-Shutting_Down_Lending.htm

As it becomes public knowledge that the IMF has followed the BIS with a warning to brace for a global "liqudity shock", it has become apparent that banks are already taking quick action. It was a liquidity shock in the Asset Backed Commerical Paper (ABCP) market within the Shadow Banking system that caused the last financial crisis.

[OROBTC]

...

Now that is ominous news, CoinCube, thanks for bringing this item to our attention.

I understand it is very difficult, but if you have no debt you are way ahead of the game.  Barring that, paying debt down is just about as good as saving money by cutting spending (why does our .gov not feel the same way?).

Debt is a trap unless you luck out and have hyperinflation at the right time.  And whose timing is that good?

*  *  *

I must point out, however, while that the credit rejection spike is huge, I would wait another month or two before making conclusions.  Which does not mean to keep preparing for Economic Devastation.  It is a sign, but not definitive.  Again, though, a great post.

[thaaanos]

Have a treat
https://m.youtube.com/watch?v=d0kJEAEx-5Q#

[CoinCube]

I am interested how the battle between Armstrong and Denninger will turn out on the One Dollar of Capital debate.

http://market-ticker.org/akcs-www?post=229998
http://market-ticker.org/akcs-www?post=230006

Someone please send my rebuttal to that obnoxious, pompous, Dunning-Kruger boomer Denninger. I had debated him in email several years ago. Pray inform him Shelby Moore III wrote this.

I explained upthread in more detail that there is no inherent evil in leverage and Armstrong is correct that leverage is absolutely necessary for the economy to expand and contract with maximum acceleration and deceleration in rhythm with the business cycle.

Both of those guys are incorrect! And for different reasons!

Denninger is incorrect because his proposal for no leverage means the speculators can't do price discovery optimally, hedge, and otherwise harmonize the non-linearity in finance to the non-linear (chaos) realities in the real world. Futures and options contracts have existed since 6000 B.C... Denninger blames corruption on leverage; whereas, the corruption is an opaque banking system (central bank, hidden mark-to-market, etc).

Armstrong's point is that if we trust the authorities to do their job correctly and honestly, then all fractional reserves are under control of the regulators and thus there is no uncoordinated printing out-of-thin-air. That is bullshit, because top-down collective coercion is always corrupt and more saliently it is always blind... Thus Armstrong's error is that a top-down, collective coercion can not be reliably transparent (over the long-term).

I think that "levered" debt-based money supplies are a very bad idea, in part because they increase the magnitude of collapses, and in part because they are used to enslave the vulnerable majority.  I think they are a very new thing, at this scale, not yet 50 years old, and their collapse will serve a much-needed didactic purpose (very soon):  It will make humanity as a whole intensely averse to such systems, such abuses, much as the Weimar inflation steeled Germany against inflationary policy impulses for 100 years.  The species may never revisit that system again.  Maybe, the worst thing that could happen would be an engineered soft-landing.  (Even if that were possible now, though, the likelihood is that it would eventually fail on an even grander scale.  Economic and social capital are not the whole story:  Fuel and food are also subject to supply shocks during the next 20 years.)

Incorrect! After all the astute writing you did earlier, then you destroy it by conflating leverage debt with low entropy regulation.

Leverage debt is essential to maximizing the efficiency in the economy which provides the prosperity for the majority.

I understand and agree with your statement, yet continue to hold my position, and without a trace of dissonance:  I was talking about the constructive basis of the money supply, which is irrelevant to leverage futures.

So I finally got around to reading the linked articles by Denninger. An interesting read. The assumption that leverage allows optimal price discovery, hedging, and marketplace harmonization holds true only in non corrupt and transparent marketplaces. It is a legitimate question if leverage in our current system does anything other then allow for rentier profits.  

As fiat based monetary systems are inherently fraudulent it is understandable to react as Denninger does and attempt to limit leverage which acts as a multiplier of the underlying fraud. Rather then try to battle against leverage which is admittedly a mixed bag it would probably be more efficient to work towards abolishing fiat. If we can accomplish that the problem of leverage may solve itself.

TPTB where we often seem to diverge is in the area of coercion. In my opinion some of the very best of your writings was in your discussion on freedom of action.  

The Rise of Knowledge
Energy of Knowledge

In theoretical terms, we can say that software production has a very high degrees-of-freedom, compared to hardware production. In science, degrees-of-freedom can be equivalent to potential energy. Thus software has orders-of-magnitude more potential energy than the production with hard resources or manual labor.

Imagine a vehicle without a reverse gear, it has one less degree-of-freedom, thus it has to go around the block in order to go in reverse, thus consuming more energy and which is the same as noting it had less potential energy to contribute.
...

Visualize an object held in the center of a large sphere with springs attached to the object in numerous directions to the inside wall of the sphere. These springs oppose movement of the object in numerous directions, and must be removed in order to lower the friction and increase the degrees-of-freedom of the movement of the object. With increased degrees-of-freedom, less work is required to produce a diversity of configurations (i.e. movements, or analogously new features in software), thus less power to produce them faster. And the configuration of the subject matter which results from the work, thus decays (i.e. becomes unfit slower), because the resistance forces are smaller.

Requiring less work, to produce more of what is needed and faster, with a greater longevity of fitness, is thus a form of potential energy. Think about the term “fitness”-- it means how efficiently does our system adapt to new configurations. Potential energy is fitness.

Aminiorex is correct that "levered" debt-based money supplies are a very bad idea. Debt-based systems inherently and progressively restrict the freedom of action of economic participants. Leverage simply accelerates the process. Debt-based systems are used to enslave the vulnerable majority. All forms of coercion, including those that arise naturally from chaotic systems, reduce degrees-of-freedom and overall fitness.  

[thaaanos]

Have a treat
https://m.youtube.com/watch?v=d0kJEAEx-5Q#

Anyone cared to watch it or you want the short version?

His argument is that as long as leverage and investment options (financial entropy) scale linear to wealth, equilibriums are stable. The moment they turn non-linear you enter a bubble territory. This preety much settles the debate on nonlinear macroeconomic models: useless because when you start needing them you are pwnd. So take care to stay on the charted linear path, less to be eaten by the trolls.
He also shows than when entropy rises too fast, *a phase change happens*.

[TPTB_need_war]

His argument is that as long as leverage and investment options (financial entropy) scale linear to wealth, equilibriums are stable.

More erroneous top-down modeling that doesn't model that systems anneal with autonomous action (i.e. degrees-of-freedom). Nature anneals itself. Leverage can become far overextended with Coasian barriers such as collectivized control.

...

So I finally got around to reading the linked articles by Denninger. An interesting read. The assumption that leverage allows optimal price discovery, hedging, and marketplace harmonization holds true only in non corrupt and transparent marketplaces. It is a legitimate question if leverage in our current system does anything other then allow for rentier profits.

And a corrupt system can do whatever the fuck it wants to do, so why even blame leverage?

Because you centralized governance orgy lovers don't wish to blame and address the fundamental problem. Instead you want to fuck with society in ways that cause megadeath (see below).

The rampantly poor logic skills are disgusting.
 

As fiat based monetary systems are inherently fraudulent it is understandable to react as Denninger does and attempt to limit leverage which acts as a multiplier of the underlying fraud.

And I will leave as an exercise in macro economics math for you as to how banning usury leads to societal collapse, Dark Age, megadeath, and warlordism (feudalism). Hint: friction can never be 0, and friction causes acceleration and deceleration (i.e. gravity).

Rather then try to battle against leverage which is admittedly a mixed bag it would probably be more efficient to work towards abolishing fiat.

Do you even know what you mean by fiat? Do you mean fractional reserve banking or do you mean legal tender laws?

You can't ban fractional reserve banking, as it is a natural feature of society. It will spontaneously create itself, as it did in the 1800s in the USA with private banks doing it. The Catholic church banned usury in the Middle Ages and that enslaved the people in a Dark Age.

If we can accomplish that the problem of leverage may solve itself.

TPTB where we often seem to diverge is in the area of coercion. In my opinion some of the very best of your writings was in your discussion on freedom of action.

...

 

Indeed with infinite degrees-of-freedom, no leverage would be needed, but this means there is no friction thus speed-of-light is infinte, thus we would cease to exist because the past and present would collapse into an infinitesimal point.

So sorry you wouldn't want what you wish for, because the universe would be gone.

Control freaks can't seem to grasp that nature is the way it is because our existence requires imperfection (a.k.a. friction). These fuckers want to regulate a perfect world (they are so offended that nature is harsh and chaotic), and thus they fuck everything up into a perfect hell. You all don't seem to grasp basic math.

Aminiorex is correct that "levered" debt-based money supplies are a very bad idea.

He clarified that his point of contention is around the creation of the money. I assume he means centralized control is the evil. In that case, I agree 100%.

But fractional reserves will always exist and you had better not try to ban them else you will be back in the feudal age. I leave it as an exercise for you to teach yourself why. I am tired of writing.

Debt-based systems inherently and progressively restrict the freedom of action of economic participants. Leverage simply accelerates the process. Debt-based systems are used to enslave the vulnerable majority. All forms of coercion, including those that arise naturally from chaotic systems, reduce degrees-of-freedom and overall fitness.  

Ignorant bullshit and incorrect!

[freemind1]

The economic devastation is something that existed as long as money. It should not surprise now. What we do is not let come to the protocols used since 2009. We must protect.

[thaaanos]

His argument is that as long as leverage and investment options (financial entropy) scale linear to wealth, equilibriums are stable.

More erroneous top-down modeling that doesn't model that systems anneal with autonomous action (i.e. degrees-of-freedom). Nature anneals itself. Leverage can become far overextended with Coasian barriers such as collectivized control.

Not arguing for perfection, just for the insight it provides on the leverage-freedom-stability interplay.
He is not arguing that increased leverage gives you unstable eq, merely that leverage should not increase nonlinear to the net worth of agent/collective, in order to maintain stability, Im not sure if you try to remedy leverage nonlinear escape by containing your deg-of-freedom/fin entropy (buy only AAA bonds) is stable . If this is true that means that the seggregation between investment banks and savings bank is sound, savings get more leverage in exchange to reduced freedom, while investment need to cap leverage to get more scope

[Erdogan]

His argument is that as long as leverage and investment options (financial entropy) scale linear to wealth, equilibriums are stable.

More erroneous top-down modeling that doesn't model that systems anneal with autonomous action (i.e. degrees-of-freedom). Nature anneals itself. Leverage can become far overextended with Coasian barriers such as collectivized control.

Not arguing for perfection, just for the insight it provides on the leverage-freedom-stability interplay.
He is not arguing that increased leverage gives you unstable eq, merely that leverage should not increase nonlinear to the net worth of agent/collective, in order to maintain stability, Im not sure if you try to remedy leverage nonlinear escape by containing your deg-of-freedom/fin entropy (buy only AAA bonds) is stable . If this is true that means that the seggregation between investment banks and savings bank is sound, savings get more leverage in exchange to reduced freedom, while investment need to cap leverage to get more scope

Leverage or not, leverage is just loans, trading should smooth the curve as long as good traders win, and bad traders lose their money and are no longer traders. Problem with QE/ZIRP is that bad traders' purses are constantly refilled with new money.

[bigtimespaghetti]

Leverage or not, leverage is just loans, trading should smooth the curve as long as good traders win, and bad traders lose their money and are no longer traders. Problem with QE/ZIRP is that bad traders' purses are constantly refilled with new money.

Bingo. The problem with the public is that they have been easily led to demonise banks (which are only reacting) to the incentive created by giving  governments too much power to fuck (taxpayer backstop) with the market in the first place. It's like a feedback loop that not only increases moral hazard but it is also enabling greater and greater degrees of clueless fuckups and power grabs by government.

When people can't see the ultimate result of attempting to control nature, it gives me no hope that a reasonable outcome will come from predominant attitudes.

[CoinCube]

Leverage or not, leverage is just loans, trading should smooth the curve as long as good traders win, and bad traders lose their money and are no longer traders. Problem with QE/ZIRP is that bad traders' purses are constantly refilled with new money.

Leverage is a complex issue. There are several problems with leverage as it exists today.

1) Leverage in an opaque system disrupts the information transmission mechanisms of markets. In a system without leverage the current price represents what people are willing to trade. In such an environment a change in price conveys significant information a large price decline for example would indicate an excess supply or a expected drop in demand.

When we allow opaque leverage it allows large large players to create artificial market signals manipulating the price up and down. Other market players are forced to either act on such information and thus transfer wealth to the manipulator or completely discard short and medium term price information which is inefficient.

2) Our current markets do not self anneal to correct for the imbalances that result from point #1 above. You simply do not see large players moving to counter such manipulation. It is far more profitable for the whales to support each other. When someone acts against group interest they are punished.
This mafia like enforcement mechanism can best be seen in the example of Porsche which had the gall to directly challenge large financial player's who were massively and nakedly shorting Volkswagon. Porsche eventually controlled a 42.6 percent block of VW shares (and with options to purchase another 31.5 percent).

The problem was that these 31.5% did not really exist they were naked options sold by wall street. The massive size of these options highlights the extent of current market manipulation. When it became clear that wall street had been called on it's non existent options Volkswagon briefly became the most valuable company in the world.
 


3) When a player such as Porsche challenges the financial elite they are "dealt with" by whatever means necessary. Porsche should have made billions on those options and the individuals who sold them driven into bankruptcy. However, because Porsche had dared to challenge naked market manipulation that did not happen. Porsche was instead "dealt with" it was cut off from all bank funding driving it into insolvency. Its underlying position, however, was so profitable that it would have been able to obtain Arab investors. Behind the scenes dealings prevented that from happening as well. Porsche was forced to liquidate those options. The CEO and CFO of Porsche had to resign and still face bogus criminal charges that have dragged out for years now. They have been made into examples to dissuade anyone from trying something similar. A brief summary of the Porsche saga can be found in the link below.
http://www.automobilemag.com/features/news/0911_porsche_and_volkswagen_what_happened/

In an environment such as ours where leverage is obviously facilitating further corruption it is very difficult to show that its theoretical benefits of optimal price discovery, hedging, and marketplace harmonization exist at all. Such benefits likely do exist in a transparent system. Perhaps blockchain technology will enable us to realize these gains.

TPTB where we often seem to diverge is in the area of coercion. In my opinion some of the very best of your writings was in your discussion on freedom of action.

Indeed with infinite degrees-of-freedom, no leverage would be needed, but this means there is no friction thus speed-of-light is infinte, thus we would cease to exist because the past and present would collapse into an infinitesimal point.

The removal (or realistically minimization) of coercion from society does not equal infinite degrees-of-freedom which is impossible. However, the call for maximization of degrees-of-freedom is fundamentally a call for balance not anarchy. Coercion is synonymous with reductions in degrees-of-freedom and coercion arises naturally from the extremes of both ordered and chaotic systems. This is largely unrelated to leverage.

Rather then try to battle against leverage which is admittedly a mixed bag it would probably be more efficient to work towards abolishing fiat.

Do you even know what you mean by fiat? Do you mean fractional reserve banking or do you mean legal tender laws?

You can't ban fractional reserve banking, as it is a natural feature of society. It will spontaneously create itself, as it did in the 1800s in the USA with private banks doing it. The Catholic church banned usury in the Middle Ages and that enslaved the people in a Dark Age.

The Catholic church banned usury during the First Council of Nicaea 325 AD in response to the excesses of debt and currency debasement in the Roman Empire. It was an understandable if knee-jerk reaction to what was occurring in the Roman Monetary System at the time.



Obviously this did not help them much and probably made things worse so I would not dispute that this was a failed solution.

I am not opposed to fractional reserve provided the institution conducting it is both transparent and not backstopped by any form of collective guarantee.
That far from the situation we have today. By Fiat I am referring to any form of currency that is created without cost and who's acceptance is enforced through coercion and violence.

Debt-based systems inherently and progressively restrict the freedom of action of economic participants. Leverage simply accelerates the process. Debt-based systems are used to enslave the vulnerable majority.
All forms of coercion, including those that arise naturally from chaotic systems, reduce degrees-of-freedom and overall fitness.  

Ignorant bullshit and incorrect!

Please substitute (Centralized debt-based systems) in the sentence above as it was unclear in its original form. Do we still disagree? If so we can explore the issue further.

I will leave as an exercise in macro economics math for you as to how banning usury leads to societal collapse, Dark Age, megadeath, and warlordism (feudalism).

Hint: friction can never be 0, and friction causes acceleration and deceleration (i.e. gravity).

I am not opposed to usury. I am opposed to the use of coercion to enforce usury which is an enslavement mechanism. We used to have a system where one could easily declare bankruptcy and start over with the only consequence being a loss of whatever collateral was put up to secure the loan. That was a good system. Allow usury for economic efficiency but let the lender beware.  

@thaaanos Your link looks interesting but it is a bit long so I will have to watch it later.

[coinits]

Just a heads up to all of you. Collapse has begun in earnest. It started on Friday with the markets taking a shit kicking.

Now this:

IMF tells regulators to brace for global 'liquidity shock'
An illusion of liquidity has beguiled financial markets across the world and spawned some of the worst excesses seen on Wall Street in modern times, the International Monetary Fund has warned.

Investors are borrowing money to buy shares on the US stockmarket at a torrid pace and are resorting to the same sorts of financial engineering that preceded the last two financial crises.

"Margin debt as a percentage of market capitalisation remains higher than it was during the late-1990s stock market bubble. The increasing use of margin debt is occurring in an environment of declining liquidity," said the IMF in its Global Financial Stability Report.

"Lower market liquidity and higher market leverage in the US system increase the risk of minor shocks being propagated and amplified into sharp price corrections," it said.

The report said there are clear signs that underwriting standards are deteriorating in a pervasive search for yield. So-called "covenant-light loans" with poor protection for creditors now make up two-thirds of all new leveraged loans in the US.

http://www.telegraph.co.uk/finance/economics/11538509/IMF-tells-regulators-to-brace-for-global-liquidity-shock.html


More to come...... I have a lot of intel about the seriousness of this. Please do not adjust your set!

[Erdogan]

Just a heads up to all of you. Collapse has begun in earnest. It started on Friday with the markets taking a shit kicking.

Now this:

IMF tells regulators to brace for global 'liquidity shock'
An illusion of liquidity has beguiled financial markets across the world and spawned some of the worst excesses seen on Wall Street in modern times, the International Monetary Fund has warned.

Investors are borrowing money to buy shares on the US stockmarket at a torrid pace and are resorting to the same sorts of financial engineering that preceded the last two financial crises.

"Margin debt as a percentage of market capitalisation remains higher than it was during the late-1990s stock market bubble. The increasing use of margin debt is occurring in an environment of declining liquidity," said the IMF in its Global Financial Stability Report.

"Lower market liquidity and higher market leverage in the US system increase the risk of minor shocks being propagated and amplified into sharp price corrections," it said.

The report said there are clear signs that underwriting standards are deteriorating in a pervasive search for yield. So-called "covenant-light loans" with poor protection for creditors now make up two-thirds of all new leveraged loans in the US.

http://www.telegraph.co.uk/finance/economics/11538509/IMF-tells-regulators-to-brace-for-global-liquidity-shock.html


More to come...... I have a lot of intel about the seriousness of this. Please do not adjust your set!

They crawl out of the woodwork now, right before the collapse, to secure positions of power after the reset.

[coinits]

https://www.youtube.com/watch?v=rKPas09bInk


IMF admits that their GDP forecast is not realistic. European central banks dumping Greek assets ahead of the Greek Exit.

Consumer confidence up, while retail stores close, real estate declines, layoffs and manufacturing implodes.

Obama administration least transparent.OSCE registers Kiev moving tanks and other equipment to the contact line.

Russia sees Minsk II deal violated by the arrival of the US troops.

US pushing the propaganda that Assad used chlorine gas with no evidence.

New report, Iran has the capabilities of cyber attacking the US.

Cyber hackers targeting nuclear and electric facilities.

[coinits]

From saddletramp:

Something else I mentioned in Janet Does Davos that is is coming to pass...

Here's what I talk about regarding liquidity in JDD back in Feb of 2014.  

In short, with the taper the Fed has not only pulled the plug on world stock markets, they’ve also pulled the plug on any hope of growth in the world economy. The “Ogre of deflation" looms on the horizon smacking his lips and thumping his chest. A liquidity crisis looms like a thunderstorm on the horizon as banks hoard cash for Dodd-Frank and Basel III regulations. We are Wiley Coyote who just went over the cliff without realizing it, still running on air, pumping our arms and legs, looking across the canyon. But when we look down and realize there is no longer ground beneath our feet...

And

From the Second Ring

Wealth will be evaporating hand over fist, and near the end of this stage you will hear financial pundits begin to mention that dreaded Ogre of Deflation (as Christine Lagarde put it). The liquidity crisis will be in full swing, and as margin requirements increase because of volatility no investor will be entirely spared.


And

From the Third Ring

Japanese companies, over-exposed to Japanese bonds will begin to face a massive liquidity crunch, and the contagion which first spread from the seemingly small and inconsequential emerging markets, will now fully infect Japan and begin to spread to the rest of the Asian manufacturing base. Companies and countries that had begun by pledging Treasuries for liquidity at the Fed repo desk, will now begin to liquidate, and the yield on Treasuries will continue to fluctuate wildly though these emerging market treasuries may be soaked up in a flight to safety move from investors around the world. Debts will be called in these countries, public and private, in an attempt to scour up much needed liquidity.

And

From the Fourth Ring

So there will begin massive loan defaults and deflation in the manufacturing hub of Asia, and that contagion will spread westward into an already over-leveraged Europe. Stocks will continue to slide, interest rates around the world will continue to rise, liquidity and paper wealth will continue to evaporate, credit will become increasingly hard to find, and then one or more nations in Europe will require another bail-out.

https://www.godlikeproductions.com/forum1/message2482412/pg1


From the Story: The Global Liquidity Squeeze Has Begun...

SNIP

Get ready for another major worldwide credit crunch.  Today, the entire global financial system resembles a colossal spiral of debt.  Just about all economic activity involves the flow of credit in some way, and so the only way to have “economic growth” is to introduce even more debt into the system.  When the system started to fail back in 2008, global authorities responded by pumping this debt spiral back up and getting it to spin even faster than ever.  If you can believe it, the total amount of global debt has risen by $35 trillion since the last crisis.  Unfortunately, any system based on debt is going to break down eventually, and there are signs that it is starting to happen once again.

For example, just a few days ago the IMF warned regulators to prepare for a global “liquidity shock“.  And on Friday, Chinese authorities announced a ban on certain types of financing for margin trades on over-the-counter stocks, and we learned that preparations are being made behind the scenes in Europe for a Greek debt default and a Greek exit from the eurozone.  On top of everything else, we just witnessed the biggest spike in credit application rejections ever recorded in the United States.  All of these are signs that credit conditions are tightening, and once a “liquidity squeeze” begins, it can create a lot of fear.

Over the past six months, the Chinese stock market has exploded upward even as the overall Chinese economy has started to slow down.  Investors have been using something called “umbrella trusts” to finance a lot of these stock purchases, and these umbrella trusts have given them the ability to have much more leverage than normal brokerage financing would allow.  This works great as long as stocks go up.  Once they start going down, the losses can be absolutely staggering.

That is why Chinese authorities are stepping in before this bubble gets even worse.  Here is more about what has been going on in China from Bloomberg…

China’s trusts boosted their investments in equities by 28 percent to 552 billion yuan ($89.1 billion) in the fourth quarter. The higher leverage allowed by the products exposes individuals to larger losses in the event of stock-market drops, which can be exaggerated as investors scramble to repay debt during a selloff.

In umbrella trusts, private investors take up the junior tranche, while cash from trusts and banks’ wealth-management products form the senior tranches. The latter receive fixed returns while the former take the rest, so private investors are effectively borrowing from trusts and banks.

Margin debt on the Shanghai Stock Exchange climbed to a record 1.16 trillion yuan on Thursday. In a margin trade, investors use their own money for just a portion of their stock purchase, borrowing the rest. The loans are backed by the investors’ equity holdings, meaning that they may be compelled to sell when prices fall to repay their debt.

Overall, China has seen more debt growth than any other major industrialized nation since the last recession.  This debt growth has been so dramatic that it has gotten the attention of authorities all over the planet…

http://www.zerohedge.com/news/2015-04-18/global-liquidity-squeeze-has-begun

[OROBTC]

...

coinits

I have been feeling that "The End Is Nigh" since Jimmy Carter (young people Google that name).

IMO, something very bad will happen, probably "relatively soon", but I have given up trying to time this.  Also, I have no idea what the trigger will be (a debt default perhaps, a sudden war maybe, a big attack glitch/internet attack, a "bolt from the blue", a financial trigger, etc.).

The way I have dealt with these concerns is to have slowly prepped for decades.  Gold.  Guns.  No debt.

My two major holes are that I have no water & food production systems, nor a rural farm.  We are pretty well set up otherwise.

Note that I am NOT up to speed for TPTB_n_W´s suggestions re a high skill set for a Knowledge Age.  His thinking is of great interest, and he may be right.

*   *   *

I always appreciate when people offer up specifics, so thank you.  All such information, whether the prediction comes true or not, goes into the hopper...



EDIT: Erdogan and coinits psted while I was composing this...  

[coinits]

This Technical Signaled The Last Two Market Crashes And It Just Happened

http://www.zerohedge.com/news/2015-04-18/technical-signaled-last-two-market-crashes-and-it-just-happened

[coinits]

...

coinits

I have been feeling that "The End Is Nigh" since Jimmy Carter (young people Google that name).

IMO, something very bad will happen, probably "relatively soon", but I have given up trying to time this.  Also, I have no idea what the trigger will be (a debt default perhaps, a sudden war maybe, a big attack glitch/internet attack, a "bolt from the blue", a financial trigger, etc.).

The way I have dealt with these concerns is to have slowly prepped for decades.  Gold.  Guns.  No debt.

My two major holes are that I have no water & food production systems, nor a rural farm.  We are pretty well set up otherwise.

Note that I am NOT up to speed for TPTB_n_W´s suggestions re a high skill set for a Knowledge Age.  His thinking is of great interest, and he may be right.

*   *   *

I always appreciate when people offer up specifics, so thank you.  All such information, whether the prediction comes true or not, goes into the hopper...



EDIT: Erdogan and coinits psted while I was composing this...  

Jimmy Carter? It's 2008 all over again so not that long ago. This time will be worse. Much worse. There is no liquidity in markets. It smoke and mirrors. Operation Jade Helm about to go in to effect nation wide. Walmarts converted into detention centers.

This is it.

There will never be another US Election. The US Constitution will be suspended making Obama a Dictator.

[TPTB_need_war]

CoinCube, I had already addressed your latest post, well before you wrote it as follows.

Yes central banking was needed to maintain confidence because the large concentration of monetary capital required for production in the Industrial Age, but in the fledgling Knowledge Age knowledge capital can not so centralized and thus we no longer will need a central bank to prevent runs on confidence.

The problem is not leverage. Rather root of the problem has been that capital enslaved labor until (just recently) knowledge became the predominant component of production startup costs.

Think it out[1] and you will see the generative essence of the issues you are raising are all due to the fact that capital enslaved labor and this actually supported (and required![2]) the large collectivization of society.

The Knowledge Age paradigm shift I have elucidated upthread is profound.

[1] Map out all the relationships and trace the generative essence though the "directed graph". My brain did this instantly.

[2] This is a deep point I haven't emphasized enough.

Leverage or not, leverage is just loans, trading should smooth the curve as long as good traders win, and bad traders lose their money and are no longer traders. Problem with QE/ZIRP is that bad traders' purses are constantly refilled with new money.

Bingo. The problem with the public is that they have been easily led to demonise banks (which are only reacting) to the incentive created by giving  governments too much power to fuck (taxpayer backstop) with the market in the first place. It's like a feedback loop that not only increases moral hazard but it is also enabling greater and greater degrees of clueless fuckups and power grabs by government.

I have two soulmates on this forum.    

...This time will be worse. Much worse. There is no liquidity in markets. It smoke and mirrors. Operation Jade Helm about to go in to effect nation wide. Walmarts converted into detention centers.

This is it.

There will never be another US Election. The US Constitution will be suspended making Obama a Dictator.

Weird shit with the Walmart story. Not quite sure what to make of all this, but I lean towards bizarre outcomes for the USA no later than 2018.

This Technical Signaled The Last Two Market Crashes And It Just Happened

http://www.zerohedge.com/news/2015-04-18/technical-signaled-last-two-market-crashes-and-it-just-happened

Stop with the ZeroHedge noise. The USA stock market is going to double or triple by 2017.

ZeroHedge's paradigm is a lot hyperventilated adrenalin to get you hooked on their site. But most of it is short-term myopia.

I became much more sane and made wiser trading decisions when I stopped reading ZH and started reading Armstrong.