The financial markets are starting to crash, abandon the fiat titanic

[toknormal]

The OP Robert Paulson is right.

The banking system has always been a ticking timebomb ever since 1970 when Nixon took the lid off that silly idea of "limited supply" in order to pay for the Vietnam war.

When people say that "Bitcoin is inflationary" I don't think they quite understand what they're talking about. Bitcoin's monetary base (as distinct from retail price inflation) currently inflates at around 10% per year, dropping to 3% in 2020 and less than 2% by 2025.

The beloved dollar, on the other hand, has gone from a monetary base of around $850 billion to $2800 billion in the space of 5 years. Thats more than a 300% expansion of the monetary base. If you don't think that is a recipe for some major economic upheaval in its own right then you don't understand money.



The only reason this isn't causing rampant hyperinflation right now is that the world financial system has become so highly centralised over the last 30 years that central banks have managed to hang onto just enough control of markets to prevent the natural arithmetical devaluation of fiat currencies. This would have happened in any free market simply due to the numbers alone. Take a look at http://coinmarketcap.com for example and imagine if Peercoin's coin supply went from 21million to 80 million overnight. It would get dumped faster than a hot brick.

One of the ways the Fed has done this for example is to suck all the new money back onto their own balance sheet by offering a higher rate of interest on excess reserves. The other place all that new money has gone is into the stock market - chased in their by rock bottom interest rates which has turned cash deposits into a hot potato that nobody wants.

So, far from reflecting an underlying level of corporate growth, the stock market is now simply serving as a holding pen for all the excess cash from QE.

Add to that the fact that this new money has come at a huge price. Due to the nature of our fractional reserve lending system, it can only be created by creating an equivalent amount of debt.

The bottom line is this: The banking system (and several sovereigns) are loaded with so much debt that the major Western economies + Japan CANNOT AFFORD AT ANY COST TO ENTER INTO A DEFLATIONARY TREND. The reason they can't is because that would herald the onset of defaults caused by debt to GDP ratios going beyond manageable levels and markets sending bond yields sky high due to loss of confidence.

So the OP is well reasonable in suggesting that we're headed for major turmoil. There are simply too many stretched central banking "tricks" that are now reaching the end of the line.

Another way to look at it is this: Regarding the 2008 banking crisis - it was never solved. The debt did not get extinguished, it just got hung on a different coat hook. There are 3 coat hooks:

[1] - private sector over leverage (where it all started)
[2] - sovereign balance sheets (i.e. taxpayers on hook)
[3] - central bank monetisation (Weimar wheelbarrow land)

In Japan and the US, we've reached stage 3 who's effects are currently being mitigated by attempts to stop markets from appropriately revaluing currencies according to today's money supply (an outcome which will not last). In Europe and the UK, we're at stage 2 about to go to stage 3.

The current stock market dip is being caused by 2 things:

[1] - the "threat" of QE wind down (the pump that blows up the Stock Market balloon)
[2] - Draghi's press conference 2 weeks ago which basically amounted to the ECB announcing that they were throwing in the towel on European growth.

That Draghi press conference represented the end of a 2 year phase of optimism kicked off by his 2012 "ECB will do everything it needs to to save the Euro" speech which saved the Mediterranean bond yields from blowing the eurozone apart. The compromise was that Eurozone growth would rescue the situation once it appeared over the next 2 years.

Well, it hasn't appeared.

In fact, European deflation is now on the cards due to lack of transmission of ECB monetary policy into the commercial banking sector so this sets a whole knew scene and Draghi's 2012 bluff has been called - successfully it turns out because he's now stepped back from the precipice of full Eurozone QE and gone for a limp program of "Covered Bond Buying" (under massive pressure from Germany I'm sure who happen to be owed a tidy half trillion Euros by the rest of the Eurozone due to Target2 imbalances plus they're not too fond of wheelbarrow-based economic policies).

The numbers involved in all of this are colossal. I don't know if people quite realise it - never mind the derivatives exposure that's all stacked on top of it.

Contrary to the nonsense being posted challenging the OP, things definitely are lining up for a perfect storm - either in the next few months or couple of years. Who knows how long they can keep the plates spinning, but at some point one of them is going to be dropped and there aint no soft landing available on this side of the financial horizon.

[toknormal]

Here you go folks - the relevant statement starts at 0:53

http://www.youtube.com/watch?v=iRzr1QU6K1o

Without that statement, the Fed wouldn't have been able to send that graph sky high like it's done. (Think multiplying Peercoin's coin supply x 4 overnight and getting away with retaining its price - thereby multiplying its marketcap FOURFOLD on coinmarketcap.com at the roll of the printer).

[Trolololo]

...
just keep on walking with the rest of the sheep to your financial slaughtering.

Robert Paulson, straying from the heard doesn't make you a lion.
You're still a sheep, albeit a maladjusted one.  With a substantially lower life expectancy

you are dead wrong.
if you exit paper assets right now and buy into gold/bitcoin when all the other fools still believe the papers are going to make it you are the father of all lions.

I trade Bitcoin, Robert.  I don't touch gold.
You are a wayward sheep, not a lion.  Now get back to the heard before you get run over by some passing 18-wheeler.
And thank your lucky stars that our Beneficent Reptilian Overlords like lamb chops

The one and only lion is Janet Yellen.
All others, and we all, are sheeps.

[Trolololo]

Wrong. Bitcoin is or can be money (it's fungible, transactable, and has a value). But to me Bitcoin is more an asset, a store of value, rather than a currency. Bitcoin is entire independent, if bitcoin were to be affected by external markets that's only because the people thought it to be. But by its very nature, Bitcoin is absolutely independent and decentralized.

It could be money. But it isn't and it never will be.

If it is to succeed, it will be as a means of making money transfers or payments, but with the units of account that everyone is primarily concerned with being, Dollars, Euros, Pounds, Shekels, Yen, etc.

The most important ingredient behind any monetary standard is the authority that stands behind it and enforces it's use as money and that is because the #1 property of 'money', is that people have confidence in it. This even applies to the use of precious metals as money throughout history. Gold and silver coin also required some sovereign power somewhere, who was willing to recognise the metal tokens as being of value, or at least for a small fee, who was willing to the melt the metal coins and remint them into a form which was recognised as having value. This will never apply to Bitcoin.

What we might get is some kind of asset backed digital currency based around crypto technology, with all the pernicious aspect's of the Bitcoin block chain built into it. One wallet per global citizen. All economic transactions fully traceable.

Interesting approach.

But what if just one country accepts taxes in its own currency and also in Bitcoin? What would the other countries do?

[Robert Paulson]

...
just keep on walking with the rest of the sheep to your financial slaughtering.

Robert Paulson, straying from the heard doesn't make you a lion.
You're still a sheep, albeit a maladjusted one.  With a substantially lower life expectancy

you are dead wrong.
if you exit paper assets right now and buy into gold/bitcoin when all the other fools still believe the papers are going to make it you are the father of all lions.

I trade Bitcoin, Robert.  I don't touch gold.
You are a wayward sheep, not a lion.  Now get back to the heard before you get run over by some passing 18-wheeler.
And thank your lucky stars that our Beneficent Reptilian Overlords like lamb chops

if you only trade bitcoin instead of saving it and you don't touch gold then i am afraid you will be left with nothing in the coming years.
i understand you, it is very difficult to say the emperor has no clothes no matter how good the evidence is, humans are programmed to go with the herd, if it wasn't so we wouldn't be in this dire situation in the first place.
i only hope you are young enough to start over when this is all over.

[NotLambchop]

...
But what if just one country accepts taxes in its own currency and also in Bitcoin? What would the other countries do?

What would make a country intentionally dilute its own currency?

[Robert Paulson]

Wrong. Bitcoin is or can be money (it's fungible, transactable, and has a value). But to me Bitcoin is more an asset, a store of value, rather than a currency. Bitcoin is entire independent, if bitcoin were to be affected by external markets that's only because the people thought it to be. But by its very nature, Bitcoin is absolutely independent and decentralized.

It could be money. But it isn't and it never will be.

If it is to succeed, it will be as a means of making money transfers or payments, but with the units of account that everyone is primarily concerned with being, Dollars, Euros, Pounds, Shekels, Yen, etc.

The most important ingredient behind any monetary standard is the authority that stands behind it and enforces it's use as money and that is because the #1 property of 'money', is that people have confidence in it. This even applies to the use of precious metals as money throughout history. Gold and silver coin also required some sovereign power somewhere, who was willing to recognise the metal tokens as being of value, or at least for a small fee, who was willing to the melt the metal coins and remint them into a form which was recognised as having value. This will never apply to Bitcoin.

What we might get is some kind of asset backed digital currency based around crypto technology, with all the pernicious aspect's of the Bitcoin block chain built into it. One wallet per global citizen. All economic transactions fully traceable.

bitcoin is the ultimate form of money because it has all the monetary properties of gold but its easier to secure and transport.
bitcoin has no use except as a monetary system and yet the free market chose to value each bitcoin 360 times more than each USD, and thats without anyone forcing people to accept it at the point of a gun.

[Kluge]

Financial markets are starting to crash?? -But commodities are, too. It's like we have spiraling (and unmeasured) deflation right now. Have you been to the gas pump, lately? While gas prices continue downward, practically every other good will follow suit after some lag. It's time to buy all the things on near-0% interest loans!

[Robert Paulson]

Financial markets are starting to crash?? -But commodities are, too. It's like we have spiraling (and unmeasured) deflation right now. Have you been to the gas pump, lately? It's time to buy all the things on near-0% interest loans!

thats exactly why there is about to be another round of QE of unseen scale.
all western governments are deep in debt, they absolutely can not afford to have deflation, they will drop sacks full of cash from airplanes if they have to.

[NotLambchop]

...
just keep on walking with the rest of the sheep to your financial slaughtering.

Robert Paulson, straying from the heard doesn't make you a lion.
You're still a sheep, albeit a maladjusted one.  With a substantially lower life expectancy

you are dead wrong.
if you exit paper assets right now and buy into gold/bitcoin when all the other fools still believe the papers are going to make it you are the father of all lions.

I trade Bitcoin, Robert.  I don't touch gold.
You are a wayward sheep, not a lion.  Now get back to the heard before you get run over by some passing 18-wheeler.
And thank your lucky stars that our Beneficent Reptilian Overlords like lamb chops

if you only trade bitcoin instead of saving it and you don't touch gold then i am afraid you will be left with nothing in the coming years.
i understand you, it is very difficult to say the emperor has no clothes no matter how good the evidence is, humans are programmed to go with the herd, if it wasn't so we wouldn't be in this dire situation in the first place.
i only hope you are young enough to start over when this is all over.

Sure Robert, even a cat can look at a king. And I certainly don't mind if you do, but do know your place--you're in no position to judge one.

[Kluge]

Financial markets are starting to crash?? -But commodities are, too. It's like we have spiraling (and unmeasured) deflation right now. Have you been to the gas pump, lately? It's time to buy all the things on near-0% interest loans!

thats exactly why there is about to be another round of QE of unseen scale.
all western governments are deep in debt, they absolutely can not afford to have deflation, they will drop sacks full of cash from airplanes if they have to.

It does make me wonder where the Hell the money's gone. Who's been stuffing the trillions under their mattress? Is it an effect of traders/banks seeing a coming deflation crisis and making a self-fulfilling prophecy or outright market manipulation? I mean, banks which decide outright to stop lending, instead hording cash, and maybe convert to an insurance company -- seems like they'd be all set to come out of a deflationary crisis as the world's overlord.

ETA: -Or just a weak economy, I guess. Low money velocity in bad market.

[Blazin604]

Price is going to bounce up 50-100 very soon guys. I think the time is now to go all in. Don't sleep on it.

[toknormal]

The most important ingredient behind any monetary standard is the authority that stands behind it and enforces it's use as money and that is because the #1 property of 'money', is that people have confidence in it

What ivory tower nonsense.

Markets can crash a currency in a day's sentiment change regardless of what "authority stands behind it". What about interest rate wars ? What about overlevered sovereigns ? What about toxic derivative mountains ? A single trader & his army managed to dump one of the world's oldest and most stable currencies - Sterling - to such an extent it had to exit the Eurozone.

To a forex market, a currency is just another tradeable commodity. They're not sitting there thinking "hey - this is guvpaper, I'm not dumpin this for anythin".

[Trolololo]

Toknormal,

I fully agree with your analysis.

All hyperinflations (Weimar, Zimbabwe, etc) had other countries' currencies in competence, and in those cases people run towards them.
But the dollar, without any competence, could hold on for 40 more years. The pound, the euro, etc, all them are tightly glued to the dollar. All world fiat currencies go together.

The black swan for hyperinflation in fiat currencies could be gold, silver or Bitcoin.
Through short selling futures of paper gold (and silver), the FED controls the market price. And that's what they will do to Bitcoin.

So dollar hyperinflation is not happening because there is no competence.
Could Bitcoin be the black swan for the fiat currencies? May be...

[toknormal]

But the dollar, without any competence, could hold on for 40 more years. The pound, the euro, etc, all them are tightly glued to the dollar. All world currencies go together.

What about the BRICS gold-backed bank ?

What about all the gold that China has been hoovering up for the last 3 years. They're clearly going to use it to offset their losses when they start dumping US treasuries.

I don't think that central banks have as much control over events as people think they have. If you don't control EVERYTHING then you control nothing. All it takes is a hairline crack. Manipulating commodity paper markets is a very superficial tool - it doesn't run very deep and only works as long as there's no panic.

The 2008 crisis changed the entire landscape because people suddenly realised that money can "disappear". There is less and less room for central control to work because they cannot afford the slightest failure in confidence otherwise an unstoppable run will commence.

[Trolololo]

But the dollar, without any competence, could hold on for 40 more years. The pound, the euro, etc, all them are tightly glued to the dollar. All world currencies go together.

What about the BRICS gold-backed bank ?

What about all the gold that China has been hoovering up for the last 3 years. They're clearly going to use it to offset their losses when they start dumping US treasuries.

I don't think that central banks have as much control over events as people think they have. If you don't control EVERYTHING then you control nothing. All it takes is a hairline crack. Manipulating commodity paper markets is a very superficial tool - it doesn't run very deep and only works as long as there's no panic.

The 2008 crisis changed the entire landscape because people suddenly realised that money can "disappear". There is less and less room for central control to work because they cannot afford the slightest failure in confidence otherwise an unstoppable run will commence.

A BRIC's gold based bank would be a black swan.

That's what Gaddafi tried to do, and we all know how they ended him...

[Kluge]

But the dollar, without any competence, could hold on for 40 more years. The pound, the euro, etc, all them are tightly glued to the dollar. All world currencies go together.

What about the BRICS gold-backed bank ?

What about all the gold that China has been hoovering up for the last 3 years. They're clearly going to use it to offset their losses when they start dumping US treasuries.

I don't think that central banks have as much control over events as people think they have. If you don't control EVERYTHING then you control nothing. All it takes is a hairline crack. Manipulating commodity paper markets is a very superficial tool - it doesn't run very deep and only works as long as there's no panic.

The 2008 crisis changed the entire landscape because people suddenly realised that money can "disappear". There is less and less room for central control to work because they cannot afford the slightest failure in confidence otherwise an unstoppable run will commence.

Sounds like a lot of downward pressure on gold, too, then, which's already dropped like a stone this year, if banks hold commodities and have to sell them to keep solvent. Doesn't this mitigate inflationary pressure from a weakening USD? I mean - if everything equally collapses, the USD isn't any weaker at the end, relative to any other currency/commodity. I'm assuming banks aren't keeping BTC reserves, though, so...

[toknormal]

bitcoin is the ultimate form of money because it has all the monetary properties of gold but its easier to secure and transport.
bitcoin has no use except as a monetary system and yet the free market chose to value each bitcoin 360 times more than each USD, and thats without anyone forcing people to accept it at the point of a gun.

+1. Absolutely spot on - particularly the bit about bitcoin having "no use except as a monetary system". That's what makes is valuable as a monetary medium.

Fiat: highly levered debt money
Crypto: unlevered base money

Crypto to Fiat: Hot lava to candle wax.

The two cannot be allowed to come into contact with each other otherwise one will simply "melt" into the other. (I'll leave you work out which one will be doing the "melting"). That's why there's almost no Fiat-Crypto exchanges in existence anywhere in the world having significant liquidity.

[Trolololo]

But the dollar, without any competence, could hold on for 40 more years. The pound, the euro, etc, all them are tightly glued to the dollar. All world currencies go together.

(...)

I don't think that central banks have as much control over events as people think they have. If you don't control EVERYTHING then you control nothing. All it takes is a hairline crack. Manipulating commodity paper markets is a very superficial tool - it doesn't run very deep and only works as long as there's no panic.

The 2008 crisis changed the entire landscape because people suddenly realised that money can "disappear". There is less and less room for central control to work because they cannot afford the slightest failure in confidence otherwise an unstoppable run will commence.

What kind of power does a world monopoly issuing entity (banks and central banks, altogether) have?
Absolute power.

[toknormal]

4-hour BTC-USD chart about to complete a 36 hour correction. Going up tomorrow I think.