"Mr. Data" (Mish Shedlock): "A currency crisis awaits".

Today we see another must read article from Mike "Mish" Shedlock.  Mish has had the correct world view on many areas of the economy on a continuous basis since I began following him in 2006-2007.  The reason he has been correct is that he is very data driven and he analyzes the data without any regard to what the status quo talking heads say.  He is truly an independent thinker.

Years ago when I started my blog I was very clear about what is going on with respect to the global economy.  I have never changed my view nor my expectation of how it all will eventually end.  It is a global debt Ponzi of historical proportions being played by the monied elite upon the economically ignorant working classes.  Period.  It will end badly, period.  No Ponzi ever plateaued because the implied valuations are a vapor.  People put in a little and everyone thinks they will take out a lot in return some day.  After all, their paper account statements assure them that their gains are real and tangible.  Of course, you can never realistically take out from any kind of system more than is input and so these people are just Marks and Patsies in a massive con game.  Ponzi schemes are simply a form of pyramid scheme and pyramid schemes are just a type of confidence game.

At the same time, I have also been clear that there is no way to know how long it can go on.  Charles Ponzi survived a couple of "panics" on his Ponzi scheme before it finally folded up into a little ball and he went to jail for his crimes.  In fact, the only real indication I have that trouble might be ahead is the conservative wave that is sweeping the globe.  When the herd awakens and changes attitudes about the debt Ponzi, it will end.  It is just as simple as that.  It will go on and on until the herd collectively decides that change is required and then real change will occur.  When that day comes there will be little time to prepare because everyone will be suddenly scrambling to make up for lost time.  That is why I advocate using these years of relative calm to make whatever preparations you can to position yourself for what I'm telling you MUST eventually occur according the rules of mathematics and according to the precedent of logic and history.

In today's article, Mish quotes data from former fed governor Thomas Hoenig who warns that US banks are undercapitalized and that fed bank stress tests are a joke.  Now to be fair, this is not the first time Mish has quoted Hoenig's warnings and nothing has happened yet.  For example, here is a post of mine from 2010 where Mish quoted him.  Hoenig's warning was that hyperinflation will be the eventual outcome from all of the debt based gaming of the money supply.  Of course even back then I knew better than to just listen to what these people say and take it as literal, immediate gospel.  I wrote in that post that I thought deflation was the more immediate threat.  But there should be no doubt that at some point the currency will eventually return to its intrinsic value of zero and that is what Hoenig was cautioning about back then.  Paper assets have no intrinsic value folks, that is just a fact.  That goes for paper stock certificates, paper money, paper anything.  Those documents simply promise payment; they are not in fact payment.  And when a crisis occurs, promises are quickly forgotten and everyone is asked to "take one for the gipper".

If reading all that economic hoodoo (AKA facts and data) just makes your head spin, let me net it out in an easy to understand way:

• Fractional reserve banking enables special people to conjure up fake money from thin air.  That fake money, AKA credit, is then loaned out for interest.  This is a something for nothing scam that steals from everyone in order to enrich the few money elite.
• There are supposed to be limits on the leverage used.  Banks are supposed to loan no more than around $9 of credit for each $1 of asset they have on hand.  This is supposed to protect them from bankruptcy in case of recession where asset prices go down.
• But the more they lend, the more they make and so, human nature being what it is, they have, over time, changed the laws and rules and added financial innovations (AKA immoral scammery) such that they are still within the laws even though they are now loaning out far more than 9:1.  Fannie and Freddie are leveraged 70:1. 
• The official data from Hoenig shows that many banks averaged only 4.97% (call it 5%) assets to loans.  That is 20:1 without even considering the nature of many of the paper holdings which are being counted as "assets".
• Only a fool believes that all of the gaming is done in plain sight.  What we can easily see is only the tip of the iceberg.  In truth, all rules regarding how much core holdings are required in order to support more lending are just for show.  The banks loan out as much credit as people will take and then use the income from new loans in order to make payments on their operational costs.  As soon as the new credit dries up, the banks will run out of the income source which allows them to appear solvent and paying their bills.
• This is exactly how a Ponzi scheme/Pyramid scheme works.  It appears to be a working system until the supply of new patsies is broken and then it just collapses quickly.  See the Madoff experience for a clear idea of how it works.
• No, it is not different this time.
• The economist jargon for what happens when the truth about the insolvency and corruption of the banking system is finally understood by the sleepy masses is called a "currency crisis".  Von misses called it a "crackup boom".  They are both synonymous with massive or even hyperinflation.  In fact, it is the massive and sudden awareness by the herd that too many promises have been made by the issuers of a currency.  In other words, a currency crisis is really just a crisis of confidence in the central bank's ability to keep their Ponzi scheme running and so everyone tries to head for the door at once.  The usual symptoms are:
•  Bank runs.  This is where everyone tries to go get all their cash out of the bank at the same time for fear that if they do not lay hands on it now that they will never see part or any of it.
• The feared losses take two major forms: hyperinflation and bail ins.
• In hyperinflation cash sitting in a bank loses buying power each day.
• In a bail in, money is stolen by the government to pay for the bank's bad debts.  Depositors are treated as any other claimant on bank assets right along with bond holders and others who have loaned money to the bank.  Depositors are legally treated not as savers but as investors in the banks.  This is not some kind of "maybe" scenario.  This is currently the law of the land.
• Massive or hyper inflation.  People lose faith in the currency and begin to see it for what it is: green paper printed up by a bunch of lying thieves.  The people begin to prefer to hold physical stuff over holding the currency because stuff can be held without losing value but the paper cannot.
• Capital controls.  In order to stop people from getting their wealth out of the system, government tells everyone that, for the good of society (meaning for the good of the monied elite), you are only limited to withdrawals of a small amount of cash from the bank each day.  While they stall you from getting your wealth out of the system, they systematically print up more money in order to buy their way out of economic collapse.

It's been about 18 months since Mish has been writing "a currency crisis awaits".  Nobody knows how much longer the system can hide the truth from the people but my view is that it will all be in collapse in the 2017-2018 time frame for multiple reasons which I have stated on this blog many times.  The most important one, IMO, is that the boomers will be retiring en masse then and they will be asking government to fulfill all the retirement promises that have been made.  This will overwhelm government resources at a time when the economy is very bad thus making it impossible to raise taxes on the workers without causing an even larger collapse.  That is when they will likely have to admit that they were running a Ponzi scheme.  When confidence is lost in the issuer of a faith based currency, a currency crisis cannot be far off.

The preparations are cheap and obvious.  They are not a one time deal but simply a small modification to how you already live:

• Keep only the minimum cash needed to pay bills in the banking system.  Find a way to store your excess cash that is safe from fire and burglars.  If you do even a little bit of thinking about this you will know how easy it is to do.
• Long term retirement savings should be dollar cost averaged into gold and silver bullion coins.
• Keep a stocked pantry food supply good for at least 3 months but better if 6 months.
• Own defensive weapons and ammo and remain proficient in their use.  Many people will decide that your preparations are their preparations unless you are prepared and able to defend yourself from their desperation.
• Get your mind right about all of this. Math will not be denied its day.  Don't hope to wait until the last minute to get your affairs in order; that kind of thinking is for hapless sheeple.
    If you are reading my blog that likely does not describe you.