Starting at an altitude of 6 miles, a 747 can glide about 90 miles after losing engine power.
Interesting information but of little use to investors? Maybe not.
Successful demonstration of the laws of nature should provide invaluable signposts for long term investors.
In many ways we’d like to think that the money printing ways of the last 6 years will save the day. Unfortunately, they won’t. So far, economic numbers out the US are, at best, a farce and more likely highly manipulated to look good as government participate in all things economically democratic. Unemployment in Europe is North of 25% and the US could be similar if those who have fallen out of the workforce are included.
Al this with the background of falling global GDP. We do not need to reproduce that Bloomberg summary again for your approval, its falling.
We have falling GDP in the OECD and rising unemployment, so what the heck do you get for $14 trillion dollars of “bailout stimulus”?
The chance for voluntarily reforming the global financial system was essentially lost when Timothy Geithner and Hank Paulson convinced the US congress that it was in the best interest to bail out not just any too big to fail US institution but any other systemically important institution in the world. We might find Australian banks on the list soon as domestic Economists laud the fantasticness of the transformation of the Australian economy from a Mining and infrastructure to Property and Construction. Are they kidding? Like, this is a good thing? Make no mistake, wherever you look, this is the mother of all Australian Real Estate bubbles, and it will correct.
The problem is the higher things go from here the higher the platform from which it will fall. Never have we seen household debt levels taken to this extreme but never have we seen interest rates stay so low for so long to support this.
So, as long as interest rates stay here, or go lower, there is not a problem, right? Wrong. The risks almost entirely belong to our North, North East, North West.
Yes, everywhere we look there is debt related stress in the system and main stream business reporters seems to care only about daily share index records in the US, cause everything is tickety boo.
We have written before and we’ll say again, as long as confidence remains in Central Bank Ability to create money from thin-air, to infinity, with no consequences then, happy days, back the truck up. But these policies are not naturally sustainable and nature will take its course, as it always does. Sometimes, it just takes a little longer than one might expect.
The question for the savvy investor is, where will you be? So we’re going to help with a few tidbits we’ve picked up but may have not appeared on the radar of general information providers. Edna Mode says, “luck favours the prepared, darling”!
- Europe has unleashed negative interest rates, cause things are so good. As has been demonstrated in Japan and Denmark, this does not work.
- In Spain last weekend people took to the streets en masse to protest for change to the way their constitution operates as unemployment and suicide rates continue to soar. Why are Spanish bond rates the same as the US? Same risk? Confusing.
- Whats not confusing is serious discontent throughout Europe, as we demonstrated in our note regarding the European election summary last week. Google it if you’re interested.
- THE big ONE. Paul Volcker, former Fed Chairman, previous rescuer of the world from destructive inflation in the late seventies had this to say last week at the annual meeting of the Bretton Woods Committee, said that “by now I think we can agree that the absence of an official, rules-based cooperatively managed, monetary system has not been a great success. In fact, international financial crises seem at least as frequent and more destructive in impeding economic stability and growth.” We can, indeed, agree. He continues, Was the “exorbitant privilege” of the dollar as a reserve currency also a “dangerous temptation” to procrastinate – an impediment to timely policy adjustments, risking eventual breakdown? Solution he provides, A NEW BRETTTON WOODS. Surely he can’t mean change? The mother of all natural fear.
- Why is the escalation of fighting in the Ukraine not being reported in Western Main stream media anymore? Has the spin not been sorted?
- And finally, to prove that the current set of policies may be good for US stock markets but not for the general economy, the money is just not getting through. See velocity of money charts below.
As we’ve stated in previous communications, the stage is set for for further “accommodative”monetary printing as far a the eye can see.
The Velocity Of Money In The U.S. Falls To An All-Time Record Low
By Michael Snyder, on June 1st, 2014When an economy is healthy, there is lots of buying and selling and money tends to move around quite rapidly. Unfortunately, the U.S. economy is the exact opposite of that right now. In fact, as I will document below, the velocity of M2 has fallen to an all-time record low. This is a very powerful indicator that we have entered a deflationary era, and the Federal Reserve has been attempting to combat this by absolutely flooding the financial system with more money. This has created some absolutely massive financial bubbles, but it has not fixed what is fundamentally wrong with our economy. On a very basic level, the amount of economic activity that we are witnessing is not anywhere near where it should be and the flow of money through our economy is very stagnant. They can try to mask our problems with happy talk for as long as they want, but in the end it will be clearly evident that none of the long-term trends that are destroying our economy have been addressed.
Discussions about the money supply can get very complicated, and that can cause people to tune out, but it doesn’t have to be that way.
To put it very basically, when there is lots of economic activity, there is lots of money changing hands.
When there is not very much economic activity, the pace at which money circulates through our system slows down.
That is why what is happening in the U.S. right now is so troubling.
First, let’s look at M1, which is a fairly narrow definition of the money supply. The following is how Investopedia defines M1…
A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency. It does not contain “near money” or “near, near money” as M2 and M3 do.
As you can see from the chart posted below, the velocity of M1 normally declines during a recession. Just look at the shaded areas in the chart. But a funny thing has happened since the end of the last recession. The velocity of M1 has just kept falling and it is now at a nearly 20 year low…
Next, let’s take a look at M2. It includes more things in the money supply. The following is how Investopedia defines M2…
A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.
In the chart posted below, we can once again see that the velocity of M2 normally slows down during a recession. And we can also see that the velocity of M2 has continued to slow down in the “post-recession era” and has now dropped to the lowest level ever recorded…
This is a highly deflationary chart.
Aurum Echo 
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