Why Lower Gas Prices Are NOT "Bullish Indicators"
[Ed. Note: Our resident currency maven, Jim Rickards was recently interviewed on RT’s Boom and Bust by Erin Ade, to discuss supposed “bullish indicators” in the U.S. economy, the need for another financial crisis in Europe, and why central banks are mostly “impotent.” Below is a summarized transcript on some of his main points…]
I don’t think the data is bullish at all.
Lower gas prices put more money in consumers’ pockets.
But there’s an alternative to spending… Which is saving or reducing debt – which is the same thing.
I don’t consider these bullish indicators. They tell me an economy is running out of steam.
An economy is nothing more than two things: How many people are working and how productive are they?
Labor force participation is going down – which means fewer people are working. And productivity is also going down. Real wages are stagnant. 50 million people are on food stamps. 7 million people have part-time jobs who wish they had full-time jobs.
These data points are not bullish indicators.
We’re in a global depression.
There’s a slow down in Japan, China, Europe and the U.S. — the whole world is in a global depression.
There’s enough fights to go around, but in a fight between the ECB (European Central Bank) and Germany, Germany wins.
The ECB is only doing $2.5 billion worth of asset buying, while the FED has been doing almost $1 trillion a year. So the ECB is going through the motions but they’re not doing anything like QE. They’re not buying soveirgn debt. They’re buying some asset-backed securities, but there aren’t even enough of those to have much of an impact.
The ECB’s Mario Draghi is the best Central Banker in the world. He understands that Central Banks are essentially impotent.
When you’re impotent you have to talk a good game — so Draghi says little and does less.
The U.S. FED is the opposite. They don’t understand how impotent they.
China is the biggest credit bubble in the world.
The U.S. has created a bubble in housing and stocks with easy money, but there’s no bigger bubble in the world than China. They have a greater capacity to keep it going because their investors have fewer alternatives.
Chinese middle class investors/savers, are not allowed to invest in foreign stocks. They don’t like to invest in their own stock market because it’s had it’s own problems and is very weak.
They have invested in real estate, but they’ve created a bubble and they are now backing away from that.
They don’t want to leave their money in the bank because they only get something like 25 basis points (0.25%) .
The only two alternatives are:
They are buying gold in enormous quantities. Purchases coming out of the Shanghai Exchange are astounding. They’re in the thousands of tonnes per month.
2. Wealth Management Products
These are just CDOs, but they’re not guaranteed bank deposits, and the banks that sponsor them take the money and invest it in worthless real estate.
The investor thinks they’re getting a 5-6% yield but doesn’t realize that the bank doesn’t stand behind it and the money is being put into worthless real estate that can’t pay off the debt.
That’s a Ponzi scheme waiting to collapse.
So, in China you have a real estate bubble ready to collapse and a Wealth Management Product Ponzi that’s ready to collapse.
China has enormous reserves which they can use to bail out their banking system, but they tend to be very slow decision makers.
In a financial crisis, slow decision making is fatal. It allows the panic to spread before you can get on top of it.
Probably what Chinese banks will do if the depositors are banking on the doors asking for their money back, is to look at their dead real estate in China that they can’t sell and then at maybe some U.S. stocks and bonds they own, and they’ll sell the U.S. stocks and bonds because they’re liquid.
That’s how the contagion will go from China to the U.S. and spread around the world.
Jim isn’t sure which is going to collapse the system first — something in China or something in the U.S. — either one is a possibility.
There’s also a few wild cards in the deck.
The Swiss referendum coming up in November is one of the wild cards that could collapse the system.
This video appears courtesy of RT.com. The entire video can be found, right here.