GoldMoney: Alasdair Macleod’s Outlook for 2013

I have not faced the prospect of a new year with so much trepidation as when I contemplate what is in store for 2013. Systemic risks abound, which of themselves are not the main story, only milestones on the road to final currency destruction, unless governments somehow regain their senses.”

“This is a story that started with the end of the First World War, and involves a world which replaced laissez-faire with political motivation in economic and monetary affairs, moving away from wealth-creation into wealth-destruction in the cause of the common good.”

“…government and central bank manipulation of their economies and fiat monies has succeeded in deferring the bankruptcies and liquidation of accumulated malinvestments, to the point where their cost can no longer be sustained.”

“Never in modern history have we seen so many governments agreeing to make the same mistakes; and it is hard to see, with the underlying inter-connectivity of their banks, how there is room for dissent.”

“The global banking system for the last five years has struggled with insufficient capital, over-valued collateral, and an underlying tendency for balance sheets to deflate. Their respective governments through their central banks are back-stopping these insolvent institutions by flooding them with both sovereign debt and fiat money, and manipulating credit markets to maintain valuations.”

Take these distortions away and we see the private sector economy still contracting four years after the credit bubble burst, a fact that is concealed by the expansion of both government spending and fiat money. Otherwise, bank balance sheets would have contracted, wiping out their aggregate capital, in some cases several times over.”

The manipulation of credit, money and prices has made economic calculation impossible.”

“There is little difference in this respect between the communism of failed states in the past and the regulated and planned economies of today, except perhaps in the degree of state interference. As happened with the Soviet Union, eventually ordinary people, by acting in their individual interests, will bring about the downfall of their governments. It is bound to happen unless governments reverse course.

“Banks are interconnected through interbank and cross-border loans. They are also linked by counterparty risk in derivatives and by off-balance-sheet hypothecation of collateral. … The level of bank capital behind on- and off-balance sheet liabilities is inadequate to cover either hidden losses, systemic contagion or a resumed downturn in the global economy. … Systemic risks include sovereign defaults, significant falls in collateral values, and counterparty failure in derivative markets.”

The banks have become corrupted institutions continually on the verge of failure.”

The US economy … outlook is therefore one of deteriorating government finances, and a possible need to raise interest rates sooner than expected to curb the inevitable price-inflation effects of accelerated money-printing.”

“The burden of the euro-system on Germany, the Netherlands, Finland and Austria is far too great for them to bear, and we can expect mounting political dissent in this election year for Germany. … The eurozone’s banking system is under-capitalised and already bankrupt on realistic assumptions.”

“In Japan … savers are now dissaving at an accelerating rate, leading to a developing trade deficit.”

“The UK … is also exposed to a disproportionately large finance and banking sector with high international exposure, particularly to the eurozone, which will be an unsupportable burden on the state if the banking crisis develops further in 2013.”

Watch out for developments in the following

  • Inflation, which will pick up unexpectedly if there is a shift of preference from money to goods, the consequence being accelerating stagflation. Bear in mind that governments usually under-report inflation, and prices in the US, UK and other nations are already increasing at a significantly faster rate than CPI measures suggest.
  • Interest rates, which may have to rise sooner than expected due to inflationary concerns. This being the case, an implosion of asset prices could begin if markets price in rising interest rates before they happen, destroying the ability of central banks to retain control of prices in credit markets.
  • A further downturn in the US private sector economy, (excluding government).
  • Rising bond yields for Spain, Italy or France.
  • Deterioration in Japan’s trade balance and weakness in the yen.
  • The bursting of bond market bubbles, particularly in the US, UK, Germany, Japan or France.
  • Crisis meetings by governments and central banks that resolve nothing and only further public understanding of their inadequacies.
  • Derivative markets, and their exposure to counterparty risk, hypothecation and rehypothecation of collateral.
  • Silver markets, where there are large short positions held by the bullion banks and so are vulnerable to a vicious bear-squeeze. If this happens a sharp rise in gold prices will also be triggered, and possibly spread to other metals and beyond.
  • Growing social unrest.
  • Further clampdowns on personal freedom”

“We are one year closer to a renewed banking and financial crisis, the pace of which is quickening, and which can be expected to turn eventually into a fiat currency collapse. These systemic risks increased in 2012, most notably in the eurozone, but also elsewhere. None of the solutions applied anywhere did any good.

On the evidence to date, it has become less likely any Western government can or will take the right steps to avoid an eventual collapse of their currency, so 2013 is more likely to realise systemic failures than 2012.”

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