'..This is the first time in recorded history that every currency in the world is unbacked by a commodity, as compared with thousands of years of cross-cultural experience with gold as money. The Bretton Woods II system nearly collapsed in 2008 and it has required truly unbelievable interventions to sustain it on life support since then .. The scale of credit inflation and malinvestments around the world also make it extremely difficult if not impossible to determine true supply and demand, valuation, margin of safety, etc..'<blockquote>'I think that we are living through one of those rare periods where knowledge of Austrian theory is absolutely essential to successfully navigate the treacherous macro investment landscape. The period ushered in by Bretton Woods II – after Nixon defaulted by closing the gold window in 1971 – represent an unprecedented global experiment in a floating fiat monetary regime. This is the first time in recorded history that every currency in the world is unbacked by a commodity, as compared with thousands of years of cross-cultural experience with gold as money. The Bretton Woods II system nearly collapsed in 2008 and it has required truly unbelievable interventions to sustain it on life support since then.
..
In the current environment – one in which central bank actions determine the fate of the markets and economies to an unprecedented extent – it is foolhardy to ignore the macro even if the securities you buy appear to have a substantial "margin of safety." The scale of credit inflation and malinvestments around the world also make it extremely difficult if not impossible to determine true supply and demand, valuation, margin of safety, etc.
I use Austrian business cycle theory primarily on the short side nowadays. The best macro shorts are those in which both supply and demand are working against the company or industry. This frequently – but not always – coincides with the peak of a credit cycle, when artificial credit inflation has led to unsustainable oversupply in certain areas versus true market demand (malinvestments), and nearly all of the maximum potential demand from marginal buyers has already been artificially satisfied due to the availability of easy credit. A decline in credit availability then reveals the malinvestments that occurred during the boom, as described by Austrian business cycle theory.'
- Seth Daniels,
Seth Daniels on Austrian Economics, Central Bank Disasters and the Coming Housing Bottom, January 5, 2014</blockquote>
'..In the past few months, I have experienced central bank bubble denials firsthand..'<blockquote>'There must be an unwritten rule in the shadowy world of central banking that demands that dangerous, society-threatening economic bubbles must be denied and covered up at all costs. I’ve experienced this phenomenon indirectly when I was warning about the U.S. housing and credit bubble in 2005 at the same time that Ben Bernanke denied its existence (which was a few days before he was nominated as Fed Chairman).
In the past few months, I have experienced central bank bubble denials firsthand when the central banks of Malaysia and the Philippines vehemently denied my warnings about economic bubbles that are inflating in their countries. As of this week, I can now add a third central bank bubble denial to my experience repertoire: the Monetary Authority of Singapore or MAS.'
- Jesse Colombo,
It's Not A Bubble Until It's Officially Denied, Singapore Edition, January 16, 2014 (
Why Southeast Asia's Boom Is A Bubble-Driven Illusion, January 23, 2014)</blockquote>
'Now, Bubbles are faltering right and left - and fearful “money” is heading for the (closing?) exits. And, as the global pool of speculative finance reverses course, the scale of economic maladjustment and financial system impairment begins to come into clearer focus. It’s time for the marketplace to remove the beer goggles.'<blockquote>'Thursday saw the Argentine central bank step away from what had been ongoing currency support operations. The Argentine peso quickly devalued 15%, before ending the session down about 12% (biggest fall in 12 years). The central bank’s decision to preserve its dwindling reserve position is reminiscent of South East Asian central bank actions back during the 1997 crisis. The dramatic market response was similarly reminiscent – ominously so.
..
After peaking at $115 billion in mid-December, Turkey’s international reserve holdings this week fell to $107 billion. Reminiscent of 1997, there reaches a point when shrinking reserves becomes a signal for a “hot money” rush for the exits. Central banks attempt to keep currency markets orderly, but such efforts risk a rapid drawdown of reserve holdings. A precipitous currency drop then opens cans of worms of difficult to control risks. A Friday Bloomberg headline: “Lira Intervention Seen Futile as Basci Lacks Ammo: Turkey Credit.”
..
Now, Bubbles are faltering right and left - and fearful “money” is heading for the (closing?) exits. And, as the global pool of speculative finance reverses course, the scale of economic maladjustment and financial system impairment begins to come into clearer focus. It’s time for the marketplace to remove the beer goggles.
No less important is the historic – and ongoing - boom in manufacturing capacity in China and throughout Asia. This has created excess capacity and increasing pricing pressure for too many manufactured things, a situation only worsened by Japan’s aggressive currency devaluation. This dilemma, with parallels to the commodity economies, becomes especially problematic because of the enormous debt buildup over recent years. While this is a serious issue for the entire region, it has become a major pressing problem in China.
..
I have surmised that the so-called “yen carry trade” (borrow/short in yen and use proceeds to lever in higher-yielding instruments) could be the largest speculative trade in history. Market trading dynamics this week certainly did not dissuade. When the yen rises, negative market dynamics rather quickly gather momentum. From my perspective, all the major speculative trades come under pressure when the yen strengthens, from EM markets, to the European “periphery,” to U.S. equities and corporate debt.'
- Doug Noland,
Credit is Gold #1 and Icebergs, January 24, 2014</blockquote>
'..require fresh credit growth to service the old debt (in short, a Ponzi scheme) .. Triffin’s insight into our present dilemma was rather prescient.'<blockquote>'..Debts of the magnitude of those racked up in the U.S. over the years clearly cannot be serviced out of GDP and require fresh credit growth to service the old debt (in short, a Ponzi scheme). Slowing credit growth in the U.S. now will lead to a massive recession and the wiping out of most of the equity in the global financial system. For instance, if credit growth were to slow to the rate of GDP growth plus savings so that those accepting dollars could feel confident in not losing purchasing power, we would see credit growth collapse some $1.6 trillion per year. At an interest rate of 6.5%, this would require wiping out about $25 trillion in net worth somewhere. Given that the banking system itself has only slightly more than $1 trillion of equity I think that we could safely assume that there would be precious few survivors. Again, Triffin’s insight into our present dilemma was rather prescient.'
- Jeff Poppenhagen,
Dollar Bulls Meet Prof. Robert Triffin, August 26, 2008</blockquote>
'..I expect the ultimate popping of the emerging markets bubble to cause another crisis that is similar to the 1997 Asian Financial Crisis, and there is a strong chance that it will be even worse..'<blockquote>'Cheap credit and soaring asset prices, which are known for creating times of good feelings, are a major reason why Filipinos are currently the world’s second most optimistic consumers..'
..
As I’ve been saying even before this summer’s EM panic, I expect the ultimate popping of the emerging markets bubble to cause another crisis that is similar to the 1997 Asian Financial Crisis, and there is a strong chance that it will be even worse this time due to the fact that more countries are involved (Latin America, China, and Africa), and because the global economy is in a much weaker state now than it was during the booming late-1990s.
- Jesse Colombo,
Here's Why The Philippines' Economic Miracle Is Really A Bubble In Disguise, November 21, 2013</blockquote>
Context<blockquote>
Bubblicious Questions: What Causes Economic Bubbles? When Do Bubbles Burst? Can the Fed Prevent Bubbles? January 24, 2014
Beware of the Post-2009 Economic BubblesThe Anatomy of Growth(US, Europe, Japan, India, China) - '..through structural reforms .. Four percent growth could return.'(Global) - '..how monetary policymakers somehow remained oblivious to the havoc they were instrumental in fomenting.'Money Cannot Buy Growth - By Andy Xie(Banking Reform - English/Dutch) '..a truly stable financial and monetary system for the twenty-first century..'</blockquote>