Mike Maloney: This Is The Peak

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Precious metals dealer and monetary historian Mike Maloney is quite confident the liquidity-driven 'recovery' created by the world's central banks is now over. In his estimation, the path ahead is one of accelerating descent into inevitable currency destruction:

What the central banks are doing has never worked and they keep on trying – you just hit that nail a little bit harder each time because it isn’t working. They have these theories and they think that the theory is correct that this – and no matter what the results are they say well, we just didn’t do enough of it. Japan has been trying this for 30 years now and it hasn’t worked. These people are just absolutely dangerous. They are going to drag the entire world economy down. You talked about the helicopter money that is now happening in Europe and so on. That is going to be coming to the United States soon. Coming to a Central Bank near you.

It always has damaging results. They don’t look at this. It is a huge wealth transfer. The immorality of an entity and everywhere I go I take a look at – when I would go speak in Singapore or Australia, New Zealand, Malaysia, Colombia, Peru doesn’t matter – Russia – everywhere I go I take a look, I go on the websites of the central bank for that country and I start gathering information. I haven’t found a central bank that is part of the government. They are all private. Here is a private entity that is allowed to create currency and now they are buying bonds from corporations? They can buy stocks.  When they write a check and they buy something, currency is created and it enters circulation. A very large portion of it is Fanny Mae and Freddy Mac stuff. It is the mortgage backed securities. And so that means that they own real estate. This private corporation is able to counterfeit and purchase real estate legally. The morality of this is insane.

Keynesian economics isn’t even remotely plausible. But it's what is taught all over the world. They don’t understand fundamental economics. This is the problem that we have: all economies on the planet are being run by economists that don’t understand economics.

The purchasing power that is contained in currency is basically the agreement that we have as a society that we are all going to use that currency and we trust that currency and we store hours of our lives. We trade hours of our lives for currency. We work. That is the purchasing power. Then that currency measures the goods and services in a society. The true wealth. They think that they can actually print wealth. When they print new units of currency, the only way it can get purchasing power is the moment that it is spent in the circulation -- it has to steal it from somewhere else because it is empty when it comes into existence. There is no work that went into it. There are no hours of life traded for it. There is no product or service that it represents until it is spent in circulation and then it steals that purchasing power from all other units of currency. It is fraud. It is theft. They can’t actually stimulate an economy. All they can do is warp it. They can steal purchasing power from some areas of the economy and transfer it to another area of the economy pushing that area into a bubble. It is very, very disruptive.

Now we've got bubbles in stocks, real estate and bonds. This is going to be one hell of a crisis.

This is the peak – we have passed the peak of the bubble. It's now deflating. There is usually a little tiny roll over and then a huge crash. And the little tiny roll over is just starting right now. We are seeing it first in the top end (like luxury real estate), where the currency that was created by the central banks went to that 0.1% first.

Within the next few years you are going to see probably the greatest crash in history. I have often said that the crisis of 2008 was just a speed bump on the way to the main event. We are in the process right now of seeing this unwind.

Click the play button below to listen to Chris' interview with Mike Maloney (46m:37s).

This is a companion discussion topic for the original entry at https://peakprosperity.com/mike-maloney-this-is-the-peak/

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Been watching Harry Dent’s interviews with Mike M, adds interesting perspective on the discussion of deflation then inflation (after more “stimulus”)

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Three points.
Firstly: money is a token for energy/resources and not a store of work we have done in the past.  ie you may have worked hard and hoarded lots of money but this is worthless if the energy/resources are not there when you want to spend it.  During our energy descent people are going to be very disappointed in the purchasing power of their savings/pensions/entitlements because the energy/resources simply won't be there in the future in the quantities promised by the Cornucopians.

Secondly:  95% of all money in circulation is borrowed into existence.  Therefore it has to be paid back eventually.   Central banks will force you to spend your money into circulation so that outstanding debts can be repaid. No one has the right to save (hoard money) indefinitely and If you think otherwise be prepared to be disappointed.  It will either be inflated away, incur negative interest rates or just be confiscated outright.

Thirdly: Energy/resources will preserve purchasing power not money in the long term.  ie productive land, commodities and mining

 

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If the bond market collapse,then the pensions will collapase also, nobody will have any money then ! 

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Just because the Fed says its goals are such & such, and their rationale for what they are doing is such and such doesn't mean that's what the Fed is really up to.  I propose that what they put forth in public is just a huge smoke screen for what they are really up to.  The Fed went from owning virtually nothing to being the largest land owner in the U.S.  I wish people would stop thinking and saying "how stupid & ignorant the Fed is".  The Fed is getting wealthier & wealthier (by doing virtually nothing) while you and I are not.  I ask, who is the stupid and ignorant one?  They are not trying to "fix" anything.  The Fed is doing what's best for the Fed (ie, the private bankers).  
If your business has become the most successful business in the country, how can anyone say they have made any "mistakes"?  To the contrary, the Fed has been hitting it out of the park.  They are the most successful private entity in the history of the world.  Clueless is the last thing the Fed should ever be called.

 

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Edit:  dryam2000 and I are channeling the same voices here!!

The great debate is whether 1) the central bankers are egalitarian at heart and have just "misunderstood economics" and accidentally created a system that shifts wealth into the hands of the already very wealthy, or 2) realize that this system that shifts wealth from the commoners into the hands of the ultra-elite is great (for them) and deliberately continue it.

A couple of quotes from a facebook posting of this podcast.

"The powers of FINANCIAL capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert by secret agreements arrived at in frequent private meetings and conferences." -Caroll Quigley
"Bankers own the earth. Take it away from them, but leave them the power to create money, and with a flick of the pen they will create enough money to buy it back again ... if you want to continue to be slaves of the bankers and pay the cost of your own slavery, then let bankers continue to create money and control credit." - Sir Josiah Stamp, Former Head Of The Bank of England
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They may be many things but dumb is not one of them.
Not with respect to the real goals and aims of their policies.

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This idea of finding someone, some thing or some entity (like the Fed) responsible for our predicament is quite amusing to me.  I guess it is a Human trait we have, a religious gene maybe, to have someone, supernatural even, somehow responsible for what we see around us. 
We are talking about complex issues revolving round the interaction between Capitalism, markets, evolution of our money system, pursuit of growth,  planetary limits to growth,  peaking and eventual terminal decline of Net energy from fossil fuels amongst many other things.  To blame the Fed or the evil 1% or who ever is just lazy thinking, very convenient and easy to convey to the general public who just wants easy answers to why the world has not turned out as promised by the Cornucopians.

Folks, bottom line.  All fossil fuels will be burnt by the end of this Century and an Agrarian lifestyle awaits us all.  No one is responsible.  It just is.

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Is the Fed evil, or just stupid?
Duck is moving across the surface of the water.  Is he paddling furiously underneath, effort unseen by the observer, or is he simply drifting with the current?

Certainly mainstream view says "Fed saved the day in 2008 and they are doing their best now."

Now we hear rumblings from major financial players (Bill Gross, for instance) who say "Fed is now making some huge mistakes."  (And the non-mainstream has been saying this forever.)

And of course the non-non-mainstream people take it a step further, saying this alleged "failure" was really the plan all along, and the folks at the Fed are super-clever con men, and are just treating us like chumps and suckers.

Some thoughts:

  • "Never ascribe to malice what can adequately be explained by incompetence."
  • "Generals (and the Fed) always fight the last war."
  • "In for a penny, in for a pound."
  • "[The Fed's understanding of economics] advances one funeral at a time."
  • "Mainstream economic models don't include banks, debt, or money."
Fed is staffed by the best and the brightest who have all be trained in this particular brand of economics.  To abandon or even question their basic theories 40 years into a career is psychologically impossible for most people to successfully do.

My sense - there may well be a plot going on in the background, and I'm sure much of the top 0.1% are laughing all the way to the [money storage facility], but I really don't think the folks at the Fed are part of the plot.  Or really, even in the loop.

Ultimately, the people who work for the Fed don't get well by "becoming the largest private landowner in the US."  They're paid like bureaucrats-plus, not like CEOs of large banks.  There's no "cui bono" smoking gun here.  At least not inside the Fed itself.  [I'm sure Yellen will do well once she leaves her job - but at least she's not making time for "Yellen Foundation" donors in her weekly meeting schedule.  Sheesh.]

http://time.com/money/3516794/janet-yellen-salary-fed-staffers/

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In regards to your point nº1: Money is a claim on energy/resources as much as on labor. This distinction is irrelevant. Money is first of all a medium of exchange. In itself it is worthless. What it can buy is what matters, and that´s why the supply of money relative to goods and services available is important. As Chris as pointed out numerous times, a money system that requires continued growth will most likely not be suited to our future economy. Of course the availability of energy and resources will influence the amount of goods and services available, but this is a separate issue from the current illness of the money system. Even with a gold standard the same holds true for the future of the real economy, except that with a gold standard the transition should be easier and less disruptive
In regards to point n.º2: The problem here is that what you are describing and what the planners aim to achieve is actually impossible in accounting terms. I the current system it is impossible to paid back the debt without default (outright or through inflation), because every unit of debt you pay back is a unit of money you eliminate. In the end there will never be enough money (this kind of money/currency… not real money=gold/silver or any other kind of commodity money) to pay back the debt.

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https://www.youtube.com/watch?v=uabChNfWAcM
Oh, Behave!

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Hi Carlos.  Thanks for your response.  I would argue that our money system doesn't require continued growth.  I could be wrong of course but I feel our money system has evolved and will evolve again to serve our coming new reality of contraction.  Perhaps other ways will be introduced to provide money in circulation which is not debt based ie. a flat living wage given to everyone perhaps or some other method.
I can't see, mathematically, why my point no.2 is wrong.  5% of money exists as coins and notes.  The other 95%  in circulation is borrowed into existence and comprise of numbers on computerized ledgers.  Therefore it is out there somewhere to be repaid.  I cannot see a mathematical flaw in this reasoning.  Obviously if the money stays in people's bank accounts for very long periods of time instead of circulating then the system has a problem, as I stated originally.

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climber-

Firstly: money is a token for energy/resources and not a store of work we have done in the past. ... During our energy descent people are going to be very disappointed in the purchasing power of their savings/pensions/entitlements because the energy/resources simply won't be there in the future in the quantities promised by the Cornucopians.
I think the second part will probably be right (absent "free energy"), but I don't agree with your theory of what money is.  One of those theoretical things.

To me, money is not a token of energy or resources, it is a marker for foregone consumption.  Its stuff that you could have bought, but didn't.  Because money is fiat, its just a strange cultural agreement we've made - it is an agreement not to consume today, in exchange for the ability to (probably) consume something else at hopefully near the same rate tomorrow.

However, the specific amount of stuff you can get for your foregone consumption changes as time passes, so if you want to consume at a much later date, your "exchange rate" could be quite a bit more - or less.  Example: if you wait, you will (on average) probably get less tuna, and more DRAM, for consumption you forego today.

Savings = foregone consumption.  Taking on debt = "living better than your income would support."  Repaying debt = "living worse than your income could support."

Secondly:  (1) 95% of all money in circulation is borrowed into existence.  Therefore (2) it has to be paid back eventually.  
I agree with (1) - except its more like 90%, and if you add in base money, then its more like 75% but that's a nit.  However I disagree with (2).  Many people never pay down their credit cards, only paying minimum balance, dying owing money to the bank, leaving the debts for their heirs to deal with.  Likewise, people who buy a new home, and move every 5 years, never end up paying down their mortgages.  In death it must either be paid down via an asset sale, or if the heirs wish to keep the asset, they must assume the debt. 

The only way you pay back debt is to live a little less well than you otherwise could from your current income - to forego consumption, just like savings.  But paying it off is absolutely not required, expected, or even encouraged.  Its not a systemic requirement, and at least from observation, it only happens when people start to get really worried about remaining employed.

Thirdly: Energy/resources will preserve purchasing power not money in the long term.  ie productive land, commodities and mining.
The trick is figuring out which of the "energy/resources" bucket is overpriced right now, avoiding it, and buying the one that's underpriced.  Ratios help with that: "ounces of gold per acre of productive farmland", gold/silver ratio, gold/copper ratio, oil/home-price ratio, and so on.
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  • We are assuming a closed financial system.  What if it's not? Catherine Austin Fitts.  (An obvious appeal to Authority. )
  • We are assuming that we have a firm grasp of Reality. We don't. Physics is in disarray.  Who knows what will be discovered, and blithely ignored, next.
  • We assume that the economic unit is the flesh and blood consumer. It is more likely to be the Company or other entities that don't require oxygen nor love. 
  • We are assuming that our assumptions matter. What if we are not the smartest kid on the block or that we are soon to be deposed? Quantum Computers spring to mind. We have already ceded the floor to algos.
  • Other hidden assumptions. 
Our Models of Reality are far too inflexible in my august opinion. 
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Starting by the end: Well yes, 5% of the money supply is in physical form. Still, what matters is the asset that backs the coins and notes. For every time you repay a loan or other kind of debt instrument you extinguish the same amount of currency. At the limit… to extinguish all debts you could have to redeem the notes and coins with the central bank. Anyway… this is more of an academic discussion since it has a very low chance of ever occurring… collapse would be reached much sooner than that. But the math holds… and this is simple accounting. To liquidate a liability you need to consume an asset of the same amount. That is what happens when you pay back a loan… you extinguish a deposit (and vice versa). Only in a a commodity based money system is this not true… because the asset that backs the liability (coins, notes or  bank deposits) is tangible and not just a financial claim.
Our current system requires continued growth because if you wish to ever pay back the loans + interest… there will never be enough bank deposits to do it. You have have always to create additional units of currency = more debt… or default. This is why debt has been growing exponentially in the last 40 years… and when at times it didn´t… economic and financial crises have ensued.

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Gerald Celente has a saying, it goes something like this, "when people lose everything they have nothing left to lose"!  Perhaps the Fed IS stupid and ignorant because when Americans lose everything they too will have nothing left to lose.  What's the one thing we have left to lose?  An inhabitable planet, and the rich greedy bastards and their children have to live on this planet too.  There is no way to go back 100 years, our environment polluted and our weather unstable so either we change together, adapt or die.  I suspect revolution and mass die off are in the cards and when the grim reaper appears the Fed will cease to count their riches and bask in their power and instead reach for their environmental monitors, cans of beans and declare "oh shit, didn't see that coming".  No civilization of masters and slaves has endured.  
Smart and successful, not so much.

AK GrannyWGrit

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I think that there is a difference between "intelligent" and "cunning".  The savants running (and profiting from) the system are cunning, and very very clever about how they do what they do.  Doesn't make them at all smart.  I wish I could read a history book from 200 years in the future, about the current era.  We're living in the pivot, right now.
 

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Granny wrote …and the rich greedy bastards and their children have to live on this planet too.

Indeed.

If the Fed are in fact evil geniuses masterminding a financial catastrophe, and if they can manage to control events as they unfold in all their unpredictable complexity (extremely improbable) they will find themselves (at best) in the position of mideval kings - which is still a big step down from where you and I and Joe Bloggs are today!

I have absolutely no doubt special interests are exerting their influence. Maybe I'm biased because I've always found win;win to be such an effective strategy but the 'world domination by financial destruction scenario' is unconvincing to me.

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I was waiting for that old chestnut to reappear, namely that there is no way to pay back interest. 
Banks create money to pay wages, bonuses, capital expenditure, dividends, investments and any other expenses that they incur.  In effect they borrow from themselves.  This money thus created enters circulation into the economy and eventually comes back to the bank as 'interest' and the loan to themselves is wiped out. Banks aim to balance their books.

Debt has been growing exponentially because GDP has grow exponentially.  As more goods and services get traded you need more money in circulation and with it debt because 95% of money in circulation is created as debt.

Lets be very clear here.  Growth in GDP requires growth in debt. The crisis, when it occurs, will not be because of debt directly but due to a much deeper cause, it will be because we have reached the limits to growth.

 

 

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Carlos-
So how can someone possibly manage to pay both principal and interest, when only the principal gets created in a bank credit loan?

Its actually pretty simple.  First we assume that the money supply is much greater than the size of the loan, and there is sufficient base money to enable the current economy to operate regardless of what happens with this particular loan.

Given that circumstance, P&I are both repaid, in small bits, from the money that flows through your account every month, from your income sources - the flow enabled by the pre-existing base money + bank credit.  No flow => you cannot repay, regardless of "how much money got created" when the loan was initiated.  Lots of flow => you can repay, even if NO money was created when the loan was initiated.  Corporate debt is an example of the latter; when a company issues bonds, no new credit money is created by that act of borrowing.  LIkewise, if you loan money to me, no money gets created there either.  Yet if I have a sufficient income stream, I can pay you back using a portion of my income stream, and the system doesn't go haywire or collapse.

Repaying loans via flow is what we all do every month.

The big caveat:

This assumes that the flow of money doesn't get "stuck" in someone's account - that money (in aggregate, over the long haul) is recycled.  Note: all money systems assume this also.  If money gets "stuck" in a bank credit system, it will cause big problems - but those same problems will occur in a gold-coin-only money system, in a "fully reserved gold standard" money system - in fact, in any money system, once an important actor decides to switch from spending to hoarding, the flow through the economic system itself will fall off, and a large number of people will not be able to repay.

They call that a Great Depression.

Last point.  Most people don't store the majority of their wealth in bank credit.  Mostly, they put it in houses, cars, bonds, stocks, and land.  This tendency of people to convert bank credit into other asset classes helps to recycle money too.