2017 Outlook

As we begin 2017, we are witnessing extremes in sentiment which I can’t ever recall in my 30 plus years as an economist and investment professional.  Everybody is on the boat in energy, stocks, bonds and of course the US dollar (the kingpin of the world).  Stocks are at record highs with valuations seen only twice 1929, 2000 in the last century.  All courtesy of fiat currencies which don’t float, they just sink at different rates!  Government bonds are considered RISK free and economies seem to be perking up (in the short term anyway).  Debt is disguised as GDP worldwide and debt spirals are underway throughout the developed world. When they collapse is anybody’s guess, but collapse they will.   

Excessive Leverage

Excessive Leverage is everywhere and if it wasn’t for NEW debt creation there would be no growth, no rising markets or record highs.  GDP used to be the measure of the production of wealth, that changed at Breton Woods II and now it is the measurement of consumption of wealth.  Our elected leaders have eaten it all and written checks against any future income.  At this point debt creation is barreling along and hence economies appear to be moving forward.  History is in the making and has been since the financial crash in 2008-2009. 

Pent up optimism

The extremes in markets and sentiment are epic and unimaginable.  Brexit and Trump have released pent up optimism (to levels rarely seen before) by those who produce and invest.  Just like a spring that has been pushed down into a coil by Obama’s policies that assaulted the private sector and wealth creation.  He and his minions have been a wrecking crew to financial security and wealth creation.  Globally, no one invests in the US anymore - as they will confiscate the returns through higher taxes and regulatory costs. 

Fixing the Past

The U.S has been rendered uncompetitive from progressive centrally planned policies and what Trump called “mindless trade deals.”  Just the talk of Trump’s policies have released frustrations.  It is a sight I haven’t seen before.

It is clear that progressive republicans (Ryan, Boehner, McConnell) cannot understand they are not there to build government or even sustain Obamas policies.  They were sent to Washington DC to stop them and instead waived them through.  They are now trying to delay the tax reductions and reform till next year… sound familiar?

When positive sentiment is at the extremes we now see, it is like being in a room full of natural gas and hoping no one lights a match.  I believe we are near just such a moment.  The Trump administration is just that match!  The Trump administration is reforming our government to restart, reward and allow wealth creation and the other prominent nations of the world have no intention or plans to do so and say so bluntly.  In fact, they are demanding he not reform our country’s economic policies.  The Eurozone and Washington DC the elites hold their citizens in contempt and view them as sheep to be sheared.  Washington DC has been in this mode (Clinton, Bush and Obama) but Trump wishes to reverse it.  That game is increasingly over.  The second American revolution is underway.  They will reform or implode, many will implode under any circumstance.  It will lead to interesting times and opportunities.

Runaway Money and Worthless Paper

Actuarial prudence has been increasingly discarded for political expediency for almost 50 years and at its end.  Runaway money and credit creation are nothing but an attempt to ban scarcity, support economic failing policies, and fund the welfare state. Socialism is impossible without commercial banks and they and the public are drowning in unpayable and inextinguishable debt.  Don’t worry.  The debt will be repaid: with worthless paper Dollars, Euros, Yen, Pounds and Yuan printed out of thin air.  A bond is an IOU denominated in an IOU.  If one creditor doesn’t get you the other will. 

Bonds are a two-edged sword, both sharp. If one lender doesn’t default the other will!  Think about that statement carefully: if you hold a bond from Johnson & Johnson and the currency (fiat unsound money it is denominated in) loses its value, who gains or loses? 

The True Nature of Debt

In the old testament, the word for debt and sin are one and the same.  The world is choking on it as more is shoved down our throats by morally and fiscally bankrupt politicians and the bankers who control the process of money creation. In the past, these debt spirals were limited by reserve backed currencies.  Now there are none and the excesses have mushroomed like an atomic bomb blast.  Peek at the U.S. at www.usdebtclock.org  The correction of this foolish behavior by bankers and politicians will be on a scale inconceivable to you and me. 

Once again, it’s the greatest opportunity in history.

Bankers have used this cycle for hundreds of years to transfer a great majority of real property and wealth to themselves.  Most of the greatest fortunes (Rothschild’s, JP Morgan, Rockefellers, Warburg, Kennedy, etc.) in the world were accumulated with this process over the last 400 years.  It’s what we are working on at Doron; piggy backing on history.  Thomas Jefferson knew these rascals well:

"I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property - until their children wake-up homeless on the continent their fathers conquered."  Thomas Jefferson

We are nearing the end of this cycle and it is explosive in nature as the excesses are unwound, markets return to the mean and sustainability becomes important once more.  There is nothing in the world that can stop this process but God and mother nature.  They have always done it in the past and will do it sooner or later now.  On that you can be sure.  It also happens to be the greatest opportunity in history.

The Public Awakening 

Trump and Brexit are the leading edge of the public waking up, and there will be hell to pay for those that betrayed their constituents of which there are many from both sides of the aisle.  In Europe,  Italy must leave the EU/Euro or perish in a Greek like economic and financial bonfire. In fact, the bonfire is inevitable.  France and Portugal are not far behind.  The insolvencies in the European banking/sovereigns and financial systems goes right to the top including the core countries of France and Germany.  It has been building for decades and is very ripe.  It will be a spectacular implosion and could start this year! The elites in France, Germany stand on the firing line.

Trumps reflation plans include restoring the incentives to produce is a powerful elixir for growth.  There is no functional capitalist economy in the developed world, but the US dynamism can be restored.  The second American revolution is underway, in our opinion, to restore constitutional government, incentives to produce, and roll back politicized central planning.  Washington DC is exactly what the constitution was meant to prevent.  The more it is rolled back the more we will thrive as a nation.

The Future of the Dollar

The dollar is poised to move almost 25 to 50% higher on his policies, which will crush foreign borrowers of the dollar increasing their 10’s of trillions of dollar denominated liabilities as measured in their home currency’s the equivalent amount. 

There is a shortage of dollars internationally to service this debt, a big one.  The principle export of the United States, has been and is, dollars.  This process began at Breton woods after WWII, but spiraled out of control when Nixon changed the dollar from money to debt/IOU at Breton Woods II in august 1971.  That was Nixon’s greatest crime.  In one stroke of the pen he changed the money you are paid and store your wealth in, to a scheme where governments can endlessly confiscate your wealth while it sits in the bank.  At this point they have confiscated 90% of the purchasing power since 1913. 

The Trump Correction

As Trump reduces the trade deficits created by oil and merchandise trade deficits overseas dollar borrower’s ability to service their dollar denominated debt shrinks.  What a dilemma!  Who holds that paper off shore?  Both lenders and borrowers?  Both are in deep trouble when Trump policies succeed, and they will, every stop will be used to try and prevent Trump’s policies.  The entrepreneurial spirit, the ability to create wealth and capitalism in US, are unequaled in the world -  if you allow incentives to work rather than destroy them as progressives have done.

Removing the corruption of mindless regulations which prohibit: entrepreneurism, innovation, productivity, and capitalism, tilting the playing field to crony capitalist big corporations and elites who fund their campaigns and retirements.  Capitalism is summed up in 7 words: more goods and services for less money!  If you do that, customers will find you and you will thrive.  Any family wants the best for their family. It is common sense.  Look no further than the Pew study which outlines that since 2008 more small businesses have closed than have been created.  These closed businesses were regulated and taxed out of business.  Something the United States has never had happen in its history.  Until the US creates more small businesses than those that fold, nothing has been fixed.  Since Obama was elected, the United States has fallen from one of the top ten countries in ease of starting a business to 51st, ouch.  This is one of Trumps main objectives to roll back political corruption that we see in that number.

"[A] wise and frugal government ... shall restrain men from injuring one another, shall leave them otherwise free to regulate their own pursuits of industry and improvement, and shall not take from the mouth of labor the bread it has earned. This is the sum of good government."    -  Thomas Jefferson

In the last review, I introduced you to a quote from Ben Hunt and it described to paths for financial systems and economies in the future I will reprint his observations to freshen your memories:

Quoting Ben Hunt

“The Long Gray Slog – a continuation of the current investment status quo, where central banks continue to squelch the volatility out of markets in their continuing efforts to turn markets and the entire macro-economy into political utilities. Business cycles and bear markets are effectively outlawed, but the imposition of a floor also imposes a ceiling. It’s 1% GDP growth and zero on your savings and flat to slightly up markets just as far as the eye can see."

“Fire & Ice – a political event that sets the global economy on a new deflationary leg down, which in turn creates a global credit freeze and liquidity concerns at systemically important European banks. This is Ice. But central banks of the modern ilk refuse to back down, unleashing a wave of bank nationalizations, negative interest rates, and helicopter money drops of various sorts, all designed to force asset prices higher by sheer dint of printing and distributing vast quantities of fiat currencies. This is Fire. You don’t get the Fire without the Ice, and I need strategies that can survive both.”

The Trump election was the “fire and Ice” event we now speak of.  It has caught $Trillions of dollars (Millions of Millions) of investments off sides as they were positioned for the long gray slog.  In the long gray slog you have developed world economies being choked on the status quo of high and rising taxes, regulations, debt substituted as growth to fool the public, crony capitalism, central planning implemented by unaccountable politicians, and endless attacks on the private sector by government (endless expansion of government and authoritarianism in more ways than we can mention) and bankers.  They do this through the fiat currency and credit financial systems where money can be printed out of thin air and the purchasing power of your savings can be diminished while it sits in your bank and your balance never changes.

Very few people thought Brexit had a chance.  The odds of its passing were prohibitive right until the election results began to land like bombshells on markets.  The Brexit referendum was a campaign of FEAR (false evidence appearing real) waged by those incumbents in government and elites of both sides of the aisles, DOOM and GLOOM if it was approved.  All the NGOS such as the IMF, OECD, world bank predicted economic and financial disaster confirmed by a chorus of corrupt main stream media and academics. 

We remember the night clearly.   I supported the UK regaining its sovereignty from the unaccountable EU socialists and bureaucracy’s in Brussels.  It was the silent majority waking up to the demise of the middle classes by elites and the poorest among.

It was replayed in the presidential race here in the States.  What a show of fear, scare mongering, blatant transparent lies, and vitriol.  Socialists and Progressives have no values except power over others and they will go to any length to preserve it.

Blessedly, we witnessed the silent majority step forward again on November 8th.   The forgotten people of the middle classes, whose futures have been eroded by those who they trusted to guard them in their state capitals and Washington DC, arose to make their voices heard.  Their blinders are now being removed by Pres elect Trump.  I have a little power statement to sum up the elites in Washington:

The republicans and democrats are just official versions of the Gotti’s and Gambino’s fighting turf wars known as elections to see who gets the front row in abusing the private sector. 

You can easily identify some of the players.  Hillary Clinton and Barack Obama on the left side of the aisle and on the right, it can be seen with Jeb Bush and the bush dynasty, Paul Ryan, former speaker Boehner, Mitch McConnell, or John Kasich for instance.  Big government progressives and socialists.  The BIG MONEY powers behind these groups could care less who is elected from these groups as the looting and victimization would continue whoever was elected.  Progressive big government who has no intention of letting you keep your own money and freedoms believing you are stupid and need their virtues and guidance gently steering the developed world towards globalization and surrender of sovereignty and freedom.   They talk in a condescending manner about populism. 

New World Order Policies

I still remember when I heard the words NEW WORLD ORDER from President Bush the first.  I didn’t know what it meant in 1991, now 25 years later it is very clear.

The policy prescriptions of the new world order as:

  • high and rising taxes to confiscatory levels transferred to themselves to be redistributed to reward donors, and buy the votes of the poorest among us.  Destroying the incentives to invest and produce wealth as to do so results in it being confiscated.
  • Substituting money and credit printed out of thin air (which they can loot at will and direct to tier elite supporters) for the policies of growth, wealth creation, rising middle classes, and America first.
  • runaway regulations to implement crony capitalism and ban innovation, entrepreneurism, wealth creation, (this must be done as their policies destroy wealth creation so in a declining economic world all business must go to the well-connected) and taken from the small business sector.
  • capture the banking and financial systems to finance their folly of repealing the laws of nature and ban scarcity.  As Lenin once said: “socialism is impossible without commercial banks”.  They are printing their way to the final denouement. And don’t care!
  • establish public school monopolies what don’t teach history, real math, or critical thinking abilities.  These useful idiots are taught they are entitled to wealth and abundance and the impossible belief that you can live by taking the fruits of others at the end of the government gun.  In Abraham Lincolns days, taking the wealth of others at the point of a gun was called slavery, now it has been renamed as FAIRNESS.  They have not been taught the fact that, in order to create wealth and thrive for yourself, you must produce more than you consume, live a prudent and independent of government lifestyle.  (I have a coming five-part series: Useful idiots and the something for nothing society which will explain these people and how they came to be, don’t miss it)
  • selling the hoax of human caused climate change to grab control of the most important commodity of the developed world.  ENERGY. A tax which will always grow as man has no ability to control nature.  It’s the taxman in disguise and unaccountable power.
  • move everything as far away from accountability from the public as possible. So, when they lose the consent of the governed, they can continue on their looting. The EU is an excellent example of this.

The Kids are Waking Up

Would anyone in their right mind vote for this agenda if they understood it?  But people do as can be seen by Clinton supporters.  These groups are shrinking as they slowly wake up to what it is doing to their families, future prospects, and their children’s futures - which has been sold by the powers that be in the form of Sovereign debt.  It is unpayable and inextinguishable and sooner or later our young people can be expected to say NO!

In my opinion they are about to hit their waterloo.  Italy is about to make the next jail break on December 4th.  You can expect jail breaks in Spain, Germany, Austria and France to name a few in the next year.  This Italian jail break has much bigger implications for the world economy and this warning.

For the most part any republican main stream candidate has similar houses.  Look at the vast fortunes accumulated by the Bush’s.  Do you think they earned that?  Or is it the spoils of unrestricted power and cronyism? Whether a Bush, Clinton or Kasich were elected this all would have stayed the same. Let’s call it what it is: public corruption on a global scale.  All the money I speak of was positioned for the status quo.  It is more money than any of us can conceive.

The Reversal is Coming

Now we have the lighting strike as President elect Trump stands for the antithesis of the New world order.   He fully intends to reverse all those policies and more.  He is going to BREAK the chains of elite progressives and globalists - in my opinion.  But whether he does or not, the TSUNAMI is already working its way to our shores and that of all the globalists and broad fires can be seen in the smoke signals.  Here’s a few:

Here is one of the cornerstones of the world’s financial systems, the ten-year US treasury note.  The low yield was put in when trump took the lead over Hillary in August at about 1.36 %.

Since that time Yields have moved to 2.32%.  Bond markets almost always sniffs out a change and this time is no different.  Notice the crash activity since early Novembers election.  Bond prices move inverted to yields, when yields rise bonds decline and that is a BIG MOVE.  In percentage terms, long term yields have increased an incredible 60% since August, in the EU core of Italy, France, the UK yields have ballooned even more (over 100%) on a percentage basis.  These are mountain moving capital losses of several TRILLIONS of dollars (millions of millions), but the real carnage is in the swaps and derivatives markets which dwarf the global debt markets which are about $150 trillion dollars ($150 million million), the derivatives are somewhere in the $700 trillion to one quadrillion size and much of it is un-margined and held by the too-big-to-fail banks you keep your money in.  (Don’t worry they will print the money to save themselves). 

To give you one more reference point, the total global GDP is about $70 trillion in nominal terms and $50 trillion in real terms after you subtract phantom GDP which is a political fiction.

We have now broken that trend line on a daily and weekly basis - its trading at 2.385% and the nail in the coffin will occur next Thursday (December 1) as the monthly basis will become active.  At that point every BIG financial institution and pension in the world will have to adjust their positions.

An example of the adjustments would be: VAR (value at risk) an arcane trading rule for highly leveraged Banks and brokers.  Since these banks operate on 30 to 50 to one leverage a 3% loss will wipe them out.  When markets move in the volatile manner shown, these people have to reduce their positions to avoid a wipe out on a daily or weekly move.  There are not enough global counterparties to handle the size of the adjustments!  Only central banks can do so but they don’t have the ammo YET!

The Yen

Selling of the YEN (king of the carry trade) has been relentless; it begins in the morning and continues throughout the day since the Trump victory several weeks ago.  It has moved down 10% and only a fraction of the money has been adjusted.  The world does not have enough dollars to handle the requirement and the federal reserve does not have the swap lines in place with other world central banks to handle the global flows as they are moving like someone looking for the exit in a burning theatre.  Now these institutions are staring at markets which cannot handle the size required on a daily/weekly/monthly basis.  The end-of-year is approaching and most adjustments must be in place before liquidity disappears for the holidays and for the end-of-year book squaring. 

The Fed

The federal reserve is going to raise interest rates at the next meeting week after next (the markets have already tightened).  They have an additional problem as they probably won’t put the required swaps in place till after the meetings at the earliest and probably the week of the 15th to 20th of December (this announcement will probably mark the end of the unfolding panic).  Mario Draghi will extend QE past next march in early December and the bank of Japan will have its hands full.  There are technical chart patterns which are signaling a quick 5% move in most major currency crosses, Yen, Euro, Dollar, etc.

The Italian Vote

The Italian constitutional amendment next Sunday is a big wild card.  Let’s call it Brexit, a trump victory and next revenge of the little people - in order.  Unfortunately, Italy’s banking system has per official measures non-performing loans of 30%.  Now, take the fact that their balance sheets are 350 to 400% of GDP and the bill to rescue them is close to 100% of GDP.  Italy’s debt to GDP ratio is already about 130%.  When the establishment elites are repudiated again, only hard core socialists of the five star party and Beppo Grillo stand as the heir apparent.  Beppo is a hard core socialist and wants to jettison the euro and regain sovereignty as has the UK.  This guy is unequipped to reinstitute free market economy and it is also prohibited by law.  Brexit and the Trump victory are the beginning, not the end of the repudiation of the unaccountable elites.

In Closing

The next two to three weeks a tsunami wave which is already visible in the charts will hit like a brick wall we believe.  It is a big wave (running silent and deadly like a tsunami does) and heading to the headlines.  How it will affect stocks, commodities and precious metals is unknown yet.  The smart money is on the move and the big dumb money will get the gravity of the situation in about 1 week.

The carnage in the bond market is impossible to predict. It could be as little as another $2 trillion dollars or as big as 5 times that figure.  The re-margining, position adjustment and fixing of the swaps is incalculable. The currency move is going to be enormous if the charts are to be believed.  The world is short dollars as almost $25 trillion (leveraged at 5 to 50 to 1) dollars is owed by off shore borrowers of one sort or another.  The amount of their obligations is mushrooming and they are going to want OUT or get a hedge on!  There is not enough of them, the banks have been regulated out of the liquidity and trading business.

This will probably end when Yellen and the Fed step in to fund the moves and counterparties.  They are not in place and an emergency meeting will take place or perhaps the heat will be great enough week after next to get them ready. 

The dollar shortage is just beginning and will be the recurrent theme going through next several years.  The principal export of the US is worthless paper dollars to fund the servicing of the leverage.  Unfortunately for them, as Trump claws back the $330+ billion a year in paper exports (energy self-sufficiency and the high paying jobs that go with it) and keep it here by reviving the domestic energy industry and revives the industrial and manufacturing sectors ($200 to 300 billion) those dollar exports will increasingly DISSAPPEAR.  Status quo candidates would never consider this, trump promises it.  He works for you not them. 

And as Warren Buffet once said about borrowing “when the tide goes out we find out whose swimming naked”. They are and we will.  Don’t worry, they will print the money! I will write an update blogpost every week till the week of the 20th.   Stay tuned.

I just finished reading a short note from Ben Hunt and his synopsis of current economic conditions and the future which I thought I would share with you and add a few thoughts about how the future crisis will unfold.  Keep in mind we live in a world of moral and fiscal insolvency and all we are waiting for is the public to wake up as the unfolding crisis is baked in the cake.  In econ 101, I learned my first lesson: tanstaafl (there is no such thing as a free lunch) and modern Politicians and central bankers believe in a free lunch.  The bill is coming due soon and it is unpayable and inextinguishable.  

Quoting Ben Hunt

The Long Gray Slog – a continuation of the current investment status quo, where central banks continue to squelch the volatility out of markets in their continuing efforts to turn markets and the entire macro-economy into political utilities. Business cycles and bear markets are effectively outlawed, but the imposition of a floor also imposes a ceiling. It’s 1% GDP growth and zero on your savings and flat to slightly up markets just as far as the eye can see."

Fire & Ice – a political event that sets the global economy on a new deflationary leg down, which in turn creates a global credit freeze and liquidity concerns at systemically important European banks. This is Ice. But central banks of the modern ilk refuse to back down, unleashing a wave of bank nationalizations, negative interest rates, and helicopter money drops of various sorts, all designed to force asset prices higher by sheer dint of printing and distributing vast quantities of fiat currencies. This is Fire. You don’t get the Fire without the Ice, and I need strategies that can survive both.”


People are waking up

Currently we are in the long gray slog but it has been 8 long years and it is very long in the tooth.  As I illustrated in a previous missive, central banks are printing more at this time than any time in the last 8 years ($190 billion= 190,000 million a month) and still economies can’t grow and governments and financial systems are more in debt than ever.  All the money is going into consumption and is not self-liquidating debt as socialism eats out the productive economy. 

We all live in an illusion of market economies and capitalism, but they have been outlawed, now it is “Misery spread widely” as we are eaten out from the inside of our countries.  This is coming to an end as people want change as their lives and living standards been destroyed by corrupt politicians and academic central bankers.  We are in the slog.  Fire and ice will be a redo of 2008 but exponentially greater and looms in the near future.  A mere 1% rise in long interest rates will generate more than $10 trillion dollars of losses in the bond markets and trillions more in stocks.

Something for nothing society

As Fire and Ice looms, Politicians and central bankers are doing everything they can to postpone the looming crisis.  During this period since 2008, more than $50 Trillion dollars (50 million million) have been printed out of thin air.  Money cannot be printed out of thin air - only debt (IOUs denominated in IOUs, If one creditor doesn’t get you the other will and the public present and future are on the hook for it (Hint: they will not pay it).  The era of broken promises loom.

We live in a something for nothing society and it is akin to locusts and eat everything down to its roots and next years seed corn (we are there now). And they will print it until their schemes fail as the people at the head of governments and central banks do not remember how to create the conditions for a growing economy. They are predators. 

The illusion of economic growth

All economic growth today is debt disguised as growth. They must print five dollars of debt to get 1 dollar of growth or asset inflation (as the money is printed) will drive asset prices to reflect the lower purchasing power of the currency it is denominated in - creating an illusion economic growth.  The growth has all been financially engineered and is not REAL, it is an illusion.  We are just waiting for the event, of which dozens are brewing.  This is the greatest opportunity in history and don’t worry they will print the money…

The policies of insolvency is a concept you should all become familiar with as it has, is and is going to severely impact you and your family for the foreseeable future. The societal, financial and economic chaos we see unfolding today is a nothing less than history repeating. It is how empires and governments fall as their currency and financial systems slide into insolvency.

How it began

This period began its endgame on August 15, 1971 at Breton Woods II when Nixon left the gold standard to stop a run on the US treasury by foreign central banks and substituted IOU’s for the semi sound money we had at that time. Now we are afloat on a sea of leverage inconceivable to you and me. A house of paper mache cards which could fall at any moment. Although the final denouement lies in the next 5 to 10 years in my opinion.

The insolvency of the developed world

The developed world is completely insolvent at every level of society and debt is growing approximately 4 times faster than income. The GDP growth we see reported to us is debt in disguise to mollify the public. If they knew the truth of the matter the confidence game would immediately implode. This state of affairs is the endgame we can see throughout history, and without exception ends in tears.

The banks throughout the developed world are generally operating in insolvency and their reserves are the IOUs of insolvent governments who may have not paid back a cent of principle in 4 decades. Basically most, if not all, developed world government debt has become a PONZI scheme where all new borrowing pays back old obligations (rolling the debt) and any interest due.

“If the practice persists of covering government deficits with the issue of notes, then the day will come without fail, sooner or later, when the monetary system of those nations pursuing this course will break down completely. The purchasing power of the monetary unit will decline more and more until finally it disappears completely.”  -- Ludwig von Mises

How debt transfers purchasing power

That debt transfers the purchasing power of your Dollars, Pounds, Yen and Euros to its sovereigns and banks while it sits in your bank and your balance never changes, only the amount of goods and services it buys is fractionally reduced. To see this in action take a look at wages properly adjusted to inflation courtesy www.shadowstats.com:

This is an old chart and the drop in real wages has continued its trend since 2007. As you can see in real “purchasing power” terms wages have been reduced about 60% since 1990. The banking system fills in the “purchasing power losses” gap by offering lending to maintain lifestyles and slowly but surely the public has been turned into debt slaves to the banks who printed the lending out of thin air. This is why the middle class is vanishing courtesy of fiat currency and credit creation. The powers that be, devalued the purchasing power of your money using the runaway monetization (while it sits in the bank) and wages in real “purchasing power” terms are in freefall!

The effects of QE

When central banks do Quantitative Easing (QE), aka printing money, they are monetizing government debt as all interest paid to the central banks are returned to the issuing government. The debt and obligations are mathematically impossible to reconcile or repay using calculations of economic growth. Our governments run accounting in a manner that would land anyone in the private sector in jail. These things are detailed in public on the internet and only a small group of people follow it. The misbehavior is on plain display. Take a look at this chart detailing the difference between the reported US government deficits and GAAP (Generally Accepted Accounting Principles):

The real deficit

As you can see, last year’s real budget deficit was 10 times the size reported by the main stream media. On the books, debt and off the books debt has mushroomed since Obama took office. The future obligations, for every man woman and child in America, grown by $18,000 per year. That is $180,000 for each person. What do you think the public would do if sent a bill for this? Why isn’t this being properly reported? Because this is how elites in government and the big banks confiscate your wealth without you being aware. Socialism and wealth redistribution by stealth! From you to them. Warren Buffet plays this like a banjo in his business model. It goes back to Keynes quote;

“The best way to destroy the capitalist system is to debauch the currency. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.  -- John Maynard Keynes, 1920

These are the reasons society is revolting and chaos unfolding as they have been robbed by the people they have placed their trust in: the government and the banking system. The real number of future obligations for each of us is shown in this chart:

This is $379,327 per person and $861,032 per taxpayer. The federal government fully expects you to pay your obligations to the government with interest in the future. They have confiscated your future wealth in advance by legislation. Add the acknowledged debt of almost $19.4 trillion dollars (19.4 million million) to the GAAP adjusted liabilities of $103 Trillion dollars (103 million million) that must be repaid from an economy of about $19 trillion dollars (this is also a politically correct number, the actual GDP amount is 20 to 30% lower if you subtract phantom GDP, a story for another day) and you can see a lot of those promises to pay will not be honored in the future. There will be rioting in the streets when millennials are presented with the bill. Of course, they will refuse to pay it.

Currently, between the Bank of Japan, Bank of England and European central bank are printing about $193 billion (193,000 million, an all-time high) a month to delay the bankruptcy of their governments and financial systems.

The amount being created is at an all time high since the financial crisis began, illustrating the black hole nature of the insolvency. The number in this chart was increased this morning by the New QE announced by the bank of England by about $13.2 billion a month. This money is a keystroke away and is a direct withdrawal from the value of the cash you are paid and in which you store your wealth.

“The U.S.. government has a technology, called a printing press, that allows it to produce as many U.S.. dollars as it wishes at essentially no cost.”  -- Benjamin S. Bernanke Chairman, U.S.. Federal Reserve

The stealth tax

This is a stealth tax, on you, paid to the government and financial industry which controls it. When the federal reserve was created in the dead of night at Christmas in 1913, a deal was struck: In exchange for funding the progressive government and his reelection, the financial system was turned over to global bankers. Woodrow Wilson said immediately afterwards:

He is talking about the federal reserve, which is a privately owned monopoly. Have you ever heard of a monopoly working towards the benefit of its customers? What you see in today’s missive is but a small portion of the mushroom clouds of debt which Keynesian economists have created. Here is a look at the damage since the global financial crisis in 2008, from $57 trillion dollars ($57 million million) while the global economy grew less than a quarter of that in nominal terms (credit growth disguised as real growth), in real terms there was no economic growth.

The US government is funding their deficits by requiring commercial banks and money market funds to buy the debt, using their balance sheets (required by Dodd Frank passed by the Obama administration in July of 2010). Dodd Frank has changed the rules and basically outlaws corporate debt and commercial paper in money markets funds going forward. A half a trillion dollars of deposits face a game of musical chairs heading into October.  Things could get quite interesting heading into the elections!

It is also why the Federal Reserve is no longer doing Quantitative Easing (aka money printing) as the buyers (banks and money markets) have been legislated to fund the government debt. The Keynesians shamans (voodoo academic economists with a total disregard for history) in government have prescribed more debt to solve a debt problem. Government debt on the balance sheets of the banks has mushroomed, like to nuclear blast, of insolvency it is. This is echoed across the developed world. To these people, debt doesn’t matter as they control the money and think they can print their way out of it. That game is facing its waterloo after 100 years.

The transfer of insolvency to you

This political maneuver disguised as prudence by regulators is transferring the governments mushrooming insolvency to the banks and money market funds you hold your money in. When the Fed buys the debt, it can go there to die (as the money to purchase it was printed out of thin air at no cost except to the purchasing power losses in your paper wealth).  The authorities call these "bonds," which have almost never been repaid (only rolled) risk free. Of course, these investments in government debt, limit the banks and money markets balance sheets from private sector lending, furthering the lack of working capital to anything but government. Government does not create wealth, it extinguishes it, and is not self-liquidating as private sector lending is.

If the truth be told about Dodd Frank, it is quite simply, politically directed lending requirements. It put “Too big to fail” into law and nationalized the banking system in a regulatory manner. From 6,000 pages of financial regulations in 2010 has now morphed into 24,000 pages written by progressive political apparatchiks whose goals are control, not the practical functions of a good regulatory environment which promotes private sector growth and allocates capital to productive purposes. Think of Dodd Frank as a python putting the squeeze on its prey. Hundreds of treasury officials have moved into the biggest banks and are directing lending decisions in a political rather than a practical manner.

If lending has US governments guarantee or serves a politically correct idea (climate change, clean energy) it is rubber stamped. If it is to private self-employed entrepreneurs who actually have to create a profit and pay it back, it has become too risky according to the progressive bureaucrats. Mega corporations who conduct lobbying are still on the approved list. Trillions in new deposits where rolled up from smaller institutions and almost no small banks have been started since its passage.

In conclusion

The first lesson I learned in Econ 101 was tanstaafl “there ain’t no such thing as a free lunch,” and it is the first rule of good economics. Today’s government and financial leaders are in the process of relearning this timeless rule and the bill is enormous. This is an old fashioned debt spiral, but on a scale inconceivable to you and me. It is progressive socialists trying to ban scarcity and get something for nothing, and ignore the history of these episodes of insanity which are frequent in history. The final denouement has never been avoided by man. We will discuss this theme over and over as it is an epidemic of moral and fiscal bankruptcy where todays politicians and financial industries sacrifice the future of our nations and children, to avoid prudent behavior today.

This is but a small tip of the debt iceberg, ripping through the hulls of the biggest economies in the world. Mountains of unpayable and inextinguishable debt, aka promises to pay which will be paid for with further money printing and an attempt to confiscate all private property by those who claim to serve you. The only thing keeping the game going at this point is money (aka IOU’s) printed out of thin air. This is a man-made disaster. All major financial and currency collapses are credit events and this episode is no different. The financial collapse is in full swing and has been since 2008, but the powers that be have kept credit growth robust and the final collapse still lays on the horizon as long as it continues. Over $14 trillion dollars of debt has been issued in the last 3 years to official borrowers who are insolvent in real terms and risk free in regulatory terms! When it turns, it will be the greatest crash in history. A mere 2% hike in rates will result in losses of 20 to 30%. Debt has become Subprime all the time!

On a positive note, this is the greatest opportunity in history and the greatest wealth in history has been accumulated for centuries around history repeating itslef. The greatest transfer of wealth in history from those who hold it in paper wealth to those that don’t, looms. It always is preceded by the deflationary episode seen today as the leverage fails. As assets try to decline and go through a reversion to the mean (and the welfare state becomes impossibly expensive) the financial authorities print the wealth until the public wakes up.

The low and negative interest rates we see today are called financial repression (seen throughout history) and it is a direct transfer/confiscation of your wealth to the powers that be. Do you think zero interest rates mean no return? No. It is your return on your hard earned wealth transferred to insolvent banking systems and governments. The authorities can never raise interest rates again, until after the crash which is inevitable.

In the next Doron Review, we will discuss what real money is and isn’t. Don’t miss it…


Welcome to the beginning of the Doron review. My name is Ty Andros and I am the CIO of Sanctuary, a Doron project created to preserve and build wealth during a currency and financial extinction event as outlined by Ludwig Von Mises and the Austrian school of economics. Von Mises. Fredrik Hayak and Josef Schumpeter are Austrian economists who you may have heard of. Ronald Reagan was an Austrian economist and its policies where the basis for the Reagan boom years. At Sanctuary we are Austrian economists.

Austrian Economics

Austrians are historians by nature and believe history repeats. Austrians believe that human nature, free markets and enterprise, sound money and private property combine to create a society, conditions and rewards that lift all boats that can create wealth for broad societies as a whole. The great wealth our fathers and forefathers created in the United States were Austrian economics aka Capitalism in action that created the broad middle classes in the developed world.

History Repeating

What we see unfolding today is history repeating on a scale inconceivable to you and me. I look forward to bringing you the insights to unlock and make sense of the economic and societal maelstrom as it continues to unfold. You will be shocked and dismayed as we reveal the facts of the matter. In Chinese the word for Crisis and great opportunity are the same. The bottom line is that it is the greatest opportunity in history in our opinion.

The Bottom Line

The bottom line of the chaos we see unfolding worldwide is the culmination of over 100 years currency debasement which has crept into our lives in a manner most people cannot recognize. Unsound money is the master thread. I will start by using a bottom line quote from Von Mises:

“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.” – Ludwig von Mises

Most if not all great depressions and the fall of empires were currency and credit failures. Without exception all of the fiat currency and credit financial systems as we run today have failed to varying degrees. The banking community and their progenitors were well known to our founding fathers and the constitution was written in a manner to prevent them from coming to America.

After a pitched battle lasting over 140 years constitutional barriers failed and they were unleashed on America in 1913 by Woodrow Wilson. The poverty you see unfolding in the developed world is their business model in action. It is known as serfdom or debt slavery. They accomplish their dirty work with unsound money printed out of thin air.

  • Gold is the currency of KINGS
  • Silver is the currency of Merchants
  • Credit is the currency of slaves
  • Credit is not money

The world in is in the latter category. Quoting J.P Morgan:

“Gold and silver are money. Everything else is credit”— J.P. Morgan

Why is Wealth Creation Disappearing?

Why, you ask, is the world of wealth creation, economic growth, abundance and opportunity disappearing? I will take you to the words of John Maynard Keynes who laid the intellectual underpinnings of today’s monetary and financial systems after World War II at Breton Woods:

“The best way to destroy the capitalist system is to debauch the currency. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. The process engages all of the hidden forces of economic law on the side of destruction, and does it in a manner that not one man in a million can diagnose.” - John Maynard Keynes, 1920

This process in the United States began in 1913 with Woodrow Wilson’s betrayal of the American people. The world is drowning in the moral and fiscal insolvency caused and funded by unsound money. Unsound money is a confiscation process used by governments and bankers to devalue your money while it sits in the bank. It allows politicians to cover their policy failures with money printed out of thin air. Socialism is impossible without unsound money and bankers working together.

“Without big banks socialism would be impossible” - Vladimir Lenin

The Problem of Storing Wealth in Paper

It is impossible to store wealth in paper money and I will cover this in future posts. The nature of paper money is a business model which has allowed a very small group of men accumulate the majority of real wealth in the world as detailed by Thomas Jefferson:

“I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” - Thomas Jefferson

This process of currency debasement has been firmly underway in the United States for over a century and worldwide for 300 plus years and I will show you in coming posts how private property has also been abolished. The last 40 years since August 15, 1971 when Richard Nixon removed the reserves behind the dollar was the greatest heist in history and went virtually unknown to the common man as he had not been taught what money is. Watergate was nothing. This was his greatest crime!

It would have been impossible in the 1920’s as rioting would have occurred. But it unleashed the final betrayal of government of the public. It was a crime against humanity and the American people as the dollar was converted to reserve status. The words of former Fed chairman Alan Greenspan explain how we have become a welfare socialist state:

“Under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth… The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit… In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.” ― Alan Greenspan

Sound money is the barrier between being free men and serfs. It is the definition of private property. Sound money is the barrier between sound economic policies versus moral and fiscally bankrupt policies we see from our governments, public servants and bankers. We will cover this in detail in future posts. To understand the results of this process look no further than Washington D.C . It has become everything the constitution was meant to prevent, takers of freedom and opportunity rather than its protectors. It has occurred because of unsound money.

“When you see that in order to produce, you need to obtain permission from men who produce nothing; when you see that money is flowing to those who deal not in goods, but in favors; when you see that men get rich more easily by graft than by work, and your laws no longer protect you against them, but protect them against you…you may know that your society is doomed.” - Ayn Rand - Atlas Shrugged

Is this not a description of the federal governments and their bureaucracy’s worldwide today?

Leaving the Matrix

One of my favorite movies is the Matrix and it is analogous to world today. The Doron review is dedicated to extract you from it so as to better protect you and your families. Sanctuary is dedicated to capitalizing on the unfolding maelstrom as the insanity reaches its crescendo and brings us back to reality.

In closing; We are in the midst of a great awakening worldwide. The process will akin to the French and American revolutions as many Marie Antoinette moments lay in the near future for the powers that be. For them it is their waterloo, but the battles for freedom and prosperity will be hard fought. The Doron review is not meant for the weak hearted and dedicated to creating the understanding of it as it unfolds.

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