Skip to comments.The Coming Dollar Shortage
Posted on 12/28/2016 2:09:58 PM PST by BDParrish
In my forthcoming book The Road to Ruin: The Global Elites Secret Plan for the Next Financial Crisis, I make a very simple point: In 1998 we were hours away from collapse and did everything wrong following that.
In 2008, we were hours away from collapse and did the same thing. Each crisis is bigger than the one before.
The stock market today is not very far from where it was in November 2014. The stock market has had big ups and downs.
There was a big crash in August 2015, followed by a big crash in January 2016. Followed by big rallies back both times because the Fed went back to happy talk, but if you factor out that volatility, youre about where you were 2 years ago.
People are not making any money in stocks.
Hedge funds are not making money. Institutions are not making money.
Its one of the most difficult investing environments that Ive ever seen in a very long time.
The 2008 crisis is still fresh in peoples minds. People know a lot less about 1998, partly because it was almost 20 years ago. It was right in the middle of that crash. It was an international monetary crisis that started in Thailand in June of 1997, spread to Indonesia and Korea, and then finally Russia by August of 98. Everyone was building a firewall around Brazil. It was exactly like dominoes falling.
Think of countries as dominoes where Thailand falls followed by Malaysia, Indonesia, Korea and then Russia. The next domino was going to be Brazil, and everyone (including the IMF and the United States) said, Lets build a firewall around Brazil and make sure Brazil doesnt collapse.
Then came Long-Term Capital Management. The next domino was not a country. It was a hedge fund, although it was a hedge fund that was as big as a country in terms of its financial footings. I was the general counsel of that firm. I negotiated that bailout. I think a many of my readers might be familiar with my role there. The importance of that role is that I had a front-row seat.
Im in the conference room, in the deal room, at a big New York law firm. There were hundreds of lawyers. There were 14 banks in the LTCM bailout fund. There were 19 other banks in a one billion dollar unsecured credit facility. Included were Treasury officials, Federal Reserve officials, other government officials, Long-Term Capital, our partners. It was a thundering herd of lawyers, but I was on point for one side of the deal and had to coordinate all that.
It was a 4 billion dollar all-cash deal, which we put together in 72 hours with no due diligence. Anyone whos raised money for his or her company, or done deals can think about that and imagine how difficult it would be to get a group of banks to write you a check for 4 billion dollars in 3 days.
Those involved can say they bailed out Long-Term capital. They really bailed out themselves. If Long-Term Capital had failed, and it was on the way to failure, 1.3 trillion dollars of derivatives wouldve been flipped back to Wall Street.
The banks involved wouldve had to run out and cover that 1.3 trillion dollars in exposure, because they thought they were hedged. They had one side of the trade with Long-Term and had the other side of the trade with each other.
When you create that kind of hole in everyones balance sheets and everyone has to run and cover, every market in the world wouldve been closed. Not just bond markets or stock markets. Banks wouldve failed sequentially. It wouldve been what came close to happening in 2008.
Very few people knew about this. There were a bunch of lawyers there, but we were all one floor of a big New York law firm. The Fed was on the phone. We moved the money. We got it done. They issued a press release.
It was like foaming an airport runway. Youve got a jet aircraft with a lot of passengers and four engines in flames, and you foam the runways. The fire trucks are standing by, and somehow you land it and put out the fire. Life went on.
After that, the Federal Reserve cut interest rates twice, once at a scheduled FOMC meeting on September 29, 1998, and again at an unscheduled meeting. The Fed can do that. The Fed doesnt have to have a meeting. They can just do an executive committee-type meeting on the phone, and thats what they did. That was the last time, in October 15, 1998, that the Fed cut interest rates outside of a scheduled meeting. It was done to put out the fire. Life went on.
Then 1999 was one of the best years in stock market history, and it peaked in 2000 and then crashed again. That was not a financial panic. It was just a stock market crash. My point is that in 1998, we came within hours of shutting every market in the world. There were a set of lessons that shouldve been learned from that, but they were not learned.
The government went out and did the opposite of what you would do if you were trying to prevent it from happening again. What they shouldve done was banned most derivatives, broken up big banks, had more transparency, etc. They didnt. They did the opposite.
The government actually repealed swaps regulations, so you could have more derivative over-the-counter instead of trading them on exchanges. They repealed Glass-Steagall so the commercial banks could get into investment banking. The banks got bigger. The SEC changed the rules to allow more leverage by broker-dealers rather than less leverage.
Then Basel 2, coming out of the Bank for International Settlements in Basel, Switzerland, changed the bank capital rules so they could use these flawed value-at-risk models to increase their leverage. Everything, if you had a list of things that you shouldve done to prevent crises from happening again, they did the opposite. They let banks act like hedge funds. They let everybody trade more derivatives. They allowed more leverage, less regulation, bad models, etc.
I was sitting there in 2005, 2006, even earlier, saying, This is going to happen again, and its going to be worse. I gave a series of lectures at Northwestern University. I was an advisor to the McCain campaign. I advised the U.S. Treasury. I warned everybody I could find.
This is all in my new, The Road to Ruin. I dont like making claims like that without backing it up, so if you read the book, I tell the stories. Hopefully, its an entertaining and readable, but its serious in the sense that I could see it coming a mile away.
Now, I didnt say, Its going to be subprime mortgages here, the kind of thing you saw if you saw the movie The Big Short. Obviously, there were some hedge fund operators who had sussed out the subprime mortgage disaster. To me, it didnt matter. When I say it didnt matter, the point that I was looking at was the dynamic instability of the system as a whole.
I was looking at the buildup of scale, the buildup of derivatives, the dynamic processes and the fact that one spark could set the whole forest on fire. It didnt matter what the spark was. It didnt matter what the snowflake was. I knew the whole thing was going to collapse. Eight years after the crisis of 2008, nothings been fixed.
Whats going to come is a crisis, and its going to come very quickly.
“People are not making any money in stocks. “
If you have enough silver, gold, and ammunition you don’t need to worry about Wall Street.
You just have to worry about your government trying to take it all away from you.
BUMP for future reference!
Well, I wish I had a dollar for everytime I heard some “expert” claim everything was going to crash into some post-apolayptic hell. I fell for it in 1981. Never again.
People are not making any money in stocks.
It’s got ups and downs. I lose and I gain, mostly gain. I am making money.
Sounds like he’s trying to sell a book (which he is).
Dollar shortage? Not as long as the ink supply holds out.
I would guess that if crisis is that much on a hair trigger its gonna get set off when Trump is in charge...like day one if possible. Ive been expecting no less since he won.
“Its one of the most difficult investing environments that Ive ever seen in a very long time.”
That may be true if you are a “daily trader” like this guy apparently is. On the other hand, if you have bought and held a diversified portfolio of index funds like I have, it’s been a very profitable environment recently and over the long run.
Here is a good letter to Trump from an ex-CIA spy (if there is such a thing.)\
I particularly like his suggestion #7:
#7 You are being set up by Wall Street a financial melt-down looms. More than one observer including David Stockman and Richard Fisher (former Dallas Federal Reserve President) and Brandon Smith of Alt-Market.com, has documented the massive bubble that will pop deliberately during your first four years. You appear to be aware of the threat but may not have considered at least one radical idea that could checkmate your financial opponents: a call from you to all US citizen debtors, particularly the young with student debt and the elderly with medical debt but also including those with credit debt and small business debt, to sign the Debt Renunciation Pledge shown below. This pledge to be located on a website to be created by Brad Parscale and funded privately, would strive to register $2 trillion in debt across 100 million debtors, each of whom would be explicitly authorizing you as a President to re-negotiate that debt. Michael Hudson, the most honest visionary economist we have in America, suggests that you need to orchestrate a debt jubilee anyway, but I see this as a superb check on the financial community and its plans to crash the system on their terms. You can organize a soft landing on your terms.
There is a funny thing about cash.
Most people use very little of it.
It has been actively discouraged for 40 years. We no longer have any big bills. A hundred dollar bill has less value than a 20 dollar bill did when we had $1,000 bills in circulation.
A friend got a hot deal on a piece of equipment for his rental business, but it had to be in cash. He could not get $20K from his bank! It took him a week to get it! They were shocked and amazed that he needed a mere $20K in cash!
This tells me that we are not up to printing and distributing large amounts of cash quickly. I suspect at least a 3 to 6 month lag *after* someone makes the decision to print the money.
Therefore, it is likely that cash will be king for some period of time.
George Soros' play. He will move to destabilize the US too.
“A friend got a hot deal on a piece of equipment for his rental business, but it had to be in cash. He could not get $20K from his bank! It took him a week to get it! They were shocked and amazed that he needed a mere $20K in cash!”
Not to mention in many states, if you get pulled over and the cops become aware of the cash (they ask about cash, guns, drugs), they can confiscate it under asset forfeiture laws claiming it is “suspected” drug money.
Had to see if this crap was written by Gerald Celente and was shocked to find it wasn’t.
The power brokers, bureaucrats and big money behind Clinton’s bid for the presidency will do everything they can to make Trump fail.
That is, everything except taking a chance on losing their own money.
People are not making any money in stocks.
A: Those who continue to hold onto stocks (IE: haven’t ‘cashed out’).
Else, it’s nothing but ink on paper.
Someone tell this guy that we don’t use physical cash anymore. The government’s been pushing virtual money with debit/credits. The government can create as many zeros as it needs.
Governments (globalist) want ca$hless societies. They can then tighten control over the populations of the world.
Think about it. No private and or under the table dealings. The government will know every transaction, tax every transaction, eventually approve or disapprove of any transaction.
Want to sell grandpas old 12ga shotgun? uh uh uuuuuh. You must have approval. Wanna pay someone ca$h under the table to mow the lawn, clean the pool? Uh uh uuuuh. You'll then be responsible for SS taxes...even the person providing the service will be responsible for income taxes.
It'll be grand for ol Uncle Sugar.