OT: Doomsday Bug

Fed Will Blink

By Bill Bonner, chairman, Bonner & Partners

There was a time when central banking was an honest profession.

Central bankers provided financing for the government. They backed the banking system, too, by holding savings as reserves, which they lent to solvent member banks in emergencies.

They were tight-lipped, tight-laced, and tightwads. Their role was to say "no" more often than "yes."

When the king wanted money to fight in a war... or build a bridge... the banker would give the terse reply: "Sire, we don't have any."

Real money was backed by gold. And credit had to be backed by real money, which meant it had to be saved. Savings were limited, as was money.

Savings backed 100% of U.S. credit needs until about 1973... two years after President Nixon first announced that the dollar would no longer be backed by gold.

Then, almost unnoticed, a new financial system took over... with new central bankers in control of it.

Forty-five years later, America saves scarcely 20% as much as it issues in new credit.

The other 80% is "funny money" ? credit created out of nowhere by the Fed, by banks, and by foreign central banks (mostly recycling trade surpluses).

Doomsday Bug

Haruhiko Kuroda, governor of the Bank of Japan, says he's going to put out a lot more of this funny money. From Bloomberg:

The Bank of Japan will continue with very accommodative monetary policy and maintain the current pace of asset purchases for some time, Governor Haruhiko Kuroda said in an interview.

While Japan's economy is doing better than thought a few months ago, the inflation rate is still quite sluggish, Kuroda said in New York on Thursday.

"The target is 2%," said Kuroda of the rate at which the BOJ hopes to destroy its own currency. "We're still around 0%. So it's a long way to go," he said.

The Bank of Japan already owns 40% of outstanding Japanese government

Japan's deficits with make-believe money.

This is not going to happen. Our little secret: Unlike the real-money system that prevailed until 1971, this system ? with its heavy reliance on credit ? is, surprise, surprise, extremely vulnerable to the credit cycle.

This is the "doomsday bug" buried in the world's money system.

When the credit cycle turns ? when people begin to notice that the whole system is FUBAR and become reluctant to lend ? the world's money disappears...

... and the whole thing blows to smithereens.

Reply to
Robert Baer
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Might just as well worry about global warming and GMO food. Have a nice day!

Reply to
krw

Happened in 2007/8, though, didn't it? Yet here we are 10 years later and still merrily printing! OK, sooner or later it'll all finally collapse, but none of us know when and if it'll even be in our lifetimes.

Reply to
Cursitor Doom

On 06/04/2017 07:55 AM, Cursitor Doom wrote: : On Sun, 04 Jun 2017 05:48:15 -0800, Robert Baer wrote: : :: When the credit cycle turns ? when people begin to notice that the whole :: system is FUBAR and become reluctant to lend ? the world's money :: disappears... :: :: ... and the whole thing blows to smithereens. : : Happened in 2007/8, though, didn't it? Yet here we are 10 years later and : still merrily printing! : OK, sooner or later it'll all finally collapse, but none of us know when : and if it'll even be in our lifetimes.

Who gives a flip? That isn't "doomsday".

Reply to
Real Good Guy

No, doomsday was in 2008!

Reply to
Peter Jason

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