Sunday, January 05, 2014

2014 Economic Forecast

May be THIS will be one of the most important summary you will read and not because I am a genius, just because I have read and perused ALL the important forecasts.
Many forecast the economic collapse.
I do not know and nobody can say if 2014 will be the YEAR, what is clear is that in 2014 we will see WHAT the economic future will be.
So THIS is WHAT and not WHEN.
The Federal Reserve will face two choices in 2014: go on with QE or taper.
In both cases we will arrive to the same destiny, even though with QE may be a little bit later.
If the FED will taper there will be an immediate outcome: the interest rates on the treasuries will go up.
That means that the treasuries will be worth less and less (may be nothing) and the ones who invested in them will try to get rid of them.
That has no big consequences in an environment in which the FED buys them, but doing so means going on printing money.
In my opinion tapering gradually won't change much.
Second consequence is that tapering will put an end to cheap money, so the Equity market will follow.
Why the increase in interest rate will lessen the value of bonds?
In principle the investment that pays more money looks the most attractive.
If that was the case, the Greek bonds, that paid 13% interest would have been the most sought of...
The USA with an interest rate of 2% actually pays 350 BILLION dollars interest per year.
One point more would mean 170 BILLIONS more.
If the interest rate grows to 5 or 6% the payment would be impossible, especially in an economy that is not growing.
So, the only outcome would be bankruptcy. And what is the use of bonds that pay 5% when they are worth 0? Second choice is going on printing money, calling it QE or whatever looks better.
That would postpone the end, but the end would come NOT as bankruptcy but as hyperinflation or money that is worthless.
When you increase the monetary quantity the only thing you do is lowering the value of the existing one.
That is Hinflation, and when you print too much you have HYPERINFLATION.
The difference between tapering or not tapering in the end is zero.
Having no money or a lot of money that is worth nothing IS the same.
SO, What will the FED do?
May be it will begin tapering and stop it and printing more and more.
Or just finding, as it did many times before, an excuse and going on with QE.
In this case will be able to suppress interest rates, the value of commodities, pump more the stock bubble.
So, one just has to be a little more patient, but the results will come....

What does it have to do with Europe?
As we know, what the FED does has implications ALL OVER the world, including Europe.
Here the Bundesbank has been partially successful in limiting Draghi in printing Euros.
But in May we will have the European elections, SO...we can presume that the printer in the BCE will print enough money to keep the interest rates of the bonds lower (in Italy the spread is less than 200...thanks to Draghi) but, after MAY...
Also here we will face the dilemma.
One way, and I bet on it, will be a partial debt jubilee, but at the expenses of the people.
Nobody of the official press (the state presstitutes) has wrote about it, but the IMF, since long, is insisting of a 10% tax on the riches.
Which in simple words means 10% levy on our bank accounts.
And of course the beginning of capital control, so that any sum will be possible in the near future.
That would help to reduce the state debt, so that WE can go on paying 70% taxes to pay the interest on the debt, this time to the BCE.
What would be the use of a country if it defaulted on the debts?
It ALL brings to the same conclusion: a transfer of money from the mass to the elite of BIBLICAL proportions.
The result? Many, many poor (and slave) and a very few very, very rich.

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