The Watering Down of Wealth

September 1, 2015


Good luck to Agriculture Minister Simon Coveney attempting to persuade farmers the fall in commodity prices for dairy, beef and grain is only a temporary glitch in the markets. Good luck with his efforts to persuade the EU to grant €800ml aid to Irish farmers to build storage to take meat out of the market place and hold until prices improve.

IFA president, Eddie Downey, “accused Mr Coveney of making big promises about opening new markets in China and the US to Irish products when the reality had been completely different, with just €500,000 worth of beef sales to the US rather than the talked-about figure of €80 million-plus.”

The reality is that farmers, water protestors, and the general public see through the myth that prosperity is returning to our shores. Young people at the lower levels of the public services eg in education enter at salary levels lowered from scales paid to those at senior levels.

The economy is worsening except for those at the top.

Growth in senior management grades in the HSE has a counterpart in the scandalous and disgraceful cuts to services of some with the greatest need for support in terms of their disability.

For example, recent cuts have meant a group of 28 parents advocating for services for their care now aged 18yrs, from a mainstream provider proven in provision of adult services for those with the severe needs of autism, have been denied such services.

In place of dedicated, proven, mainstream services, parents have been redirected to another service without record or means to work in this area, to provide a cover of 3 days per week. This has severe impact not only for the parents and their care, but for the future development of services in this area.

Such a predicament and scenario worsens when measured against the policy to provide free medical care to under 6’s and over 70’s for those who can well afford to pay. This is symptomatic of a generalised worsening in services for all but those who do not require such services.

In spite of this salary scales and levels of management at top of the HSE continue to grow. See inmo link below.

Irish Financial Services Industry/lending professionals at all levels

“Morgan McKinley August monthly Employment Monitor for July 2015 demonstrates an increase in professional jobs by 31% (July 2014 v July 2015) and 11% (June 2015 v July 2015). Focusing more particularly on the banking sector, as lending within the commercial, corporate and retail banking continues to recover, there is a growing need for lending professionals at all levels. The recent announcement of a pay rise by one of the country’s leading financial institutions will no doubt serve to make these roles even more attractive.”

The financial services industry and the banks who brought about Ireland’s economic collapse with their tooth and claws in austerity for Irish public services, are rebounding from their setback in 2008. While the economic prospects of those at the bottom of the tree decline further, those at the top of the tree, the 1% are mushrooming.

Forget services in education and health, infrastructure, product/service development, harnessing the creative energy required to develop the future of mankind, lets all print money and sell loans to each other. Lets have a system designed to pump all the wealth from the bottom 99% up to the top 1%. I digress.

All is not well with the financial sector. Consider the following:

“the World Bank’s three industrial commodity price indices – energy, metals and minerals, and agricultural raw materials – experienced near identical declines between early 2011 and the end of 2014, of more than 35 percent each, and will continue to contract this year. Prices of precious metals are also expected to decline by 3 percent in 2015, on top of the 12 percent decline seen in 2014. Again, ample supplies, weak demand, and a strengthening U.S. dollar have weighed on prices of these commodities as well.”

Venezuela, Brazil, Argentina are but a few of the Latin American economies facing economic decline followed by collapse due to the surging dollar and falling oil and commodity prices.

For six years, the world has operated based on faith and hope that Central Banks somehow fixed the issues that caused the 2008 Crisis.

QE adding $10 trillion in debt to the US system and the frenzied printing of money in Japan, Europe, UK adding more debt to previous stockpiles of debt, that has already caused 2008, has only one upside, to delay the inevitable collapse that in global market terms has potential to be far worse than that experienced in 2008. This has already begun.

The derivative market that uses the global bond bubble that has mushroomed from $80 trillion in 2008 to over $100 trillion today has grown to $555 trillion in size. Like a nuclear reactor in meltdown it is fast getting beyond the ability of central banks to control.

According to Graham Summers “Sovereign governments, large corporations and even municipalities have used derivatives to fake earnings and hide debt. NO ONE knows to what degree this has been the case, but given that 20% of corporate CFOs have admitted to faking earnings in the past, it’s likely a significant amount.”

“Corporations today are more leveraged than they were in 2007. As Stanley Druckenmiller noted recently, in 2007 corporate bonds were $3.5 trillion… today they are $7 trillion: an amount equal to nearly 50% of US GDP.”

“5) The Central Banks are now all leveraged at levels greater than or equal to where Lehman Brothers was when it imploded. The Fed is leveraged at 78 to 1. The ECB is leveraged at over 26 to 1. Lehman Brothers was leveraged at 30 to 1.”

In January 2015, the Swiss National Bank (SNB), backed into a corner by the ECB’s QE program, had a choice: print an obscene amount of money to defend the Franc’s peg or break the peg.

The SNB chose to break the peg. In a single day, the bank lost an amount of money equal to somewhere between 10% and 15% of Swiss GDP. More than that, it let the Franc appreciate… in a country in which 54% of the GDP is based on exports.

Central Bank of China is beginning to lose its grip as the Chinese economy succumbs to a dual property and stock bubble.

Turmoil on the markets with global currency volatility from the euro to the yuan driving a global downturn of unprecedented proportions is focusing minds on the obvious and emerging truism that the financial sector controlling the markets is not the solution to this global currency crisis, but is rather its principle cause.

The printing of monopoly money is skewing market economies across the world driving down the price of real commodities, impeding the creation of real and productive businesses and economic development. A global stock market and property bubble crash whose worst excesses are currently felt in China, but whose flames are fanned across Latin America and Europe, will soon be felt everywhere.

The rise of the value of the dollar pegged against other currencies with debt denominated in dollars as economies attempt to stabilise rising debt levels will inevitable lead to decline in GDP across the globe. This will inevitable lead to default eg Venezuela and Greece.

The effect of such defaults could lead to a tsunami effect the best outcome for which would be a switch back to a more stable global unit of currency based on a fixed exchange rate pegged to real commodities such as silver or gold.

The axiom that the development of the financial sector leads to economic growth has been shown to be a false truth and the sooner the 1971 decision to take the dollar off the gold peg is reversed, the better for the world.

The stockpiled trillions in debt creation since then is a testament to the fact that currency bubbles in a fiat currency are about as helpful to economic growth in the long term, as daffodils are as global reserve currency.

Till again


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