Draghi has realized that he has singlehandedly destroyed the European bond market. Besides the fact that it is illegal to short government bonds, he has come face to face with the stark reality that if the ECB stops buying government bonds, there will be NO BID at these price levels. Interest rates will skyrocket dramatically. On the German 10-year bond, once we see a monthly closing above .79, we are looking at a DOUBLING of rates and that is in Germany. Once rates rise above 1.55, then expect it to rapidly DOUBLE again.

Consequently, Mario Draghi has been warned there is a serious problem. He told the Economic and Monetary Affairs Committee of the European Parliament that he would maintain a very loose monetary policy because it was necessary despite the upturn in the euro area. He said that INFLATION remains critically dependent on a strong push using monetary policy. Of course, you would assume that after 10 years of this policy and there is no sign of a major return of inflation, that you would start to question the entire Quantity of Money Theory.

Draghi said Monday that he will continue to include the billion-dollar bond purchase program and he will reinvest expiring bonds exactly OPPOSITE of the policy at the Federal Reserve. While the dollar-bears keep calling to the end of the Greenback, they are deaf, dumb and blind when it comes to international capital flows or monetary policy.

Draghi realizes that he is subsidizing the European governments. He is not stimulating the economy, he simply has them on life-support.  Stopping the bond program will lead to a major crisis when there is NO BID for government bonds. Not only will Draghi keep buying government debt, he will be repurchasing debt as what he already has expired.

Draghi has created the economic NIGHTMARE from which there is no escape. We will be putting together a special report on World Debt market since this is the real crisis we are facing with the Monetary Crisis Cycle that began here in 2018

QUESTION: Mr. Armstrong; The goldbugs are saying that China, Russia, India are “rogue” rising economic powers that are rogue nations. They cite David Stockman who preaches the U.S. economy is in deep trouble thanks to its “massive indebtedness” and they seem to ignore what you have pointed out that the USA is in the best shape. They also cite that there is a “massive global infrastructure” that will connect Asian nations with countries rich in natural resources and they are selling off U.S. debt. They keep calling this a petrodollar that replaced a gold-backed dollar which means the dollar is vulnerable to collapse. Is any of this stuff ever valid?

LMM

ANSWER: This is just sophistry. Any reduction in US debt holdings is negligible and the “massive indebtedness”  of the USA is a joke compared to the outstanding world debt As the interest rates continue to rise, the debt servicing costs are simply going to explode. As a whole, Europe is over 100% of debt to GDP with respect to just Public Debt on average compared to the USA at about 73%. Global government public debt has exceeded $60 trillion. As far as David Stockman is concerned, he has been preaching the same thing since the 1980s.

The Silk Road Economic Belt and the 21st-century Maritime Silk Road, also known as the One Belt and One Road Initiative, (OBOR),  is a development strategy proposed by Chinese Government that focuses on connectivity and cooperation between Eurasian countries. This is clearly going to build China to become the new Financial Capital of the World. However, that does not come into play until AFTER 2032.

I have explained that there is no PETRODOLLAR. This is completely bogus. I really do not understand how they can keep saying this factually incorrect information to get people to hand them their life-savings. The oil and gas drilling sector make up between 4.6% and 6.5% of the global economy. That is it. How can you call this a “PETRODOLLAR” by any rational means?

We are beginning to observe institutional investors withdrawing from bonds issued by companies whose credit ratings are in question. Many are also selling off other classes of bonds in anticipation of higher rates. The trend toward investing in high yielding debt mainly by pension funds has begun to reverse albeit gradually.

Because of the low yields, pension funds, in particular, have been forced to run into high-yield bonds accepting a higher risk of default of the debtors. Much of this has been into emerging markets, but also questionable corporate debt.

Many corporates have issued a lot of new debt in recent months trying to lock in the lower yields before everything moves up. With the European Central Bank (ECB) looking to end quantitative easing, the Bank of England looking to raise rates as well as the United States, it does not take a genius to figure out this is not the time to buy bonds.

Source: Wikipedia

QUESTION: Vitalik Buterin, the co-founder of Ethereum and a co-founder of Bitcoin Magazine, said on Twitter. “Reminder: cryptocurrencies are still a new and hyper-volatile asset class, and could drop to near-zero at any time.” He said: “Don’t put in more money than you can afford to lose.

Do you agree with him? It seems like you do.

LM

ANSWER: Absolutely! None of these currencies will ever make it to be a viable real-world currency. Anyone wh0 thinks that these will be safer than an official currency is not thinking clearly. We are moving toward an electronic currency since today only about 4% of transactions take place in and paper money. Nevertheless, those who think that this circumvents central banks etc and this is the future are really out there in the unrealistic world.

A currency has to be LEGAL TENDER as long as we have governments. This cryptocurrency is not really a currency at all. It is simply a speculative investment. To be a real currency it must be used within society to conduct commerce. We cannot accept it for by the time we would go to convert it, who knows what the value would be. It is far too volatile.

QUESTION: Mr. Armstrong, My father was ______ the banker who commissioned you to do the Turkish lira hedging project in 1983. He passed away as you know. I found this material in his files on Turkey that you apparently published back in 1985. Some articles are saying that Turkey is the epic center of debt. I do not get that sense here and I figured you were really the authority my father always quoted. Can you shed some light on this subject?

Thank you

__

ANSWER: Yes, I remember your father well. You have my sincere condolences. I remember that project for it was very challenging. I had to create a hedging model for the Turkish lira when nobody would make a market. That was one of my earliest synthetic creations.

The Turkish lira continues to move into hyperinflation and it has nothing to do with the fiscal policies of the government. Plain and simple – even its own people do not trust the government nor the currency. Hyperinflation takes place not because of the quantity of money, but because of the collapse in public confidence.

Turkey is BY NO MEANS the epic center of the debt crisis. That is really an absurd statement. Turkey has sold Dollar-denominated foreign debt like all other questionable emerging market countries. That is how they all have sold debt by taking the currency risk on to themselves.

I have been warning that as the US rates rise, this puts pressure on the $9 trillion of emerging market debt issued in dollars. The risk of a major debt crisis starting in Turkey is a very myopic view as we are facing a contagion of a Sovereign Debt Crisis among all emerging markets.

Turkish President Recep Tayyip Erdoğan is an autocratic strongman. The far greater risk is his rising threats against Greece and others to start a war. He has threatened the Kurds with war as well as Greece. He has threatened to extend the Afrin military operation to Manbij.

Yes, it is true that Turkey owes foreign creditors $ 450 billion, of which $ 276 billion is denominated in dollars and euros. The Turkish private sector has about 36% foreign-currency based debt. Because of the decline in the lira, interest rates on domestic loans has risen from 6% to 12%.

The lira has depreciated against the dollar dramatically since August 1970. It was trading at 9 to the dollar back in 1960 according to our database.

1960 — 1 U.S. dollar = 9 lira (TL)
1980 — 1 U.S. dollar = 0.0001 lira (YTL)
1988 — 1 U.S. dollar = 0.0018 lira (YTL)
1995 — 1 U.S. dollar = 0.0611 lira (YTL)
1996 — 1 U.S. dollar = 0.1075 lira (YTL)
2001 — 1 U.S. dollar = 1.4396 lira (YTL)
2004 — 1 U.S. dollar = 1.3421 lira (YTL)
2008 — 1 U.S. dollar = 1.21 lira (YTL)
2009 — 1 U.S. dollar = 1.6 lira (YTL)

2012 — 1 U.S. dollar = 1.81 lira (YTL)
2016 — 1 U.S. dollar = 2.94 lira (YTL)
2017 — 1 U.S. dollar = 3.77 lira (YTL)
2018 — 1 U.S. dollar = 3.75 lira (YTL)

As interest rates rise, Turkey will certainly find itself in trouble. However, to say that Turkey will just default is one thing. The real risk is that Turkey will start a war to maintain its dignity and suspend all debt payments overseas both public and private.

Our models tend to reflect that Turkey will see a complete monetary collapse during the 2021/2022 period.

The people do not trust the Turkish lira. They are hoarding currency of just about any other country but their own.

We must always remember that one person’s perspective results in them looking at a decline as a buying opportunity and another looks at it as a time to sell. Perspective is everything and there will never be a 100% accord.

The Japanese cryptocurrency exchange Zaif has come out and admitted that a “system error” allowed customers to “buy” trillions of bitcoin for free. The Japanese newspaper, Asahi Shimbun, reported that Zaif informed users of the error in a post on their website. They explained that users could inadvertently “trade” the yen for virtual currency at an exchange rate of 0 yen per bitcoin.

Asahi Shimbun reported that seven users were able to obtain crypto for “free,” but the exchange managed to cancel all illegally acquired transactions.

Nonetheless, one fraudster who was bought Bitcoin at a zero rate then tried to sell 2,200 trillion yen (about $ 20 trillion) in bitcoin before the problem was solved. Zaif has been under scrutiny for its 530-million-dollar hacking of the Coincheck, the Japanese crypto exchange in January.