Governments Control Everything But This Will End In Chaos

With continued volatility in global markets, today one of the top economists in the world sent King World News an incredibly powerful piece warning governments control everything but this will end in chaos.  Below is the fantastic piece from Michael Pento.

By Michael Pento of Pento Portfolio Strategies
– U.S. Manufacturing Renaissance Turns Into the Dark Ages

The October ISM Manufacturing Index, which has been the official barometer of the U.S. manufacturing sector since 1915, came in with a reading of just 50.1. This was a level barely above contraction.

Of the 18 industries surveyed in the Regional Manufacturing Survey, 9 reported contraction in October: Apparel, leather & allied products; primary metals; petroleum & coal products; plastics & rubber products; electrical equipment, appliances & components; machinery; transportation equipment; wood products; and computer & electronic products.

Energy Struggles

And of those nine, the energy market in particular continues to struggle the most. One respondent in the survey noted that the effects of the weak energy market are now beginning to bleed into other areas of the economy.

In addition to this, new orders for U.S. factory goods fell for a second straight month in September (down 1.0 %), confirming the manufacturing sector in the United States has hit a downturn. In fact, U.S. factory orders have fallen y/y for 11 of last 14 months; and contracted 6.9% from September 2014.

Furthermore, demand for durable goods fell 1.2% in September. While demand for nondurable goods (goods not expected to last more than three years) fell 0.8%. This placed downward pressure on GDP in the third quarter leading to a disappointing 1.5% GDP read.

During the month of September a majority of U.S. states reported jobs losses, as the slowing manufacturing sector weighed on hiring nationwide. The Labor Department recently announced that 27 states actually lost jobs in the month of September. This data belies the rosy headline 271k Non-Farm Payroll report issued for October: the Labor Department releases individual state data a month in arrears.

Turning Back To The Dark Ages 

All this bad news begs the question: Has the former manufacturing renaissance in the United States officially turned back into the dark ages?

Despite huge kudo’s to U.S. ingenuity for inventing fracking and horizontal drilling technologies, the viability of these innovations depends upon an unsustainable bubble in oil prices. Fracking is just one example of the misallocation of capital resulting from faulty price signals derived from central banks’ manipulation of interest rates.

And this failure isn’t limited to our Federal Reserve. The strategies of central banks all over the world are failing.

Problems In Europe And Japan

The European Central Bank (ECB) to date is in the process of printing the equivalent of $67 billion of QE per month, which will amount to a total of $1.2 trillion (or 1.1 trillion euros) by the time Mario Draghi’s QE program is slated to end in September of 2016.

Considering all that money printing, GDP in the Eurozone was only a pathetic 1.2% larger than it was one year ago.

Once the star of the Eurozone economy, German GDP disappointed with growth of 0.4% for the second quarter instead of the 0.5% analysts had been expecting. The French figure came in completely flat, and Italy, the Eurozone’s third biggest economy, disappointed with growth of just 0.2%.

Italy’s unemployment rate managed to fall in September, even as its economy lost 36,000 jobs during the month. This was because more discouraged workers left the workforce. As growth rates languish and economies lose jobs, central banks are getting more and more desperate to create inflation, which they like to masquerade as growth.

But the sad truth is even with over a trillion Euros of new money printed, governments are not achieving the inflation rates or the GDP growth they are seeking.

And then we have Japan, which is entering into its 3rd recession since the Abenomics regime took control in December 2012. The BOJ has been in the habit of printing 80 trillion yen each year! Nevertheless, its debt to GDP is approaching 250%, and annual deficits are 8% of GDP. The BOJ is buying 90% of all the bonds issued, and now owns half of all Japanese ETF’s. Yet despite a train wreck of an economy and horrific debt and deficits the 10 year note—in a perfect example of a central bank distorting economic reality–is yielding just 0.3%.

Our Fed has printed $3.5 trillion since 2008 in a futile attempt to get the economy growing at what Keynesians term as escape velocity. However, we have only averaged 2% growth since 2010. And growth in 2015 appears to be even less, as the all-important manufacturing sector is now clearly in a recession, and is now dragging down the rest of the economy.

Governments Control Everything But This Will End In Chaos

Today, there are no free markets left anywhere in the world. Governments control the fixed income, equity and real estate sectors; and therefore control the entire economy. And what was once touted as the U.S. manufacturing renaissance has morphed into another example of how government’s abrogation of free markets will ultimately result in economic chaos and entropy.

Governments Desperately Trying To Keep The Illusion Going As Crashing Stock & Bond Markets Set To Shock The World!

Today the man who has become legendary for his predictions on QE, historic moves in currencies, and major global events warned King World News that governments are now desperately trying to keep the illusion going as crashing stock & bond markets are set to shock the world!

Egon von Greyerz:  “Eric, I don’t think the general public has any understanding of what is happening in the world today and the incredible risks we are seeing.  Since 2008, world debt is up over 40 percent and so now the world has unsustainable debt levels of over $200 trillion….

Governments have tried to keep the illusion going by moving rates to zero or even negative in many countries.  But even with all the money printing and stimulus, the world economy has still not reacted to it and has stopped growing.  In fact, economies are actually starting to contract in many countries.

China contributed 85 percent of global growth in 2012.  But China is beginning to struggle and their contribution to global growth this year is only expected to be 24 percent.  Of course that will have major repercussions for the entire world because China has been a huge buyer of both commodities and machinery.  That buying spree is now declining dramatically.

The only thing left in the various governments' tool kits is fiscal stimulus.  But with countries mismanaging their economies and running major deficits, it will be impossible to increase the deficits because it will cause the debt to skyrocket.  Who will repay the additional printed money and debt?

Demographics is also a major problem for industrialized nations.  Take Germany, where 20 percent of the population is already over 65 years old.  That figure will grow to 30 percent by the year 2040.  In Japan, today 25 percent of the population is over 65 but that figure will grow to a staggering 40 percent by the year 2060.

Japanese Economy Won't Survive 400 Percent Debt/GDP Ratio

So there won’t be enough young people working in Japan to keep the economy going in order to pay the pensions for the elderly, much less to pay off the massive debts of Japan.  Look at Japan:  They have 250 percent Debt/GDP ratio today.  By 2035 they will have a Debt/GDP ratio of 400 percent.  Obviously that is totally unsustainable.  This is why the Japanese economy will not survive.

And at the same time that world economic problems are becoming insurmountable, geopolitical risk is increasing dramatically.  ISIS is likely to take all of Iraq in the next few months and then they will threaten Saudi Arabia.  Saudi Arabia is also likely to be attacked from Yemen.  If ISIS foments a civil war in Saudi Arabia, both the United States and Israel will get involved.

The other danger zone, besides Ukraine, is the South China Sea.  China is expanding their territory and they consider that it belongs to them.  But of course the Pentagon has said that they consider China to be a major threat to peace because of this expansion.  China has responded to that by saying that war is inevitable if the U.S. does not stop asking Beijing to halt construction of artificial islands.

So, Eric, the risks are increasing everywhere and the situation could become uncontrollable at any time, both economically and geopolitically.  Problems could erupt at any moment that would shock an unprepared world that would lead to stock and bond markets crashing together along with the dollar.  This will mean skyrocketing gold prices.  In that environment people may see gold soar a few hundred dollars in just a single day.

Exchange Controls To Trap Citizens And Their Money

At the same time governments are doing more and more to control people.  Cash withdrawals are being reduced and more draconian banking measures are being put in place.  This trend will only accelerate with governments seeking even more control over their people.

I could also see exchange controls being introduced in the not-too-distant future.  That will make it impossible to take any money out of the country.  That’s why it is so important to keep physical gold outside of the banking system and preferably outside of your country of residence as insurance against the unprecedented risks that the world is now facing.  

Unfortunately, when disaster strikes, very few people will be prepared.”

Panels call for urgent legislation to prepare for huge quake

By YOSUKE AKAI/ Staff Writer

Saying Japan’s very survival is at stake, two advisory panels urged the government to take immediate action--including finding an alternative capital--to prepare for an earthquake that could devastate the Tokyo area.

The working groups are discussing measures to deal with massive quakes that could be triggered by movement along the Nankai Trough as well as one directly under the capital.

In an unusual move, the groups called on the government to pass legislation for the quake-preparedness measures even before estimating the number of fatalities and damage from such temblors.

"There is a need for the entire society to deal with the two quakes that are expected to cause extensive damage," according to interim reports released on July 19 by the two working groups, respectively.

Passage of special measures laws would allow a wide area covered by the studies to take effective measures to deal with the possibility of the huge earthquakes.

The Nankai Trough extends from Suruga Bay near Shizuoka Prefecture to off the coast of Kyushu in southern Japan.

Special measures laws were passed in 1978 to deal with a possible Tokai quake and in 2002 to prepare for Tonankai and Nankai quakes. But there is no law for a unified response to a Nankai Trough quake with an expected magnitude over 9.0.

One estimate for possible damage from a Nankai Trough quake was 400,000 fatalities.

The two working groups have yet to come up with their own damage estimates. But their recommendation for swift passage of legislation underscores their sense of urgency from not being able to pinpoint when such a destructive quake might hit.

In preparing for a crippling quake directly under Tokyo, the interim report proposes selecting beforehand alternative sites that could provide back-up for capital functions. Among the cities named as possible alternative capitals were Sapporo, Sendai, Nagoya, Osaka and Fukuoka.

The interim report also called for measures to deal with long-period seismic ground movements and the huge number of people who will likely be stranded in Tokyo after a major quake.

It urged the government to secure revenues for the necessary measures, but it did not specify a figure. In the current fiscal year, about 480 billion yen ($6.1 billion) has been set aside for such measures.

The working group looking at a possible Nankai Trough quake is expected to release its estimates for fatalities and injuries as well as structural damage in late August. However, the group dealing with the quake expected to hit directly under Tokyo has not reached the stage of presenting specific estimates.

The interim report, warning that a Nankai Trough quake could trigger a tsunami 20 to 30 meters high, called on areas with indented coastlines to construct levees and move schools and social welfare facilities to higher ground. It also suggested building those structures to greater heights.

In addition, the reports said construction of straight evacuation routes on flatter areas are needed, as well as measures to make evacuations using cars more efficient.

High cesium levels in Fukushima freshwater fish

Japan's Environment Ministry says it detected higher levels of radioactive cesium in freshwater fish than marine fish in disaster-hit Fukushima Prefecture.

The ministry on Monday released the results of its study conducted from December last year to February this year. It took freshwater samples in rivers and lakes, as well as at 8 locations in the open sea.

The highest amount of cesium, 2,600 Becquerels per kilogram, was found in a goby freshwater fish taken from a river that flows from Iitate Village to Minamisoma City, north of the crippled plant.

Some water bugs, which freshwater fish eat, also showed high levels of 330 to 670 Becquerels per kilogram.

A type of flounder and bass caught off Iwaki City, south of the plant, registered 260 Becquerels per kilogram-- the highest level for marine fish.

A ministry official spoke about the differences in cesium levels in freshwater and marine fish. The official said marine fish are likely to get rid of cesium from their bodies more quickly as they have the ability to excrete salt.

The ministry will closely monitor freshwater fish as radioactive cesium may remain in their bodies for a longer period.

Ex-Soros Adviser Fujimaki Says Japan May Default by 2017

By Mariko Ishikawa and Yumi Ikeda

Investors should buy assets in U.S. dollars and other currencies of strong developed nations because Japan may default within five years, said Takeshi Fujimaki, former adviser to billionaire investor George Soros.

“Japan is likely to default before Europe does, which could be in the next five years,” the president of Fujimaki Japan, an investment advising company in Tokyo, said in an interview yesterday. Japanese should hold foreign-currency products, such as those denominated in the greenback, Swiss franc, sterling, Australian and Canadian dollars, Fujimaki said.

Should the Japanese government default, the yen may weaken to 400-500 per dollar, and the yields on benchmark 10-year bonds could surge above 80 percent, according to Fujimaki. “I’m buying dollars in case of an emergency,” he said.

The yen rose 0.6 percent to 78.91 per dollar as of 6:07 a.m. in London from its close in New York yesterday. The currency touched the postwar high of 75.35 per dollar on Oct. 31 and has averaged about 103 over the past decade. Japan’s 10-year yields were little changed at 0.855 percent. Rates on June 4 dropped to 0.79 percent, the lowest since June 2003.

Five-year credit-default swaps that insure Japan’s debt from nonpayment were at 90.9 basis points yesterday, up from a seven-month low of 90.1 on March 27, according to CME Group Inc.’s CMA. The contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

Ballooning Debt

Japan’s public borrowings, the world’s biggest, will balloon to 245.6 percent of its annual economic output in 2014, up from 67.3 percent in 1984, an estimate by the International Monetary Fund shows. Japanese Prime Minister Yoshihiko Noda is struggling to gather support for his plan to double the 5 percent sales tax by 2015 to help reduce debt.

“The yen and the JGB market are in a bubble,” Fujimaki said. “With the gigantic debt Japan has accumulated, a thin needle, or even a gentle breeze may pop this. Events in Europe can possibly trigger this to blow up.”

Greeks vote in a general election on June 17 after balloting in May failed to produce a coalition government. The result may determine whether Greece abides by spending reductions imposed upon it to receive two international bailouts and stay in the euro. The euro currency bloc may break up in the next 5 to 10 years, Fujimaki said.

Default or Inflate

“There’s no way out of Japan’s crisis,” Fujimaki said. “The only option left for Japan is either default or print money into hyper-inflation.”

The Bank of Japan left the size of its asset-purchase fund unchanged at a policy meeting today. The central bank kept the fund at 40 trillion yen ($507 billion) and a credit lending program at 30 trillion yen, matching the forecasts of 13 economists surveyed by Bloomberg News.

Fujimaki’s agreement with Soros Fund Management, once the world’s biggest hedge fund group, ended in October 2000. He has since written a book and lectured at Waseda University and Hitotsubashi University in Tokyo. He was born in 1950.