If dangerous gases such as methane or carbon monoxide leaked into the mine, the gases would kill the canary before killing the miners, thus providing a warning to exit the tunnels immediately.
Interest rates can be looked at as performing the same function for the economy. This canary is dying or already dead.
One of the triggers/catalysts for the next economic collapse is likely to be the dollar. The US and the Fed have both abused the privilege of world’s currency. Larger nations are scrambling and making deals with each other that enable them to avoid using dollars. Smaller nations suffer from the inflation that the US dollar policy exports to them.
OPEC’s insistence on dollars for oil trades may be the remaining condition that allows the dollar to continue as the world’s currency. If OPEC begins to accept other currencies in lieu of the dollar, that could end the dollar’s status as the world’s currency. (For a discussion of why this may be changing, see here.)
No existing currency is capable of replacing the dollar because no other country’s economy is big enough. Over time, China may be able to fill that role. Indeed they have signaled their willingness and desire to do so.
All countries are irresponsibly debauching their currencies in the same fashion as the US. A “beggar-thy-neighbor” race to the bottom is underway where no country wants its currency to appreciate in terms of others. The dollar is sinking, but the relative speed at which is deteriorating determines its value relative to other fiat currencies. If all are being debauched at the same rate, then the dollar can appear neutral or strong on a relative basis.
The attractiveness of gold is that no one can debauch its value by creating more of it. create it and it has represented real money for over 5,000 years. In a world of deteriorating purchasing power, it should hold its value (and go up in terms of the deteriorating fiat currencies).
What Is Coming Next
A slow-motion collapse of most fiat currencies is underway. Undoubtedly leaders know what is happening and put in place an alternative when the dollar is no longer acceptable. Unfortunately, it will be a phonier currency than the fiat currencies that are in freefall. It will be a world currency justified as a result of the next crisis.
A world currency (i.e., a world central bank with the power to create money) is the dream of every Statist. It requires a world government. To visualize, imagine Europe, Brussels and the Euro on a world scale. A world central bank will be a bigger disaster than all of the individual central banks combined. Ditto for world government being worse than national government.
No matter. The powers-to-be in the countries-that-are have backed themselves into a corner from which there is no escape. Setting up a world currency will make matters worse in the long-term. However, it will provide the appearance of a “solution” that enables current politicians to skate through their remaining time before the (bigger) tragedy unfolds. That is what matters to them, not the terror they unleash on citizens.
Signs the dollar may be collapsing can be found in this blurb from John Mauldin:
That is the biggest monthly dumping of Treasuries by foreign creditors since 1977!
So which of our country’s creditors are doing the most selling? None other than our two biggest creditors, China and Japan.
China and Japan sold a combined $40 billion of US debt last month, but that’s a drop in the bucket. China and Japan hold $1.27 trillion and $1.08 trillion of US debt respectively, and more selling will lead to even more bond losses.
Interest rates are rising. This change is equivalent to the canary being asphyxiated in the coal mine.Holding intermediate and long-term bonds becomes a losing investment because bond prices fall.
Interest rates don’t move in a vacuum. They are a signal that the ignoble experiment of The Fed and other central banks has failed. For a while interest rates were successfully held below market levels, sending false signals to investors and economic decision-makers. That fraud is now ending.
The Fed is impotent to overcome market forces. No government or central bank can withstand the power of markets for long. The Fed achieved lower interest rates via the creation of new money to buy Treasury bonds. Trillions of new dollars meant the devaluation of each existing and new dollar in terms of purchasing power. While reported (and fudged) government numbers regarding inflation continue to be low, market participants know what is happening. Apparently they have chosen this time and place to make their stand.
Dollar-denominated assets are beginning to be re-priced. Actual and expected losses in purchasing power are now being included in this calculus. The anticipated loss of purchasing power is being reflected in interest rates. Lenders will not lend where they expect to lose purchasing power when the loan is repaid. A premium for the expected loss of purchasing power gets added to whatever the risk-rate associated with the loan. That is why interest rates are rising. Lenders are demanding this premium be increased as the perceived probabilities purchasing power losses increase.
Rising interest rates trump whatever benefits Quantitative Easing was supposed to bring to the economy. The Fed is unlikely to stop its foolish behavior, however. The government is unable to pay its bills without the Fed printing money and giving it to them in exchange for Treasuries. Perhaps that was the hidden agenda after all.
Rising interest rates signal the end of over-priced financial assets. Bonds are already being repriced downward. The last week or so suggests stocks have also gotten the repricing downward message. If there were a wealth effect created by over-priced markets, this effect is about to be reversed.
The real economy will be harmed by rising interest rates. Higher mortgage rates have already slowed the housing market. Autos and other big ticket consumer items dependent upon consumer financing will slow. Ultimately the costs of buying anything on credit will rise and the use of credit will shrink along with the sales of the items purchased on credit.
No economy or government can survive when it is dependent on fooling the public. An economy built on this false basis builds up massive distortions in resources and capital. The basis of economics for the last fifty or more years has been based on fooling the economic decision makers to have them act not in their own best interests. That is the fundamental basis of government intervention and Keynesian economics — produce results that markets would not. It may fool some of the people for some of the time. It cannot fool enough of the people forever.
We near the end of a long-running economic fraud. The rise in interest rates is the precursor that will expose this fraud. The smoke and mirrors economy perpetuated by gimmicks has run out of manipulations. This economy is coming down — and hard! Markets will likely precede the economy in the decline.
Others have taken notice of rising interest rates and the potential they represent for toppling the entire system. Here is one:
The thundering sound of collapse is getting closer and louder. The terrorist threat has been pushed to the four corners of the world and there are warning signs all around us. The US government is getting ready to sign the UN arms treaty, we had a shooting at a school which will then lead to another false flag where the gun bills will be passed. This fall there is the threat of tapering, the Muslim march on 911, the Cyber Threat on Banks on 911 and the power grid drill in November. Countries and investors are starting to take delivery of physical gold. The Thunder has been called down and it’s here.EMBRY: “THIS SURGE IN INTEREST RATES MAY HAVE ALREADY SERIOUSLY DESTABILIZED THE ENTIRE FINANCIAL SYSTEM”
“I guess I’m always unnerved as a result of what happened in April, the last time the President of the United States had a meeting with all of the bank heads, and two days later the price of gold was trading smashed for over $200. Now, the President is meeting with all of the heads of the various agencies, institutions, the Fed, and all of the other key money entities in the United States today. What’s that all about?But clearly if the President is having this meeting, there is a crisis unfolding somewhere in the background, and it could very well relate to the dollar, interest rates, and the massive derivatives market associated with interest rates….
“Rising interest rates are a killer in an over-levered economy, and that’s exactly what we’ve been seeing in the United States.
This surge in interest rates may have already seriously destabilized the entire financial system, and that’s why there is this meeting taking place in the White House today. The fact is that the vast majority of derivatives in the global financial system are related to interest rates.
Now, the entire financial system may be on the precipice of some sort of catastrophic event unfolding because of what we have already seen in the bond market, and how the derivatives are so heavily intertwined. Meaning, we may be on the verge of another disastrous derivatives meltdown.
Extreme caution is in order.