Thursday, July 9, 2015

Nomi Prins: Cash is King in a World of Artificial Liquidity

We can add Nomi Prins to the list of those warning that having some emergency funds outside the system is a good idea these days. Here is her latest article on the subject with some quotes below.


"Global central banks are afraid. Before Greece tried to stand up to the Troika, they were merely worried. Now it’s clear that no matter what they tell themselves and the world about the necessity or even righteousness of their monetary policies, liquidity can still disappear in an instant. Or at least, that’s what they should be thinking.

The Federal Reserve and US government led policy of injecting liquidity into the US and then into the worldwide financial system has resulted in the issuance of trillions of dollars of debt, recycling it through the largest private banks, and driving rates to 0% -- or below. The combined book of debt that the Fed and European Central Bank (ECB) hold is $7 trillion. None of that has gone remotely into fixing the real global economy. Nor have the banks that have ben aided by this cheap money increased lending to the real economy. Instead, they have hoarded their bounty of cash. It’s not so much whether this game can continue for the near future on an international scale. It can. It is. The bigger problem is that central banks have no plan B in the event of a massive liquidity event.  
Some central bank entity leaders have admitted this. IMF chief, Christine Lagarde for instance, warned Federal Reserve Chair, Janet Yellen that potential US rate hikes implemented too soon, would incite greater systemic calamity. She’s not wrong. That’s what we’ve come to: a financial system reliant on external stimulus to survive."
. . . . 
"Even the latest Bank of International Settlement (BIS) 85th Annual Report revealed the extent to which global entities supervising the banking system are worried. They harbor growing fears about greater repercussions from this illusion of market health (echoing concerns I and others have been writing about for the past seven years.)
The BIS, or bank for the central banks was established during the global Great Depression in 1930 in Basel, Switzerland, when bank runs on people’s deposits were the norm. The body no longer buys into zero-interest rate policy as an economic cure-all. In their words, “Globally, interest rates have been extraordinarily low for an exceptionally long time, in nominal and inflation-adjusted terms, against any benchmark. Such low rates are the remarkable symptom of a broader malaise in the global economy.”
They go on to note the obvious, “The economic expansion is unbalanced, debt burdens and financial risks are still too high, productive growth too low, and the room for maneuvering in macroeconomic policy too limited. The unthinkable risks becoming routine and being perceived as the new normal.”
. . . .
"The ‘war on cash’ is thus really a war on the difference between the money you can hold on to and the money the banks can take away from you. The existence of this cash debate underscores the need for a personal policy of cash extraction from the big banks. Do you have one?"
My added comments:
This article ties in well to one we ran recently here on the blog which lists many of the warnings issued by the IMF and the BIS over the last year. You can see that list here. Events in Greece, the EU, the Chinese market and even the NYSE continue to illustrate why we encourage readers to keep up with events and have a backup plan in mind in case another systemic crisis were to arise. We have recent systemic risk warnings on liquidity issued by the IMF, the BIS, Jim Rickards, Nomi Prins, Nouriel Roubini, Jim Sinclair, and many others. We also have a sudden upswing in precious metals buying. Choosing not to stay informed right now is a very poor decision.

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