Wednesday, March 1, 2017

Crisis Watch Update

This update will be short and sweet. It is becoming clearer over time that if we are to have some kind of new major crisis that could impact the stability of the current monetary system, the crisis will most likely revolve around the Trump Administration. 

We can now see that the Trump term of office is likely to be an ongoing cauldron of boiling volatility. Trump appears serious about trying to disrupt the existing establishment and that establishment appears ready to fight it out every day he is in office. Adviser Steve Bannon's recent comments only further confirmed this is where things stand. Only time will tell us if all this will become disruptive to markets and/or the stability of the existing financial and monetary system.


Some key issues to keep an eye on:

- how Trump actually deals with China. Does he follow through on his tough campaign rhetoric or does he soften it? Will he label China a "currency manipulator?"

- what is the Trump Administration US dollar policy? A continued strong dollar or would they prefer to see a much weaker dollar? Does the global dollar shortage problem undermine his efforts to stimulate the US economy? Does the Administration have a full understanding of the potential problems of a too strong dollar?

- does Trump challenge the US Fed (call for an audit) or simply try to pack it with people who will go along with what he wants to do since he can now fill so many open Board positions? Does Trump need a continued easy money policy from the FED?

- are there people in the US intelligence services (the so called Deep State) who will try to undermine Trump and bring down key people in his Administration continually? If so, how does Trump respond to that? Will Trump himself be able to serve his full term in an environment where political enemies are looking for every opportunity to force him out of office or weaken his ability to get things done?

- if Trump's key campaign promises stall out due to political infighting in the US Congress, how will markets react? Could systemic stability eventually be at risk if markets have a severe negative reaction?

Summary: The political environment has now taken over the stage. Trump has ushered in an era of maximum unpredictability. He can change his position on key issues in an instant. For example, Trump had said he would quickly label China a currency manipulator but now his Secretary of Treasury says maybe not and for sure not before April.  (Trump then repeated China is a currency manipulator within hours of the statement by his Sec. of Treasury). How markets and ultimately the entire financial and monetary system handle this kind of environment (uncertainty) is what we need to keep an eye this year.

Of course it's possible Trump will overcome all the issues listed above and succeed, but the early indications are that he will be in a fight for survival every day he is in office and the spillover from that may impact markets and systemic stability. 

Our job here is to watch for how this plays out, not to offer one political point of view or another. We do always hope whoever is in power makes decisions that work and help the most people possible. Unfortunately, at this point it appears that the US is so sharply divided politically that achieving a strong public consensus may no longer be possible. All this adds to the potential for systemic instability no matter who is in office which is the key point for us to monitor here.

Added note: A thank you to a reader for sending me this link to an article that explains a potential building problem in the EU regarding a "stealth" capital fight from countries in the southern EU to countries in the northern EU. The article suggests the problem is an unintended consequence of ECB monetary easing policy.

Additional added note: Andrew Maguire predicts precious metals will have what he is calling a "reset" within 3-4 months in this new interview. If he hits that prediction, it will mean some significant events that could impact systemic stability would be in play.

Important additional note: Greg Hunter sent me the email below urging me to watch his new interview with David Stockman. In the interview, David Stockman says that the US will encounter a big fight over extending the current US debt ceiling that runs out on 3-15-17. Most people assume that this always just gets extended after some drama. David Stockman believes this time Trump and Congress will get into a fight over it and it will not be extended which will create a severe shock to US and world markets. Of course, if he is correct on this, it could easily trigger a new major crisis in markets. The key point for readers here is that he gives you a date certain and a specific event to monitor and see how it is resolved or not resolved. Here is the email I got from Greg Hunter:

Hi Larry

President Trump keeps saying he "inherited a mess."  He's talking about the debt and the U.S. budget.  He just said it again today (2/25/17).  Trump says the U.S. budget is a "mess" and added "Don't worry we will get this cleaned up."  You can bet the “clean-up” is going to be very painful, especially for the unprepared.  

If you want to really know what Trump and America faces, you will want to watch the upcoming David Stockman Interview.  It is stunning.  Stockman, who is a best-selling author and former White House Budget Director in the Reagan White House, also gives a date for things to start coming unglued.  It's March 15th 2017.   

Watch the interview as he explains it all in terms every American can understand.  By the way, Stockman likes Trump, and predicted he would win in his book called "Trumped!"  Watch this interview--you will not be disappointed.   It will be the "Early Sunday Release," posting early in the AM 2/26/17.    

Greg Hunter

Another high credibility source sent me this reaction to the 3-15-17 date:

3/15 is a big deal for a lot of reasons:

1. Debt ceiling hits the limit.
2. FOMC decision and possible surprise rate hike
3. Netherlands elections and possible upset by Gert Wilders Freedom Party

Could be a triple whammy

If the US debt ceiling situation starts to unfold as David Stockman predicts,  I will monitor those events ongoing in the next few weeks and months and offer additional updates (Washington Post article -- NY Times article -- Fiscal Times article)

Added note: President Trump gave his speech to Congress last night and there was no hint of some kind of dispute over the debt ceiling. In fact, he did not mention the debt ceiling at all. Not sure what that means yet in terms of David Stockman's forecast. Will continue to monitor it.

Additional commentary post Trump speech to Congress: 

The Trump speech to Congress last night illustrates (and I think confirms) the analysis we have been making here that how Trump fares during his term of office has become the major factor in whether or not we will see events that could lead to the major monetary changes this blog was created to watch for. In one night, even severe critics of President Trump are suddenly now saying this was the best speech they have heard him make and that he seems to have won over some converts to at least give him a chance to succeed. 

But in reality, even though the speech did seem to come over well for President Trump, we still have no idea of the actual details of the policies he plans to enact or how much of his agenda will make it through Congress. The really big issues on health care, taxes, generating real GDP growth, how to deal with the debt, etc. are still out there to be confronted. When you are trying to do objective analysis, it's very important to try and assess what is really happening and likely to actually happen rather than what you may wish to happen or believe in personally. It's hard to do that, but very important because the world we will live in is the real world. The reason the political world draws more attention here now is because things changed when Trump won AND the Republicans got control of Congress. Instead of the gridlock we have had for years, it is now possible that significant fiscal policy changes could actually take place that might impact what we watch for here.

How Trump deals with Congress on the upcoming debt ceiling issue I think is the first real test we will get to see what kind of President he intends to be. Eventually you have to make the big economic decisions and implement real policies that have real consequences. As that starts to happen in the next few months, it will become more clear if we are heading into an environment conducive to serious disruption and potential crisis or not. I won't try to prejudge how it will turn out. I will try to objectively monitor and assess what is actually happening here. If Trump succeeds (and thereby solidifies popular public support), the major crisis that could lead to major monetary change is less likely. If he fails, it's more likely. Simple as that for me in terms of the potential for political events to impact the current monetary system.

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