Actually, wrong.
The problem with simple ideas that you read in the headlines is that they, well, are simplistic. Nothing is ever as it seems in this world of ours. If it was then the illusions which control so many people would not work and the people would stop every con game in its tracks. Instead, they fall for them again and again.
Prechter gets it. Mike Shedlock gets it. These are two of the brightest modern econo-analysts that I read. They know that the global money supply is mainly credit. They know that this is by design with the fraudulent scam called fractional reserve banking. They also know that the US dollar is the world's reserve currency and that de-linking it from gold doesn't promise future dollar creation, it already caused past and existing dollar creation. The damage has already been done.
How does all of this work? Well, greedy men use the scam ridden principle of fractional reserve banking to create ridiculous amounts of credit from thin air. They go out and use that credit to buy speculative assets (like stocks that pay no dividends) in order to get rich without having done any work. That in and of itself should tell you that it is not economically real. In other words, future value can only be created from the labor of man and if someone is accruing value without working and building something of value to the economy then something is very wrong with it.
The US dollar is the world's reserve currency. That really means that it is the most fungible currency in the world. Almost no matter where you live you can get dollars either in electronic accounts or actual paper in your hand if you like. In fact, many 3rd world $hitholes whose corrupt leaders have screwed them silly no longer have their own local currency. They use the dollar instead. Or they rely heavily on the dollar or their black market relies on dollars.
Because of this status and because of falling interest rates for the past few decades, dollars are the easiest currency to use for the so called Carry Trade. In this scam, you go borrow dollars and then "invest" (AKA speculate) in assets of all classes. You hope that the asset will get bid up and then you can unload the asset on the next greater fool and walk off with a profit in the deal. Trillions of dollars have been thus borrowed and invested. In many cases, the investment is not made in dollars but rather in local currencies. So, gamblers in Russia might borrow dollars from someone and then convert it to Rubles to go gambling. Then, when they exit the deal, they have to convert some of the winnings back to dollars in order to repay the loan. Of course, the threat is that while they are out a-gambling that the dollar grows stronger all of a sudden relative to the local currency. If that happens then the local asset can be sold at a premium to the original buy price in the local currency but still lose out in the deal due to the exchange rate back to dollars. Those who loaned dollars do not want Rubles in return.
Each time someone borrows a dollar in a fractionally reserved banking system, the money supply is increased by that amount. This is different than a loan in a non-fractionally reserved (fully funded reserve) banking system where a loan does not create new money, it just transfers control of existing money from the owner to the borrower. Think of it like this: the the fully reserved system, there is a paper dollar for every dollar in the entire monetary system. If Joe earns a dollar, he trades his labor to someone else in exchange for it. Joe now has the dollar. If he puts it in the bank, and if the bank then loans it out, Joe can no longer have access to his dollar. Thus, in an honest money supply, the only money which can be used for loans is that which is tied up by the owner of the money in long term savings vehicles like Certificates of Deposit, etc. In this way the bank can be guaranteed that the money which has been deposited will not be withdrawn for a certain time. So if Joe deposits his dollar in a 2 year CD, the bank can give out a loan for exactly 1 dollar for a time period of 2 years. Again, no new money has been created.
In the fractionally reserved system, Joe puts his dollar in the bank. Not in a CD or even a savings acct but in a checking account. The bank then creates loans against that dollar in the ratio of 9:1. The loans are all brand new money that is supposed to be temporary money. It is conjured into existence, used, hopefully repaid, and then the loan is zeroed out and the money supply shrinks accordingly. Importantly, the money supply of a fractionally reserved system shrinks either when a loan is repaid or when it is defaulted upon. If the act of taking out a loan in a fractionally reserved system creates new money that is not directly under the control of the Federal Reserve, that credit, which spends like paper dollars, effectively is a naked short of the dollar. A naked short of the stock market is when someone is lent nonexistent shares of a company by a special entity (special is my code work for "corrupt crony") who has the power to create fake shares from thin air. It happens all the time in the stock market and the culprits are known as stock brokers (if you don't believe it, go look up the term "fail to deliver" AKA "FTD" with respect to stocks). But dollars are like shares in the USA and so when these special people (banks and other financial institutions) create credit they are naked shorting the dollar. In fact, they are shorting America.
The effect of naked shorting something is to increase the supply of it in the market place. The rules of supply and demand state that if there is more dollar supply than there is stuff to buy then the price of the stuff goes up. You can think of this as the new money in the market bidding the price of goods up. It's no different than a bidding war by central Californians for their shoebox homes. They would not do all of this bidding with their own money. They can only do it if they are getting a loan.
The naked shorting of the dollar in order to go buy assets, particularly those denominated in foreign currencies, is called the Carry Trade. However, borrowing money to speculate on stocks has the same effect on prices even if there is no exchange being done from the USD to another currency. In fact, stock shares are a type of corporate fiat currency and so when you trade dollars for them you are really just buying another currency with your dollars. When loans are taken out in dollars to buy shares with, the price of the shares skyrocket. However all of these loans must eventually be repaid or they must be defaulted on. In either case, the underlying currency, the USD grows stronger not because our government is smart or doing the right thing but in fact because so much carry trade has already taken place for decades that the dollar is naked shorted like crazy right now.
The coming stock market collapse will not occur for any of the reasons you have been told. It will occur because of a short squeeze of all those who have naked shorted (borrowed and invested) the dollar. It is already happening as you can see in the charts of other currencies vs. the dollar:
But the one that should be keeping you up at night is the currency of England. Why? Because England is the heart of the global financial world. It is the head of all the global financial scams. In the US we have "The Street". We know it as Wall Street. But the financial insiders don't think of it like that. They just call it "The Street". Do you know what they call London? They call it "The City". There is a reason for that: it is a hierarchy of economic corruption. The US is not really calling the shots, London is. This goes back to old money deals that have been in place since the US revolution. There is a good reason that England got to join the EU without having to adopt the Euro like everyone else. The Euro was always for patsies and the financial elite of England don't play the patsy, they exploit patsies.
You may know about the British honors system. As you can see from the Wiki, these "honors" are handed out as "a means of rewarding individuals' personal bravery, achievement, or service to the United Kingdom and the British Overseas Territories." It should come as no surprise that Alan Greenspan received the honor of Knight Commander of the Order of the British Empire in 2002. It was for his service to the global economic elite in selling the USA down the debt Ponzi river.
Well then, if Great Britain is the center of the scam-ridden global economic scene than it must somehow be involved with the dollar carry trade in a big big way. It must be borrowing dollars and investing in markets of all types and doing so on extreme leverage (read DERIVATIVES out the wazoo). The proof of this can be found in its currency chart (below) for ticker FXB is an ETF proxy for the Pound Sterling. Somehow, magically, those first 5 waves down on the left coincided exactly with the first big move down in US equities in late 2007. There is a clear temporal connection there.
Now look at what happened since then: a horizontal triangle that is in the 5th wave throw over stage. As soon as this thing comes crashing back down into the triangle and then breaking below it you will see the US stock markets go into a free fall that will outpace what happened in 2007-2009. Why?? Because it will be a 3rd wave or a C wave and they are never the least powerful. As strong as that first 5 wave movement was down, the next one will likely be stronger and the shape of the chart tells me it will likely be a 2014 event.
So, how bad will the damage be to the Pound? Well, let's say that catastrophic doesn't quite cover it. The exact exchange rate of GBP to USD right now is 1.68. Each GBP is worth $1.68. My model clearly indicates that before this crash is over the GBP will be worth.... wait for it... somewhere in the range of 85-90 cents best case. At best, it is going to collapse nearly in half and it will do so before the end of 2017. It could dip down even further.
That kind of movement is going to destroy the global economy because of all the bad leveraged bets that will be in free fall. The dollar will skyrocket and the USD carry trade will collapse. I know most people won't believe me since I don't appear on TV. I know that people will think this is impossible, crazy. Unfortunately, those people are going by their gut feel while I have actually studied this stuff like only an engineer studies something: for real understanding that leads to being able to predict outcomes.
The red path of FXB will come crashing down and it will begin to happen very soon, again according to my Elliott wave model as shown below. The collapse could begin its long decline AS SOON AS within the next 5 trading days. It appears as if a tiny ending diagonal is forming within a larger ending diagonal (fractals). The larger ending diagonal has had 5 rail bumps and a smallish throwover. It is quite possible that what I labeled red 5 is simply A of 5 and that the B wave is what is forming. In that case, the throwover will be a good deal larger, perhaps up to 168 and the collapse may take a week or two longer to begin. I really would like to see a larger throw over here. But that little spit of a throwover that is seen in the red circle just under the red 5 below could be all we are going to get. If that is the case then it will either be an ending diagonal as shown OR the first wave down has already begun and the a-b-c back up is just the back test of the new resistance line from below. The small ending diagonal is my top choice after an examination of more detailed, smaller time scale charts.
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