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Why 95% of Traders Fail

U.S. Dollar Collapse? USD Index Trend Forecast 2015

Currencies / US Dollar Dec 14, 2014 - 06:06 PM GMT

By: Nadeem_Walayat

Currencies

For as many years as I can remember and 2014 has been no exception, the most vocal mantra that can often be heard is one of warnings of an always imminent U.S. Dollar collapse as a consequence of a myriad of highly convincing arguments such as a soaring debt mountain, deficit, rampant money printing, demographics, rise of China, death of the petro-dollar etc.. However the dollar trend of recent years shows that the dollar in actual fact is little changed, where even the recent breakout only put the USD barely 4% outside of its multi-year trading trading range of between 85 to 79 and still within its longer-term trading range of 89 to 75.


The current USD breakout above the 85-79 trading range should not be viewed as due to fundamental hidden strengths i.e. that the value of the dollar is increasing but rather that all currencies are in perpetual state of free-fall against one another that manifests itself in inflation that asset prices are leveraged to and oscillate around. Therefore in reality all we are witnessing is a slackening in the rate of free fall of the U.S. Dollar.

Whilst the mainstream press continues to obsesses over the 'currency wars' by blaming China amongst others for manipulating their currency exchange rates against the U.S. Dollar that is often painted as the innocent victim by self righteous U.S. politicians calling for action to be taken against the currency manipulators. When in in reality the likes of the China are more akin to rabbits frozen by fear in the face of the Fed's headlights trying hard not to become road kill in response to Fed actions and the U.S. Congress's near endless deficit spending debt accumulation binge that is debasing the worlds reserve currency on an industrial scale.

Global Money Printing Central Banks Crime Syndicate

Contrary to the way the financial world may be presented in the mainstream media, the Fed is at the head of the global central banking crime syndicate cartel that runs the show Don Vito Corleone style, where should any foreign central banks get out of line will soon be in for a currency markets massacre as they see their currencies soar or collapse against the dollar and thus destroying their ability to export to the worlds largest consumer market which many economies are addicted to drug addicts style or manage inflation, as the official policy of the U.S. since the midst of the cold war has been to control the worlds financial system by means of operating a continuous large trade deficit, as I have covered at length several times over the years such as in my article of October 2010 (12 Oct 2010 - USD Index Trend Forecast Into Mid 2011, U.S. Dollar Collapse (Again)?).

For many years the Fed had been effectively inflating the whole world as I covered the dynamics of as long ago as in March 2011 - U.S. Dollar and Stock Market Trend Relationship, Currency and Real Wars:

Whilst many in the mainstream press have eventually clocked onto the fact that the Fed intends to inflate, what no one appears to have clocked onto so far is that the BIG SECRET is that the Fed intends on INFLATING THE WHOLE WORLD ! It is pushing the worlds governments reliant on exporting to the U.S. into devaluing their currencies by means of printing money (See Ebook QE section).

Thus against the Fed INFLATE or DIE policy, all foreign central banks are fighting hard to maintain their pegs to the downwards spiraling U.S. Dollar, which effectively means that all currencies are spiraling lower hence the whole world is inflating at the Feds whim. For instance emerging markets such as Brazil repeatedly cry out that they are being flooded with too much foreign capital that is driving up their currencies, therefore they are forced to print and debase their own currencies i.e. INFLATE! (are you listening delusional deflationists ?) THE FED IS INFLATING THE WHOLE WORLD!

How can the US Fed get away with printing money and inflating the whole world ?

You may wonder that the dollar's strength (lack of collapse) in the face of money printing and ever expanding debt accumulation is as a consequence of underlying US economic strength or huge amounts of (Invisible) gold reserves at Fort Knox. The real reason why the US is able to get sway with printing unlimited amounts of money is the US Military, as the US remains the worlds sole hyper military power following the collapse of the soviet union and increasingly relies on global military power to back up the dollar as the worlds primary means of exchange, as any country that chooses not to comply will likely be on the receiving end of a 1000 tomahawk cruise missiles as Libya is experiencing today or even worse as Iraq has experienced during the past 8 years.

The U.S. Military Empire targets all those bastions of mediums of exchange that compete against the dollar, which is why the literally super sweet oil rich state of Libya presents such an ideal target for not just the U.S. but also the competing imperialists of Britain and France, regardless of the fact that they are choosing to back and about to arm rebels of North East Libya, an area that ranks as the Al-Qeeda recruitment capital of the world (as a proportion of population) as per the 31 page West Point Study that analysed the backgrounds of captured foreign guerrilla fighters in Iraq during 2006-2007.

We are in a new world (for the west anyway) and that is a world of Quantitative Easing, the more the governments of the world print money and monetize debt the easier it is for governments to keep printing and monetizing ever escalating amounts of government debt to cover the government budget deficit gaps. Upon which the accelerant of the Quantum of Quantitative Easing has been poured i.e. Governments paying themselves interest on monetized debt (20 Jul 2012 - The Quantum of Quantitative Easing Inflation is Coming! )

The US Fed recently revealed that its priority now is to target 6.5% Unemployment (7.7%) rather than inflation, in which respect it is engaged in a policy of QE4Ever -(01 Oct 2012 - Socialist Global Central Bank Crime Syndicate QE-4-Ever Inflation Theft)

CIA - America's Al-Qeeda

The most recent example of the lengths that the U.S. state will go to protect the supremacy of the U.S. Dollar is the 525 report into one arm of America's secret police state, the CIA's global torture terror campaign encompass the whole world that to varying degree extends to actions in over a 100 sovereign nations from overseeing the drone war on Pakistan that has killed more than 10,000 people to date, to kidnappings into dark sites situated right at the heart of the European Union, to the CIA's death camps across Africa. The terror reach of the Spectre CIA is global!

The heavily redacted and censored senate report into the CIA's global terror campaign that the likes of Al-Qeeda can only dream emulating gave a partial glimpse into what is being done in America's name.

CIA Torture Report (525 pages pdf)

In response to the publication of the report the current director of the CIA, John Brenan has been busy putting up a propaganda smoke screen to state that the widespread use of methods such as drowning (water boarding) and anal rape do not constitute torture whilst to any 'normal' non-sadist it is more than obvious that to drown someone to the point of passing out and to anally rape someone IS torture on par with anything that dictatorships right across the globe and history have engaged in which shatters the illusion of what many americans imagine their nation to be i.e. a bastion of freedom when the reality for many peoples across the world is little different than if Nazi Germany had won world war II or the Soviet Union had won the cold war, which in ideological terms sponsors and feeds death cults such as that of the Islamic States world view of being holy warriors doing gods work by battling against a global evil that mirrors the detachment from reality that most americans also suffer form, both exist in a delusional fantasy state of doing gods work for ultimate rewards in an afterlife.

It does not take a genius to realise that torture creates terrorists, when the CIA anally rapes someone or worse fires hellfire missiles on civilian populations then those surviving people will have been given good cause to seek revenge upon CIA murderers and rapists and its supporting infrastructure. Just as most black men in the United States due to continuing first hand experience of police brutality and prejudice see themselves as having good cause to rebel against the various police institutions as we see with the police murder of black americans on a daily basis where each death further sparks angry protests right across the United States. To imagine CIA torture and murder (Drone Wars) on a global industrial scale is not creating more terrorists is delusional.

Another illustration of the mainstream media propaganda and propagation of self delusion is in the reporting of the apparent mega-hack at Sony Pictures by North Korea in response to Sony's new movie where the plot is centered around the torture and murder of North Koreas current leader. Imagine how the western media would be outraged resulting in calls for covert and military action if any other nation did a similar movie of President Obama or any other major western leader, it would undoubtedly be reported on as incitement to commit an act of terror which is what the Sony movie amounts to that illustrates the point that Hollywood movies to large extent are propaganda aimed at conditioning the general population towards the elites agenda that acts to reinforce the 24/7 mainstream news propaganda as well as condition the wider and usually younger segment of the population that will be needed as cannon fodder to fight and die in future wars such as have in Iraq and Afghanistan.

Off course the US senate report is just one facet of america's elite vying for shifts in the equilibrium of power between one another, i.e. senators leveraging some power away from the CIA towards themselves which I am sure the CIA will react to by perhaps leaking into the mainstream media private activities of certain senators. And whilst the scope of CIA activities is widespread, people in other countries such as Britain should not delude themselves that their own intelligence agencies are also engaged in torture and murder, as clearly any reference to GCHQ or MIxx has been redacted from the CIA's report AFTER consultation with British intelligence agencies.

U.S. Dollar Supremacy

In terms of implications for the U.S. dollar, this clearly reinforces the fact that the U.S. state will through all means at its disposal including economic, military, propaganda, and covert agencies always do what needs to be done to ensure supremacy of the US Dollar as the worlds reserve currency. What this means is that the reality of the United States is not what the brain washed masses have been programmed to perceive it to be namely to understand that democracy and freedom are an illusion as I have covered in great depth a number of times before -

14 Oct 2013 - The Illusion of Freedom - Democracy, Religion, Science and Propaganda

The truth as I have often warned of many times during the years is that the intelligence agencies are arms of the elite towards the objective of total control of the general population through fear of what the state through its various institutions such as the NHS and Inland Revenue will do to Individuals and thus the Intelligence agencies seek to condition the population towards the elitist agenda of control and where those who are flagged as threats to their interests to be systematically neutralised.

Virtually everyone is psychologically susceptible towards being conditioned, so to speak having ones buttons pressed towards a particular outcome, something which the intelligence agencies have a wide arsenal of tools at their disposal and long experience of.

The bottom line is that 1984 happened, people in the UK, US and most of the west are living in a VIRTUAL PRISM (Prison). As individuals the only thing we can do is to try and ride on the coat tails of the elites agenda i.e. to profit from money printing inflation consequences of control that cycles through asset classes such as stocks and for which today's primary opportunities are in the UK and US housing markets.

The bottom line is that politicians and democracies are merely fronts for the elite to control as most of the population are taught in state schools to become docile debt slaves in the service of their elite masters. Which my articles have been focused on illuminating the consequences of and strategies for neutralising such as not partaking in the system of debt slavery and being aware of the inflation mega-trend consequences of policies aimed at funneling wealth to the elite, in that individuals can engineer their asset portfolios to be leveraged to inflation as money printing bubbles are repeatedly blown by central banks which is how the elite accumulate their wealth and through which they disenfranchise the mass of the population into owning nothing i.e. people with mortgages own nothing! All mortgage holders are just glorified renters, where if you stop paying the mortgage (rent) then you will be ejected from your home - See Stocks Stealth Bull Market 2013 and Beyond Ebook (FREE DOWNLOAD).

The point it is this that most people are genetically prone to be slaves to the elite, this is how our parents and society conditions us from birth to ensure that we follow what is programmed in our genes. However, the slave gene can be turned off during our life through environmental influences.

In my opinion the key to achieving freedom of sorts from genetic and social programming is to realise that what is most important is the PRESENT, rather than the past or future which is a distraction that the societal conditioning seeks as a means to control us i.e. we are conditioned to always be focused on the future by referring to the past. This is what religion does, this is what science does, because both achieve the same goal of making you forget about the PRESENT! As it is in the PRESENT where ALL actions take place, but most people give up most of their important decision making processes to the past for a reward in the future.

Thus all those waiting for the US Dollar to collapse need to understand that virtually every other currency will collapse BEFORE the U.S. Dollar collapses as whilst US economic supremacy is slowly diminishing as a consequence of the rise of China, however this is being countered by the expansion of military and covert agency actions across the world that can only INTENSIFY as an expanding military industrial complex REQUIRES various types of threats and enemies to justify its expansion across all areas as the United States continues its trend of morphing into a global military empire.

Therefore most of the worlds central banks work towards maintenance of their currencies relative value against the worlds reserve currency which results in collective currency devaluation where what appears as relatively little change in currency rates masks a real terms flood of fiat money the consequences of which is exponential inflation as illustrated by the below US CPI inflation graph. Whilst those few central banks who don't play ball are subject to currency wars - a collapse in the value of their currency relative to the worlds reserve currency and thus ALL other currencies resulting in a destabilising surge in inflation as countries such as Iran and Russia have recently experienced.

In the wake of Octobers end of overt Fed QE (as opposed to covert money printing through a myriad of schemes) the global central banks money printing in part at least is being passed to other members of the central banking crime syndicate to continue such as Britain, Japan and Europe Union. Which in the first instance would imply US Dollar relative strength as the flood of dollars is partially reduced whilst the flood of Japanese Yen and eventually Euro's will be partially increased thus in totality maintaining the global rate of exponential flood of fiat currency to which assets that cannot be so easily printed are leveraged by means of the derivatives market.

U.S. Debt / Ceiling Smoke and Mirrors

As I write the US government is once more engaged in the smoke and mirrors propaganda game that surrounds the annual threat of government shutdown if the nation does not raise its debt ceiling as a consequence of a budget deficit that averages $1 trillion a year as the cost of maintaining america's global military empire spanning some 100 nations with some 900 foreign military bases.

The most recent data puts the US government debt at over $18 trillion, the exponential trend trajectory is best illustrated by the fact that when Obama took office US national debt was $10 trillion, so roughly US debt is doubling every 10 years or so. This exponential trend constantly prompts many to jump onto the imminent US Dollar collapse bandwagon by being under the impression that the US cannot service its debt let alone repay the debt which fails to realise that the debt is NEVER meant to be repaid but perpetually rolled over and inflated away, and that US debt is being MONETISED through a myriad of scams one of which is QE that results in what I have labeled as the Quantum of Quantitative Easing (see extract above) where the actual debt burden is 1/3rd lower than the official statistics suggest as a consequence of approx 1/3rd of interest payments made on US Debt (government bonds) being reimbursed to the US Treasury by the US Fed central bank on the government bonds that it has bought with printed money (electronic credit creation), where the open market mechanisms used to achieve debt monetization purposefully enrich the US Feds bankster brethren.

So all US debt collapse merchants need to understand this fundamental fact that the US does not have a debt crisis, instead it has an INFLATION crisis as a consequence of its exponential money printing debt monetization programme. In terms of the value of the dollar this ironically reinforces the US Dollar as the worlds reserve currency because the US Fed is effectively canceling / deleting US government bonds that prompts greater demand for reserve currency assets by foreign central banks / hence US dollars as all major central banks attempt to manage the value of their currency relative to the US dollar and thus mask the consequences of real inflation that results in the cost of living crisis in the west that is best illustrated by what has happened to the west's middle class where 30 years ago a typical middle class family had 1 bread winner, whilst today even with 2 bread winners, real inflation ensures that middle class families are 1/3rd WORSE off!

USD Technical Trend Analysis

ELLIOTT WAVE THEORY - The Elliott wave pattern suggests that the USD has made a 5th wave peak which implies an ABC correction is now underway that could last several months and could see the USD retrace to approx 85 in an ABC structure.

Longer term, the strength of the current major wave against the preceding trading range waves implies that the USD ultimately could go a lot higher than most can imagine today, as the whole move over the past 3 years looks like forming an Impulse Wave advance which ironically implies greater weakness in the immediate future.

Therefore EWT suggests to expect at least 3 waves to follow a 5 wave advance, so now we should have a 3 or 5 wave a correction to around 85. On the longer-term the next major impulse wave (5) if similar to the last impulse wave (3) could carry the USD Index to 98 during the second half of 2015.

TREND ANALYSIS - The USD has been in a bull market since 2012, therefore probability favours a continuation of this bull market. The current strong uptrend hit long-term resistance (previous highs at between 88 and 89) and has started to correct. The correction should continue to between 85 and 87 before the USD attempts another break higher to target a break above 89/90. So in terms of trend the USD is currently over-extended (overbought) on the long-side and due a significant trend correction.

The long-term level around which the USD oscillates is 100, this is not just because it is a nice round number but that is the level that the USD index started off at over 40 years ago, it is now over 14 years since the USD last traded at 100. Given the current long-term bull trend pattern, it appears probable that the USD will at some point trade on the other side of 100 again, and given that the USD has been in a bull market since 2012 the probability of the USD trading at above 100 during 2015 is far more likely than not, in fact I would put it at a 65% probability before the end of 2015.

SUPPORT / RESISTANCE - There is heavy support along preceding highs at 85, then at 79. Whilst 90 is a natural resistance level which if overcome next resistance would be at 92 to 92.5, beyond which is 98. Which suggests that the USD is going to find it tough to clear overhead resistance and thus expect a far more choppy trend as the USD will need some time to prepare the ground before clearing overhead resistance, therefore implies an imminent significant correction that already looks is underway.

PRICE TARGETS - On the upside the USD targets 92, then 98, and 85 to the downside. A trend towards 98 will probably eventually result in a break above 100 during 2015, probably manifesting in short squeeze spike.

MACD - The MACD is confirming that the USD is very over-extended and due a correction before it can continue its bull run higher.

CRUDE OIL - It is often taken as granted that commodities tend to have an inverse relationship to the US Dollar by virtue of the fact that internationally commodities are priced in dollars i.e. a strong dollar cuts the price of a commodities in foreign currencies therefore this should, most of the time be reflected in the price charts of major commodities such as crude oil. In additional to dollar pricing, the crude oil price has literally CRASHED to five year lows that in times of economic uncertainty (falling oil demand) prompts both flight to safety, namely the worlds reserve currency and acts as a stimulus for the US Economy and thus the US Dollar as a consequence of falling energy costs.

USD / Crude Oil Inverse Relationship Chart

Whilst it is beyond the scope of this analysis to conduct a forecast for crude oil prices, nevertheless crude oil is clearly in a STRONG downtrend / bear market with no sign of an end to this that ultimately targets previous multi-year lows along $36. Which implies that the over-riding trend should be towards lower oil prices before the crude oil price bottoms out. This therefore continues to suggest US Dollar strength for some time until such a basing pattern starts to materialise which conveniently coincides with my building view for the US Dollar strength into a mid 2015 peak.

ECONOMY - As a continuation of the crude oil thread, a strong dollar acts as an economic boost because the price of all imports for the worlds largest consumer economy FALLS, thus american's become richer with more money in their pockets to spend boosting economic activity as effectively economic pain (unemployment) is being EXPORTED abroad to producer nations. Remember, all of this is taking place at ZERO interest rates! Off course there are producers such as Germany, Japan and China who WANT a stronger dollar so as to more easily export to the US and thus tend to print their own currency to BUY dollars which is another reason why US dollar collapse is improbable.

SEASONAL TREND - The USD is currently trending OPPOSITE to its seasonal trend i.e. the seasonal pattern is for the USD to fall between Sept and December. This implies that we may be witnessing a multi-decade change in the USD trend and that the dollar could go much higher than anyone one can imagine today, i.e. well NORTH of 100! Also an inverse trend to the seasonal pattern implies to expect the opposite next year which suggests a bullish trend from the start of 2015 into Mid 2015 followed by a downtrend into the end of the year. Therefore implies a window for a 2015 peak in the dollar between Mid June and Mid August 2015.

Formulating a USD Forecast

This trend analysis implies immediate term weakness towards USD 85 into end December / early Jan 2015 before the USD sets itself up for the next leg higher as it slices through a series of overhead resistance levels all the way towards 98 that it may briefly breach during summer 2015 before entering into a significant correction into the end of 2015. Whilst the trend into the middle of 2015 suggests the USD will gravitate towards breaking USD 100, how far the USD subsequently falls I am less certain about i.e. it could fall to anywhere between 98 and 90 by end 2015. Whilst favouring the seasonal pattern would suggest that the USD could be trading at around 92 by late December 2015. Further out rather than a USD collapsing in 2015, we may see the USD preparing the ground for a sustained break above USD 100 during 2016, but more on that this time NEXT year.

USD Trend Forecast 2015 Conclusion

My USD Trend forecast conclusion for 2015 is that after the current correction is over by around USD85, that the USD then trends higher towards a target of 98 by mid summer 2014, probably terminating in a spike to just above 100 before correcting back towards 92 by the end of the year as illustrated by the following trend forecast graph.

The bottom line is the US Dollar debt monetization ponzi scheme can ONLY continue under threat of MILITARY FORCE, which is WHY the US today is far more willing to engage in conflicts across the globe in the interests of maintaining US Dollar supremacy that allows the US to get away with printing debt without the consequences that other nations would soon experience unless they follow the US central banks programme for global monetary inflation as do the UK, Japan etc. However, also note that there is a price for central banks printing infinite money and that is REAL inflation which is why 99% of people no matter how hard they work will experience FALLING real terms earnings as there is never a free lunch, no matter Fed deflation propaganda, the inflation trend is exponential!

This reminds me of times in history when things were obvious i.e. that it was obvious that the Soviet Union would eventually collapse, and so today it is obvious to me that the world will experience an hyperinflation panic event even if the Fed ensures that all fiat currencies collapse together! So not a US Dollar collapse but a GLOBAL HYPERINFLATION EVENT that could even see the value of the Dollar RISE against other paper currencies - But don't worry the panic event is some years away, in the meantime continue to protect your wealth by leveraging yourself to exponential inflation through exposure to assets that cannot be so easily printed such as housing (DOWNLOAD FREE Housing Markets Ebook).

Implications for Gold Price 2015

Given the usually inverse relationship between commodities and the US dollar, i.e. when the dollar is strong commodities tend to be weak, which given for instance the collapse in the crude oil price is not so surprising. My next in-depth analysis will cover the implications for the gold price including in a detailed trend forecast for 2015, so ensure you are subscribed to my always free newsletter to get the analysis and Gold price trend forecast for 2015 in your email in box and more.

Nadeem Walayat Detailed Market Trend Forecasts 2015

Source and Comments: http://www.marketoracle.co.uk/Article48642.html

By Nadeem Walayat

http://www.marketoracle.co.uk

Copyright © 2005-2014 Marketoracle.co.uk (Market Oracle Ltd). All rights reserved.

Nadeem Walayat has over 25 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Housing Markets Forecast 2014-2018The Stocks Stealth Bull Market 2013 and Beyond EbookThe Stocks Stealth Bull Market Update 2011 EbookThe Interest Rate Mega-Trend EbookThe Inflation Mega-trend Ebook

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Nadeem Walayat Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

sixpack
15 Dec 14, 01:09
france, italy, india, china stock boost

Hi Nadeem

thank you for your continuing hard work. I read a telegraph article with Societe General (I think) stating that france, italy, india and china stocks markets would be heavily bullish for the next couple of years especially their banking stocks, while UK is expected to fall a few percent overall.

Justification given was further stimulus in china and europe eventually.

- Does that rhyme with any of your thoughts?

-Also, would you invest in US stocks given the USD strength you expect or make a currency play?

- If you made a currency play, which currency would you go short on in order to go long the USD?

thanks. continue to appreciate your work.


4caster
15 Dec 14, 13:40
UK Housing

I am happy with your prediction for the dollar, and with much of what you write about US hegemony.

You advise people, on the one hand, to "protect your wealth by leveraging yourself to exponential inflation through exposure to assets that cannot be so easily printed such as housing".

But previously in the same article you write that the elite "disenfranchise the mass of the population into owning nothing i.e. people with mortgages own nothing! All mortgage holders are just glorified renters ....."

So do you advise that we expose ourselves to housing, leveraged by mortgages, or not? You seem to want it both ways.


Nadeem_Walayat
15 Dec 14, 16:36
Debt and Inflation

Yes the elite will disenfranchise the masses through debt and inflation.

Ask yourself what are you going to do to avoid this?

My answer is to leverage myself to inflation and try and keep one step ahead of the inflation erosion.

Where debt is concerned - UK housing Market ebook -

Home Ownership and Debt & Mortgages

Britain has a debt based economy where expanding total debt is the primary enabler for the economy to expand and that is the primary purpose of the Bank of England to enable governments to expand total debt be it public or private. However, following the credit crisis collapse of 2007-2009, individuals and banks become reluctant to borrow despite record low interest rates and hence why despite successive Governments (Labour and Coalition) having gone on a relentless spending binge to the tune of £750 billion of new debt the economy stagnated due to the failure to ignite a borrowing frenzy amongst Britain's working population.

However, as house price rises continue to accelerate, many people sat on the sidelines waiting for prices to fall or even crash will realise that it is just not going to happen, and in their despair at the relentless accelerating trend of rising prices, in increasing numbers will feel no choice but to jump onboard the property ladder as a they see the houses they have been viewing for many months being sold and asking prices trending ever higher.

In this respect the government has been bending over backwards to encourage people to take on debt the most notable of which during 2013 was the extension of the Help to Buy Scheme to all home buyers which was brought forward to the 1st of October 2013, and thus enabling the purchase of properties upto the value of £600,000 with just 5% deposits, i.e. an home buyer today only needs a £30k cash deposit to buy a £600k property, whereas before the scheme banks would have required a £125k deposit.

As you read this more and more home owners are being successfully conditioned to ignore the significance of the debt they are taking on as they become more and more fixated on house prices rising every month by £x thousands of pounds in value, far in excess of their monthly mortgage payments and in many cases approaching their monthly salaries, this acts as huge encouragement to not only to borrow to buy properties but also to save less and borrow for consumption which will meet the governments primary objective for inflating the economy by means of the housing market. Everyone will soon be playing the game of how much has the value of my home increased by, many if not most will be regular visitors to websites such as Zoopla to see how much their properties have increased by.

Mortgage Debt and the Risk of Ruin

The encouragement to load up on debt by various means such as Equity Release is once more being programmed into the psyche of home owners as they perceive this as a means of capitalising on the nominal increase in the value of their homes.

In life I meet many people who have no concept of their risk of ruin, but instead are fully aware of for instance the equity in their property. For example one person I met wanted my advice as they were contemplating releasing £100k of equity in their property on top of a £200k existing mortgage so that they could extend their property against a perceived existing property value of approx £350k.

What I attempted to point out to the person was their failure to comprehend that the more debt one accumulates then their risk of ruin becomes exponentially greater, because the debt becomes exponentially harder to service out of marginal income, i.e. a graph of debt to income would be logarithmic in terms of the risk of ruin. In this example the first £10k of mortgage debt would have a far smaller risk of ruin then adding an extra £10k to the total i.e. £200k +£10k. Where the extra £10k could be the tipping point that results in the loss of their property, never mind if they went ahead and borrowed an extra £100k! The whole debt crisis in terms of impact on home owners has it's basis in the failure of individuals to be conscious of their risk of ruin as they fell for the equity release sales pitches form the mortgage banks. This is precisely how the big banks blew-up, because they ignored their risk of ruin because they were too interested in hiding losses (mark to market) to bank bonuses on the basis of fictitious profits.

Again do not fall for the trap of perceiving the rise in house prices as means of realising capital or equity for consumption because you are just being deluded into SPENDING BORROWED money. Where the delusion is that the borrowers do not perceive it as an INCREASE in debt but instead a release of equity!

The TRUTH is that rising house prices in reality do not MAKE people richer, but instead more susceptible to BORROWING MORE Money for CONSUMPTION as people delude themselves that they can somehow spend money against a rise in house prices, but the reality is that they will service the NEW debt through FUTURE WAGES and nothing that is linked to the actual rise in the value of their homes because to benefit from a rise in house prices they would need to realise it by either selling or generating an INCOME from the rise in house prices! i.e. by renting out their home or rooms so that it wholly covers the interest payable on the NEW debt and thus the income would need to be at a constant yield to rising house prices. That is how an home owner benefits from rising house prices and NOT by means of equity release for consumption.

If you want to have near zero risk of ruin then you really have to have no debt. However that is just not possible for 1/2 of home owners / buyers which means that you need exert strict discipline in regard to how much debt you are willing to take on that in my opinion should never exceed more than 75% LTV (loan to value).

Debt is Slavery

Debt IS from cradle to grave slavery. Not just for individuals but whole nations are turned into debt slaves by corrupt politicians whose ONLY objective is to bribe voters with borrowed money to get elected and then line their pockets.

The consequences of bribing voters with borrowed money is INFLATION. After all there is no free lunch, the price paid for printing debt is loss of purchasing power for ALL fiat currencies.

As an example today's pound in your pocket on the basis of RPI is worth less than 40% of its value of 25 years ago.

.... continues in the housing market ebook.


mindblower50
15 Dec 14, 21:44
UK Bail Ins?

Hi Nadeem

Have you any thoughts or defensive strategies for dealing with potential UK bank bail ins, in the future ?

Purchased a property in NW in June when market was hot ( prior to new lending requirements and stamp duty changes 167k, 3 bed semi) ...still prospects for capital growth ? even if Labour victory ?


zahlen2k
16 Dec 14, 02:53
GBP/USD

Hi Nadeem

Are you still bullishon GBP/USD though? With your previous target of 1.8? Also have you looked into analysing London property again yet?

Thanks alot

Zahir


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Catching a Falling Financial Knife