Written by Adam Taggart via Peak Prosperity,

What will happen next and what to do now …

Welcome to our new readers and a very happy new year!

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2019: the beginning of the end

For ten long years, the central banks of the whole world dragged everyone into the adventure to try one last time to mount Mount Credit.

On several occasions, in 2011, 2013, and 2016, it seemed almost certain that the wrong route had been chosen and that everything had been lost. We warned people of the risks, but to no avail. They found a way to navigate even higher from there.

And here we are again in 2018, warning everyone of the same risks. As early as August 2018, we wondered if "he" had arrived, and then declared that it was the case throughout the months of October and November.

"Until and unless" central banks reverse the course of 2019 will see even more of the same. More market volatility, more bond losses and a fall in real estate. In the end, these credit constraints will have an impact on the sectors of the economy that depend on continued access to more stupid money.

Weak businesses that can not support themselves without borrowing more will close down and fire. Large companies that see this writing on the wall will announce their own hiring and expansion plans.

In the end, all highly leveraged trading strategies have to pack their bags and go home. It is then that we discover that these "markets" are as false as a tan. No real liquidity, only the appearance of what is temporarily offered by all the computer algorithms that exist.

In a very successful holiday season humor attempt, the Wall Street Journal finally noted that stock markets were now dominated by virtual machines, a fact we noted – 7 years ago:

Behind the Swoon Market: The Hereditary Behavior of Computerized Trading

December 25, 2018

Behind the swift and rapid slide of the 2018 market lies a new underlying reality: about 85% of all exchanges are on autopilot – controlled by machines, models, or passive investment formulas, creating an unprecedented commercial herd that evolves in unison and is extremely fast.

"Electronic traders are wreaking havoc on the markets," says Leon Cooperman, the billionaire stock breeder who founded the Omega Advisors hedge fund.

Behind the models used by quants are algorithms, or investment recipes, that buy and sell automatically based on predefined inputs. Lately, they are dumping, say traders and investors.

"The speed and scale of the move are probably exacerbated by machines and model-based trading", Neal Berger, who leads Eagle's View Asset Management, invests in hedge funds and other vehicles. "Humans tend not to react so quickly and violently."

(Source)

It's funny! 10 years of constantly growing "markets", driven by these Algos and the WSJ were totally indifferent. Now, it has been proven that the actions downSuddenly, the impact of these algae is very worrying for the WSJ. No worries as long as these programs drive up prices, but a lot of concern when they amplify drops.

Well, better late than never.

Our concerns about "markets", dominated by exchange programs, are that they are too easily subject to (1) manipulations and (2) sudden movements that could one day result in market closures due to lack of participation because of the algos found. conditions "out of parameter" and they up and left in the eye wink literally.

If we needed further confirmation of the dangerous volatility of the markets under the impetus of these automatic trading routines, Christmas week certainly provided it.

On Christmas Eve, US stock markets have fallen more than ever. Then, the day after Christmas, the Dow Jones earned more points than ever. The next day, it rocketed an additional 900 points, and rather violently upward, mainly during the last 1.5 hours of trading.

From overbought to overbought to overbought over all within 48 hours.

This looks like what happens to a skidding car and an inexperienced driver over-corrects first one direction then another with each swing becoming bigger and less controllable. Finally, the car lands in a ditch and the journey is over.

Is this happening now? We think it

And this is the natural result and expected of too many years of intervention by the central bank to prevent the current situation.

Again, this graph explains everything we've known about financial "markets" (now so distorted by such interventions that price discovery has been almost entirely destroyed):

In any case to date, every attempt to end QE has resulted in a Wall Street crisis and a large number of cryobabies in the investment world, demanding that central banks reverse their course. And every time they did it, it worked a little longer.

We are there and everyone wants to know what will follow.

It's easy. Until and unless once again, central banks are turning the tide and making the next round of quantitative easing even greater and more important than any precedent, we will see many declines in the price of financial assets. Only this time? He will not be forced to lower stocks – he will wrap everything up.

A diet too far

Crass and vulgar, and utterly indefensible. This is the only way to describe the combined "leadership" of Ben Bernanke and Janet Yellen, who conspired to throw a whole generation under the bus, as well as fixed-income seniors and savers.

Millennials have been excluded from the first home purchase by an interventionist Fed who has decided herself that people living in homes should feel richer because of rising house prices.

Instead of noting that the real estate bubble of 2001-2007 was a very bad idea, the Fed injected $ 1.75 trillion in new money to buy mortgages and help push home prices up their stupid and misguided peak.

Houses should, in the long run, appreciate at the same rate as inflation. Anything above the green box means that house prices have exceeded their targets and below that means they have fallen too far.

But the Fed decided, alone, that the previous spike was a good thing and had to be replicated as soon as possible.

The idea here was morally bankrupt because it was illogical. The Fed thought that people living in high-priced homes would suffer a "wealth effect" and and spend more, which would be a good thing.

The illogical part is not difficult to solve. If you already live in a house and you have to live in a house anyway, are you really richer if its price goes up? Obviously, the answer is no, and a tiny reflection reveals the opposite.

The only way to exploit this wealth, without borrow against it, would be to sell your expensive home and downsize or relocate to a cheaper place. S & # 39; s installed near an equivalent home does nothing for you, but expect real estate agent fees and transaction fees. A more expensive house completely defeats the strategy.

Otherwise, live in a more expensive house costs you more in terms of insurance and property taxes. That is, it makes you poorer and not richer.

A liability that frees more money out of your pocket is considered an asset than banker bankers' land. As Robert Kiyosaki pointed out in all the lectures he has given over the past 25 years, the house in which you live is not an asset.

Roofs need to be replaced, electricity and oil are consumed, painting, mowing and plowing are all part of the process to prevent this thing from rotting right away in the ground. Mortgage interest, insurance and property taxes must be paid, otherwise you will quickly lose your home to one authority or another.

Do you see money flying in your pockets all this time? Neither do I.

Therefore, your house is a liability. Assets are things that put money in your pockets, liabilities take them out. I do not know about you, but my house is far from perfect except when it comes to taking money out of my pocket. He beats 1,000

Therefore, Robert Kiyosaki is right. the house in which you live is a liability, not an asset. How does one enrich it if it borrows? more against their financial pitfall? Well, that's the cornerstone of the Fed's decision to drive up home prices. It makes you richer. It's all their plan, laid bare.

Now, a rental property, residential or commercial, is another matter. Those areassets. Get up for these! Borrow. We will hold a real estate investment webinar in January, so keep an eye on that and make sure to sign up.

The immoral part of the Fed's decision to raise home prices is divided into two parts. The smallest part is the immorality of encouraging people to take on more debt (refi, HELOCS, etc.) by taking advantage of a liability. Bankers should not but make Better know.

The biggest part is to force a whole generation (for example, Generation Y) not to buy a house because they can not afford to buy one, or to buy a house that is more expensive. can not reasonably or comfortably afford.

In simple terms, the Fed has thrown an entire generation under the housing bus so that older people can feel a little better about the price of their already purchased and inhabited home and perhaps spend a little more. It's no different than setting your house on fire because you're a bit cold.

It was rude, vulgar and absolutely indefensible.

It's finished

After ten long years of constantly growing stock markets, or "markets", as we like to call them to denounce their fictitious and often fraudulent nature, volatility close to volatility came back very late here in 2018.

At the start of 2019, we expect more volatility and more losses as the reality returns to fashion. Of course, he never really left, he was only kept for a while with the monetary botox administered by auto-illusionist bankers and politicians unable to directly cope with their many failures.

Each recovery eventually ends and it is not different.

However, in our view, any recovery based on cheap credit will not only end up hard. This is easy to understand in terms of neighborhood.

Suppose you and your neighbor earn $ 100,000. Next year, you'll still earn $ 100,000, but your neighbor borrows an additional $ 25,000 from his credit card to spend on things like a gardener, a boat, and a few trips.

The way in which the government saves the savings of your neighbor's personal economy has increased by 25%, which is a very good thing. Neither the US government nor the Federal Reserve takes the trouble to reduce their borrowing when they account for economic activity.

Of course, they should, because any loan actually represents the future consumption taken today. Your neighbor, when he will have to repay that $ 25,000 plus interest, will have to give up that future consumption to pay off his debts.

How is it stupid not to take into account the loan when considering economic activity? Fantastically stupid.

This is what happens to US GDP growth when the increase in the federal debt is only offset:

That's why "recovery" is not really a recovery. It is based on nothing organic or healthy. It's just borrowed and all the borrowing frenzy ends up.

From the perspective of the stock market, here are what credit cycles inspired by the central bank look like:

Or we could rotate it and look at it from the point of view of the accumulation of debt:

(Source)

The table above is a scratcher of the head. Whenever the trend is up, it means that debt growth is greater than economic growth (and remember that the effect of debt on GDP is not taken into account, so it is even worse than what you see here).

What is the plan here? Continue to accumulate debt at a faster pace than economic growth forever? What about the idea that economic growth has recently slowed down and can not develop forever for resource-related reasons? Does someone in power pay the slightest attention?

More importantly, what happens when about 40 years of excessive debt accumulation ends? Are financial systems and institutions still functioning?

No one has a satisfactory answer to these questions, which is why the Federal Reserve, among others, is terrified of knowing what will happen at the end of its great debt bubble experience. . Mad max is not out of the question people. Very suddenly, many things do not work anymore when the credit not only runs out, but in reverse. Very basic elements such as food and gasoline distribution networks and public safety salaries are becoming difficult to maintain. Just ask Venezuela.

As long as central banks do nothing very, very different in the coming months, it's over.

First they came for …

Due to the seriousness of the credit crisis that has lasted 40 years and the fact that we are poorly advised, we are 99.98% certified, the central banks will fight relentlessly to maintain it. Just a little longer, for as many months or years as possible, but they would do well. forever they could.

Meanwhile, the ecological world continues to move towards a complete disaster. We have already covered this news, but it is again in the headlines with some new discoveries quite dramatic:

The basic components of the ocean food web are declining rapidly as plankton productivity declines.

December 22, 2018

These are tiny plants and tiny organisms, but their impact on life in the oceans is enormous.

Phytoplankton and zooplankton that live near the surface form the basis of the ocean food system. Everything from small fish to big fish, to whales and seabirds, depends on their productivity.

"They are really determining what is going to happen and how much energy will be available for the rest of the food chain," explained Pierre Pepin, a senior scientist at the Department of Fisheries and Oceans in St. John's.

"Based on the measurements we have taken in this area, we have seen a decrease of nearly 50% in the overall zooplankton biomass," said Pepin. "So it's pretty dramatic."

Scientists say that local tests now reveal half the amount of plankton in a square meter of water. This is not just a problem here, the decrease in the number of plankton is a global phenomenon.

(Source)

What scientists have recorded is a huge drop at the bottom of the food pyramid in the world's oceans. I can not say it loud enough. it is scary and deserves all our collective attention and attention. I can not think of a news much more alarming than a continuous and pronounced loss of ocean plankton.

It does not simply erase the bottom of the ocean food chain without consequences!

They first came for the insects, but I did not realize they were important because I hate mosquitoes and did not really care about biology.

Then they came for phytoplankton and zooplankton and for the same reasons.

Then they came to get all the fish from the ocean, but I went to chicken, so no big deal, right?

Then they came to get my oxygen and then it was too late …

On my recent trip to Costa Rica, I thought that even where the insects seemed alive and alive, the insects also began to mysteriously and slowly disappear, reflecting the hyper-alarming decline of insects observed elsewhere in the world.

What is going on?

Nobody really knows it and I doubt that anyone can say it with certainty. The natural world is a complex system with a seemingly infinite number of feedback loops in play.

But one thing we could do right now is to realize that everything we have done in the last 25 years should be stopped immediately.

All pesticides or new chemicals used must be removed from the market immediately. It would be a healthy and healthy answer.

Instead, the entire political and economic structure of the world is hyperventilized to create more growth, to raise stock prices, and generally acts as if the economic and monetary abstractions developed by man were themselves more important. than anything else, including reality.

So, even if central banks bend and "win the battle" by having equities and bonds go higher, they will ensure that we "lose the war" by diverting attention from the central mass of humanity with dreams of riches that will serve to distract attention from the many problems we face.

We can be wrong but we are not confused

This is one of my favorite words. I may be wrong, but I'm not confused.

We are certain that insects and ocean plankton send very important signals to those who can see them. We know that we can not borrow more than we win forever. We know that large and growing gaps in wealth and income are socially destabilizing. We know that a future energy crisis is coming and that the world is absolutely unprepared in all areas, including transport and food production.

These things matter and they will do it more and more over time.

We are not even in the least confused about it.

Let's hope the signs are clear enough so that more people can get back on the road to preparation for the times to come. There will be many disruptions and we will all know, perhaps intimately, people who are not prepared.

People will lose jobs and investment savings. Many others will lose hope and will join a surprising number of young people who have already lost hope themselves.

Losing hope is a great first step. We do not need hope anymore. We need optimism and new actions, which means that we need new belief systems and, of course, new narratives.

Once we accept where we are and where we are, then we can begin the long process of building resilience in our lives and communities.

But you must first take care of yourself. You place the oxygen mask on your mouth and nose before taking care of those around you and helping them put them in place.

In early 2019, I want to offer you renewed encouragement to prepare you. Our basic list should look like basic pistol training. You can not over-train on the basics!

Step 1: Make sure your wealth is managed safely or entirely outside the markets. Our chartered financial advisor uses various hedging techniques to manage risk on existing positions, both to limit losses and to generate additional returns. Keeping cash in the system means for us to use TreasuryDirect in part to keep your money in the safest place possible – with the US Treasury. If the Treasury fails, well, we all have a lot more problems to solve.

2nd step: Have at least 3 months in cash and out of the banking system.

Step 3: Have at least 10% physical gold in your warm little hands, stored in a safe place where you can get there yourself, possibly quickly.

Step 4: Check your supplies. Make sure you have everything The basics stored safely and easily accessible. Food, water, personal protection, medical supplies, etc. Just in case of supply breakdown, but also to give you a peace of mind that will free you for step 5.

Step 5: Be ready to help. The most likely outcome of all this is, by far, just a damning decline that is making people lose jobs and hope. Your role, as a prepared person, will be to provide support. As much as you can.

To go beyond the basics and meet your tribe, consider attending this year's Peak Prosperity Seminar, which will be held April 26-28 in Sebastopol, California (link to more information here).

Do not forget that you can not be too prepared or too involved.

Conclusion

Few are ready to hear these messages. Others will be ready over the next year, but the numbers will remain surprisingly low.

It is therefore all the more important to stay united and to offer support and encouragement to each other as we navigate in increasingly difficult waters in the months and years to come.

We will all face setbacks. The money will evaporate, jobs may be lost and opportunities will disappear and appear in new places. Our best assets will be intangible and will be measured by our ability to adapt quickly and be less responsive to events.

Credit bubbles over 40 years old do not end easily or gently. Everything people think about how things work, especially in the financial and economic areas, will be torn apart.

Finally, we return to the story before the great credit wizards get their hands on the levers. Capital accumulates slowly through human efforts, and banking and financial activities will account for only a small portion of the overall business, no more than 5% of the pie, dedicated to the safe transfer of the capital from A to B.

Between here and there? A world of pain where expectations are forced to return to reality. If we are lucky, this happens over several decades in a fairly predictable downhill course.

If we are unlucky, it happens rather suddenly, or in the form of a series of sudden shocks like a bowling ball falling down a staircase. It could be a war in the Middle East that raises the price of oil to over $ 300 a barrel, or a massive financial crisis that closes the financial boundaries and causes the total failure of one or more currencies you Japan!).

Or a pandemic, or a solar EMP. Who knows? In a world characterized by interdependent "just in time" delivery systems, anything that will disrupt supply chains for more than a month will be the same, as our bowling ball has jumped three steps ahead of time. Reach the fourth.

Is this certain or guaranteed? No of course not. These are just probabilities. Smaller in the past, bigger today and growing.

Yes, the authorities will do everything in their power to prevent the economic reality from taking shape. They will print and then print others.

But they can not print 300% more insects to replace those that have already been lost. And they can not print 100% more phytoplankton either. They also can not print an extra 100 feet of water column in the Ogallala aquifer.

All they can do is increase their indebtedness and consumption, and steal an increasingly uncertain future. Can they do it again? Probably. Two more times? Three? When does it stop, but when does reality exceed all the mess and destroy the works of man?

Which means that the most important question we face is: you to do about it?