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The World Is Creeping Toward De-Dollarization

The World Is Creeping Toward De-Dollarization

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The issue of when a global reserve currency begins or ends is not an exact science. There are no press releases announcing it, and neither are there big international conferences that end with the signing of treaties and a photo shoot. Nevertheless we can say with confidence that the reign of every world reserve currency has to come to and end at some point in time. During a changeover from one global currency to another, gold (and to a lesser extent silver) has always played a decisive role. Central banks and governments have long been aware that the dollar has a sell-by date as a reserve currency. But it has taken until now for the subject to be discussed openly. The fact that the issue has been on the radar of a powerful bank like JP Morgan for at least five years, should give one pause. Questions regarding the global reserve currency are not exactly discussed on CNBC every day. Most mainstream economists avoid the topic like the plague. The issue is too politically charged. However, that doesn’t make it any less important for investors to look for answers. On the contrary. The following questions need to be asked: What indications are there that the world is turning its back on the US dollar? And what are the clues that gold’s role could be strengthened in a new system?

The mechanism underlying today’s “dollar standard” is widely known and the term “petrodollar” describes it well. This system is based on an informal agreement the US and Saudi Arabia arrived at in the mid-1970s. The result of this deal: Oil, and consequently all other important commodities, is traded in US dollars — and only in US dollars. Oil producers then “recycle” these “petrodollars” into US treasuries. This circular flow of dollars has enabled the US to pile up a towering mountain of debt of nearly $20 trillion — without having to worry about its own financial stability. At least, until now.

…click on the above link to read the rest of the article…

Kyle Bass: China’s $40 Trillion Banking System Has “Largest Imbalances I’ve Ever Seen”

Kyle Bass: China’s $40 Trillion Banking System Has “Largest Imbalances I’ve Ever Seen”

Kyle Bass’s Hayman Capital has been having a rough year thanks to its widely publicized bet against China’s currency, which has more than reversed its 2016 decline – its largest annual drop since 1994 – as the People’s Bank of China has cracked down on potentially destabilizing capital outflows.

However, Bass – unlike a handful of other former China bears who’ve been forced to scale back, or even reverse, their positions – has said that he is standing by his belief that China’s corporate sector is massively overleveraged, and overdue for a collapse that could destabilize the global economy. Chinese banks, according to Bass, have more than $40 trillion in assets held against $2 trillion in equity.

The dollar’s bull run against the yuan last year helped spark capital outflows as wealthy Chinese worried about the depreciation of their currency. In response, the PBOC tightened restrictions on foreign-exchange transactions for individuals, local companies – quashing a roaring international M&A boom – and even foreign companies, which in some cases have struggled to pull their money out of the world’s second-largest economy.

“So what’s going on right now? Let’s get the elephant out of the room. Let’s talk about China.

Kyle Bass: OK, how much time do we have?

RP: As long as you need. Where are we? What the hell’s going on?

KB: We’re in the such late stages of a game that is the largest global imbalance I’ve ever seen in my life.When you look at on balance sheet and off balance sheets, you look at on balance sheet in the banks, you look in the shadow banks. The number of total credit in the system, China is right at $40 trillion. Think about the number I just said. $40 trillion. And that’s using an exchange rate of call it 6.7 to the dollar, right? So it’s grown 1,000% in a decade. And we’re on a $40 trillion credit system on $2 trillion of equity on maybe $1 trillion of liquid reserves.

…click on the above link to read the rest of the article…

Dear Jamie Dimon: Predict the Crash that Takes Down Your Produces-Nothing, Parasitic Bank and We’ll Listen to your Bitcoin “Prediction”

Dear Jamie Dimon: Predict the Crash that Takes Down Your Produces-Nothing, Parasitic Bank and We’ll Listen to your Bitcoin “Prediction”

This is the begging-for-the-overthrow-of-a-corrupt-status-quo economy we have thanks to the Federal Reserve giving the J.P. Morgans and Jamie Dimons of the world the means to skim and scam the bottom 95%.

Dear Jamie Dimon: quick quiz: which words/phrases are associated with you and your employer, J.P. Morgan? Looting, pillage, rapacious, exploitive, only saved from collapse by massive intervention by the Federal Reserve, the source of rising wealth inequality, crony capitalism, privatized profits-socialized losses, low interest rates = gift from savers to banks, bloviating overpaid C.E.O., propaganda favoring the financial elite, tool of the top .01%, destroyer of democracy, financial fraud goes unpunished, free money for financiers, debt-serfdom, produces nothing of value to society or the bottom 99.5%.

Jamie, if you answered “all of them,” you’re correct. The only reason you have a soapbox from which you can bloviate is the central bank (Federal Reserve) saved you and your neofeudal looting machine (bank) from well-deserved oblivion in 2008-09, and the unprecedented, co-ordinated campaign by global central banks to buy trillions of dollars of bonds and stocks.

Central Banks Have Purchased $2 Trillion In Assets In 2017

This 8-year long central bank intervention has:

1) transferred billions in what were once interest payments earned by savers and pension funds to banks such as J.P. Morgan

2) boosted your sales by flooding the financial system with low-cost credit

3) lifted your stock far above its value in an unmanipulated market and thus

4) awarded you immense stock-option and bonus-based wealth for doing nothing but letting the central banks enrich J.P. Morgan and its peers.

…click on the above link to read the rest of the article…

Money Multiplier is Really About Credit Out of “Thin Air”

According to traditional economics textbooks, the current monetary system amplifies the initial monetary injections of money. The popular story goes as follows: if the central bank injects $1 billion into the economy and banks have to hold 10% in reserve against their deposits the initial injection of $1 billion will become $10 billion i.e. money supply will expand by a multiple of 10. Note that in this example the central bank has actively initiated monetary pumping of $1 billion, which in turn banks have amplified to $10 billion.

Economists from the post-Keynesian school of economics (PK) have expressed doubt about the validity of this popular framework of thinking[1]. One of the advocates of this school, Bill Mitchell, in an article on his blog – Money Multiplier and other Myths – wrote that,

It (money multiplier) is also not even a slightly accurate depiction of the way banks operate in a modern monetary economy characterised by a fiat currency and a flexible exchange rate. In the present monetary framework, it is held the job of the central bank is to ensure that the level of cash in the money market is in tune with the interest rate target.

According to Mitchell,

The way banks actually operate is to seek to attract credit-worthy customers to which they can loan funds to and thereby make profit.

Furthermore, according to Mitchell,

So the idea that reserve balances are required initially to “finance” bank balance sheet expansion via rising excess reserves is inapplicable. A bank’s ability to expand its balance sheet is not constrained by the quantity of reserves it holds or any fractional reserve requirements. The bank expands its balance sheet by lending. Loans create deposits which are then backed by reserves after the fact. The process of extending loans (credit) which creates new bank liabilities is unrelated to the reserve position of the bank.

…click on the above link to read the rest of the article…

On Guard Against The Banks

On Guard Against The Banks - Craig Hemke

Following the events of yesterday, it seems wise this morning to take an in-depth look at the charts in order to discern what moves The Banks may take next in the hope of stemming this rally and reversing the trends.

Let’s start with Comex Digital Gold. It has been in an UPtrend since July 10 and this rally has carried it $150 or about 12.5%. In doing so, The Commercials on the CoT have increased their NET short position by 182,000 contracts and, specifically, the 24 Banks of the Bank Participation Report have doubled their NET short position, going from 104,748 contracts NET short in July to 213,746 NET short last week.

This places the CoT in its “worst” position since last September and this BPR reveals the largest NET short position on record. Therefore, you KNOW that The Banks will do just about anything at this point to reverse the trend and begin flushing The Specs back out of paper gold. Though they are clearly capable of pulling this off, it may take them a while to do it. Why, you ask?

For CDG, it’s all about the moving averages. We noted early last week that CDG’s 50-day had bullishly crossed UP and through both its 10-day and 200-day MAs. This is a very bullish trend indicator and, most importantly, it sets the Spec HFTs into a “buy the dip mode”. You can see this playing out already when you look at the daily chart.

Also last week, we began to discuss the significance of the $1331 level as support in any pullback. This was the level of resistance and then support in late August so we hoped/expected that same action on any pullback. And look what has happened thus far this week! Even though the all-important USDJPY is up another 50 pips today and pressing against 110, Comex gold is hanging firm at….$1332! For us, this is clear evidence of the HFTs buying the dip.

…click on the above link to read the rest of the article…

America Can’t Afford to Rebuild


Adolphe Yvon Genius of America c1870
A number of people have argued over the past few days that Hurricane Harvey will NOT boost the US housing market. As if any such argument would or should be required. Hurricane Irma will not provide any such boost either. News about the ‘resurrection’ of New Orleans post-Katrina has pretty much dried up, but we know scores of people there never returned, in most cases because they couldn’t afford to.

And Katrina took place 12 years ago, well before the financial crisis. How do you think this will play out today? Houston is a rich city, but that doesn’t mean it’s full of rich people only. Most homeowners in the city and its surroundings have no flood insurance; they can’t afford it. But they still lost everything. So how will they rebuild?

Sure, the US has a National Flood Insurance Program, but who’s covered by it? Besides, the Program was already $24 billion in debt by 2014 largely due to hurricanes Katrina and Sandy. With total costs of Harvey estimated at $200 billion or more, and Irma threating to cause far more damage than that, where’s the money going to come from?

It took an actual fight just to push the first few billion dollars in emergency aid for Houston through Congress, with four Texan senators voting against of all people. Who then will vote for half a trillion or so in aid? And even if they do, where would it come from?

Trump’s plans for an infrastructure fund were never going to be an easy sell in Washington, and every single penny he might have gotten for it would now have to go towards repairing existing roads and bridges, not updating them -necessary as that may be-, let alone new construction.

…click on the above link to read the rest of the article…

Does Government Spending Create More Economic Growth?

Does Government Spending Create More Economic Growth?

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After the 2007-2009 global financial crisis, fears of ballooning public debt and worries about the drag on economic growth pushed authorities in some countries to lower government spending, a tactic that economists now think may have slowed recovery. Note that in the United States the total debt to GDP ratio stood at 349 in Q1 this year.

In a paper presented at the Kansas City Federal Reserve’s annual economic symposium on August 26 2017, Alan Auerbach and Yuriy Gorodnichenko from the University of California suggested that “expansionary fiscal policies adopted when the economy is weak may not only stimulate output but also reduce debt-to-GDP ratios”. (Fiscal Stimulus and Fiscal Sustainability, August 1,2017, UC – Berkley and NBER).

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Some commentators are of the view that these findings may be welcome news to central bankers who face limited options of their own to combat a future downturn, given existing low interest rates and low inflation rates in their economies. “With tight constraints on central banks, one may expect — or maybe hope for — a more active response of fiscal policy when the next recession arrives,” the University of California researchers wrote.

These findings are in agreement with Nobel Laureate in economics Paul Krugman, and other commentators that are of the view that an increase in government outlays whilst the economy is relatively subdued is good news for economic growth.

Can increase in government outlays strengthen economic growth?

Observe that government is not a wealth generating entity as such — the more it spends, the more resources it has to take from wealth generators. This in turn undermines the wealth generating process of the economy.

The proponents for strong government outlays when an economy displays weakness hold that the stronger outlays by the government will strengthen the spending flow and this in turn will strengthen the economy.

…click on the above link to read the rest of the article…

Nomi Prins: Big Bank Concentration and Counterparty Risk Expands

Nomi Prins joined Sprott Money News for its Ask the Expert segment that covered the Federal Reserve system, Glass-Steagall reform and even the recent activity from the U.S Treasury.

Beginning the conversation she highlighted U.S debt and the position of U.S treasury bonds. Prins remarks, “One of the reasons in general that government debt is considered an asset is that it can be traded and holds enough liquidity to either raise money or post as collateral for other forms of capital. They have an intrinsic benefit in the financial system between central banks, large multinational institutions and banks, etc.”

“U.S Treasury bonds also have the idea behind them that they have this implicit guarantee by their respective government that they will not default. Even though, right now, these bonds barely have any interest from a return perspective and are not particularly lucrative, it does have the idea behind them that it is not going to lose its value.”

Nomi Prins is a former Wall Street insider where she worked as a Managing Director at Goldman Sachs among other major financial outlets. She is also a best-selling author who wrote All the Presidents’ Bankers, a book that examines the hidden alliances between Wall Street and Washington.

Switching gears, she was pressed on whether the U.S treasury bonds could face a replacement Nomi Prins noted, “In the current international monetary system we have where the U.S dollar is the major reserve currency there is a necessity for central banks and private banks to use and have the U.S treasury bonds. The bonds are used to balance payments and used for potential liquidity emergency mechanisms and any other financial circumstances.”

…click on the above link to read the rest of the article…

What Is the Liquidity Trap?

What Is the Liquidity Trap?

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Some economists such as a Nobel Laureate Paul Krugman are of the view that if the US were to fall into liquidity trap the US central bank should aggressively pump money and aggressively lower interest rates in order to lift the rate of inflation. This Krugman holds will pull the economy from the liquidity trap and will set the platform for an economic prosperity. In his New York Times article of January 11, 2012, he wrote,

If nothing else, we’ve learned that the liquidity trap is neither a figment of our imaginations nor something that only happens in Japan; it’s a very real threat, and if and when it ends we should nonetheless be guarding against its return — which means that there’s a very strong case both for a higher inflation target, and for aggressive policy …(of the central bank).

But does it make sense that by means of more inflation the US economy could be pulled out of the liquidity trap?

The Origin of the Liquidity-Trap Concept

In the popular framework of thinking that originates from the writings of John Maynard Keynes, economic activity presented in terms of a circular flow of money. Spending by one individual becomes part of the earnings of another individual, and spending by another individual becomes part of the first individual’s earnings.

Recessions, according to Keynes, are a response to the fact that consumers — for some psychological reasons — have decided to cut down on their expenditure and raise their savings.

For instance, if for some reason people have become less confident about the future, they will cut back on their outlays and hoard more money. Therefore, once an individual spends less, this worsens the situation of some other individual, who in turn also cuts his spending.

…click on the above link to read the rest of the article…

The 2017 Stress Tests: Are US Banks Really in Good Shape?

“… equally efficacious, and equally a hoax.” – Benjamin Disraeli, 1848[1]

One of the highlights of the U.S. summer for Fed watchers is the annual ritual in which the Fed’s economic soothsayers peer into their crystal balls, a.k.a. their stress tests, to reassure us that the U.S. banking system is robust and getting stronger all the time.

You see, while the future is uncertain, the results of the stress tests are not. Praise be that the news is always good and getting better.

This year, the news is particularly good. As usual, the key capital metrics across the system are better than ever. And whereas in previous years there were always dunces who failed, the latest set of stress tests are the first in which all the banks passed and this year’s class laggard, Capital One, got only the mildest of slaps on the wrist.

As James Ferguson of The MacroStrategy Partnership notes in a recent commentary on the latest stress tests:

… everywhere you look, the Fed now seems to be bending the rules  in the banks’ favour. … This [stress test] appears to be a test that has been designed to be passed.”[2]

In fact, the Fed is so pleased with the performance of its stress-test examinees that it decided to reward them (or, more precisely, their shareholders) with a big dividend/buyback party that will give them a big windfall.[3] The Fed provides the punchbowl which will be paid for by other bank stakeholders including taxpayers — yes, the same taxpayers who are still being compelled to subsidize the banks (via Too Big to Fail, deposit insurance, and such like) to take excessive risks and overleverage themselves, and who stand to pay the bill if there is another crisis and the banks get bailed out again.[4]

…click on the above link to read the rest of the article…

Stock & Bond Markets in Denial about QE Unwind, but Banks, Treasury Dept Get Antsy

Stock & Bond Markets in Denial about QE Unwind, but Banks, Treasury Dept Get Antsy

“Let markets clear.” It’ll be just “a financial engineering shock.”

Stock and bond markets are in denial about the effects of the Fed’s forthcoming QE unwind, whose kick-off is getting closer by the day, according to the minutes of the Fed’s July meeting.

“Several participants” were fretting how financial conditions had eased since the rate hikes began in earnest last December, instead of tightening. “Further increases in equity prices, together with continued low longer-term interest rates, had led to an easing of financial conditions,” they said. So something needs to be done about it.

And “several participants were prepared to announce a starting date for the program at the current meeting” – so the meeting in July – “most preferred to defer that decision until an upcoming meeting.” So the September meeting. And markets are now expecting the QE unwind to be announced in September.

Since then, short-term Treasury yields have remained relatively stable, reflecting the Fed’s current target range for the federal funds rate of 1% to 1.25%. But long-term rates, which the Fed intends to push up with the QE unwind, have come down further. As a consequence, the yield curve has flattened further, which is the opposite of what the Fed wants to accomplish.

The chart shows how the yield curve for current yields (red line) across the maturities has flattened against the yield curve on December 14 (blue line), when the Fed got serious about tightening:

Yields of junk bonds at the riskiest end (rated CCC or below) surged in the second half of 2015 and in early 2016, peaking above 20% on average, as bond prices have plunged (they move in opposite directions) in part due to the collapse of energy junk bonds, which caused a phenomenal bout of Fed flip-flopping.

…click on the above link to read the rest of the article…

The ECB Morphs into the Mother of All “Bad Banks”

The ECB Morphs into the Mother of All “Bad Banks”

More than just a few “fallen angels.”.

As part of its QE operations, the ECB continues to pour billions of freshly created euros each month into corporate bonds – and sometimes when it buys bonds via “private placements” directly into some of Europe’s biggest corporations and the European subsidiaries of non-European transnationals. Its total corporate bond purchases recently passed the €100 billion threshold. And it’s growing at a rate of roughly €7 billion a month. And it’s in the process of becoming the biggest “bad bank.”

When the ECB first embarked on its corporate bond-buying scheme in March 2016, it stated that it would buy only investment-grade rated debt. But shortly after that, concerns were raised about what might happen if a name it owned was downgraded to below investment grade. A few months later a representative of the bank put such fears to rest by announcing that it “is not required to sell its holdings in the event of a downgrade” to junk, raising the prospect of it holding so-called “fallen angels.”

Now, sixteen months into the program, it turns out that the ECB has bought into 981 different corporate bond issuances, of which 34 are currently rated BB+, so non-investment grade, or junk. And 208 of the issuances are non-rated (NR). So in total, a quarter of the bond issuances it purchased are either junk or not rated (red bars):

The ECB initially said it would only buy bonds that are “rated” — and rated investment grade. Thus having a quarter of the bonds on its books either junk or not rated represents a major violation of that promise.

The ECB is clearly loading up on risk and possibly bad credit that Draghi’s successor is going to have to eat at some point further down the road.

…click on the above link to read the rest of the article…

Banks Are Scheming to Dominate a Future Cashless Society

Banks Are Scheming to Dominate a Future Cashless Society

(ANTIMEDIA) — Visa recently announced its new Cashless Challenge program, which offers $10,000 to restaurants willing to transition into accepting only digital payments.  As the largest credit card processor in the U.S., it’s no surprise Visa is spearheading this campaign. Under the guise of increasing transparency and efficiency, they’ve partnered with governments around the world to help convert financial systems into cashless models, but their real incentive is the billions of dollars in extra transaction fees it would generate.

“We are declaring war on cash,” Visa spokesman Andy Gerlt proudly proclaimed after the program was announced.

The food-based small businesses Visa is targeting are among those that benefit most from accepting cash from customers. When transactions are for amounts less than $10, the fees charged cut significantly into profits. Only 28% of food trucks currently accept credit card payments because of the huge losses they incur from them. The bribe from Visa may seem appealing up front but will be mostly paid back to them over the next few years in fees alone.

Liz Garner, Vice President of the Merchant Advisory Group, which represents over 100 of the largest businesses in the U.S., explained some of the hurdles faced when dealing with card networks:

“For many businesses – both large and small – the cost of accepting plastic cards and other forms of electronic payments is one of their highest operating costs. Most business owners have no qualms about paying reasonable fees for business services, and they do so every day for items such as cleaning services, security systems, Wi-Fi, and other basic needs. However, they have the ability to negotiate for those services in a fair and transparent marketplace, which they do not with the two major credit and debit card networks….Credit card and debit card fees are dictated directly by Visa and MasterCard and are imposed on the majority of merchants in a take-it-or-leave-it fashion. 

…click on the above link to read the rest of the article…

Why Quantitative Tightening Will Fail

Why Quantitative Tightening Will Fail

After nine years of unconventional quantitative easing (QE) policy the Federal Reserve is now setting out on a new path for quantitative tightening (QT).

QE was a policy of money printing. The Fed did this by buying bonds from the big banks. The banks would then deliver bonds to the Fed, and the Fed would in turn pay them with money from thin air. QT takes a different approach.

Instead, the Fed will set out policy that allows the old bonds to mature, while not buy new ones from the banks. That way the money will shrink the balance sheets ahead of any potential crisis.

For years leaders at the Federal Reserve have been rolling over the balance sheet to keep it at $4.5 trillion.

Here’s what the Fed wants you to believe.

The Fed wants you to think that QT will not have any impact. Fed leadership speaks in code and has a word for this which you’ll hear called “background.” The Fed wants this to run on background. Think of running on background like someone using a computer to access email while downloading something on background.

This is complete nonsense. They’ve spent eight years saying that quantitative easing was stimulative. Now they want the public to believe that a change to quantitative tightening is not going to slow the economy.

They continue to push that conditions are sustainable when printing money, but when they make money disappear, it will not have any impact. This approach falls down on its face – and it will have a big impact.

…click on the above link to read the rest of the article…

Olduvai II: Exodus
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Olduvai
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Olduvai II: Exodus
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Olduvai III: Cataclysm
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