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Fed Fears New Record High Credit Bubble – Danielle DiMartino Booth

Fed Fears New Record High Credit Bubble – Danielle DiMartino Booth

Former Federal Reserve insider Danielle DiMartino Booth says the record high stock and bond prices make the Fed nervous because it’s fearful of popping this record high credit bubble. DiMartino Booth says, “The Fed’s biggest fear is they know darn well this much credit has built up in the background, and the ramifications of the un-wind for what has happened since the great financial crisis is even greater than what happened in 2008 and 2009.  It’s global and pretty viral.  So, the Fed has good reason to be fearful of what’s going to happen when the baby boomer generation and the pension funds in this country take a third body blow since 2000, and that’s why they are so very, very intimidated by the financial markets and so fearful of a correction.”

Why will the Fed not allow even a small correction in the markets? DiMartino Booth says, “Look back to last year when Deutsche Bank took the markets to DEFCON 1.  Maybe you were paying attention and maybe you weren’t, but it certainly got the German government’s attention.  They said the checkbook is open, and we will do whatever we need to do because we can’t quantify what will happen when a major bank gets into a distressed situation.  I think what central banks worldwide fear is that there has been such a magnificent re-blowing of the credit bubble since 2007 and 2008 that they can’t tell you where the contagion is going to be.  So, they have this great fear of a 2% or 3% or 10 % (correction) and do not know what the daisy chain is going to look like and where the contagion is going to land.  It could be the Chinese bond market.  It could be Italian insolvent banks or it might be Deutsche Bank, or whether it might be small or midsize U.S. commercial lenders.

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

Benn Steil: The Fed Could be Tightening More Than it Realizes

Ten years ago, before the collapse of Lehman Brothers rocked global financial markets, the Fed’s balance sheet stood at $925 billion—mostly U.S. Treasuries. After fifty-nine months of asset purchases to push down longer-term interest rates, it had ballooned to a peak of $4.5 trillion, including nearly $1.8 trillion in mortgage securities, in October 2014.

In October of this year, the Fed at last began a slow slimming-down of the balance sheet, allowing $10 billion in maturing securities to roll off without reinvesting the proceeds. All else being equal, this represents a tightening of monetary policy, as it tends to push up longer-term (10-year) market interest rates.

In Fed chair Janet Yellen’s words, the central bank “does not have any experience in calibrating the pace and composition of asset redemptions and sales to actual prospective economic conditions.” She has therefore stressed that the Fed sees its balance-sheet reduction as a primarily technical exercise separate from the pursuit of its monetary policy goals—in particular, pushing inflation back up to 2%. The Fed’s main tool for tightening monetary policy in a recovering economy would, therefore, she explained, be raising short-term market interest rates by paying banks greater interest on reserves (IOR). Since December 2015, the Fed has raised the rate on IOR by 100 basis points (1%), which has pushed up its short-term benchmark rate—the effective federal funds rate—in tandem.

But is Yellen right that the Fed’s gradual approach to balance-sheet reduction makes it relatively unimportant in its impact on monetary conditions? Our analysis suggests that it will be, in fact, considerably more important than the market, or the Fed itself, realizes. Here is why.

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

Central Bank Group Think: Convince the Public More Inflation is Coming 

Chicago Fed chief Charles Evans is worried about the lack of inflation primarily because he is clueless about where to find it. As further proof of his economic illiteracy, Evans says “Low inflation expectations keep inflation down”.

The Federal Reserve should take a more aggressive stance toward boosting inflation and stop talking so much about using interest rates to ensure financial stability, Chicago Fed President Charles Evans said.

Evans expressed concerns Wednesday that the public was losing faith in policy makers’ commitment to bring inflation back up to their 2 percent target.

The central banker has consistently argued for a slower pace of interest-rate increases than many of his colleagues on the policy-setting Federal Open Market Committee.

“In order to dispel any impression that 2 percent is a ceiling, our communications should be much clearer about our willingness to deliver on a symmetric inflation outcome, acknowledging a greater chance of inflation at 2.5 percent in the future than what has been communicated in the past,” he said in remarks prepared for a speech in London.

Two Asinine Economic Theories

  1. There is a need for inflation
  2. The Fed can achieve it by talking about it

For proof of number 2, look at Japan.

In regards to point number 1, the BIS agrees that routine price deflation may be beneficial.

BIS Deflation Study

The BIS did a historical study and found routine price deflation was not any problem at all.

“*Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive*,” stated the study.

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

Fed Hints During Next Recession It Will Roll Out Income Targeting, NIRP

Fed Hints During Next Recession It Will Roll Out Income Targeting, NIRP

In a moment of rare insight, two weeks ago in response to a question “Why is establishment media romanticizing communism? Authoritarianism, poverty, starvation, secret police, murder, mass incarceration? WTF?”, we said that this was simply a “prelude to central bank funded universal income”, or in other words, Fed-funded and guaranteed cash for everyone.


Why is establishment media romanticizing communism? Authoritarianism, poverty, starvation, secret police, murder, mass incarceration? WTF?

prelude to central bank funded universal income


On Thursday afternoon, in a stark warning of what’s to come, San Francisco Fed President John Williams confirmed our suspicions when he said that to fight the next recession, global central bankers will be forced to come up with a whole new toolkit of “solutions”, as simply cutting interest rates won’t well, cut it anymore, and in addition to more QE and forward guidance – both of which were used widely in the last recession – the Fed may have to use negative interest rates, as well as untried tools including so-called price-level targeting or nominal-income targeting.

The bolded is a tacit admission that as a result of the aging workforce and the dramatic slack which still remains in the labor force, the US central bank will have to take drastic steps to preserve social order and cohesion.

According to Williams’, Reuters reports, central bankers should take this moment of “relative economic calm” to rethink their approach to monetary policy. Others have echoed Williams’ implicit admission that as a result of 9 years of Fed attempts to stimulate the economy – yet merely ending up with the biggest asset bubble in history – the US finds itself in a dead economic end, such as Chicago Fed Bank President Charles Evans, who recently urged a strategy review at the Fed, but Williams’ call for a worldwide review is considerably more ambitious.

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

Why Core Inflation is Rising & What it Means for Fed Rate Hikes

Why Core Inflation is Rising & What it Means for Fed Rate Hikes

Yellen was right to brush off “transitory” factors of “low” inflation.

Consumer prices, as measured by CPI for October, rose 2.0% year-over-year. A month ago, CPI increased 2.2%. The Fed’s inflation target is 2%, but it doesn’t use CPI, or even “Core CPI” – which excludes the volatile food and energy items. It uses “Core PCE,” which usually runs lower than CPI, and if there were an accepted measure that shows even less inflation, it would use that. But it does look at CPI, and there was nothing in today’s data to stop the Fed from raising its target rate in December.

The Core CPI rose 1.8%, up a tad from September’s 1.7% increase. Core CPI has been above 2% for all of 2016 and through March 2017. In the history of the data going back to the 1960s, Core CPI had never experienced “deflation.” But when Core CPI rates retreated in the spring through August, along with other inflation measures, a sort of panic broke out in the media:

But the retreat was repeatedly brushed off as “transitory” by Fed Chair Janet Yellen and other Fed governors, starting in June, when they vowed to continue raising rates “gradually” and proceed with the QE unwind. Yellen had specifically pointed at a few of those “transitory” factors. These factors are now turning around. Core prices have re-accelerated their increases.

One of the “transitory” factors Yellen had pointed out specifically was telephone services, which includes the monthly costs that consumers pay for their smartphones and landlines. Those costs had plunged as a price war among wireless carriers broke out in 2016. This summer, the CPI for wireless services plunged as much as 13% year-over-year. Consumers loved it, but it couldn’t last.

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

Central Bank Group Think: Convince the Public More Inflation is Coming 

Chicago Fed chief Charles Evans is worried about the lack of inflation primarily because he is clueless about where to find it. As further proof of his economic illiteracy, Evans says “Low inflation expectations keep inflation down”.

The Federal Reserve should take a more aggressive stance toward boosting inflation and stop talking so much about using interest rates to ensure financial stability, Chicago Fed President Charles Evans said.

Evans expressed concerns Wednesday that the public was losing faith in policy makers’ commitment to bring inflation back up to their 2 percent target.

The central banker has consistently argued for a slower pace of interest-rate increases than many of his colleagues on the policy-setting Federal Open Market Committee.

“In order to dispel any impression that 2 percent is a ceiling, our communications should be much clearer about our willingness to deliver on a symmetric inflation outcome, acknowledging a greater chance of inflation at 2.5 percent in the future than what has been communicated in the past,” he said in remarks prepared for a speech in London.

Two Asinine Economic Theories

  1. There is a need for inflation
  2. The Fed can achieve it by talking about it

For proof of number 2, look at Japan.

In regards to point number 1, the BIS agrees that routine price deflation may be beneficial.

BIS Deflation Study

The BIS did a historical study and found routine price deflation was not any problem at all.

“*Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive*,” stated the study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

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

The Unbearable Slowness of Fourth Turnings

THE UNBEARABLE SLOWNESS OF FOURTH TURNINGS

“The next Fourth Turning is due to begin shortly after the new millennium, midway through the Oh-Oh decade. Around the year 2005, a sudden spark will catalyze a Crisis mood. Remnants of the old social order will disintegrate. Political and economic trust will implode. Real hardship will beset the land, with severe distress that could involve questions of class, race, nation and empire. The very survival of the nation will feel at stake. Sometime before the year 2025, America will pass through a great gate in history, commensurate with the American Revolution, Civil War, and twin emergencies of the Great Depression and World War II.” – Strauss & Howe The Fourth Turning 

This Fourth Turning was ignited suddenly in September 2008 as the housing bubble, created by the Federal Reserve and their criminal puppeteer owners on Wall Street, collapsed, revealing the greatest control fraud in world history. A crisis mood was catalyzed as the stock market dropped 50%, unemployment surged to highs not seen since 1981, foreclosures exploded, and captured politicians bailed out the criminal bankers with the tax dollars of the victims.

The mood of the country darkened immediately as average Americans flooded their congressmen’s websites and phone lines with a demand not to bailout the felonious Wall Street banks with $700 billion of TARP. But they ignored their supposed constituents and revealed who they are truly beholden to.

Trust in the political and financial system disintegrated and has further deteriorated as the ruling elite continue to loot and pillage as if the 2008/2009 global financial meltdown never happened. From the perspective of the archaic social order there is no longer a crisis. The recovery narrative, flogged ceaselessly by the crooked establishment and their propaganda fake news corporate media mouthpieces, has convinced millions of willfully ignorant Americans progress is occurring.

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

The Kids Are Not Alright

The Kids Are Not Alright

Debt initially dazzles and deceives, then it disappoints, disillusions, devastates, and destroys.

The thing governments do best is borrow. Performance varies across the range of their purported functions—warfare, maintenance of public order, provision of goods and services, redistribution, regulation—but they all go into debt. The structure of governments and their underlying philosophies also vary, but there’s one commonality. They are set up to optimize their own borrowing. Thus, central banks are essential.

There is a cottage industry devoted to the minutia of central bank personnel, policies, and pronouncements and what they mean for humanity’s future. Actually, cottage industry is not a correct characterization. No cottage industry could generate the kind of money paid to central banking’s acolytes.

After months of speculation, President Trump named Jerome Powell as the next Chair of the Board of Governors of the Federal Reserve System. If you know why the Fed exists and how it operates, the speculation was so much dross. The Federal Reserve exists to “facilitate” the US government’s issuance of debt. Mr. Powell will do what Janet Yellen, Benjamin Bernanke, Alan Greenspan, Paul Volker, G. William Miller, Arthur Burns, and every chairperson has done on back to the first one, Charles Hamlin: make it easier for the government to borrow. All of the other candidates would have done the same.

Central banks, their fiat debt, and ostensibly private banking systems that either control or are controlled by governments (take your pick) have facilitated unprecedented global governmental indebtedness. Suppressed interest rates and pyramiding debt via fractional reserve banking, securitization, and derivatives have led to record private indebtedness as well. The totals so dwarf the world’s productive capacities as measured, albeit imperfectly, by gross domestic product figures that the comparison yields an inescapable conclusion: most of this debt cannot be repaid.

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

Caution: Slowdown

Caution: Slowdown

Many of you know I keep posting charts keeping taps on the macro picture in the Macro Corner. It’s actually an interesting exercise watching what they do versus what they say. Public narratives versus reality on the ground.

I know there’s a lot of talk of global synchronized expansion. I call synchronized bullshit.

Institutions will not warn investors or consumers. They never do. Banks won’t warn consumers because they need consumers to spend and take up loans and invest money in markets. Governments won’t warn people for precisely the same reason. And certainly central banks won’t warn consumers. They are all in the confidence game.

Well, I am sending a stern warning: The underlying data is getting uglier. Things are slowing down. And not by just a bit, but by a lot. And I’ll show you with the Fed’s own data that is in stark contrast to all the public rah rah.

Look, nobody wants recessions, They are tough and ugly, but our global economy is on based on debt and debt expansion. Pure and simple. And all that is predicated on keeping confidence up. Confident people spend more and growth begets growth.

But here’s the problem: Despite all the global central bank efforts to stimulate growth real growth has never emerged. Mind you all this is will rates still near historic lows:

And central banks supposedly are reducing the spigots come in 2018:

I believe it when I see it. In September the FED told everyone they would start reducing their balance sheet in October. It’s November:

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

The Destruction of the Dollar

The Destruction of the Dollar

Doug Casey on the Destruction of the Dollar

“Inflation” occurs when the creation of currency outruns the creation of real wealth it can bid for… It isn’t caused by price increases; rather, it causes price increases.

Inflation is not caused by the butcher, the baker, or the auto maker, although they usually get blamed. On the contrary, by producing real wealth, they fight the effects of inflation. Inflation is the work of government alone, since government alone controls the creation of currency.

In a true free-market society, the only way a person or organization can legitimately obtain wealth is through production. “Making money” is no different from “creating wealth,” and money is nothing but a certificate of production. In our world, however, the government can create currency at trivial cost, and spend it at full value in the marketplace. If taxation is the expropriation of wealth by force, then inflation is its expropriation by fraud.

To inflate, a government needs complete control of a country’s legal money. This has the widest possible implications, since money is much more than just a medium of exchange. Money is the means by which all other material goods are valued. It represents, in an objective way, the hours of one’s life spent in acquiring it. And if enough money allows one to live life as one wishes, it represents freedom as well. It represents all the good things one hopes to have, do, and provide for others. Money is life concentrated.

As the state becomes more powerful and is expected to provide more resources to selected groups, its demand for funds escalates. Government naturally prefers to avoid imposing more taxes as people become less able (or willing) to pay them. It runs greater budget deficits, choosing to borrow what it needs.

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

How Central Banks Widen Wealth and Income Gaps

How Central Banks Widen Wealth and Income Gaps

burn money_0.PNG

The Federal Reserve’s latest Survey of Consumer Finances, according to Federal Reserve Governor Brainard, shows that the share of income held by the top 1 percent of households has risen from 17 percent in 1988 to 24 percent in 2015, and that the wealth held by that same group rose from 30 percent in 1989 to 39 percent in 2016.

There are many explanations of why the gap between the rich and the poor widens. Governor Brainard attributes some of it to labor market disparities relating to geography and to race and ethnicity. She and Robert Frank say it results from the wealthiest households being much more likely to invest additional money received than those in other income groups. Vincent Del Giudice and Wei Lu blame automation and robotics. John Tamny says it is a consequence of the explosion in entrepreneurship that has benefited us all. A Tax Policy Center report concludes that it will widen even more if the president’s income tax overhaul is enacted.

The Brookings Institute held a conference to explore whether monetary policy widens the wealth gap. Mainstream economists support expansionary monetary policy because the income gap closes after mortgage payments are lowered when homes are refinanced at lower interest rates. However, a conference panelist and former Federal Reserve (Fed) board member Kevin Warsh referred to the Fed’s monetary policy during the financial crisis as being “reverse Robin Hood.” This view has merit because the Fed’s purchases of securities push interest rates down and expand the money supply. The expansion of money then inflates the prices of financial assets, which are disproportionately owned by the rich.

In a previous article for Mises Wire, I discussed data that seems to support both sides of the Brookings debate.

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

700 Years Of Data Suggests The Reversal In Rates Will Be Rapid

700 Years Of Data Suggests The Reversal In Rates Will Be Rapid

Have we been lulled into a false sense of security about the future path of rates by ZIRP/NIRP policies? Central banks’ misguided efforts to engineer inflation have undoubtedly been woefully feeble, so far. As the Federal Reserve “valiantly” raises short rates, markets ignore its dot plot and yield curves continue to flatten. And thanks to Larry Summers, the term “secular stagnation” has entered the lexicon.  While it sure doesn’t feel like it, could rates suddenly take off to the upside?

A guest post on the Bank of England’s staff blog, “Bank Underground”, answers the question with an unequivocal yes. Harvard University’s visiting scholar at the Bank, Paul Schmelzing, normally focuses on 20th century financial history. In his guest post (see here), he analyses real interest rates stretching back a further 600 years to 1311. Schmelzing describes his methodology as follows.

We trace the use of the dominant risk-free asset over time, starting with sovereign rates in the Italian city states in the 14th and 15th centuries, later switching to long-term rates in Spain, followed by the Province of Holland, since 1703 the UK, subsequently Germany, and finally the US.

Schmelzing calculates the 700-year average real rate at 4.78% and the average for the last two hundred years at 2.6%. As he notes “the current environment remains severely depressed”, no kidding. Looking back over seven centuries certainly provides plenty of context for our current situation, where rates have been trending downwards since the early 1980s. According to Schmelzing, we are in the ninth “real rate depression” since 1311 as shown in his chart below. We count more than nine, but let’s not be picky.

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

Ron Paul: We Are Reaching A Point Of No Return

Ron Paul: We Are Reaching A Point Of No Return

When the system will break no matter what the Fed tries

Ron Paul Book: The Revolution At Ten Years

Dr. Ron Paul has long been a leading voice for limited constitutional government, low taxes, free markets, sound money, civil liberty, and non-interventionist foreign policies.

Dr. Paul served as the US Representative for Texas’s 27th Congressional District from 1976 to 1985. He then represented the 14th district from 1977 to 2013. He ran for the office of US President, three times, most recently in the 2012 Republican primaries. Dr. Paul also had a long career as an OBGYN over which he delivered more than 4,000 babies.

The recent author of the book, The Revolution At Ten Years, Dr. Paul looks ahead at the future of the movement he helped launch — tackling central planning, the military empire, cultural Marxism, the surveillance state, the deep state, and the real threats from these institutions to our civil liberties.

As a multi-term member of Congress, Dr. Paul knows the players and policies responsible for the growing unfairness and inequality now rampant in society. He does not expect the offenders will reform willingly. Instead, he predicts the system will collapse under its own unsustainability — offering a rare and valuable chance then for more sound and fair solutions to prevail:

Wealth doesn’t come from the creation of money, especially a fiat system. With too much fiat money and all this credit, eventually the economy becomes exhausted and engulfed with debt and mal-investments. The treatment for this is a correction; you have to allow the debt to be liquidated. You have to get rid of the mal-investment and you have and to allow real economic growth to start all over again. But that wasn’t permitted in ’08 and ’09, which is why there’s been stagnation.

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

What Could Go Wrong?

Everybody and his uncle, and his uncle’s mother’s uncle, believes that the stock markets will be zooming to new record highs this week, and probably so, because it is the time of year to fatten up, just as the Thanksgiving turkeys are happily fattening up — prior to their mass slaughter.

President Trump’s new Federal Reserve chair, Jerome “Jay” Powell, “a low interest-rate kind of guy,” was obviously picked because he is Janet Yellen minus testicles, the grayest of gray go-along Fed go-fers, going about his life-long errand-boy duties in the thickets of financial lawyerdom like a bustling little rodent girdling the trunks of every living shrub on behalf of the asset-stripping business that is private equity (eight years with the Deep State-ish Carlyle Group) while subsisting on the rich insect life in the leaf litter below his busy little paws.

Powell’s contribution to the discourse of finance was his famous utterance that the lack of inflation is “kind of a mystery.” Oh, yes, indeed, a riddle wrapped in an enigma inside a mystery dropped in a doggie bag with half a pastrami sandwich. Unless you consider that all the “money” pumped out of the Fed and the world’s other central banks flows through a hose to only two destinations: the bond and stock markets, where this hot-air-like “money” inflates zeppelin-sized bubbles that have no relation to on-the-ground economies where real people have to make things and trade things.

Powell might have gone a bit further and declared contemporary finance itself “a mystery,” because it has been engineered deliberately so by the equivalent of stage magicians devising ever more astounding ruses, deceptions, and mis-directions as they enjoy sure-thing revenue streams their magic tricks generate. This is vulgarly known as “the rich getting richer.”

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

The Swiss National Bank Now Owns A Record $88 Billion In US Stocks

The Swiss National Bank Now Owns A Record $88 Billion In US Stocks

In the third quarter of 2017, one in which the global economy was supposedly undergoing a unprecedented “coordinated growth spurt”, and in which central banks were preparing to unveil their QE tapering intentions, in the case of the ECB, or raising rates outright, at the Fed, what was really taking place was another central bank buying spree meant to boost confidence that things are now back to normal, using “money” freshly printed out of thin air, and spent to prop up risk assets around the world by recklessly buying stocks with no regard for price or cost.

Nowhere was this more obvious than in the latest, just released 13F from the massive hedge fund known as the “Swiss National Bank.” What it showed is that, just like in the prior quarter, and the quarter before that, and on, and on, the Swiss central bank had gone on another aggressive buying spree and following its record purchases in the first quarter, the central bank boosted its total holdings of US stocks to an all time high $87.8 billion, up 4.2% or $3.5 billion from the $84.3 billion at the end of the second first quarter.

As reported earlier this week, as of Sept.30, the Swiss central bank had accumulated foreign exchange worth 760 billion francs (roughly the same in USD) due to its relentless open market interventions to depress the Swiss franc, and has “invested” those funds created out of thin air in both stocks and bonds. At the end of the second quarter, it held 20% in equities, of which the bulk was in US stocks.

…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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