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Alan Greenspan: Ron Paul Was Right About The Gold Standard

Alan Greenspan: Ron Paul Was Right About The Gold Standard

As John Rubino eloquently puts it, “when the history of these times is written, former Fed Chair Alan Greenspan will be one of the major villains, but also one of the greatest mysteries. This is so because he has, in effect, been three different people.” Greenspan started his public life brilliantly, as a libertarian thinker who said some compelling and accurate things about gold and its role in the world. An example from 1966: “This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”

Yet everything changed a few decades later when Greenspan was put in charge of the Federal Reserve in the late 1980s, instead of applying the above wisdom, for example by limiting the bank’s interference in the private sector and letting market forces determine winners and losers, he did a full 180, intervening in every crisis, creating new currency with abandon, and generally behaving like his old ideological enemies, the Keynesians. Predictably, debt soared during his long tenure.

Along the way he was also instrumental in preventing regulation of credit default swaps and other derivatives that nearly blew up the system in 2008. His view of those instruments:

The reason that growth has continued despite adversity, or perhaps because of it, is that these new financial instruments are an increasingly important vehicle for unbundling risks.

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

The Art and Pseudoscience of Monetary Policy

Definitely Maybe

Everyone’s got a plan for sale these days.  In fact, there are so many plans out there we cannot keep up with them all.  Eat celery sticks and lose weight.  Think and grow rich.  Stocks for the long run.  Naturally, plans like these run a dime a dozen.

All social engineers who get to impose their harebrained schemes on the rest of the world through the coercive powers of the State, as well as all armchair planners regaling us with their allegedly “better plans”, should have this highly perceptive quote by Robert Burns tattooed on their foreheads. In case you’re wondering, “gang aft a-gley” is slightly old English for “usually turn out to be total crap”. The second part that points out that as a rule, we get nothing but grief and pain instead of promised joy, is applicable to interventionism in general; the so-called “unintended consequences” of interventions almost always turn out to be their main feature and defining characteristic.

Good plans, however, are scarcer than hen’s teeth.  You can’t possibly see them no matter how closely you look.  They simply don’t exist. This was the case on Capitol Hill this week, where money and politics collided at the biannual monetary policy gala.

Despite all the hubbub, no good plans were offered.  What’s more, on first glance, no bad plans were offered too. When Fed Chair Janet Yellen’s testimony was finally over, Congress knew less about the Fed’s plans than when it started.

For instance, when asked if the Federal Reserve would raise rates next month, Fed Chair Janet Yellen replied, “I can’t tell you exactly which meeting it would be.  I would say every meeting is live.”

What does this mean, really?  Does it mean she’ll definitely maybe raise rates?  Does it mean she absolutely ‘might could’ increase them?  Only time will tell.

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

Fischer Admits Fed Is Clueless About What Happens Next

Fischer Admits Fed Is Clueless About What Happens Next

In a moment of rare honesty, during a conference in England, Fed Vice Chair Stanley Fischer admitted that the Fed is clueless about what happens next, blaming the Fed’s lack of clarity on Trump and saying there is significant uncertainty about U.S. fiscal policy under the Trump administration.

“There is quite significant uncertainty about what’s actually going to happen, I don’t think anyone quite knows what’s going to come out of the process which involves both the administration and Congress in the deciding of fiscal policy and a variety of other things.” Fischer said in response to audience questions about the Fed’s next steps. “At the moment we are going strictly according to what we see as our responsibility according to law.”

Traders have echoed Fischer’s confusion, with the Trump rally sputtering in on-again, off-again mode in recent weeks, demanding details about Trump’s various economic policies. Following the December rate hike, Fed officials have given no indication on the timing of their next hike in response to improvements in the U.S. economy, which however have manifested mostly in the area of “soft” indicators, such as sentiment and confidence surves. In recent days, even these have started to roll over, as the Trump honeymoon slowly ends and the euphoria over the Trump victory – mostly among Republicans as the latest UMichigan consumer sentiment survey showed – begins to fade. 

Of course, “confusion” at the Fed is a sobering and welcome change from its traditional stance of being “certain” about the future, if constantly wrong.

Ironically, none other than the Fed’s own James Bullard trolled his institution, commenting on the Fed’s chronic inability to accurately predict the future and be consistently wrong in its forecasts in a speech on Friday laying out his “2017 Outlook for U.S. Monetary Policy.”

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

 

The Central Banks Face Unwelcome Realities: Their Policies Boosted Wealth Inequality and Failed to Generate “Growth”

The Central Banks Face Unwelcome Realities: Their Policies Boosted Wealth Inequality and Failed to Generate “Growth”

Rather than be seen to be further enriching the rich, I think central banks will start closing the “free money for financiers” spigots.
Take a quick glance at these charts of the Federal Reserve balance sheet and bank credit in the U.S. Notice what happened to bank credit after the Fed “tapered” and stopped expanding its balance sheet?
Bank credit exploded higher:
Now look at corporate profits:
Once the Fed ended its $3.7 trillion “experiment” of vastly expanding its money-creation and bond-buying in early 2014, what happened to bank credit? Bank credit had expanded by a bit over $1 trillion in the early years of the Fed’s quantitative easing, but it really took off after QE3 ended, soaring roughly $2 trillion.
This was the policy goal all along: the Fed would do the heavy lifting to keep credit and the financial markets from imploding, and eventually private-sector credit would expand enough to fuel a self-sustaining recovery.
While measures of employment and production have lofted higher, productivity, profits and wages for the bottom 95% have all stagnated. Is it coincidental than corporate profits began weakening once the Fed’s QE3 ended? Perhaps.
How about the stagnation of household median income during the Fed’s expansion and the rise of private bank credit from 2014 to the present? Was that also a coincidence?
If the economy was expanding smartly as the Fed was goosing credit higher, it certainly wasn’t trickling down to households.
What’s happening beneath the happy-happy surface is that the returns on expanding credit are diminishing rapidly. The Fed’s QE “free money for financiers” never did “trickle down” to the bottom 95%, and the enormous expansion of bank credit is no longer driving corporate profits higher.

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

The Trap Is Set: “Both Sides Are Utterly Unprepared For What’s Coming”

The Trap Is Set: “Both Sides Are Utterly Unprepared For What’s Coming”

If there’s one thing that should be absolutely clear in the current political environment in America, it’s that  there exists a deep division between the people of this nation. Both of sides of the aisle argue vehemently about what’s best going forward, sometimes to the point of physical violence. And though the election of President Donald Trump speaks volumes about the sentiment of Americans, the following video report from Storm Clouds Gathering warns that both sides are utterly unprepared for what’s coming.

Is Trump going to usher in a new era of prosperity and innovation?

Or is he going to be the one standing in the center ring when the circus tent comes down?

Some voted for Trump as a political Molotov cocktail… Trump is a business man, you say… He’s going to make things happen… cut taxes…cut regulation… invest a trillion dollar in infrastructure… punish companies that move factories overseas… rebuild the military… restore relations with Russia… start a trade war with China… and a new arms race would create jobs… there’s a lot to unpack there… and those debates are worth having.

However, much of this hinges on a variable that Trump doesn’t control… The Federal Reserve.

…Word is, the Fed is leaning towards increasing interest rates aggressively in 2017 and may engage in anti-inflationary measures to offset Trump’s infrastructure plans… that means the flow of money and credit is about to be tightened…

It also means the Fed is setting itself up for a showdown.

Watch the full video:

 

Federal Reserve Initiates End Game As Trump Heads To White House

Federal Reserve Initiates End Game As Trump Heads To White House

For years, alternative economic analysts have been warning that the “miraculous” rise in U.S. stock markets has been the symptom of wider central bank intervention and that this will result in dire future consequences. We have heard endless lies and rationalizations as to why this could not be so, and why the U.S. “recovery” is real.  At the beginning of 2016, the former head of the Dallas branch of the Federal Reserve crushed all the skeptics and vindicated our position in an interview with CNBC where he stated:

“What the Fed did — and I was part of that group — is we front-loaded a tremendous market rally, starting in 2009.It’s sort of what I call the “reverse Whimpy factor” — give me two hamburgers today for one tomorrow. I’m not surprised that almost every index you can look at … was down significantly.” [Referring to the results in the stock market after the Fed raised rates in December.] 

Fisher continued his warning (though his predictions in my view are wildly conservative or deliberately muted):

“…I was warning my colleagues, “Don’t go wobbly if we have a 10-20 percent correction at some point. … Everybody you talk to … has been warning that these markets are heavily priced.”

Here is the issue  stocks are a mostly meaningless factor when considering the economic health of a nation. Equities are a casino based on nothing but the luck of the draw when it comes to news headlines, central banker statements and algorithmic computers. Today, as Fischer openly admitted, stocks are a purely manipulated indicator representing nothing but the amount of stimulus central banks are willing to pour into them through various channels.

Even with the incredible monetary support pooled together by international financiers, returns on equities investments continue to remain mostly flat.

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

Former Fed Advisor: State Pensions Time Bomb Spells Disaster For The US

Former Fed Advisor: State Pensions Time Bomb Spells Disaster For The US

Underfunded government pensions to the tune of $1.3 trillion, with a gap that just can’t be filled, is the ticking time bomb facing the US economy which faces dramatic cuts in public services – and potentially riots reminiscent of Athens six years ago – according to former Federal Reserve advisor, and President of Money Strong, Danielle DiMartino Booth.

As she picks apart the danger signs with the US on the precipice of recession, it’s the impending pensions crisis that keeps her awake at night, sharing the gloomy sentiment laid out in an extensive March 2016 Citi report titled “The coming pensions crisis.”

With few people taking part in what little recovery the US has had, and given how stretched pensions are, checks are going to have to be written from Washington sooner than you think, DiMartino Booth told Real Vision TV in an interview. “The Baby Boomers are no longer an actuarial theory,” she said. “They’re a reality. The checks are being written.”

A Bulldozer Couldn’t Fill the State Pensions Gap

The $1.3 trillion pensions deficit just takes into account state and municipal obligations, and with promised returns of 8% and funds compounding at 3% for decades it will take nothing short of an economic miracle to recover.  “The average state pension in the last fiscal year returned something south of 1%. You cannot fill that gap with a bulldozer, impossible,” DiMartino Booth said. “Anyone who knows their compounding tables knows you don’t make that up. You don’t get that back unless you get some miracle.”

The last time we saw significant market weakness, the baby boomers pretty much accepted that they would be retiring at 70 instead of 65, she added. “Well, guess what? They’re turning 71. And the physiological decision to stay in the workforce won’t work for much longer. And that means that these pensions are going to come under tremendous amounts of pressure.

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

Currency Armageddon? A Word about the Hated Dollar

Currency Armageddon? A Word about the Hated Dollar

The “death of the dollar” will have to be rescheduled.

Sharply higher yields on Treasury securities and the prospect of more rate hikes by the Fed – in a world where other major central banks are still stewing innocent bystanders in the juices of NIRP, negative yields, and “punishment interest” – sent the hated dollar, whose death has been promised for a long time, soaring.

It soared against the euro. Or, seen from the other side, the euro plunged against the dollar, to $1.039, the lowest level since January 2003; down 35% from its peak of $1.60 during the Financial Crisis; down 10% from its 52-week high in March of $1.16; and down 2.7% from $1.068 yesterday before the Fed announcement.

Pundits are once again declaring that the euro will fall to “parity” with the dollar, as the ECB has been wishing for a long time, though it cannot admit officially that it is trying to crush the euro to give member states an export advantage. That would be “currency manipulation,” which is frowned upon in other countries. But a big wave of “money printing” and forcing yields below zero “to stimulate the economy,” whereby the currency gets crushed as a side effect, is OK.

Tourist destinations and flagship retailers in the US watch out: for your euro tourist customers, things are getting very expensive in the US, and some may choose to buy less or travel to cheaper countries.

The yen plunged 3% since the Fed announcement to ¥118.4 to the dollar. It’s down 15% since September. But it’s still higher than it had been in mid-2015, when it had sunk as low as ¥123 to the dollar.

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

This is How Consumers Turn into Debt Slaves

This is How Consumers Turn into Debt Slaves

The Fed likes the word “credit.” Sounds less onerous than “debt.”

Consumer debt rose by $19.3 billion in September to $3.71 trillion, another record in a five-year series of records, the Federal Reserve’s Board of Governors reported on Monday. Consumer debt is up 6% from a year ago, at a time when wages are barely creeping up and when consumer spending rose only 2.4% over the same period.

This follows the elegant principle of borrowing ever more to produce smaller and smaller gains in spending and economic growth. Which is a highly sustainable economic model with enormous future potential, according to the Fed.

Consumer debt – the Fed uses “consumer credit,” which is the same thing but sounds a lot less onerous – includes student loans, auto loans, and revolving credit, such as credit cards and lines of credit. But it does not include mortgages. And that borrowing binge looks like this:

us-consumer-debt-total-ex-mortgages-2016-09

Diving into the components, so to speak: outstanding balances of new and used vehicle loans and leases jumped by $22.6 billion from Q2 to $1.098 trillion, another record in an uninterrupted four-year series of records.

Auto loans have soared 38% from Q3 2012, the time when they regained the glory levels of the Greenspan bubble before the Financial Crisis:

us-consumer-debt-auto-2016-09

Auto loan balances have soared because people bought more cars. New car sales hit an all-time record last year, though they’ve started to flatten out or decline in recent months. The balances have also been rising because loan terms are getting stretched, and because the balances on individual loans have been getting bigger as cars got more expensive and loan-to-value ratios rose:

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

Wolf Richter: The Economy Is Cracking Under Too Much Debt

Wolf Richter: The Economy Is Cracking Under Too Much Debt

Housing, restaurants & retail are suffering

Wolf Richter joins the podcast this week to discuss the deterioration of the global macro situation, and how he is seeing growing signs of recession breaking out across the economy:

I think that was one of the biggest mistakes the central banks made during the financial crisis: They stopped the debt from blowing up. So we never had a cleansing.

In a recession, normally companies de-leverage. They go through bankruptcy, they shed their debts, and you have this big wave of debt restructuring. This is painful for bondholders and banks, but it clears out the crap that is clogging up the pipeline. And so these companies reemerge or get bought out and the debt just disappears. The same with consumers: they unload their debts through various methods, and so when the recovery starts, you are not suffocating under this huge load of debt.

That has not happened in the United States, particularly, but in other countries, too. That debt never got fully blown out. And then the recovery started with 0% interest rates and monetary stimulus, which only encouraged companies and individuals and governments to take on even more debt. So now we’re burdened with such an enormous amount of debt that I think it is very hard to even breathe for the economy. A lot of people out there are worried about this, which is why you hear now voices saying we need a serious reflation. They need to come up with a lot of inflation to wipe out that debt. And of course, that will be a fiasco for our economy because if you have any uptick inflation without an equivalent uptick in wages — which we have not been getting — then you will destroy the consumer. And so this is not a great solution either.

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

Please Assume Crash Positions

Please Assume Crash Positions

That few believe Mr. Market can possibly stumble only increases the odds of a stumble.

You know how to get into crash positions, correct? Here’s your guide:

Very few punters expect a real downturn here in stocks. The reasons for confidence are many: the Fed has our back, buy the dip has worked great and will continue to work great, the Fed won’t raise rates until December (if ever), the Powers That Be will keep the market aloft lest a plunging market upset the election of the status quo candidate, and so on.

This confidence that the market will be on cruise control into the November post-election rally is the ideal set-up for a crash to SPX 1,850. While we can argue technicals all day, the fact is gaps get filled, usually sooner rather than later. There are two big open gaps in the S&P 500 around 2.040 and 1,860 that have been begging to get filled for months.

The question arises: after months of going unfilled, why not fill them now with a pleasantly unexpected little October crash? Technically, there are a couple of features that suggest the market would really, really like to plummet, if only the Plunge Protection Team would stand aside for a few days.

First, there are the open gaps that ache to be filled.

Then there’s the peculiar Zombie Market of July and August, when volatility vanished and trading ranges fell as close to zero as is possible. A sign of strength? Hardly.

Third, the SPX has struggled mightily to claw its way above the 50-day moving average, and has failed to surmount this important technical target despite a month of effort. That suggests Mr. Market is feeling the pull of gravity, and the slightest stumble will cause Mr. Market to careen over the cliff.

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

Fed Vice Chair Fischer Admits Fed is Waiting for Godot

Fed Vice Chair Fischer Admits Fed is Waiting for Godot

The Fed’s fourth mandate.

In his keynote speech on the usual suspects of central-bank topics at the Institute of International Finance’s big shindig in Washington DC today, Fed Vice Chair Stanley Fischer nevertheless managed to develop a new theory for a fourth Fed mandate.

This new mandate would come on top of the third mandate: inflating asset bubbles at all costs (unlimited asset price inflation). The other two mandates are “full employment” (whatever that means) and “price stability,” which is ironically defined as consumer price inflation, the way the Fed counts it, of at the moment 2%, and a lot more in most people’s real-life experience.

Fischer has been grumbling about the slow growth of the US economy for a while – “Everybody is trying to find out what is going on,” he said today, and then went on to explain what’s going on. Turns out, what’s restraining economic growth and investment is a lack of “confidence” and “animal spirits.”

“Confidence has to be turned on for people to want to invest and we’re waiting to see that happen,” he said, according to MarketWatch. “It will happen at some point. But precisely when” is unknown he said.

“Animal spirits aren’t there – people aren’t excited about growth prospects.”

So no interest rate increases until these “animal spirits” and “confidence” show up?

But, but, but… the Fed’s monetary policies for the past eight years have created the biggest credit bubble in US history, including the biggest junk bond bubble ever, a stock market bubble, housing bubbles in numerous cities around the country that exceed by far the peaks of the prior housing bubbles that imploded so spectacularly, the most gigantic commercial real estate bubble, now according to the Green Street Commercial Property Price Index, 26.5% above its totally crazy bubble peak of August 2007….

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

Sizing Up the Bubble

Sizing Up the Bubble

“In the ruin of all collapsed booms is to be found the work of men who bought property at prices they knew perfectly well were fictitious, but who were willing to pay such prices simply because they knew that some still greater fool could be depended on to take the property off their hands and leave them with a profit.”

Chicago Tribune, April 1890

Presently, the broad NYSE Composite Index is at a lower level than it set more than 2 years ago, in July 2014. Including dividends, the index has gained hardly 2%. Several indices dominated by large capitalization or speculative growth stocks, particularly the S&P 500, have performed better, but even here, the index is only a few percent above its December 2014 high. Over the past two years, the behavior of the stock market can be described less as an ongoing bull market than as the extended topping phase of what is now the third financial bubble since 2000.

The chart below shows the current setup in the context of monthly bars since 1995. After the third longest bull market advance on record, fresh deterioration in key trend-following components within our measures of market internals (see Support Drops Away) recently joined this extended, overvalued, overbought, overbullish peak, even as the S&P 500 hovers at the top of its monthly Bollinger bands (two standard deviations above the 20-period average) and cyclical momentum rolls over from a 9-year high. Taken together with other data, we continue to classify present conditions within the most hostile expected market return/risk profile we identify.

The great victory of the Federal Reserve in the half-cycle since 2009 was not ending the global financial crisis; the crisis actually ended in March 2009 with the stroke of a pen that changed accounting rule FAS157 and eliminated mark-to-market accounting for banks (instantly removing the specter of widespread insolvencies by allowing “significant judgment” in valuing distressed assets).

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

John Mauldin: The Fed Is Leading Us to Economic Hell

John Mauldin: The Fed Is Leading Us to Economic Hell

The Fed argues that low rates have worked. The economy emerged from recession. Unemployment drifted back down. “Yay for us,” said the Fed.

Don’t buy that statistical economic garbage. The economy recovered in spite of Fed policy, not because of it. The economy recovered because business owners, entrepreneurs, and workers rolled up their sleeves and made things happen.

It involved a lot of pain: layoffs, asset sales, lost customers, and more. But the hard-working citizens of this country slowly and painfully pulled themselves out of the nosedive.

Those are the people who deserve the credit, not the Fed. Keeping rates at artificially low levels did nothing other than push our economy into the mother of all corners.

Look where we are now.

The next recession means rates will go below zero

The US economy is going to suffer another recession in the not-too-distant future. So, for lack of anything else to do, the Fed is preparing to send rates below zero when the economy next needs goosing. That was clearly the message from Jackson Hole.

What then? Here is the most likely scenario I think we are facing—and you are not going to like it.

We are going to go into the next recession with interest rates still stuck in the sub-1% range. This doesn’t give the Fed much ammunition.

Economists (who could certainly qualify as High Priests) have done studies on recent Fed policies. These show that quantitative easing didn’t really do anything, other than maybe goose the stock market.

There is also no data that shows any positive benefit from the so-called wealth effect, which was all the academic rage at the beginning of this process. Forget the wealth effect. The fact is that when the stock market goes up, it does not trickle down to the average guy on Main Street.

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

Did the Fed Really Say they Could Buy Stocks?

yellen Janet

The Fed told Congress it would buy stocks if Congress allowed it. This statement has caused a lot of people to scratch their heads. Will this cause all the stock bears to rethink their prognostications of a major stock market crash? This was not even on the radar of most people.

Some have reported this story as “the first time in U.S. history” that the Federal Reserve has openly spoken about purchasing of stocks rather than bonds and mortgage-backed securities. While this news may have been shocking to most, South Carolina Republican Mick Mulvaney asked Janet Yellen before the House Financial Services Committee about the Fed’s authority to buy stocks to stimulate the economy. Mulvaney asked:

“There’s been some attention in the last few months about the recent decision by the Bank of Japan to start purchasing equities and my question to you is fairly simple. Is the United States Federal Reserve looking at the possibility of adding the purchase of equities to its tool box as it looks at monetary policy?”

Yellen answered:

“Well, the Federal Reserve is not permitted to purchase equities. We can only purchase U.S. treasuries and agency securities. I did mention in a speech in Jackson Hole, though, where I discussed longer term issues and difficulties we could have in providing adequate monetary policy. Accommodation may be somewhere in the future, down the line that this is the kind of thing that Congress might consider, but if you were to do so, it’s not something that the Federal Reserve is asking for.”

UB1798-Y-MA

This response shook many on Wall Street. It is true that buying equities has been a part of Japan’s effort to stimulate its economy. We will most likely see this tool attempted by Draghi on Europe since he has run out of things to do.

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

 

Olduvai II: Exodus
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Olduvai III: Cataclysm
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