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The Federal Reserve Is Destroying America

The Federal Reserve Is Destroying America

And wait until you hear what they’re getting away with now

Perhaps I should start with a disclaimer of sorts. Yes, I realize that the people working at the Federal Reserve, as well as the other central banks around the world, are just people.  Like the rest of us, they have egos, fears, worries, hopes, and dreams. I’m sure pretty much all of them go home each night believing they are basically good and caring individuals, doing important work.

But they’re destroying America.  They might have good intentions, but they are working with bad models. Ones that lead to truly horrible outcomes.

One of the chief failings of central banks is that they are slaves to an impossible idea; the notion that humans are free to pursue perpetual exponential economic growth on a finite planet.  To be more specific: central banks are actually in the business of promoting perpetual exponential growth of debt.

But since growth in credit drives growth in consumption, the two are concepts are so intimately linked as to be indistinguishable from each other.  They both rest upon an impossibility.  Central banks are in the business of sustaining the unsustainable which is, of course, an impossible job.

I can only guess at the amount of emotional energy required to maintain the integrity of the edifice of self-delusion necessary to go home from a central banking job feeling OK about oneself and one’s role in the world.  It must be immense.

I rather imagine it’s not unlike the key positions of leadership at Easter Island around the time the last trees were being felled and the last stone heads were being erected.  “This is what we do,” they probably said to each other and their followers.  “This is what we’ve always done.  Pay no attention to those few crackpot haters who warn that in pursuing our way of life we’re instead destroying it.”

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

RBC Explains What The Hell Is Going On: “Prudent” Fed & Chinese Intervention

RBC Explains What The Hell Is Going On: “Prudent” Fed & Chinese Intervention

A “prudent” Fed (and China’s “National Team”) have spurred a risk-on rally, as RBC’s head of cross-asset strategy Charlie McElligott notes the market’s ‘Pavolovian’ response to Fed’s ‘dovish hints’ contained within the Minutes – despite simultaneously staying ‘on message’ with hiking / tapering commentary – prompts a “QE of old” response: stocks and Treasuries bid, while the USD faded.

China further perpetuates the ‘risk rally’ via apparent market interventions:

1.       Intervention in FX markets to strengthen the Yuan overnight, with speculation of a number of Chinese banks selling Dollars in the onshore market overnight which drove the Yuan higher.

2.       Chinese “National Team” stock market inventions as well, with sharp-turns higher off of an initially weaker equities opening and again-weaker industrial metals.   Major reversals off lows saw nearly all domestic markets close at highs (Shanghai Prop +2.8%), while Hong Kong’s Hang Seng closed at highs since July 2015, with Chinese real estate developers leading.

Initial (and expected) ‘sell the news’ on the snoozer OPEC outcome, as they extend the output cut 9 months per expectations—which disappointed the ‘bullish surprise’ camp which anticipated more OPEC-‘gaming’ of the market, thinking it was possible for a deeper-cut in conjunction with the consensus extension.

This move lower in crude is notable if it were to escalate the current rollover in ‘inflation expectations’ (10Y BE’s below 200dma) which continue to show as the largest price drivers of risk-assets and major rates markets currently per the QI factor PCA model—although should be noted that both SPX and HYG (US HY proxy) are both deeply OUT OF REGIME with low r-squareds / low explanatory power.

Due to my much-discussed “Chinese deleveraging / Fed tightening / ECB pivoting ‘less dovish’” trifecta, we are seeing good buying in cash USTs and receiving in swaps (strong 5Y auction as well) keeping rates pinned despite the ongoing risk-asset rally.

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

In Emerging Markets, It’s Time To Dump Most Central Banks, And Their Currencies Too

In Emerging Markets, It’s Time To Dump Most Central Banks, And Their Currencies Too

On March 16th, the New York Times carried reportage by Peter S. Goodman, Keith Bradsher and Neil Gough, which was titled “The Fed Acts. Workers in Mexico and Merchants in Malaysia Suffer.” The theme of their extensive reportage is that U.S. monetary policy is the elephant in the room. It is the elephant that swings exchange rates and capital flows to and fro in emerging-market countries, causing considerable pain.

The real problem that all of the countries mentioned in the New York Times reportage face is the fact that they have central banks that issue half-baked local currencies. Although widespread today, central banks are relatively new institutional arrangements. In 1900, there were only 18 central banks in the world. By 1940, the number had grown to 40. Today, there are over 150.

Before the rise of central banking the world was dominated by unified currency areas, or blocs, the largest of which was the sterling bloc. As early as 1937, the great Austrian economist Friedrich von Hayek warned that the central banking fad, if it continued, would lead to currency chaos and the spread of banking crises. His forebodings were justified. With the proliferation of central banking and independent local currencies, currency and banking crises have engulfed the international financial system with ever-increasing severity and frequency. What to do?

The obvious answer is for vulnerable emerging-market countries to do away with their central banks and domestic currencies, replacing them with a sound foreign currency. Panama is a prime example of the benefits from employing this type of monetary system. Since 1904, it has used the U.S. dollar as its official currency. Panama’s dollarized economy is, therefore, officially part of the world’s largest currency bloc.

The results of Panama’s dollarized monetary system and internationally integrated banking system have been excellent (see accompanying table).

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

Fiat Empire Documentary

Both ECB And BOJ Are Just Months Away From Running Out Of Bonds To Buy

Both ECB And BOJ Are Just Months Away From Running Out Of Bonds To Buy

With the Fed contemplating whether to hike again next month and start “normalizing ” its balance sheet before the end of 2017, the two other major central banks are facing far bigger problems.

* * *

Two months after the BOJ quietly started tapering its QE program, when it also hinted it may purchase 18% less bonds than planned…

… Governor Haruhiko Kuroda admitted last week that the Bank of Japan’s bond holdings are currently growing at an annualized pace of only ¥60 trillion ($527 billion), 25% below the bottom-end of its policy range, and confirming that without making any formal announcement, the BOJ has quietly followed the ECB in aggressively tapering its bond buying program.

Under questioning from opposition party lawmaker Seiji Maehara, who noted that the pace of bond accumulation by the BOJ had slowed, Kuroda said the trend could continue, without elaborating. He noted that the central bank’s target is to control interest rates rather than the amount of bond purchases. “This development signals to me that they are going with rates without talking about a quantitative target,” said Atsushi Takeda, an economist at Itochu Corp. in Tokyo. “That will be better when they think about an exit.”

While the BOJ’s purchase slowdown has been visible for months in data released by the central bank, Kuroda’s confirmation of this reality in parliament last Wednesday marks a stark change. As Bloomberg notes, until now he’d struggled to emphasize that the annual pace could vary from an indicative 80 trillion yen, depending on the state of the economy and financial markets. He now appears to have thrown in the towel.  Meanwhile, investors are watching for any hint of tightening in monetary policy amid speculation that the central bank’s bond purchase regime is unsustainable and as consumer prices in Japan are expected to pick up later this year. 

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

“Look Ma, No Hands!”

“Look Ma, No Hands!”

The Deep State is escalating its war on President Trump but the Wall Street partiers apparently couldn’t care less. When the machines tagged 2402 on the S&P 500 yesterday, it was surely a historic case of “look ma, no hands!”

It’s hard to imagine what more will be needed to ignite an eruption of fear and panic in the casino amidst Wall Street’s record and wholly irrational state of somnolence.

After all, the Fed is sidelined and out of dry powder. The Red Ponzi is tottering. The U.S. retail sector is descending into an apocalypse. The giant auto bubble is fracturing. The Trump Stimulus is dead in the water, and Washington is heading for an extended stretch of complete dysfunction and acrimonious combat.

And if that isn’t that enough to upset the applecart — there are a lot more headwinds coming down the pike.

But the point is the insane governance process in Washington, which is completely unhinged, is combined with a level of insane complacency on Wall Street. Which is literally off the charts.

It would be one thing if our current fantastically inflated financial markets were reflective of a gusher of private sector growth, investment and productivity. That is, something like a new gilded age of invention and raw capitalist energy like occurred in the 1880s or 1920s.

The opposite is more likely the case, however. We have a mutant outbreak of financialization, debt, falsified financial prices and biblical levels of speculation and money shuffling — artificial economic conditions which are absolutely dependent upon agencies of the state.

Without treasury bailouts and endless central bank credit infusions, today’s massive financial bubbles would have splattered long ago.

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

How to Stick It to Your Banker, the Federal Reserve, and the Whole Doggone Fiat Money System

Somehow, former Federal Reserve Chairman Ben Bernanke found time from his busy hedge fund advisory duties last week to tell his ex-employer how to do its job.  Namely, he recommended to his former cohorts at the Fed how much they should reduce the Fed’s balance sheet by.  In other words, he told them how to go about cleaning up his mess.

Praise the Lord! The Hero is back to tell us what to do! Why, oh why have you ever left, oh greatest central planner of all time. We are not worthy.

We couldn’t recall the last time we’d seen or heard from Bernanke.  But soon it all came back to us.  There he was, in the flesh, babbling on Bloomberg and Squawk Box, pushing the new paperback version of his mis-titled memoir “The Courage to Act.”  Incidentally, the last time we’d heard much out of the guy was when the hard copy was released in late 2015.

With respect to the Fed’s balance sheet, Bernanke remarked that the Fed should cut it from $4.5 trillion to “something in the vicinity of $2.3 to $2.8 trillion.”  What exactly this would achieve Bernanke didn’t say.  As far as we can tell, a balance sheet of $2.8 trillion would still be about 300 percent higher than it was prior to the 2008 financial crisis.

Bernanke, by all measures, is an absolute lunatic.  He, more than anyone else, is responsible for the utter mess that radical monetary policies have made of the U.S. economy.  He’s the one who dropped the federal funds rate to near zero and inflated the Federal Reserve’s balance sheet by over 450 percent.

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

Doug Casey on the End of Western Civilization

Doug Casey on the End of Western Civilization

Let’s talk about this trend.

Doug Casey: Western Civilization has its origins in ancient Greece. It’s unique among the world’s civilizations in putting the individual—as opposed to the collective—in a central position. It enshrined logic and rational thought—as opposed to mysticism and superstition—as the way to deal with the world. It’s because of this that we have science, technology, great literature and art, capitalism, personal freedom, the concept of progress, and much, much more. In fact, almost everything worth having in the material world is due to Western Civilization.

Ayn Rand once said “East minus West equals zero.” I think she went a bit too far, as a rhetorical device, but she was essentially right. When you look at what the world’s other civilizations have brought to the party, at least over the last 2,500 years, it’s trivial.

I lived in the Orient for years. There are many things I love about it—martial arts, yoga, and the cuisine among them. But all the progress they’ve made is due to adopting the fruits of the West.

Nick Giambruno: There are so many things degrading Western Civilization. Where do we begin?

Doug Casey: It’s been said, correctly, that a civilization always collapses from within. World War 1, in 1914, signaled the start of the long collapse of Western Civilization. Of course, termites were already eating away at the foundations, with the writings of people like Jean-Jacques Rousseau and Karl Marx. It’s been on an accelerating downward path ever since, even though technology and science have been improving at a quantum pace. They are, however, like delayed action flywheels, operating on stored energy and accumulated capital.

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

The Triumph of Hope over Experience

On Wednesday the socialist central planning agency that has bedeviled the market economy for more than a century held one of its regular meetings.  Thereafter it informed us about its reading of the bird entrails via statement (one could call this a verbose form of groping in the dark).

Modern economic forecasting rituals.

A number of people have wondered why the Fed seems so uncommonly eager all of a sudden to keep hiking rates in spite of economic data in Q1 indicating surprising weakness in   economic output (of course they once again didn’t hike rates, this time).

We have long suspected that the real reason for the urge to hike is to accumulate “ammunition” for the next downturn. After all, it really shouldn’t make much of a difference where the federal funds rate is; the federal funds market is basically dead anyway, and the Fed continues to refrain from shrinking its balance sheet (i.e., bank reserves will remain elevated, and the Fed won’t actively exert pressure on money supply growth).

Then again, the statement is actually in keeping with the orthodox (largely Keynesian) view of the economy and the central bank’s presumed tasks. There is actually no need to take it at anything but face value. The complete statement can be seen here, but we want to focus on one particular excerpt – which follows an enumeration of various data points in paragraph one:

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

Eric Peters: If Rates Ever Rise Above 3.5% “It Would Spark Massive Defaults”

Eric Peters: If Rates Ever Rise Above 3.5% “It Would Spark Massive Defaults”

Earlier today in his weekly note, One River CIO Eric Peters explained that in their attempt to overturn the natural order of the global economic “ecosystem”, what central banks have done is “stunning, unprecedented… and arrogant”, and as a result it is only a matter of time before another “peak instability” moment emerges as “it stands to reason that our volatility-selling machine will break one day. We saw a glimpse of this in 2008-09.”

And yet, as Peters concedes in a follow up note, those same central bankers don’t have any other option but to kick the can because as the CIO notes, any attempt to break the current ultra-low rate regime would “spark massive defaults.”

Incidentally, those are the same defaults that should have happened during the “near systemic reset” of 2008/2009 but the Fed, in all its wisdom, decided to kick the can at the cost of trillions in global excess liquidity, and while it bought itself some time – in the process unleashing a global deflation wave thanks to zombie companies that should not exist yet do, and every day try to undercut each other on pricing – nearly ten years later it has discovered that it has no way out, for one simple reason: there is now too accumulated debt.

Here is Peters “modelling” out why the Fed is stuck with no way out:

When debt expands constantly relative to GDP, there’s a limit to how high interest rates can rise without causing massive defaults,” said the Model. “There’s nothing inherently wrong with defaults, they can cleanse a system, but a rise in US defaults from today’s 2.5% to 6.0% would boost unemployment by 3%.

America’s economy is leveraged to the financial system, which includes non-capitalized liabilities; entitlements, pensions, healthcare. “US total debt/GDP is 300%, but if you include these non-capitalized liabilities, it’s more like 800%.”

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

Fed’s Policy of Price Stability Results in More Instability

For most economists the key factor that sets the foundation for healthy economic fundamentals is a stable price level as depicted by the consumer price index.

According to this way of thinking, a stable price level doesn’t obscure the visibility of the relative changes in the prices of goods and services, and enables businesses to see clearly market signals that are conveyed by the relative changes in the prices of goods and services. Consequently, it is held, this leads to the efficient use of the economy’s scarce resources and hence results in better economic fundamentals.

For instance, let us say that a relative strengthening in people’s demand for potatoes versus tomatoes took place. This relative strengthening, it is held, is going to be depicted by the relative increase in the prices of potatoes versus tomatoes.

Now in a free market, businesses pay attention to consumer wishes as manifested by changes in the relative prices of goods and services. Failing to abide by consumer wishes will lead to the wrong production mix of goods and services and will lead to losses.

Hence in our case businesses, by paying attention to relative changes in prices, are likely to increase the production of potatoes versus tomatoes.

According to this way of thinking, if the price level is not stable, then the visibility of the relative price changes becomes blurred and consequently, businesses cannot ascertain the relative changes in the demand for goods and services and make correct production decisions.

This leads to a misallocation of resources and to the weakening of economic fundamentals. Unstable changes in the price level obscure changes in the relative prices of goods and services. Consequently, businesses will find it difficult to recognize a change in relative prices when the price level is unstable.

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

The Fed Will Blink

Honest Profession

GUALFIN, ARGENTINA – The Dow rose 174 points on Thursday. And Treasury Secretary Steve Mnuchin said we’d have a new tax system by the end of the year.

Animal spirits were restless. But which animals? Dumb oxes? Or wily foxes? Probably both.

Since Thursday there have been two additional very spirited up days with large gaps – this is very rare in the DJIA, particularly from such a high level after a ~240% rally since the lows made 8 years ago… it continues to feel like a blow-off (and it happens against the backdrop of a sharp slowdown in money supply growth) – click to enlarge.

But what caught our attention were the central bankers strutting across the yard and crowing with such numbskull cackles that even barnyard animals would be embarrassed by them. There was a time when central banking was an honest profession.

Central bankers provided financing for the government. They backed the banking system, too, by holding savings as reserves, which they lent to solvent member banks in emergencies. They were tight-lipped, tight-laced, and tightwads. Their role was to say “no” more often than “yes.”

When the king wanted money to fight in a war… or build a bridge… the banker would give the terse reply: “Sire, we don’t have any.” Real money was backed by gold. And credit had to be backed by real money, which meant it had to be saved. Savings were limited, as was money.

Cackling central planners – this reminds us of the “FOMC meeting laughtrack” of 2003-2007 – the more Fed members laughed at their meetings, the closer the economy and financial system came to the near fatal implosion of 2007-2009. Do today’s monetary bureaucrats have more of a clue than their predecessors just before the GFC? The answer is an emphatic no – they have simply doubled down and blown an even bigger credit and asset bubble.

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

You Are Not An Investor


Giotto Legend of St Francis, Exorcism of the Demons at Arezzo c.1297-1299
You are not an investor. One can only be an investor in functioning markets. There have been no functioning markets since at least 2008, and probably much longer. That’s when central banks started purchasing financial assets, for real, which means that is also the point when price discovery died. And without price discovery no market can function.

You are therefore not an investor. Perhaps you are a cheat, perhaps you are a chump, but you are not an investor. If we continue to use terms like ‘investor’ and ‘markets’ for what we see today, we would need to invent new terms for what these words once meant. Because they surely are not the same thing. Even as there are plenty people who would like you to believe they are, because it serves their purposes.

Central banks have become bubble machines, and that is the only function they have left. You could perhaps get away with saying that the dot-com bubble, maybe even the US housing bubble, were not created by central banks, but you can’t do that for the everything bubble of today.

The central banks blow their bubbles in order to allow banks and other financial institutions to first of all not crumble, and second of all even make sizeable profits. They have two instruments to blow their bubbles with, which are used in tandem.

The first one is asset purchases, which props up the prices for these assets, through artificial demand. The second is (ultra-) low interest rates, which allows for more parties -that is, you and mom and pop- to buy more assets, another form of artificial demand.

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

Where There’s Smoke…

Where There’s Smoke…

…There’s central bank manipulation

Central banks around the world have colluded, if not conspired, to elevate and prop up financial asset prices.  Here we’ll present the data and evidence that they’ve not only done so, but gone too far.

When wee discuss elevated financial asset prices we really are talking about everything.

we’re talking not just about the sky-high prices of stocks and bonds, but also of the trillions of dollars’ worth of derivatives that are linked to them, as well as real estate in dozens of countries and locations.  All are intricately linked together. For instance, stocks are elevated, in part, because bond yields are so low.  Sam for real estate.

Here are three questions most alert investors are asking:

  • Question #1: When will financial assets ever ‘correct’ and fall in price?
  • Question #2: How much does overt propping by the central banks have to do with today’s elevated prices?
  • Question #3: How much does covert propping by central banks play a role in these inflated markets?

These are important questions to consider because if central banks have been too involved and gotten themselves mixed up in trying to ‘wag the dog’ by using elevated financial asset prices as a means to drive economic expansion — then the risk is a big implosion in financial asset prices if their efforts fail.

The difficulty, as always, is that you can’t print your way to prosperity.  It’s never worked in history and it won’t work this time either.  You can, however, print (or borrow) to delay a correction, after which a boost in real economic growth (or additional income) had better materialize to save your bacon.   But if enough growth does not emerge to both pay back all the old outstanding loans plus all the newly created debt and currency, then you’re going to experience a worse correction than if you had not tried to print/borrow your way to prosperity.

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

The End of Quantitative Easing – Perhaps Now It Will Be Inflationary?

If QE failed to produce inflation, then ending QE may actually produce the inflation people previously expected. Where’s the strange logic in that one? Well you see, it really does not matter how much money you print, if it never makes it into the economy, it will not be inflationary. Additionally, even if it makes it into the economy and the people hoard for a rainy day, it still will not be inflationary.

The craziest thing the Fed did was create excess reserves. The bankers complained that the Fed was buying the government debt so they would have no place to park their money. The Fed then accommodated them creating the Excess Reserves facility and paid them interest for absolutely no reason whatsoever.  Almost $3 trillion was parked at the Fed collecting interest so that $4.5 trillion of “printing” money never made it out the door. Hence, there was no inflation to speak of (outside of healthcare which always rises no matter what), and people hoarded. The pundit kept calling for a crash in the stock market but overlooked the fact that retail participation was at historic lows. Why? They were hoarding their money.

…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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