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Peter Schiff: ‘This Is The Beginning Of The End’ For The Economy

Peter Schiff: ‘This Is The Beginning Of The End’ For The Economy

Peter Schiff, the President and CEO of Euro Pacific Capital, and one of the few who predicted the 2008 Great Recession before it happened has said that what we are experiencing now is “the beginning of the end.” Schiff made his comments during his keynote speech at the Vancouver Resource Investment Conference.

The economic guru says that the Federal Reserve has made the decision to halt interest rate hikes in order to attempt to save the flailing stock market – the key indicator for far too many of how “healthy” the economy is at current. According to Seeking Alpha, the markets responded to the Fed’s decision in a positive manner, leading many to think we are “out of the woods” and no longer in danger of a recession.

However, Peter traces the moves of the Federal Reserve all the way back to the first rate hike of December 2015 and shows how the central bank has put the United States on a path toward a financial crisis that will be bigger than 2008. Peter insists he’s been right about what would happen all along, it’s just taken us a little longer to get to the actual financial disaster than he expected.

“The reason that I originally said that I did not expect the Fed to raise rates again was because I knew that raising rates was the first step in a journey that they could not finish, that in their attempt to normalize rates, the stock market bubble would burst and the economy would reenter recession.

Normalizing interest rates when you’ve created an abnormal amount of debt is impossible.

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

Why Monetary Easing Will Fail

WHY MONETARY EASING WILL FAIL

The major economies have slowed suddenly in the last two or three months, prompting a change of tack in the monetary policies of central banks. The same old tired, failing inflationist responses are being lined up, despite the evidence that monetary easing has never stopped a credit crisis developing. This article demonstrates why monetary policy is doomed by citing three reasons. There is the empirical evidence of money and credit continuing to grow regardless of interest rate changes, the evidence of Gibson’s paradox, and widespread ignorance in macroeconomic circles of the role of time preference.

The current state of play

The Fed’s rowing back on monetary tightening has rescued the world economy from the next credit crisis, or at least that’s the bullish message being churned out by brokers’ analysts and the media hacks that feed off them. It brings to mind Dr Johnson’s cynical observation about an acquaintance’s second marriage being the triumph of hope over experience.

The inflationists insist that more inflation is the cure for all economic ills. In this case, mounting concerns over the ending of the growth phase of the credit cycle is the recurring ill being addressed, so repetitive an event that instead of Dr Johnson’s aphorism, it calls for one that encompasses the madness of central bankers repeating the same policies every credit crisis. But if you are given just one tool to solve a nation’s economic problems, in this case the authority to regulate the nation’s money, you probably end up believing in its efficacy to the exclusion of all else.

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

Peter Schiff: This Is the Beginning of the End (Video)

Peter Schiff: This Is the Beginning of the End (Video)

During his keynote speech at the Vancouver Resource Investment Conference, Peter Schiff said we are at the beginning of the end.

The Fed appears to have paused interest rate hikes in order to save the stock market. The markets have reacted positively and a lot of analysts seem to think we’re out of the wood. But Peter traces the moves of the Federal Reserve all the way back to the first rate hike of December 2015 and shows how the central bank has put us on a path toward a financial crisis that will be bigger than 2008. Peter insists he’s been right about what would happen all along, it’s just taken us a little longer to get here than he expected. 

HIGHLIGHTS FROM THE SPEECH

“I have been forecasting that the Federal Reserve would not be able to complete its rate normalization process since before they raised rates for the first time.”

“I still believe if Hillary Clinton won that election, which was widely expected, I think it would have been one-and-done. I don’t think the second rate hike would have taken place had Hillary Clinton won.”

“I think that had Hillary Clinton won, the stock market would have tanked. The conventional wisdom before the election was that if Trump won it was going to be a disaster for the stock market, but if Hillary Clinton won, the market was going to like it. Well, Trump won and the market went way up, the opposite of what was expected. I believe that had Hillary Clinton won, the market would have gone down. Also the opposite of what had been expected. And I believe the US would have entered recession much sooner.”

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

The Sorry State of the World Economy

shanghai skyline dark sky

The Sorry State of the World Economy

Data released in January paint a bleak picture of advanced-economy prospects. Even if some emerging economies – which face serious challenges of their own – manage to pick up some of the slack, the world economy will remain encumbered by the combination of economic interconnectedness and political balkanization.

NEW YORK – January is traditionally a time for assessing the developments of the previous year, in order to anticipate what the new one has in store. Unfortunately, even though we may be at a turning point for the better politically, the data that have emerged in the last month do not paint a promising picture of the global economy’s short-term prospects.

The tone was set early in the month by the World Bank’s Global Economic Prospects, along with the accompanying articles. The report paints a picture as bleak as its subtitle – “Darkening Skies” – and cuts the growth forecast for the advanced economies in 2020 to 1.6% (down from 2.2% in 2018).

Moreover, last week, the European Central Bank sounded the alarm over the eurozone economy. Between the prospect of a disorderly Brexit and rising protectionism, exemplified by the trade war between the United States and China, Europe is subject to increasing uncertainty.

Making matters worse, Germany is facing a growth slowdown. According to its own official data, the economy contracted by 0.2% in the third quarter of 2018, while the Purchasing Managers Index for manufacturing sank to 49.9 – a four-year low. Given Germany’s role as the backbone of the eurozone economy, its economic struggles are likely to cascade beyond its borders.

This is particularly problematic, because, after more than a decade of fighting crisis and recession, the advanced economies have depleted their ammunition for countering a slowdown. With the ECB’s benchmark interest rate at zero, there is little room for a cut.

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

Weekly Commentary: No Mystery

Weekly Commentary: No Mystery

January 30 – Financial Times (Sam Fleming): “After putting traders on notice six weeks ago to expect further increases in US interest rates in 2019, the Federal Reserve… executed one of its sharpest U-turns in recent memory. Leaving rates unchanged at 2.25-2.5%, Jay Powell, Fed chairman, unveiled new language that opened up the possibility that the next move could equally be down, instead of up. Forecasts from the Fed’s December meeting that another two rate rises are likely this year now appear to be history. Changes to its guidance were needed, Mr Powell argued, because of ‘cross-currents’ that had recently emerged. Among them were slower growth in China and Europe, trade tensions, the risk of a hard Brexit and the federal government shutdown. Financial conditions had also tightened, he added. Yet the about-face left some Fed-watchers wrongfooted and bemused. Many of those hazards were already perfectly apparent in the central bank’s December meeting, when it lifted rates by a quarter point and kept in place language pointing to further ‘gradual’ increases.”

The Wall Street Journal’s Greg Ip pursued a similar path with his article, “The Fed’s Mysterious Pause.” “Last December, Mr. Powell noted his colleagues thought they’d raise rates two more times this year, from between 2.25% and 2.5%, which was at the lower end of estimates of ‘neutral’—a level that neither stimulates nor holds back growth. On Wednesday, he suggested the Fed could already be at neutral: ‘Our policy stance is appropriate right now. We also know that our policy rate is in the range of the… committee’s estimates of neutral.’ If indeed the Fed is done, that would be a breathtaking pivot. Yet the motivation remains somewhat mystifying: What changed in the past six weeks to justify it?”

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

How the Euro Enabled Europe’s Debt Bubbles

How the Euro Enabled Europe’s Debt Bubbles

It’s the twentieth anniversary of the euro’s existence, and far from being celebrated, it is being blamed for many — if not all — of the Eurozone’s ills. 

However, the euro cannot be blamed for the monetary and policy failures of the ECB, national central banks and politicians. It is just a fiat currency, like all the others, only with a different provenance. All fiat currencies owe their function as a medium of exchange from the faith its users have in it. But unlike other currencies in their respective jurisdictions, the euro has become a talisman for monetary and economic failures in the European Union.

The Birth of the Euro

To swap a number of existing currencies for a wholly new currency requires the users to accept that the purchasing powers of the old will be transferred to the new. This was not going to be a certainty, and the greatest reservations would come from the people of Germany. Germans saved, and therefore risked the security of their deposits in a new money and monetary system. They were reassured by the presence of the hard-money men in the Bundesbank, who had a mission to protect the mark’s characteristics against the weaknesses that would almost certainly be transferred into the new euro from more inflationary currencies.

These anxieties were assuaged to a degree by establishing the ECB in Frankfurt, close to the watchful eye of the Bundesbank. The other nations were sold the project as bringing greater monetary stability than offered by their individual currencies and the reduction of cross-border transaction costs. Borrowers in formally inflationary currencies also relished the prospect of lower interest rates.

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

Fed Will Crash Markets & Dollar, Gold Protects – John Williams

Fed Will Crash Markets & Dollar, Gold Protects – John Williams

Economist John Williams warns the Federal Reserve has painted itself into a very tight no win corner. No matter what the Fed does with rates it’s going to be a disaster. Williams explains, “You had some very heavy selling towards the end of the year and when you saw the big declines in the stock market you also saw that accompanied by a falling dollar and rising gold prices. That was foreign capital which was significant fleeing our markets. So if the Fed continues to raise interest rates, and they want to do and they still don’t have rates where they want them, it’s going to intensify the economic downturn. That’s going to hit the stock market. If they stop raising rates . . . and they have to go back to some sort of quantitative easing, that’s going to hit the dollar hard. Foreign investors are going to say the dollar is going to get weaker and let’s get out of the dollar. Then, you are going tom see heavy selling in the stock market. So either way they go, they created a conundrum for themselves because of the way they bailed out the banking system (in 2008-2009). At this point they don’t have an easy way out of this.”

Williams says the U.S. is already entering into a recession. Williams contends, “The first quarter, which is the quarter we are in right now, the first quarter of 2019 likely will be in contraction partially due to the government shutdown. That is slowing the economy on top of the interest rate hikes, but the cause of the recession here is not the government shutdown. It’s the Fed hiking rates . . . the fundamental driving factor that was putting us into recession even before the government shutdown was the rapid rise in interest rates.”

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

Get Ready– they’re coming for your money

Get Ready– they’re coming for your money

Every so often throughout history, the peasants grab their pitchforks and come for the elite. It happens when the wealth gap grows too extreme… when people feel like they are getting left behind, with no opportunity to advance.

Central banks around the world have printed trillions of dollars over last decade, and pushed interest rates to zero, and sometimes below. And all of that stimulus went directly into the pockets of the wealthy.

Since 2009, the world’s billionaires more than DOUBLED their combined wealth. All the billionaires in the world had $3.4 trillion in 2009. By 2017, they amassed $8.9 trillion.

Mark Zuckerberg multiplied his wealth almost 20 times over, from $3 billion in 2009, to over $58 billion in 2019.

$8.9 trillion is a massive, almost incomprehensible amount of wealth.

But it really shouldn’t be that surprising if you think about it… these people are wealthy for a reason. Typically, they are pretty good at making money. And with the snowball effect, if you give them more time, they will probably make even more.

For the last ten years, we’ve seen a huge asset price inflation in everything from the stock market, to bonds and real estate, and even fine art and wine.

But if you’re a wage earner without assets, you’ve been left out. Wages andmedian household wealth have stagnated.

And this is a global issue…

The combined wealth of the poorest half of the world–3.8 billion people–fell by 11% just last year, according to Oxfam, a group working to alleviate poverty.

The New York Times claims the richest 8 people on the planet have more wealth than the poorest 3.8 billion.

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

The Positive Interest Rate Cycle, RIP…1950 – 2019

The Positive Interest Rate Cycle, RIP…1950 – 2019

I’m going to make the case that the US is concluding the final positive interest rate cycle and that upon the next downturn, the Japanese / EU style ZIRP and/or NIRP will become the new norm.  But, before we say goodbye…let’s take a look at the ups, downs, and rationale of the post WWII cycles.

Below, the 11 interest rate cycles since 1954, with each subsequent cycle highlighted in a separate box.  Each cycle was unique but, in sum, they were part of an arc that has run its course.  I’ll detail that the Federal Funds curve actually represents the real annual change in demand.  Organic demand accelerated up to 1981 and organic demand decelerated from ’81 to present but synthetic credit / debt based demand was increasingly substituted.   And, for some strange reason, when the annual core population growth among the consumer nations was at its peak, the Fed (and CB’s) restricted the economy and potential capacity via extremely high rates.  Now at minimal to negative core population change (little to no demand growth), the Fed is attempting to incentivize debt and increase capacity with zero and/or with negative rates?

Below, every US interest rate cycle since WWII, showing cycles from initial rate cut until the initiation of cuts starting a new cycle.  Clearly, the ’89 to ’00 and current “lower for longer” cycles stick out like a sore thumb.

Splitting the cycles into two separate buckets; first looking at the cycles from 1950 through 1980.  During this period, every cycle finished at a higher rate than the cycle began (recouping all cuts plus some).  Cycles were as short as a year all the way up to six years long.

Second, looking at 1980 through 2019; interest rate cuts become deeper, none of the cuts are fully clawed back and rates are progressively lower prior to the next cycle. 

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

Visualizing The Snowball Of Global Government Debt

Over the last five years, markets have pushed concerns about debt under the rug.

But, while economic growth and record-low interest rates have made it easy to service existing government debt, Visual Capitalist’s Jeff Desjardins points out that it’s also created a situation where government debt has grown in to over $63 trillion in absolute terms.

The global economic tide can change fast, and in the event of a recession or rapidly rising interest rates, debt levels could come back into the spotlight very quickly.

THE DEBT SNOWBALL

Today’s visualization comes to us from HowMuch.net and it rolls the world’s countries into a “snowball” of government debt, colored and arranged by debt-to-GDP ratios. The data itself comes from the IMF’s most recent October 2018 update.

Courtesy of: Visual Capitalist

The structure of the visualization is apt, because debt can accumulate in an unsustainable way if governments are not proactive. This situation can create a vicious cycle, where mounting debt can start hampering growth, making the debt ultimately harder to pay off.

Here are the countries with the most debt on the books:

Note: Small economies (GDP under $10 billion) are excluded in this table, such as Cabo Verde and Barbados

Japan and Greece are the most indebted countries in the world, with debt-to-GDP ratios of 237.6% and 181.8% respectively. Meanwhile, the United States sits in the #8 spot with a 105.2% ratio, and recent Treasury estimates putting the national debt at $22 trillion.

LIGHT SNOW

On the opposite spectrum, here are the 10 jurisdictions that have incurred less debt relative to the size of their economies:

Note: Small economies (GDP under $10 billion) are excluded in this table, such as Timor-Leste and Solomon Islands

Macao and Hong Kong – both special administrative regions (SARs) in China – have virtually zero debt on the books, while the official country with the lowest debt is Brunei (2.8%).

Volatility Holds the Key to Markets in 2019

Volatility Holds the Key to Markets in 2019

Over the last two weeks, after making good on the four-rate interest hike of 2018, Fed Chairman, Jerome Powell, became more dovish to start 2019.

His change in tone is worth considering because of his historical stance on reducing the amount of artificial stimulus coming from the Fed. Last week, after the required five-year holding period for Fed transcripts were up, we got a glimpse into Powell’s thoughts from 2013, before he was Chairman.

Powell tried to persuade then-Chairman, Ben Bernanke, to reduce the Fed’s stimulus, even though it would lead to greater near-term market volatility. That was when the third round of the Fed’s asset-buying program (QE3) was in full swing. The Fed was purchasing an estimated $85 billion per month mix of Treasuries and mortgage-backed securities.

To indicate that the Fed wouldn’t buy bonds forever, Bernanke floated the idea of slowing down its program, or “tapering,” at some non-defined future date.

Powell, on the other hand, believed the market needed a specific “road map” of the Fed’s intentions. He said that he wasn’t “concerned about a little bit of volatility” though he was “concerned that there may be more than that here.”

Indeed, once Bernanke publicly announced the possibility of the Fed’s bond-buying program slowing down, the market tanked, in a response that became known as a “taper tantrum.” As a result, Bernanke backed off the tapering idea.

Fear of more taper tantrums kept the Fed in check after that. The Fed ultimately waited until it had raised rates sufficiently, before starting to cut the size of its balance sheet. But now Powell is the Chairman. And it seems that he is much less comfortable with volatility than he was under Bernanke, as his most recent remarks indicate.

But it certainly wouldn’t be the first time a Fed chairman has modified his views when he was in control. Alan Greenspan, for example, was a staunch advocate of the gold standard when he was younger (and as presented in Foreign Affairs). But once he was Fed head, suddenly he thought a gold standard wasn’t such a hot idea after all. Go figure.

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

Quantitative Brainwashing

Quantitative Brainwashing

We’re all familiar with the term, “quantitative easing.” It’s described as meaning, “A monetary policy in which a central bank purchases government securities or other securities from the market in order to lower interest rates and increase the money supply.”

Well, that sounds reasonable… even beneficial. But, unfortunately, that’s not really the whole story.

When QE was implemented, the purchasing power was weak and both government and personal debt had become so great that further borrowing would not solve the problem; it would only postpone it and, in the end, exacerbate it. Effectively, QE is not a solution to an economic problem, it’s a bonus of epic proportions, given to banks by governments, at the expense of the taxpayer.

But, of course, we shouldn’t be surprised that governments have passed off a massive redistribution of wealth from the taxpayer to their pals in the banking sector with such clever terms. Governments of today have become extremely adept at creating euphemisms for their misdeeds in order to pull the wool over the eyes of the populace.

At this point, we cannot turn on the daily news without being fed a full meal of carefully- worded mumbo jumbo, designed to further overwhelm whatever small voices of truth may be out there.

Let’s put this in perspective for a moment.

For millennia, political leaders have been in the practice of altering, confusing and even obliterating the truth, when possible. And it’s probably safe to say that, for as long as there have been media, there have been political leaders doing their best to control them.

During times of war, political leaders have serially restricted the media from simply telling the truth. During the American civil war, President Lincoln shut down some 300 newspapers and arrested some 14,000 journalists who had the audacity to contradict his statements to the public.

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

My Speech in the European Parliament on the Coming Economic Collapse

Zero percent interest rates have created the largest bubble in human history, when it bursts it will be worse than 1929.

Where Will The “Pending” Financial Crisis Originate?

Where Will The “Pending” Financial Crisis Originate?

– Case for a pending financial collapse is well grounded warns Rickards
– “Ticking time bomb” the Federal Reserve has created is set to go off…
– Economist warns U.S. high-yield debt, default of “junk bonds” could cause next crisis
– Systemic risk is “more dangerous than ever” as “entire system is larger than before”

– Protect wealth by allocating at least 10% of assets in physical gold and silver


Source: BofA Merrill Lynch via Marketwatch.com

from The Daily Reckoning:

The case for a pending financial collapse is well grounded. Financial crises occur on a regular basis including 1987, 1994, 1998, 2000, 2007-08.

That averages out to about once every five years for the past thirty years. There has not been a financial crisis for ten years so the world is overdue. It’s also the case that each crisis is bigger than the one before and requires more intervention by the central banks.

The reason has to do with the system scale. In complex dynamic systems such as capital markets, risk is an exponential function of system scale. Increasing market scale correlates with exponentially larger market collapses.

This means a market panic far larger than the Panic of 2008.

Today, systemic risk is more dangerous than ever because the entire system is larger than before.

Due to central bank intervention, total global debt has increased by about $150 trillion over the past 15 years. Too-big-to-fail banks are bigger than ever, have a larger percentage of the total assets of the banking system and have much larger derivatives books.

Each credit and liquidity crisis starts out differently and ends up the same. Each crisis begins with distress in a particular overborrowed sector and then spreads from sector to sector until the whole world is screaming, “I want my money back!”

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

Why central banks cannot really Manage Anything

QUESTION: Marty you recently said that “the entire problem of lowering interest rates to ‘stimulate’ the economy demonstrates that central banks cannot really manage anything.” Is this statement really true?

BG

ANSWER: Absolutely. There is a basic presumption in all human activity that somehow we possess the power to do anything be it end Global Warming or managing the economy. Yet neither has ever been accomplished. We assume that we MUST do something even if there is nothing we can actually do to reverse the trend. It is like what I just wrote about the Plunge Protection Team. Do you realize that every empire, nation, and city-state at some point realizes the end is near, yet they cannot prevent their own demise any more than we can prevent our own death.

“The Rediscovery of the Business Cycle – is a sign of the times. Not much more than a decade ago, in what now seems a more innocent age, the ‘New Economics’ had become orthodoxy. Its basic tenet, repeated in similar words in speech after speech, in article after article, was described by one of its leaders as ‘the conviction that business cycles were not inevitable, that government policy could and should keep the economy close to a path of steady real growth at a constant target rate of unemployment.’

Former Fed Chairman Paul Volcker in his Rediscovery of the Business Cycle clearly stated the theory of managing the economy with Keynesian tools failed. When he tried sending interest rates cascading higher into 1981, he really altered the economy forever. There was a capo on interest rates known as the Usury Laws. On April 1st, 1980, the Depository Institutions Deregulation and Monetary Control Act of 1980 became effective.

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

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