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Why A Flu Outbreak In China Can Spook Global Markets

Why A Flu Outbreak In China Can Spook Global Markets

When people talk about empires of the past, they generally mean Rome and Britain. But the biggest and in some ways most interesting empire was built and run by the Mongols in the 13th and 14th centuries. At it’s peak it stretched from China to Eastern Europe, which is more territory than Rome ever controlled.

Across that expanse there was free trade and unrestricted movement of people via the original “Silk Road” network. For a while there was a single currency which was accepted everywhere. 

Genghis Khan — think of him as the Mongols’ (gleefully bloodthirsty) George Washington — organized his army along what we today would call colorblind lines. Instead of units based on clans and tribes, he mixed and matched soldiers of varied backgrounds and trained them to be loyal to one another regardless of origin. He also ordered his men to marry women from conquered cities, and to integrate into local cultures.

And he loved technology, collecting engineers and other people with useful skills from conquered lands and putting them to work developing new weapons and better agricultural practices.

“Pax Mongolica,” in short, had all the makings of a nascent modern system, hundreds of years before the Industrial Revolution. 

Then came the Black Death. 

Free movement of people allowed the disease to move quickly and uncontrollably. Local populations panicked and closed themselves off, frequently slaughtering their Mongol governors in the process. Trade collapsed, the Silk Road went dark and the Mongol empire expired. 

Now fast forward to today’s world, where virtually anyone can fly or drive to virtually any other country — and millions each year do so. Trade is a huge part of most major national economies. A handful of currencies are accepted pretty much everywhere, while locals mix with visitors in melting pot mega-cities of 20 million-plus inhabitants, all breathing the same air. 

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

IMF Slashes Global GDP Forecast For 6th Consecutive Time, Warns “Climate Change” Will Hit Economy

IMF Slashes Global GDP Forecast For 6th Consecutive Time, Warns “Climate Change” Will Hit Economy

After the IMF cut its global economic outlook for 2019 to 2.9% in October, the lowest since the financial crisis, and warned that global trade growth would be “close to a standstill”, moments ago the IMF once again downgraded its forecast for global GDP for 2020 and 2021, its sixth straight reduction, although in a sliver of optimism, global GDP in 2020 is now expected to post a modest rebound from 2.9% to 3.3%, (down from 3.4% in October) and to 3.4% in 2021 (down from 3.6%) as the IMF says “there are now tentative signs that global growth may be stabilizing, though at subdued levels.”

According to the IMF, the downward revision primarily reflects negative surprises to economic activity in a few emerging market economies, most notably India, where 2020 GDP is now expected to rise just 5.8% down from 7.0%, which means that in 2020 China will regain the title of the world’s fastest growing economy. In a few cases, this reassessment also reflects the impact of increased social unrest.

Emerging market debacle aside, the IMF said that on the positive side, market sentiment “has been boosted by tentative signs that manufacturing activity and global trade are bottoming out, a broad-based shift toward accommodative monetary policy, intermittent favorable news on US-China trade negotiations, and diminished fears of a no-deal Brexit, leading to some retreat from the risk-off environment that had set in at the time of the October WEO.”

However, and this will be of particular interest to traders, even the IMF admitted that “few signs of turning points are yet visible in global macroeconomic data.”

And so, in addition to the collapse in India, the IMF also sees continued slowdown in the US and Europe in 2020, both of which were cut by 0.1% to 2.0% and 1.3%, while China saw a modest increase by 0.2% to 6.0%, which however drops to 5.8% in 2021.

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

Are Consumers Nearing the End of Their Road of Debt?

Are Consumers Nearing the End of Their Road of Debt?

Are consumers getting close to the end of their road of debt?

There are some indications that they might be and that’s not good news for an economy built on consumers spending money they don’t have.

Total consumer debt grew and set yet another new record in November, according to the most recent data released by the Federal Reserve. But the rate of growth slowed and credit card debt contracted slightly for the third month out of the last four.

Total consumer debt grew by $12.5 billion to $4.176 trillion. (Seasonally adjusted). That represents an annual growth rate of 3.6%, down from 5.5% in October.

The Fed consumer debt figures include credit card debt, student loans and auto loans, but do not factor in mortgage debt.

Revolving credit outstanding, primarily credit card debt, fell by $2.4 billion, a 2.7% decline. That was offset by a healthy increase of $14.9 billion (5.8%) in non-revolving credit, including student loans, automobile loans and financing for other big-ticket purchases.

Even with the decline in revolving credit card debt, Americans still owe nearly $1.1 trillion on their plastic.

But the overall trend in borrowing has fallen over the last six months and credit card borrowing has taken a noticeably steep downturn.

Some are taking the sagging level of borrowing as a warning sign. As one analyst put it in an article on Seeking Alpha:

It could be that the consumer end of the economy has reached the point at which it cannot add any more debt. Unlike the federal government which has sovereign dollars to print, the consumer has a fixed amount they can spend including paying back any loans.”

Generally, consumer spending and consumer debt tend to move in the same direction. In other words, the drop in borrowing could indicate consumers are shutting their wallets.

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

Opinion: The Federal Reserve is stuck in quantitative-easing hell

Opinion: The Federal Reserve is stuck in quantitative-easing hell

The central bank’s short-term buying of securities could morph into long-term easing

Federal Reserve Chairman Jerome Powell

Imagine doing the same thing over and over again, with little progress and no relief. Sounds like most people’s vision of hell — or the Federal Reserve’s current predicament. 

Since September, the central bank, through the Federal Reserve Bank of New York, has been purchasing securities hand over fist to alleviate short-term pressures in the overnight money markets. It has used repurchase (“repo”) and reverse repurchase (“reverse repo”) agreements to provide liquidity and keep overnight borrowing rates from spiking. 

But these complex money market operations already have caused the Fed to buy a net $400 billion worth of securities, after Chairman Jerome Powell shrank the Fed’s balance sheet by $700 billion. That “normalization,” which also included raising the federal funds rate through late 2018, is now effectively dead and the Fed’s balance sheet is growing again.

Powell and the Fed have repeatedly denied this is a new phase of “quantitative easing (QE),” three rounds of which added $3.6 trillion to the Fed’s balance sheet in the years after the financial crisis. And indeed, in the earlier rounds of QE, the central bank bought Treasuries and mortgage-backed securities of various maturities. The current buying has been focused on Treasuries with maturities of 12 months or less. 

On the way: QE4

But that may not continue, says Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence, a Dallas-based boutique research firm. Booth, who worked on both Wall Street and in the Federal Reserve Bank of Dallas, has been a critic of Fed policies since the central bank pushed fed funds down to near zero and launched its three rounds of QE after the financial crisis. (She also was one of the few people to connect the dots between the housing bust and Wall Street before the crisis hit.)

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

Ike Was Right

IKE WAS RIGHT

“In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists, and will persist.
Now this conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence—economic, political, even spiritual—is felt in every city, every Statehouse, every office of the Federal government. We recognize the imperative need for this development. Yet, we must not fail to comprehend its grave implications. Our toil, resources, and livelihood are all involved. So is the very structure of our society.”

General Dwight D Eisenhower
Farewell address 1961

Congress just passed a near trillion dollar military budget at a time when the United States faces no evident state threats at home or abroad. Ike was right.

Illustrating Ike’s prescient warning, Brown University’s respected Watson Institute just released a major study which found that the so-called ‘wars on terror’ in Iraq, Afghanistan, Syria and Pakistan have cost US taxpayers $6.4 trillion since they began in 2001. 

The extensive study found that over 800,000 people have died as a result of these military operations, a third of them civilians. An additional 21 million civilians have been displaced by US military operations. According to the Pentagon, these US wars have so far cost each American taxpayer $7,623 – and that’s a very conservative estimate.

Most of this money has been quietly added to the US national debt of over $23 trillion. Wars on credit hide the true cost and pain from the public. 

As General Eisenhower warned, military spending has engulfed the nation. A trillion annual military budget represents just about half the world’s military expenditures. The Pentagon, which I’ve visited numerous times, is bustling with activity as if the nation was on a permanent war footing.

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

The urban drivers of economic growth

The urban drivers of economic growth

In the 1980s, cities were defined as the ‘growth machines’ of the economy (Molotch, 1976). Today, urban economists epitomize them as economic ‘triumphs’ (Glaeser, 2011). Cities, intended as dense and mixed forms of urban living organized in agglomerations of economic activities, are presented as the solution to many of contemporary socio-ecological problems. They are viewed as the location of the so called ‘energy transition’, ‘social innovation’ or the ‘clean economy of knowledge’.

Cities have been a central topic in degrowth scholarship, although never put at the forefront of the debate. Latouche (2014) portraits the ‘degrowth city’ looking at the Mediterranean way of life of small towns. He called for a regional economy of sufficiency. Many degrowers explicitly advocate the need for changing the mobility infrastructure in order to reach some kind of slow mobility, and they promote the collectivization of public and housing spaces to be used as forms of commoning. Practices of repair, energy sufficiency, food coops, urban gardening and many more are properly ‘urban’ practices, because they interrupt the fast and productive use of city space.

Why then it is so hard to make those practices multiply and enable a more systemic transition to a degrowth society? Planning scholars have for years studied and criticized the mechanisms of urban land transformation that drive national economic growth. Urbanization is not the consequence of economic growth but the actual driver of it. The enlargement of cities, their number of jobs, estates and infrastructures, is a driving force behind growth. Already in the early 90s, after the fall of the Fordist economic system, it has become clear – for national governments as much as multinational corporations – that cities were becoming a new market where to invest surplus capital (primarily industrial capital) and gain rich returns.

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

The Cannibalization Of The Financial System Will Force Investors Into Silver

The Cannibalization Of The Financial System Will Force Investors Into Silver

Day in and day out, the global financial system continues to cannibalize itself.  Clear evidence of this points to the massive “Artificial” liquidity and asset purchase policy instituted by the Federal Reserve.  While financial analysts provided several theories why the Fed was forced to inject liquidity via the Repo Market and also purchase $60 billion a month in U.S. Treasuries, the real reason has to do with the falling quality of oil and its impact on the value of assets and collateral.

It’s really that simple.  However, there is no mention of it (energy) by any of the leading financial or precious metals analysts.  For example, in Alasdair Macleod’s recent Goldmoney.com article titled, How To Return To Sound Money, he states the following:

This article provides a template for an enduring sound money solution that will deliver economic progress while eliminating destructive credit cycles. It posits that a properly constructed gold and gold substitute monetary system, which also includes the removal of bank credit inflation as a means of providing investment capital, is the only way that lasting stability and prosperity can be achieved.

Alasdair Macleod, who I have a great deal of respect, doesn’t mention “Energy” once in his entire article suggesting that returning to sound money, through gold, is the only way for lasting stability and prosperity can be achieved. The majority of economic prosperity has come from the burning of oil, natural gas, and coal, not from gold or silver. The precious metals act as money, a store of value, or economic energy, but are not the ENERGY SOURCES themselves.  While this is self-evident, it is very important to understand.

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

IMF Chief Warns Global Economy Faces New “Great Depression”

IMF Chief Warns Global Economy Faces New “Great Depression”

How’s this for some New Years optimism?

The new head of the IMF, who took over from Christine Lagarde in November, warned that the global economy could soon find itself mired in a great depression.

During a speech at the Peterson Institute, IMF Chairwoman Kristalina Georgieva compared the contemporary global to the “roaring 20s” of the 20th century, a decade of cultural and financial excess that culminated in the great market crash of 1929.

According to the Guardian, this research suggests that a similar trend is already under way, and though the collapse might not be around the corner, when it comes, it will be impossible to avoid.

While the inequality gap between countries has closed over the last two decades, the gap within most developed countries has widened, leaving millions more vulnerable to a global downturn than they otherwise would have been.

In particular, she singled out the UK for criticism: “In the UK, for example, the top 10% now control nearly as much wealth as the bottom 50%. This situation is mirrored across much of the OECD (Organisation for Economic Co-operation and Development), where income and wealth inequality have reached, or are near, record highs.”

She also warned about the potential for climate change to become a bigger obstacle for humanity, while increased trade protectionism instills more volatility in markets.

She added: “In some ways, this troubling trend is reminiscent of the early part of the 20th century – when the twin forces of technology and integration led to the first gilded age, the roaring 20s, and, ultimately, financial disaster.”

She warned that fresh issues such as the climate emergency and increased trade protectionism meant the next 10 years were likely to be characterised by social unrest and financial market volatility.

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

The Bank of England’s Governor Fears a Liquidity Trap

The Bank of England’s Governor Fears a Liquidity Trap

The global economy is heading towards a “liquidity trap” that could undermine central banks’ efforts to avoid a future recession according to Mark Carney, governor of the Bank of England. In a wide-ranging interview with the Financial Times (January 8, 2020), the outgoing governor warned that central banks were running out of ammunition to combat a downturn:

If there were to be a deeper downturn, more than a conventional recession, then it’s not clear that monetary policy would have sufficient space.

He is of the view that aggressive monetary and fiscal policies will be required to lift the aggregate demand.

What Is a Liquidity Trap?

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

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

For instance, if for some reason people become less confident about the future, they will cut back their outlays and hoard more money. When an individual spends less, this will supposedly worsen the situation of some other individual, who in turn will cut their spending. A vicious cycle sets in. The decline in people’s confidence causes them to spend less and to hoard more money. This lowers economic activity further, causing people to hoard even more, etc.

Following this logic, in order to prevent a recession from getting out of hand, the central bank must lift the growth rate of the money supply and aggressively lower interest rates. Once consumers have more money in their pockets, their confidence will increase, and they will start spending again, reestablishing the circular flow of money, so it is held.

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

China’s Gold Hoarding: Will It Cause the Price of Gold to Rise?

China’s Gold Hoarding: Will It Cause the Price of Gold to Rise?

There are reasons to think that the gold price will rise faster than expected.

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Since 2009 China has withdrawn 12,000 tonnes of gold from the rest of the world, where the short and medium-term gold price is set. For reasons I will explain, a tighter market outside of China can make the price of gold price rise faster than many expect. I believe the gold price will rise, because of excessive debt levels around the world, and incessant money printing by central banks. Central banks will try and resolve the debt burden through currency depreciation (inflation). China has been preparing for this scenario by buying gold.

One of the key drivers in recent decades for the US dollar gold price is real interest rates. It is thought that when interest rates on long-term sovereign bonds, minus inflation, are falling, it becomes more attractive to own gold as it is a less risky asset than sovereign bonds (gold has no counterparty risk). However, gold doesn’t yield a return (unless you lend it). So, when real rates rise, it becomes more attractive to own bonds.

Real Interest Rates and US Dollar Gold Price

Although the correlation is clear, it might change in the future. Possibly, when real rates fall, the gold price will rise faster than before. Let me explain why.

In my previous post, we have seen that the gold price in the short and medium-term is mainly set in the West by institutional supply of and demand for above-ground stocks. For the gold price, what matters is how much above-ground stock is in strong hands, i.e., owners of gold that will not be easily persuaded to sell.

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

How the US Wages War to Prop up the Dollar

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How the US Wages War to Prop up the Dollar

At Counterpunch, Michael Hudson has penned an important article that outlines the important connections between US foreign policy, oil, and the US dollar.

In short, US foreign policy is geared very much toward controlling oil resources as part of a larger strategy to prop up the US dollar. Hudson writes:

The assassination was intended to escalate America’s presence in Iraq to keep control of the region’s oil reserves, and to back Saudi Arabia’s Wahabi troops (Isis, Al Quaeda in Iraq, Al Nusra and other divisions of what are actually America’s foreign legion) to support U.S. control of Near Eastern oil as a buttress of the U.S. dollar. That remains the key to understanding this policy, and why it is in the process of escalating, not dying down.

The actual context for the neocon’s action was the balance of payments, and the role of oil and energy as a long-term lever of American diplomacy.

Basically, the US’s propensity for driving up massive budget deficits has created a need for immense amounts of deficit spending. This can be handled through selling lots of government debt, or through monetizing the debt. But what if there isn’t enough global demand for US debt? That would mean the US would have to pay more interest on its debt. Or, the US could monetize the debt through the central bank. But that might cause the value of the dollar to crash. So, the US regime realized that it must find ways to prevent the glut of dollars and debt from actually destroying the value of the dollar. Fortunately for the regime, this can be partly managed, it turns out, through foreign policy. Hudson continues:

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

944 Trillion Reasons Why The Fed Is Quietly Bailing Out Hedge Funds

944 Trillion Reasons Why The Fed Is Quietly Bailing Out Hedge Funds

On Friday, Minneapolis Fed president Neel Kashkari, who just two months earlier made a stunning proposal when he said that it was time for the Fed to pick up where the USSR left off and start redistributing wealth (at least Kashkari chose the proper entity: since the Fed has launched central planning across US capital markets, it would also be proper in the banana republic that the US has become, that the same Fed also decides who gets how much and the entire  democracy/free enterprise/free market farce be skipped altogetherissued a challenge to “QE conspiracists” which apparently now also includes his FOMC colleague (and former Goldman Sachs co-worker), Robert Kaplan, in which he said “QE conspiracists can say this is all about balance sheet growth. Someone explain how swapping one short term risk free instrument (reserves) for another short term risk free instrument (t-bills) leads to equity repricing. I don’t see it.

To the delight of Kashkari, who this year gets to vote and decide the future of US monetary policy yet is completely unaware of how the plumbing underneath US capital markets actually works, we did so for his benefit on Friday, although we certainly did not have to: after all, the “central banks’ central bank”, the Bank for International Settlements, did a far better job than we ever could in its December 8 report, “September stress in dollar repo markets: passing or structural?”, which explained not just why the September repo disaster took place on the supply side (i.e., the sudden, JPMorgan-mediated liquidity shortage at the “top 4” commercial banks which prevented them from lending into the repo market)…

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

VIDEO: The Fed’s Evil Juggernaut

VIDEO: The Fed’s Evil Juggernaut

Don’t let it crush your future

Juggernaut: (n) massive inexorable force, campaign, movement, or object that crushes whatever is in its path

The US Federal Reserve is once again force-feeding liquidity into the system. At its fastest rate ever.

The result? Record high stock prices whose valuations defy all logic.

What’s wrong with that? Shouldn’t we just enjoy the party and be grateful for our rising 401ks?

What’s wrong is that the Fed’s actions are dooming us. Their poisonous cocktail of endless cheap money and rock-bottom interest rates is hastening a terminal breakdown of the economy, while deliberately enriching a tiny cadre of elites to the ruin of everyone else.

Though most remain blind to this, Fed policy (and the similar ones pursued by the other major world central banks) is directly responsible for, or a major contributor to, many of the biggest challenges society is facing.

Tens of millions of Boomers who can’t afford to retire. Tens of millions of Millennials who can’t afford to purchase a home. History’s largest wealth gap between the 1% and everyone else. Relentless increases in the cost of living while real wages remain stagnant. Depletion and degradation of our key natural resources by zombie companies run without profits. We can thank the Fed for all of these ills, plus many more.

All we’re offered in return is the fake reassurance that “everything is awesome” because stocks are higher today than they were yesterday. As if that really makes a difference when the top 1% owns 50% of all stocks and the top 10% owns over 90%.

And when today’s epicly distorted markets reach their breaking point — which may be imminent given the truly manic action recently — not only will the resulting damage be commensurately epic, but it will injure the 99% FAR more than the 1% who benefitted from it.

Mass layoffs. Bankruptcies. Destroyed retirement portfolios and pensions. State and city budget crises. Higher taxes. More fees. Cancelled social services. Hollowed-out communities.

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

China’s Growing Economic Miracle…(Collapse). Or… Everyone Pays the Piper!

China’s Growing Economic Miracle…(Collapse). Or… Everyone Pays the Piper!

In emulating the American economic raison d’etre, China has attempted to develop its unique capitalist model while ignoring that it too will soon suffer the same fate for the same reason: Unsustainable debt.  When examining the recent realities of Chinese banking and finance over the past year it seems the steam that president Xi Jinping touts as powering the engine of his purported economic miracle of a master-planned economy is only a mirage, now almost completely evaporated before his eyes.

Like the many other similarly foolish western nations, China seeks only one path out of this fiscal death spiral, one that will likely spell doom and/or revolution in many countries soon: More debt.

China is becoming increasingly unable to continue to pay into the base of the world’s largest pyramid scheme of an economy and the cracks in the bubble are showing. This past year, saw three of the 4,279 Chinese lenders almost fail, if not for the massive intervention by the People’s Bank of China (PBoC) of immediate liquidity via more debt. The Chinese economic miracle is built on unsustainable debt-based infrastructure projects over the past two decades that have provided China with a face of prosperity to show the world, but this is only a mask to hide the limited countrywide success of the Chinese miracle into the rural areas. The injection of $Trillions in capital has seen China distribute these sums across the base of its economy creating a GDP that hit a high of 14.2 % in 2007 then averaged nearly 9% for the next decade before dropping yearly to 6.1% in 2018. All this growth had produced a personal affluence to a sub-set of Chinese society that has stoked this appearance of a flourishing economy.

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

What Will It Take to Get the Public to Embrace Sound Money?

What Will It Take to Get the Public to Embrace Sound Money? 

In the last decade, the combination of virulent asset price inflation and low reported consumer price inflation crippled sound money as a political force in the US and globally. In the new decade, a different balance between monetary inflation’s “terrible twins” — asset inflation and goods inflation — will create an opportunity for that force to regain strength. Crucial, however, will be how sound money advocacy evolves in the world of ideas and its success in forming an alliance with other causes that could win elections.

It is very likely that the deflationary nonmonetary influences of globalization and digitalization, which camouflaged the activity of the goods-inflation twin during the past decade, are already dissipating.

The pace of globalization may have already peaked, before the Xi-Trump tariff war. Inflation-fueled monetary malinvestment surely contributed to its prior speed. One channel here was the spread of highly speculative narratives about the wonders of global supply chains.

Digitalization’s potential to camouflage monetary inflation in goods and services markets, on the other hand, has come largely via its impact on the dynamics of wage determination. It has forged star firms with considerable monopoly power in each industrial sector. Obstacles preventing their technological and organizational know-how from seeping out to competitors means that wages are not bid higher across labor markets in similar fashion to earlier industrial revolutions. These obstacles reflect the fact that much investment is now in the form of firm-specific intangibles. Even so, such obstacles tend to lose their effectiveness over time.

As deflation fades, monetary repression taxes (collected for governments through central banks’ manipulation of rates to low levels so as to achieve 2 percent inflation despite disinflation as described) will undergo metamorphosis into open inflation taxes as the rate of consumer price inflation accelerates. Governments cannot forego revenue given their ailing finances. Simultaneously, asset inflation will proceed down a new stretch of highway where many crashes occur.

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

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
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