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For several years now the small coterie of Keynesian academics and apparatchiks who have seized nearly absolute financial power through the Fed’s printing presses have justified the lunacy of unending ZIRP and massive QE on the grounds that there is too little inflation. The bureaucrats at the IMF even invented a lame-brained catch-phrase, calling the purported scourge of money which retains most of its value “lowflation”.

This whole consumer inflation targeting gambit, of course, is an inherently preposterous notion because there is not a scrap of evidence that 2% consumer inflation is better for rising living standards and societal wealth gains than is 0.2%. And there is much history and economic logic that points in exactly the opposite direction.

Between 1870 and 1913 in the United States, for example, real national income grew at 3.5% per year——the highest gain for any 43 year period in history. Yet the average inflation rate during that long period of capitalist prosperity was less than 0.0%. That was real “lowflation”, and it was a blessing for the average worker, not a scourge.

But this week the BLS itself let out a screaming, never mind! The core CPI for the 12 months ended in January rose by 2.21% and that’s actually a tad higher than the 1.98% annual average since the year 2000.

Please forgive the spurious accuracy of reporting the BLS’ noise-ridden, dubiously constructed CPI to the second decimal point, but it’s meant to underscore a crucial truth. Namely, there ain’t no inflation deficiency problem and never has been!

The whole 2% inflation mantra is just a smokescreen to justify the massive daily intrusion in financial markets by a power-obsessed claque of monetary central planners. They just made it up and then rode it to ever increasing dominance over the financial system—-even though as recently as 15 years ago the 2% inflation theory was unknown outside a small circle of neo-Keynesian academic scribblers led by Ben Bernanke.

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

The Silver Age of the Central Banker

February 20, 2016

The Silver Age of the Central Banker

We all sing along
But the notes are wrong
– Matt & Kim, “Get It” (2015)

The strong do what they will, and the weak suffer what they must.
– Thucydides, “History of the Peloponnesian War” (c. 400 BC)

Xerxes:	Come Leonidas, let us reason together. It would be a regrettable waste. It would be nothing short of madness for you, brave king, and your valiant troops to perish. All because of a simple misunderstanding. There is much our cultures could share.
Leonidas:	Haven’t you noticed? We’ve been sharing our culture with you all morning.

– “300” (2006)

We have no eternal allies, and we have no perpetual enemies. Our interests are eternal and perpetual, and those interests it is our duty to follow.
– Henry “The Mongoose” Temple, Viscount Palmerston (1784 – 1865)

Rick Grimes: [when he kills Shane] YOU made me do this! Not me! YOU did!
– “The Walking Dead” (2011)

“I should have thought,” said the officer as he visualized the search before him, “I should have thought that a pack of British boys – you’re all British, aren’t you? – would have been able to put up a better show than that – I mean –”
“It was like that at first,” said Ralph, “before things –”
He stopped.
“We were together then –”
– William Golding, “Lord of the Flies” (1954)

For the past six plus years, ever since the Fed launched QE1 in March 2009, we have lived in an era I’ve described as the Golden Age of the Central Banker, where the dominant explanation for why market events occur as they do has been the Narrative of Central Bank Omnipotence. By that I don’t mean that central bankers are actually omnipotent in their ability to control real economic outcomes (far from it), but that most market participants have internalized a faith that central bankers are responsible for all market outcomes.

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

The First Steps to Ending Currency

February 20, 2016

The First Steps to Ending Currency

While I don’t want to sound like a broken record, it is becoming increasingly clear that the Federal Reserve, other central banks and governments around the world are laying the foundation for a negative interest rate environment that will more than likely be imposed during the next recession. Governments are involved because they play a very key role in any movement toward negative interest rates since it is obvious that if consumers are paying for the “privilege” of holding funds in a bank, many will simply convert at least some of their savings to cash, an issue that could prove to be problematic since the whole point of negative interest rates is to get consumers to spend more. Obviously, the only way to beat consumers at this game is to put an end to cash, one way or another.

A recent item by former Treasury Secretary under Bill Clinton, former Chief Economist for the World Bank and current Harvard University Professor, Lawrence Summers, in the Washington Post acts as a bit of a trial balloon for the impending “cashless society” by noting that “It’s time to kill the $100 bill”. In the item, Lawrence Summers cites his reasons for the abolishment of the 500 euro note, including the oft-cited “fact” that the criminal and terrorist spheres operate using high denomination currency. He points out that the 500 euro note is known as the “Bin Laden” and that the fact that $1 million in $100 notes weighs only 22 pounds compared to 110 pounds (filling four briefcases) if a $20 bill was the highest denomination note as shown on this figure:

Here is the closing paragraph of his item:

“Even better than unilateral measures in Europe would be a global agreement to stop issuing notes worth more than say $50 or $100.

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

Deere In Headlights After Guidance Cut: Sees 10% Sales Drop Due To “Downturn In Global Farm Economy”

February 19, 2016

Deere In Headlights After Guidance Cut: Sees 10% Sales Drop Due To “Downturn In Global Farm Economy”

It is not just Caterpillar that continues to post horrendous numbers, and has now recorded 38 consecutive months of declining Y/Y sales, double the length of the contraction of the great financial crisis. Moments ago heavy farm equipment maker Deere likewise shocked its investors with a round of terrible numbers, when at first it reported a revenue and EPS beat, announced it had earned $0.80 EPS in Q4, above the $0.71 estimate, on $5.53BN in revenue, well above the $4.90BN expected, however it was the unprecedented drop in the forecast that was the punchline.

According to the company’s announcement, equipment sales are projected to decrease about 10% for fiscal 2016 and to be down about 8 percent for the second quarter compared with the same period a year ago.

Here is how CEO Samuel Allen tried to spin the cut in guidance which DE had previously seen at just -7%: “Although Deere expects another challenging year in 2016, our forecast represents a level of performance much better than we have experienced in previous downturns,” Allen said.

Downturn? We thought the Fed was hiking because of the “strong recovery.”

Some more details: Deere cuts 2016 U.S. farm cash receipts forecast to $381.3b, had seen $394.4b (Nov. 25)

Cuts 2016 U.S. farm net cash income to $90.8b, had seen $106.9b (Nov. 25)
Sees yr U.S. farm commodity price:
- Corn 2015/16 $3.60/bushel vs prior $3.65
- Wheat 2015/16 $5.00/bushel, unchanged
- Soybeans 2015/16 $8.80/bushel vs prior $8.90
- Cotton 2015/16 60c/pound vs prior 59c
Cuts DE 2016 capex outlook to ~$775m from ~$800m

“This illustrates the impact of our efforts to establish a more durable business model and a wider range of revenue sources.”

Alas, a 10% drop in revenue does not validate the “durable business model” with more revenue sources.

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

The US Economy Has Not Recovered And Will Not Recover

February 18, 2016

The US Economy Has Not Recovered And Will Not Recover

The US economy died when middle class jobs were offshored and when the financial system was deregulated.

Jobs offshoring benefitted corporate executives and shareholders, because lower labor and compliance costs resulted in higher profits. These profits flowed through to shareholders in the form of capital gains and to executives in the form of “performance bonuses.” Wall Street benefitted from the bull market generated by higher profits.

However, jobs offshoring also offshored US GDP and consumer purchasing power. Despite promises of a “New Economy” and better jobs, the replacement jobs have been increasingly part-time, lowly-paid jobs in domestic services, such as retail clerks, waitresses and bartenders.

The offshoring of US manufacturing and professional service jobs to Asia stopped the growth of consumer demand in the US, decimated the middle class, and left insufficient employment for college graduates to be able to service their student loans. The ladders of upward mobility that had made the United States an “opportunity society” were taken down in the interest of higher short-term profits.

Without growth in consumer incomes to drive the economy, the Federal Reserve under Alan Greenspan substituted the growth in consumer debt to take the place of the missing growth in consumer income. Under the Greenspan regime, Americans’ stagnant and declining incomes were augmented with the ability to spend on credit. One source of this credit was the rise in housing prices that the Federal Reserves low inerest rate policy made possible. Consumers could refinance their now higher-valued home at lower interest rates and take out the “equity” and spend it.

The debt expansion, tied heavily to housing mortgages, came to a halt when the fraud perpetrated by a deregulated financial system crashed the real estate and stock markets. The bailout of the guilty imposed further costs on the very people that the guilty had victimized.

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

This Is The Real Reason For The War On Cash

February 18, 2016

This Is The Real Reason For The War On Cash

Originally posted Op-Ed via The Wall Street Journal,

These are strange monetary times, with negative interest rates and central bankers deemed to be masters of the universe. So maybe we shouldn’t be surprised that politicians and central bankers are now waging a war on cash. That’s right, policy makers in Europe and the U.S. want to make it harder for the hoi polloi to hold actual currency.

Mario Draghi fired the latest salvo on Monday when he said the European Central Bank would like to ban €500 notes. A day later Harvard economist and Democratic Party favorite Larry Summers declared that it’s time to kill the $100 bill, which would mean goodbye to Ben Franklin. Alexander Hamilton may soon—and shamefully—be replaced on the $10 bill, but at least the 10-spots would exist for a while longer. Ol’ Ben would be banished from the currency the way dead white males like him are banned from the history books.

Limits on cash transactions have been spreading in Europe since the 2008 financial panic, ostensibly to crack down on crime and tax avoidance. Italy has made it illegal to pay cash for anything worth more than €1,000 ($1,116), while France cut its limit to €1,000 from €3,000 last year. British merchants accepting more than €15,000 in cash per transaction must first register with the tax authorities. Fines for violators can run into the thousands of euros. Germany’s Deputy Finance Minister Michael Meister recently proposed a €5,000 cap on cash transactions. Deutsche Bank CEO John Cryan predicted last month that cash won’t survive another decade.

The enemies of cash claim that only crooks and cranks need large-denomination bills. They want large transactions to be made electronically so government can follow them. Yet these are some of the same European politicians who blew a gasket when they learned that U.S. counterterrorist officials were monitoring money through the Swift global system. Criminals will find a way, large bills or not.

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

The Federal Reserve and the Global Fracture

February 17, 2016

The Federal Reserve and the Global Fracture

This interview with Michael Hudson was conducted by Finnish journalist Antti J. Ronkainen.

Antti J. Ronkainen: The Federal Reserve is the most significant central bank in the world. How does it contribute to the domestic policy of the United States?

Michael Hudson: The Federal Reserve supports the status quo. It would not want to create a crisis before the election. Today it is part of the Democratic Party’s re-election campaign, and its job is to serve Hillary Clinton’s campaign contributors on Wall Street. It is trying to spur recovery by resuming its Bubble Economy subsidy for Wall Street, not by supporting the industrial economy. What the economy needs is a debt writedown, not more debt leveraging such as Quantitative Easing has aimed to promote. But the Fed is in a state of denial that the U.S. and European economies are plagued by debt deflation.

The Fed uses only one policy: influencing interest rates by creating bank reserves at low give-away charges. It enables banks too make easy gains simply by borrowing from it and leaving the money on deposit to earn interest (which has been paid since the 2008 crisis to help subsidize the banks, mainly the largest ones). The effect is to fund the asset markets – bonds, stocks and real estate – not the economy at large. Banks also are heavy arbitrage players in foreign exchange markets. But this doesn’t help the economy recover, any more than the ZIRP (Zero Interest-Rate Policy) since 2001 has done for Japan. Financial markets are the liabilities side of the economy’s balance sheet, not the asset side.

The last thing either U.S. party wants is for the election to focus on this policy failure. The Fed, Treasury and Justice Department will be just as pro-Wall Street under Hillary.

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

50% Of Canadians Say They Are Within $200/Month Of Being Unable To Pay Their Bills

February 17, 2016

50% Of Canadians Say They Are Within $200/Month Of Being Unable To Pay Their Bills

It was just last month when we profiled Canada’s “other problem”: record high household debt.

Canada is struggling to cope with falling crude prices which have put enormous amounts of pressure on some parts of the country, most notably Alberta, where suicide rates are on the rise, as is property crime and foodbank usage.

Amid the malaise, households are also being pressured by persistent CAD weakness – which is of course a symptom of falling crude. The currency’s decline has driven up prices for things like fresh fruits and vegetables, 75% of which Canada imports. That puts an extra burden on households that are already laboring under record debt.

As we showed three weeks ago, household debt relative to disposable income is sitting at 171% in Canada meaning that for every $100 in disposable income, households have debt obligations of $171. That’s the highest figure for any G7 country.

That’s disconcerting for any number of reasons. As we wrote, “this would be bad enough in a favorable economic environment with a benign outlook for rates, but it’s a veritable nightmare when the economy is sliding headlong into recession and central planners are hell bent on trying to normalize policy some time in the next five or so years.”

In other words, the outlook for Canada’s economy isn’t good, and that means joblessness is likely to rise going forward…

But interest rates have virtually nowhere to go but up – at least in the medium to long-term. Sure Stephen Poloz may cut rates one or two more times to try and help the oil patch avert certain insolvency, but at 50 bps, there’s only so much lower Canada can go unless the BoC intends to experiment with NIRP.

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

Larry Summers Launches The War On Paper Money: “It’s Time To Kill The $100 Bill”

February 16, 2016

Larry Summers Launches The War On Paper Money: “It’s Time To Kill The $100 Bill”

Yesterday we reported that the ECB has begun contemplating the death of the €500 EURO note, a fate which is now virtually assured for the one banknote which not only makes up 30% of the total European paper currency in circulation by value, but provides the best, most cost-efficient alternative (in terms of sheer bulk and storage costs) to Europe’s tax on money known as NIRP.

That also explains why Mario Draghi is so intent on eradicating it first, then the €200 bill, then the €100 bill, and so on.

We also noted that according to a Bank of America analysis, the scrapping of the largest denominated European note “would be negative for the currency”, to which we said that BofA is right, unless of course, in this global race to the bottom, first the SNB “scraps” the CHF1000 bill, and then the Federal Reserve follows suit and listens to Harvard “scholar” and former Standard Chartered CEO Peter Sands who just last week said the US should ban the $100 note as it would “deter tax evasion, financial crime, terrorism and corruption.”

Well, not even 24 hours later, and another Harvard “scholar” and Fed chairman wannabe, Larry Summers, has just released an oped in the left-leaning Amazon Washington Post, titled “It’s time to kill the $100 bill” in which he makes it clear that the pursuit of paper money is only just starting. Not surprisingly, just like in Europe, the argument is that killing the Benjamins would somehow eradicate crime, saying that “a moratorium on printing new high denomination notes would make the world a better place.”

Yes, for central bankers, as all this modest proposal will do is make it that much easier to unleash NIRP, because recall that of the $1.4 trillion in total U.S. currency in circulation, $1.1 trillion is in the form of $100 bills.

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

Deranged Central Bankers Blowing Up the World

February 15, 2016

DERANGED CENTRAL BANKERS BLOWING UP THE WORLD

It is now self-evident to any sentient being (excludes CNBC shills, Wall Street shyster economists, and Keynesian loving politicians) the mountainous level of unpayable global debt is about to crash down like an avalanche upon hundreds of millions of willfully ignorant citizens who trusted their politician leaders and the central bankers who created the debt out of thin air. McKinsey produced a report last year showing the world had added $57 trillion of debt between 2008 and the 2nd quarter of 2014, with global debt to GDP reaching 286%.

The global economy has only deteriorated since mid-2014, with politicians and central bankers accelerating the issuance of debt. These deranged psychopaths have added in excess of $70 trillion of debt in the last eight years, a 50% increase. With $142 trillion of global debt enough to collapse the global economy in 2008, only a lunatic would implement a “solution” that increased global debt to $212 trillion over the next seven years thinking that would solve a problem created by too much debt.

The truth is, these central bankers and captured politicians knew this massive issuance of more unpayable debt wouldn’t solve anything. Their goal was to keep the global economy afloat so their banker owners and corporate masters would not have to accept the consequences of their criminal actions and could keep their pillaging of global wealth going unabated.

The issuance of debt and easy money policies of the Fed and their foreign central banker co-conspirators functioned to drive equity prices to all-time highs in 2015, but the debt issuance and money printing needs to increase exponentially in order keep stock markets rising. Once the QE spigot was shut off markets have flattened and are now falling hard. You can sense the desperation among the financial elite. The desperation is borne out by the frantic reckless measures taken by central bankers and politicians since 2008.

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

Repricing Reality

February 15, 2016

Repricing Reality

It ought to be a foregone conclusion that Mr. Obama’s replacement starting January 20, 2017 will preside over conditions of disorder in everyday life and economy never seen before. For the supposedly thinking class in America, the end of reality-optional politics will come as the surprise of their lives.

Where has that hypothetical thinking class been, by the way, the past eight years? Don’t look for it in what used to be called “the newspapers.” The New York Times has become so reality-averse that the editors traded in their blue pencils for Federal Reserve cheerleader pompoms after the Lehman incident of 2008. Every information-dispensing organ has followed their lede: The Recovery Continues! It’s a sturdy plank for promoting the impaired asset known as Hillary.

Don’t look for the thinking class in the universities. They’ve surrendered their traditional duties to a new hybrid persecution campaign that is equal parts Mao Zedong, the Witches of Loudon, and the Asylum at Charenton. For instance the President of Princeton, Mr. Eisgruber, was confronted with a list of demands that included 1) erasure of arch-segregationist Woodrow Wilson’s name from everything on campus, and 2) creation of a new all-black (i.e. segregated) student center. He didn’t blink. Note: nobody in the media asked him about this apparent contradiction. That’s how we roll these days.

Don’t look for the thinking class in business. The C-suites are jammed with people still busy buying back stock in their own companies at outlandish prices with borrowed money. Why? To artificially boost share price and thus their salaries and bonuses. Does it do anything for the fitness of enterprise? No, in fact it makes future failure more likely. Why is their no governance of their insane behavior?

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

The War On Paper Currency Begins: ECB Votes To “Scrap” 500 Euro Bill

February 15, 2016

The War On Paper Currency Begins: ECB Votes To “Scrap” 500 Euro Bill

Update: in case there was any doubt about the ECB’s true intentions, we just got the official “denial”:

DRAGHI: ANY ECB ACTION ON EU500 NOTE IS NOT ABOUT REDUCING CASH

Translation: the ECB action is only about reducing physical cash, some 30% of it to be specific.

* * *

The first shot in the global war on cash was just fired, by none other than the ECB, which moments ago Handelsblatt reported…

ECB wants to stop issuing 500 Euro bills – our exclusive https://t.co/LLe2qyhBjK

— Daniel Schäfer (@schaeferdaniel) February 15, 2016

… and Bloomberg confirmed – ECB COUNCIL VOTES TO SCRAP EU500 NOTE: HANDELSBLATT – has voted to scrap the second highest denominated European bank note in circulation:

… after the CHF 1000 note.

So what, big deal, eliminate it. The people will still have 5, 10, 20, 50, 100 and 200 euro bills right.

As we wrote just one week ago, the answer is not that simple at all. Recall that the €500 note is the second highest currency denomination in G10, after the CHF1,000 note. More importantly, the total value of €500 notes in circulation amounts to €306.8bn and has been rising as shown in this BofA chart:

Furthermore, as a share of the value of total euros in circulation, the €500 note is the second-highest, after the €50 note.

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

A Contagious Crisis Of Confidence In Corporate Credit

February 14, 2016

A Contagious Crisis Of Confidence In Corporate Credit

Credit is not innately good or bad. Simplistically, productive Credit is constructive, while non-productive Credit is inevitably problematic. This crucial distinction tends to be masked throughout the boom period. Worse yet, a prolonged boom in “productive” Credit – surely fueled by some type of underlying monetary disorder – can prove particularly hazardous (to finance and the real economy).

Fundamentally, Credit is unstable. It is self-reinforcing and prone to excess. Credit Bubbles foment destabilizing price distortions, economic maladjustment, wealth redistribution and financial and economic vulnerability. Only through “activist” government intervention and manipulation will protracted Bubbles reach the point of precarious systemic fragility. Government/central bank monetary issuance coupled with market manipulations and liquidity backstops negates the self-adjusting processes that would typically work to restrain Credit and other financial excess (and shorten the Credit cycle).

A multi-decade experiment in unfettered “money” and Credit has encompassed the world. Unique in history, the global financial “system” has operated with essentially no limitations to either the quantity or quality of Credit instruments issued. Over decades this has nurtured unprecedented Credit excess and attendant economic imbalances on a global scale. This historic experiment climaxed with a seven-year period of massive ($12 TN) global central bank “money” creation and market liquidity injections. It is central to my thesis that this experiment has failed and the unwind has commenced.

The U.S. repudiation of the gold standard in 1971 was a critical development. The seventies oil shocks, “stagflation” and the Latin American debt debacle were instrumental. Yet I view the Greenspan Fed’s reaction to the 1987 stock market crash as the defining genesis of today’s fateful global Credit Bubble.

The Fed’s explicit assurances of marketplace liquidity came at a critical juncture for the evolution to market-based finance.

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

Are You Ready for a Crack-Up Boom?

February 12, 2016

Are You Ready for a Crack-Up Boom?

Crack Up!

BALTIMORE – The Dow rose on Wednesday morning… after Janet Yellen made soothing remarks about a “gradual” return to normal interest rates. Then investors must have realized that returning to normal is not on the Fed’s agenda. The Dow finished the day down 99 points.

We haven’t seen normal central bank policy since the Nixon years. Normal is a currency backed by gold, not by PhD economists. Only briefly and episodically, over the last 2000 years, has the world flirted with pure paper or “fiat” money. Every time, the affair was over in a short time… and regretted for a long time.

1-Fate_of_Currencies The result of the usurpation of money by government

Under a gold standard, credit comes from savings. Thus limited, interest rates typically stand somewhere in the 3% to 6% range. They do not roll around on the barroom floor with the spilt beer, drunks, and sawdust.

Real credit comes from money that is saved… taken out of the consumer economy so that it can be used for emergencies and capital investments. When it is paid back – usually out of increased output – the world is a richer place.

But try to trick the economy with phony credit – money that was never earned and never saved – and you are just asking for trouble. Said Jörg Guido Hülsmann, a senior fellow at the Mises Institute:

“In no period of human history has paper money spontaneously emerged on the free market. In all known historical cases, paper money has come into existence through government-sponsored breach of contract and other violations of private property rights.”

Guido_Huelsmann2 Jörg-Guido Hülsmann – a staunch proponent of a free market in money (you can read his book “The Ethics of Money Production” for free here, pdf) Photo via mises.de

Giving out more money always gives the economy a temporary lift. People think they are richer.

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

Janet Yellen Admits Fed Is Evaluating Possibility Of Negative Rates

February 11, 2016

Janet Yellen Admits Fed Is Evaluating Possibility Of Negative Rates

One week before the BOJ shocked the world by adopting negative interest rates and unleashed the next leg lower in global risk assets, it warned everyone “please not to worry, all is under control”

Moments ago at least Yellen had the courtesy of “warning” market participants in general, and banks and savers in particular that legal, logistical or monetary concerns aside, the Fed is already evaluating the possibility of negative rates.

“We had previously considered them and decided that they would not work well to foster accommodation back in 2010. In light of the experience of European countries and others that have gone to negative rates, we’re taking a look at them again because we would want to be prepared in the event that we needed to add accommodation.“

As Bloomberg reported first earlier this week, a Fed staff memo posted on the central bank’s website last month showed Fed economists grappled with a number of issues related to implementation of negative rates at the time, including possible legal obstacles. Yellen said Thursday that negative rates might be legal, but the question remained open to further examination.

Among the other concerns were whether the Fed has the logistical capacity to implement NIRP:

… the Federal Reserve computer systems used to calculate and manage interest on reserves do not currently allow for the possibility of a negative IOER rate, although these systems could be modified over time if needed.

And a further concern about NIRP is the potential lack of physical cash:

DIs might opt to shift a significant quantity of their reserve balances into currency. Present Federal Reserve inventories of currency, at about $200 billion, would not be adequate to cover large-scale conversion of the nearly $1 trillion in reserve balances to banknotes.

This is what she added today:

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

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