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An Insane Financial World
An Insane Financial World
We know that most western governments are deficit spending, borrowing heavily, in debt beyond the point of no return and must increase taxes and appropriations from their citizens.
We know that politicians will take the politically expedient path instead of addressing financial problems. We know they will “extend and pretend,” delay, and distract the populace.
We know that war has been a nearly constant distraction since 9-11 and that a crisis is often used as a justification for economic insanity, such as borrowing more to address an excessive debt problem. It seems likely that weakening economies, deflationary forces, excessive debt, massive unemployment, riots, economic anxiety, consumer price inflation, and so much more, will require more distractions. We should “rig for stormy weather” and expect another crisis and more wars.
Bankers, politicians and military contractors will benefit. IN OUR INSANE WORLD WE MIGHT ASK:
- What happens to our financial system and the price of gold when western central banks are no longer willing or able to ship gold to Asia in exchange for fiat currencies held by Russia and China?
- What would happen if the Chinese government announced that it will buy gold at $2,000 per ounce to boost their stockpile? When gold is no longer available at $2,000 per ounce, might they offer $4,000 or $6,000?
- What would happen if the central banks of the world admitted that Quantitative Easing is primarily beneficial for banks and the wealthy, and that QE has been a failure at stimulating western economies?
…click on the above link to read the rest of the article…
Today’s CPI Lesson: The Fed’s 2% Inflation Target Is Completely Stupid
Today’s CPI Lesson: The Fed’s 2% Inflation Target Is Completely Stupid
The madness of the Fed’s pending 81 month run of zero interest rates comes down to an inflation subterfuge that has no logical or empirical grounding in real world economics. Essentially, the Keynesians who currently inhabit the Eccles Building have turned all of central banking’s anti-inflation history on its head, saying, instead, that there is not enough of it to create optimum economic growth and wealth; and, besides, the CPI is running below the 2% target—so prolonging the free money gravy train can’t do much harm.
Every part of that proposition is dead wrong. To wit, free money does immense harm by fueling rampant carry trade speculation; there is zero evidence that 2% inflation results in any more growth than 1% or even 0% inflation; and, as an empirical matter, there is plenty of inflation in the US economy and has been during the entire past 15 years of rampant money printing designed to stimulate more growth.
Still, real final sales in the US economy have grown at only a 1.8% rate since the year 2000, or by just half of the 3.5% rate recorded for the prior 46 years. But that downshift is not in any way attributable to inflation missing the allegedly optimum 2% target. In fact, during the last 15 years the CPI has increased at an average rate of exactly 2.18%.
So where’s the beef or rather the allegedly missing beef? Well, the monetary high priests hold that the PCE deflator, not the CPI, is the correct measure of inflation because it takes better account of changing consumer preferences or weighting shifts in the market basket of what people buy. That is, it captures their shifting to chicken, tuna or spam when they can’t afford steak.
…click on the above link to read the rest of the article…
David Stockman Interview——-Kick-The-Can Economics Is Entering The End Game
David Stockman Interview——-Kick-The-Can Economics Is Entering The End Game
Today David Stockman, the man President Ronald Reagan called upon along with Dr. Paul Craig Roberts to help save the United States from disaster in 1981, warned King World News that we are now entering the “terminal phase” of the global financial system that will end in total collapse.
Eric King: “David, I wanted to get your thoughts on gold in the midst of this big deflation you think is in front of us. When you look at the collapse of 2008 – 2009, gold was one of the best performing asset classes. Gold went down but it went down much less relative to virtually everything else. Contrast that to 1973 – 1974, where we had a 47 percent stock market collapse. But during that time we had skyrocketing gold and silver. What’s in front of us because it looks like gold and silver may be ending a 4 year bear market and ready for a 1973 – 1974-style up-move?”
David Stockman: “Yes. I think the two periods are quite different. Although at the bottom it’s central bank errors that underlie each. But remember that in the 1970s we had just finally exited a semi-stable Bretton Woods Gold Exchange Standard system. There still was, at the end of the day, an anchor on the central banks that was thrown overboard by Nixon in 1971….
Continue reading the David Stockman interview below…
“So the first go-round was a rip-roaring price inflation because there had not yet been enough time under the fiat money and balance sheet expansion by the central banks to create excess capacity in the world industrial system. So as the boom in demand took off, commodity prices soared. That fed into domestic costs and labor wages in particular.
…click on the above link to read the rest of the article…
The problem isn’t overproduction; it’s malinvestment
The problem isn’t overproduction; it’s malinvestment
Mr. Max Ehrendfreund, writing in the Washington Post’s Wonkblog, believes that he has discovered something new: that the world is producing too much and doesn’t know what to do with it. His solution, of course, is to confiscate the overproduced products, such as oil and cotton, from its rightful owners and give it to the people who need it. This phony problem and its statist solution goes back at least as far at the 1930’s socialist calls for “production for use” vs. the hated capitalist concept of “production for profit“.
Mr. Ehrenfreund commiserates that a “surplus…challenges some basic principles of conventional economics…”. Ah, now we see why Mr. Ehrenfreund has a problem; he understands only “conventional economics”. Austrians have no such problem understanding why many commodities are currently in surplus. Our understanding of Austrian business cycle theory tells us that years of interest rate suppression by monetary authorities worldwide has disrupted the time structure of production; i.e., that artificially low interest rates have led entrepreneurs and their business partners to believe that sufficient resources exist for the profitable completion of longer term projects, such as increasing investment in oil and cotton production. Austrians do not contend that there cannot be a surplus of some goods. Of course, there can! But we know that a surplus of some goods means that there is a scarcity of others. Resources were “malinvested” in some projects instead of those more urgently desired by the public.
…click on the above link to read the rest of the article…
Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.)
Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.)
The Wall Street Journal recently ran an article called, Glut of Capital and Labor Challenge Policy Makers: Global oversupply extends beyond commodities, elevating deflation risk. To me, this is a very serious issue, quite likely signaling that we are reaching what has been called Limits to Growth, a situation modeled in 1972 in a book by that name.
What happens is that economic growth eventually runs into limits. Many people have assumed that these limits would be marked by high prices and excessive demand for goods. In my view, the issue is precisely the opposite one: Limits to growth are instead marked by low prices and inadequate demand. Common workers can no longer afford to buy the goods and services that the economy produces, because of inadequate wage growth. The price of all commodities drops, because of lower demand by workers. Furthermore, investors can no longer find investments that provide an adequate return on capital, because prices for finished goods are pulled down by the low demand of workers with inadequate wages.
Evidence Regarding the Connection Between Energy Consumption and GDP Growth
We can see the close connection between world energy consumption and world GDP using historical data.
This chart gives a clue regarding what is wrong with the economy. The slope of the line implies that adding one percentage point of growth in energy usage tends to add less and less GDP growth over time, as I have shown in Figure 2. This means that if we want to have, for example, a constant 4% growth in world GDP for the period 1969 to 2013, we would need to gradually increase the rate of growth in energy consumption from about 1.8% = (4.0% – 2.2%) growth in energy consumption in 1969 to 2.8% = (4.0% – 1.2%) growth in energy consumption in 2013.
…click on the above link to read the rest of the article…
“Surviving Or Thriving” – What Canada’s 40% Surge In Meat Prices Means For Ordinary People
“Surviving Or Thriving” – What Canada’s 40% Surge In Meat Prices Means For Ordinary People
On the surface, Canada’s 1.2% inflation is negligible, and barely enough to keep up with the pace of overall growth as mandated by a few central bank academics. It is below the surface, however, that one finds the scary truth. Because when stripping away the sliding energy prices (which at the recent pace of short covering among oil speculators are about to surge) some scary numbers emerge, such as a 3.8% monthly jump in food prices, primarily as a result of a whopping 30-40% increase in select meat prices in the last 8 months.
How do ordinary people – which excludes those who work in central banks and have taxpayers fund their everyday purchases, which allows them to fully ignore soaring food and rent costs – survive in an environment of soaring food prices?
As the following brief documentary by CBC’s The National reveals, food inflation means people have no choice but to eat “far less beef” than they used to, “or chicken.” Others are ok with the runaway food inflation: “it doesn’t matter to me, I buy the meat at the price it is and that’s fine with me” say a gentleman who likely works for a hedge fund and BTFD for a living.
It is not just meat: prices of Canadian fruits and vegetables have also surged, driven almost entirely by the plunge and the loss of purchasing power of the Canadian dollar.
And, as a vendor of meat observes: “there doesn’t seem to be an end to it.”
So soaring food prices, flat wages, tumbling currency, and a generally deteriorating standard of living. In short: something Japan’s prime minister Abe would call a smashing success.
Full CBC documentary below:
…click on the above link to view the video…
Has The Fed Already Lost?
Has The Fed Already Lost?
Increasingly we live in a world of Now. Instantaneous access to digital real time data and news has simply become a given in our lives of the moment.
You may be surprised to know that the Federal Reserve has taken notice.
GDPNow
To the point, GDP data that routinely comes to us from the US Bureau of Economic Analysis (BEA) arrives after the fact. From the perspective of the financial markets and investors — who are always looking ahead and trying to discount the future — GDP data is “yesterday’s news.” Moreover, revisions to quarterly GDP can come to us three months after the original data release (with final revisions sometimes years later), essentially becoming an afterthought in terms of relevance to decision making.
Recently the Atlanta Federal Reserve has developed what they term a GDPNow model. This model essentially mimics the methodology used by the BEA to estimate real GDP growth. The GDPNow forecast is constructed by aggregating statistical model forecasts of the 13 subcomponents that comprise the BEA’s GDP calculation.
Private forecasters of GDP, such as the Blue Chip Consensus, use similar approaches to “forecast” GDP growth. These forecasts are usually updated monthly or quarterly, but many are not publicly available, and many do not specifically forecast the subcomponents of GDP that speak to the character of the top-line number.
The Atlanta Fed GDPNow model acts to circumvent these shortcomings. By replicating the key elements of the data used by the Bureau of Economic Analysis, the new Atlanta Fed GDPNow model forms a relatively precise estimate of what the BEA will announce for the previous quarter’s GDP prior to its official announcement. For now, the model is still young, but it’s beginning to be discovered more widely among the analytical community.
…click on the above link to read the rest of the article…
Santelli Stunned As Janet Yellen Admits “Cash Is Not A Store Of Value”
Santelli Stunned As Janet Yellen Admits “Cash Is Not A Store Of Value”
Intended warning or unintended slip? After Alan Greenspan’s confessional admission that
“Gold is a currency. It is still, by all evidence, a premier currency. No fiat currency, including the dollar, can match it,”
we found it remarkable that during the Q&A after her speech today that Janet Yellen, when asked about negative rates, admitted that
“cash in not a very convenient store of value,”
seemingly hinting at Bernanke’s helicopter and that there will be no deflation in The US ever…
Rick Santelli then sums it all up perfectly…
“deflation is clearly the boogeyman… and the only thing that will save the middle class.”
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Yellen: “cash is not a convenient store of value”
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So if cash is not a very convenient store of value… what is? Biotechs? As Rick Santelli explains… this is the scariest thing she has ever said…
Santelli: “deflation is the boogeyman… and the only thing that can save the middle class is lower prices”
…click on the above link to view videos…
Will Cash Always Be Trash, Or Will It One Day Be King?
Will Cash Always Be Trash, Or Will It One Day Be King?
When the phantom wealth evaporates and risk assets go bidless, cash will once again be king, for the simple reason there will be so little of it.
Occasionally it’s a good idea to step away from the daily grind to consider the larger issues we all face–for example, the future of the money we earn and the bits we invest in something we hope holds or increases its value.
At present, cash is trash: cash earns almost no yield, and in some countries it now earns a negative interest rate, meaning it costs you to park your cash in a bank.
Even cash equivalents such as one-year Treasury bonds pay almost nothing.
Those who avoided debt and risky assets since 2009 have seen their cash lose value when adjusted for inflation, while those who borrowed to the hilt and bought risk-on assets such as stocks, junk bonds and high-end housing have skimmed monumental gains for doing what the central banks incentivized: borrowing money and buying speculative risk-on assets.
Correspondent Kevin K. recently sent me a link to a home in the San Francisco Bay Area that was purchased around the crash era (2008-09) for $1.4 million, and sold last year for $2.1 million.
Assuming a conventional 20% down payment of $280,000, the savvy buyer borrowed $1.12 million at historically low rates and offloaded the house 6 years later for a cool $560,000 profit (assuming a 6% sales commission and closing costs).
…click on the above link to read the rest of the article…
BIS Slams The Fed: The Solution To Bubbles Is Not More Bubbles, It Is Avoiding Bubbles In The First Place
BIS Slams The Fed: The Solution To Bubbles Is Not More Bubbles, It Is Avoiding Bubbles In The First Place
On one hand there are hard-core Keynesians who will wave the flag of inflation as the only cure to a world drowning in debt, even after the mushroom cloud results of their policies going off around the globe “assure” GDP hits +? once every window in the world is shattered and has to be replaced…
… on the other, you have the BIS which with every passing day is becoming the citadel of Austrian thought, the latest example thanks to the BIS’ most recent quarterly review in which we read that not only is deflation not the “monster” the Bank of Japan and other Keynesian acolytes would like to make it appear…
The evidence from our long historical data set sheds new light on the costs of deflations.It raises questions about the prevailing view that goods and services price deflations, even if persistent, are always pernicious. It suggests that asset price deflations, and particularly house price deflations in the postwar era, have been more damaging. And it cautions against presuming that the interaction between debt and goods and services price deflation, as opposed to debt’s interaction with property price deflations, has played a significant role in past episodes of economic weakness.
… but more importantly and as Zero Hedge has said from day one, the BIS now says the solution to an asset bubble is not some incomprehensible jibberish of “macroprudential regulation” or a “bubble-busting” SWAT team at the Fed, not another asset bubble (especially not one which leads to house price deflation, the same that is slamming the Chinese economy at this moment), which by now has become clear to all is the only “tool” in a central banker’s aresnal, and the remedy to debt isnot even more debt.
…click on the above link to read the rest of the article…
Global Trade Grinds To A Crawl
Global Trade Grinds To A Crawl
At the start of this month, those who contend that depression-level readings on the Baltic Dry are no longer very meaningful because at this juncture, the index simply shows the extent to which the industry is oversupplied got a rude awakening when the CEO of the company (Maersk) that handles nearly a fifth of global seaborne freight decided to ruin everyone’s day by daring to suggest that in fact, global growth is rather abysmal and will likely continue to depress demand the world over. Worse, Skou went as far as saying that the days of 10% container growth for his industry are probably gone forever and yet despite it all, he’s buying more ships in what FT says is an effort to “help the company maintain its market leadership position,” which is of course just a nice way of saying that now many be a good time to eliminate the competition. As an aside, Skou also didn’t seem to share Richard Fisher’s assessment of the US as an “epicenter” of growth, saying America was “good but not great,” suggesting that as Rick Santelli told Fisher, it’s easy to score at the upper end of the range on a scale of 1-10 when a “1” basically equates to a deflationary death spiral and “10” just means something akin to not-collapsing.
…click on the above link to read the rest of the article…
Why Japan is Not Greece or EU For that Matter
Why Japan is Not Greece or EU For that Matter
QUESTION: Hello Martin
There are a few writers who speculate the the yen will be the first currency to fall (because Japan has been tied into QE and flat interest rates for decades already, and their manufacturing is suffering). How do you think the currency situation will play out for Japan?
thank you, best wishes
M
ANSWER: This is the classic example of people who keep touting fiat and money supply as if it was the beginning and end to everything. I have stated that ALL money is fiat even when a government fixes the price of gold for they are dictating its value. The floating exchange rate has its advantages. It is truly the check against government for money is simply the expression of confidence in the total productivity of a nation. It is not gold – it is the people.
Japan rose to the 2nd largest economy with a tiny island, no gold, and no resources. It did so proving Adam Smith was correct based upon the total productivity of its people. Inflation does not correlate to money supply. If it did, thenALL commodities would be higher today. Inflation is a matter of confidence and as long as people know someone else will freely accept whatever money might be at that moment, then they will accept it as well. Disturb that confidence and you get inflation all the way up the scale to hyperinflation, which also involves the collapse in confidence in banks and people spending everything as fast as they get it – the opposite of deflationary hoarding.
Interest Rates are also a reflection of INFLATION. You would never lend money with a rate of return BELOW the purchasing power of money at the time you expect a return. Therefore, rates have been flat in Japan because of the massive deflation that is also the hallmark of hoarding (savings).
…click on the above link to read the rest of the article…
India Central Bank Cuts Interest Rate “Pre-Emptively” For Second Time In 2 Months
India Central Bank Cuts Interest Rate “Pre-Emptively” For Second Time In 2 Months
In a surprise move, the RBI just cut its main interest rates for the second time in two months, taking it from 6.75% to 6.50%, in what the central bank calls a “pre-emptive” policy move, but what is in reality merely a confirmation that so far in 2015 at least 20 central banks have lowered their interest rate.
From the statement:
The RBI notes that the rupee has remained strong relative to peer countries. While an excessively strong rupee is undesirable, it too creates disinflationary impulses…
…softer readings on inflation are expected to come in through the first half of 2015-16 before firming up to below 6 per cent in the second half. The fiscal consolidation programme, while delayed, may compensate in quality, especially if state governments are cooperative. Given low capacity utilisation and still-weak indicators of production and credit off-take, it is appropriate for the Reserve Bank to be pre-emptive in its policy action to utilise available space for monetary accommodation.
Via Bloomberg:
- INDIA’S RBI CUTS RATE TO 7.5%
- INDIA CUTS REVERSE REPURCHASE RATE TO 6.50% FROM 6.75%
- RBI KEEPS CASH RESERVE RATIO OF SCHEDULED BANKS UNCHANGED AT 4%
- INDIAN RUPEE ONE-MONTH FORWARDS EXTEND GAIN AS RBI CUTS RATE
- RAJAN SAYS FURTHER MONETARY ACTION TO DEPEND ON INCOME DATA
- RBI: DISINFLATION EVOLVING AT FASTER RATE THAN ENVISAGED
…and more from Reuters:
…click on the above link to read the rest of the article…
Ex-Plunge Protection Team Whistleblower: “Governments Control Markets; There Is No Price Discovery Anymore”
Ex-Plunge Protection Team Whistleblower: “Governments Control Markets; There Is No Price Discovery Anymore”
One year after the great stock market crash in 1987, US President Ronald Reagan launched the “Working Group on Financial Markets.” Conspiracy theorists believe, however, that the real task of this committee is to protect against a renewed slump in the stock market. In the jargon of Wall Street, the working group is known as the “Plunge Protection Team.”
One glimpse at a few days suring 2007/8 and it is clear that ‘someone’ with infinitely deep pockets was able to support markets on several critical days – though, of course, anyone proclaiming intervention was propagandized away as a conspiracy theory wonk. However, as Dr. Pippa Malmgren – a former member of the U.S. President’s Working Group on Financial Markets – it is not conspiracy theory, it is conspiracy fact: “there’s no price discovery anymore by the market… governments impose prices on the market.”
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In this 38 minute interview Lars Schall, for Matterhorn Asset Management, speaks with Dr Pippa Malmgren, a US financial advisor and policy expert based in London. Dr Malmgren has been a member of the U.S. President’s Working Group on Financial Markets (a.k.a. the “Plunge Protection Team”). They address, inter alia:
- Malmgren’s recent book “Signals: the breakdown of the social contract and the rise of geopolitics”;
- the “inflation vs deflation” debate
- the closer ties between Russia and China
- the future of the Euro
- Germany’s gold reserves
- and the phenomenon of “financial repression”
- Moreover, Dr Malmgren explains what she foresees as the endgame of the financial crisis.
…click on the above link to read the rest of the article…
