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Full Commitment

This week provided additional confirmation that America is fully committed to a program of currency destruction. Decades of terminal intelligence have gotten us to this special place. We will have more on this in a moment. But first some words on being fully committed.

Say hello to the provider of bacon… lots of bacon, in this case. [PT]

We have never gutted a hog. But we hear it is a bloody mess. The volume of blood that gushes out – as in, ‘bleeding like a stuck pig’ – is profuse.

Contemplating a bacon and egg breakfast plate reveals two types of commitments. That of the chicken. And that of the pig. You may know this allegory. The chicken is involved in providing for the breakfast. It provides the eggs. But the pig is fully committed to it. For the pig must perish to provide the bacon.

America is presently bleeding like a stuck pig. Public and private debts are hemorrhaging a bloody mess. For example, the budget deficit for fiscal year 2020 which concluded on September 30 was $3.3 trillion. By this, the federal government spent double what it generated via tax receipts and other confiscatory measures. And the federal debt held by the public is now well over 100 percent of GDP.

The federal budget deficit, quarterly, as of Q2 2020. [PT]

There is no way the debt will be honestly paid. It is mathematically impossible. Nor will it be paid through an honest default. That is politically unacceptable.

The debt, however, will be paid dishonestly. It will be paid through dollar debasement. America is fully committed to this. Here’s why…

Words of Omission

Tuesday’s presidential debate has been called many things. Most descriptions have cast it in a negative light. Some political pundits used French to describe, in colorful terms, what type of show it was.

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

How to Tackle the Depression Head On

September 21, 2020

How to Tackle the Depression Head On

“I want to see people get money.” – Donald J. Trump, U.S. President, September 17, 2020

“Now is not the time to worry about shrinking the deficit or shrinking the Fed balance sheet.” – Steven Mnuchin, U.S. Secretary of the Treasury, September 14, 2020

Money for the People

The real viral contagion that has infected the American populace is not an illness of the body. It’s something far worse than COVID-19. The American populace is suffering from an illness of the mind.

The general malady, as we diagnose it, is the unwavering belief that the government has an endless supply of free money, and the expectation that everyone, except the stinking rich, has claim to it. Why pursue self-reliance and independence when a series of stimulus acts promises the more abundant life? This viral contagion’s really ripped through the population in 2020.

For example, just a year ago, the American populace thought they could all live off the forced philanthropy of their neighbors. That to pay Paul you had to first rob Peter. The CARES Act proved to Boobus americanus that, without a shadow of a doubt, there’s free ‘money for the people’ in Washington. Sí se puede!

This week the Congress did its part to further the greatest show on earth. The people want stimulus. Congress intends to get to them, in good time.

Of course, the need to sprinkle the Country with printing press money was already a foregone conclusion. There was no discussion of the wisdom of not having a stimulus bill. The debate at hand was centered on how much.

Crazy Nancy wants $3.4 trillion. Senate Republicans want $500 billion. Something called the House Problem Solvers Caucus wants $2 trillion.

President Trump wants Republicans to “go for the much higher numbers.” His rationale: “it all comes back to the USA anyway (one way or another!).”

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

In The Long Run We Are All Alive

August 29, 2020

In The Long Run We Are All Alive

In 1976, economist Herbert Stein, father of Ben Stein, the economics professor in Ferris Bueller’s Day Off, observed that U.S. government debt was on an unsustainable trajectory. He, thus, established Stein’s Law:

“If something cannot go on forever, it will stop.”

Stein may have been right in theory. Yet the unsustainable trend of U.S. government debt outlasted his life. Herbert Stein died in 1999, several decades before the crackup. Those reading this may not be so lucky.

Sometimes the end of the world comes and goes, while some of us are still here. We believe our present episode of debt, deficits, and state sponsored economic destruction, is one of these times.

We’ll have more on this in just a moment. But first, let’s peer back several hundred years. There we find context, edification, and instruction.

In 1696, William Whiston, a protégé of Isaac Newton, wrote a book. It had the grandiose title, “A New Theory of the Earth from its Original to the Consummation of all Things.” In it he proclaimed, among other things, that the global flood of Noah had been caused by a comet.

Mr. Whiston took his book very serious. The good people of London took it very serious too. Perhaps it was Whiston’s conviction. Or his great fear of comets. But, for whatever reason, it never occurred to Londoners that he was a Category 5 quack.

Like Neil Ferguson, and his mathematical biology cohorts at Imperial College, London, Whiston’s research filled a void. Much like today’s epidemiological models, the science was bunk. Nonetheless, the results supplied prophecies of the apocalypse to meet a growing demand.

It was just a matter of time before Whiston’s research would cause trouble…

Judgement Day

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

Central Planners At Work

August 25, 2020

Central Planners At Work

Consumption without Production

“Every man is a consumer, and ought to be a producer”, observed 19th century philosopher Ralph Waldo Emerson. “He is by constitution expensive, and needs to be rich.”

Ralph Waldo Emerson (May 25, 1803 – April 27, 1882), who inter alia opined on consumers and the need to not only consume, but also produce. The latter activity has recently become even more severely hampered than it already was. And yet, government is spending like a drunken sailor. [PT]

These days Emerson’s critical insight is being taken to its extreme. Consumers, many whom lost their jobs due to government lockdown orders, no longer produce. Yet they still consume. They are expensive. Not rich.

What’s more, this consumption is not funded through personal savings. Nor is it funded through government transfer payments. Rather, it is funded via the printing press.

Emerson, no doubt, was lacking in the unique perspective we are presently granted. He did not have the special opportunity to watch his government destroy the economy in short order. Perhaps if he had, he would have penned a neat axiom to distill the essence of what happened.

The world today looks nothing like Emerson’s day. The 19^th century was an age of honest money. Central bankers did not roam the land.

Printing money to buy bonds and stocks, and to sprinkle on people, would have been quickly dismissed. The experience of the Continental Congress during the American Revolution, and their over-issuance of paper “continentals”, had shown that resorting to the printing press was an act of suicide.

Promises, promises… “not worth a continental” became a saying after this early experience with paper money. [PT]

Currently, printing press money is considered enlightened central banking policy. Inflation targets, zero interest rate policy (ZIRP), direct bond purchases, twisting the yield curve, unlimited credit. This is merely a partial list of the trouble central bankers are up to.

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

What You Will Find When You Follow the Money

August 14, 2020

What You Will Find When You Follow the Money

It has been a rough go for California Governor Gavin Newsom. Late last week it was revealed that the state Department of Public Health had tickled the poodle on its COVID-19 record keeping. Somehow the bureaucrats in Sacramento undercounted new coronavirus cases by as many as 300,000.

Perhaps this oversight prompted Newsom to imbibe in a little meditation and reflection. At his Wednesday coronavirus news conference, shortly after quoting Voltaire, Newsom offered the following epiphany:

“Businesses can’t thrive in a world that’s failing.”

Often the simplest insights into reality are the most essential. We’ll give Newsom that. Yet, this is hardly an insight. Rather, it’s readily obvious…even to a numskull.

The world that’s failing, where businesses can’t thrive, is a direct consequence of government lockdown orders. And Newsom, more than any other public official, has his fingerprints all over the offense. If you recall, California, under Newsom’s command, was the first state to order lockdowns. It’s a shame he didn’t pause for meditation before committing the state to ruin.

The dynamics of what would follow Newsom’s lockdown orders were predictable. When government decrees froze the economy, bills were still due. Yet many people’s incomes, in the form of paychecks, disappeared.

For businesses, outstanding accounts payable were still due. Though accounts receivable quickly became overdue. In short, the flow of cash, as delivered by an open economy of give and take, broke down.

Certainly, Newsom thought he was doing the right thing. He had to keep everyone in the Golden State safe by locking them down. Many governors followed Newsom’s lead, having the same disastrous results.

But that was just the beginning. Soon the uplifters in Washington swung into action…

Printing Press Money

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

The Dollar Is Dying

August 10, 2020

The Dollar Is Dying

Insulting the Captive Audience

This week, while perusing the Federal Reserve’s balance sheet figures, we came across a rather curious note. We don’t know how long the Fed’s had this note posted to its website. But we can’t recall ever seeing it. The note reads as follows:

“The Federal Reserve’s balance sheet has expanded and contracted over time. During the 2007-08 financial crisis and subsequent recession, total assets increased significantly from $870 billion in August 2007 to $4.5 trillion in early 2015. Then, reflecting the FOMC’s balance sheet normalization program that took place between October 2017 and August 2019, total assets declined to under $3.8 trillion. Beginning in September 2019, total assets started to increase.”

Directly below this note is the following chart:

Total assets of the Federal Reserve since 2008 – never-ending expansion (shaded areas indicate recessions) [PT]

Does this look like a balance sheet that expands and contracts over time?

Quite frankly, the Fed’s balance sheet chart, and the extreme dollar debasement that it illustrates, is a disgrace. The fact that the Fed had to add this flagrantly false note as preface to its disgraceful chart is an insult.

This is a direct offense to anyone who has built a modest savings account by exchanging their time for dollars. The time and effort put to obtaining these dollars is being stolen by the insidious process of central bank engineered money supply inflation. Year in and year out, these earned dollars will be worth less and less.

Moreover, normalization is a Fed lie. It never happened. Yes, $700 billion was contracted from the Fed’s Balance sheet between October 2017 and August 2019. But that was in the wake of a $3.5 trillion expansion. And it was quickly followed by another $3 trillion balance sheet expansion this spring.

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

Best Laid Schemes

July 27, 2020

Best Laid Schemes

A Really Neat Bridge

But, Mousie, thou art no thy-lane,
In proving foresight may be vain;
The best-laid schemes o’ mice an’ men
Gang aft agley,
An’ lea’e us nought but grief an’ pain,
For promis’d joy!
– Robert Burns, To a Mouse, on Turning Her Up in Her Nest With the Plough (in extract), 1785

Installation of the final cable support pipes on the Gerald Desmond bridge replacement. Here is a drone video of the project. [PT]

Photo by Scott Varley

The grand plans of our local officials in Long Beach have been foiled by the corona-virus bug. After seven years of construction, at a cost of $1.5 billion, they can’t even hold a proper ribbon-cutting.

The special occasion is the grand opening of the new, yet to be named, Gerald Desmond Bridge replacement. To prevent the spread of COVID-19, a virtual ceremony is planned for the Friday leading into the Labor Day weekend.

Virtual ceremonies, like professional baseball games with recorded fan noises, are Dumb with a capital D. But, perhaps, this is the fitting grand opening of an edifice that was planned and constructed for a world that may never arrive.

Certainly, the new bridge structure, which has the highest vertical clearance of any cable-stayed bridge in the US, is a remarkable engineering achievement. The cable-stayed design also has a signature aesthetic. We have watched it go up over the years; it really is extraordinary.

The two towers rise up to roughly 515 feet above mean sea level, and include 40 cables per tower. The bridge’s linear extent is approximately 8,800 feet. The cable-stayed span alone is 2,000 feet.

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

Game Over Spending

July 10, 2020

Game Over Spending

Second quarter 2020 came and went like a California wildfire. The economic devastation caused by the government lockdowns was swift, the destruction immense, and the damage lasting. But, nonetheless, in Q2, the major U.S. stock market indices rallied at a record pace.

The Dow booked its best quarter in 33 years. The S&P 500 posted its best performance since 1998. And the NASDAQ had its biggest increase since 1999…jumping 38.85 percent in just three months.

The economy, on the other hand, was severely scorched. Decades of debt had built up like dead wood amongst a forest understory. Then, at the worst possible time, government lockdown orders sparked a match and set it ablaze.

The results were predictable to everyone but the experts. Supply chain disruptions followed by retail disruptions, followed by declining sales, followed by disappearing cash flow, followed by layoffs, followed by business closures, followed by shrinking tax receipts, followed by unserviceable public and private debt, followed by mass bankruptcies, followed by riots, followed by full societal breakdown. The economic wildfire raged through so fast most people don’t comprehend what has happened.

The interim solutions from Washington, in concert with the Federal Reserve, have been to add more fuel. That is, the solutions have centered around mega efforts to paper over the economic depression with massive amounts of fake money.

Money Printer Go BRRR

Mass corporate bailouts were just the beginning. Payroll Protection Program (PPP) loans were made to over 650,000 small businesses, including presidential candidate Kanye West’s clothing brand, Yeezy, and Grover Norquist’s anti-tax group, Americans for Tax Reform.

On top of that, the Fed began creating money from thin air for the purpose of buying individual corporate bonds. As of June 28, the Fed’s bought $428 million worth of corporate bonds in 86 different companies. These companies include Berkshire Hathaway Energy, McDonald’s, Southwest Airlines, CVS, AT&T, Boeing, Coca-Cola, Exxon Mobil, Ford, Walmart, United Health Group, Philip Morris International, and many, many more.

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

Pandemic, Economic Collapse, Full Societal Breakdown

June 6, 2020

Pandemic, Economic Collapse, Full Societal Breakdown

“And the will of Zeus was moving towards its end.” – Homer

Symbiotic Disharmony

The recline and flail of western civilization beats on. Pandemic, economic collapse, full societal breakdown. The sequence grooves from one to the next with the symbiotic disharmony of a minor pentatonic scale.

Peaceful protests devolved to rioting, looting, and structure fires in our own lowly hamlet last Sunday. The Long Beach police couldn’t stop the vandals. So the National Guard was summoned to quell the ransacking. Some Guardsmen even stuck around to help out with the cleanup effort the following day.

The refrain – pandemic, economic collapse, full societal breakdown – has been repeated in many cities across the country. For each: The time is now. The place is here.

The progression from government pandemic lockdown orders to government curfew orders has been as natural as day to night and back again. The difference between the two is subtle; like the difference between ketchup and catsup. The main variance is the local authorities, in what must be an act of public service, now spam our mobile phone each afternoon with warnings to not venture out past curfew.

The events of the last weeks and months have been well covered. We’ll leave the ongoing documentation tasks to those better qualified. Instead, we’ll take a step back and look around. Our aim today is to better understand what’s going on…so we may better anticipate – and plan for – what’s next.

Where to begin?

Human Stampedes

The mass impulse of a cattle stampede can be triggered by something as innocuous as a blowing tumbleweed. A sudden startle, or a perceived threat, is all it takes to setoff this mass uncontrolled running. Once the herd collectively begins charging in one direction it’ll eliminate everything in its path.

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

Destruction By Definition

March 6, 2020

Destruction By Definition

Major U.S. stock market indexes yo-yoed about all week. On Monday, panic selling from last week turned to panic buying. Decades of Fed intervention have conditioned stock market investors to step in front of semi-trucks to scoop up nickels.

The Dow Jones Industrial Average (DJIA) jumped 1,290 points. This marked its biggest-ever single day gain in terms of points. Can the economic destruction wrought by coronavirus containment really be overcome with what former New York Fed President, Benjamin Strong, once called stock market “coup de whiskey?” We doubt it.

But we are fairly confident Fed stimulus will have the offensive consequence of widening the gap between sky high asset prices and weak economic fundamentals. Fed Chairman Powell certainly understands this. Nonetheless, on Tuesday, he went forward with the dirty deed.

After an early morning teleconference with various G7 poohbahs, Powell cut the federal funds rate by 50 basis points. This took the Fed’s target range to between 1 and 1.25 percent. As far as we can tell, Powell’s dirty deed achieved the exact opposite of its intent.

U.S. stock market indexes didn’t go up. Rather, they went down. In fact, they went down a lot. The DJIA, for example, gave back 785 points. Here’s why…

The Fed’s rate cut was an act of fear. Investors smelled it out and circled like a pack of wild hyenas. Powell may be able to expand the supply of money and credit. But he can’t make up for the economic destruction of a global economy that’s grinding to a halt to stem the spread of coronavirus. Cutting rates 50 basis points won’t cut it.

“This Sucker’s Going Down”

Bull markets, like myths and legends, die hard in America. By Wednesday, the bulls were back at it…bidding up share prices like 17th century tulip bulbs. The DJIA, baited by promises for fiscal stimulus, jumped 1,173 points – back above 27,000.

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

The Triumph of Madness

February 9, 2020

The Triumph of Madness

Viewing the past through the lens of history is unfair to the participants. Missteps are too obvious. Failures are too abundant. Vanities are too absurd. The benefit of hindsight often renders the participants mere imbeciles on parade.

Was George Armstrong Custer really just an arrogant Lieutenant Colonel who led his men to massacre at Little Bighorn? Maybe. Especially when Sitting Bull, Crazy Horse, and numbers estimated to be over ten times his cavalry appeared across the river.

Were George Donner and his brother Jacob naïve fools when they led their traveling party into the Sierra Nevada in late fall? Perhaps. Particularly when they resorted to munching on each other to survive the relentless blizzard.

Certainly, Custer and the Donner brothers were doing the best they could with the information available to them. The decisions they made must have seemed reasoned and calculated at the time. But what they couldn’t see – until it was too late to turn back – was that with each decision, they unwittingly took another step closer to their ultimate demise.

Still they were human just like we are human…no smarter, no dumber. We’re not here to ridicule them; but rather, to learn from them.

A Good Man in a Bad Trade

Rudolf von Havenstein had been president of the Reichsbank – the German central bank – since 1908. He knew the workings of central bank debt issuances better than anyone. He was good at it.

Thus, when he was called upon by history to deliver a miracle for the Deutches Reich in the aftermath of WWI, he knew exactly what to do. He’d deliver monetary stimulus. In fact, he’d already been at it for several years.

On August 4, 1914, at the start of the war, the Goldmark – or gold-backed Reichmark – became the unbacked Papermark. With gold out of the picture, the money supply could be expanded to meet the endless demands of war.

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

How Xi Jinping will Save the World from Coronavirus

February 2, 2020

How Xi Jinping will Save the World from Coronavirus

In 1349, when Black Death was ravaging Europe, many of the day’s best and brightest banded together in pursuit of a common cure. They had little choice. Black Death was rapidly spreading across the continent. Nothing could stop it.

Boils were lanced with precision. Blood was let with vigor. But there was no escape from the plague’s instant death. It was efficient. It was relentless. People would go to bed at night perfectly healthy; by morning, they’d wake up perfectly dead.

Then, at the exact moment of maximum death and despair, flagellants came to the rescue. Processions marched to and fro, seeking relief through forcefully whipping themselves in public displays of self-mutilation. According to the History Channel:

“Some upper-class men joined processions of flagellants that traveled from town to town and engaged in public displays of penance and punishment: They would beat themselves and one another with heavy leather straps studded with sharp pieces of metal while the townspeople looked on.

“For 33 1/2 days, the flagellants repeated this ritual three times a day. Then they would move on to the next town and begin the process over again.”

This may seem strange, weird, and, quite frankly, a bit nuts. But something miraculous happened. The Black Death epidemic soon exhausted itself. The flagellants saved Europe from the mid-14th century onslaught of Black Death.

Or did they?

Probably Nothing, Possibly Everything

To be clear, flagellants had no influence on the eventual relenting of Black Death. Remember, correlation does not imply causation. Post hoc ergo propter hoc – “after this, therefore because of this” – or simply the post hoc fallacy, recognizes that just because one event happened to follow another, doesn’t mean the initial event caused the later event to occur.

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

The Impulses of Lunar Fed Policy Under Repo Madness

January 26, 2020

The Impulses of Lunar Fed Policy Under Repo Madness

This week, while you were busy working, Jamie Dimon, CEO of JP Morgan Chase, took time out from rubbing elbows with fellow movers and shakers at the World Economic Forum in Davos, Switzerland, to share his trepidations:

“The only thing I have trepidation about is negative interest rates, QE, and the diversion between stock prices and bond prices and yield and stuff like that…. I think it’s very hard for central banks to forever make up for bad policy elsewhere, that puts them in a trap. We’re a little bit in that trap today with rates so low around the world.”

Fair enough. Though Dimon, in what we presume was an inadvertent omission, failed to share that his firm may have recently walked the Federal Reserve into an elaborate policy trap. Now the Fed’s stuck. JP Morgan’s thrown away the keys. And Dimon’s reaped a significant windfall.

If you recall, between Monday night and Tuesday morning September 16/17 the overnight repurchase agreement (repo) rate hit 10 percent. Short-term liquidity markets essentially broke. The Fed had to intervene in the repo market, via overnight repo operations, to push the repo rate back below 2 percent.

Since then, overnight repo operations by the Fed have become a near daily occurrence. What’s more, these daily operations have ballooned to the order of up to $120 billion and are being maintained indefinitely.

On Tuesday, for example, the Fed created $90.8 billion out of thin air. Of this, $58.6 billion was added to the overnight repo. The remaining $32.2 billion was added to the 14-day repo. Then, on Thursday, the Fed created another $74.2 billion out of thin air. Of this, $44.15 billion was added to the overnight repo, and the remaining $30 billion was added to the 14-day repo.

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

Every Bubble Eventually Finds its Pin

December 6, 2019

Every Bubble Eventually Finds its Pin

The transfer of wealth from workers and savers to governments and big banks continued this week with Swiss-like precision. The process is both mechanical and subtle. Here in the USA the automated elegance of this ongoing operation receives little attention.

NFL football. EBT card acceptance at Del Taco. Adam Schiff’s impeachment extravaganza. You name it. Bread and circuses like these – and many others – offer the American populace countless opportunities for chasing the wild goose.

All the while, and with little fanfare, debts pile up like deadwood in Sequoia National Forest. These debts, both public and private, stand little chance of ever being honestly repaid. According to the IMF, global debt – both public and private – has reached an all-time high of $188 trillion. That comes to about 230 percent of world output.

Certainly, some of the private debt will be defaulted on during the next credit crisis and depression. But when it comes to the public debt, governments do everything they can to prevent an outright default. Central banks crank up the printing press and attempt to inflate it away.

After Nixon temporarily suspended the Bretton Woods Agreement in 1971, the money supply could be expanded without technical limitations. This includes issuing new debt to pay for government spending above and beyond tax receipts. Hence, since 1971, government directed money supply inflation has been the standard operating procedure in the U.S. and much of the world.

Downright Disgraceful

Expanding the money supply has the effect of dissipating wealth from the currency. The process allows governments, which are first in line to spend this newly created money, a back door into your bank account. Without levying taxes, they get access to your wealth and future earnings and leave you with money of diminished value.

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

The Fed’s Answer to the Ghastly Monster of its Creation

November 30, 2019

The Fed’s Answer to the Ghastly Monster of its Creation

The launch angle of the U.S. stock market over the past decade has been steep and relentless. The S&P 500, after bottoming out at 666 on March 6, 2009, has rocketed up over 370 percent. New highs continue to be reached practically every day.

Over this stretch, many investors have been conditioned to believe the stock market only goes up. That blindly pumping money into an S&P 500 ETF is the key to investment riches. In good time, this conditioning will be recalibrated with a rude awakening. You can count on it.

In the interim, the bull market may continue a bit longer…or it may not. But, to be clear, after a 370 percent run-up, buying the S&P 500 represents a speculation on price. A gamble that the launch angle furthers its steep trajectory. Here’s why…

Over the past decade, the U.S. economy, as measured by nominal gross domestic product (GDP), has increased about 50 percent. This plots a GDP launch angle that is underwhelming when compared to the S&P 500. Corporate earnings have fallen far short of share prices.

Hence, the bull market in stocks is not a function of a booming economy. Rather, it’s a function of Fed madness. And its existence becomes ever more perilous with each passing day.

Central planners at the Fed – like other major central banks – have taken monetary policy to a state of madness. Zero interest rate policy, negative interest rate policy, quantitative easing, operation twist, quantitative tightening, reserve management, repo market intervention, not-QE, mass-asset purchases, and more.

These schemes have fostered massive growth in public and private debt with nothing but lackluster economic growth to show. What’s more, these schemes have produced massive asset bubbles that have skyrocketed wealth inequality and inflamed countless variants of new populism.

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

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