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World’s Most Important Bank Issues Urgent “Zombie Alert”

October 4, 2018

World’s Most Important Bank Issues Urgent “Zombie Alert”

It’s been a decade since the world’s major central banks reacted to the financial crisis by cheapening the value of money through record low, zero or negative rates.

What my research for my book Collusion: How Central Bankers Rigged the World revealed was how central bankers and massive financial institutions have worked together to manipulate global markets for the past decade.

Major central banks gave themselves a blank check with which to resurrect problematic banks; purchase government, mortgage and corporate bonds; and in some cases — as in Japan and Switzerland — buy stocks, too.

They have not had to explain to the public where those funds were going or why. Instead, their policies have inflated asset bubbles while coddling private banks and corporations under the guise of helping the real economy.

The zero interest rate and bond-buying central bank policies prevailing in the U.S., Europe and Japan have been part of a coordinated effort that has plastered over potential financial instability in the largest countries and in private banks.

It has, in turn, created asset bubbles that could explode into an even greater crisis the next time around.

So today we stand near — how near we don’t yet know — the edge of a dangerous financial precipice. The risks posed by the largest institutions still exist, only now they’re even bigger than they were in 2007–08 and operating in an arena of even more debt.

Now the Bank for International Settlements (BIS), or the “central bank of central banks,” is sounding a new alarm on this policy.

In its recent quarterly report, the BIS warned that low rates have catalyzed an increase in the number of “zombie” firms. The number of such firms has now risen to an all-time high.

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

10 Years Later, a Debt Crisis Is Building Again

September 24, 2018

10 Years Later, a Debt Crisis Is Building Again

Though it seems like only yesterday, it’s been a decade since my former employer, Lehman Brothers went bankrupt, and in the process, helped instigate a massive global financial crisis.

That collapse catapulted the Federal Reserve on a mission to, in its own narrative, save the economy from further collapse. In fact, its creation of $4.5 trillion to purchase U.S. treasury and mortgage related bonds from the big private banks in exchange for continued liquidity was the biggest subsidy in U.S. history.

In some ways, we seem much better off now. Employment is at record highs in most developed nations outside the Eurozone. Global economic growth has picked up overall and stock markets have recovered.

Indeed, many stock markets around the world have regained or passed their former record highs. Asset prices are booming.

But that only tells half the story. That’s because the last financial crisis was about debt and debt levels have increased substantially since 2008. The entire “recovery” was built on debt.

From 179% before the financial crisis, the global debt-to-GDP ratio has jumped to 217% today. Companies and governments have piled on more debt than before. Emerging-market debt, led by China, is also at a record. The big banks are even bigger, and remain “too big to fail.”

Eliminating all that debt is the ultimate solution for avoiding another crisis. That’s because if interest rates drift higher, it can lead to problems in debt repayment, followed by defaults, followed by crisis as defaults spread like a contagion. But there’s no magic bullet for doing that.

First, you should know that no two crises are exactly the same. The last one was met with huge debt on the back of the Fed’s quantitative easing policy. Central bank credit, or what I call dark money, tended to go to the wealthy and into financial assets.

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

Tomgram: Nomi Prins, Cooking the Books in the Trump Universe

September 21, 2018

Tomgram: Nomi Prins, Cooking the Books in the Trump Universe

There’s a clear pattern to Donald Trump’s life. Put simply: he gets away with it. Yes, sometimes (but not usually) he has to pay a penalty, but generally he has a knack for leaving others holding the bag. He’s stiffed untold numbers of people (plumbers, painters, cabinet-makers, waiters, lawyers, bartenders) whom he hired to do something — almost anything — for him; he stiffed undocumented immigrants who worked for him; he stiffed the students of Trump University (until they got a $25 million settlement); he stiffed American workers at his Mar-a-Lago and other private clubs, hiring cheaper foreign guest workers instead; and above all, the most successful businessman of all time (by his own account) took down five casinos in Atlantic City as his business empire of that moment crashed and burned — and somehow he came away with the money, leaving his investors holding the bag and his casino workers losing millions of dollars in retirement savings. As the New York Times put it, “[E]ven as his companies did poorly, Mr. Trump did well. He put up little of his own money, shifted personal debts to the casinos and collected millions of dollars in salary, bonuses, and other payments. The burden of his failures fell on investors and others who had bet on his business acumen.”

In other words, there’s a record of “success” that Donald Trump brought to the presidency. The only real question is: When things begin to go badly for this country, who will he stiff this time? It’s not unreasonable to assume that, as with so many previous crews enamored of The Donald, he’s taking this country and his base, in particular, for the ride of their lives and when this particular roller coaster goes down, who will go down with it?

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

Everything is AwesomeThe Donald in Wonderland: Down the Financial Rabbit Hole With Trump

September 19, 2018

The Donald in Wonderland: Down the Financial Rabbit Hole With Trump

Once upon a time, there was a little-known energy company called Enron. In its 16-year life, it went from being dubbed America’s most innovative company by Fortune Magazine to being the poster child of American corporate deceit. Using a classic recipe for book-cooking, Enron ended up in bankruptcy with jail time for those involved. Its shareholders lost $74 billion in the four years leading up to its bankruptcy in 2001.

A decade ago, the flameout of my former employer, Lehman Brothers, the global financial firm, proved far more devastating, contributing as it did to a series of events that ignited a global financial meltdown. Americans lost an estimated $12.8 trillion in the havoc.

Despite the differing scales of those disasters, there was a common thread: both companies used financial tricks to make themselves appear so much healthier than they actually were. They both faked the numbers, thanks to off-the-books or offshore mechanisms and eluded investigations… until they collapsed.

Now, here’s a question for you as we head for the November midterm elections, sure to be seen as a referendum on the president: Could Donald Trump be a one-man version of either Enron or Lehman Brothers, someone who cooked “the books” until, well, he imploded?

Since we’ve never seen his tax returns, right now we really don’t know. What we do know is that he’s been dodging bullets ever since the Justice Department accused him of violating the Fair Housing Act in his operation of 39 buildings in New York City in 1973. Unlike famed 1920s mob boss Al Capone, he may never get done in by something as simple as tax evasion, but time will tell.

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

The Fed Will Not Give up “Dark Money”

August 25, 2018

The Fed Will Not Give up “Dark Money”

When it comes to second quarter U.S. economic growth figures, interpretation is everything.

On one hand, the projection of 4.1% second quarter growth is a sign of a surging economy set to grow for years to come.

But on the other hand, it is seen as temporary sugar rush created by tax cuts and debt. It’s unsustainable in the light of higher tariffs, an escalating trade war that could impact large portions of the economy, and rising federal deficits that put America even deeper in debt.

Another data point to determine which of these two camps is most accurate for predicting the future of the U.S. economy is job’s figures. July’s jobs report came in with fewer than expected jobs, a gain of 157,000 jobs vs. a forecast of 190,000.

While that miss in itself may not mean much, since the overall jobless rate dropped to 3.9%, the fact that wages are growing slowly remains a concern.

Also concerning is the record amount of household debt. Consumers are using it to spend and that is partially responsible for that 4.1% GDP growth, as I noted on Fox Business recently. But it’s not sustainable.

Add it all up and there’s considerable reason to believe that the 4.1% growth rate is only temporary.

It will not represent the full GDP growth figure over all of 2018, nor will it be the growth figure in 2019 or 2020. Even the Fed admits growth will slacken over the next couple of years.

I don’t often agree with the Fed. But on this point, I agree with the Fed’s forecast for slower growth to come. That outlook presents options for the Fed to create more credit, or what I call dark money to support the markets, to confront inevitable periods of volatility ahead.

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

You Should Fear the Emerging Market Debt Bubble

August 18, 2018

You Should Fear the Emerging Market Debt Bubble

Global debt has ballooned since the financial crisis as central banks have distorted markets and fueled debt bubbles in particular.

A lot of the increase in global debt has come from emerging market (EM) economies, especially China. In fact, a record amount of EM debt has accumulated during the past decade, mostly in dollars. A large portion of that debt is therefore denominated in U.S. dollars.

That’s why I’ve long argued that the first shoe to drop in the next crisis would likely be EM debt.

Borrowing is not a problem when dollars are cheap. Low interest rates mean the cost of servicing that debt is low.

The problem starts when the Fed raises rates or the dollar strengthens, even temporarily. The more the dollar rises, the more EM currencies and related markets fall. Dollar-denominated debt then becomes too expensive to repay or service as the dollar rises relative to EM currencies. Before long default becomes the only viable option.

This situation becomes more dangerous than even asset bubbles because debt is required to be repaid on a set schedule. If a country misses a debt payment, it could set off a chain reaction of defaults.

That’s why an EM crisis could quickly become a global crisis. In today’s world of financial globalization, any remote crisis can become an international problem in seconds. That’s the reality of today’s markets. Obviously, it could also have major ramifications for your own finances and investments.

How did we get here?

Because of the Fed’s rate hike cycle and quantitative tightening (QT) stance, the dollar has become much stronger. The dollar has risen 6.8% since late January alone. And that’s put emerging markets under considerable pressure.

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

Trump’s Trade Tantrum: On Tipping Points and Authoritarian Peril

June 29, 2018

Trump’s Trade Tantrum: On Tipping Points and Authoritarian Peril

Photo by Graham C99 | CC BY 2.0

The Tangerine Tosser’s triple trade tiff – with China, the European Union, and the United States’ NAFTA partners (Canada and Mexico) – has the potential to spark an American and global economic meltdown. Classic signs of a coming collapse have been evident for some time: wage stagnation for the many alongside skyrocketing wealth for the ever more absurdly opulent few (three of whom now possessbetween them the same net worth as the poorest half of the U.S. populace); colossal accumulated corporate, government, student loan, and credit card debt; rampant surplus and “fictitious” capital devoted to speculative rather than productive investment; capitalist profits far beyond real economic growth; wildly unsustainable stock market values (artificially buoyed by debt and corporate buybacks); the deregulation of financial markets and institutions.

As the astute Goldman Sachs veteran and financial commentator Nomi Prins noted last January, “There will be a tipping point – when money coming in to furnish that debt, or available to borrow, simply won’t cover the interest payments. Then debt bubbles will pop, beginning with higher yielding bonds. Leverage is a patient enemy.”

The next financial “correction” could cut deeper than the last one, “the Great Recession.” That’s because, as Prins argues in her latest book Collusion: How Central Bankers Rigged the World, “there is no Plan B” this time. Interest rates can’t fall any further.

Collusionwas written before Trump started making good on his protectionist promises, which could tighten the noose. The more immediate economic blowbacks are clear: the withering of foreign markets for U.S. agricultural exports (thanks to retaliatory foreign tariffs); rising prices (thanks to U.S. tariffs) for capital goods and intermediate inputs that U.S. producers purchase from foreign countries (China especially); the loss of U.S. jobs as corporations that make goods in the U.S. seek to circumvent retaliatory tariffs abroad by shifting production to foreign countries (Harley Davidson recently announced that it has decided to do precisely that).

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

What’s the End Game?

June 22, 2018

What’s the End Game?

In the rush of Trumped-up events, history — of the last month, week, hour — repeatedly gets plowed (or tweeted) under. Who can remember what happened so long ago? Perhaps it’s not surprising then that, in the wave of abuse from the president and his men (including economic adviser Larry Kudlow and trade hardliner Peter Navarro) against Canada and its prime minister, Justin Trudeau, one of the president’s earliest insults has already been washed down the memory hole into oblivion.

In a phone conversation with Trudeau on May 25th (not even a month ago, but it might as well have been the Neolithic Age), CNN reported Trump quipping: “Didn’t you guys burn down the White House?” The reference was to an event a while back — August 1814, to be exact, more than half a century before Canada existed, but who’s counting. In the war of 1812, the British did indeed burn down the White House; that was, by the way, the war in which U.S. troops invaded what would someday become Canada, a detail of little significance (and, in any case, probably the fault of the Democrats).

As so often happens these days, the president had brought up a perfectly appropriate subject, arson, even if he applied it to the wrong cast of characters. Before that May phone conversation, he had promised to exempt Canada from the steel and aluminum tariffs he was then thinking about imposing elsewhere. However, six days later, on May 31st, he suddenly imposed those very tariffs on Canada, as well as Mexico and the European Union. As is often the case with our president — you know, that guy with the yellowish-orange comb-over — the subject of burning something down, whether in Washington or elsewhere, isn’t far from his mind.

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

Nomi Prins: The central banking heist has put the world at risk

June 16, 2018

Nomi Prins: The central banking heist has put the world at risk

“The 2008 financial crisis was the consequence of a loosely regulated banking system in which power was concentrated in the hands of too limited a cast of speculators,” Nomi Prins tell me. “And after the crisis, the way the US government and the Federal Reserve dealt with this corrupt and criminal banking system was to give them a subsidy.”

Such strong, withering analysis is, perhaps, unexpected from someone who has held senior roles at Wall Street finance houses such as Bear Stearns and Goldman Sachs. But Prins is no ordinary former banker.

Prins has chronicled the closed and often confusing world of high finance through the 2008 crisis and beyond

The US author and journalist left the financial services industry in 2001. She did so, in her own words, “partly because life was too short”, and “partly out of disgust at how citizens everywhere had become collateral damage, and later hostages, to the banking system”.

Since then, Prins has chronicled the closed and often confusing world of high finance through the 2008 crisis and beyond. Her writing combines deep insider knowledge with on-the-ground reporting with sharp, searing prose. Alongside countless articles for New York Times, Forbes and Fortune, she has produced six books – including Collusion: how central bankers rigged the world, which has just been published.

Her main target in the new work is “quantitative easing” – described by Prins as “a conjuring trick” in which “a central bank manufactures electronic money, then injects it into private banks and financial markets”. Over the last decade, she tells me when we meet in London, “under the guise of QE, central bankers have massively overstepped their traditional mandates, directing the flow of epic sums of fabricated money, without any checks or balances, towards the private banking sector”.

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

Nomi Prins: Central Bank-Inspired “Major Credit Squeeze” Will Trigger Next Crisis

June 9, 2018

Nomi Prins: Central Bank-Inspired “Major Credit Squeeze” Will Trigger Next Crisis

For all the talk about tapering (in both the US and Europe), the Federal Reserve has actually done remarkably little to reduce its balance sheet. And in an interview with Macrovoices Erik Townsend, former Wall Street executive Nomi Prins expands upon some of the same themes she covered in her latest book, “Collu$ion: How Central Bankers Rigged the World”.

As Prins reminds us early on, the Fed and other central banks have expanded their balance sheets by more than $20 trillion, and despite all the chatter about withdrawing stimulus and letting its balance sheet roll off, the Fed’s balance sheet has only shrunk from $4.5 trillion to $4.3 trillion.

Central bankers, Prins argues, like to pat themselves on the back for avoiding what many feared would be runaway inflation resulting from low interest rates and quantitative easing. But of course, they did create inflation, just not the kind that could be reflected by CPI:

But the reason the markets went up and didn’t see through that is not because they believed this wasn’t an act of desperation (I think), but because there was just free money being handed out. It’s sort of like if you’re a drug addict, and you know at some point you’ll be clearheaded if you just get off the drugs and get your act together and move forwards, that’s one way to do it.

Or if someone is supplying you with lots of drugs then it just works and everything else, well then you’ll take them. And this is what happened. The Fed was that sort of supplier of last resort and a lender of last resort of capital for the market.

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

Nomi Prins: Collusion!

May 10, 2018

Nomi Prins: Collusion!

How central bankers rigged the world

Nomi Prins, Wall Street veteran turned financial industry reformist returns to the podcast this week to explain the findings within her new book Collusion: How Central Bankers Rigged The World.

Nomi has put together a timeline of exactly when and how the central banks have plundered the wealth of the masses since 2008, either directly or indirectly through the loss of purchasing power of the currencies they control:

The relationship between the Central Banks, the major ones — the Fed, Europe Central Bank, Bank of Japan — all the larger Central Banks in the world and their private banks was effectively, and is effectively, kept secret. The relationships they have with each other, a lot of it is secret; so you have to really dig in to it to find out what’s really going on.

What I did was dig into the documents that I could find and create a timeline. That’s why each chapter in each region starts in 2008. It works with Mexico, Brazil, Japan, China and Europe and juxtaposes that with what the Fed was doing at that time to see how that collusive behavior wound up happening. The secret-ness is in the relationships of the banks, where that money that was fabricated by these institutions actually went, and when — or if — it’s coming back.

The ‘cheat and deceiving’ part of that definition is also apparent: people have been cheated out of their futures from the standpoint of the central banks’ strategies. So when the Feds creates cheap money, companies and banks and countries borrow more from the future because it is so cheap and easy. This deceives many people into thinking that the economy is somehow therefore being helped by this strategy, which is in acutality an emergency strategy. It’s an emergency that’s gone on now for ten years.

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

Market Plummets if Global Central Banks Pull Plug – Nomi Prins

May 7, 2018

Market Plummets if Global Central Banks Pull Plug – Nomi Prins

Two time best-selling book author Nomi Prins says the rescue policies of the 2008 financial crisis are still with us today. Prins is out with a brand new book called “Collusion: How Central Bankers Rigged the World.” The enormity of our current global debt problem is caused by central bankers. Prins explains, “It is huge. The debt is between two and a half to three times global GDP, which is an historical high. Debt to GDP throughout the developed world is higher than it has ever been, and it continues to grow. Why? Because money continues to be conjured up and rendered cheap for the participants at the top of the financial system. The banks, the major corporations, the people who make money out of that, and it hasn’t washed down to the rest of the economy. This is why most people feel this anxiety about another potential financial crisis, but also about what happens every day in their own pocketbooks. So, it is worse. These central banks today, 10 years after the financial crisis occurred, that was supposed to be an emergency situation. They have $21 trillion worth of conjured money in return for debt assets, stocks and corporate bonds around the world. If they pulled that plug, if they were to take down any of the $21 trillion, even a little bit . . . it would begin to create a major rupture in the financial system. This is why I say the central banks are the market. Without them, the markets would be nowhere near these highs. If they pulled their help and subsidies, the market would plummet really quickly.”

Prins admits this has gone on for longer than most believed possible, but says it can’t go on forever. How does it all end?

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

Donald Trump and the Next Crash: Making the Fed an Instrument for Disaster

April 27, 2018

Donald Trump and the Next Crash: Making the Fed an Instrument for Disaster

Photo by futureatlas.com | CC BY 2.0

Warning: What you are about to read is not about Russia, the 2016 election, or the latest person to depart from the White House in a storm of tweets. It’s the Beltway story hiding in plain sight with trillions of dollars in play and an economy to commandeer.

While we’ve been bombarded with a litany of scandals from the Oval Office and the Trump family, there’s a crucial institution in Washington that few in the media seem to be paying attention to, even as President Trump quietly makes it his own. More obscure than the chambers of the Supreme Court, it’s a place where he has already made substantial changes. I’m talking about the Federal Reserve.

As the central bank of the United States, the “Fed” sets the financial tone for the global economy by manipulating interest rate levels. This impacts everyone, yet very few grasp the scope of its influence.

During times of relative economic calm, the Fed is regularly forgotten. But what history shows us is that having leaders who are primed to neglect Wall Street’s misdoings often sets the scene for economic dangers to come. That’s why nominees to the Fed are so crucial.

We have entered a landmark moment: no president since Woodrow Wilson (during whose administration the Federal Reserve was established) will have appointed as many board members to the Fed as Donald Trump. His fingerprints will, in other words, not just be on Supreme Court decisions, but no less significantly Fed policy-making for years to come — even though, like that court, it occupies a mandated position of political independence.

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

Four Flashpoints of Volatility

April 15, 2018

Four Flashpoints of Volatility

1 – Trade Wars Flashpoints, From China to Canada and Mexico

Wall Street has knee-jerk reactions to any trade war related headlines.

There are legitimate reasons to be concerned about trade wars. The world is increasingly more connected than ever. Many major American companies that are household names such as Starbucks (SBUX), Boeing (BA) and Apple (AAPL) rely on their exports (and imports) from China for a sizable portion of their overall sales and profits.

If China continues to retaliate against trade war policies from the U.S. with harsh measures of their own, it could hurt revenues of those firms.

But, here’s the latest revelation:

China wants to keep more of what it makes — in China — across a variety of sectors. Trade wars elevate the Chinese government’s desire to do that. The country has just recently launched a new $1.6 billion initiative called “Made in China 2025.”

The strategy entails an increase in research and development spending. That would cause Chinese companies to rely less on international technology and equipment. The more China buys internally, the less it will buy American products or need to export to the U.S.

What all of that could mean is that similar products in the U.S will become more expensive for consumers. That would hit directly at stock of those companies, making them more volatile.

While headlines from the White House continue to target China, our regional trading partners are undoubtedly some of the most important, and currently some of the most fragile.

To the north, Canada is playing up its optimism over NAFTA talks. Rhetoric is one thing, reality is another. It’s important to look at what institutions are doing, not what they’re saying.

Canada is currently enhancing its participation in several other trade agreements, including an updated Trans-Pacific Partnership that does not include the U.S. In the wake of Brexit, Canada has also made important trade links to both Europe and the U.K.

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

Why Trade Wars Will Unleash Central Banks

April 15, 2018

Why Trade Wars Will Unleash Central Banks

There’s been an abundance of coverage surrounding the recent steel and aluminum tariffs. Those measures could hurt more sectors than they help within the U.S. In particular, it could damage businesses that require metals because they’ll have to pay more for raw materials.

Trade wars also escalate geopolitical tensions and economic hardships the world over. They have in the past. When the U.S. imposed tariffs in the 1930’s to try to relieve the Great Depression at home, they achieved the opposite effect.

A global trade war flared, governments became isolated and initiated defensive build-ups. The move ultimately resulted in lower production, reduced global trade and a prolonged international depression that gave rise to WWII.

While the early Great Depression period in which President Hoover invoked harsh trade wars might be different than today, the threat of instability remains. What we saw then was a slowdown in the world economy that lead to regional aggressions and ultimately a world war.

The major differences now are that we have central banks financing markets — and by extension a military buildup.

Countries are better insulated today than they were in those days. By insulating themselves, they now have more choices about who their trading partners are, and what regional or multilateral agreements they enter.

That’s one reason China is championing regional trade agreements throughout Asia and the Pacific Rim, and inked bi-lateral deals with Japan and the EU last year. Those nations are growing less reliant on U.S. trade and, like good portfolio managers, are diversifying their trade partners.

The U.S. tariffs will likely accelerate this trend.

The tariffs, and super-regional build-ups, will also do something else. Trade wars will morph into an acceleration in global military spending. That’s because the tensions from trade wars have military ramifications.

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

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