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The Federal Reserve continues to tighten and other Central Banks will follow
The BIS expects stocks to lose their lustre and bond yields to rise
The normalisation process will be protracted, like the QE it replaces
Macro prudential policy will have greater emphasis during the next boom

As financial markets adjust to a new, higher, level of volatility, it is worth considering what the Central Banks might be thinking longer term. Many commentators have been blaming geopolitical tensions for the recent fall in stocks, but the Central Banks, led by the Fed, have been signalling clearly for some while. The sudden change in the tempo of the stock market must have another root.

Whenever one considers the collective views of Central Banks it behoves one to consider the opinions of the Central Bankers bank, the BIS. In their Q4 review they discuss the paradox of a tightening Federal Reserve and the continued easing in US national financial conditions. BIS Quarterly Review – December 2017 – A paradoxical tightening?:-

Overall, global financial conditions paradoxically eased despite the persistent, if cautious, Fed tightening. Term spreads flattened in the US Treasury market, while other asset markets in the United States and elsewhere were buoyant…

Chicago Fed’s National Financial Conditions Index (NFCI) trended down to a 24-year trough, in line with several other gauges of financial conditions.

The authors go on to observe that the environment is more reminiscent of the mid-2000’s than the tightening cycle of 1994. Writing in December they attribute the lack of market reaction to the improved communications policies of the Federal Reserve – and, for that matter, other Central Banks. These policies of gradualism and predictability may have contributed to, what the BIS perceive to be, a paradoxical easing of monetary conditions despite the reversals of official accommodation and concomitant rise in interest rates.

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

BIS Publishes A “Simplified” Map Of China’s Shadow Banking System

February 12, 2018

BIS Publishes A “Simplified” Map Of China’s Shadow Banking System

While China’s shadow banking sector may have been tamed in the past year as a result of an aggressive crackdown by Beijing over the unregulated, gray-market in high interest lending and especially Wealth Management Products or WMPs, it, it still retains an aura of incomprehensibility – and thus fascination – to most market watchers.

Still, while growth of shadow credit to ultimate borrowers has slowed, the use of shadow saving instruments (eg wealth management products, trust products) has continued to expand at a fast pace. New and more complex “structured” shadow credit intermediation aimed at reducing banks’ regulatory burden has emerged and quickly reached a large scale. Meanwhile, the bond market has become highly dependent on funding channeled through wealth management products. As a result, Chinese shadow banking is becoming slightly more similar to US shadow banking.

To help China watchers in their analysis of China’s financial underworld, overnight the Bank of International Settlements published a working paper mapping China’s shadow banking sector, which studies the “structure of the shadow banking system in China, focusing on the main activities and linkages with the formal banking sector.”

As the BIS explains in its abstract:

We develop a stylised shadow banking map for China with the aim of providing a coherent picture of its structure and the associated financial system interlinkages. Five key characteristics emerge. One defining feature of the shadow banking system in China is the dominant role of commercial banks, true to the adage that shadow banking in China is the “shadow of the banks”. Moreover, it differs from shadow banking in the United States in that securitisation and market-based instruments play only a limited role. With a series of maps we show that the size and dynamics of shadow banking in China have been changing rapidly.

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

Is Cryptocurrency a Ponzi Scheme?

February 9, 2018

Is Cryptocurrency a Ponzi Scheme?

Just three weeks ago Bitconnect announced it was shutting down after being accused of running a Ponzi scheme. Techcrunch chronicles Bitconnect’s decline noting how the term “pyramid scheme” was not an unfair assessment as to what was going on:

“Bitconnect was an anonymously-run site where users could loan their cryptocurrency to the company in exchange for outsized returns depending on how long the loan was for. For example, a $10,000 loan for 180 days would purportedly give you ~40% returns each month, with a .20% daily bonus. Bitconnect also had a thriving multi-level referral feature, which also made it somewhat akin to a pyramid scheme with thousands of social media users trying to drive signups using their referral code.”

Typically a Ponzi scheme is characterized by first by promising large, unrealistic returns such as the ~40% monthly return. The promise of these sorts of returns largely regarded as both suspicious and impossible, even under even the most aggressive market conditions.

Another point of critique aimed at Bitconnect was the fact that those who sign up for its service are encouraged to share its affiliate marketing and affiliate links. If you look online for any discussion of BitConnect you will find the comments riddled with affiliate links. The reason for this is that those who spread the affiliate links were allegedly to be rewarded with higher returns on their original deposit if the link they posted is later used to sign up a new customer. Best Bitcoin Exchange chronicles how one user is reported to have lost over $400,000 in the demise of Bitconnect. And many others have made a legal challenge in a class-action lawsuit about their losses in this market.

All this, however, begs the question that many of us have been asking for some time: are cryptocurrencies an elaborate Ponzi scheme?

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

World Dollar Debt up 5.2% – World Euro Debt Up 10.5%

January 27, 2018

World Dollar Debt up 5.2% – World Euro Debt Up 10.5%

The Bank for International Settlements (BIS) has reported exactly what we have been warning about – the explosion in dollar-denominated debt outside the USA which means a rise in the dollar will see a massive debt crisis. The total volume of US dollar-denominated debt outside the US increased significantly. The BIS reported that the volume of dollar debt of sovereigns and non-financial corporations has risen by 5.2% between September 2016 and September 2017, to around $9 trillion. Euro debt increased even more by 10.5% rising to €2.9 trillion euros. Liabilities denominated in Japanese yen rose 3.3% to ¥48.3 trillion yen.

World faces wave of epic debt defaults, fears central bank veteran

November 23, 2017

World faces wave of epic debt defaults, fears central bank veteran

Exclusive: Situation worse than it was in 2007, says chairman of the OECD’s review committee

The next task awaiting the global authorities is how to manage debt write-offs without setting off a political storm Photo: Rex

The global financial system has become dangerously unstable and faces an avalanche of bankruptcies that will test social and political stability, a leading monetary theorist has warned.

“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up,” said William White, the Swiss-based chairman of the OECD’s review committee and former chief economist of the Bank for International Settlements (BIS).

“Emerging markets were part of the solution after the Lehman crisis. Now they are part of the problem, too.”
William White, OECD

“Debts have continued to build up over the last eight years and they have reached such levels in every part of the world that they have become a potent cause for mischief,” he said.

“It will become obvious in the next recession that many of these debts will never be serviced or repaid, and this will be uncomfortable for a lot of people who think they own assets that are worth something,” he told The Telegraph on the eve of the World Economic Forum in Davos.

“The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly. Debt jubilees have been going on for 5,000 years, as far back as the Sumerians.”

The next task awaiting the global authorities is how to manage debt write-offs – and therefore a massive reordering of winners and losers in society – without setting off a political storm.

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

The Big Reversal: Inflation and Higher Interest Rates Are Coming Our Way

November 6, 2017

The Big Reversal: Inflation and Higher Interest Rates Are Coming Our Way

This interaction will spark a runaway feedback loop that will smack asset valuations back to pre-bubble, pre-pyramid scheme levels.

According to the conventional economic forecast, interest rates will stay near-zero essentially forever due to slow growth. And since growth is slow, inflation will also remain neutral.

This forecast is little more than an extension of the trends of the past 30+ years: a secular decline in interest rates and official inflation, which remains around 2% or less. (As many of us have pointed out for years, the real rate of inflation is much higher–in the neighborhood of 7% annually for those exposed to real-world costs.)

The Burrito Index: Consumer Prices Have Soared 160% Since 2001 (August 1, 2016)

Inflation Isn’t Evenly Distributed: The Protected Are Fine, the Unprotected Are Impoverished Debt-Serfs (May 25, 2017)

About Those “Hedonic Adjustments” to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service (October 11, 2017)

Be Careful What You Wish For: Inflation Is Much Higher Than Advertised (October 5, 2017)

Apparently unbeknownst to conventional economists, trends eventually reverse or give way to new trends. As a general rule, whatever fundamentals are pushing the trend decay or slide into diminishing returns, and new dynamics arise that power a new trend.

I’ve often referred to the S-Curve as one model of how trends emerge, strengthen, top out, weaken and then fade. Trends often change suddenly, as in the phase-shift model, in which the status quo appears stable until hidden instabilities cause the entire “permanent and forever” status quo to collapse in a heap.

The Bank for International Settlements (BIS) recently issued a report claiming that Demographics will reverse three multi-decade global trends. Here’s a precis of the case for a globally aging populace and a shrinking workforce to reverse the downward trends in inflation and interest rates: New Study Says Aging Populations Will Drive Higher Interest Rates (Bloomberg)

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

BIS Finds Global Debt May Be Underreported By $14 Trillion

September 17, 2017

BIS Finds Global Debt May Be Underreported By $14 Trillion

In its latest annual summary published at the end of June, the IIF found that total nominal global debt had risen to a new all time high of $217 trillion, or 327% of global GDP…

… largely as a result of an unprecedented increase in emerging market leverage.

While the continued growth in debt in zero interest rate world is hardly surprising, what was notable is that debt within the developed world appeared to have peaked, if not declined modestly in the latest 5 year period. However, it now appears that contrary to previous speculation of potential deleveraging among EM nations, not only was this conclusion incorrect, but that developed nations had been stealthily piling on just as much debt, only largely hidden from the public eye, in the form of swaps and forwards.

* * *

The BIS then provides substantial background data on who, where and how uses FX swaps (as both a lender and borrower), as well as where this “missing debt” can be found when looking away from the balance sheet. Here are the details:

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

Former BIS Chief Economist Warns “More Dangers Now Than In 2007”

September 13, 2017

Former BIS Chief Economist Warns “More Dangers Now Than In 2007”

Having warned in the past that “the system is dangerously unacnhored,” former chief economist of the Bank for International Settlements, William White, told Bloomberg TV overnight that the current situation “looks very similar to 2008,” adding that OECD sees “more dangers” today than in 2007.

The chairman of Economic and Development Review Committee at OECD, warned that prices are very high – in particular for high yield assets, VIX is very low, house prices are rising strongly, equity markets rising, and all these are a source of concern.

Additionally, White noted:

India’s debt problems go back a long way, and there are significant governance issues, including at state-owned banks.
China’s debt situation isn’t a lot different to India’s, but the acceleration of loans and credit growth in China is very fast
It’s not just the debt level in China that is worrisome, but the speed that it’s accumulating; maybe some of these loans won’t be repaid or serviced.
We don’t have a liquidity problem that central banks can solve – if we have too much debt, we have a debt resolution or insolvency problem and only governments can address problems like that.
World needs more fiscal expansion, structural reforms, and also have to look closely at debt write-off some of it and maybe recapitalize financial institutions.
We have got the mix of income that goes to capital versus labor wrong in many countries, and we need to look at that.
Central bank tightening is inevitable, but have to be careful.

“it is every man for himself. And we do not know what the long-term consequences of this will be,”

and it appears to be getting worse.

Whose Banks Are Riskiest: A Surprising Answer From The BIS

March 8, 2017

Whose Banks Are Riskiest: A Surprising Answer From The BIS

When one thinks of unstable, risky banking systems, the first thing that comes to mind are visions of insolvent, state-backed building – with or without long ATM lines – in China, Greece, Italy or, in recent times, Germany. However, according to the most recent report by the Bank for International Settlements, the country with the riskiest banking system is neither of these, and is a rather “unusual suspect.”

As part of its latest quarterly report, the BIS looked at highlights of global financial flows, and found that after a modest slowdown in 2015, growth in both claims and international denominated debt securities resumed its rise in 2016, leaving banks even more exposed as counterparties to international issuers, especially should the world hit another “Dollar margin call” situation, where borrowers are unable to make payments on their obligations due to a surge in the global reserve currency.

However, cross-border international debt flows is just one aspect of bank riskiness. As part of a separate excercise profiling the domestic banking systems of some of the most prominent Developed and Emerging nations, the BIS looked at four distinct “risk” or crisis early warning indicators: i) Credit-to-GDP gap, or the difference in the current ratio from the long-run trend; ii) Property Price Gap, or the deviation of real residential property prices from their long-run trend, iii) Debt Service Ratio (DSR), which also is the deviation in the current DSR from the long-run average, and finally iv) DSR assuming a 2.50% increase in interest rates.

What it found is that the early warning indicators for financial crises continue to signal vulnerabilities in several jurisdictions. Here is what it found:

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

The Bank For International Settlements Warns That A Major Debt Meltdown In China Is Imminent

September 23, 2016

The Bank For International Settlements Warns That A Major Debt Meltdown In China Is Imminent

The pinnacle of the global financial system is warning that conditions are right for a “full-blown banking crisis” in China. Since the last financial crisis, there has been a credit boom in China that is really unprecedented in world history. At this point the total value of all outstanding loans in China has hit a grand total of more than 28 trillion dollars. That is essentially equivalent to the commercial banking systems of the United States and Japan combined. While it is true that government debt is under control in China, corporate debt is now 171 percent of GDP, and it is only a matter of time before that debt bubble horribly bursts. The situation in China has already grown so dire that the Bank for International Settlements is sounding the alarm…

A key gauge of credit vulnerability is now three times over the danger threshold and has continued to deteriorate, despite pledges by Chinese premier Li Keqiang to wean the economy off debt-driven growth before it is too late.

The Bank for International Settlements warned in its quarterly report that China’s “credit to GDP gap” has reached 30.1, the highest to date and in a different league altogether from any other major country tracked by the institution. It is also significantly higher than the scores in East Asia’s speculative boom on 1997 or in the US subprime bubble before the Lehman crisis.

Studies of earlier banking crises around the world over the last sixty years suggest that any score above ten requires careful monitoring.

If you are not familiar with the Bank for International Settlements, just think of it as the capstone of the worldwide financial pyramid. It wields enormous global power, and yet it is accountable to nobody.

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

Canadian Housing Bubble, Debt Stir Financial Crisis Fears

September 23, 2016

Canadian Housing Bubble, Debt Stir Financial Crisis Fears

Their bone-chilling chart.

Everyone is fretting about the Canadian house price bubble and the mountain of debt it generates – from the IMF on down to the regular Canadian. Now even the Bank for International Settlement (BIS) and the Organization for Economic Co-operation and Development (OECD) warn about the risks.

Every city has its own housing market, and some aren’t so hot. But in Vancouver and Toronto, all heck has broken loose in recent years.

In Vancouver, for example, even as sales volume plunged 45% in August from a year ago – under the impact of the new 15% transfer tax aimed at Chinese non-resident investors – the “benchmark” price of a detached house soared by 35.8%, of an apartment by 26.9%, and of an attached house by 31.1%. Ludicrous price increases!

In Toronto, a similar scenario has been playing out, but not quite as wildly. In both cities, the median detached house now sells for well over C$1 million. Even the Bank of Canada has warned about them, though it has lowered rates last year to inflate the housing market further – instead of raising rate sharply, which would wring some speculative heat out of the system. But no one wants to deflate a housing bubble.

During the Financial Crisis, when real estate prices in the US collapsed and returned, if only briefly, to something reflecting the old normal, Canadian home prices barely dipped before re-soaring. And this has been going on for years and years and years.

The OECD in its Interim Economic Outlook warned:

Over recent years, real house prices have been growing at a similar or higher pace than prior to the crisis in a number of countries, including Canada, the United Kingdom, and the United States. The rise in real estate prices has pushed up price-to-rent ratios to record highs in several advanced economies.

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

What Will The Global Economy Look Like After The ‘Great Reset’?

May 14, 2016

What Will The Global Economy Look Like After The ‘Great Reset’?

A very common phrase used over the past couple years by the International Monetary Fund’s Christine Lagarde as well as other globalist mouthpieces is the “global reset.” Very rarely do these elites ever actually mention any details as to what this “reset” means. But if you take a look at some of my past analysis on the economic endgame, you will find that they do, on occasion, let information slip which gives us a general picture of where they prefer the world be within the next few years or even the next decade.

A few goals are certain and openly admitted. The globalists ultimately want to diminish or erase the U.S. dollar as the world reserve currency. They most definitely are seeking to establish the International Monetary Fund’s Special Drawing Rights basket system as a replacement for the dollar system; this plan was even outlined in the Rothschild run magazine The Economist in 1988. They want to consolidate economic governance, moving away from a franchise system of national central banks into a single global monetary authority, most likely under the IMF or the Bank for International Settlements. And, they consistently argue for the centralization of political power in the name of removing legislative and sovereign barriers to safer financial regulation.

These are not “theories” of fiscal change, these are facts behind the globalist methodology. When the IMF mentions the “great global reset,” the above changes are a part of what they are referring to.

That said, much of my examinations focus on these macro-elements; but what about the deeper mechanics of the whole scheme? What kind of economic system would we wake up to on a daily basis IF the globalists get exactly what they want? This is an area in which the elites rarely ever comment, and I can only offer hypothetical scenarios.

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

Japan Prints Additional ¥10,000 Bills As People Scramble To Stash Away Cash

April 7, 2016

Japan Prints Additional ¥10,000 Bills As People Scramble To Stash Away Cash

Long before negative interest rates shifted from the monetary twilight zone into the mainstream (with some 30% of global government bonds now trading with a subzero yield), one organization wrote a report warning about the dangers of NIRP. The NY Fed. Back in 2012, NY Fed staffers wrote “If Interest Rates Go Negative . . . Or, Be Careful What You Wish For” it warned “if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances.”

Then, last October, Bank of America looked at the savings rates across European nations which had implemented NIRP and found something disturbing: instead of achieving what what central banks had expected, it was leading to precisely the opposite outcome: “household savings rates have also risen. For Switzerland and Sweden this appears to have happened at the tail end of 2013 (before the oil price decline). As the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain.”

The evidence:

Which was to be expected by most people exhibiting common sense: NIRP by definition is deflationary, and as such as prompts consumers to delay consumption, and as a result to save as much as possible, if not in the banks where their savings may soon be taxed under NIRP regimes, then in cash.

And nowhere if the failure of NIRP – and unconventional monetary policy in general – more evident than what just happened in Japan, where according to Japan Times, the Finance Ministry plans to increase the number of ¥10,000 bills in circulation, amid signs that more people are hoarding cash.

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

Central Bank Economists: Bad Central Bank Policy Is INCREASING Inequality

March 11, 2016

Central Bank Economists: Bad Central Bank Policy Is INCREASING Inequality

While the leaders of the Fed and other central banks claim that their extraordinary monetary policies haven’t significantly increased inequality, economists with the world’s most prestigious financial agency, the Bank of International Settlements – known as “the Central Banks’ Central Bank” – just released a report showing otherwise.

BIS notes:

Our simulation suggests that wealth inequality has risen since the Great Financial Crisis. While low interest rates and rising bond prices have had a negligible impact on wealth inequality, rising equity prices have been a key driver of inequality …. Monetary policy may have added to inequality to the extent that it has boosted equity prices.

***

Inequality is back in the international economic policy debate. Evidence of a growing dispersion of income and wealth within major advanced and emerging market economies (EMEs) has sparked discussions about its economic consequences. Although there is no consensus on the relationship between inequality and growth, there are concerns that rising inequality may become a serious economic headwind. [Right.]

***

Moreover, the faster rise in remuneration at the very top of the income distribution relative to wage growth in the lower percentiles has been linked both to the rapid growth of the financial sector since the 1980s [correct] and to changes in the social norms that contribute to the determination of executive pay (Piketty (2014)).

***

The share of securities holdings, equity in particular, tends to be even higher at the top 5% or 1% of the distribution. [Obviously.]

Conversely, housing accounts for a higher share in the lowest net wealth quintile, for which low net wealth is in many cases a reflection of high levels of mortgage debt. In a number of cases, net wealth is negative, suggesting that liabilities, in the form of mortgage, consumer and other debt, exceed assets.

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

Secret Monetary Group Warns a Catastrophe Is Coming

March 10, 2016

Secret Monetary Group Warns a Catastrophe Is Coming

This is just the tip of the iceberg.

The Bank for International Settlements is nothing if not obscure. As the central bankers’ bank, it seems little-more than a back-door, private club for monetary elites to rub shoulders. And it’s located in Switzerland which has always carried a reputation for financial secrecy.

Then it has this going for it – John Keynes of “Keynesian economic theory” opposed its dissolution back in the 1940s. His was the kind of thinking that has largely influenced central banks to hijack our economies with manipulative monetary policies! So you’d probably think I hate these guys.

But you’ve got to give credit where credit is due. The Bank for International Settlements is one of the few financial institutions that warned of dangers to the global financial system as early as 2003.

So by time the financial crisis struck, they’d been warning about it for years. Its former chief economist, William White, even dared to challenge former Fed Chair Alan Greenspan about cheap money policies that helped start the crisis!

Once again, this group is on the right side of history.

It just warned about a “gathering storm” in the global economy as central banks seem to be running out of options. They’ve seen right through this “recovery” and warned that unprecedented debt levels would put the world economy in worse shape than before the 2008 crash.

Because like with any addiction, there is a point where increased stimulus just doesn’t work anymore.

Just this week, China reported a 25.4% year-over-year decline in exports, despite continued strong economic stimulus from the government. Now, they simply pledge more stimulus like every central bank in the world.

Then there’s Japan, whose economy remains in a coma after the most aggressive QE of all developed nations. Four of the last seven quarters have been negative, including the fourth quarter of 2015.

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

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