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Over the past year, and certainly in the aftermath of the BOJ’s both perplexing and stunning announcement (as it revealed the central banks’ level of sheer desperation), we have warned (most recently “Negative Rates In The U.S. Are Next: Here’s Why In One Chart”) that next in line for negative rates is the Fed itself, whether Janet Yellen wants it or not. Today, courtesy of Wolf Richter, we find that this is precisely what is already in the small print of the Fed’s future stress test scenarios, and specifically the “severely adverse scenario” where we read that:

The severely adverse scenario is characterized by a severe global recession, accompanied by a period of heightened corporate financial stress and negative yields for short-term U.S. Treasury securities.

As a result of the severe decline in real activity and subdued inflation, short-term Treasury rates fall to negative ½ percent by mid-2016 and remain at that level through the end of the scenario.
And so the strawman has been laid. The only missing is the admission of the several global recession, although with global GDP plunging over 5% in USD terms, we wonder just what else those who make the official determination are waiting for.

Finally, we disagree with the Fed that QE4 is not on the table: it most certainly will be once stock markets plunge by 50% as the “severely adverse scenario” envisions, and once NIRP fails to boost economic activity, as it has failed previously everywhere else it has been tried, the Fed will promtply proceed with what has worked before, if only to make the true situation that much worse.

Until then, we sit back and wait.

Here is Wolf Richter with Negative Interest Rates Already in Fed’s Official Scenario

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

Interview With Dr. Emma Dawnay on the Swiss Referendum on Monetary Reform

February 1, 2016

INTERVIEW WITH DR EMMA DAWNAY ON THE SWISS REFERENDUM ON MONETARY REFORM

The following questions have been answered by Dr Emma Dawnay, on behalf of Monetäre Modernisierung, the organisation bringing the Swiss Sovereign Money Initiative (or Vollgeld-Initiative in German). The interviewer is The Cobden Centre Editor, Max Rangeley.

How does the current monetary system affect the economy?

In several ways. The most drastic way is that the current system is inherently unstable – giving rise to gradual unsustainable build ups of debt which can turn into financial crises, as we have seen in 2007/2008. This happens because money comes into circulation almost entirely by banks making loans. In Switzerland 90% of the money supply M1 has been lent into existence by banks, and only 10% comes from the Swiss National Bank. Banks base their decision on whether to give a loan on one criterion only: do they expect it to make a profit for them? They do not have to check they have sufficient reserves, nor do they take the health of the economy in general into account. The result is that they tend to make too many loans in the economic good times, and they tend to stop lending in the bad times when boom turns to bust, which means either too many or too few projects get funded. The trouble with a financial crash is that it doesn’t just affect financial industries, but the whole economy and society.

Another way the current monetary system affects the economy comes from the fact that it is much easier for a bank to lend money into existence against collateral – either financial or real estate assets – than to lend against a business plan. This means that the way money enters the economy is more likely to inflate asset prices than to generate jobs, goods and services.

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

Who Warned “Be Careful What You Wish For… If Interest Rates Go Negative”

January 31, 2016

Who Warned “Be Careful What You Wish For… If Interest Rates Go Negative”

Now that the Bank of Japan has joined other central banks such as Denmark, Sweden, the ECB, and Switzerland into pushing its rates into what until just two years ago was considered the monetary twilight zone below the zero bound, and in the process sending a record $5.5 trillion in government bond yields negative…

… which quickly puts into in context all the recent warnings about physical cash being eliminated (because as a reminder negative rates and cash simply can not coexist as the latter provides a ready immunity from the former), such as the following:

Perhaps the only open question is which comes first i) Japan hinting at a cash ban, or ii) the Fed going NIRP as well.

So in light of all this monetary lunacy, we have dug up the following blast from the not so distant past, which contains several rather dire warnings about the dystopian future of a NIRP world:

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.
I might even go to my bank and withdraw funds in the form of a certified check made payable to myself, and then put that check in a drawer.
If bank liabilities shifted from deposits to certified checks to a significant degree, banks might be less willing to extend loans, because certified checks are likely to be less stable than deposits as a source of funding.

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

Negative Interest Rates Show Desperation of Central Banks

January 30, 2016

Negative Interest Rates Show Desperation of Central Banks

Image: MarketWatch

Japan has joined the EU, Denmark, Switzerland and Sweden in imposing negative interest rates.

Indeed, more than a fifth of the world’s GDP is now covered by a central bank with negative interest rates.

The Wall Street Journal notes:

TOKYO—Japan’s central bank stunned the markets Friday by setting the country’s first negative interest rates, in a desperate attempt to keep the economy from sliding back into the stagnation that has dogged it for much of the last two decades.

BBC writes:

The country is desperate to increase spending and investment.

***

Japan has been desperate to boost consumer spending for years. At one point it even issued shopping vouchers to stimulate demand.

The New York Times writes:

Moving to negative rates reflects a measure of desperation on the part of central banks. Their traditional tools have been largely exhausted, as most countries’ interest rates have been pushed to almost nothing.

MarketWatch’s senior markets writer, William Watts, notes:

This might not be the sort of capitulation stock-market investors were anticipating.

The Bank of Japan’s surprise decision Friday to start charging depositors for parking excess reserves at the central bank triggered a global equity rally. But several monetary policy watchers and market strategists worried that the move was an acknowledgment that the world’s central banks are running out of ammunition in the battle against deflation.

“This is an interesting move that looks a lot more like desperation or novelty than it looks like a program meant to make a real difference,” said Robert Brusca, chief economist at FAO Economics.

Kit Juckes, global macro strategist at Société Générale, underlined the moment in a note to clients:

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

The Disturbing Reasons Why The Bank Of Japan Stunned Everyone With Negative Rates

January 29, 2016

The Disturbing Reasons Why The Bank Of Japan Stunned Everyone With Negative Rates

As we noted earlier, in a paradoxical U-turn, one which caught everyone by surprise as a result of Kuroda’s own promise just one week ago not to engage in NIRP…

… and two months after the ECB’s December 3 disappointing announcement led to a historic surge in the EUR, today countless macro hedge funds have been left reeling with huge losses once again, as many had recently turned bullish on the Yen…

… only to be eviscerated by the BOJ’s negative rates announcement.

So what happened? Reuters has an amusing take, one which we doubt many macro HFs will find quite entertaining:

Bank of Japan Governor Haruhiko Kuroda used classic shock tactics on Friday to push through his latest unconventional monetary policy of negative rates: deny, then strike.

The paradox, of course, is that by “striking”, Kuroda slammed precisely those who were meant to benefit the most from the BOJ’s action: financial institutions. To be sure, it is not just hedge funds who will be left reeling but Japanese banks themselves, because as a result of negative rates, their NIM will go horizontal and lead to even more pronounced losses, something European banks – such as Deutsche Bank – have discovered the hard way over the past year and a half.

There are other problems with the BOJ’s seemingly chaotic, if not panicked, decision: as Reuters adds, “a razor-thin 5-4 vote underscores the difficulty Kuroda had in winning enough board backing for his shock tactic, and illustrates the doubts among board members about the governor’s line that by sticking to a 2 percent inflation goal the BOJ can make people believe prices will rise.”

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

Helicopter Money Arrives: Switzerland To Hand Out $2500 Monthly To All Citizens

January 29, 2016

Helicopter Money Arrives: Switzerland To Hand Out $2500 Monthly To All Citizens

With Citi’s chief economist proclaiming “only helicopter money can save the world now,” and the Bank of England pre-empting paradropping money concerns, it appears that Australia’s largest investment bank’s forecast that money-drops were 12-18 months away was too conservative. While The Finns consider a “basic monthly income” for the entire population, Swiss residents are to vote on a countrywide referendum about a radical plan to pay every single adult a guaranteed income of around $2500 per month, with authorities insisting that people will still want to find a job.

The plan, as The Daily Mail reports, proposed by a group of intellectuals, could make the country the first in the world to pay all of its citizens a monthly basic income regardless if they work or not. But the initiative has not gained much traction among politicians from left and right despite the fact that a referendum on it was approved by the federal government for the ballot box on June 5.

Under the proposed initiative, each adult would receive $2,500 per months, and each child would also receive 625 francs ($750) a month.

The federal government estimates the cost of the proposal at 208 billion francs ($215 billion) a year.

Around 153 billion francs ($155 bn) would have to be levied from taxes, while 55 billion francs ($60 bn) would be transferred from social insurance and social assistance spending.

That is 30% of GDP!!!

The action committee pushing the initiative consists of artists, writers and intellectuals, including publicist Daniel Straub, former federal government spokesman Oswald Sigg and Zurich rapper Franziska Schläpfer (known as “Big Zis”), the SDA news agency reported. Personalities supporting the bid include writers Adolf Muschg and Ruth Schweikert, philosopher Hans Saner and communications expert Beatrice Tschanz. The group said a new survey showed that the majority of Swiss residents would continue working if the guaranteed income proposal was approved.

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

“The Level Of Alarm Is Extremely High” As Zika “Spreading Explosively” WHO Warns

January 28, 2016

“The Level Of Alarm Is Extremely High” As Zika “Spreading Explosively” WHO Warns

Meet the new Ebola.

Well over a year since the global fears over the Ebola epidemic sent US stocks reeling in late 2014 ahead of an even sharper rebound, today the head of the World Health Organization delivered a very stern warning when she said that the Zika virus, a mosquito-borne pathogen that may cause birth defects when pregnant women are infected, has been “spreading explosively” in South and Central America.

“The level of alarm is extremely high,” WHO director general Margaret Chan said Thursday in an e-mailed statement according to Bloomberg. Chan said she will convene an emergency meeting on Feb. 1 in Geneva to consider whether to declare the outbreak a “Public Health Emergency of International Concern,” which can coordinate government responses to direct money and resources at the virus. She added that the spread of the mosquito-borne disease had gone from a mild threat to one of alarming proportions.

Bloomberg adds that according to Chan researchers are working to determine the exact link between the virus and birth defects such as microcephaly, which causes babies to be born with abnormally small heads and potential developmental problems. “The possible links, only recently suspected, have rapidly changed the risk profile of Zika, from a mild threat to one of alarming proportions,” Chan told members of the WHO executive board in Switzerland.

One way in which the Zika virus is comparable to Ebola is that in both cases there is no vaccine and it could take years before one is available.

Another way the Ebola scenario could come back with a vengeance is that the WHO said that it expects the infection to eventually become common in the U.S. Travelers from countries with outbreaks have already been diagnosed on their return to America.

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

How The Rothschilds Made America Into Their Private Tax Fraud Backyard

January 27, 2016

How The Rothschilds Made America Into Their Private Tax Fraud Backyard

Back in September 2012 we first presented “the world’s biggest hedge fund nobody had ever heard of”: a small, previously unknown company called Braeburn Capital which, however, managed more cash than even Ray Dalio’s Bridgewater, the world’s largest hedge fund.

How had the little firm operating out of a non-descript office building in Nevada achieved this claim to fame? By managing the cash hoard (now well over $200 billion) of the world’s biggest and most valuable company: Apple.

But what was perhaps more notable is where Braeburn was physically located: Reno, Nevada.

We explained the company’s choice for location with one simple word: “taxes”, or rather the full, and very much legal, avoidance thereof.

Three and a half years later we encounter this quiet Nevada town once again, and once again it is Reno’s aura of tax evasion that brings is to the world’s attention courtesy of a Bloomberg report discussing “The World’s Favorite New Tax Haven.”

Only instead of Apple this time, the focus falls on a far more notorious company: the Rotschilds.

As Bloomberg writes, “last September, at a law firm overlooking San Francisco Bay, Andrew Penney, a managing director at Rothschild & Co., gave a talk on how the world’s wealthy elite can avoid paying taxes. His message was clear: You can help your clients move their fortunes to the United States, free of taxes and hidden from their governments. Some are calling it the new Switzerland.”

Ah, the rich irony: years after Obama single-handedly destroyed the secrecy-based Swiss banking model, the U.S. itself has taken over the role of the world’s biggest, if no longer very secret, tax haven, and the epicenter is this modest Nevada city located next to lake Tahoe, which has become the favorite city, if only for tax purposes, for such names as Apple and the Rothschild family.

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

How a Small Company in Switzerland Is Fighting a Surveillance Law — And Winning

January 25, 2016

How a Small Company in Switzerland Is Fighting a Surveillance Law — And Winning

Photo: ProtonMail

A small email provider and its customers have almost single-handedly forced the Swiss government to put its new invasive surveillance law up for a public vote in a national referendum in June.

“This law was approved in September, and after the Paris attacks, we assumed privacy was dead at that point,” said Andy Yen, co-founder of ProtonMail, when I spoke with him on the phone. He was referring to the Nachrichtendienstgesetzt (NDG), a mouthful of a name for a bill that gave Swiss intelligence authorities more clout to spy on private communications, hack into citizens’ computers, and sweep up their cellphone information.

The climate of fear and terrorism, he said, felt too overwhelming to get people to care about constitutional rights when people first started organizing to fight the NDG law. Governments around the world, not to mention cable news networks, have taken advantage of tragedy to expand their reach under the guise of protecting people, even in classically neutral Switzerland — without much transparency or public debate on whether or not increased surveillance would help solve the problem.

But thanks to the way Swiss law works — if you get together 50,000 signatures within three months of the law passing — you can force a nationwide referendum where every citizen gets a say.

“In Switzerland, and overseas, no one really thought to ask the people,” Yen said. “The public opinion, especially from the young people, has shifted to pro-privacy.”

By gathering its users and teaming up with political groups including the Green and Pirate parties, as well as technological and privacy advocates including Chaos Computer Club Switzerland and Digitale Gesellschaft Switzerland, ProtonMail was able to collect over 70,000 signatures before the deadline.

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

Chasing the Wild Goose in Davos

January 22, 2016

Chasing the Wild Goose in Davos

Despite the reformers endless efforts to encircle mankind, some persist beyond the broad extent of their casted net. In the backwaters of the new Republic, for instance, the distant rumble and flicker of Saturday night hootenannies still befall yonder the mighty oak groves.

In defiance of all things good and proper, the unconsecrated gather under the pale moonlight and jig step to zydeco washboard rhythms while downing tipples of corn syrup and fermented grain. These knees-ups certify that, even in this era of big government, there remain places in the lower forty-eight where freedom reigns.

Similarly, the backwoods of the old world, rare as they may be, have not been entirely defamed. Though old world songs are more rigid – and drinks more dry – there are still places where people come together with gusto, and without interference, to dance the polka around the maypole.

Across the planet, no doubt, there are still pockets of liberty where individuals can lawfully expel into toilet bowls that use more than 1.28 gallons per flush. These places are uniquely exceptional with their own distinct rhyme. But, in common, they’re all places where the air smells sweet, the water flows clean, and the people can hold their chin up.

Davos, Switzerland, located along Landwasser River, in the Swiss Alps, should be one of those places. But, alas, it is not. Sadly, for one week each year, corporate, political and academic reformers debase the wealthy enclave and ski resort for their annual hootenanny…the World Economic Forum.

Improving the State of the World

This week the big gathering went down. Although we didn’t receive an invitation this year – again – we won’t let that stop us from offering some reflections.

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

Can we afford the energy demands of “the fourth industrial revolution”? Don’t ask.

January 21, 2016

Can we afford the energy demands of “the fourth industrial revolution”? Don’t ask.

Are you wishing you could be at Davos, Switzerland this week, taking in the stimulating and deeply insightful discussions on the theme “The Fourth Industrial Revolution”? If so, reading the pre-conference book of the same name may leave you reassured that you aren’t actually missing much.

Klaus Schwab, founder and executive chairman of the World Economic Forum, released his Kindle book The Fourth Industrial Revolution just a few days ago, providing a free copy to Davos attendees. (That way they needn’t stretch their expense accounts to cover the $9.91 Kindle fee that the rest of us must pay.)

Schwab has doctorates in economics and engineering, plus a master’s in public administration from Harvard. And he says that The Fourth Industrial Revolution is “a crowd-sourced book, the product of the collective enlightened wisdom of the Forum’s communities.” If credentials alone would create a good book, this would be a humdinger.

What is the Fourth Industrial Revolution? In Schwab’s words,

today we are at the beginning of a fourth industrial revolution. It began at the turn of this century and builds on the digital revolution. It is characterized by a much more ubiquitous and mobile internet, by smaller and more powerful sensors that have become cheaper, and by artificial intelligence and machine learning.

Elsewhere he also throws genetic engineering and the editing of genomes into the mix.

While noting that billions of people have yet to “fully experience” the second and third industrial revolutions, Schwab believes that “the fourth industrial revolution will be every bit as powerful, impactful and historically important as the previous three.” In his view it’s not just likely but inevitable that “major technological innovations are on the brink of fuelling momentous change throughout the world.”

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

We Know How This Ends, Part 2

January 20, 2016

We Know How This Ends, Part 2

In March 1969, while Buba was busy in the quicksand of its swaps and forward dollar interventions, Netherlands Bank (the Dutch central bank) had instructed commercial banks in Holland to pull back funds from the eurodollar market in order to bring up their liquidity positions which had dwindled dangerously during this increasing currency chaos. At the start of April that year, the Swiss National Bank (Swiss central bank) was suddenly refusing its own banks dollar swaps in order that they would have to unwind foreign funds positions in the eurodollar market. The Bank of Italy (the Italian central bank) had ordered some Italian banks to repatriate $800 million by the end of the second quarter of 1969. It also raised the premium on forward lire at which it offered dollar swaps to 4% from 2%, discouraging Italian banks from engaging in covered eurodollar placements.

The “rising dollar” of 1969 had somehow become anathema to global banking liquidity even in local terms.

The FOMC, which had perhaps the best vantage point with which to view the unfolding events, documented the whole affair though stubbornly and maddeningly refusing to understand it all in greater context of radical paradigm banking and money alterations. In other words, the FOMC meeting MOD’s for 1968 and 1969 give you an almost exact window into what was occurring as it occurred, but then, during the discussions that followed, degenerating into confusion and mystification as these economists struggled to only frame everything in their own traditional monetary understanding – a religious-like tendency that we can also appreciate very well at this moment.

At the April 1969 FOMC meeting, Charles A. Coombs, Special Manager of the System Open Market Account, reported that the bank liquidity issue then seemingly focused on Germany was indeed replicated in far more countries.

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

We Know How This Ends, Part 1

January 20, 2016

We Know How This Ends, Part 1

The finance ministers and representatives of central banks from the world’s ten largest “capitalist” economies gathered in Bonn, West Germany on November 20, 1968. The global financial system was then enthralled by a third major currency crisis of the past year or so and there was great angst and disagreement as to what to do about it. While sterling had become something of a recurring devaluation tendency and francs perpetually, it seemed, in disarray, this time it was the Deutsche mark that was the great object of conjecture and anger. What happened at that meeting, a discussion that lasted thirty-two hours, depends upon which source material you choose to dissect it. From the point of view of the Germans, it was a convivial exchange of ideas from among partners; the Americans and British, a sometimes testy and perhaps heated debate about clearly divergent merits; the French were just outraged.

The communique issued at the end of the “conference” only said, “The ministers and governors had a comprehensive and thorough exchange of views on the basic problems of balance-of-payments disequilibria and on the recent speculative capital movements.” In reality, none of them truly cared about the former except as may be controlled by the latter. These “speculative capital movements” became the target of focused energy which would not restore balance and stability but ultimately see the end of the global monetary system.

Some background is needed before jumping into West Germany’s financial energy. The gold exchange standard under the Bretton Woods framework had appeared to have lasted as far as this monetary conference, but it had ended in practicality long before. In the late 1950’s, central banks, the Federal Reserve primary among them, had rendered gold especially and increasingly irrelevant in settling the world’s trade finance.

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

“For the Sake of Capitalism, Pepper Spray Davos”

January 20, 2016

“For the Sake of Capitalism, Pepper Spray Davos”

Yra Harris just posted a blistering critique of the crony capitalist crooks congregating in Davos. The first few paragraphs of his post, For the Sake of Capitalism, Pepper Spray Davos, are a must read.

Enjoy.

Please, PEPPER SPRAY ALL THE ATTENDEES OF DAVOS in order to halt the rape of taxpayers and consumers across the globe. This annual conclave is responsible for more wealth destruction and the widening disparity in GINI coefficients than any public policy. I believe that the cost of attending Davos is priced at such an extravagant rate because it is a giant insider scam. Hobnob with politicians and policy makers in an effort to be part of the “smart money” crowd. It was the great moral philosopher and economist Adam Smith who so presciently noted: “People of the same trade seldom meet together, even for the merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” The conspiracy against the public has been the financial repression of the global middle class in an effort to bail out those who are attached themselves to the public treasury to maintain the “animal spirits” of crony capitalism.

The cost of an entrance pass to this private/public congress of mover and shakers should sound an alarm to all those who desire transparency in financial markets. In contemporizing the words of Adam Smith, Samuel Huntington was credited in the online research cite, Acton Commentary, as creating the phrase DAVOS MAN: “A soulless man, technocratic, nationless and cultureless, severed from reality. The modern economics that undergirded Davos capitalism is equally soulless, a managerial capitalism that reduces economics to mathematics and separates it from human action and human creativity.”

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

Davos – The Collapse in TRUST

January 20, 2016

Davos – The Collapse in TRUST

The most telling sign that we are heading into a real political economic shit storm is the fact that “TRUST” is collapsing on all sides. Obama is looking for any opportunity to disarm Americans. Why? This is simply because government is in trouble and they no longer “trust” the people. Likewise, the “rich” are starting to withdraw their money from investments that would create jobs because they are worried about the rising discontent among the majority of the population. Then we have the collapse in “trust” among anyone who is a career politician. So welcome to the theme of Davos — the collapse in “trust”.

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